The last chapter of ill-fated Eagle Hospitality Trust, known for having The Queen Mary Long Beach as one of its IPO properties, is finally being written.
On June 8, 2021, DBS Trustee announced that the Chapter 11 Entities filed a motion with the US Bankruptcy court on June 4. This motion authorises Urban Commons Queensway (UCQ), to abandon any personal property remaining at the Queen Mary Long Beach property on the basis that the costs associated with removing, storing, and liquidating any such personal property will likely approach or exceed their residual value. The hearing will be on July 7. Also on June 4, UCQ surrendered the Queen Mary Long Beach to the lessor, the City of Long Beach.
The announcement says that the Chapter 11 entities requested the Court to ‘reject the QM Agreements’. These are the costs associated with holding the Queen Mary Long Beach.
A significant part of the challenge in finding a buyer for the Queen Mary Long Beach property is the substantial cure costs which a buyer would have to pay, and the substantial capital improvements required by the asset. The Queen Mary Long Beach property is currently closed and incurring substantial ongoing expenses. These include US$45,000 per month in rent to the City of Long Beach, California; US$300,000 per month in caretaker costs; approximately US$1.3 million for the hull and property insurance premium due in July 2021; and US$150,000 of audit expenses due in July 2021.
DBS Trustee says UCQ also remain subject to certain liabilities due to historical defaults related to the Queen Mary Long Beach property arising from the failure of EHT’s master lessees, Urban Commons, Taylor Woods and Howard Wu, to fulfil their obligations under the relevant master lease agreements, and hence claims were filed against the Queen Mary Long Beach by third party service providers. There could be still be other lawsuits relating to maintenance and repair costs.
By rejecting the QM Agreements, UCQ would no longer be obligated to pay these expenses, DBS Trustee says.
Unsurprisingly, no qualified bids were eventually received in respect of the Queen Mary, and hence no auction of the ship took place when 14 of EHT’s 18 assets were auctioned.
However, bids were received from Constellation Hospitality Group (which is backed by Woods and Wu) for the Queen Mary Long Beach. But none were accompanied by a draft sales and purchase agreement and deposit.
In May 2019, The Queen Mary Long Beach was sold into EHT at US$139.7 million, with the sponsors, Woods and Wu having capitalised the cash flow from the asset for 20 years at a discount rate of 10%. The entire portfolio of 18 assets were value at more than US$1.2 billion, and units were offered at US0.78 per unit. Woods and Wu raised US$565 million from the IPO. But right from the very first day of trading, EHT’s price fell below the IPO price and kept falling till the stock was suspended in March last year. The auction raised just US$481.9 million.