Carey Watermark Investors 1, 2 outline merger plan

Carey Watermark Investors 1 and Carey Watermark Investors 2 entered into a definitive merger agreement. Together, they would create Watermark Lodging Trust, a $4.6 billion, non-traded real estate investment trust with 33 lodging assets in its portfolio.

“The strategic combination of the two highly complementary portfolios is a unique opportunity to create a premier, internally managed lodging REIT and is the next step on the path to liquidity,” Michael Medzigian, CEO of CWI 1 and CWI 2, said in a statement. “It allows us to create a more focused portfolio and improve profitability to position the company for the public markets and create long-term growth on behalf of our shareholders.”

CWI 1 and CWI 2 are non-traded REITS managed by affiliates of W. P. Carey and Watermark Capital Partners. Following the merger’s close, the combined company will complete an internalization transaction with W. P. Carey and Watermark Capital Partners, as a result of which the combined company will become self-managed.

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CWI 2 will be the surviving entity in the merger and will be renamed Watermark Lodging Trust. Subject to the terms and conditions of the merger agreement, CWI 1 stockholders will receive a fixed exchange ratio of 0.9106 shares of CWI 2 Class A common stock for each share of CWI 1 common stock.

The boards of directors for both CWI 1 and CWI 2 have both approved the all-stock transaction. The transaction, expected to close in the first quarter of 2020, is still subject to the approval of stockholders of CWI 1 and CWI 2, among other conditions.

The agreement allows for CWI 1 to solicit, receive, evaluate and enter into negotiations for alternative proposals from third parties for a period of 30 days continuing through Nov. 21. The CWI 1 Special Committee, with the assistance of its independent advisors, intends to solicit alternative proposals during this go-shop period. CWI 1 does not intend to disclose developments during this process.

Barclays and Hogan Lovells are acting as financial and legal advisors, respectively, to the CWI 1 Special Committee. Morgan Stanley & Co. and Pepper Hamilton are acting as financial and legal advisors, respectively, to the CWI 2 Special Committee. Clifford Chance US is acting as legal advisor to CWI 2.