NexPoint Hospitality Trust to acquire Condor Hospitality Trust

Canada-listed REIT NexPoint Hospitality Trust and Bethesda, Md.-based REIT Condor Hospitality Trust have executed a definitive agreement under which NHT’s operating partnership (or OP) will acquire all of the outstanding equity interests of Condor and its OP via a merger valued at $318 million. 

The deal comes less than a year after Condor began a strategic review process. 

In line with its growth strategy, NHT will acquire 15 select-service and extended-stay hotels, representing 1,908 guestrooms across eight U.S. states. The transaction will expand NHT’s geographic footprint into Georgia, Kansas, Kentucky, Maryland, Mississippi and South Carolina and increase its presence in Florida and Texas.

The consideration will be satisfied by a combination of cash and debt, including the assumption of certain debt. 

Once the deal has closed, NHT’s gross asset value is expected to increase to approximately $700 million.

The merger consideration of $11.10 per share to be paid to holders of common stock represents a premium of approximately 34 percent over Condor’s unaffected share price of $8.27 as of July 19 the most recent trading day before the public announcement of the proposal to acquire Condor.

“The transaction instantly expands NHT’s geographical footprint and balances NHTs strategic value-add portfolio with durable, core, extended-stay hotels.” said NHT CEO Jim Dondero. “We believe the future for quality extended-stay and select-service hotels remains bright.”

“We are pleased with our strategic-alternatives process concluding with a transaction we believe is attractive for our shareholders,” said Bill Blackham, Condor’s CEO. “NHT is acquiring our very high quality portfolio of outperforming select-service hotels and Condor shareholders are receiving a liquidity event at an attractive premium to our unaffected share price prior to the transaction announcement.”

The Analyst's Perspective

In a mailing to investors, Michael Bellisario, senior research analyst at investment bank and financial services company RW Baird, wrote the transaction should be seen as a positive for shareholders and investors. “We have continued to believe an outright sale of the company would be the best possible outcome (in terms of the most efficient way to maximize value in both the near and intermediate term) from the company's strategic review process,” he wrote.

In May, when former CFO Jonathan Gantt left Condor, Baird analysts had suggested the move “could signal that progress is being made on the M&A front and that a conclusion to the strategic review could be forthcoming.” At the time, Baird suggested the $10.50 per share price from a March 2017 capital raise likely would serve as an approximate valuation floor from management's perspective. 

“We do not view this transaction as indicative of broad-based M&A interest given Condor's much smaller-than-peer scale,” Bellisario wrote. “However, we believe the merger is further evidence that new/different pockets of capital are actively pursuing hotel investments, which should continue to support the hotel REITs' non-core disposition efforts. In particular, we are incrementally positive on APLE's and INN's [Richmond, Va.-based Apple Hospitality REIT, Inc. and Austin, Texas-based Summit Hotel Properties, Inc., respectively] implied valuations and their ability to sell slightly larger portfolios of non-core assets at attractive cap rates.”

Key Terms

NexPoint has agreed to provide equity financing for the purchase price payable under the merger agreement. In addition, NHT will assume approximately $8.65 million of in-place property-level mortgage financing and expects to obtain secured financing to finance a portion of the purchase price and refinance certain debt of Condor.

Completion of the transaction, which is expected to occur in fourth quarter, is subject to customary closing conditions, including the approval of Condor’s common and preferred shareholders. 

Upon closing of the transaction, holders of Condor common stock would receive $11.10 per share; holders of 6.25-percent Series E preferred stock would receive $10 per share and those within Condor Hospitality Limited Partnership would receive $0.21346 per Condor OP partnership interest.