Moody REITs Announce Definitive Merger Agreement

Moody National REIT I Inc. and Moody National REIT II Inc., two publicly registered non-traded real estate investment trusts, signed a definitive merger agreement where Moody REIT II will acquire Moody REIT I. The proposed merger, which was reported by The DI Wire in September, is subject to the approval of REIT I stockholders.

“The special committees of both boards have put forth a tremendous effort on behalf of their respective shareholders and have structured a deal that truly results in a ‘win-win’ for all the shareholders involved,” said Brett Moody, chief executive officer and president of both REITs.

Under the agreement, REIT II will pay gross consideration of $11.00 per share of REIT I common stock, less certain fees and closing costs. The companies noted that Moody REIT I stockholders will receive no less than $10.25 per share if the merger is consummated.

According to the agreement, Moody REIT I stockholders have the option to receive shares of Moody REIT II common stock or cash, as long as no more than roughly 50 percent of the total net merger consideration may be paid in cash. The exchange ratio is equal to the net price per share divided by $25.00. Thus, if the net price per share is $10.25, the exchange ratio will be 0.41 shares of Moody REIT II common stock for each share of Moody REIT I common stock.

The merger agreement also provides Moody REIT I with a go-shop period where FBR Capital Markets & Co. will actively solicit alternative proposals from third parties for the next 45 days concluding at 11:59 p.m. on December 31, 2016.

If Moody REIT I terminates the merger agreement due to a superior proposal during the go-shop period, they will pay Moody REIT II a $1 million termination fee (plus expenses not to exceed $500,000). If the agreement is terminated after the go-shop period concludes, the termination fee doubles to $2 million.

FBR Capital Markets & Co. acted as financial advisor and Vinson & Elkins L.L.P acted as counsel to the Moody REIT I special committee. Houlihan Lokey Capital, Inc. acted as financial advisor and Venable LLP acted as counsel to the Moody REIT II special committee. Alston & Bird LLP assisted REIT II as its transaction counsel.

Moody National REIT I’s portfolio consists of 14 assets comprised of 12 hotels and two notes receivable. The hotel portion of the REIT I portfolio consists of Marriott, Hilton and Hyatt select-service hotels. Moody REIT I commenced its initial public offering in April 2009, and as of June 30, raised $127 million in investor equity through its initial public offering, follow-on offering and the sale of DRIP shares, according to Summit Investment Research. The company’s most recent net asset value per share was $10.75. Shares were originally sold for $10.00 each.

Moody National REIT II is a publicly registered, non-listed REIT that acquires select-service hotels in major markets across the United States. Moody REIT II’s portfolio consists of two hotel properties. The company has raised nearly $70 million in investor equity since it broke escrow in July 2015. Shares were originally sold for $25.00, and have a current estimated net asset value of $25.03 each.

Both REITs are sponsored by Moody National REIT Sponsor, an affiliate of the Moody National Companies, a full-service commercial real estate company that includes mortgage, development, management, realty, title and insurance divisions. Founded in 1996, Moody National Companies has managed more than $2 billion in commercial real estate.

Visit Moody National Companies in The DI Wire’s directory here.