Carey Watermark companies announce proposed merger
 
Carey Watermark companies announce proposed merger
23 OCTOBER 2019 8:08 AM

Carey Watermark Investors 1 and Carey Watermark Investors 2 announced today that the companies have plans to combine through a 100% stock-for-stock merger and management internalization to form real estate investment trust Watermark Lodging Trust.

NEW YORK, Oct. 22, 2019 -- Carey Watermark Investors 1 Incorporated (CWI® 1) and Carey Watermark Investors 2 Incorporated (CWI® 2) announced today that the two companies have entered into a definitive merger agreement under which the two companies will merge in an all-stock transaction to create Watermark Lodging Trust (WLT), a $4.6 billion, internally-managed non-traded REIT with increased scale and operating efficiencies, positioning it for long-term value creation and liquidity, including a public listing or IPO. The transaction has been approved by the Boards of Directors of CWI 1 and CWI 2 upon the unanimous recommendation and approval of Special Committees consisting of CWI 1's independent directors and CWI 2's independent directors, respectively. The transaction is expected to close in the first quarter of 2020, subject to the approval of stockholders of each of CWI 1 and CWI 2, among other conditions.

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 exchange ratio is based on the December 31, 2018 net asset values per share (NAV) of CWI 1 and CWI 2. CWI 2 will be the surviving entity in the merger and will be renamed Watermark Lodging Trust. WLT's portfolio will consist of 33 high-quality lodging assets in attractive markets with significant barriers to entry and favorable growth prospects.

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

Summary of Strategic Benefits:

The proposed transaction is expected to create meaningful benefits for shareholders, including:

Combines highly complementary portfolios creating a premier lodging REIT: The CWI 1 and CWI 2 portfolios benefit from strong brand affiliations and are geographically very well diversified with a focus on high barrier to entry markets and densely populated urban centers with multiple demand generators.
Continuity of management team with proven record of creating shareholder value led by current CEO and CFO: Ensures ongoing execution of value maximizing investment strategies unique to each asset and creates greater alignment with shareholder interests.

Internalization of management is accretive to earnings, distribution coverage and credit profile: Expected to result in significant annual savings and better positions WLT among public lodging REITs.
Increases scale and operational efficiencies for long-term value creation: Larger asset base, elimination of separate joint venture interests and lower expenses simplifies WLT and provides the company with additional financial flexibility to further optimize the portfolio.

Positions WLT for liquidity including a potential public listing or IPO in the coming years: Strategic merger and internalization of management team are important steps towards enhancing WLT's overall operations and portfolio to best position it for a future liquidity event, including a public market listing/IPO.

"We are pleased to have structured a transaction that we believe has meaningful benefits for both CWI 1 and CWI 2 shareholders. 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."

Under the terms of the merger agreement, CWI 1 may solicit, receive, evaluate and enter into negotiations with respect to alternative proposals from third parties for a period of 30 days continuing through November 21, 2019. 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, and there can be no assurance that this process will result in the receipt of any proposals for a superior transaction or that any other transaction will be approved or completed.

Barclays is acting as financial advisor to the CWI 1 Special Committee. Hogan Lovells is acting as legal advisor to the CWI 1 Special Committee. Morgan Stanley & Co. LLC is acting as financial advisor to the CWI 2 Special Committee. Clifford Chance US LLP is acting as legal advisor to CWI 2 and Pepper Hamilton LLP is acting as legal advisor to the CWI 2 Special Committee. Duff and Phelps has rendered a fairness opinion to the CWI 2 Special Committee as to the Internalization.

A joint proxy statement/prospectus, which will be filed on Form S-4 with the Securities and Exchange Commission ("SEC"), will describe the proposed transaction. Completion of the proposed transaction is subject to, among other things, effectiveness of the Form S-4, approval of the stockholders of both companies and satisfaction of customary closing conditions. The transaction is currently expected to close during the first quarter of 2020, although there can be no assurance that the transaction will close at such time, if at all.

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