Investors concerned about DBS Trustee's decisions on EHT
Observers say typical trustees unlikely to be able to carry out all operational duties of Reit managers.
Eagle Hospitality Trust (EHT) has effectively fallen under the "care" of DBS Trustee after its original manager was removed for multiple breaches of the Securities and Futures Act last year and plans to install a new manager did not succeed.
Since then, corporate entities under EHT - which is a stapled group comprising Eagle Hospitality Real Estate Investment Trust (EH-Reit) and the dormant Eagle Hospitality Business Trust - have filed for bankruptcy protection in the United States, and one hotel has been sold for US$18 million.
However, some unitholders of EHT are getting nervous about some of these moves.
A group of some 70 investors claiming to own more than 7 per cent of EHT are currently seeing legal advice about convening an extraordinary general meeting (EGM) to get some answers from DBS Trustee.
One of them told The Business Times that selling assets in the current "depressed market environment" is probably not the best alternative for investors. "As retail investors, we don't understand how (DBS Trustee) reached certain decisions such as filing for bankruptcy protection and speeding up the process of selling the assets."
Some observers warn that a typical trustee company is unlikely to be properly equipped to carry out all the operational duties of a Reit manager.
"In order to do this, trust companies would have to significantly restructure their operations and beef up their teams. They also would not have the strategic information and networks necessary to manage the Reits well," said Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation.
To be sure, the situation at EHT is a rare case, and DBS Trustee had no choice but to step up.
After all, the primary responsibility of all Reit trustees in Singapore is to safeguard the rights and interests of unitholders.
"In the case of EHT, DBS Trustee (as the trustee of EHT) has the duty to act in the best interests of EHT's unitholders and will remain responsible for the affairs of EHT, including determining the next steps for EHT," said a spokesperson for the Monetary Authority of Singapore (MAS), when approached for comment.
However, some observers say Reit trustees do not have the "overarching powers" to be the guardians of retail investors or the supervisors of Reit managers to ensure they behave and perform legal and contractual duties.
"The Reit trust deed and the Reit laws and regulations clearly divide the duties and responsibilities of the manager and the trustee," said Tan Woon Hum, a partner at Shook Lin & Bok.
"The trustee cannot manage the Reit, simply because it does not have the powers, capabilities, experience or necessary licence to be a Reit manager," added Mr Tan, who is the head of the law firm's trust, asset and wealth management practice.
Reit managers are required to hold a capital markets services licence. Trustees need to have a trust business licence. Both licences are issued by MAS.
In the light of what's happened at EHT, regulators should perhaps consider modifying the rules for Reit trustees.
"Enhancing the laws and regulations for Reits, especially giving the trustee more suitable powers and discretion, would make things clearer," Ms Yuen Thio said.
"If situations arise and the Reit trustee needs to step up to take charge of matters, it would create more certainty, avoid unnecessary costs and delays, and allow the relevant parties to move forward to carry out the actions that are required in an efficacious manner," she added.
Shook Lin & Bok's Mr Tan said that in light of recent developments, the Reits' trust deeds should give powers to the trustee to carry out "certain important functions" when the Reit has no manager.
"Perhaps, the regulators and the industry can revisit the relevant laws and regulations to see how to fine-tune and improve the laws and regulations to deal with technical regulatory gaps or new and evolving issues as the Reit market grows and develops over time."
Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.