The latest twist in the Eagle Hospitality Trust (EHT) saga is that the trust’s sponsor Urban Commons is facing complaints and prosecution in US Courts. Seven unitholders comprising an Informal Steering Committee (ISC), also referred to as Ad Hoc Equity Committee, have appealed to the Monetary Authority of Singapore (MAS) to intervene urgently to delay or terminate the imminent disposal of 15 EHT hotel assets under US Chapter 11 proceedings. The ISC says it is very concerned by the disposal of the assets and non-acceptance of the alternative proposal by Constellation Hospitality Group which is none other than Urban Commons.
At a May 26 hearing in the Bankruptcy Court in Wilmington, Delaware, Judge Christopher Sontchi, according to The Wall Street Journal, ruled that the behaviour of Taylor Woods and Howard Wu, who jointly own Urban Commons is “beyond the pale” and “reprehensible”.
A complaint in a court filing known as Docket 10 alleged that Woods and Wu applied for a loan using the Paycheck Protection Program (PPP) in April and May last year, which is part of the Cares Act to help employees during the pandemic.
The complaint had been filed by Urban Commons Queensway’s (UCQ) creditors in the US Court. Urban Commons Queensway owns the Queen Mary Long Beach hotel.
Judge Sontchi is considering referring Woods and Wu to prosecutors for possible criminal conduct over accusations they absconded with government Covid-19 relief, according to The Wall Street Journal.
Although Judge Sontchi turned down an injunction to stop Woods and Wu tranferring the PPP funds, he said he believed that fraud had been committed against UCQ, according to the report.
The complaint by UCQ’s creditors alleges that Woods and Wu paid the PPP monies into their own bank accounts. According to the complaint, money from the PPP loan was sent overseas as well. “In one striking example of Woods and Wu’s misuse of PPP proceeds — and ability to quickly secrete funds from the US to accounts overseas — the purported PPP proceeds spreadsheet includes aggregate wire transfers of more than US$1.9 million ($2.5 million) between May 19, 2020, and May 28, 2020, to “Poh Altan (KP)”, with a wire description listed as “Oversea-Chinese Ban[k] ... Poh Altan Resources Company Limite[d]”.
Poh Altan Resources is a company controlled by Mr KP Poh, who is also CEO of Tian Poh Resources which is listed on the Australian Securities Exchange, the docket says.
In a separate, unrelated Chapter 7 claim, petitioners Selbert Perkins Design, Epic Entertainment Group and InterCommunications are together claiming US$1.024 million from Urban Commons for contracts for services. Since the start of this year, EHT’s assets have been protected under Chapter 11, following the failure of unitholders to vote for a new manager in an EGM.
On May 24, in an SGX filing, DBS Trustee, which is monitoring the sale of EHT’s assets to repay its creditors, announced that the successful bidder for 14 of EHT’s 18 assets — excluding the Queen Mary Long Beach — was Madison Phoenix, an affiliate of Monarch Alternative Capital, whose affiliates are also the lenders of a financing facility to EHT. The agreed price is US$481.9 million. According to Docket 770 filed in the US Court, the amount raised from the sale is not sufficient to provide a recovery to unitholders.
The successful bid is subject to approval by the US Bankruptcy Court, and a hearing is scheduled on May 28. Entering into Chapter 11 and the auction timeline are all procedures sanctioned by the US Court. Urban Commons had already filed an objection to the auction process, albeit unsuccessfully when DBS Trustee and the creditors first sought the Court’s approval to the auction process and timeline. Urban Commons filed a second objection in mid-May asking for a hearing, which was denied.
Separately, according to The Long Beach Post, Urban Commons misrepresented financial information to the City of Long Beach by asking to be reimbursed for critical repair work on the Queen Mary before it paid contractors to perform the jobs, the city auditor found. Long Beach is now locked in a legal battle with Urban Commons in a Delaware bankruptcy court over the firm’s string of failed lease obligations, The Long Beach Post says. Among the issues, the city said Urban Commons failed to complete at least US$41 million in repair work on the ship and owes the city more than US$900,000 in rent and fees.
This is ironic. Urban Commons agreement with the City of Long Beach included the former paying a ground rent of US$300,000 a year to the latter, for operating the Queen Mary. Urban Commons sold the future cash flows of the Queen Mary into EHT, where the Queen Mary was capitalised and sold into the REIT at US$139.7 million.
The Edge Singapore saw this as financial engineering after EHT’s IPO in May 2019, when the Queen Mary was valued at US$179 million by Colliers, based on a long master lease agreement on a triple net basis, of 20 plus 14 years commencing on the date of the IPO with a base rent of US$10.4 million a year and a variable rent formula
