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EHT's sponsor in talks to change control of manager to Far East Consortium
THE special committee taking charge of the restructuring and the strategic review of Eagle Hospitality Trust’s (EHT) business has had to abandon expressions of interest from “credible and reputable asset management companies and/or institutional investors”, because of a letter of intent providing a 90-day exclusivity period that the real estate investment trust's (Reit) sponsor, Urban Commons, had signed with Hong Kong-listed property conglomerate Far East Consortium International (FECIL).
FECIL has inked a non-binding conditional proposal with the sponsor Urban Commons providing for an exclusivity period which expires on July 14, 2020.
FECIL is looking to acquire a controlling stake of 70 per cent in each of the Reit manager and trustee-manager on an enlarged basis through an initial subscription for one convertible preferred share (CPS) in each manager. These CPSs will be converted to ordinary shares in the managers upon the fulfilment of certain conditions including relating to the restructuring and recapitalisation of EHT.
There will also be further subscriptions by FECIL of shares in the managers at the time of the conversion of the CPSs such that FECIL will have a 70 per cent stake in each of the managers.
Because of this legal commitment, the sponsor directors, Howard Wu and Taylor Woods, would not be able to explore other proposals. The special committee therefore could not proceed with its initial intention of a request for proposal process, since any change in control of the managers would require the consent of the shareholder of the managers.
EHT announced this in response to queries from the Singapore Exchange late on Wednesday evening.
The special committee and Reit trustee have thus instructed the financial adviser in the strategic review, Moelis, to engage with FECIL and the sponsor directors to ensure that any potential deal would not be prejudicial to and would serve the best interests of the Reit and its stapled securityholders.
Among other conditions of the proposal, the Reit manager is also to set up a restructuring committee to lead and implement the restructuring and recapitalisation of EHT “expeditiously” following the completion of the subscription of the CPSs.
The restructuring committee should comprise certain “existing members of the special committee and such other persons nominated by FECIL”. The committee will assess the financial requirements of the Reit and formulate and negotiate the restructuring and recapitalisation terms with the Reit’s stakeholders.
Another condition is that FECIL may nominate executive and independent directors comprising at least four-fifths of the boards of the managers, and the sponsor directors will be entitled to nominate one director to the boards who will not have the right to vote on matters involving any of the sponsor, sponsor directors and their affiliates.
In addition, the sponsor directors will not be involved in the day-to-day operations of the managers, and the Reit manager, Reit trustee and FECIL are to promptly consult with one another on the appropriate action to be taken for the master lease agreements, which must be dealt with as “a matter of priority”.
FECIL is a Hong Kong-listed real estate developer with property development and investment, hotel operations and management, securities and financial product investment, as well as gaming operations.
It has been developing and operating hospitality assets for more than 15 years and is currently developing 13 hotels, owns 29 hotels and holds a minority stake in two hotels, all of which are spread across eight countries. Most of the assets are internally managed by FECIL, which also has experience in securing financing for investments in hospitality assets globally.
The completion of the potential transaction is conditional on approval from the Monetary Authority of Singapore (MAS) to proceed with the change of control of the Reit manager. For this, FECIL has submitted its application to the MAS.
The special committee and the Reit trustee said they will continue to work with Moelis to give input on the FECIL proposal to safeguard the interests of EHT and unitholders.
The special committee noted that the transaction will result in the dilution of the sponsor directors’ interests in the managers, and so the terms are subject to the agreement of the sponsor directors and commercial negotiation with them.
“There is no certainty or assurance... that any discussions or prospects will be successfully concluded or any definitive agreements in relation to any transactions (including the potential transaction) will materialise or be entered into.”