Embattled Eagles Hospitality Posts H1 Loss of US$39M; Reveals More Defaults
There is no assurance that EHT will be able to continue operating as a going concern, says CEO Salvatore Gregory Takoushian. Virtual AGM to be held on August 31.
August 15 – Eagle Hospitality Trust (EHT), which is being investigated by the Monetary Authority of Singapore over governance and disclosure issues, posted a loss of US$38 million in the first-half of this year. The trust, which operates 18 hotels in the U.S., said in its earnings statement that “there is material uncertainty which may cast significant doubt on EHT’s ability to continue as a going concern.”
EHT said it needs to pay US$341 million of secured loans and borrowings within one year. And the amount exceeds EHT’s unrestricted cash and cash equivalents of approximately US$4.4 million as of March 31, 2020. The REIT manager has also subsequently received other notices of default or termination from other lenders as the Covid-19 pandemic caused hotel occupancy to plunge.
The pandemic wasn’t the only issue facing EHT. The trust had come under scrutiny earlier this year after Howard Wu and Taylor Woods, the founders of EHT’s sponsor and master lessee Urban Commons, were found to be engaged in “prejudicial” deals that are “not on usual commercial terms.” The transactions were conducted without EHT’s knowledge during a strategic review of its business. Wu and Woods were also EHT non-executive chairman and deputy chairman respectively. They resigned from their posts on May 26.
In late May, EHT had received “an expression of interest” from Hong Kong-listed Far East Consortium International (FEC), which was keen to take a 70% stake in EHT’s manager, Eagle Hospitality REIT Management.
However, on July 23, it said it wasn’t able to reach an agreement with FEC. It added it was “considering all options” and had instructed its financial adviser to commence a request for proposal process from interested parties on an “expedited” basis. Its latest results statement provided no updates on any “interested parties.”
EHT said it will hold its annual general meeting on August 31, having failed to get an approval from the authorities to postpone the meeting.
Urban Commons’ Loan Default
Trading of EHT units was voluntarily suspended on March 24 after it defaulted on the US$341 million loan. The loan default came after Urban Commons failed to place with EHT the full sum of security deposits due under the master lease agreements and make timely rental payments since December 2019. A double whammy came after the pandemic forced EHT to shutter its hotels. By the end of March 2020, 14 out of 18 hotels had ceased operations due to the coronavirus, which impacted the fixed and variable rents the REIT had initially expected to earn this year.
As the trust scrambled to use its funds for the “preservation and protection” of its portfolio, EHT was restricted from making payments of dividends to its unitholders. As a result, it halted distributions of 3.478 US cents per stapled security announced at its 4Q 2019 results.
EHT’s woes started last year when reports emerged that its second-largest asset, an iconic decommissioned cruise liner that had been transformed into a 347-room floating hotel in California, might be unsalvageable. An independent inspector hired by the City of Long Beach had issued reports saying the ship, The Queen Mary, had suffered years of neglect and needs urgent repairs. The total cost of refurbishment could range from US$235 million ($320 million) to US$289 million. The city government had alleged that Urban Commons, the lessee of the ship, defaulted by failing to comply with covenants and obligations therein.
The hotel has been closed since May 7 due to Covid-19. Before the pandemic, it received approximately 100,000 visitors per month and is a significant economic driver for Long Beach city. For 2019 alone, guests’ spending amounted to about US$42.6 million.
Aside from the operational problems brought about by the Covid-19 outbreak, which has significantly impacted the hospitality industry, EHT also warned investors of several other risks. Among them are the lawsuit from Sheraton Pasadena and the possibility that MAS may cancel the Capital Markets Services licence of the REIT manager.