Did you lose money investing in Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust)?
Galvin Legal, PLLC is launching an investigation on behalf of investors who may have suffered losses investing in Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust), a publicly registered non-traded REIT, at the recommendation of their financial advisor. If you suffered losses, then Galvin Legal, PLLC may be able to help you recover your losses in a Financial Industry Regulatory Authority (“FINRA“) arbitration claim against the broker-dealer and/or registered representative that recommended the investment.
Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) owns a portfolio of hotel properties throughout North America, including various Hilton, Marriott, and Hyatt branded hotels, within the select service and full-service markets. As of December 31, 2018, Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) reportedly owned 144 hotels. The REIT’s offering was declared effective in January 2014 and suspended sales activities in November 2015 after raising $903 million in investor equity, according to Summit Investment Research.
In April 2017, Hospitality Investors Trust (HIT REIT) changed its name from American Realty Capital Hospitality Trust after restructuring to become a standalone self-managed REIT as well as entering into a partnership with Brookfield Strategic Real Estate Partners II. Prior to the restructure and name change, Hospitality Investors Trust (HIT REIT) had an agreement with American Realty Capital Hospitality Advisors LLC, and affiliate of AR Global Trust II.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal, PLLC at 1-800-405-5117.
UPDATE 6/16/2020: Hospitality Investors Trust (HIT REIT) (f/k/a 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. 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 (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) 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.
UPDATE 4/23/2020: The board of Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) has approved an estimated net asset value per share of $8.35 for the company’s common stock, as of December 31, 2019. The updated valuation is an approximate 9.3 percent decrease compared to the previous $9.21 per share NAV, as of December 31, 2018. Shares were originally sold for $25.00 each.
UPDATE 5/16/2019: The REIT’s board of directors has approved an estimated NAV per share of $9.21 as of December 31, 2018. This valuation is approximately a 33.6% decrease from the previous NAV of $13.87 per shares and approximately a 63% decrease from the $25 shares were originally sold for.
UPDATE 5/7/2019: Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) has entered into new mortgage and mezzanine loans totaling $1.04 billion on 92 of the company’s hotel properties. The “92-Pack Loans” comprise 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. The mortgage loan has a $870 million principal and bears interest at one-month LIBOR plus 2.14 percent. Collateral includes mortgages on 92 of the company’s hotel properties. The senior mezzanine loan has a $100 million principal and bears interest at one-month LIBOR plus 5.60 percent. Collateral includes pledge of ownership interests in the company’s subsidiaries that own and operate the 92 hotel properties. The junior mezzanine loan has a $70 million principal and bears interest at one-month LIBOR plus 8.50 percent. Collateral includes pledge of ownership interests in the borrowers and leasehold pledgors under the senior mezzanine loan. The three loans are interest only with the principal due at maturity on November 2021, with three one-year extension options. The weighted average interest rate per year on the loans is one-month LIBOR plus 2.90 percent, with the LIBOR portions of the interest rates capped at 4.00 percent. Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) used $961.1 million of the loan proceeds to repay its existing mortgage and mezzanine debt on the 92 hotel properties; $25 million was used to repay a portion of the outstanding principal under a $310.0 million term loan encumbering 28 of the company’s other hotel properties; and $10 million was deposited into a reserve account with the lenders to fund property improvement plans required by franchisors of the 92 hotel properties. The loans generated approximately $25 million of additional working capital to the REIT.
UPDATE 4/3/2019: The REIT’s NAV has reportedly decreased by 45% since issuance. The NAV is currently $13.87, down from its initial $25. According to SEC filings, on February 28, 2019, the REIT announced that its Board of Directors had suspended its Share Repurchase Program effective immediately. Investors seeking buyers on the Secondary Market will be disappointed to find that buyers there are only willing to pay even less than the NAV. For example, in a recent transaction on the Secondary Market, Central Trade & Transfer, shares sold for only $8.75.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal, PLLC at 1-800-405-5117.
What are Real Estate Investment Trusts (REIT)?
A Real Estate Investment Trust (“REIT”) is a complex investment that is generally only suitable for sophisticated high-net worth investors, and then only in certain circumstances. A REIT is an entity that owns, and may also manage, income producing real estate. REITs pool capital from multiple investors and use it to purchase properties, similar to mutual funds and other pooled investment vehicles.
A Real Estate Investment Trust can be offered in several different forms. A Public Exchange Listed REIT is registered with the U.S. Securities and Exchange Commission (“SEC”) and is publicly traded on a national securities exchange. A Public Non-Listed REIT is registered with the SEC, but does not trade on a major securities exchange. Finally, a Private REIT, also known as a private-placement REIT, is not registered with the SEC and does not trade on a national securities exchange.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal, PLLC at 1-800-405-5117.
Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) Due Diligence Requirement
FINRA requires brokerage firms to conduct due diligence on investments, such as Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust), and to conduct a suitability analysis when recommending securities to a customer that takes into account the customer’s knowledge and experience. FINRA Rule 2111(a) states that “a member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”
Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. Brokerage firms that fail to conduct adequate due diligence on investments they recommend, such as Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust), or that make unsuitable recommendations can be held responsible for the customer’s losses in a FINRA arbitration claim.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal, PLLC at 1-800-405-5117.
Request a Free Consultation with a Securities Attorney
If you suffered losses investing in Hospitality Investors Trust (HIT REIT) (f/k/a American Realty Capital Hospitality Trust) and would like a free consultation with a securities attorney, then please call Galvin Legal, PLLC at 1-800-405-5117.
This information is all publicly available and is being provided to you by Galvin Legal, PLLC.
Galvin Legal, PLLC is a national securities arbitration, securities mediation, securities litigation, securities fraud, securities regulation and compliance, and investor protection law practice. For more information on Galvin Legal, PLLC and its representation of investors, please visit www.galvinlegal.com or call 1-800-405-5117.
