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Eagle Hospitality flags unauthorised loan application, tax delinquency by sponsor
THE managers of Eagle Hospitality Trust (EHT) said that an unauthorised application was made under the US Paycheck Protection Program (PPP) on behalf of the Queen Mary master lessor, and that certain master lessees had not paid some outstanding taxes.
In a filing on Friday, the managers said their professional advisers had discovered an unauthorised PPP loan application dated May 18, 2020, submitted purportedly on behalf of the master lessor of the Queen Mary floating hotel. The master lessor is a subsidiary of EHT’s real estate investment trust, EH-Reit.
The application was signed by Taylor Woods, who had been removed and was no longer an offer of the master lessor as at the date of the application.
The US Small Business Administration later approved the PPP application, and a lender then granted a loan of more than US$2 million with the master lessor as the debtor. No portion of these loan proceeds was received by the Queen Mary master lessor.
The professional advisers of EHT’s managers and EH-Reit’s trustee are of the view that the application and the receipt of the funds were “both unauthorised and improper”.
The master lessees - which are part of EHT’s sponsor, Urban Commons - on July 15 said in a letter that the application was a result of errors in certain payroll records that indicated the Queen Mary master lessor as the employer.
The master lessees added that Urban Commons had explained the error to the PPP lender and was working with the lender to transfer the loan from the master lessor to the master lessee of the Queen Mary, with the issue expected to be completely resolved by July 29.
However, as at Friday, the EHT managers and EH-Reit trustee understand that the loan has not been transferred.
They are thus consulting their professional advisers to determine any further actions to be taken in respect of the application and loan.
Separately, the tax delinquency of certain master lessees relates to three EHT properties: Holiday Inn Denver East - Stapleton, Renaissance Denver Stapleton, and Holiday Inn Resort Orlando Suites - Waterpark.
For the two Denver hotels, the master lessees had been deficient in paying certain outstanding sales taxes, lodger’s taxes and tourism improvement district taxes that have continued to accrue over certain periods since at least December 2019.
On July 1, 2020, the Denver master lessees signed a settlement agreement with the Denver tax authorities to pay the outstanding taxes in instalments. The total amount to be settled under this arrangement is about US$954,000, to be paid in six monthly instalments from July 2020 to December 2020, the EHT managers said.
Although the first instalment was paid a day late on July 13, there has been no enforcement action taken by the authorities, as far as the EHT managers and EH-Reit trustee are aware.
However, the second instalment was due on Aug 6 and has not been paid by the Denver master lessees as at Friday. The tax authorities have thus indicated that they will not give any advance notice prior to issuing and executing their seizure warrants on the two Denver hotels.
The managers and trustee are consulting their professional advisers to ascertain the impact of this non-payment of taxes by the master lessees, and the appropriate course of action to be taken.
As for Orlando property, the master lessee had been deficient in paying certain outstanding tourism development taxes that have continued to accrue since February 2020.
The comptroller of Orange County, Florida filed a tourism development tax warrant against both the master lessee and the master lessor, which is an EH-Reit subsidiary, to collect about US$244,000 in outstanding taxes. The comptroller also stated that it plans to levy upon any cash in possession of the Orlando property’s master lessor and a bank account of the master lessor with Bank of America.
Around June 25, Urban Commons agreed to pay all delinquent tourist development taxes in three instalments, as well as to satisfy the levy. The comptroller later said it would lift the levy and the garnishment over the master lessor’s account if Urban Commons paid the second instalment due on Aug 1. However, as at Friday, the sponsor has not paid this instalment, and therefore the comptroller has not lifted the levy and garnishment.
The EHT managers and EH-Reit trustee’s local counsel will continue with its proceedings against the comptroller to set aside the levy, the garnishment and any judgment or liability against the Orlando property’s master lessor in respect of the outstanding taxes.
NOTICES OF DEFAULT AND TERMINATION
Meanwhile, the master lessees of 10 hotels have received notices of default and termination from the relevant franchisors as at Friday.
This was a result of the master lessees’ failure to cure their default for non-payment of fees and other amounts due and owing to the franchisors.
The total outstanding amount due under the franchise agreements is about US$3.8 million, based on the termination notices and the information available to EHT’s chief restructuring officer FTI Consulting.
If the master lessees do not cure the defaults within the applicable cure periods, the franchisors will have the right to terminate their franchise agreements. The payment deadlines range from April 9 to Sept 16, while the potential termination dates range from May 17 to Oct 26.