Carey Watermark REITs Agree to Merge to Create Watermark Lodging Trust

NEW YORK—Carey Watermark Investors 1 Inc. and Carey Watermark Investors 2 Inc. 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.

“We are pleased to have structured a transaction that we believe has meaningful benefits for both CWI 1 and CWI 2 shareholders,” said Michael Medzigian, CEO of CWI 1 and CWI 2. “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. 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.”

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 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.

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.