Hospitality Investors Trust Announces Share Repurchase Program at $9.00 Per Share
September 24, 2018 | James Sprow | Blue Vault
On September 24, 2018, Hospitality Investors Trust, Inc. announced that its Board of Directors has adopted a Share Repurchase Program (“SRP”), effective as of October 1, 2018. Pursuant to the SRP, and subject to the terms and conditions contained therein, any stockholder of the Company’s common stock may request that the Company repurchase all or a portion of such Stockholder’s shares of common stock at $9.00 per share.
While the Board has approved the SRP (including the initial Repurchase Price), the Board strongly recommends that Stockholders do not request that the Company repurchase their shares of common stock pursuant to the SRP. The initial Repurchase Price is 35.1% lower than the most recent estimated net asset value per share of common stock equal to $13.87 approved by the Board and published on April 23, 2018. The Board believes the initial Repurchase Price is well below the current and potential long-term value of a share of common stock. This belief is based on, among other things, the most recent Estimated Per-Share NAV. The Board’s approval of the SRP (including the initial Repurchase Price) is in no way intended to suggest that $9.00 per share is the fair value of a share of common stock.
The Board adopted the SRP to meet the needs of many Stockholders who desire immediate liquidity. The Board understands that the options for Stockholders to sell shares of common stock are limited as shares of common stock are not listed on a national securities exchange and there is no established trading market for shares of common stock. While there is a secondary market for shares of common stock, the Board believes the volume of those trades is small in relation to the number of shares outstanding and that many Stockholders who desire immediate liquidity do not consider such secondary market transactions as a means to achieve liquidity. The Board believes that the initial Repurchase Price is a price at which Stockholders desiring immediate liquidity might desire to sell their shares.
The Company anticipates publishing an updated Estimated Per-Share NAV at least annually. Because the initial Repurchase Price of $9.00 is 35.1% less than the current Estimated Per-Share NAV of $13.87, the repurchase of shares pursuant to the SRP is expected to have a positive impact on the next published Estimated Per-Share NAV. Based on the assumptions used in calculating the current Estimated Per-Share NAV as of December 31, 2017, if the purchase by the Company of 1,000,0000 shares (representing the maximum number of shares the Company could repurchase in the quarter ending December 31, 2018 pursuant to the SRP), at the initial Repurchase Price had occurred on December 31, 2017, such Estimated Per-Share NAV would have increased to $14.00 per Share. (The REIT had approximately 39.5 million shares outstanding as of Q2 2018)
Blue Vault Comment: The above statement by the Board reflects the simple fact that any shareholder who sells their shares back to the Company for $9.00 per share is accepting less than the value of those shares, based on the estimated NAV per share. In doing so, the Company can pay $9.00 for shares worth considerably more and the shareholders are accepting a very steep discount for the sake of liquidity. From the Company’s perspective, remaining shareholders are benefitting by repurchasing shares of other shareholders at a significant discount. This REIT raised capital at $25.00 per share in its offering between January 2014 and November 2015. Currently, common shareholders have received no cash distributions since Q2 2016 and the current estimated NAV is down 44.5% from the initial offering price. A shareholder who purchased shares in January 2014 and accepts $9.00 per share in Q3 2018 will have experienced an annualized rate of return of approximately negative 18.7%.
The repurchase price is initially $9.00 per share and may be changed by the Board from time to time, based on such factors as the Board deems relevant and appropriate in its sole discretion, effective 15 days after such change has been disclosed.
Sources: SEC, Blue Vault
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