FAQs

Q&A for Stapled Securityholders

General

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Question Answer
With the vaccine roll-out in the United States (US), the market is likely to recover in the coming months, why don’t you delay the sale process?
  • The sale process follows from the unsuccessful voluntary attempts in 2020 to secure a replacement REIT Manager for Eagle Hospitality Real Estate Investment Trust (EH-REIT) and viable recapitalisation proposals.
  • Eagle Hospitality Group does not have the luxury of delaying the sale or restructuring process as the current pandemic continues to create volatility and uncertainty with respect to the US hospitality industry’s recovery. Of the 15 Chapter 11 Properties, 12 remain closed and continue to draw on the US$100 million in debtor in possession financing (DIP Financing) to fund critical maintenance expenses.
  • The DIP Financing facility matures in January 2022 and the monthly administrative cost of maintaining and operating the hotel properties is depleting this scarce source of funds on a daily basis.
  • Unless there is certainty that a delay in the sale process would result in better or higher bids for the hotels, delaying the sale process would put further risks on stakeholders by increasing the borrowers’ exposure under the DIP Financing facility without creating an offsetting increase in the value of the hotels. (Please refer to Point 4 in the announcement dated 9 March 2021 which can be found here: Link)
  • The ongoing sale process has been conducted in a thorough and robust manner, where EH-REIT and its debtor subsidiaries’ (collectively, the Chapter 11 Entities’) professional financial adviser Moelis had contacted more than 180 qualified parties to solicit their interest in submitting proposals for the restructuring and recapitalisation of EHT and/or the sale of the Chapter 11 Properties prior to the Stalking Horse bid.
  • The sale process is supervised by the US Bankruptcy Court and supported by the Committee of Unsecured Creditors appointed in the Chapter 11 cases.
  • In addition, the sale of the Crowne Plaza Dallas Galleria (CPDG) was concluded following a broad sale process. The REIT Trustee, with the assistance of its professional advisers, determined that the sale would be in the best interests of all stakeholders as there was also a risk of foreclosure of the CPDG by the mortgage lender. (Please refer to Point 2 in the announcement dated 12 April 2021 which can be found here: Link)
Is it common practice in the US for Chapter 11 entities to enter into a stalking horse process?
  • It is a common practice in the US for parties to enter into a stalking horse agreement to solicit higher and better offers under a Chapter 11 process.
  • The stalking horse’s bid provides certainty that the sale process can be completed with an eventual bidder.
  • In this regard, the REIT Trustee along with its professional advisers have been conducting a highly competitive process to seek the highest or otherwise best bid from a wide and diverse pool of qualified bidders.
  • The Chapter 11 Entities which own the 15 Chapter 11 Properties had entered into a Stalking Horse Agreement, which was announced on 9 March 2021 (Please refer to the announcement dated 9 March 2021 which can be found here: Link).
How did we ensure the CPDG asset was sold at a fair price? How will the sales proceeds be used?
  • The sale price of CPDG at US$18 million (approximately S$24.1 million) is higher than the reserve price of the CPDG Auction and preliminary bids received in the lead up to the CPDG Auction.
  • Prior to the sale of CPDG, a broad marketing campaign was carried out in parallel with the preparations for the auction of CPDG, but the process generated preliminary bids which were less than the auction reserve price of US$16 million, with the highest bid visible to all bidders on the CPDG Auction system prior to its conclusion being US$12.5 million.
  • In the event there are net proceeds remaining after paying creditors of CPDG, such remaining net proceeds will be distributed upstream to certain of the Chapter 11 Entities, as the ultimate holding company of CPDG is a Chapter 11 Entity. Such remaining net proceeds, if any, will form part of the pool of assets which will be subject to the Chapter 11 process.
Investors had voted against the voluntary winding-up of EHT at the EGM last December. Why did the REIT Trustee go ahead with filing for Chapter 11?
  • Unfortunately, despite the active stapled securityholder engagement programmes and the strong participation of voting by stapled securityholders, where 73.2% had voted at the extraordinary general meeting held in December 2020 (EGM), the necessary resolutions for the appointment of a new REIT Manager were not carried. (Please refer to the announcement and FAQ on the results of the EGM dated 30 December 2020 which can be found here: Link)
  • Accordingly, given the circumstance and challenges facing the Eagle Hospitality Group, including the fact that no new REIT Manager was voted in by stapled securityholders, and that the Eagle Hospitality Group did not have sufficient resources to continue as a going concern, the best available option at the time was to proceed with the Chapter 11 filing.
  • Without Chapter 11 filing, the creditors of the Chapter 11 Entities could have tried to foreclose on EH-REIT’s hotel properties. This means the hotel properties could have been seized by creditors without EH-REIT and/or the Chapter 11 Entities having the ability to control that process, which would have been less beneficial to stakeholders.
  • The Chapter 11 filing provided immediate legal protection by staying claims against the Chapter 11 Entities, provided the Chapter 11 Entities with access to the DIP Financing, and provided EH-REIT with the runway to undertake a value-maximising strategy or proposition for the benefit of all stakeholders.
For background
  • In the lead up to the EGM in December 2020, the REIT Trustee, alongside its professional financial advisers and the proposed new REIT Manager, had shared during institutional and retail stapled securityholder engagement sessions the merits of the proposal by the proposed new REIT Manager.
  • During that process, it was also highlighted that (a) with finite cash resources, (b) if no new manager were appointed to manage EH-REIT, and (c) in the absence of a successful financial and corporate out-of-court restructuring or recapitalisation of EHT, the REIT Trustee would likely be compelled to consider seeking insolvency protection, such as under Chapter 11 of the US Bankruptcy Code, or otherwise through liquidation, to facilitate a reorganisation of EH-REIT or ensure an orderly winding down of EH-REIT. This would be the case regardless of whether stapled securityholders voted against the resolution for the proposed voluntary winding-up of EHT.
  • Prior to the Chapter 11 filing as well as part of the sale process (including the period following the EGM), the REIT Trustee, with the assistance of Moelis, explored restructuring and recapitalisation alternatives and invited proposals for these, including engaging in discussions with several potential interested parties in relation to the restructuring and recapitalisation of EH-REIT.
  • However, such discussions have not led to any viable proposals for the restructuring and recapitalisation of EH-REIT (other than the proposal that was not approved by the stapled securityholders at the EGM).
What is the REIT Trustee doing to protect the interests of stapled securityholders? How can stapled securityholders be assured that the REIT Trustee is managing EH-REIT properly?
  • The REIT Trustee stepped up in an unprecedented manner and had done so not by working alone but with the support of and by working closely with its professional advisers, including Moelis as the professional financial adviser to the Chapter 11 Entities and FTI Consulting as chief restructuring officer overseeing the operational aspects of the Chapter 11 Entities.
  • Given that the former REIT Manager was removed in December 2020 at the directive of the Monetary Authority of Singapore and a manager of EH-REIT was not voted in by stapled securityholders during the EGM, the REIT Trustee was compelled to step in to protect the interest of stakeholders and to facilitate a restructuring of EH-REIT or an orderly winding down of EH-REIT. During the process, the REIT Trustee has gone over and above in its responsibilities as a trustee of EH-REIT.
  • In the Chapter 11 process, the REIT Trustee has a fiduciary duty to act in the interest of all stakeholders and to protect the interests of all parties. The process is being conducted in a fair and rigorous manner under the supervision of the US Bankruptcy Court and with the support of the Official Committee of Unsecured Creditors appointed in the Chapter 11 cases. As the sale process for the Chapter 11 Properties is still ongoing, we seek the patience and understanding of all stakeholders to allow this process to run its course so that greater certainty on the outcome can be provided to stakeholders.
The Stalking Horse Bid is lower than the valuation of the properties as announced on 6 November 2020. How is this beneficial to stakeholders?
  • Qualified parties who were involved in the process for (a) the sale of the Chapter 11 Properties and (b) submission of proposals for the restructuring and recapitalisation of EH-REIT, had included real estate focused asset managers, global multi-strategy asset managers, publicly-traded REITs, high net-worth investors, sovereign wealth funds, and private equity investors primarily in the US and Asia and those that had previously participated in the Request for Proposal process conducted in 2020 and the DIP Financing process.
  • The Stalking Horse Bidder ultimately submitted a bid with a purchase consideration for the Chapter 11 Properties superior to all other proposals received to date, following an extensive solicitation process.
  • In determining the size of their bids, potential bidders considered various factors and assumptions that may be different from that of the independent valuer that conducted an independent valuation of EHT’s properties as at 31 August 2020, including the economic outlook of the US hospitality industry and market, the impact of the ongoing COVID-19 pandemic on the reservation rates of the assets, the present state of the properties (including costs required to reopen the assets, new PIP/capex requirements by the hotel franchisors, and deferred capital expenditure required) and the availability of tenants for the assets.
Why was an extraordinary general meeting not convened to provide stapled securityholders a chance to vote on the sale process of CPDG and on the sale of the Chapter 11 Properties that is ongoing?
  • With regard to the sale of CPDG, based on the sale consideration, the relative figures computed on the relevant bases set out in Rule 1006 of the Listing Manual do not exceed 20%. Accordingly, the CPDG Disposal will be classified as a discloseable transaction under Rule 1010 of the Listing Manual and will not be conditional upon the approval of stapled securityholders of EHT. As such, no voting at an EGM by stapled securityholders will be required for the sale.
  • The sale of the Chapter 11 Properties is being conducted by the Chapter 11 Entities under the supervision and jurisdiction of the United States Bankruptcy Court. Therefore, the sale of the Chapter 11 Properties will not be subject to (a) the approval of the shareholder of the Chapter 11 Entities nor its ultimate shareholders, and (b) consents otherwise required by third party contracts. Accordingly, no extraordinary general meeting of stapled securityholders will be convened, and the sale of the Chapter 11 Properties will not be subject to the vote of stapled securityholders.
Is the REIT Trustee still exploring other options for EHT?
  • The REIT Trustee, with the assistance of Moelis, will continue to explore other viable restructuring alternatives presented, including the recapitalisation of EH-REIT.

Despatch of US IRS Form 1042-S

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Question Answer
Why am I receiving this Form 1042-S? Who else will receive this Form 1042-S? As disclosed in the prospectus of Eagle Hospitality Trust ("EHT") for its initial public offering at page 396, although Eagle Hospitality Real Estate Investment Trust ("EH-REIT") is organised as a trust in Singapore, it has elected to be a treated as a partnership for U.S. federal income tax purposes. All the unitholders of the EH-REIT are therefore considered as partners and its share of EH-REIT’s U.S. sourced income is required to be reported to U.S. Internal Revenue Service ("IRS") via Form 1042-S.
What action is required from me? For most non-U.S. Stapled Securityholders, the information on the Form 1042-S is for your information only. However, please consult your own tax advisor if you have any queries in respect of your personal tax matters.
Do I have to pay any taxes in Singapore and/or the U.S. when I have not received any distributions declared by EHT? Generally, no Singapore tax is payable by the Stapled Securityholder for this unpaid distribution though it has been declared. However, please consult your own tax advisor if you have queries in respect of your personal tax matters.
Is there still a possibility that EHT will pay the distributions declared in 2020? As disclosed in Update Announcement #25 on 9 March 2021, there is currently a process for (a) the sale of 15 out of 18 of the properties in EHT's portfolio that are owned by certain Chapter 11 Entities under Section 363 of the United States Bankruptcy Code and (b) the submission of proposals by interested parties in relation to the restructuring and recapitalisation of EH-REIT. In this announcement, it is stated that while the entry into the Stalking Horse Agreement will be followed by the Second Bid Round and Auction to solicit higher or otherwise better bids and allow for any restructuring and/or recapitalisation alternatives to be put forward, Stapled Securityholders should note that there is no certainty or assurance that any such other proposals will materialise.

At this juncture, based on the debt profile of the Chapter 11 Entities, the “floor price” in the Stalking Horse Agreement is unlikely to generate any residual value to be distributed to Stapled Securityholders (including the relevant Stapled Securityholders’ entitlement to the distribution of US3.478 cents per stapled security as declared on 17 February 2020).

Disposal of CPDG

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Question Answer
Why does the property remain closed? Would it not have been beneficial to open this property before you sell it, so that it can start generating income and its valuation could also increase, thereby securing a higher sale price? Re-opening the CPDG presents substantial risks to EHT’s stakeholders and creditors. There are substantial costs involved in re-opening hotels, including negotiating new franchise contracts, hotel management agreements, reopening costs, property improvement plan costs, liquor licensing requirements, and other capital expenditures, all of which are costs that the EHT is not in a position to undertake at this time without assurance (which cannot be provided at this time) that re-opened hotels would become sufficiently profitable in the short term to recover all such re-opening costs.

As such, the priority is to continue to focus on preserving the limited funds to keep critical operations going and to expeditiously identify the best possible option available, which includes either a sale of assets or a reorganisation plan.
Why sell the property now? CDPG continues to cause a drain on a limited pool of funds
Due to the ongoing COVID-19 pandemic. CPDG has remained closed for a year since April 2020. Despite this, it incurs ongoing expenses, such as the monthly maintenance costs and expenses of approximately US$100,000 per month which continue to accrue. There has been further damage to the property during the recent winter storms and this will require an additional expense of approximately US$350,000 for immediate repairs.

Unable to use proceeds from the DIP
There are continued objections from other stakeholders in the United States on the utilisation of the proceeds from the US$100 million senior secured superpriority DIP term loan facility to fund the necessary costs and expenses of CPDG which is not under the Chapter 11 process. This has constrained EH-REIT’s ability to support CPDG.

Risk of CPDG Lender foreclosing
The amount outstanding to the CPDG Lender is approximately US$12.9 million as at the latest practicable date prior to the announcement. CPDG continues to face numerous challenges and the CPDG Mortgage Loan is in default. As a result, the CPDG Lender had elected to accelerate the CPDG Mortgage Loan, thereby demanding the immediate payment of all amounts due under and pursuant to the CPDG Mortgage Loan. Further, the property has remained closed since April 2020 and has also incurred damage in the recent winter storms.

With no resolution, there is an increasing risk with each passing day, that the CPDG Lender will exercise its right to foreclose on CPDG. In that event, CPDG will unlikely generate any net proceeds for such a sale and this would not be in the interests of stakeholders.

Current sale price is higher than the reserve price for the CPDG Auction
Based on the Valuation Report by Colliers as announced on 6 November 2020, the valuation of CPDG on an “as is” basis is US$18.6 million. The reserve price set for CPDG was US$16 million. Prior to the sale of CPDG to the Buyer, a broad marketing campaign was carried out in parallel with the preparations for the auction of CPDG that was conducted from 5 April 2021 to 7 April 2021. The overall process leading up to the CPDG Auction generated preliminary bids which were less than the auction reserve price of US$16 million, with the highest bid visible to all bidders on the CPDG Auction system prior to its conclusion being US$12.5 million.

In contrast, the Buyer executed an acceptable purchase and sale agreement and placed a US$1 million non-refundable deposit. As such, the auction was subsequently terminated.

Support of Committee of Unsecured Creditors and BoA
As EH-REIT and the other Chapter 11 Entities are debtors in the Chapter 11 cases, the debtors are obliged under United States law to preserve and maximise value for the benefit of all stakeholders, in particular the creditors of the Seller-Owner and of the Chapter 11 Entities. The REIT Trustee was informed that the Committee of Unsecured Creditors of the Chapter 11 Entities, which was formed as a result of the Chapter 11 Filing and Bank of America, N.A. (as the administrative agent of the syndicated credit agreement dated 16 March 2019, being EH-REIT’s largest debt facility) ("BoA"), supported the CPDG Disposal and were of the consistent view that CPDG should be sold to the Buyer for the Sale Consideration, in the interests of the debtor estates.
Why did you not embark on an auction process? Would you not get a higher amount through the auction? The overall process leading up to the CPDG Auction generated fewer than expected bidders registering to participate in the CPDG Auction and the preliminary bids for CPDG were less than the auction reserve price of US$16 million, with the highest bid visible to all bidders on the CPDG Auction system prior to its conclusion being US$12.5 million.

The REIT Trustee also took into account various factors such as CBRE’s view that the CPDG Auction was unlikely to yield any bids higher than the Sale Consideration of the Buyer and the terms of the Purchase and Sale Agreement and timeline of the CPDG Disposal presented an attractive proposal.
How is the Trustee being responsible by selling this asset back to the buyer at a price less than the original purchase price? The current sale price reflects the current realities. It would not be possible in the current market nor would it be realistic to secure a sale of an asset based on historic prices, let alone, at pre-COVID 19 levels. The Sale Consideration was arrived at after negotiations on an arm’s length basis and on a willing-buyer and willing-seller basis. It is also based on current state of the property “as is” and the current state of the United States hospitality industry.
You are selling at a deficit of US$0.6 million and a discount to book of 4.5%. How is this sale in the best interest of stakeholders? How can you justify that you have acted in unitholders’ interest? Please refer to response to “Why sell the property now?” of this FAQ for full explanation on rationale for the sale.
Will there be an EGM to approve the sale? With regard to the sale of CPDG, based on the Sale Consideration, the relative figures as set out in Rules 1006(a) and (c) of the Listing Manual exceed 5% but do not exceed 20%. Accordingly, the CPDG Disposal will be classified as a discloseable transaction under Rule 1010 of the Listing Manual and will not be conditional upon the approval of stapled securityholders of EHT. As such, no voting at an EGM by stapled securityholders, will be required for the sale.

Non-Borrowing Base Assets (Delta Woodbridge, Hilton Houston Galleria Area and Crowne Plaza Dallas Near Galleria-Addison)

Unless otherwise defined, all capitalised terms used and not defined herein shall have the same meanings as given in Update Announcement #24 dated 2 March 2021 (as the context requires).

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Question Answer
Why were the EH-REIT subsidiaries that hold the 3 properties, the Delta Woodbridge (“DW”), Hilton Houston Galleria Area (“HHG”) and Crowne Plaza Dallas Near Galleria-Addison (“CPDG”), not included in the Chapter 11 Filing? Under the advice of its professional advisers, the REIT Trustee considers there to be value-maximising strategies or propositions for the benefit of all stakeholders (including unitholders of EH-REIT) to include only the other 15 properties in EHT’s portfolio in the Chapter 11 Filing.

In addition, with respect to each of these three EH-REIT subsidiaries, a Chapter 11 filing would trigger recourse guarantee obligations under the respective guarantee of EHT US 1, Inc. (being a subsidiary of EH-REIT) as well as EH-REIT (in the case of a Chapter 11 filing of the HHG).
What are the current plans with regards to these 3 properties? As mentioned in Update Announcement #24 dated 2 March 2021, the lenders of the DW Mortgage Loan and the HHG Mortgage Loan have commenced actions to foreclose on the DW and HHG, respectively.

A foreclosure sale for the HHG has been set for 2 March 2021. The lender of the DW Mortgage Loan has filed with the Superior Court of New Jersey an application for the appointment of a receiver and the right to foreclose. A hearing to appoint a receiver for the DW has been scheduled for mid-March 2021.

Lastly, the REIT Trustee has been advised that the CPDG has retained enough value to compel an effort to sell the hotel, and as such the EH-REIT subsidiary holding the CPDG has commenced a sale process to actively market and auction the CPDG. In this regard, an auction for the CPDG will be conducted in early April 2021.

The REIT Trustee will continue to work together with its professional advisers to consider all viable options and value-maximising strategies or propositions in respect of the CPDG and the other 15 properties that are subject to the Chapter 11 Filing, in the interests of all stakeholders, including EH-REIT and the Stapled Securityholders.

Chapter 11 Process (Borrowing Base Assets)

Unless otherwise defined, all capitalised terms used and not defined herein shall have the same meanings as given to them in Update Announcement #25 dated 9 March 2021.

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Question Answer
Why were EH-REIT and the Singapore entities included in the Chapter 11 filings? The Singapore entities have their own creditors, are part of a larger corporate group (with several members of that group in Chapter 11), and, absent access to the DIP Financing Facility, would have insufficient liquidity to operate. In addition, it is not feasible to have separate and competing bankruptcy cases in Delaware and in Singapore.
Why does the REIT Trustee seek to further borrow under the DIP Financing Facility? The REIT Trustee is borrowing under the DIP Financing Facility to fund monthly administrative expenses of maintaining and operating EH-REIT, and property-level maintenance costs, in order to protect and preserve the assets of EH-REIT under the supervision of the United States Bankruptcy Court. Maintaining EH-REIT is beneficial for all stakeholders as it will allow the Chapter 11 Entities, through the Chapter 11 process, to undertake any value-maximising strategies or propositions for the benefit of all stakeholders.
Why is a stalking horse bidder being selected as part of the sale process? It is common practice in the United States for an entity seeking to sell assets in a Chapter 11 process to identify and enter into a stalking horse agreement for the sale of its asset(s), and to subsequently solicit higher or otherwise better offers. The stalking horse’s bid helps to set a “floor price” for the assets to be sold at an auction under the supervision of the United States Bankruptcy Court, and provides certainty that the sale process can be completed with an eventual bidder. There remains an opportunity for other potential bidders to top the stalking horse’s bid during the auction process. 2.
How was the sale process run? Why is the Stalking Horse Bidder’s Bid lower than the valuation prepared by the independent valuer as of August 2020? In connection with the sale process over the last 2 months, Moelis (the financial adviser to the Chapter 11 Entities) contacted more than 180 qualified parties to solicit their interest in submitting proposals for the restructuring and recapitalisation of EHT and/or the purchase of one (1) or more of the Chapter 11 Properties. The qualified parties included real estate focused asset managers, global multi-strategy asset managers, publicly-traded REITs, high net-worth investors, sovereign wealth funds, and private equity investors primarily in the United States and Asia and those that had previously participated in the Request for Proposal process conducted in 2020 and the DIP financing process. Potential bidders were invited to participate in the process, and were provided information on the assets, upon execution of confidentiality agreements. In determining the size of their bids, potential bidders considered various factors and assumptions that may be different from that of the independent valuer that conducted an independent valuation of EHT’s properties as at 31 August 2020, including the economic outlook of the United States hospitality industry and market, the impact of the ongoing COVID-19 pandemic on the reservation rates of the assets, the present state of the properties (including costs required to reopen the assets, new PIP/capex requirements by the hotel franchisors, and deferred capital expenditure required) and the availability of tenants for the assets. To date, 29 proposals have been received, nearly all of which related to the purchase of all or a subset of the Chapter 11 Properties.
How can potential bidders participate in the auction process? Can alternative options, e.g. restructuring and recapitalisation proposals, be presented? Following the United States Bankruptcy Court’s approval of the proposed bidding procedures, potential bidders will have the opportunity to submit a competing bid during a 45-day window in the Second Bid Round. In fact, because the bidding procedures motion was filed on 9 March 2021 (Singapore time), interested parties will have seen the Stalking Horse Bidder’s bid for more than 60 days by the time of the anticipated bid deadline. It is also possible for any reorganisation and recapitalisation proposals to be made during the bidding process. If one or more competing bids are received, the Chapter 11 Entities will hold an Auction, which is tentatively scheduled to be held on 20 May 2021. The Stalking Horse Bidder will be able to improve its bid during that Auction.

Information regarding the bidding procedures and the process of submitting bids under the Second Bid Round will also be made available on www.donlinrecano.com/eagle as soon as the United States Bankruptcy Court has approved the bidding procedures.

If the assets are sold at the bid level indicated by the stalking horse, will there be any value remaining to Stapled Securityholders? Will there be any payment to the Stapled Securityholders who have 2020 declared dividends? While the entry into the Stalking Horse Agreement will be followed by the Second Bid Round and Auction to solicit higher or otherwise better bids and allow for any restructuring and/or recapitalisation alternatives to be put forward, Stapled Securityholders should note that there is no certainty or assurance that any such other proposals will materialise. At this juncture, based on the debt profile of the Chapter 11 Entities, the “floor price” in the Stalking Horse Agreement is unlikely to generate any residual value to be distributed to Stapled Securityholders (including the relevant Stapled Securityholders’ entitlement to the distribution of US3.478 cents per Stapled Security as declared on 17 February 2020).
Will the sale value improve if we wait further for market recovery? The Stalking Horse Bidder’s bid of consideration of US$470 million represents the highest price achieved for the Chapter 11 Properties following an extensive solicitation process with bidders globally and sets the “floor price” for the Second Bid Round and the Auction, and prevents other potential bidders from underbidding the purchase price. The Stalking Horse Bidder’s bid is also generally not subject to any material conditions (other than clear title of the Chapter 11 Properties) and requires minimal representations and warranties by the Chapter 11 Property Entities. The Stalking Horse Agreement remains subject to higher or better bids, including offers to purchase all or substantially all of the Chapter 11 Properties and to reorganise and/or recapitalise the Chapter 11 Entities (including EH-REIT). Given the ongoing COVID-19 pandemic, the United States hospitality industry remains volatile and any interruption to the current pace of market recovery (e.g. slower vaccine rollouts or potential resurgence of COVID-19) will result in market uncertainties. Of the 15 Chapter 11 Properties, 12 remain closed and continue to draw on the DIP Financing Facility to fund critical operating expenses. The entry into the Stalking Horse Agreement at this juncture provides downside protection in the event of adverse changes in the macro environment which could create significant risk and uncertainty around any sale of the Chapter 11 Entities’ properties. It also facilitates the soliciting of higher or otherwise better bids during the Second Bid Round, thereby having the potential to unlock greater value from EHT’s portfolio of properties. The DIP Financing Facility matures no later than January 2022 and failure to timely repay the obligations thereunder would entitle the lender of the DIP Financing Facility to exercise remedies under the DIP Financing Facility, including in respect of the Chapter 11 Properties. Additionally, there are monthly administrative expenses of maintaining and operating EH-REIT, and property-level maintenance costs, which would require the Chapter 11 Entities to further draw down on the DIP Financing Facility (which will need to be repaid from any sale proceeds). 3 It is also further noted that the entry into the Stalking Horse Agreement will be followed by the Second Bid Round and the Auction, where the Stalking Horse and other potential bidders have an opportunity to outbid the Stalking Horse Bidder’s bid.
Can the identity of top creditors and their priority ranking be disclosed? The Chapter 11 Entities are in the process of preparing their schedules of assets and liabilities, which is expected to be filed with the United States Bankruptcy Court on or before 19 March 2021. Copies of the schedules will be made available on www.donlinrecano.com/eagle.
Can the Chapter 11 Entities be immediately liquidated? Will there be any value remaining to Stapled Securityholders? The REIT Trustee and its professional advisers have commenced a marketing process to sell the assets through the Chapter 11 process. To the extent there is any residual value after repayment of the Chapter 11 Entities’ creditors, such value will be made available to EHT’s stakeholders, and Chapter 11 does provide a mechanism to facilitate such distributions. Please refer to the response to Question 4 above in relation to the remaining value to Stapled Securityholders.

Post-EGM

The following should be read alongside the SGXNET announcement "Results of Extraordinary General Meeting held on 30 December 2020" by Eagle Hospitality Trust (“EHT”) dated 30 December 2020 (the "EGM Results Announcement").

The REIT Trustee commenced an exhaustive RFP process over the course of three months that explored all options available to EHT to protect the interests of the Stapled Securityholders. As a result of the RFP Process, the EH-REIT Trustee, upon the recommendations of its professional advisers, identified SCCPRE (part of the SC Group) to have put forth the most credible proposal and only actionable proposal acceptable to the lenders.

At the EGM convened at 2.00 p.m. on 30 December 2020, Resolutions 1 to 4 were put forth to Stapled Securityholders to appoint SCCPRE HRM as the new manager of EH-REIT. However, as Resolution 2 was not carried, and Resolutions 1, 3 and 4 are inter-conditional, SCCPRE HRM was not appointed as the manager of EH-REIT. Given the EGM outcome, EHT does not have sufficient resources as a going concern and its options are limited given the present circumstance and challenges. To help Stapled Securityholders address key questions with regards to the implications of the EGM outcome, please see below:

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Question Answer
Many Stapled Securityholders were supportive of SC Capital. Why was the EGM outcome negative? Can we know the breakdown of votes? In the lead up to the EGM, the EH-REIT Trustee, alongside its financial advisers and the proposed new manager, had been engaging Stapled Securityholders through a series of focus group sessions, including a dialogue session organised together with SIAS to ensure that Stapled Securityholders fully understood the rationale of the resolutions proposed to be tabled at the EGM.

We received strong participation from Stapled Securityholders, whereby 73.2% voted in this EGM. As the EH-REIT Trustee, we have analysed all votes and have heard the concerns and wishes of the majority of Stapled Securityholders who have indicated their desire to keep EHT afloat and for SC Capital to be given a chance to rehabilitate EHT.

Resolutions 1, 3 and 4 tabled required a majority of more than 50% of those present and voting to vote in favour, in order for them to be carried. In the case of Resolution 2, which was an Extraordinary Resolution, it required a voting majority of at least 75% of those present and voting to vote in favour, in order for the Resolution to be carried. 2 For Resolution 2 relating to base fee supplement to the EH-REIT Trust Deed, of the Stapled Securityholders who voted through nominee companies, 38% voted For, 34% voted Against and 28% Abstained. Of the Stapled Securityholders who voted directly, 96% voted For, 4% voted Against and 0.3% Abstained. This has resulted in 56.25% submitting For votes, which was insufficient to meet the 75% threshold for Resolution 2 to be carried.

For Resolution 5 on the Termination Proposal, of the Stapled Securityholders who voted through the nominee companies, 10% voted For, 88% voted Against and 2% Abstained. Of the Stapled Securityholders who voted directly, 41% voted For, 53% voted Against and 6% Abstained. This has resulted in 11.61% submitting For votes, which was insufficient to meet the 75% threshold for Resolution 5 to be carried.
What happens to EHT now that the Resolutions for both the Proposed Change of Managers and Termination Proposal have failed? Are there any other alternative options and can EHT renegotiate another plan? Given the present circumstance and challenges, EHT does not have sufficient resources as a going concern and its options are limited. However, the EH-REIT Trustee will consider the available options for EHT with its advisers, under the current circumstances and update the Stapled Securityholders in due course.

The Sponsor continues to release public statements outlining plans for recapitalisation. Have these been considered? Please refer to EHT’s Announcements dated 18 and 23 December 2020. In considering any options in the interests of Stapled Securityholders, the EH-REIT Trustee had provided the Sponsor with the opportunity to participate in the RFP Process commenced by the EH-REIT Trustee in July 2020.

After giving proper and careful consideration to each comprehensive proposal received under the RFP Process, the EH-REIT Trustee (based on the recommendation of its professional advisers) identified SC Capital to have put forth the most credible proposal and only actionable proposal acceptable to the major lenders of EHT.

SC Capital was eventually identified as the selected party pursuant to the RFP Process due to, amongst other things, their strong track record of turning around REITs, their ability to raise funds in a less dilutive manner and receptiveness of EHT’s major lenders to engaging in discussions with respect to the proposal that SCCPRE HRM will be appointed as the new manager of EH-REIT.

Specific to the Sponsor’s plans, as disclosed on SGXNET, the plans outlined by the Sponsor continue to contain numerous uncertainties with regard to the practicability of their plans which include the non-acceptance of the appeal against the EH-REIT Manager Removal Direction issued by the MAS and the absence of essential information on the resolutions proposed by three Stapled Securityholders purportedly beneficially-owned by the owners of the Sponsor (e.g. structure and terms of the proposed rights issue, and whether the rights issue will be underwritten).

Request for Proposal

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Question Answer
Why was the FECIL Transaction aborted/terminated? The Managers and REIT Trustee were informed that the relevant parties were unable to come to a commercial agreement on the FECIL Transaction.
How long would the RFP process take? As mentioned in the announcement dated 23 July 2020, interested parties are required to submit their preliminary indication of interest in respect of the Proposed Transactions by 31 July 2020 and it is envisaged that formal bids will be submitted by interested parties by the end of August 2020. Subsequent to that, a final party will be selected.
How would the REIT Trustee ensure that the selected Manager and/or investment arising from the RFP is in the best interest of the Stapled Securityholders? The REIT Trustee will work together with their professional advisors to consider and assess all options via the RFP process, including but not limited to the replacement of the current Managers and the recapitalisation of EHT, to ensure that the best interests of EHT and the Stapled Securityholders are at the forefront.
How would the Trustee ensure that the Sponsor will not unilaterally decide to enter into another exclusive agreement with a potential manager / investor? The Singapore Exchange Regulation (SGX RegCo) has required that under the RFP process, (a) all bids will be considered, (b) there will be no restrictions on parties eligible to participate and (c) Mr. Howard Wu and Mr. Taylor Woods (being the former Non-Independent Non-Executive Chairman and Deputy Chairman of the Boards of the Managers respectively) should not be negotiating with any bidder exclusively.
Would the possibility of a privatisation or sale of some of the REIT assets be considered as part of the RFP? The REIT Trustee is considering all options in the interests of the Stapled Securityholders and has directed that the RFP process be conducted on that basis.

Distributions

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Question Answer
Since it has been verified that EHT has sufficient funds for the Distribution to Stapled Securityholders originally intended for 30 March 2020, can the Distribution still continue? To preserve and protect the value of the properties under EHT, there is now the need to tap on the cash resources including the monies which were previously thought to be available to fund the Distribution. The cash resources which were available as at 17 February 2020 to fund the Distribution, are now no longer available as they have to be used urgently to fund necessary and critical expenses of EHT.

This decision was arrived at after much deliberation and discussion with the various professional parties, and is deemed to be in the best interest of EHT and Stapled Securityholders.

The Special Committee would like to reassure Stapled Securityholders that the Special Committee, together with the REIT Trustee and their professional advisers, have and will continue to work tirelessly to actively consider the most appropriate steps to take as part of the Special Committee’s Strategic Review of EHT’s business and the utilisation of EH-REIT’s resources, with EHT’s and the Stapled Securityholders’ best interests at the forefront.
Why couldn’t EHT pay out Distributions to Stapled Securityholders in 1Q2020? In our SGXNET announcements made on 24 March 2020, 1 April 2020, 20 April 2020 and 27 May 2020, we shared that though there were sufficient funds to pay out the Distribution in full then, we were unable to for the following reasons:
  • EH-REIT has since been restricted from paying the Distribution following the receipt of the notice of default and acceleration under the Facilities Agreement with the suspension of payment of the Distribution as a key condition to the temporary forbearance arrangement which is in place; and
  • it has since been discovered that there are significant liabilities incurred by the Master Lessees under the Hotel Management Agreements in respect of EHT’s properties which remain outstanding as at 27 May 2020, and such liabilities include substantial outstanding payables to third parties that are necessary and critical to preserve and maintain the underlying value of the properties in EHT’s portfolio.
Will Distributions be paid on my securities after the Portfolio Preservation Expenses are paid? Given the present developments, it would no longer be feasible or practicable for the Managers and the REIT Trustee to effect the payment of the Distribution in part or at all at this juncture. This was also shared in the Managers’ SGXNET announcement on 27 May 2020 titled “Update Announcement – Utilisation of Funds to Preserve and Protect Portfolio”.

Whether any distribution may be declared and paid in the future will depend on a variety of factors, including the ability to achieve a successful restructuring of EHT, the performance of the underlying portfolio of properties in generating net income for EHT, and market conditions.
Why are the Portfolio Preservation Expenses being paid out of the funds that were originally intended for the Distribution? In light of the continuing failure by the master lessees to discharge their obligations under the MLAs, there is currently no alternative source of monies to fund the Portfolio Preservation Expenses other than the monies originally intended to fund the Distribution and the remaining Security Deposits.

Additionally, it is difficult for the Managers and the REIT Trustee to meaningfully ascertain the quantum and extent to which the available funds of EH-REIT would be utilised to fund the Portfolio Preservation Expenses at this juncture, as the quantum and extent would vary depending on various factors that would impact the aggregate Portfolio Preservation Expenses, such as market conditions, position taken by third party service providers, and the ability to achieve a successful restructuring and raise new capital. Indeed, the Managers and the REIT Trustee continue to discover failures by the Master Lessees to pay liabilities to third parties essential to the good maintenance of EHT’s properties, which may need to be settled to preserve the value of the properties.

The Managers and the REIT Trustee consider that there is presently no other viable alternative but to utilise the available funds of EH-REIT for purposes of preserving the value of the properties and funding the Portfolio Preservation Expenses. The decision was made after careful and measured consideration by the Managers and the REIT Trustee in the best interests of EHT and the Stapled Securityholders, with the benefit of advice of their advisers including FTI, Moelis and their respective legal counsels.
Why is it necessary to enter into temporary caretaker arrangements for EH-REIT’s hotels? Temporary caretaker arrangements are required at certain hotels in EHT’s portfolio. This is a cost-effective means by which to safeguard asset values. The arrangements are intended to preserve the underlying value of the hotels, whilst the Managers and the REIT Trustee, together with their professional advisers, continue to assess the longer-term plans for EHT.

To this end, the REIT Manager had directed (with the approval of the REIT Trustee) that temporary caretaker arrangements be implemented at certain hotels, further details of which are stated in the Managers’ SGXNET announcement on 28 April 2020 and will be updated as appropriate.

Role and Responsibility of the Trustee

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Question Answer
What is the difference between the role of the Issue Manager and the REIT Trustee? The REIT Trustee’s responsibilities as trustee of EH-REIT involves (amongst other things):
  • holding the assets of EH-REIT on trust for the benefit of the EH-REIT unitholders;
  • safeguarding the rights and interests of the EH-REIT unitholders; and
  • exercising all the powers of a trustee and the powers accompanying ownership of the properties in EH-REIT.
The issue manager is responsible for preparing an issuer for listing on the SGX-ST, and has the responsibility of making all reasonable inquiries and taking appropriate actions to ensure that there are no false or misleading statements, or omission of information required to be included, in an issuer’s offer documents.

Both the Issue Manager and the REIT Trustee act independently of each other.

HMA Notices of Default and Termination

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Question Answer
How would a material change in the MLA structure impact the valuation of the properties and the value of my units? The Managers and the REIT Trustee have appointed FTI Consulting, Inc., as Chief Restructuring Officers, to assist in the restructuring process of EHT. Two of the issues which FTI will be assisting EHT with are: 1) an evaluation of the current MLAs and the terms and conditions of the MLAs, and the appropriate course of action to be taken and 2) an evaluation of income, expenses, cash and profitability at the Master Lessee level, to determine the viability of the MLAs. Together with the assistance of the Chief Restructuring Officers and legal counsels, the Managers and the REIT Trustee are in the midst of assessing these issues and the appropriate steps to be taken to manage and minimise the consequent risks.
How would the HMA Default Notices and the HMA Termination Notices, and the DW Notice impact EH-REIT? FTI Consulting, Inc. has been appointed by the Managers and the REIT Trustee to assist in the evaluation of the impact on the property portfolio as a result of the HMA Default Notices and potential termination of the HMAs as a result of the HMA Termination Notices and the DW Notice.

The Managers and the REIT Trustee, with the assistance of Moelis, the Chief Restructuring Officers and legal counsels, are in the midst of assessing the impact and implications of the alleged defaults, and the appropriate steps to be taken to manage and minimise the consequent risks.

In addition, as shared in the 1 April 2020 Announcement, the Special Committee was established with a key focus on safeguarding value for, and protecting the interests of, the Stapled Securityholders in light of the current circumstances facing EHT. The Special Committee, together with its professional advisers, is actively engaging the Administrative Agent and the Lenders in respect of a longer-term forbearance arrangement and a consensual strategy moving forward.
If EH-REIT terminates EHT QMLB, LLC as master lessee, will there be any impact on the contract between City of Long Beach and Urban Commons Queensway LLC? The Managers and the REIT Trustee are unable to comment on speculative events and the consequences and impact of such events, especially with respect to the actions of a third party, being the City of Long Beach.
Can EH-REIT appoint another lessee to operate the Queen Mary? Please refer to the Managers’ announcement dated 28 October 2019 titled "Response to the SGX-ST's queries on the Queen Mary" which sets out the circumstances in which Urban Commons Queensway, LLC may enter into a master lease with another party.
If EHT QMLB, LLC declares bankruptcy, will there be any impact on the contract between the City of Long Beach and Urban Commons Queensway LLC? The Managers and the REIT Trustee are unable to comment on speculative events and the consequences and impact of such events, especially with respect to the actions of a third party, being the City of Long Beach.
Is the leasehold interest in the Queen Mary with the City of Long Beach entered into by Urban Commons or EH-REIT? Does the City of Long Beach consider Urban Commons or the EH-REIT as its master leaseholder? EH-REIT holds the leasehold interest in the Queen Mary through Urban Commons Queensway, LLC. Accordingly, Urban Commons Queensway, LLC is the lessee of the City of Long Beach. This was disclosed in the IPO prospectus and this leasehold interest forms part of the USHI Portfolio which was acquired by EH-REIT.

There has been no change to the above lease arrangements on the Queen Mary since then.

The Managers and the REIT Trustee are unable to comment on the views of a third party, being the City of Long Beach.

Impact / Next Steps for Stapled Securityholders

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Question Answer
Would there be any updates for the Stapled Securityholders? It is a difficult and trying period for Stapled Securityholders and we hear your concerns about the situation.

The Special Committee would like to reassure Stapled Securityholders that the Special Committee, together with the REIT Trustee and their professional advisers, have and will continue to work tirelessly to actively consider the most appropriate steps to take as part of the Special Committee’s Strategic Review of EHT’s business and the utilisation of EH-REIT’s resources, with EHT’s and the Stapled Securityholders’ best interests at the forefront.

We will continually monitor developments and will share updates when appropriate. Public announcements will also be promptly made available to Stapled Securityholders at timely and appropriate junctures.
How will the value of my units be impacted by the default on the loan? The trading of the Stapled Securities of EHT on the SGX-ST is currently suspended. The Managers have suspended the trading of the Stapled Securities on a voluntary basis to protect the interests of the Stapled Securityholders and to ensure that no person trades the Stapled Securities without sufficient information required to make an informed decision.

The Managers are working with their professional advisers to:
  • assess the implications of the notices of default; and
  • engage in further discussions with the Administrative Agent and the Lenders;
  • develop a longer-term consensual strategy.
In addition, as stated in the 1 April 2020 Announcement, the Special Committee was established with a key focus on safeguarding value for, and protecting the interests of, the Stapled Securityholders in light of the current circumstances facing EHT. The Special Committee, together with its professional advisers, is actively engaging with the Administrative Agent and the Lenders in respect of a longer-term forbearance arrangement and a consensual strategy moving forward.
What can I do next since trading in EHT Stapled Securities has been suspended? Stapled Securityholders should consult their professional advisers if they have any doubt about the actions they should take.
When will the trading suspension be lifted? The Managers are currently working to assess the impact of the global COVID-19 pandemic and the multiple notices of default on EH-REIT and its subsidiaries.

The Managers will seek to lift the trading suspension as soon as it is appropriate to do so without compromising the interests of the Stapled Securityholders.
How is the value of my stake in EHT Stapled Securities impacted? We are unable to provide a definitive answer on this as the situation remains fluid. The Managers are working with their professional advisers to:
  • assess the implications of the notices of default; and
  • engage in further discussions with relevant counterparties including the Administrative Agent and the Lenders; and
  • develop a comprehensive business plan.
In addition, as stated in the 1 April 2020 Announcement, the Special Committee was established with a key focus on safeguarding value for, and protecting the interests of, the Stapled Securityholders in light of the current circumstances facing EHT. The Special Committee, together with its professional advisers, which is actively engaging with the Administrative Agent and the Lenders in respect of a longer-term forbearance arrangement.
Will I lose my Stapled Securities? We would like to assure you that you will not lose your Stapled Securities and will remain a Stapled Securityholder of EHT. However, the value of your Stapled Securities and the income derived from them may fall or rise depending on external market forces.
As a unitholder, how am I being protected? MAS has directed the REIT Manager to obtain the approval of the REIT Trustee before making any payment or transfer of EH-REIT’s funds. The REIT Trustee has been and will continue to work together with the REIT Manager to implement further and enhanced measures over accounts and payment processes in compliance with the MAS’ directive.

MAS has also directed the REIT Manager to restore its minimum base capital and financial resources to comply with MAS’ requirements.

The REIT Trustee and the Special Committee have ensured that all the professionals have been appointed expeditiously for the restructuring, such as the US legal counsel, Chief Restructuring Officers and Financial Adviser. The REIT Trustee and the Special Committee have also ensured that the professionals engaged are independent and have no commercial relationship with the Sponsor.

The REIT Trustee takes its obligations to safeguard the rights and interests of EH-REIT unitholders very seriously, and will provide further details on steps taken at timely and appropriate junctures.

The Special Committee would also like to reassure Stapled Securityholders that the Special Committee, together with the REIT Trustee and their professional advisers, have and will continue to actively consider the most appropriate steps to take as part of the Special Committee’s Strategic Review of EHT’s business and the utilisation of EH-REIT’s resources, with EHT’s and the Stapled Securityholders’ best interests at the forefront.

Others

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Question Answer
Can we view/inspect the trust deed? We seek your understanding that we will not be able to facilitate an inspection of the physical copies of the Deeds at the REIT Manager’s corporate office due to the ongoing circuit breaker measures. Please find below the Managers’ contact to facilitate alternative means of inspection:

Contact: Investor Relations
Telephone: +65 6439 0765
Email: enquiry@eagleht.com