Unauthorised US$2Mil Loan Taken Out By Sponsor of Eagle Hospitality Trust

On 14th August 2020 (Friday), Eagle Hospitality Trust ("EHT") made another shocking announcement. It appeared that the Sponsor (Urban Commons) of Eagle Hospitality Trust is treating it as a personal ATM machine. Even though Taylor Woods has resigned as director of EHT after the queries by SGX on conflict of interest issue, the ex-director apparently still went on to apply for a US$2Mil worth of loan using the entity name of EHT when he has absolutely no authority to represent EHT.  Strangely, the money borrowed effectively went to the bank account of the Master Lessee held by Urban Commons instead of going to EHT but the liability and legal borrower becomes EHT. Upon the ruse being discovered by the professional consultants of EHT, they sent a legal demand letter to Urban Commons. Urban Commons quickly responded that this incident is an administrative oversight and have informed the lender.

1. Start of a new war of words- Sponsor's side of the story on 12th August 2020 (Wed)

On 12th August 2020, Urban Commons suddenly put out a press release stating that the sponsor has a re-financing plan in place to help EHT. It then went on further to accuse the current management and professional advisors of EHT of acting in an adversarial manner and not willing to hear its rescue plan.  

2. EHT hits back at the allegation of Sponsor with the shocking revelation of the unauthorised loan application by Taylor Woods on 14th August 2020 (Fri).

EHT's response was very interesting and worth a mention here. Instead of playing defensive and trying to react to the accusation that it has not been willing to accept the proposal of Urban Commons and wasting money on engaging financial consultants for the restructuring, EHT brilliantly responded with a counter attack on the integrity and management style of the management of Urban Commons by revealing the unauthorised loan application made by Taylor Woods on behalf of EHT even when he is no longer a director of EHT- some-more, loan money goes to Urban Commons but EHT picked up the tag for repayment.  It was indeed an ingenious response by the current senior management of EHT and its advisors.

3. Why has Urban Commons, only after so many months, now suddenly assert that they have a viable financing plan for EHT?

My own personal thoughts on why Urban Commons only now appear to assert that they have a concrete financing plan in place is simply because of the recent announcement made by various leading COVID-19 vaccine developers on the significant progress being made. There is now a high likelihood that a safe and effective COVID-19 vaccine will become available to the general public of US as early as end of this year or early next year. Once COVID-19 is under-control, the hospitality sector in US will begin its recovery. 

Howard and Taylor are true businessmen. When the banks ask for recall of bank loan, they went into hiding and are unable to provide any solid recuse plan. Bear in mind that despite the press release of Urban Commons on 12th August 2020, Howard and Taylor raised up many points but failed to answer why they chose to enter into a non-disturbance agreement to transfer and assume financial liabilities worth US$50.7Mil  from the master lessees held by Urban Commons onto the shareholders of EHT. They have remained silent on this critical point.  

With the current muddy outlook becomes clearer, they now wanted to take control back of the hotel businesses as they want to make big money again from running the business. I strongly believe that Howard and Taylor are unwilling to let go of the hotel operations which they have painstakingly built up now that green shoots started appearing. But of course, when times are bad and uncertain, they chose to hide behind their master lessee shell companies and dump substantial liabilities onto the shareholders of EHT. When times are better, they want a piece of the pie again. Perfect timing from my own personal perspective. 

4.   Isn't it better as per what Howard Wu and Taylor Woods had said to let Urban Commons takeover the hotel operations again instead of wasting critical time looking at proposals from other hoteliers and wasting money on consultants?

(a) Again, from my personal perspective, I disagree with the way Howard and Taylor are running their business as I find them unable to differentiate clearly between the interest of EHT and Urban Commons. When times are bad, they transferred liabilities of US$50.7Mil to EHT from their Urban Commons operations via the non-disturbance agreements setup. The recent case of another US$2Mil unauthorized loan application for working capital of Urban Commons but using the name of EHT reinforces my view of their principles in life. The business decisions on the aforesaid points, in my personal opinion, are detrimental and at the expense of the unit-holders of EHT. 

(b) The request for proposals by EHT is open to all. If Urban Commons is still interested in running the hotels, then they need to submit a business plan and convince the directors of EHT that they now have the financial resources for a real come-back. But I reckon this will be tough in view of competition from other hoteliers. I am seriously doubtful of the sudden financing solutions claimed by Urban Commons. They have already failed to turn around EHT with their previous exclusive award of proposal to Far East Consortium International Limited ("FECIL"). Seeking external party help (FECIL) just a few months back and now suddenly claimed that Urban Commons itself has a viable financing strategy to resume operations is contradictory.  

(c)  As I have mentioned in my previous post, it is better for EHT to evaluate what the competitors have to offer in their proposals rather than just looking at 1 proposal.

5. Will the Eagle Hospitality Trust saga end soon?

This is highly unlikely. Urban Commons has initiated a counter legal claim against EHT. They want to force EHT to return the rights to lease the hotels to continue business operations so that Urban Commons can survive. 

I am also rather surprised to see Urban Commons argue on "Force Majeure" as a contractual clause to stop paying fixed rental to EHT and stating as if this is their rights. From what I observed, many hotel REITs sponsor/lessee are financially stronger and still paying any fixed rental component during this pandemic. There is no doubt that Urban Commons financial position is very weak relative to other hospitality trust.

Final Thoughts:

I guess it is lucky that both Howard Wu and Taylor Woods hold less than 15% of the units in EHT. I sense that a fight at an EGM is coming up soon.  My personal thoughts are to stay far far away from any recuse package offered by Urban Commons as they are treating EHT as their own personal play toys and there is a blatant lack of respect for other unit-holders.  I actually prefer to do a sales of all hotel assets under EHT rather than letting Urban Commons back into the fold. The best solution would be to work with other external hoteliers- preferably allowing a private placement of units to align the new business partner as well as to speedily re-capitalise the Trust in such a manner. 

(P.S: I noted discrepancies between 2 SGX announcements from EHT. On 14th August 2020, EHT stated that upon the Loan Application date of 18th May 2020, Taylor Woods is no longer an officer of EHT. However, the official resignation announced on 26th May 2020 states that the resignation of Taylor Woods is on 26th May 2020. If so, it means that the loan taken out is legally binding on EHT. I have sent out an email to EHT's Investor Relations Manager for clarification on this key point.)

Please also see my previous posts:

1. Will Eagle Hospitality Trust Survive Upcoming Bankruptcy Threat? (Part 1 of 2)

2. Will Eagle Hospitality Trust Survive Upcoming Bankruptcy Threat? (Part 2 of 2)

3. White Knight Appears for Eagle Hospitality Trust And MAS & Singapore Police Force Commenced Joint Investigation

4. Eagle Hospitality Trust- No Deal Reached With Far East Consortium And Open Up Request For Proposal From Interested Parties