Published on : Friday, April 24, 2020
The managers of Eagle Hospitality Trust (EHT) said that they have received a notice of default and demand for payment in relation to another loan, while also disclosing that some of its hotel managers have served its sponsor with termination notices.
Under a US$35 million mortgage loan, the lender Wells Fargo National Association sent an April 18 notice identifying multiple events of default. Wells Fargo had provided the loan on May 21, 2019, in respect of Delta Hotels by Marriott Woodbridge, one of Eagle Hospitality Trust ‘s 18 hotels.
The events of defaults included the non-payment by the borrower – one of Eagle Hospitality Reit’s (EH-Reit) subsidiaries – of several sums for the month of March 2020 which were due on April 1, 2020. EH-Reit is one part of stapled hospitality group EHT.
These unpaid sums are: the monthly interest accrued on the loan and the respective principal amount of the loan; the monthly real estate tax deposit; and the monthly deposit for the costs and expenses to replace and maintain furniture, furnishings and fixtures at the Delta Woodbridge hotel.
Wells Fargo has exercised its right to cause the loan to bear interest at the default rate calculated from April 1, 2020, and also demanded the payment in full of all amounts currently due and payable under the mortgage loan.
Meanwhile, the master lessees – under EHT sponsor Urban Commons – for 16 out of EHT’s 18 hotels have received notices of default from the relevant hotel managers under their hotel management agreements (HMAs).
This was because the master lessees did not provide and/or maintain sufficient working capital for the hotels’ operations. There were also additional defaults resulting from their failure to pay management fees and/or to make funds available to pay hotel operating expenses.
The 16 hotels include The Queen Mary Long Beach, The Westin Sacramento and Sheraton Pasadena. Delta Woodbridge is not among them.
In addition, of the 16, five hotel managers have also sent termination notices dated April 16 to the respective master lessees under their HMAs, after the master lessees failed to cure their default of maintaining sufficient working capital for the hotels’ operations.
If the five master lessees do not cure the defaults within the applicable cure periods, the hotel managers will terminate their HMAs.
The managers of Eagle Hospitality Trust said on Friday that they are confident the inherent value of the properties in EHT’s portfolio is not significantly affected by the master lessees’ alleged defaults.
The managers are working hard towards preserving the value of the properties in these difficult circumstances.
If true, the alleged defaults under the HMAs would also constitute a breach of the respective master lease agreements (MLA) by the master lessees. The MLAs were entered into with the master lessors – EH-Reit subsidiaries that own each underlying EHT property.
In the meantime, the master lessors reserve all rights against the master lessees under the MLA, and the master lessees remain obliged to fulfil their obligations under the MLA.