UPDATE: Eagle Hospitality Trust confirms Queen Mary lease not in default

U.S. one-dollar currency notes; taken September 2018.U.S. one-dollar currency notes; taken September 2018.

This article was originally published on Monday, 28 October 2019 at 16:43 SGT; it has since been updated with more details.

Eagle Hospitality Trust confirmed Monday that neither the REIT nor its sponsor, Urban Commons, were in default of the terms of the ground lease for the Queen Mary property.

The trust had rebutted Thursday claims in an Edge Singapore article that the Queen Mary, one of its 18 U.S. hospitality properties, has fallen into structural disrepair and could be found in default.

The Queen Mary is a decommissioned ocean liner which has been converted into an upscale hotel with 347 rooms; it is moored in Long Beach, California.

The Edge had pointed to reports Long Beach’s economic development director, John Keisler, had sent a letter on 1 October to Taylor Woods, the CEO of Urban Commons, which is the trust’s sponsor, saying it had not met its obligations under the lease to repair the vessel and warning of a potential default by the end of the month.

But Keisler clarified that the letter is considered a formal request for information and not a notification of default, Eagle Hospitality Trust said in a filing to SGX Monday.

According to the filing, the clarification letter from Keisler, he said: “Formal documentation of issues between landlord and tenant is a normal practice of good lease management but does not establish default. I am happy to report that the City has received Urban Commons’ written response to its October 1st letter and is currently reviewing the proposed plans to cure issues of concern.”

Urban Commons has also sent the city two letters from separate engineering firms, one confirming structural integrity and the other that the first firm’s actions to repair the hull were adequate for keeping the vessel in its current stationary location, the trust said.

The REIT also noted that capital expenditure on the Queen Mary isn’t its responsibility, with the costs to be borne by an affiliate of its sponsor.

The city has required five items of work to be addressed and United Commons has estimated the cost at up to US$7 million, the trust said in a separate filing to SGX answering queries from SGX.

The five items were exterior paint on the hull, funnels and top of house areas; repair of expansion joints, including missing plate; bilge repair and rust remediation; side shell and lifeboats; and general maintenance, the filing said. It added United Commons has provided the REIT manager with a timeline for completing the works.

The trust added that in the event of a default, the REIT has a contractual right to perform the maintenance obligations itself, with reserve mechanisms in the lease to provide funding.

“If UC fails to satisfy its repair and maintenance obligations under its sublease, the Eagle Queen Mary Subsidiary has the unequivocal right to
terminate the Queen Mary master lease and enter into a new master lease with another party,” the REIT said.

If both United Commons and the subsidiary were to default, the agreement with the city still provides a cure period of 60 days or longer, the REIT said.

 

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