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Sponsor will pay for Queen Mary repairs, says Eagle Hospitality Trust
URBAN Commons, the sponsor of Eagle Hospitality Trust (EHT), is responsible for all the repair work that EHT's Queen Mary floating hotel requires, and these expenses will not come out of EHT's own pocket, the trust clarified on Monday.
EHT also clarified that a 2017 marine survey of the Queen Mary that was resurfaced last week in an article published by The Edge Singapore is now more than two-and-a-half years old, and "grossly overstated the nature, scope and cost of the repairs required at the Queen Mary".
The Queen Mary is a retired British ocean liner docked on the shores of Long Beach, California, upon which sits EHT's iconic 347-room hotel.
EHT said: "The Reit manager believes that the marine survey's estimate of scope of work and costs was grossly inaccurate and does not reflect Urban Commons' actual obligations at the property. Urban Commons has been working with the City (of Long Beach) since 2016 to address any needed repairs."
The 2017 marine survey had estimated that total repairs for the Queen Mary could range from US$235 million to US$289 million.
However, in a letter that the City sent to Urban Commons on Oct 1, the City was concerned mainly with five "minor" items of work, EHT said. "Presently, the City only requires repairs with respect to the noted items, which have a total estimated cost of up to US$7 million, such items will be paid for by Urban Commons utilising the multiple capital-reserve mechanisms built into the leases."
The US$7 million cost estimate was based in part on a bid of US$4.8 million received from Roberts Construction to complete the side shell repair and lifeboat removal, which is the "most significant component in terms of cost and safety", EHT said. All five items of work are expected to be completed within the next two years.
EHT also gave other reasons to explain why it felt the 2017 marine survey was inaccurate. "The marine survey estimated the total cost for "urgent hull repairs" to be between US$175.4 million and US$212.7 million. Urban Commons was in fact able to address substantially all of such urgent hull repairs at a cost of less than US$1.1 million. The cost differential was attributable to a completely different scope of work and a more thorough and scientific analysis than the estimate for work purported to be required by the marine survey."
EHT added: "The work required by the marine survey was determined not to be necessary and the repairs that were ultimately undertaken by Urban Commons were substantiated as appropriate from a structural and safety standpoint by (an engineering report from John A. Martin & Associates) and confirmed by R. Maddison CEng. MPhil, the naval architect."
Meanwhile, the City of Long Beach has clarified in a letter dated Oct 25 that the Oct 1 letter it had sent to Urban Commons should be considered "a formal request for information by the City and is not a notification of default".
John Keisler, the City's director of economic development, wrote on Oct 25: "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 Oct 1 letter and is currently reviewing the proposed plans to cure issues of concern."
He added: "The City is confident that Urban Commons now has a plan in place to resolve the remaining structural issues … The City values the continued progress Urban Commons has made to improve the structural integrity of the historic Queen Mary on behalf of the residents and visitors to Long Beach."
EHT stressed on Monday that Urban Commons "has multiple capital-reserve mechanisms built into the leases to address the relatively minor list of repairs that are the current focus of the City".
The current repair work is not expected to have any material adverse impact on the operations of the Queen Mary, and the ship remains operational and open to guests, EHT added. "The Reit manager does not believe that these repair costs have any negative impact on its valuation of the Queen Mary."
Last Friday, in response to negative media reports published first in California and in Singapore a few days later, EHT had clarified that it was not losing its lease to run the historic Queen Mary. But the knee-jerk reaction shaved 10 US cents off EHT's stapled securities, which closed 15.5 per cent lower at 54.5 US cents that day.
DBS Bank was the sole financial adviser and issue manager for the initial public offering of EHT.