HIT REIT Files for Chapter 11 Bankruptcy Protection
The White Law Group continues to investigate potential securities claims involving broker dealers who recommended Hospitality Investors Trust (HIT REIT) to investors. The White Law Group may be able to help you recover your financial losses by filing a FINRA arbitration claim against the brokerage firm that sold you the investment.
Hospitality Investors Trust, Inc., formerly known as ARC Hosplitality Trust Inc., (“HIT REIT”) is a publicly registered non-traded real estate investment trust which owns a diversified portfolio of “strategically-located hotel properties throughout North America within the select service and full-service markets of the hospitality sector,” according to its website.
On May 19, 2021, Hospitality Investors Trust Inc. filed for Chapter 11 bankruptcy in Delaware to restructure its $1.3 billion unsecured debt.
Last April we reported that the REIT entered into forbearance agreements with the lenders under certain of its mortgage and mezzanine indebtedness.
According to with the SEC, HIT REIT reported that its lenders have agreed to extend the expiration date of the forbearance period relating to its mortgage loan, while the REIT considers a pre-packaged Chapter 11 bankruptcy.
The company reportedly decided not to make required capital reserve payments to the mortgage lender in April and May 2020 which “resulted in events of default under the 92-Pack Loans.” The company notes that it was trying to preserve liquidity “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,” according to SEC filings.
HIT REIT’s estimated net asset value has continued to decline, and is currently reported at $8.35, as of December 31, 2019. Shares were originally sold for $25.00 each.
The company reportedly claims the decrease in value was due to the sales of 20 hotels that were included in the previous NAV calculation, lower estimated sale prices for properties under contract to be sold as compared to their corresponding estimated value included in the previous NAV calculation.
Further, HIT REIT said that lower estimates of occupancy, higher labor costs, and sales and marketing were offset by lower discount rate and capitalization rate estimates, driven by tightening market spreads and progress on its brand-mandated property improvement plans.
Secondary Sales Price as of March 31, 2021
According to Central Trade & Transfer, a secondary market for non-traded REITs, shares of HIT REIT sold in March 31, 2021 for just $0.46 per share.
What does Bankruptcy Mean for Hospitality Investors Trust Shareholders?
According to the filings, each share of Hospitality Investors Trust common stock outstanding will be cancelled and exchanged for a right to receive contingent cash payments (CVR). Shareholders of the common stock will receive one CVR in exchange for each share of common stock. The maximum amount of payments made per CVR will not exceed $6.00 and will not be transferable, except in limited instances such as the death of the holder.
Recovery of Investment Losses
The White Law Group is investigating potential securities fraud claims involving broker-dealers’ improper recommendation that investors purchase high-risk non-traded REIT investments, like Hospitality Investors Trust aka HIT REIT. Many investors are not fully aware of the problems and risks associated with these investments before purchasing them.
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.
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. Brokers have an opportunity to earn high commissions—sometimes as high as 15% — on non-traded REITs. This may provide some brokers with enough incentive to make unsuitable investment recommendations.
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 (HIT REIT) The White Law Group may be able to help you. For a free consultation with a securities attorney, please call our law offices 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.
For more information on The White Law Group, visit www.whitesecuritieslaw.com.