Condor Hospitality Trust (CDOR) – Merger Arbitrage – 6% Upside

Current Price: $10.46

Offer Price: $11.10

Upside: 6%

Expected closing date: 16th of March

Proxy

 

Since mid'19 Condor Hospitality Trust (CDOR) is being acquired by Nexpoint Hospitality (NHT.U) for C$11.10/share in cash. Shareholder approval was quickly received and it seemed that the closing was estimated in Q4. Shares used to trade very close to the offer, however since Dec'19 companies have adjourned the closing 3 times without no proper explanation except that some customary conditions still have to be met. Therefore, the market has apparently became sceptical about the eventual closing and the spread increased to the current level (6% upside).

 

Further points

  • Overall, it is quite strange that the consideration was agreed to be paid in cash. Closing is not subject to financing, however it is possible that delays are being done, because NHT is struggling to secure part of the needed funds. Financing for the equity part of the transaction (table below) will be provided by NexPoint Advisors (affiliate investment advisor), while the remaining portion had to be acquired through debt. From proxy statement (Aug'19): NHT is "currently in the process of obtaining a debt commitment letter on the terms provided in the merger agreement". No updates about it were made since then.

nexpoint

(NHT investor presentation Nov'19)

  • CDOR is a self administered REIT that owns 15 hotels (1900 keys) in 8 states of US.
  • NHT is a part of multibillion-dollar investment platform (NexPoint), consisting of several investment funds and advisors. Apparently all of the funds are listed in NYSE, except NHT (Canadian Venture Exchange).

 

Timetable

  • July 22. CDOR has entered into merger agreement with NHT.U. Shareholder approval condition was satisfied immediately as 53% of common and 100% of preffered stock owners have agreed to support the transaction.
  • September 23. Shareholder have approved the merger.
  • October 29. Companies provided an update stating that they "actively seek to satisfy customary closing conditions" and estimate the closing in Q4.
  • December 18.  Companies agreed to close the merger on January 31, 2020, subject to the satisfaction or waiver of certain remaining closing conditions.
  • Jan 31. NHT and Condor have agreed to extend the closing of the Merger to February 28, 2020, subject to further possible extension to March 16, 2020 and the satisfaction or waiver of certain remaining closing conditions. Spread increased to over 2%.
  • Feb 21. Both parties have agreed to further extend the closing of the Merger to the 16th of March, subject to the satisfaction or waiver of certain remaining closing. Spread has increased to the current levels.

5 COMMENTS

  1. Ilja

    Currently the consideration price stands at about 20x TTM FFO, which is much higher multiple than an average HOTEL REIT is trading right now – 8.5xFFO. Micro cap Hotel REITs are trading at an even lower multiple. No wonder that major shareholders have agreed to sell this quick. Nonehtless, the price can be at least partially explained by a higher quality CDOR assets – most properties are in 20-60 places out of the Top 100 Metropolitan Statistical Areas.

    Downside to pre-annoucnement is 20%, but could be larger due to weak quarterly results since the annoucnement.

    https://seekingalpha.com/article/4326104-state-of-reits-february-2020-edition

  2. Ilja

    Apparently NHT has either failed to get the financing or decided to bail out. The closing did not happen on the 23rd of March, but the period was not extended either. It is also stated that CDOR “is in discussions with NHT concerning the closing of the acquisition, and the Company is also reviewing its options and reserves all rights under the merger agreement”.
    It seems very likely that the transaction will get cancelled, so the idea is closed with -57% in 3 weeks.
    https://www.sec.gov/Archives/edgar/data/929545/000092954520000004/cdor-20200324x8k.htm

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