At a time when hotel industry leaders are touting a strong recovery, Watermark Lodging Trust pointed to uncertainty for hotels in announcing its pending $3.8 billion sale to private funds managed by Brookfield Asset Management.
Watermark, a publicly registered, self-managed, nontraded real estate investment trust, announced late Friday it had entered into a definitive agreement to sell its 25-hotel portfolio in an all-cash transaction, according to a statement.
The deal comes more than two years after the Chicago REIT brought in two private investment firms as investors to weather the COVID-19 crisis.
In a letter to investors, Watermark Chairman and CEO Michael Medzigian said, “We are pleased with the implied valuation premium given the remaining uncertainty regarding the lodging industry’s recovery from the COVID-19 pandemic, the impact of rising interest rates on the financing environment and macroeconomic recessionary concerns.”
Brookfield will acquire all of Watermark’s outstanding shares of common stock for $6.678 per Class A share and $6.699 per Class T share in the all-cash transaction. The purchase price represents a premium of more than 7.5% from Watermark’s most recently published net asset value per share, as of Dec. 31, of $6.29 per Class A share and $6.22 per Class T share.
The deal is expected to close in the fourth quarter.
Toronto-based Brookfield, an alternate asset manager with about $700 billion in assets under management, is one of the world’s largest real estate investors.
“We are very pleased to reach this agreement with Brookfield, as it achieves our longer-term objective of a liquidity event, while providing our stockholders with an immediate and certain cash value,” Medzigian said in the statement.
Watermark was formed out of the combination of Carey Watermark Investors 2 and Carey Watermark Investors in April 2020. Prior to that, CWI 1 and CWI 2 were nontraded REITs that W.P. Carey and Watermark Capital Partners managed externally.
Watermark’s portfolio includes 25 properties with more than 8,100 rooms. The REIT comprises luxury and upper-upscale hotels and resorts in drive-to leisure destinations and gateway urban markets across 14 states with a concentration in the Sun Belt region.
The largest hotel by number of rooms is the 560-room Renaissance Chicago Downtown hotel at 1 W. Wacker Drive.
Watermark’s other hotels include the 514-room Marriott Sawgrass Golf Resort in Ponte Vedra Beach, Florida, and a 510-room Marriott in San Jose, California. The REIT’s portfolio also includes Ritz-Carlton hotels in Philadelphia, Fort Lauderdale and Key Biscayne, Florida; and San Francisco and Santa Barbara, California.
“Hotels and resorts of this scale and quality are difficult to replicate,” Lowell Baron, managing partner and chief investment officer in Brookfield’s real estate group, said in the statement. “This portfolio is well positioned given its concentration in high barrier to entry coastal destinations, gateway cities and the Sun Belt.”