Eagle Hospitality Trust -which owns 18 hotels including the Queen Mary Long Beach, a ship - announced 2Q2020 and 1H2020 results on Aug 14. The costs have ballooned. Trust expenses were US$11.6 million, and caretaker expenses were US$3.36 million. Trust expenses consist of recurring expenses, legal fees and professional fees incurred in connection with the Restructuring and Strategic Review of EHT's business as well as the defaults under the master lease agreements (MLAs).
Caretaker expenses were incurred because of temporary caretaker arrangements at certain hotels in EHT's portfolio. These were caused by lack of remedial action on the part of the relevant Master Lessees - all subsidiaries of Urban Commons - to safeguard the hotels whose hotel management agreements have been, amongst other things, terminated.
The profit and loss statement lists other income of US$14.3 million during 1H2020. Other income comprises recovery of legal and professional fees, caretaker expenses and interest expense due to default rates that are accrued in statement of comprehensive income. It appears that EHT’s manager and trustee are looking to recover some of the costs from the master lessees, owned by Urban Commons. “To the extent these expenses are incurred in connection with any default under the master lease agreements, they would fall within the scope of the relevant Master Lessees’ indemnity obligation under MLAs,” the results announcement says.
Loss on termination on interest-rate swaps US$18.3 million involve and impairment loss on trade and non-trade receivables of of US$40.3 million.
The loss on termination of interest rate swap (IRS) pertains to the amounts due and payable under the IRS agreement with effect from its termination date as a result of the notice of termination of IRS agreement received by EHT.
Impairment loss on trade receivables and non-trade receivables comprise: (1) Rental receivable from Master Lessees as of June 30, 2020; and 2) the Master Lessee’s ability to make rental payments and fulful its obligations under the master-lease agreements and 3)impairment loss on other receivables due to uncertainty of recoverability. It is highly unlikely that the master lessees, which are all owned by Urban Commons is likely to be making rental payments to the trust hence the impairment. There is a question mark hanging over the recoverability of the master lease rents. Recall that Urban Commons listed EHT in May 2019, collecting IPO monies of US$565 million.
Including loss in fair value of properties and a small tax charge, EHT recorded a loss of US$47.8 million in 1H2020. EHT did not announce a distribution per unit for the period.
The events, defaults and non-payments by Urban Commons that have caused EHT’s losses in 1H2020 are on pages 3-11 of this document.
