Carey Watermark Investors 1 Inc. (CWI 1) and Carey Watermark Investors 2 Inc. (CWI 2), two publicly registered non-traded REITs sponsored by affiliates of W.P. Carey Inc. (NYSE: WPC), plan to merge in an all-stock transaction to create a $4.6 billion internally-managed non-traded REIT with a portfolio of 33 lodging assets.
CWI 2 will be the surviving entity of the merger and renamed Watermark Lodging Trust.
The transaction has been approved by the boards of both companies and is expected to close during the first quarter of 2020, with stockholder approval.
“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,” said Michael Medzigian, CEO of CWI 1 and CWI 2. “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.”
If approved, 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 exchange ratio is based on the December 31, 2018 net asset values per share of both companies. CWI 2 had an NAV per share of $11.41, as of December 31, 2018, while CWI shares were valued at $10.39 each. Both REITs originally priced their shares at $10.00 each.
CWI 1 and CWI 2 are managed by affiliates of W. P. Carey Inc. and Watermark Capital Partners LLC, and following the close of the merger, the combined company will complete an internalization transaction and become self-managed.
CWI plans to conduct a 30-day go-shop period to solicit alternative proposals. Also, effective immediately, the REITs have suspended their respective distribution reinvestment plans and quarterly share redemption programs.
In June 2017, the W.P. Carey board approved a plan to exit all non-traded retail fundraising activities to focus exclusively on net lease investing for the company’s balance sheet. W.P. Carey’s managed programs include non-traded REITs, non-traded business development companies, and private funds.
Last year, W.P. Carey merged with one of its other non-traded REITs, Corporate Property Associates 17 – Global Incorporated, in a transaction valued at approximately $5.9 billion.
The Carey Watermark Investors REITs were formed to invest primarily in the lodging and lodging-related sectors, and in recent years, have been among the largest and most active investors in the lodging industry.
Carey Watermark Investors launched in September 2010 and closed in December 2014 after raising approximately $1.1 billion in investor equity. The company’s $2.3 billion portfolio is comprised of 27 properties, as of June 30, 2019.
Carey Watermark Investors 2 owned a $1.6 billion portfolio of 12 properties, as of June 30, 2019. The REIT’s initial public offering was declared effective in February 2015 and closed in June 2017 after raising $851.3 million in investor equity.
W.P. Carey is one of the largest diversified net lease REITs with an enterprise value of more than $20 billion and includes 1,198 net lease properties covering approximately 137 million square feet. It has invested in single-tenant industrial, warehouse, office and retail properties mostly located in the U.S. and Northern and Western Europe.