DALLAS and TORONTO, Oct. 19,
2023 /CNW/ -- NexPoint Hospitality Trust
("NHT" or the "REIT") (TSX-V: NHT.U) has received
requests for (i) clarification regarding its previous disclosure
relating to the approximate US$87
million of convertible loans provided by entities controlled
or managed by James Dondero
primarily during the COVID-19 pandemic (the "Loans"); and
(ii) supplemental disclosure to its management information circular
dated September 11, 2023 (the
"Circular") regarding the process undertaken with the TSX
Venture Exchange (the "TSXV") whereby the TSXV requested
amendments to the Loans issued between June
2021 and September 2022 in the
aggregate amount of US$56,165,000
(the "COVID Loans").
Clarification Regarding Previous Disclosure
As a result of the COVID-19 pandemic, the REIT experienced
material decreases in revenues, results of operations and cash
flows. The impact to the global economy caused by the response to
the COVID-19 pandemic also negatively impacted the REIT's ability
to obtain new financing. The Loans were advanced, in most cases, in
critical moments to principally fund the REIT's ongoing operating
expenses and to satisfy interest and principal payments due on
third party debt. In certain situations, the proceeds from the
Loans were used to fund acquisitions designed to improve the
financial condition of the REIT. Without the Loans, the REIT would
likely not have been able to continue its operations as a going
concern.
Each of the Loans was unsecured, had a 20-year term and bore
interest at rates ranging from 1.82% per year to 7.5% per year
(which were market interest rates at the time of their issuance).
Of those Loans, the COVID Loans bore interest at rates ranging from
2.25% per year to 7.5% per year. As of June 30, 2023, approximately US$83 million of the Loans remained outstanding.
From the time of issuance to the present, the holder of the Loans
has had the right to convert the principal and interest owing under
the Loans into class B units (the "Class B Units") of NHT
Operating Partnership, LLC (the "OP") on the basis of the
market price of the REIT's trust units (the "Units") at the
time of conversion.
Previous disclosure of the REIT stated that the Loans were,
subject to approval of the TSXV, convertible at any time at the
election of the REIT into Class B Units. The REIT wishes to clarify
and correct this earlier disclosure. The Loans are, and have always
been, only convertible into Class B Units at the option of
their respective holder. However, if any of the Loans are converted
by their respective holders into Class B Units and the holder then
elects to redeem those Class B Units, the REIT may elect to satisfy
the redemption by issuing Units to the holder. Any issuance of
Units or repayment of the Loans in Units would be subject to the
approval of the TSXV.
Supplemental Disclosure to Circular
As disclosed in the Circular, the COVID Loans were filed with
the TSXV at various points during 2021 and 2022, as loan
submissions pursuant to TSXV Policy 5.1 – Loans, Loan Bonuses,
Finder's Fees and Commissions ("Policy 5.1"). The REIT
filed in this manner as the Loans were not, as described above,
convertible by the holder into publicly traded Units (Units were
only issuable at the election of the REIT, subject to TSXV
approval) and therefore, based on the guidance in Policy 5.1, were
subject to filing under Policy 5.1.[1] As a result of filing
under Policy 5.1, since any issuance of Units on a redemption of
Class B Units received by a holder of the COVID Loans was subject
to TSXV approval, the REIT believed its position was consistent
with the requirements and guidance of Policy 5.1. The REIT
commenced filing on this basis in early 2021 and these filings were
not questioned until December 2022,
when the TSXV advised the REIT that it believed the COVID Loans
were required to be treated as "Convertible Securities" under TSXV
Policy 4.1 – Private Placements ("Policy 4.1") rather
than loans under Policy 5.1. While all the Loans were filed with
the TSXV, the TSXV only raised this issue with respect to the COVID
Loans; it did not raise it with respect to the other Loans.
Following this notification, the REIT engaged with the TSXV and
presented support for its filings under Policy 5.1, but ultimately
the TSXV concluded that Policy 4.1 should apply. Due to this
determination and in order to satisfy the requirements of Policy
4.1, the TSXV required the following amendments (the
"Amendments") to the COVID Loans (which amendments would
bring the COVID Loans into compliance with the terms expressly
prescribed by Policy 4.1 for convertible securities): (i) either
the conversion feature be removed or limited to five years from the
date of issuance of each COVID Loan (which represents the maximum
length of the conversion period); (ii) the conversion feature be
limited to the principal amount of the COVID Loan (rather than the
principal amount plus interest); and (iii) the conversion price be
fixed at a price equal to the market price of the REIT's Units on
the TSXV at the time of the issuance of such COVID Loan.
There was no negotiation with the TSXV regarding the substance
of the Amendments as the TSXV's position was simply that the COVID
Loans had to be amended to comply with Policy 4.1. The REIT worked
expeditiously to obtain consent to the Amendments from each of the
lenders (the "Lenders") under each of the COVID Loans. With
the Lenders' cooperation and desire to ensure the REIT's
compliance with TSXV policies, the Lenders agreed to implement the
Amendments. However, the REIT was not in a position to negotiate
these amendments with the Lenders – it was seeking the cooperation
of the Lenders to adjust the conversion provisions or remove them
altogether to satisfy the TSXV policies. For one COVID Loan, the
Lender agreed to remove the conversion right altogether. For the
remaining COVID Loans, the Lenders opted to limit the conversion
period to five years. The REIT did not enter into any other
agreement, beyond the Amendments themselves, with the Lenders in
connection with the Amendments. In that circumstance, the board of
trustees of the REIT (the "Board") determined that the
concessions obtained from the Lenders were fair and reasonable.
The Board undertook a thorough review of the terms of the
Amendments to the COVID Loans and concluded that the Amendments
were in the best interests of the REIT. As described in the
Circular, the Board: (i) considered the terms of the Amendments to
the COVID Loans; (ii) considered the need to comply with the
requirements of the TSXV in order to maintain a listing for the
Units; and (iii) consulted with its legal advisors, to reach this
conclusion. In considering the terms of the Amendments under
(i) above, the REIT and the Board considered that the Amendments
would provide a clear benefit to the REIT and unitholders
(including minority unitholders) by (i) shortening the time period
in which the conversion right can be exercised from 20 years to
five years (or removing the conversion right altogether); (ii)
fixing conversion prices for the COVID Loans at prices greater than
the current market price; and (iii) reducing the amount convertible
from principal and interest to only principal. As a result of the
Amendments, the potential dilution of the REIT's unitholders would
be materially reduced. Further, as failure to implement the
Amendments would potentially result in the delisting of the Units,
the Board determined that the Amendments were in the best interests
of unitholders due to the likely adverse impact of delisting on the
liquidity and value of the Units.
The REIT, Mr. Dondero, and the trustees and officers of the
REIT, conducted reasonable inquiries pursuant to Section 8.1(2) of
Multilateral Instrument 61-101 – Protection of Minority Security
Holders in Special Transactions to determine the units to be
excluded from the minority approval vote on the
Amendments.
About NexPoint Hospitality Trust
NexPoint Hospitality Trust is a publicly traded real estate
investment trust, with its Units listed on the TSX Venture Exchange
under the ticker NHT.U. NHT is principally focused on acquiring,
owning and operating well-located hospitality properties in
the United States that offer a
high current yield and in many cases are underperforming assets
with the potential to increase in value through investments in
capital improvements, a market-based recovery, brand repositioning,
revenue enhancements, operational improvements, expense
inefficiencies, and exploiting excess land or underutilized space.
NHT owns 9 branded properties sponsored by Marriott, Hilton, Hyatt,
and Intercontinental Hotels Group, located across the U.S. NHT is
externally advised by NexPoint Real Estate Advisors VI, L.P.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
Contact:
Investor Relations
IR@nexpoint.com
Media Inquiries
MediaRelations@nexpoint.com
1 Policy 5.1 provides as follows: "…For the purposes
of this Policy, the term "loan" will include any form of debt
instrument issued by an Issuer that is not convertible into Listed
Shares."
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SOURCE NexPoint Hospitality Trust
