The challenges of a Singapore-listed hotel trust escalated from financial problems to arrests this week as six current and former directors of Eagle Hospitality Trust were hauled in as part of a deepening investigation into its failures to make necessary disclosures to investors.
All six, including CEO Salvatore Takoushian, have been released on bail after being arrested on 1 October “on reasonable suspicion that Section 203 read with Section 331 of the Securities and Futures Act (Chapter 289) of Singapore may have been breached,” according to a statement to the Singapore exchange on 2 October.
Section 203 of the Securities and Futures Act deals with the responsibilities of corporate officers to make necessary disclosures to the Exchange.
Section 331, which is part of a chapter dealing with the duty not to make false statements to the bourse, spells out the consequences for corporate officers should the entity that they represent be found to have intentionally committed an offence.
No Charges Filed
Eagle Hospitality Trust, which effectively lists 18 US hotel properties on the SGX, had first acknowledged in June that it was being investigated by the Monetary Authority of Singapore and the Commercial Affairs Department of the Singapore Police Force. Then in August of this year, KPMG – which serves as EHT’s auditors, declined to certify the REIT’s books.
In March the trust had defaulted on a $341 million loan facility.
The trust said in its latest statement that Lau Chun Wah, Kelvin Tan Wee Peng, Tarun Kataria, Salvatore G. Takoushian, Carl Gabriel Florian Stubbe and Ng Kheng Choo all were all arrested on Thursday as the government continues to escalate its investigation into the insolvent trust. Of those names, Lau, Tan, Kataria and Takoushian all continue to serve on EHT’s board, according to its website.
“EHT further understands that the Investigations are still ongoing,” the trust’s manager said in a statement to the SGX, adding that “none of the aforementioned individuals have been charged for any offence nor do the arrests necessarily signify that there will be charges.”
The manager said that it, along with its directors, is cooperating fully with the authorities in the investigation and indicated that it would provide updates when possible.
The trust’s manager has not made any changes to the directors on the board representing unit-holders of the two stapled-securities that compose EHT since Carl Gabriel Florian Stubbe was removed on 30 August. The announcement indicated that all current directors will continue in their positions.
Trust Manager Seizes Hotels
Composed of a stapled group of Eagle Hospitality Real Estate Investment Trust (EH-Reit) and Eagle Hospitality Business Trust (EH-BT), EHT had reported a loss of $38.9 million for the second quarter, and has seen relations between the US-based sponsor and the Singaporean managers fall into litigation in recent months.
On 16 September the trust’s manager had served “pay/perform or quit” statutory notices to defaulting master lessees holding properties in the trust, demanding that they either pay overdue rent or meet other obligations, or surrender the properties.
Then on 23 September, citing repeated defaults on rent payments, the manager followed up by issuing termination notices to the master lessees for all 18 properties in the trust, with that termination taking effect 10 days later.
Out of the 18 hotels, which include the docked luxury liner Queen Mary in Long Beach, California, only three remain in operation, and in its notice that it was taking direct possession of the properties, the trust’s manager noted that the seizure “may not necessarily lead to the successful rehabilitation of EHT”.
While the seizure of the hotels gives the trust’s manager direct control over EHT’s assets, the directors of the manager are now in the crosshairs of the Monetary Authority and Singapore’s police, judging by the arrests last week.
The Singaporean authorities have yet to reveal the findings of their investigations or to indicate what information EHT’s directors may have failed to disclose. However, in August the manager along with the trustee, said they had been told by their advisors that, in May, one of the trust’s master lessors had applied for and received a loan of more than $2 million via an application signed by a former officer of the sponsor, Urban Commons.
In a 14 August report, EHT’s auditors at KPMG indicated that, among other problems, they were unable to clarify the nature of an unsecured $89 million loan to the trust, with these issues preventing them from signing off on the trust’s 2019 books.
After trust listed on the SGX through a May 2019 IPO, by June of this year, the California cities of Pasadena and Long Beach, which each host EHT properties, took separate legal actions against companies holding properties in the trust’s portfolio, with creditors also placing liens against the REIT’s assets.