Eagle's Albatross: An Analysis of Eagle Hospitality Properties and its "Strategic" Alliances with Corporex and Commonwealth Hotels

Eagle Hospitality Properties [NYSE: EHP] - a small and underperforming hotel REIT - has "strategic alliance" agreements with its Chairman William P. Butler and the companies he controls, hotel operator Commonwealth Hotels and real estate company Corporex. Eagle sees the strategic alliances, which strongly bind the REIT to Mr. Butler and his companies, as a key element of its strategy to succeed.

This model is at odds with prevailing trends in the lodging REIT sector, in which REITs are becoming more independent of hotel operators that they have historically partnered with. As major hoteliers increasingly shed their owned properties, there is a great opportunity for Eagle to fulfill its stated goals of expansion outside of its Midwest homebase and high-quality management of its properties. The strategic alliances, however, may actually hinder, rather than help, the attainment of these goals.

We urge Eagle shareholders to look carefully at the strategic alliances, which have conflicts-of-interest involving Mr. Butler, and consider measures to mitigate the liabilities posed by these arrangements, up to and including amendment of the agreements.

We also scrutinize the board's composition to determine whether it contains a majority of truly independent directors who can effectively safeguard the interests of shareholders against Mr. Butler's conflicts-of-interest.