Eagle Hospitality's hotel managers issue default notices to sponsor; FTI hired for restructuring

Singapore

THE managers of Eagle Hospitality Trust (EHT) on Friday disclosed that the master lessees for 16 of its 18 hotels have received notices of default from the relevant hotel managers under their hotel management agreements (HMAs).

This was because the master lessees - under EHT's sponsor Urban Commons - did not provide and/or maintain sufficient working capital for the hotels' operations. There were also additional defaults resulting from their failure to pay management fees and/or to make funds available to pay hotel operating expenses.

The 16 hotels include The Queen Mary Long Beach, The Westin Sacramento and Sheraton Pasadena.

Moreover, of the 16, five hotel managers have sent termination notices on April 16 to their master lessees as they failed to cure their default of maintaining sufficient working capital for the hotels' operations.

If the five master lessees do not cure the defaults within the applicable cure periods, the hotel managers will terminate their HMAs.

The EHT managers said they are confident the inherent value of the properties in EHT's portfolio is not significantly affected by the master lessees' alleged defaults. The managers are also "working hard towards preserving the value of the properties in these difficult circumstances".

If true, the alleged HMA defaults would also constitute a breach of the respective master lease agreements (MLA) by the master lessees. The MLAs were entered into with the master lessors - Eagle Hospitality Reit (EH-Reit) subsidiaries that own each underlying EHT property. EH-Reit is one part of stapled group EHT.

The master lessors in the meantime reserve all rights against the master lessees under the MLAs, and the master lessees remain obliged to fulfil their obligations under the MLAs.

Meanwhile, EHT's managers and the real estate investment trust (Reit) trustee, DBS Trustee, have appointed FTI Consulting to assist in the restructuring process for the stapled hospitality group. Alan Tantleff and Nicholas Gronow from the advisory firm were thus named joint chief restructuring officers of the EHT managers, covering the US and Singapore respectively.

FTI will continue negotiations with the lenders of EHT's US$341 million syndicate loan with a view to restructuring the debt facilities. Last month, the managers disclosed they had received a demand for the immediate repayment of that loan from Bank of America, the administrative agent for the syndicate of lenders. The lenders have since restricted access to several bank accounts of the Reit and the master lessees, which had been provided as collateral for the loan, EHT's managers said on Monday.

FTI will also evaluate the strategies to be undertaken to preserve the value of EHT's portfolio for the benefit of holdes of the stapled security, particularly amid the Covid-19 pandemic, and having regard to the master lessees' defaults under the hotel management notices.

To determine the viability of the MLAs, the advisory firm will evaluate income, expenses, cash and profitability at the master lessee level. It will also evaluate the unpaid rent by the master lessees to EHT, and the impact on the portfolio from the master lesses' further defaults in relation to the HMA default notices and the potential termination of the HMAs.

Mortgage default

The EHT managers also said on Friday that they received a notice of default and demand for payment in relation to another loan - a US$35 million mortgage in respect of Delta Hotels by Marriott Woodbridge, one of EHT's 18 hotels, provided by Wells Fargo National Association on May 21, 2019.

Wells Fargo sent an April 18 notice identifying multiple events of default, which included the non-payment by the borrower - an EH-Reit subsidiary - of several sums for the month of March 2020 which were due on April 1, 2020. These unpaid sums are: the monthly interest accrued on the loan and the respective principal amount of the loan; the monthly real estate tax deposit; and the monthly deposit for the costs and expenses to replace and maintain furniture, furnishings and fixtures at the Delta Woodbridge hotel.

Wells Fargo has exercised its right to cause the loan to bear interest at the default rate calculated from April 1, 2020, and also demanded the payment in full of all amounts currently due and payable under the mortgage.

The EHT managers said they are assessing the implications of the Wells Fargo notice, and have been in discussions with the lender.

As for the HMA notices, the managers and DBS Trustee, with the assistance of the FTI chief restructuring officers and legal counsel, are assessing the impact of the alleged HMA defaults and the Covid-19 crisis in the US on the operations of the underlying properties. They are also looking into the appropriate steps to manage and minimise the consequent risks.

In compliance with the Monetary Authority of Singapore's (MAS) April 20 directive, EHT's managers and DBS Trustee will continue to work together to implement further and enhanced measures over accounts and payment processes, they said on Friday. MAS and the Singapore Exchange Regulation had directed them to take steps to protect the rights and interests of unitholders.

Meanwhile, EH-Reit's manager has told its own shareholders to comply with the MAS directive to restore its minimum base capital and financial resources in accordance with regulatory requirements.

Stapled securities of EHT have been suspended since March 24.