EH-Reit gets court nod to sell 14 properties for US$481.9m; all objections overruled

EAGLE Hospitality Reit (EH-Reit), which is a part of the beleaguered Eagle Hospitality Trust (EHT), has obtained approval from the United States Bankruptcy Court in the District of Delaware to sell off 14 properties of the debtor companies for a total price of US$481.9 million.

This translates to a net increase of US$24.8 million in the aggregate consideration for the properties compared to the amount that would have been raised from the stalking horse bid on its own. The completion of the sale of these 14 properties is expected to take place in June.

The approval comes after Christopher Sontchi, a bankruptcy judge in the District of Delaware, overruled the objections filed against the sale of these properties, said EHT's trustee, DBS Trustee, in a bourse filing on Tuesday.

Constellation Hospitality Group (CHG) - an entity owned in part by EHT's former directors Howard Wu and Taylor Woods, as well as other undisclosed investors - had filed an objection to the sale motion on May 24. Mr Wu and Mr Woods are also co-founders of Urban Commons, the sponsor of EHT.

Last week, Urban Commons Queensway (UCQ), one of the debtor companies within the EHT stable and the owner of The Queen Mary in Long Beach, had filed a motion for a preliminary injunction to freeze sufficient funds of Mr Wu and Mr Woods to recover US$2.4 million.

Court documents filed on behalf of UCQ in the US on May 24 alleged that Mr Wu and Mr Woods applied for and obtained a US$2.4 million loan last year on behalf of UCQ under the US Cares Act's Paycheck Protection Programme (PPP).

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CHG put forth that the proposed sale transaction with the successful bidders did not maximise value for the estates of the Chapter 11 entities. CHG also said it aims to be in a position to present a revised Chapter 11 plan bid to the debtor entities and the court in advance of the sale hearing.

In addition, CHG had also requested that the court deny the sale motion and adjourn the sale hearing.

Apart from CHG, the ad-hoc committee of stapled securityholders had also filed an objection to the sale motion, stating that the hearing should be postponed to June 1 in order to "realise the benefits of a potential future bid" by CHG.

The debtor companies had highlighted several concerns with CHG's bid that was submitted under the second round of the process.

For instance, the deposit in CHG’s bid constituted less than 10 per cent of the proposed purchase price, which is a requirement under the bidding procedures. The proposed funding sources for the bid were also allegedly uncertain and non-binding, and failed to provide a stock purchase agreement that is required by bidding procedures.(see Amendment note)

At the sale hearing which took place on May 28, both sets of objections by the entity controlled by Mr Wu and Mr Woods, as well as the ad-hoc committee, were overruled by the court. Requests to postpone the sale hearing were also denied.

The court said the results of the auction represented the "best deal that was reasonably achievable under the circumstances", and noted that neither party with objections had shown that the bid by CHG represented a better deal.

The "numerous contingencies" in CHG's financing proposal, and the proposed three-day delay, would put the debtor companies and their creditors at "significant risk" of losing the bids obtained at the auction, said the court.

The court also overruled all other objections to the sale, including the objection filed by certain entities related to ASAP Holdings that asserted an ownership interest in a parcel of land adjacent to the Hilton Atlanta Northeast hotel.

Upon the closing of the court-approved sale transactions of the 14 properties, the Chapter 11 entities will have completed the disposition of their principal assets, with the exception of the Queen Mary Long Beach lease, for which no qualified bids have been received as of now.

Amendment note: An earlier version of this article incorrectly stated that CHG's bid constituted less than 10 per cent of the proposed purchase price. It is in fact the deposit of CHG's bid that amounted to less than 10 per cent.