The Edge Singapore  27/05/2020, 8:29pm

SINGAPORE (May 27): The SGX RegCo is pressing Eagle Hospitality Trust for updates from the special committee that was formed in April, to help in its restructuring and strategic business review after it defaulted on a US$341 million syndicated loan.

This special committee, whose composition was announced on April 1, consists of EHT&rsquo s independent directors: Carl Gabriel Florian Stubbe, who is chairing the committee Davy Lau Tarun Kataria Tan Wee Peng Kelvin as well as Salvatore G. Takoushian, CEO of EHT&rsquo s manager.

SGX RegCo&rsquo s request for updates came a day after Howard Wu and Taylor Woods confirmed their resignations from EHT&rsquo s board as chairman and vice chairman. The duo are co-founders of Urban Commons, the US-based entity that is EHT&rsquo s sponsor. The resignations came after the discovery of interested party transactions that were inked by the duo on behalf of EHT&rsquo s master-lessor subsidiaries. The transactions in question were uncovered during an ongoing strategic review of EHT&rsquo s business.

The agreements were &ldquo not on usual commercial terms&rdquo and were therefore &ldquo prejudicial&rdquo to the interests of EHT and its minority stapled securityholders, according to EHT on May 16. SGX RegCo basically nudged the duo from their posts on May 16 when it openly queried EHT&rsquo s nominating committee if Wu and Woods are still deemed &ldquo suitable&rdquo to serve on the board of the manager.

In its public query to EHT made on May 27, SGX RegCo wants to know: if an outline of proposals that have been made known to the committee.

It also wants disclosure on whether any conflicts of interest arose during the proposal management process and if so, how these conflicts were managed.

SGX RegCo is also requiring EHT to say if the proposals put forward, if any, will contemplate a change in control of the REIT manager.

&ldquo The REIT Manager and the Trustee Manager of EHT are legally required to give priority to the interest of all security holders of the Stapled Trust as a whole, over their own interests in the event of a conflict of interest,&rdquo SGX RegCo warns.

The exchange&rsquo s regulatory body further demands that the EHT&rsquo s manager and the trustee manager to confirm that they will prioritise interests of all EHT unitholders over their own interests in the proposal management process.

The Edge Singapore    26/05/2020, 5:33pm

SINGAPORE (May 26): In a report by the  Orlando Weekly  on May 25, which referred to Urban Commons problems, including its failure to pay cleaning bills of US$420,000, it emerges that its Holiday Inn Resorts Orlando Suites - Waterpark, is valued at US$71 million, a marked difference from its valuation in the prospectus. According to the  Orlando Weekly, Urban Commons also owes a staffing agency US$118,000. Holiday Inn Resorts has also furloughed 325 staff, the weekly says.

For local investors, the most eye-catching statement was the valuation of Holiday Inn Resorts Orland Suites. &ldquo With rumours running rampant on what the future holds for Urban Commons, the company issued a statement to  Orlando Weekly  to address many of the concerns regarding the future of the Orlando property and the company. First and foremost, they assure the  Orlando Weekly  that the Orlando site, now valued at US$71 million with an estimated annual RevPAR of US$22 million, is not for sale,&rdquo the  Orlando Weekly  says.

Holiday Inn Resorts Orlando Suites-Waterpark is one of 17 properties that were sold into Eagle Hospitality Trust during its IPO in May last year. The 18th  asset was Queen Mary Long Beach, a stationary ship.

Undoubtedly, one of the reasons for selling Holiday Inn Resorts Orlando Suites -Waterpark into Eagle Hospitality Trust in May last year for US$142.7 million was for Urban Commons to turn around a profit from its purchase of the property in 2014, for a reported US$80 million. The valuation that was adopted by EHT was US$162.8 million.

The valuation for Holiday Inn Resorts Orlando Suites, according to the prospectus, is based on a master lease of 20 years + 20 years, a base rent of US$7.5 million, and a variable rent of 19% of gross operating revenue, plus 22% of gross operating profit. For FY2020, this would have been US$12.52 million. In addition, Urban Commons was required to provide a rental guarantee of nine months of the base rent as part of the IPO valuation. EHT&rsquo s most well-known asset is Queen Mary Long Beach whose capital expenditure and operating expenditure needs, and ground lease terms - and hence valuation mismatch paid for by unitholders - were brought to light by  The Edge Singapore  last year. Since then, issues such as failure to provide security deposits as stipulated by the prospectus, and failure to pay master lease rents have come to light, culminating in a default by EHT of a US$341 million loan.

Properties in REITs are generally valued by their cash flow and hence the discounted cash flow (DCF) is the most common. Generally, valuers adopt two types of valuations. In addition to DCF this could be a comparable property value. For some of EHT&rsquo s properties, this was included, but not for Holiday Inn Resorts Orlando Suites, and Queen Mary.

If valuations are not what they seem, there could be very little incentive for a third party white knight to swoop in on Eagle. Its total debt as at Dec 31, 2019 was U$506 million. Based on the valuation of Holiday Inn Resorts Orlando Suites, unitholders and white knights would have to be prepared to take a valuation haircut of around 50%. EHT&rsquo s portfolio was valued at US$1.27 billion at IPO.

Since SGX and MAS are looking into possible breaches of relevant laws and regulations as well as listing rules and will take regulatory and enforcement actions where appropriate, they have said, a good place to start would be the prospectus and the basis of the valuation for  the properties.

Uma Devi  22/05/2020, 6:11pm

SINGAPORE (May 22): Eagle Hospitality Trust&rsquo s (EHT)&rsquo 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. 

  &ldquo 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,&rdquo 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 &ldquo significant impact&rdquo on both the fixed and variable rents the REIT had initially expected to pocket in 2020. 

 

  &ldquo It was essential to limit or suspend operations at our hotels to reduce operational overheads,&rdquo says Urban Commons. 

  &ldquo 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,&rdquo 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&rsquo s owner, City of Long Beach in 2015. 

  Woods, who is also EHT&rsquo s deputy chairman, is set to resign from the REIT&rsquo 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&rsquo s master-lessor subsidiaries, that were deemed to be &ldquo prejudicial&rdquo to the interests of EHT and minority unitholders, as they were &ldquo not on usual commercial terms&rdquo .

  Both Wu and Woods will, however, remain on the board of Urban Commons to &ldquo focus on US operations and opportunities.&rdquo

  &ldquo 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,&rdquo 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 &ldquo major restoration projects&rdquo 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&rsquo s lease agreement, a spokesperson for Long Beach City&rsquo s Department of Economic Development says it has not taken &ldquo any such action&rdquo at this time. 

  &ldquo Any such action would have to be taken formally by the Long Beach City Council,&rdquo he says. &ldquo The City and Urban Commons are still in communications related to the lease and operation of the ship.&rdquo

  Back in October last year, Edward Pribonic - an independent inspector hired by the City of Long Beach - claimed the ship had &ldquo never been in a worse condition.&rdquo

  &ldquo Without an immediate and very significant infusion of manpower and money, the condition of the ship will likely soon be unsalvageable,&rdquo 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. 

  &ldquo 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,&rdquo 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 &ldquo analyse the economic, fiscal and social impacts of the Queen Mary&rdquo to the City and the Los Angeles County region for 2019. 

  According to the report, the ship had generated &ldquo tremendous economic activity, supported numerous jobs and contributed significant tax revenue to support regional and local governments.&rdquo

  For 2019 alone, the Queen Mary had reportedly generated some US$205.3 million in economic output, and was termed an &ldquo economic driver&rdquo for Long Beach City. Spending by guests at the ship&rsquo s hotel totalled $42.6 million for that year. 

  Long Beach City had &ldquo benefited significantly&rdquo 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 &ldquo robust mechanics&rdquo specifically intended to fund repairs.

  &ldquo This funding mechanism is separate from other costs and self-supporting, thus it was not included in the economic impact analysis,&rdquo says Zeineddine. 

  Zeineddine adds that all operational and expenditure data was provided directly from the Queen Mary&rsquo s finance management staff, and the data was analysed by Beacon Economics using an industry standard modelling system for impact analysis.

  &ldquo 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&rsquo s Office of Business Development,&rdquo says Zeineddine. 

  While Zeineddine says it is unusual to find &ldquo this level of transparency&rdquo , 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 &ldquo 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 &ldquo trying all avenues&rdquo since 2012.

  &ldquo We&rsquo 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,&rdquo says Rohrer. 

  &ldquo The City of Long Beach has hindered our ability to raise serious funds by the ongoing delays,&rdquo adds Rohrer. &ldquo 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.&rdquo

  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&rsquo 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&rsquo 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&rsquo s manager was also asked by MAS to restore its minimum base capital and financial resources to comply with MAS&rsquo 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.

 

 

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