Eagle Hospitality Trust to blow up in pieces?

Will unit price of Eagle Hospitality Trust blow up in pieces? Investors of Eagle Hospitality Trust look set for plenty of sleepless nights following more stunning revelations, which came straight after The Queen Mary fiasco. This time round, the management’s response to SGX queries on 1 November raised more concerns than assurance to investors. Why is that so?

Eagle Hospitality Trust initial asset portfolio consists of 18 properties, out of which 12 properties were owned by the Sponsor under its USHI Portfolio. The other 6 properties were from the ASAP6 Portfolio in which the properties were purchased from “third party ASAP6 Portfolio vendors”. The latest issue centred around the ASAP6 portfolio, and the information could provide a plausible rationale for the massive sell-offs by the big boys in recent months.

Eagle Hospitality Trust

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in this counter before. Whether Eagle Hospitality Trust unit price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Eagle Hospitality Trust massive sell-downs explained

In the prospectus, the identity of the “third party ASAP6 Portfolio vendors” was not revealed. Following SGX’s query, it was revealed that Eagle Hospitality Trust acquired the “ASAP6 Portfolio from the Sponsor which had acquired the ASAP6 Portfolio from ASAP prior to the Listing Date”. Although ASAP is not related to the sponsor nor Eagle Hospitality Trust, the owners of ASAP emerged as the largest unitholders of Eagle Hospitality Trust after IPO.

While I can agree that there is 100% no potential conflict of interest between the related parties, the nature of the acquisition transaction is a cause for concern for investors. In the prospectus, it was stated that the owners of ASAP “intend to subscribe for more than 5.0% of the Stapled Securities in the Offering”. Subsequently, it was found that the Yuan family had a collectively stake of more than 33.4% in Eagle Hospitality Trust through placement of 289,740,000 Stapled Securities at listing date.

In my view, there could be a compelling reason for the Yuan family to take up placement units at IPO instead of investing in the Eagle Hospitality Trust prior to IPO. This is because in most IPO deals, the substantial shareholders will be subjected to lock-up period. This is the case for the sponsor’s founders, Howard Wu and Taylor Woods, both whom are subjected to very restrictive lock-up requirements. For the Yuan family, as they are not restricted by the lock-up contractual obligations, they are free to sell their stakes as and when they like.

In the prospectus, it was also stated that the cornerstone investors are not subjected to the lock-up restrictions. This also explains why Temasek Holdings, through DBS, could [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: November 6, 2019 — 12:30 am

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