Watermark Lodging Trust, a non-traded real estate investment trust created by the merger of Carey Watermark Investors and Carey Watermark Investors 2 Inc., plans to file its quarterly financials for the first quarter of 2020 no later than 45 days after the original due date of May 15, 2020.
The REIT is relying on an order issued by the Securities and Exchange Commission allowing the company to delay filing due to the circumstances related to COVID-19.
“The company is unable to file…on a timely basis due to delays in the preparation and final review…by the relevant parties within the company, due in part by the attention and resources the company has focused on addressing the severe impacts of the COVID-19 pandemic on our business and operations,” the company said in a filing with the SEC.
Watermark Lodging Trust indicated that the full extent of the effects of the COVID-19 pandemic on its business for the foreseeable future cannot be predicted with certainty, but it has suspended operations at approximately half of its hotels and significantly reduced staffing levels at its remaining properties.
“The company has incurred and will continue to incur significant costs related to the reductions in service at the hotels, including as a result of employee terminations or furlough arrangements,” the filing stated.
A number of the company’s hotels have entered into cash management arrangements with the lenders on the related mortgage loan agreements and it expects more to do so in the coming months, absent relief from lenders or government intervention.
The REIT has sought relief from all of its lenders to defer interest payments and waive the application of certain cash flow covenants. In addition, approximately $277 million of indebtedness is scheduled to mature through December 31, 2020. This is nonrecourse mortgage debt, and the company has extension options for a portion of it.
If the company’s lenders do not provide covenant relief or if the REIT is unable to repay, refinance or extend the debt, then the lenders may declare events of default and seek to foreclose on the underlying hotels. The REIT said that it may also seek to give properties back to the lenders.
Watermark Lodging Trust has begun active efforts to raise capital through a variety of strategies, including asset sales, potentially at discounted prices; incurrences of debt; joint venture arrangements; and/or issuing equity securities in transactions which may be dilutive to stockholders.
“The company’s operations for the foreseeable future will continue to be significantly impacted by the pandemic,” the filing stated. “Even when all of our hotels are able to reopen, we expect demand for our hotels to recover slowly and over time until the spread of the virus, the fear of its spread and government-imposed quarantines and restrictions on travel and large gatherings subside. In addition, the company expects to have to reconfigure the layout of its properties, add cleaning services and systems and take other steps to seek to address customer concerns, which will require the company to incur expenditures which may be material.”
The REIT recently suspended distributions and redemptions, subject to limited exceptions, as reported by The DI Wire in March.
Last month, shareholders of Carey Watermark Investors 1 and Carey Watermark Investors 2, two publicly registered non-traded REITs managed by affiliates of W.P. Carey Inc. (NYSE: WPC) and Watermark Capital Partners, approved the merger of the two companies to create a self-managed non-traded REIT named Watermark Lodging Trust.
The Carey Watermark REITs were formed to invest primarily in the lodging and lodging-related sectors, and the combined company will oversee a portfolio of 33 lodging assets previously valued at $4.6 billion.