Hospitality Investors Trust Inc., a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, reported that its lenders have agreed to extend the expiration date of the forbearance period relating to its mortgage loan, while the company mulls a pre-packaged Chapter 11 bankruptcy.
As previously reported, Georgia Tech Hotel & Conference Center located in Midtown Atlanta serves as collateral for a mortgage loan, which is secured by interests in 15 hotels. In February 2021, the REIT defaulted on the ground lease and entered into a forbearance agreement with the lenders under the loan. The ground lessor terminated the lease, effective March 31, 2021.
Hospitality Investors Trust purchased the hotel’s leasehold interest in March 2014 as part of a six-hotel portfolio acquisition that had a total purchase price of $101.5 million. The REIT said that, since the onset of the coronavirus pandemic, the hotel’s operating exceeded revenues and it has contributed “substantial” capital to allow the hotel to meet its obligations.
Hospitality Investors Trust has been engaged in ongoing discussions with its largest investor, Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC, concerning the possibility of entering into a series of restructuring transactions that would include, among other things, filing a pre-packaged Chapter 11 bankruptcy.
The latest amendment is part of Hospitality Investors Trust’s ongoing liquidity preservation measures and in anticipation of possibly filing a pre-packaged bankruptcy.
The forbearance period was previously set to expire on April 30, 2021, but the lenders agreed to extend the period until June 30, 2021, or earlier, if a pre-packaged bankruptcy becomes effective or if a forbearance termination event occurs before that date.
In addition, the lenders agreed to waive the REIT’s obligation to make monthly capital reserve deposits with respect to repair and replacement of furniture, fixtures and equipment and routine capital expenditures through December 2021. The lenders also agreed to credit approximately $1.3 million in brand-mandated property improvement plan reserves related to hotels that were sold during August 2020, to reduce the principal outstanding under the term loan.
In addition, if a pre-packaged bankruptcy occurs, the lenders have agreed to waive certain defaults that may occur as a result of the filing of a pre-packaged bankruptcy and certain defaults related to the Georgia Tech Hotel & Conference Center ground lease. The lien related to the Georgia Tech Hotel & Conference Center ground lease may be released, if certain terms and conditions are met.
Also, the minimum debt yield test will be temporarily lowered and certain changes to how the test is calculated will be made which could allow the REIT to meet the minimum debt yield test and receive any excess cash flows from the properties securing the term loan, which it is not currently receiving, sooner than if no amendment was made.
Lastly, if a pre-packaged bankruptcy occurs, the borrowers under the term loan will be required to repay $0.5 million in principal each quarter for the seven consecutive quarters beginning with the second quarter of 2021. The repayment of $9.2 million in principal, less the aggregate amount of the quarterly principal prepayments, will become a recourse obligation of the borrowers and guarantors.
The lenders in the agreement are Citibank, Deutsche Bank, JP Morgan Chase Bank, Morgan Stanley, Goldman Sachs, CTBC Bank, and BBVA.
In a previous SEC filing, the REIT disclosed that, due to the impact of the coronavirus pandemic, it expects to have insufficient cash on hand to continue to pay its current obligations during the first half of 2021.
In January 2021, Hospitality Investors Trust amended its limited partnership agreement with Brookfield in order “to preserve at least in the short-term the company’s cash position as it continues discussions with [Brookfield] regarding a holistic solution to the company’s liquidity dilemma.”
In June 2020, the REIT entered into forbearance agreements with certain mortgage and mezzanine debt lenders, as reported by The DI Wire.
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.