Hospitality Investors Trust Inc. Files Chapter 11 Bankruptcy Protection

(FeedPublish) Did your broker recommend an investment in Hospitality Investors Trust Inc. (formerly known as ARC Hospitality Trust Inc.)?  If so, the securities attorneys at The White Law Group may be able to help you to recover your losses by filing a FINRA dispute resolution claim against your brokerage firm.

On May 19, 2021, Hospitality Investors Trust Inc., a non-traded REIT that owns a portfolio of hotel properties, filed for Chapter 11 bankruptcy in Delaware to restructure its $1.3 billion unsecured debt.

While the company blames its financial troubles on the Covid-19 global pandemic, there have been numerous problems for the REIT since 2017 when it cut ties with its former sponsor AR Global, and Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC invested $300 million in the REIT.

This reportedly led to a lawsuit filed on behalf of a shareholder against the REIT’s executives and directors, AR Global, and AR Global’s senior executives, alleging gross abuse of trust and that the terms of the Brookfield investment were bad for the company and its stockholders.

The lawsuit alleged that the defendants breached their fiduciary duties, wasted company assets, aided and abetted the breaches of fiduciary duties, breached certain contracts, and unjustly enriched themselves. The defendants reportedly denied every claim in the lawsuit.

Last December, the REIT amended its limited partnership agreement with its investment partner, Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC, noting it expected it wouldn’t have sufficient cash on hand to continue to pay its current obligations during the first half of 2021.

The objective of the limited partnership amendment with Brookfield was to preserve the company’s cash position as it continues discussions with the Brookfield investor regarding a “holistic solution to the company’s liquidity dilemma.”

Brookfield has reportedly agreed to provide a $65 million debtor-in-possession term loan to fund the REIT’s current obligations, including up to $10 million to fund interest payments and other approved expenses for the property-level mortgage loans, pending the Chapter 11 cases.  After the bankruptcy plan becomes effective, Brookfield will provide a $25 million exit facility.  Both loans bear interest at 15 percent per year.

What does Bankruptcy Mean for Hospitality Investors Trust Shareholders?

According to filings, each share of Hospitality Investors Trust common stock outstanding will be canceled 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.

The value of the shares has seen deep declines since 2017.  Shares were originally offered at $25.00 each, and the last valuation was $8.35 per share as of December 31, 2019.

According to Central Trade & Transfer, a secondary market for non-traded REITs, shares of HIT REIT sold on March 31, 2021, for just $0.46 per share.

Potential Lawsuits to Recover Financial Losses

The White Law Group continues to investigate potential securities claims involving Hospitality Investors Trust, and the liability broker-dealers may have for improperly recommending it.

The trouble with non-traded REITs is that they are complex and inherently risky products.

Broker-dealers are required to inform clients of the risks associated with investment recommendations and to ensure that those recommendations are suitable for the investor in light of the investor’s age, risk tolerance, net worth, and investment experience.  Firms that fail to do so may be held responsible for any losses.

Lack of liquidity is often problematic for many investors.  Investors looking to sell often have difficulty finding a buyer and can suffer significant losses on the sale.

Filing a Complaint against your Brokerage Firm

If you have suffered losses investing in Hospitality Investors Trust Inc., please contact The White Law Group at 888-637-5510 for a free consultation with a securities attorney.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois.  For more information on the firm, visit www.WhiteSecuritiesLaw.com.