Hospitality Investors Trust Inc. (“HIT”, formerly known as ARC Hospitality Trust, Inc.) has announced that it is buying back shares for $9.00 a share, which is a discount of approximately 35% to what it the company claims is the shares’ net asset value (NAV) of $13.87 a share. It is also a far cry from the $25.00 a share price at which most investors initially acquired shares.
HIT is a non-traded real estate investment trust (REIT) focused on ownership of hotels and other lodging properties in the United States. As a publicly registered non-traded REIT, Hospitality Investors Trust was permitted to sell shares to the investing public at large, oftentimes upon the recommendation of a broker or financial advisor. The REIT sold shares to the public for $25.00/share. Some investors may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.
HIT’s board has adopted the share repurchase program, effective October 1, 2018, for shareholders who desire immediate liquidity, and recommends that investors do not sell their shares unless they need immediate liquidity because (according to HIT) the initial repurchase price is well below the current and potential long-term value of the shares. Shares bought at any time are eligible for repurchase under the program, and the first repurchase date under the to the program is scheduled for December 31, 2018.
Hospitality Investors Trust previously terminated redemptions, and the company’s shares were formerly the subject of a tender offer by MacKenzie Realty Capital to purchase shares of HIT for $5.53 a share in 2017.
Non-traded REITs have various drawbacks including most notably their high up-front sales commissions (usually at least 7-10%) and due diligence and administrative fees that can range anywhere from 1-3%. These commissions and fees act as an immediate “drag” on any investment and can compound losses. Further, unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange, leaving investors with limited options if they wish to sell their shares after the initial purchase. It is this problem that HIT is attempting to address with the $9/share buyback program.
As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.
Investors with questions about possible claims concerning HIT or another non-traded REIT or non-conventional investment may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).