Hospitality Investors Trust Inc., a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, has entered into forbearance agreements with the lenders under certain of its mortgage and mezzanine indebtedness.
In May 2019, the REIT secured mortgage and mezzanine loans totaling $1.04 billion on 92 hotel properties. As previously reported, the “92-Pack Loans” comprised a mortgage loan, a senior mezzanine loan, and a junior mezzanine loan from five lenders including Morgan Stanley Bank, Citigroup Real Estate Funding, Deutsche Bank, Goldman Sachs Mortgage Company, and JPMorgan Chase Bank.
As of March 31, 2020, the company had sold 29 hotel properties and prepaid approximately $157 million of principal under the mortgage loan and approximately $30.7 million of principal under the mezzanine loans, reducing the number of hotel properties serving as collateral to 63 hotels.
The current outstanding principal balance as of March 31, 2020 was approximately $852.4 million secured by the company’s interest in 63 hotel properties.
“During April and May 2020, as part of ongoing liquidity preservation measures being taken by the company in response to the coronavirus pandemic and in conjunction with actions taken by the company’s franchisors temporarily suspending obligations of hotel owners to perform capital improvements and fund capital reserves, the company decided not to make required capital reserve payments to the mortgage lender which resulted in events of default under the 92-Pack Loans,” the company said in a filing with the Securities and Exchange Commission.
The terms of the forbearance agreements include:
Hospitality Investors Trust’s capital reserve obligations for its brand mandated property improvement plans (PIP reserve), have been deferred for nine months and re-scheduled starting with the payment that was not made in April 2020.
No further payments are required during 2020, and the total of $8.3 million in PIP reserve payments that had been scheduled to be made between April 2020 and May 2021 is now scheduled to be made between January 2021 and February 2022, including $5.8 million of PIP reserves that had been scheduled to be made during 2020.
The REIT’s monthly capital reserve obligations to repair and replace furniture, fixtures and equipment and routine capital expenditures will not be required for April through December 2020.
The REIT has agreed to pay all excess cash flows from the 63 hotel properties that serve as loan collateral (after payment of interest on the 92-Pack Loans, property operating expenses and certain other amounts) to the account for PIP reserves with the mortgage lender, with funds to be applied to future PIP reserve obligations, until the entire deferred PIP amount has been deposited.
The existing events of default will continue to exist until the entire deferred PIP amount has been deposited and other conditions are satisfied, but the lenders have agreed to refrain from collecting default interest.
Hospitality Investors Trust invests primarily in premium-branded select-service lodging properties in the United States, and as of the first quarter of 2020, owned interests in 104 properties. The offering was declared effective in January 2014 and suspended sales activities in November 2015 after raising $903 million in investor equity. The company severed ties with its external advisor, an affiliate of AR Global, and became self-managed on March 31, 2017.