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ChartWatch: Exit, opportunity in Moody National REITs' merger

The possible merger of two nontraded hotel REITs sponsored by theMoody National Cos. would unite companies with shared leadership and a sharedhistory of difficulty buying properties.

Moody NationalREIT I Inc. and MoodyNational REIT II Inc. said in September that they signed anonbinding letter of intent to combine. Moody National REIT II would beacquiring Moody National REIT I in the transaction, for gross consideration of$11 per share of Moody National REIT I's common stock and a total transactionvalue, according to SNL, of $323.2 million.

Moody National did not respond to a request for comment.

The acquisition would be a watershed event for MoodyNational REIT II, which launched its best-efforts offering in August 2014 buthas acquired only two hotels. Buying Moody National REIT I would bring thecompany 14 assets: 12 select-service hotels and two notes receivable.

Moody National REIT I, which launched its offering in April2009, also has an uneven history of acquisitions. The company agreed in 2015 tobuy 149 hotels fromGoldman Sachs GroupInc.'s Whitehall Street real estate division, but the purchase laterthat year, amid what Moody National REIT I Chairman, President and CEO BrettMoody describedas changing market conditions.

Brett Moody also holds the same titles at Moody National REITII and Moody National Cos. Robert Engel is all three entities' treasurer andCFO, and the two REITs share one other board member, Charles Horn. IncludingMoody and Horn, Moody National REIT I's board has four members, andMoody National REIT II's board has three.

The pricing of the merger specifies that the netconsideration payable to Moody National REIT I shareholders, either in cash orin Moody National REIT II stock, cannot be less than $10.25 per share. Thatmeans the company's investors would get a chance to exit at a profit, since theREIT's initial offering price was $10.00 per share.

Or, if they choose, they can trade their Moody National REITI stakes for a part of Moody National REIT II, a company that should look veryfamiliar.

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