The Covid-19 pandemic looks poised to strike at the business of non-traded but publicly registered Real Estate Investment Trust (REIT) formerly American Realty Capital Hospitality Trust, now known as Hospitality Investors Trust Inc. (HIT). In a Securities and Exchange Commission (SEC) filing, HIT has stated that it does not have adequate cash available to continue to service its payment requirements during the first half of 2021.
The offering of HIT REIT was declared effective in January 2014 with sales activities standing suspended effective November 2015 after having raised $903 million from investors. As of the end of 2020, it had a collection of 101 properties in its portfolio with an aggregate valuation of $2 billion, mostly constituted of lodging properties around the US in the select-service premium-brand segment. In 2017, the company became self-managed after terminating their agreement with an affiliate of AR Global who was their external advisor.
The Hospitality Investors Trust REIT has also confirmed that while it considers the option of going in for a pre-packaged bankruptcy filing, its lenders, that include Goldman Sachs, BBVA, Deutsche Bank, Citibank, Deutsche Bank, JP Morgan Chase Bank, Morgan Stanley, Goldman Sachs, and CTBC Bank, have acceded to the request for the expiration date of the period of forbearance to be extended.
These proceedings pertain to the Georgia Tech Hotel & Conference Center located in Midtown Atlanta, which, according to HIT, has required substantial allocation of capital as its operating expenses have exceeded revenues since the onset of the pandemic.
Leasehold interest in the property had been purchased by HIT in March 2014 for $101.5 million as part of a portfolio acquisition of six hotels and served as collateral for a mortgage loan, further secured by their interest in 15 other hotels. The ground lessor terminated the lease on the 31st of March, 2021. In February 2021, the REIT had defaulted on the ground lease leading to the forbearance agreement with lenders.
HIT has been searching for ways and means to preserve liquidity, till the time it can file for bankruptcy protection, which is what has driven the latest amendment. The forbearance date extension allows HIT breathing space till the end of June unless an event occurs before that date that effectively leads to the termination of the forbearance agreement, an additional two months from the earlier end of April expiry date.
The REIT has been able to get the following relaxations from creditors:
- Waiver of requirement for making capital reserve deposits every month to cover repair and replacement of furniture, fixtures, and equipment and routine capital expenditures. This has been granted through December 2021.
- A sum of $1.3 million lying in reserves under the head of ‘brand-managed property improvement plan’ will be credited back, reducing the outstanding principal by that amount.
- In the event of crystallization of pre-packaged bankruptcy, defaults that could arise as a result of the ground lease of the Georgia Tech Hotel & Conference Center will be waived. Besides, if conditions are favorable, the lien related to the property could also be released.
- The threshold requirement for the minimum debt yield test will be lowered and the formula modified. This could enable the REIT to receive excess cash flows from properties securing the term loan which, at present, it is not able to, as it does not satisfy the test requirements.
- In the event of a pre-packaged bankruptcy, beginning with the second quarter of 2021, term loan borrowers will need to repay $0.5 million every quarter for the next seven quarters. The balance left over from the $9.2 million, reduced by the seven quarterly payments, will be treated as a recourse obligation of the guarantors and borrowers.
HIT has taken Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC, its largest investor, onboard while seeking to restructure its arrangements, including the possibility of filing for Chapter 11 bankruptcy. It even amended its limited partnership agreement with Brookfield in January 2021 with the primary aim of cash conservation while it explored all avenues of resolving the current dilemma of shortage of cash.
Earlier, in June 2020. HIT had also signed forbearance agreements with some of its mortgage and mezzanine debt lenders.
Hospitality Investors Trust Lawsuit
Haselkorn & Thibaut, a premier national investment fraud law firm, is currently investigating financial advisors and broker-dealers for their sales of Hospitality Investors Trust Inc. (HIT) to investors. It is alleged that many brokers sold HIT REIT to investors that were conservative in their risk tolerance and did not fully understand the liquidity of the product.
One of the best ways for investors to recover losses is through FINRA arbitration. It is typically faster and easier than traditional litigation.
Hospitality Investors Trust investors are encouraged to call us for a free case analysis and review. We can meet virtually or in-person nationwide and have locations in Florida, New York, Arizona, North Carolina, and Texas. Our phone number is 1-800-856-3352.