Eagle H Trust locked into exclusive talks with Far East Consortium

Singapore

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 that EHT's sponsor Urban Commons (UC) had signed with Hong Kong-listed property conglomerate Far East Consortium International (FECIL) providing for a 90-day exclusivity period that expires on July 14, 2020.

Because of this legal commitment, the special committee could not proceed with its initial intention of a request for proposal (RFP) process. Any change in control of the managers would require the consent of the shareholder of the managers, Howard Wu and Taylor Woods. Mr Wu and Mr Woods had resigned from the trust managers' boards of directors effective from May 26, but continue to jointly own UC and the managers.

According to an EHT statement, released late on Wednesday night, FECIL has since inked a non-binding conditional proposal with Urban Commons that could see FECIL acquiring a controlling stake of 70 per cent in each of EHT's real estate investment trust (Reit) manager and its trustee-manager.

The proposed transaction would involve FECIL subscribing or 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 some 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 CPS such that FECIL will have a 70 per cent stake in each of the managers.

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EHT was responding to queries from the Singapore Exchange, posted on May 27, about EHT's restructuring process. The Business Times had on May 22 reported that UC was considering a partnership with FECIL.

Balancing considerations such as the time needed for an RFP process, versus the need for appropriate controllers to be in charge of the managers as soon as possible, and financial adviser Moelis' view that pursuing the RFP process concurrently with the potential transaction would be inefficient, it was decided that discussions with FECIL should be given an opportunity to progress "with a view to effecting a prompt change of control and greater certainty at the managers level", EHT's statement said.

The special committee and Reit Trustee have thus instructed 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 security holders.

As part of the proposed transaction with FECIL, the Reit manager is 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 CPS.

The restructuring committee should comprise certain "existing members of the special committee and such other persons nominated by FECIL". The committee should assess the financial requirements of the Reit and formulate and negotiate the restructuring and recapitalisation terms with the Reit's stakeholders.

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 each other on the appropriate action to be taken for the master lease agreements signed with UC, which must be dealt with as "a matter of priority".

FECIL is involved in 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.

Last year, FECIL had confirmed in a Hong Kong stock exchange filing that it was considering a listing of some hospitality properties - located in Singapore, Malaysia, Australia and the UK - on an overseas securities exchange. A Bloomberg report had said FECIL was considering Singapore as a listing destination.

The completion of the potential transaction is conditional on approval from the Monetary Authority of Singapore (MAS) for 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 FECIL's 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," EHT said.

Trading of EHT units was voluntarily suspended on March 24.