In a somewhat audacious move, on Aug 12, Urban Commons, the sponsor of Eagle Hospitality Trust when it listed in May last year, issued a press release full of angst. It says in a Breach Notice sent to EHT, the master lessee of EHT’s properties (which is also Urban Commons), has intimated that the amount of funds it has injected into EHT over the past year are outstanding and due for repayment.
As background, EHT owns the famed Queen Mary Long Beach which it acquired at IPO in May last year for more than US$139 million ($191 million). The sponsors were paying a ground lease of just US$300,000 a year for the ship and adjacent property.
According to Urban Commons, prior to March, there was no default from operations and yet, since the onset of Covid-19, the sponsor has been targeted with allegations. This is probably in reference to certain statements made by EHT’s manager on SGX which does not quite tally with Urban Commons statements.
Among them, on June 21, EHT’s manager announced that Urban Commons had not paid transient occupancy taxes (TOT) and tourism business improvement district (TBID) assessments to the City of Pasadena (for its hotel there) from May 2019 to February. EHT was listed in May 2019.
Also on June 21, the manager announced EHT received a notice of default from the City of Long Beach in relation to the lease agreement with The Queen Mary because Urban Commons failed to pay monthly TOT amounts to the City of Long Beach for 2019 and 2020.
Urban Commons — which blames Covid for EHT’s various defaults — says in the press release, it has “tried to approach the trustee with proposals, in the hope of stabilising the position of EHT. To date, however, these plans have not been met with constructive responses from the trustee”.
It adds that it is “saddened to discover that it appears substantial amounts of EHT’s cash, potentially worth millions of dollars, is being spent each month as retainer fees for professional consultants who are refusing to work with the aponsor to find a way out of the crisis”. This is probably true.
“Instead of working with the sponsor, announcements have been published without reflecting submissions from the master lessee and its US Counsel over the last few months,” Urban Commons says. We have no way of knowing whether this is true till the trustee and manager acknowledge or refute this statement.
As a result, Urban Commons says it is “left with no choice but to serve the legal notice and also to highlight that EHT has legal obligations to the master lessee which are not being fulfilled.” If so, it is a puzzling move given that legal notice and legal action would lead to further expenses.
On June 5, the Monetary Authority of Singapore and the Commercial Affairs Department said in a joint statement that they have opened a joint investigation on the "current and former directors, and officers responsible for managing Eagle Hospitality Trust (EHT), in connection with suspected breaches of disclosure requirements under section 203 of the Securities and Futures Act (Cap. 289)."
Continue to watch this space.
