EHT's sponsor dogged by payment disputes

Singapore

INVESTORS in Eagle Hospitality Trust (EHT) are not the only ones who have faced difficulty collecting money from master lessee and Reit sponsor Urban Commons (UC) over the years, The Business Times can reveal.

EHT was listed in Singapore last May with an initial portfolio of 18 US hotels. Twelve came from UC, a Los Angeles (LA)-based real estate firm jointly owned by Howard Wu and Taylor Woods. Six were acquired from ASAP Holdings, a family office.

But before UC could inject the hotels into EHT, it had to buy out the original investors. Each hotel was held under a separate entity and co-owned by groups of individuals or small investors in the US.

A block sale was closed in 2018, according to correspondences seen by BT. Most investors opted for a straight cash-out. More than a year later, BT understands, some are still waiting to receive their full proceeds.

BT reached out to UC to enquire about the sums owed and the reason for the payment delays, but UC declined to comment.

In an e-mail seen by BT from UC to "Urban Commons investors" dated October 2018, investors were told that the buyer of the 12 hotels was targeting to make a full payment toward the end of January 2019. If they weren't fully paid by then, the buyer would bear a higher interest rate on the deferred payment.

Over the course of 2019, subsequent e-mails sent by Mr Woods to these investors suggested further delays. The buyer was not named in any e-mails seen by BT. But EHT's prospectus stated that the 12 hotels were sold to the trust by US Hospitality Investments, an entity privately held by Mr Wu and Mr Woods.

In his communications to UC investors after EHT's IPO, Mr Woods also mentioned that UC holds an US$89 million subordinated loan as a form of "collateral" for the investors who remain unpaid.

EHT has only one subordinated loan, according to its filings. This is an US$89 million unsecured loan issued by Lodging USA Lendco during its IPO. Lodging USA Lendco is beneficially owned by one of the members of the ASAP family office.

EHT's prospectus states that Lodging USA Lendco is unaffiliated with UC. But checks by BT found that Lodging USA Lendco was registered in California on June 28 last year with Mr Woods as agent, in a document signed by Mr Wu.

UC declined to comment on whether the US$89 million "collateral" referenced by Mr Woods refers to this same loan.

BT understands that UC has been trying to find a buyer for the US$89 million subordinated loan. Buyer interest waned, however, after concerns over the value of EHT's second-largest asset - the Queen Mary floating hotel in California - and the size of its repairs bill came to the fore late last year.

BT further understands that Mr Woods has told UC investors that the buyer of the 12 hotels pledged shares to them as a second form of collateral, though the buyer's liquidation of these shares for cash has not gone entirely as planned.

Mr Woods declined phone calls from BT, directing BT instead to a UC spokesperson, who wrote by e-mail: "Your descriptions of the transactions you mention are inaccurate and incomplete. To be clear, Urban Commons has not sold shares on behalf of shareholders. The transactions you describe are private parties making independent commercial decisions, such as buying shares, selling shares or taking on or reducing debt."

Other complaints

Meanwhile, checks by BT suggest that UC's failure to pay the rent to EHT unitholders for the first quarter of 2020 is part of a larger pattern of payment difficulties.

Hotel management firm Brighton Management, which had managed seven hotels for UC before the EHT IPO, told BT it had to request funding from UC to run the hotels. Said an executive staff: "We were managing Urban Commons Hotels until July 31, 2019; and these hotels were running into financial difficulties before the (Covid-19) pandemic. According to the separation agreements, they still owe us over US$200,000 termination fees, which were due October 2019."

The Brighton staff added: "Those hotels we managed for them, each one owed a significant amount of money to franchise fees, TOT (transient occupancy tax), sales tax, and all other regular vendors, averaging 60 days to 90 days past due."

In February 2020, the City of Pasadena sent a demand letter to UC to claim US$681,056 owed to the City for delinquent principal, penalty and interest payments under the TOT ordinance and Tourism Business Improvement District ordinance for the Sheraton Pasadena hotel from May to the end of November 2019.

Matt Hawkesworth, director of finance for the City, said he was not in a position to speak on the issue and instead referred BT to an April 9 court complaint filed against UC.

The filing stated that UC paid the City 10 to 20 per cent of the sums owed on March 6. UC then e-mailed the City to seek its patience on the unpaid taxes: "We expect to be able to bring this bill forward and catch up as the market stabilises."

The City wrote in its complaint: "(UC) fails to recognise that transient occupancy taxes must be held 'in trust' for the City, as required by the TOT ordinance. TOT collected from hotel guests is not, nor could it ever be, defendants' monies, somehow subject to stabilisation of the 'market'."

Separately, California's First State Bank filed a complaint in an LA court against UC's Mr Wu last year alleging that he had failed to make payments on a US$250,000 promissory note. Mr Wu has since been ordered to recover US$119,527 to the bank, court filings show. Over the last few years, Mr Wu has also been hit by tax liens by creditors including the State of California.

Before Urban Commons, there was also Urban Barbecue. A California firm run by Mr Wu and Mr Woods, it operated a restaurant known as Ilcha BBQ until its sudden closure in mid-January 2018. According to court filings seen by BT, Ilcha BBQ's meat supplier alleged that it was owed US$34,649 for unpaid meat products. The supplier requested that the case be dismissed in August 2018.

Addressing the issues of Brighton, Pasadena, Ilcha BBQ and Mr Wu's liabilities, a UC spokesperson said: "We are limited in what we can say because of the current trading suspension. The status of your inquiry is out of date; most of these liabilities have been paid down, with some fully resolved. The remaining balances are being paid or are in dispute."

EHT's units are currently suspended. It defaulted on a US$341 million loan in March, due to a breach of a loan covenant resulting from UC's non-payment of rent. UC also has not fully paid a security deposit owed to EHT since May last year for the hotels it leases from EHT.