Private Funds Set to Acquire Watermark Lodging Trust for $3.8B

Private real estate funds managed by Brookfield Asset Management (NYSE: BAM) will acquire the outstanding shares of real estate investment trust Watermark Lodging Trust in an all cash transaction valued at $3.8 billion.

Pursuant to the May 6 deal, Brookfield will acquire the outstanding class A shares for $6.768 each and Class T shares for $6.699 each. The deal also includes the assumption of debt and preferred equity. This purchase price represents a premium of more than 7.5% from the December 2021 values of those shares.

According to the filings, Watermark’s portfolio consists of 25 high-quality lodging properties for a total of more than 8,100 rooms “located in drive-to leisure destinations and gateway urban cities across 14 states with a high concentration in the Sun Belt region.” Meanwhile, Brookfield has $700 billion of assets under management ranging from real estate, infrastructure, renewable power and transition, private equity and credit

“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,” Michael Medzigian, Chairman and CEO of Watermark, said in a press release. “The transactions premium to our most recently published Net Asset Values per share represents the strong execution of our entire team who have demonstrated the ability to find innovative solutions to address the challenges brought on by the COVID-19 pandemic.”

“Hotels and resorts of this scale and quality are difficult to replicate,” Lowell Baron, Managing Partner and Chief Investment Officer in Brookfields’ Real Estate Group, said in a press release. “This portfolio is well positioned given its concentration in high barrier to entry coastal destinations, gateway cities and the sunbelt.”

The reverse triangular merger is subject to certain closing conditions and Watermark’s shareholder approval. The deal is expected to close in Q4 2022.

Watermark’s financial advisor is Morgan Stanley & Co. LLC, its real estate advisor is Hodges Ward Elliott and its legal counsel is Clifford Chance US LLP as well as Paul Hastings LLP. Brookfield’s legal counsel is Fried Frank Harris Shriver & Jacobson LLP; Citigroup, Bank of America, JP Morgan and Wells Fargo are acting as financial advisors to Brookfield and providing financing for the transaction.

Some of Brookfield’s other deals include its 2015 acquisition of GrafTech. In 2021, it made an offer to take the commercial real estate portion of its business private in a $5.9 billion deal.