Recent Events Highlight Uncertain Times for Hotels

There’s been a battle of would-be deals as Choice Hotels offered a hostile takeover of Wyndham, which said no thanks.

And in unrelated evidence of strange times in the hotel industry, a PIMCO joint venture is giving back 20 hotels to lenders over a $240 million mortgage.

Choice made its offer on Tuesday, October 17. It offered $90-per-share in a proposed cash-and-stock transition, or $7.8 billion. The company said that its offer represented a 26% premium to a 30-day volume-weighted average price that ended on Monday, October 16, an 11% premium to a 52-week high, and a 30% premium to the latest closing price.

The companies had been in private negotiations until Choice made the potential deal public when it become clear Wyndham was not interested. “A few weeks ago, Choice and Wyndham were in a negotiable range on price and consideration, and both parties have a shared recognition of the value opportunity this potential transaction represents,” Choice President and CEO Patrick Pacious said in prepared remarks.

“We were therefore surprised and disappointed that Wyndham decided to disengage. While we would have preferred to continue discussions with Wyndham in private, following their unwillingness to proceed, we feel there is too much value for both companies’ franchisees, shareholders, associates, and guests to not continue pursuing this transaction. Importantly, we remain convinced of both the many benefits of the combination and our ability to complete it.”

Wyndham, in a response on Tuesday, said that its board of directors unanimously rejected “a highly conditional, unsolicited stock-and-cash proposal” by Choice.

Wyndham’s board said that the proposal involved “significant business and execution risks, including an extended regulatory timeline and uncertainty of outcome, potential franchisee churn, and excessive leverage levels at the pro forma combined company.”

“Choice’s offer is underwhelming, highly conditional, and subject to significant business, regulatory and execution risk,” said Wyndham Chairman Stephen Holmes, in prepared remarks. He added that it could have taken more than a year to determine whether a deal could clear antitrust review. “We are disappointed that Choice’s description of our engagement disingenuously suggests that we were in alignment on core terms and omits to describe the true reasons we have consistently questioned the merits of this combination – Choice’s inability and unwillingness to address our significant concerns about regulatory and execution risk and our deep concerns about the value of their stock.”

There is a lot of uncertainty and risk in the hotel industry. A separate example comes from a joint venture connected to a Pacific Investment Management Co. fund, according to a Bloomberg story. The JV gave back a portfolio of 20 hotels — located in multiple cities and states — that had a $240 million mortgage. That deal happened in September, with the news coming out with a filed commentary by the servicer. Also involved was hotel operator Steven Angel.

The PIMCO JV joins similar moves by Blackstone and Brookfield Asset Management, as some big names have been defaulting on properties that were losing money. And PIMCO reportedly defaulted on a $1.7 billion office mortgage in February 2023.