Hospitality Investors Trust Modifies Mortgage Loan as Bankruptcy Talks Continue
Hospitality Investors Trust Inc., a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, has entered into a second loan modification agreement with the lender under one of its mortgage loans.
Hospitality Investors Trust Inc., a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, has entered into a second loan modification agreement with the lender under one of its mortgage loans. The loan was originally entered into in October 2015 and has an outstanding principal of $232 million as of March 31, 2021. It is secured primarily by mortgages on 21 of the REIT’s hotels and is scheduled to mature in October 2022.
As previously reported, Hospitality Investors Trust has been in discussions with its largest investor, Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC, about possibly entering into a series of deleveraging or restructuring transactions that would include, among other things, filing a pre-packaged Chapter 11 bankruptcy. The REIT previously disclosed its “liquidity dilemma,” and has made a series of moves to preserve its short-term cash position.
The latest loan modification agreement serves as the lender’s consent to potential restructuring transactions and also amends certain terms of the original October 2015 loan agreement and another loan modification agreement from August 2020.
The lender has agreed to extend the temporary waiver of the REIT’s monthly capital reserve obligations with respect to repair and replacement of furniture, fixtures and equipment and routine capital expenditures for an additional 12 months through December 2021.
The lender also agreed that any monthly excess cash flows from the 21 hotel properties that serve as loan collateral, will fund a reserve account held by the lender that may be disbursed to the REIT and certain subsidiaries of its operating partnership. In the following order of priority, the money will be distributed to fund any monthly shortfalls in interest and property operating expenses, to pay principal under the mortgage loan due in the amount of $250,000 per month beginning in October 2021 through September 2022, and to pay for costs of brand mandated property improvement plans or other capital expenditures for the 21 hotel properties.
The lender agreed that if certain conditions are satisfied, a pre-packaged bankruptcy will not constitute an event of default.
The lender agreed to temporarily waive and modify the minimum liquid assets financial covenant until the restructuring transactions occur, and Hospitality Investors Trust said that the modifications are intended to make it more likely that it will be able to comply with these covenants in the future.
Hospitality Investors Trust previously amended its limited partnership agreement with Brookfield, which was entitled to receive fixed, quarterly cash distributions at a rate of 7.50 percent per year, as well as fixed, quarterly distributions paid in additional Class C units at a rate of 5 percent per year. Following two previous amendments to its LP agreement, the fourth quarter 2020 and first quarter 2021 distributions were paid in the form of Class C units at a rate of 12.5 percent per year, instead of cash.
The amendments also provide that, if a restructuring agreement is not reached by May 14, 2021, the REIT’s operating partnership would be required to redeem 60 percent of the Class C units that were paid to Brookfield as distributions for both quarters.
In February 2021, the REIT defaulted on the ground lease of Georgia Tech Hotel & Conference Center located in Midtown Atlanta, which it purchased in March 2014 as part of a six-hotel, $101.5 million portfolio acquisition. The ground lessor terminated the lease on March 31, 2021.
The Georgia Tech hotel served as collateral for a mortgage loan that was secured by interests in 15 hotels. A forbearance agreement was reached with the lenders under the loan, which is set to expire on June 30, 2021, or earlier, if a pre-packaged bankruptcy becomes effective or if a forbearance termination event occurs before that date.
Hospitality Investors Trust invests primarily in premium-branded select-service lodging properties in the United States. As of the fourth quarter of 2020, the REIT’s $2 billion hotel portfolio included 101 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 in 2017.
