Eagle Hospitality Trust lays out its Queen Mary case — Again

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

Eagle Hospitality Trust laid out its case about its Queen Mary property again on Friday, rebutting yet again recent claims and addressing investors’ concerns over the hotel.

The trust reiterated that its sponsor, Urban Commons, and the REIT have complied with the ground lease with the City of Long Beach, California, and are not in default on the Queen Mary property. The Queen Mary is a decommissioned ocean liner which has been converted into an upscale hotel and attraction moored in Long Beach.

The trust had previously rebutted recent 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.

“Urban Commons has a constructive relationship with the City and maintains a frequent and collaborative dialogue to ensure the proper upkeep and maintenance of the iconic asset,” Eagle Hospitality Trust said Friday.

“As part of ‘good lease management,’ the city sent a letter to Urban Commons requesting for certain specified repair and maintenance items to be addressed. Urban Commons responded to the city in a timely fashion with a proposal to complete the required works at an estimated cost of only up to US$7 million within the next two years,” it added.

While media reports have pointed to a 2017 marine survey estimating repairs to the ship would cost US$235 million to US$289 million, Eagle Hospitality Trust disputed the relevance of the estimate.

“The marine survey grossly overstated the nature, scope and cost of the repairs required,” the trust said. “Urban Commons had completed certain of the repairs noted in the marine survey at a mere fraction of the costs estimated.”

The trust noted that what the marine survey called “urgent hull repairs” were estimated at an “exorbitant” cost of US$175.4 million and US$212.7 million, and would have called for potentially dry-docking the vessel, with repairs done in a manner in which the ship was originally built, rather than for its current use permanently moored in Long Beach’s harbor.

Eagle Hospitality Trust also addressed concerns about the acquisition of six of its 18 assets, which had been sold to the sponsor by ASAP Holdings and were then injected into the REIT. Frank Yuan, Eagle Hospitality Trust’s largest unitholder, is also the CEO of ASAP Holdings.

While some critics had expressed concern about the six properties, known as the ASAP6 portfolio, Eagle Hospitality Trust noted the portfolio was valued by two independent valuers in connection with its IPO and were injected into the trust at a discount of at least 12 percent to their end-2018 valuation.

The trust said that prior to the IPO, ASAP’s managers were not related to Urban Commons. It added that Frank Yuan, Norbert Yuan and Jerome Yuan were introduced by Urban Commons to the placement agents during the IPO bookbuilding process and subscribed at the IPO price of US$0.78 each.

“The participation by Mr. Frank Yuan, Mr. Norbert Yuan and Mr. Jerome Yuan was independent of the sale by ASAP to Urban Commons of the ASAP6 Portfolio which took place prior to the IPO,” the trust said.

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