What Should The Investors of Eagle Hospitality Trust Expect Over Next Few Months- Will The Eagle Survive?

The Eagle Hospitality Trust (“EHT”) drama climaxed recently with the arrest of current and prior directors by the Commercial Affairs Department (“CAD”) of the Singapore Police as part of their investigation into possible breach of Section 203 and Section 331 of the Securities and Futures Act. 

Now, Section 203 deals with responsibilities of the directors in making necessary disclosures on the SGX to investors whereas Section 331 spells out the penalties for directors found to have committed the offence as aforesaid mentioned. Many current unitholders have been very angry with the directors and you can see some folks calling for them to step down but I think people are going after the wrong directors.

1. What is CAD and MAS trying to do here with the arrest?
Personally, I think this is just part of their routine investigation procedures but with hidden agenda by the CAD. The burden and responsibilities on the directors are heavy. But one can’t be held liable if some directors are purposely holding back information from the others. I think the 2 ex-directors Howard Wu and Taylor Woods are actually the main targets. They have been making a number of deals behind the back of the other directors of EHT. For example, non-disturbance agreements to assume liabilities for the lessee and taking out loans using EHT name in USA which was never agreed by EHT.

I also strongly believe that CAD and MAS are trying to send a message to Howard and Taylor to back off the current restructuring exercise as apparently, they are making lots of noise in public to get back the hotels. Another hidden message perhaps is to the entire Board of Directors to discharge their duties faithfully and align to the interest of the unit-holders. I will leave this point for now as I do not want to prejudice the current ongoing investigation, so let's just wait for the results. But it is interesting to see CAD jumping out like that and the news get spread in such a manner-very interesting play by the CAD and MAS.

2. Some Unit-holders are asking EHT Management team to sit down with Urban Commons to reach a deal to save EHT- Is this the best option or maybe barking up the wrong tree?
Many unit-holders just want any rescue deal even if it involves people with possible integrity issue. Their main purpose is just to get the counter removed from suspension for trading resumption and to sell the units on hand immediately to salvage whatever residual cash leftover. This is suicide. Urban Commons lead by Howard and Taylor  have many financial issues. As I mentioned earlier before, worst that could happen is getting nothing back. If one wants to get some value back, then might as well ensure it is the maximum value that can be unlocked out of the current deadlock.  

I know people are desperate. But to call for Urban Commons to come back into the fold means nothing has changed from day 1. In such case, might as well just do a liquidation straight away instead of trying to restart all the hotels with the same sponsor that brought EHT down. If Urban Commons want to come back in, they should have taken part in the Request for Proposal (“RFP”) instead of doing numerous Public Relation stunt to try to come back via a back door from behind the backs of other genuine parties taking part in the bid and submitting viable plan.

I expect the RFP results to be announced very soon and an EGM is coming up for EHT. Taylor and Howard as shareholders will be desperately trying to block the new white knight from coming into the picture as they want to continue running the hotels under their Urban Commons. I recommend unit-holders to go for the new white knight deal and the upcoming re-capitalisation proposal.

 3. Worse case scenario but not the end of the world
The worst case scenario here which many investors should expect, as part of investing, is to get back nothing- zero value from liquidation after repaying bank loans and creditors. But fortunately, things are actually not as dire as it seems. If so, EHT would have announced that no one submitted any proposal for taking-over the hotel business but as a matter of fact, 15 parties have entered into Non-disclosure Agreements with respect to the RFP. There were many interested parties which have subsequently submitted their plans by 31st August 2020 and the management of EHT is working to partner with the new prospective white knight. 

Above extracted from AGM Q&A released on 23 September 2020

Summary
Existing investors should be patient and wait for further news announcement. I expect another update by EHT towards the end of October’20 with regard to the progress of the restructuring exercise. Also an EGM on the prospective deal will most likely be on the table by end November’20. If this deal does not go through in EGM, then probably investors will have no choice but to take up the deal with Urban Commons and their new strategic joint business partner, Encore Enterprises. This whole thing will probably drag into December 2020 or even January 2021 to complete re-capitalisation and resumption of trading. Not a bad thing considering better COVID-19 anti-bodies treatments for those infected and vaccines to prevent infection will be rolled out in the US which will help in ensuring the hotel valuation are higher relative to half a year ago in the event that liquidation as an option of last resort is exercised. 

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