Bad News for Investors in Hospitality Investors Trust (ARC Hospitality Trust)
Are you concerned about your investment losses in Hospitality Investors Trust? If so, The White Law Group may be able to help you recover your losses by filing a FINRA Arbitration claim against the brokerage firm that sold you the investment.
Hospitality Investors Trust formerly known as American Realty Capital Hospitality Trust, Inc.is a non-traded real estate investment trust that acquires and owns hotels in the United States. The company primarily operates its hotels under a franchise or license agreement with various brands. According to Bloomberg, as of December 31, 2015, it owned and had interests in 136 hotels with a total of 16,644 guest rooms in 32 states. American Realty Capital Hospitality Trust, Inc. was founded in 2013 and is based in New York, New York.
Update on Hospitality Investors Trust
The board of Hospitality Investors Trust REIT unanimously approved the estimated net asset value per share of the company’s common stock of $13.20, as of March 31, 2017. The company’s previous NAV per share was $21.48 as of March 31, 2016, a decline of approximately 38.6 percent year-over-year.
Earlier this year, the company changed its name to Hospitality Investors Trust Inc. following its transition to a standalone self-managed REIT and the close of a $135 million investment from an affiliate of Brookfield Strategic Real Estate Partners II.
The Brookfield affiliate committed $400 million in convertible preferred limited partnership units of the REIT’s operating partnership, which was re-named Hospitality Investors Trust Operating Partnership, and the remaining $265 million of units will be issued through February 2019.
According to SEC filings, the valuation was based on an estimated fair value of the company’s assets less the estimated fair value of its liabilities, divided by 39.6 million shares of common stock outstanding. While Duff & Phelps assisted with previous 2016 valuation, the board decided to use a different valuation firm in 2017 because of the company’s transition to self-management and Duff & Phelps’ historic relationship with AR Global.
Hospitality Investors Trust noted three primary reasons for the NAV per share decline, according to reports. The two independent third-party valuation firms used different estimates and assumptions in their calculations. The company also said the 2017 NAV calculation includes higher exit capitalization rates due to an increase in the interest rate environment since the 2016 valuation. A higher capitalization rate applied to a hotel’s net operating income will result in a lower value of the hotel.
Hospitality Investors Trust Inc. has more shares outstanding because of stock distributions paid to shareholders and shares issued as part of the transition to self-management. From March 31, 2016 to March 31, 2017, the number of shares of common stock outstanding increased by approximately 3 million shares, or an increase of 8.1 percent.
Hospitality Investors Trust suspended distributions in January 2017 and does not expect to pay any distributions this year. The company is not currently offering a redemption plan to shareholders.
The Problem with REITs
Real estate investment trusts (REITs) are complex and inherently risky products. Compared to traditional investments, such as stocks, bonds and mutual funds, REITs are significantly more complex and often better suited for sophisticated and institutional investors.
Another problem often associated with REIT recommendations is the high sales commissions brokers typically earn for selling REITs – as high as 15%. Brokers have an obligation to make investment recommendations that are consistent with their clients risk tolerance, net worth, investment objectives and experience in the market. Unfortunately, in many cases, the high sales commission may provide some brokers with enough incentive to make unsuitable investment recommendations.
In addition to the high risks, non-traded REITs, like Hospitality Investors Trust often lack liquidity. Investors looking to sell these investments often have difficulty finding a buyer, and if they are able to find one can suffer significant losses on the sale.
Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.
If you suffered losses investing in Hospitality Investors Trust and would like a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.
The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.
For more information on The White Law Group, visit www.whitesecuritieslaw.com.