SINGAPORE (Oct 23): The Queen Mary Long Beach, a decommissioned ocean liner that has now been converted into a 347-room upscale hotel in California, is one of the key assets in the 18-property portfolio of Eagle Hospitality Trust.

But following a series of damning reports by an independent inspector hired by the City of Long Beach, Eagle Hospitality Trust could soon lose its prized possession.

Under a 2016 lease agreement, Urban Common – the sponsor of Eagle Hospitality Trust – was tasked with the repair of The Queen Mary in exchange for a 66-year lease on the property.

Under the agreement, Long Beach said it would shoulder US$23 million for the most urgent repair work, with Urban Commons covering the remainder of the costs.

But Urban Commons may have bitten off more than it can chew, as it grapples with both limited time and resources.

On Oct 1, John Keisler, the city’s economic development director, is reported to have sent a letter to Taylor Woods, the CEO Urban Commons, alleging that the company had failed to meet its obligations.

According to reports, Keisler cited a number of issues, including failing paint and the necessary repairs to the ship’s side shell and expansion joints. 

Keisler also warned the operator about the possibility of a default that could take place at the end of the month, requesting financial paperwork and a plan for making urgent fixes within 30 days. 

“If you fail to respond within 30 days,” Keisler is reported to have written, “Urban Commons may be found in default.”

With the letter dated Oct 1, Urban Commons now has just one week to come up with a plan on how it intends to make good on its promises.

Sinking into disrepair

What was once considered a luxury cruise ship now sports broken or missing handrails and splitting carpets patched with duct-tape, according to city-hired inspector Edward Pribonic.

The adjacent Queen’s Marketplace, which was supposed to have been demolished, is now used as a convenient place to store rubbish. 

The former liner’s structural integrity is also at risk as the Scorpion Russian submarine, or the ship’s neighbour in its moat, is heavily corroded and is threatening to go under. 

Pribonic has filed almost 400 inspection reports with the city of Long Beach since 1992, following monthly inspections of the ship. And all the details point to several years of abandonment.

In his most recent inspection according to the Long Beach Post, Pribonic has offered what seems to be the bleakest outlook for the ship to date. 

“Last month I stated that the ship has never been in a worse condition,” wrote Pribonic. “That statement is surpassed by the condition found this month which is even worse, as new failures and additional neglected areas are added to the list. Without an immediate and very significant infusion of manpower and money, the condition of the ship will likely soon be unsalvageable.”

Three years ago, Urban Commons is reported to have taken on the lease despite a marine survey that unveiled that the ship’s deteriorating condition was “approaching the point of no return”.

 According to that report, the total cost of ship repairs could range from US$235 million ($320 million) to US$289 million. In addition, it estimated that the work would take approximately five years to complete, with some 75% of repairs deemed “urgent”.

A potential stumbling block

On the local front, Eagle Hospitality Trust has been in choppy waters since it was listed on the Singapore Exchange on May 24. 

On its debut, the counter dipped some 6.4% from its initial public offering (IPO) price to close at 73 US cents. Some 23.1 million units changed hands on the day, which made it one of the most heavily traded counters on the Singapore bourse.

Since then, the counter has slid a further 11.6% to close at 64.5 US cents on Oct 23.

One of the US pure-play REITs to set foot in Singapore in 2019 – alongside Keppel Pacific Oak US REIT (KORE), ARA US Hospitality Trust (ARA H Trust), and Prime US REIT – Eagle Hospitality Trust in its earnings call for the period of May 24 to June 30 reported a distribution per stapled security (DPS) of 0.65 US cents, some 1.2% higher than the forecasted 0.642 US cents. 

However, revenue for the period came in at US$9.51 million or some 1.3% lower than the forecast of US$9.63 million. Net property income too fell short of the forecast, coming in at US$8.05 million, or 1.8% shy of the forecasted US$8.20 million. 

According to Eagle Hospitality Trust's IPO prospectus, The Queen Mary has been valued at US$159.4 million and had an occupancy rate of 69.8% as at FY18. And with its prospects of improvement diminishing, it raises a titanic question on the adverse effects this may have on the newly-listed REIT. 

See update: Eagle Hospitality Trust says Urban Commons 'not in default' of lease; The Queen Mary 'safe and structurally sound'