POH Kay Ping, a unitholder of Eagle Hospitality Trust (EHT), has refuted claims by Urban Commons Queensway (UCQ) that he and his company - Poh Altan Resources Company (PARC) - were beneficiaries of funds taken out of an EHT unit.

 

In response to queries from The Business Times, Mr Poh said the money was transferred to PARC in May 2020 in connection with a " contemplated business transaction" .

 

As the transaction did not proceed by June 2020, Mr Poh said the US$1.9 million was not utilised and the funds were ultimately returned.

 

In a court filing last month made by UCQ, Mr Poh was listed as a recipient of US$1.9 million transferred by EHT' s former directors Howard Wu and Taylor Woods.

 

The source of the funds was a loan taken out by Mr Wu and Mr Woods on behalf of UCQ under the US Cares Act' s Paycheck Protection Programme (PPP).

 

At the time the application for the loan was made, Mr Wu and Mr Woods were no longer legally in a position to make the application. The pair had also allegedly planned in advance to have the loan proceeds " immediately transferred away from UCQ' s bank account the moment the loan was funded" .

 

UCQ had therefore filed a motion for a preliminary injunction to freeze sufficient funds of Mr Wu and Mr Woods to recover US$2.4 million. The motion was denied by a US judge last week.

 

UCQ is one of the debtor companies within the EHT stable and the owner of The Queen Mary, a floating hotel docked in Long Beach, California.

 

Mr Wu and Mr Woods are co-founders of Urban Commons, the sponsor of EHT. They stepped down from the board of EHT in May last year, but remain on the board of Urban Commons.

 

The transfers had allegedly taken place between May 19, 2020 and May 28, 2020. The wire description contained Oversea-Chinese Banking Corporation and PARC.

 

Mr Poh, better known as KP Poh, is the director and chief executive of Tian Poh Resources, a natural resources company headquartered in Australia. The principal activity of the company is the exploration of minerals in Mongolia.

 

In his responses to BT, Mr Poh termed the footnote a " speculative allegation" that portrayed PARC and himself as beneficiaries of " purported PPP proceeds" .

 

He stated that neither he nor PARC knew anything about Mr Wu and Mr Woods' transferring of funds out of UCQ.

 

Mr Poh also said he had been in touch with Mr Wu " by virtue of being an EHT unitholder" , but does not have personal knowledge whether other unitholders are in touch with Mr Wu or Mr Woods.

 

" Queenway' s allegations ... are recklessly false and inappropriately portray PARC and myself as being complicit in alleged PPP-related fraud," said Mr Poh.

 

He added that through his US lawyers Brown Rudnick, UCQ' s lawyers have been asked to take " affirmative steps to correct the public record" .

 

Mr Poh holds some 1.85 million units in EHT, and is also a member of the executive ad-hoc committee that is fighting to represent the interests of minority unitholders in the EHT debacle.

 

EAGLE Hospitality Reit (EH-Reit), which is a part of the beleaguered Eagle Hospitality Trust (EHT), has obtained approval from the United States Bankruptcy Court in the District of Delaware to sell off 14 properties of the debtor companies for a total price of US$481.9 million.

 

This translates to a net increase of US$24.8 million in the aggregate consideration for the properties compared to the amount that would have been raised from the stalking horse bid on its own. The completion of the sale of these 14 properties is expected to take place in June.

 

The approval comes after Christopher Sontchi, a bankruptcy judge in the District of Delaware, overruled the objections filed against the sale of these properties, said EHT' s trustee, DBS Trustee, in a bourse filing on Tuesday.

 

Constellation Hospitality Group (CHG) - an entity owned in part by EHT' s former directors Howard Wu and Taylor Woods, as well as other undisclosed investors - had filed an objection to the sale motion on May 24. Mr Wu and Mr Woods are also co-founders of Urban Commons, the sponsor of EHT.

 

Last week, Urban Commons Queensway (UCQ), one of the debtor companies within the EHT stable and the owner of The Queen Mary in Long Beach, had filed a motion for a preliminary injunction to freeze sufficient funds of Mr Wu and Mr Woods to recover US$2.4 million.

 

Court documents filed on behalf of UCQ in the US on May 24 alleged that Mr Wu and Mr Woods applied for and obtained a US$2.4 million loan last year on behalf of UCQ under the US Cares Act' s Paycheck Protection Programme (PPP).

 

CHG put forth that the proposed sale transaction with the successful bidders did not maximise value for the estates of the Chapter 11 entities. CHG also said it aims to be in a position to present a revised Chapter 11 plan bid to the debtor entities and the court in advance of the sale hearing.

 

In addition, CHG had also requested that the court deny the sale motion and adjourn the sale hearing.

 

Apart from CHG, the ad-hoc committee of stapled securityholders had also filed an objection to the sale motion, stating that the hearing should be postponed to June 1 in order to " realise the benefits of a potential future bid" by CHG.

 

The debtor companies had highlighted several concerns with CHG' s bid that was submitted under the second round of the process.

 

For instance, the deposit in CHG&rsquo s bid constituted less than 10 per cent of the proposed purchase price, which is a requirement under the bidding procedures. The proposed funding sources for the bid were also allegedly uncertain and non-binding, and failed to provide a stock purchase agreement that is required by bidding procedures.(see Amendment note)

 

At the sale hearing which took place on May 28, both sets of objections by the entity controlled by Mr Wu and Mr Woods, as well as the ad-hoc committee, were overruled by the court. Requests to postpone the sale hearing were also denied.

 

The court said the results of the auction represented the " best deal that was reasonably achievable under the circumstances" , and noted that neither party with objections had shown that the bid by CHG represented a better deal.

 

The " numerous contingencies" in CHG' s financing proposal, and the proposed three-day delay, would put the debtor companies and their creditors at " significant risk" of losing the bids obtained at the auction, said the court.

 

The court also overruled all other objections to the sale, including the objection filed by certain entities related to ASAP Holdings that asserted an ownership interest in a parcel of land adjacent to the Hilton Atlanta Northeast hotel.

 

Upon the closing of the court-approved sale transactions of the 14 properties, the Chapter 11 entities will have completed the disposition of their principal assets, with the exception of the Queen Mary Long Beach lease, for which no qualified bids have been received as of now.

 

Eagle Hospitality Trust&rsquo s status as a listed stapled security comprising a REIT and business trust is approaching its endgame. Its portfolio has been protected under Chapter 11 since January this year.

 

Now, according to the latest announcement by DBS Trustee, the US Bankruptcy Court at the sale hearing has approved of the sale of 14 Chapter 11 properties (see table). DBS Trustee is overseeing the sale of Eagle Hospitality Trust&rsquo s assets under Chapter 11 protection in accordance with local regulations where it acts in the interests of the stapled security and its unitholders.

 

Of these properties protected by Chapter 11, nine properties fetched US$326.5 million in accordance with the terms of the Stalking Horse Agreement. Five properties fetched US$155.4 million, US$24.8 million more than the floor price set by the Stalking Horse Agreement. The Stalking Horse is Madison Phoenix, an affiliate of Monarch Alternative Capital which also provided financing to some of the properties. Altogether the sale is likely to fetch US$481.9 million.

 

Crown Plaza Dallas near Galleria-Adison (CPDG) was divested in April this year.   The lender of the mortgage to CPDG issued a notice of acceleration in August last year when the property defaulted on its loan. It was sold for US$18 million compared to the purchase price of US$50.7 million during the IPO in 2019, and its latest valuation of US$18.6 million.

Two more properties - Delta Woodbridge and Hilton Houston Galleria were also not part of the portfolio protected under Chapter 11.

 

DBS Trustee says the sale of the 14 Chapter 11 properties is likely to complete this month (June 2021). &ldquo Subject to the claims resolution process, it is unlikely that claims of all creditors of the Chapter 11 Entities will be satisfied in full from the sale proceeds, and accordingly, the sale proceeds are not expected to result in a recovery for Stapled Securityholders,&rdquo its statement says.

 

Constellation Hospitality Group, on behalf of EHT&rsquo s former sponsors Taylor Woods and Howard Wu, filed an objection to the sale motion and requested that the sale hearing be postponed. An ad-hoc committee comprising seven EHT unitholders also filed an objection requesting that the sale motion be postponed to June 1 &ldquo in order to realise the benefits of a potential future bid by Constellation&rdquo .

 

The US Bankruptcy Court judge ruled that neither Constellation nor the ad-hoc committee had shown that the Constellation Bid represented a better deal, compared to the results of the auction. In fact, the judge observed that there were features of the Constellation Bid which made it inferior to the bids received, and the eleventh-hour submission of the Constellation Bid in its current state was inadequate and did not warrant a disruption to the Sale Hearing.

 

On Dec 30, 2020 EHT held an EGM for four interdependent resolutions pertaining to the restructuring and recapitalisation of EHT. One of the four interdependent resolutions was an extraordinary resolution requiring 75% of unitholders present or by proxy to vote in favour. Only 56.25% voted in favour. Following the failure to pass the resolutions to restructure and recapitalise the REIT, its assets were protected under Chapter 11 as the trustee and financial adviser Moelis started the sale process.

 

During a post-mortem of this saga, there will be time for regulators, investment bankers and the investment community at large to study how EHT was allowed to list, with properties valued based on 20 year master leases and where the financial standing of the master lessees were not thoroughy researched. The total security deposits for these master leases were never received. As part of the master lease agreements, the sponsors Woods and Wu, were required to provide security deposits of US$43.7 million provided security deposits following the IPO, according to the prospectus. They never did. Their initial security deposit was US$28.7 million.

 

Neither did Woods and Wu honour the master lease agreements, causing EHT to default on its loans. As a result EHT halted trading and has been suspended since March 19, 2020.

 

As can be seen from the table, the proceeds from the sale process are a fraction of the IPO purchase price. And the Queen Mary Long Beach - sold into the REIT at US$139.7 million isn&rsquo t included in the table. That&rsquo s altogether a separate study on financial engineering.

A US judge labelled some actions of former Eagle Hospitality Trust (EHT) directors Howard Wu and Taylor Woods as " purposeful and fraudulent" , but ultimately decided that there was no " irreparable harm" for now.

 

Christopher Sontchi, a bankruptcy judge in the District of Delaware, had decided not to grant Urban Commons Queensway (UCQ) a preliminary injunction to freeze sufficient funds of Mr Wu and Mr Woods to recover US$2.4 million.

 

UCQ, one of the debtor companies within the EHT stable and the owner of The Queen Mary in Long Beach, had alleged that Mr Wu and Mr Woods applied for and obtained a US$2.4 million loan last year on behalf of UCQ under the US Cares Act' s Paycheck Protection Programme.

 

UCQ alleged that not only did Mr Wu and Mr Woods lack the authority to take out this loan, they also planned in advance to have the loan proceeds " immediately transferred away from UCQ' s bank account the moment the loan was funded" .

 

According to a newly released transcript of the hearing, Judge Sontchi allowed that not granting the injunction might mean the debtor companies are eventually unable to collect the funds owed to them.

 

Granting the injunction, however, would interfere with the ability of Mr Wu and Mr Woods to participate in the ongoing sale process of several hotels in EHT' s portfolio.

 

He added that if there is some risk of insolvency among Mr Wu and Mr Woods, then the issue of a preliminary injunction could be revisited.

 

Judge Sontchi is also considering referring the matter to federal prosecutors for further investigation for " possible criminal conduct" - something he said he has done twice in his 15-year tenure on the bench.

 

AN APPLICATION by a unit of Eagle Hospitality Trust (EHT) to freeze some of the funds of former directors Howard Wu and Taylor Woods has been turned down.

 

The Business Times (BT) understands, however, that Christopher Sontchi, a bankruptcy judge in the District of Delaware, is mulling the referral of the matter to federal prosecutors for further investigation.

 

Urban Commons Queensway (UCQ), one of the debtor companies within the EHT stable and the owner of The Queen Mary in Long Beach, had filed a motion for a preliminary injunction to freeze sufficient funds of Mr Wu and Mr Woods to recover US$2.4 million. (The Queen Mary is a floating hotel docked in Long Beach, California.)

 

Mr Wu and Mr Woods are also co-founders of Urban Commons, the sponsor of EHT. They stepped down from the board of EHT in May last year, but remain on the board of Urban Commons.

 

Court documents filed on behalf of UCQ in the US on May 24 alleged that Mr Wu and Mr Woods applied for and obtained a US$2.4 million loan last year on behalf of UCQ under the US Cares Act' s Paycheck Protection Programme (PPP).

 

The PPP is a United States government programme designed to encourage small businesses to keep their workers on payroll, providing them with funds to pay up to eight weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

 

UCQ alleged that not only did Mr Wu and Mr Woods lack the authority to take out this loan, they also planned in advance to have the loan proceeds " immediately transferred away from UCQ' s bank account the moment the loan was funded" .

 

The pair had also submitted PPP loan applications for a number of Urban Commons properties totalling at least US$17.5 million in proceeds. By June 5, 2020, they had reportedly spent all but approximately US$2.3 million of these funds.

 

When approached for comment, they told BT via e-mail that the PPP loan for UCQ was divided into two separate loans by both the lender and the US Small Business Administration based on where the employees sat in the company. This had caused the " unexpected error" .

 

They also claimed to have notified the US Small Business Association about reassigning this loan from the lessor entity to the lessee entity when the error was discovered, and said there was never any intention by any party to do " anything inappropriate" .

 

" The proceeds that were received at that time were included with other company funds at the parent company level and payments made therefrom may create some confusion, but in no way was there any inappropriate or improper intention toward any party," they added.

 

Separately, in a statement released on Wednesday, Long Beach City Auditor Laura Doud said she has found " clear proof" that Urban Commons " intentionally and explicitly misrepresented" financial information.

 

She commenced an investigation in December 2019 to verify how Urban Commons spent US$23 million approved by the City Council to fix critical and urgent repairs of the Queen Mary.

 

Ms Doud said there was a " lack of cooperation" from Urban Commons during the investigation, including not providing transaction evidence such as the electronic cheque register, bank statements and cancelled cheques.

 

Urban Commons had also purportedly submitted invoices for reimbursement for work that was performed by the vendors that they hired. These invoices were stamped " Paid" , but not independently confirmed.

 

Upon investigation, 87 of 89 invoices that were stamped were not paid at the time of submissions. Urban Commons on average also invoiced the City 51 days prior to paying the vendor.

 

" This misrepresentation of the truth and unwillingness of Urban Commons to provide the basic and required financial records is very troubling, and we will continue to pursue this investigation," said Ms Doud.

 

A separate court document filed on May 26 explained why a bid received from Constellation Hospitality Group (CHG) was " unviable" . According to CHG' s bid materials, the entity is owned in part by Mr Wu and Mr Woods, as well as other undisclosed investors. 

 

Although the debtor companies claimed to have worked with CHG to resolve certain issues with the bid, there were allegedly unaddressed issues that made the bid inferior to the sale transactions that are currently before the court. 

 

For a start, the deposit in CHG' s bid constituted less than 10 per cent of the proposed purchase price, which is a requirement under the bidding procedures. The bid also did not state the terms of the deposit, including the conditions upon which this deposit would be released to the debtor companies. 

 

The bid also did not provide binding financing commitments, and is currently still unable to provide any certainty that any financing commitments will ever materialise. The supposed funding sources for the CHG bid, in contrast, were allegedly " uncertain and non-binding" . For instance, CHG had presented a non-binding term sheet from a proposed senior lender that was five months old.

 

CHG had also failed to provide a stock purchase agreement that is required by bidding procedures. This reportedly made it difficult to properly evaluate how CHG intends to structure its proposed transaction, as well as the legal commitments that CHG intended to provide.