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Moody National REIT I Sets Merger Vote

April 10, 2017

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Moody National REIT I Sets Merger Vote

April 10, 2017 | by James Sprow | Blue Vault

On April 5, 2017, Moody National REIT I, Inc., filed a proxy solicitation by the board of directors to appoint Brett C. Moody and or Robert W. Engel to vote on the stockholders’ behalf on the proposed merger of Moody National REIT I, Inc. into Moody National REIT II, Inc. at the stockholder meeting on May 24, 2017. 

The boards of directors of Moody National REIT I, Inc. (“Moody I”) and Moody National REIT II, Inc. (“Moody II”) have each unanimously approved the agreement and plan of merger dated November 16, 2016.  Subject to the terms and conditions of the merger agreement, Moody II has agreed to pay gross consideration of $11.00 per share of Moody I common stock, which amount will be reduced by all fees and expenses that Moody I incurs as a result of or in connection with the Mergers and other transactions contemplated by the Merger Agreement (including certain disposition fees and profit sharing amounts to Moody National REIT Sponsor, LLC, or the Sponsor, and parties related thereto, financial advisory and legal fees payable by Moody I, and other transaction and closing costs incurred by Moody I), which fees and expenses are referred to as the “Moody I transaction fees and expenses,” to arrive at the net merger consideration payable to the holders of Moody I common stock, which is referred to as the “net per share price;” provided, that in no event will the net per share price be less than $10.25. Pursuant to the terms of the Merger Agreement, the parties thereto have determined the final amount of the Moody I transaction fees and expenses and have calculated the net per share price. Based on such determination, the net per share price was determined to be $10.25.

 At the effective time of the Merger, each outstanding share of Moody I common stock will be automatically cancelled and retired, and converted into the right to receive, at the election of the holder of such share of Moody I common stock, but subject to the limitations discussed below, either:

  • an amount in cash equal to the net per share price, which is referred to as the “cash consideration;” or
  • a number of shares of common stock of Moody II, which is referred to as the “stock consideration,” equal to the net per share price divided by $25.00, which quotient, as adjusted pursuant to the Merger Agreement, is referred to as the “exchange ratio.”

If the net per share price is $10.25, the exchange ratio will be 0.41 shares of Moody II common stock for each share of Moody I common stock. (Based on the estimated value per share of $25.04 for Moody II shares as of December 31, 2016, the exchange ratio would result in a net asset value to Moody I shareholders of $10.266 per share of Moody I common stock.)

Notwithstanding the above, the maximum number of shares of Moody I common stock that may be converted into the right to receive the cash consideration may not exceed 50% of the aggregate number of shares of Moody I common stock entitled to receive merger consideration in connection with the Mergers. If the elections of Moody I stockholders would cause more than 50% of the aggregate number of shares of Moody I common stock to be converted into the right to receive the cash consideration, then the shares of Moody I common stock that would be converted into the right to receive the cash consideration will be reduced proportionally so that the number of shares of Moody I common stock that will be converted into the right to receive the cash consideration will not exceed 50%, and the remaining shares of Moody I common stock will be converted into the right to receive the stock consideration.

On March 16, 2017, the board of directors of Moody II announced an estimated value per share of common stock of $25.04 as of December 31, 2016.  The company’s advisor engaged CBRE, Inc.–Valuation and Advisory Services and Landauer Valuation and Advisory, a division of Newmark Grubb Knight Frank, together, the appraisers, to provide appraisals of the fair value of its investment in hotel properties. 

In connection with the Mergers, on February 2, 2017, the Company entered into a stockholder servicing coordination agreement (the “Stockholder Servicing Coordination Agreement”) with Moody Securities. Pursuant to the Stockholder Servicing Coordination Agreement, the Company will pay to Moody Securities certain stockholder servicing fees (the “Stockholder Servicing Fees”) of up to $2.125 per share of the Company’s common stock issued as Stock Consideration. All Stockholder Servicing Fees will be re-allowed to broker-dealers that provide ongoing financial advisory services to Moody I stockholders and that enter into participating broker dealer agreements with Moody Securities. The aggregate amount of Stockholder Servicing Fees will depend on the number of shares of the Company’s common stock issued as Stock Consideration in the Merger, and could range from approximately $5,797,034 to $11,594,068, assuming that the maximum Stockholder Servicing Fee of $2.125 per share is paid for all shares issued as Stock Consideration. No Stockholder Servicing Fees will be paid with respect to any cash paid by the Company as Cash Consideration in the Merger.

As of December 31, 2016, Moody II owned two hotels with a total of 346 rooms and one mortgage note and had total assets of $135.76 million.  The book value of Moody II’s equity as of December 31, 2016, was $64.83 million. 

As of December 31,2016, Moody I owned fourteen investments, including ten hotel properties and two joint ventures in hotel properties with a total of 1,595 rooms.  Seven of the hotels are in Texas.  The REIT had total assets as of December 31, 2016, of $267.25 million.  The book value of Moody I’s equity as of December 31, 2016, was $90.58 million. 

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Loreen M. Gilbert, CIMA, AIF, CRC, CLTC – President, WealthWise Financial Services
Blue Vault
July 6, 2016

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