Major Ritz-Carlton Owner Watermark Lodging At Risk Of Going Belly Up

Watermark Lodging Trust, a major owner of Ritz-Carlton hotels and other upmarket hospitality properties, cast doubt on its future viability in a recent filing with the Securities and Exchange Commission.

"We have assessed our current financial condition, including current cash available, forecasted future cash flows and our contractual obligations over the next 12 months ... and have determined there is substantial doubt about our ability to continue as a going concern for the next 12 months," the company said in the statement. 

The company reported that as of the end of the first quarter of this year, it had cash totaling $47.8M, of which $15.9M was designated as hotel operating cash.

Watermark also expects that it will need $490.7M during the next 12 months to make scheduled mortgage loan principal payments, including scheduled balloon payments, on 11 mortgages. It will also need funds for normal operating expenses.

Unsurprisingly, the company, which is a non-traded REIT, attributed its woes to the coronavirus pandemic, noting that its revenue dropped 26% during Q1, which included only a few weeks when lockdowns were put in place. Presumably, its second quarter will be much worse, with the revenue needed to meet its obligations at a low level.

Such a grim outlook assumes that the company doesn't sell any more of its hotels or manage to raise capital some other way, the filing added.

In an effort to stanch its outflow of capital, the company has closed 17 of its properties completely and reduced staffing and services at its remaining properties. It has also suspended renovation plans and cut cash compensation payable to its senior management and board of directors.

In early June, Watermark sold the Hutton Hotel Nashville to an unaffiliated buyer for $70M, with net proceeds of about $26.8M after the repayment of the hotel's mortgage. The company is looking to sell more of its assets, the filing said.

The statement also said that Watermark has sought relief from all of its lenders to defer interest and principal payments, an effort that has been partially successful. The company has received modifications so far on 18 of the 32 mortgages it is obliged to pay. Altogether, its mortgage debt is about $2B.

Watermark is the result of the merger early this year between two non-traded REITs sponsored by W.P. Carey Inc. and Watermark Capital Partners. Not counting the Hutton Hotel, the company owns 32 hotels with 4,420 rooms total.

Four of its properties are Ritz-Carltons, including two of that brand in Florida and one each in Pennsylvania and California. Other brands that Watermark owns include Westin, Sheraton, Marriott and Hyatt.