MHI Hospitality Restructures Balance Sheet, Looks to Grow

In the wake of the recession, Virginia-based lodging REIT MHI Hospitality Corp. (NYSE: MDH) has restructured its balance sheet and is preparing to expand.

Within the past six months, MHI Hospitality closed four property-level loans totaling $57.7 million at what executives say are attractive interest rates. In turn, the firm terminated an $80 million line of credit that had been a drag on the company since before the recession hit, according to executives. CEO Drew Sims says that during the recession the syndicate bank operating the credit line had expanded MHI's covenant to include difficult restrictions on the firm's cash flow.

The four new loans carry interest rates between 5.25 percent and 6.24 percent, as well as one that is set to a floating rate of the 30-day LIBOR rate plus 3 percent, with a floor on the LIBOR of 50 basis points.

CEO Drew Sims says community banks are now back in the picture in the lending market.

"We've had real good success with community banks. We're back to dealing with small lenders and have done deals with Premier Bank, the Bank of Georgetown and a community bank in Tampa," he said.

With the capital restructuring complete, MHI can train its focus on refurbishing distressed hotel assets, according to Sims.

"That's our bread and butter," Sims says of MHI, which has been in business for 55 years and went public in 2004.

MHI has upscale full-service hotels in the mid-Atlantic and the southern portion of the United States. Sims says he continues to see the most opportunity in the lodging market in refurbishing and renovation. This year, the company's goal is to complete one or two of those kinds of deals, Sims said.

MHI has grown every quarter since 2007, a trend Sims attributes in part to good timing.

"When we went into the recession, we had half of our portfolio in various stages of renovation or repositioning," he said.

Looking ahead, Sims notes that market supply in lodging remains constrained, which he takes as a positive sign.

"It's been a pretty nice ride for the industry since the second quarter of 2010, and it looks to continue for a good long time."