SINGAPORE (May 22): Eagle Hospitality Trust’s (EHT)’s sponsor, Urban Commons has pledged its commitment to the Queen Mary Long Beach, its second largest asset which has been dogged by controversy.
In an email to The Edge Singapore, an Urban Commons spokesperson says the decommissioned cruise liner, which has been turned into a floating hotel, has been closed since May 7. The closure was attributed to the Covid-19 pandemic, which has hit large parts of the US.
“While leadership at the Queen Mary tried to keep the ship's doors open, with no clear end in sight, the decision was made to temporarily halt operations until the Governor's fourth stage of reopening the state, when the stay-at-home order ends,” says Urban Commons.
Prior to the outbreak, the Queen Mary Long Beach received some 100,000 visitors per month.
As at end-March, EHT says that some 14 out of its 18 hotels have ceased operations due to the Covid-19 outbreak. This is expected to have a “significant impact” on both the fixed and variable rents the REIT had initially expected to pocket in 2020.
“It was essential to limit or suspend operations at our hotels to reduce operational overheads,” says Urban Commons.
“As we navigate the unprecedented challenges due to Covid-19, Urban Commons has worked tirelessly to house first responders and the military, as well as airline and other group contracts,” it adds.
According to Taylor Woods, Principal at Urban Commons, the suspension of operations marks the first time the ship has shuttered its doors since Urban Commons partnered the ship’s owner, City of Long Beach in 2015.
Woods, who is also EHT’s deputy chairman, is set to resign from the REIT’s board of directors on May 26 along with non-executive chairman Howard Wu. Their resignations came shortly after the discovery of interested party transactions that were inked by the pair on behalf of the trust’s master-lessor subsidiaries, that were deemed to be “prejudicial” to the interests of EHT and minority unitholders, as they were “not on usual commercial terms”.
Both Wu and Woods will, however, remain on the board of Urban Commons to “focus on US operations and opportunities.”
“As Taylor Woods and Howard Wu shift focus, we believe that transitioning as quickly as possible is necessary to maintain continuity while navigating the current pandemic,” says Urban Commons.
Saving Queen Mary
In addition to the maintenance work that takes place on a routine basis, Urban Commons says there have also been “major restoration projects” for the ship in 2020, and will make a formal announcement once final inspections are completed.
In response to queries from The Edge Singapore on the possibility of a disruption of Queen Mary’s lease agreement, a spokesperson for Long Beach City’s Department of Economic Development says it has not taken “any such action” at this time.
“Any such action would have to be taken formally by the Long Beach City Council,” he says. “The City and Urban Commons are still in communications related to the lease and operation of the ship.”
Back in October last year, Edward Pribonic - an independent inspector hired by the City of Long Beach - claimed the ship had “never been in a worse condition.”
“Without an immediate and very significant infusion of manpower and money, the condition of the ship will likely soon be unsalvageable,” wrote Pribonic, who had filed almost 400 inspection reports with the city of Long Beach since 1992, following monthly inspections of the ship.
The City had terminated its contract with Pribonic in December last year, after commissioning a local engineering firm to review his reports.
The Department of Economic Development says global infrastructure advisory firm Moffat & Nichol has assessed the reports, and offered several recommendations for improving the inspection and reporting process.
“Moffat & Nichol has also been engaged to review the current base maintenance plan and assist the City with developing a request for proposal (RFP) for the selection of a new independent inspection engineer,” it says.
Report accuracy, transparency
On Jan 15, Urban Commons announced that it had commissioned an economic impact report for the Queen Mary.
In a memo seen by The Edge Singapore, Urban Commons hired independent economic research and consulting firm Beacon Economics to “analyse the economic, fiscal and social impacts of the Queen Mary” to the City and the Los Angeles County region for 2019.
According to the report, the ship had generated “tremendous economic activity, supported numerous jobs and contributed significant tax revenue to support regional and local governments.”
For 2019 alone, the Queen Mary had reportedly generated some US$205.3 million in economic output, and was termed an “economic driver” for Long Beach City. Spending by guests at the ship’s hotel totalled US$42.6 million for that year.
Long Beach City had “benefited significantly” from the increase in spending - absorbing about 46% of the total effect on labour income, 50% of the total effect on economic output and 62% of total effect on employment.
Mazen Bou Zeineddine, Practice Lead at Beacon Economics tells The Edge Singapore that costs were not divulged in the report as Urban Commons had developed “robust mechanics” specifically intended to fund repairs.
“This funding mechanism is separate from other costs and self-supporting, thus it was not included in the economic impact analysis,” says Zeineddine.
Zeineddine adds that all operational and expenditure data was provided directly from the Queen Mary’s finance management staff, and the data was analysed by Beacon Economics using an industry standard modelling system for impact analysis.
“Beacon Economics administers a robust data quality check, including cross referencing attendee and visitor expenditures with state estimates provided by Visit California and the Governor’s Office of Business Development,” says Zeineddine.
While Zeineddine says it is unusual to find “this level of transparency”, others feel differently. Mary Rohrer, co-founder of non-profit organisation QMI Restore The Queen, a local activist, claims the study was done in a “rushed manner with very old information", and flagged the possibility of a lack of transparency and accuracy in the report.
Rohrer also says QMI has been sidelined in its efforts to help the ship, and have been “trying all avenues” since 2012.
“We’ve received donations from as far away as Scotland to help. So we have funds sitting in our bank account and cannot get a clear answer from either EHT, Urban Commons or the City on who to make a check payable to,” says Rohrer.
“The City of Long Beach has hindered our ability to raise serious funds by the ongoing delays,” adds Rohrer. “They are the owners of the ship and are supposed to be protecting the City-owned assets for the benefit of its residents, and they are not.”
Zeineddine, however, says the tax data came directly from the City of Long Beach, and was verified before being passed on to Beacon Economics.
"[This] is notable as it is unusual to find this level of transparency in relation to proprietary tax data," says Zeineddine.
Beacon Economics had reportedly utilised a "robust data quality check", including cross referencing attendee and visitor expenditures with state estimates provided by several authorities.
"This report is the most comprehensive analysis ever performed on the Queen Mary’s economic impacts and used first source data," he adds.
On Apr 20, the Monetary Authority of Singapore and the Singapore Exchange Regulation (SGX RegCo) said they were looking into possible breaches of relevant laws and regulations, as well as of listing rules in relation to EHT.
This came shortly after a default on EHT’s US$341 million syndicated loan, which had resulted in the REIT calling for a voluntary trading suspension. That amount of interest due was later stated as US$18.3 million.
Urban Commons had also purportedly failed to provide the full sum of security deposits due under master lease agreements to EHT, and to make timely rental payments since December 2019.
The REIT’s manager was also asked by MAS to restore its minimum base capital and financial resources to comply with MAS’s requirements. EHT was noted to have breached MAS requirements of having a minimum base capital of $1 million, and ensuring that its financial resources do not fall below its total risk requirements.
