KTCU, Meritz Fire invest $100 mn in debt of US hotel-focused REIT

The Korean Teachers’ Credit Union (KTCU) and Meritz Fire & Marine Insurance Co. Ltd. have invested $100 million in a mezzanine loan secured by 92 budget hotels of a US real estate investment trust company which closed a $1.04 billion debt refinancing on the properties in May.

Meritz Alternative Investment Management Co. Ltd., an affiliate of Meritz Fire, arranged the investment in the mortgage loan for a target return of 7% per year, according to sources with knowledge of the matter on June 6.

The underlying assets include no-frills hotels of Hilton, Marriott and Hyatt brands owned by unlisted Hospitality Investors Trust (HIT).

Because budget hotels are less vulnerable to economic cycles than luxury hotels, the South Korean investors expect to earn stable interest incomes from the loan and see no problems with debt collection.

HIT REIT is controlled by Brookfield Asset Management Inc. which is the largest shareholder with a 41% stake.

The $1.04 billion refinancing package comprises $870 million of senior debt and $170 million of two mezzanine loans. They carry a term of two and a half years with three one-year extension options.

The $100 million loan is the senior mezzanine tranche with a loan-to-value ratio of 63.7-71.1%.

BlackRock Inc. invested $70 million in the junior mezzanine loan, according to the sources.

The weighted average interest rate on the loans is one-month LIBOR plus 2.90% per annum, according to the company’s filing with the US Securities and Exchange Commission last month.

HIT REIT said in a separate announcement that the debt was oversubscribed by twice to approximately 45 investors.

Five investment banks – Goldman Sachs, Morgan Stanley, Deutsche Bank, Citi and JPMorgan – provided the refinancing.

Meritz Alternative, founded in 2016, manages 2.3 trillion won ($2 billion) in assets at the end of March.

By Hyun-il Lee

hiuneal@hankyung.com

(Photo: Getty Images Bank)