Condor Hospitality Trust surges 30% on real estate investment trust merger

Condor Hospitality Trust

The proposed merging of two real estate investment trusts had small stock Condor Hospitality Trust (CDOR) up over 30% in pre-market trading this morning – and mid-morning, it’s not giving up much of those gains.

Media outlets report an inked agreement between Condor and Nexpoint Hospitality Trust that would in which NHT would “acquire all of the outstanding equity interests,” of Condor including 15 hospitality properties and nearly 2000 guestrooms in eight U.S. states many in the mid-Atlantic region.

The deal, which is slated for the fourth quarter of 2019, has CDOR stock nearing $11 per share, which is around what shareholders can expect to get for their equities in the merger.

Insiders report NHT’s gross asset value will rise to around $700 million.

As for logistics, KeyBanc Capital Markets, Inc.will be Condor’s financial advisor, with Winston & Strawn LLP and Goodmans LLP acting as legal counsel to NHT and McGrath North Mullin & Kratz, PC LLO representing Condor.

A press release announcing the merger quotes NHT’s Chief Executive Officer, Jim Dondero as saying the merger  “instantly expands NHT’s geographical footprint and balances NHTs strategic value-add portfolio with durable, core, extended-stay hotels.”

“We are pleased with our strategic alternatives process concluding with a transaction we believe is attractive for our shareholders,” said Condor CEO Bill Blackham in a press statement. “NHT is acquiring our very high quality portfolio of outperforming select service hotels and Condor shareholders are receiving a liquidity event at an attractive premium to our unaffected share price prior to the transaction announcement.”

The consolidation of real estate investment trusts often makes sense when it’s in an industry context

However, in other recent news, a Simply Wall Street story posted at Yahoo! Finance and dated July 18 pointed out Condor’s weak return on equity and notes the company does “use a significant amount of debt to increase returns” with a debt to equity ratio of 1.28.

However, the analysis in a merger is somewhat different from what a trader considers when putting money into an REIT equity.

Watch Condor as the big deal approaches.