Goola Warden Published on Tue, Jul 13, 2021
On July 13, DBS Trustee, in relation to Eagle Hospitality Trust, announced that the US Bankruptcy Court has approved the motion, filed by the Chapter 11 Entities, to reject the lease and operational agreements relating to the Queen Mary Long Beach property including the long-term ground lease agreements between the City of Long Beach and Urban Commons Queensway (UCQ). UCQ is one of the Chapter 11 entities.
On June 4, 2021, the Chapter 11 Entities filed a motion with the US Bankruptcy Court to, to seek approval for the rejection of the Queen Mary agreements and UCQ surrendered the Queen Mary Long Beach property to the City of Long Beach, which was the lessor of the asset. The motion was filed on July 7.
In May 2019, for EHT’s IPO portfolio, its sponsors, Urban Commons capitalised the future cash flow from The Queen Mary and sold the vessel into EHT for US$139 million. It was this financial engineering that alerted The Edge Singapore to the issues faced by EHT, which included the sponsors defaulting less than a year later on the master leases of the other 17 assets in EHT.
On June 28, DBS Trustee announced the completion of the sale of the 14 Chapter 11 properties (excluding The Queen Mary) for US$478.6 million. The trustee says the net proceeds are being used to repay ongoing post-petition expenses and pre-petition creditors of the Chapter 11 Entities in the order of priority of their respective rights, including the outstanding amount under the pre-petition Facilities Agreement (including accrued interest) and related swap agreements as well as trade creditors against these entities (which claims cannot be quantified at this time). To the extent any value remains, other junior creditors would be paid.
DBS Trustee says it will update Stapled Securityholders of any material developments in respect of the Chapter 11 cases and EHT’s remaining properties, including engaging with Stapled Securityholders and addressing any key remaining queries they may have.
In time, EHT is likely to be a case study in due diligence. Could investor safeguards be improved? Should the sponsor’s financial strength or lack there of be disclosed in future prospectuses? Should REITs with unknown sponsors be listed under an internalised management structure? Since EHT’s problems surfaced, the Singapore Exchange has not had a REIT IPO despite market talk of a pipeline of REIT IPOs.