Wyndham Declines Choice Hotels’ $7.8B Unsolicited Offer

Wyndham Hotels & Resorts (WH) rejected Choice Hotels’ (CHH) surprise $8 billion offer due to regulatory and valuation worries.

Wyndham Declines Choice Hotels' $7.8B Unsolicited Offer

Wyndham Hotels & Resorts (WH) rejected Choice Hotels' (CHH) surprise $8 billion offer due to regulatory and valuation worries.

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In Today’s Brief:

  • 🏨 Choice Hotels offers $7.8B for Wyndham; declined.

  • 🏠 US homebuilder sentiment drops in October.

  • 📈 Orlando dominates Q3 industrial rent growth.

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Market Snapshot

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10Y Treasury
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*Data as of 10/17/2023 market close.

SWING AND A MISS

Choice Hotels' ~$8 Billion Play Gets Cold Shoulder from Wyndham Board

Wyndham Hotels & Resorts (WH) turned down an unexpected $8 billion acquisition proposal from Choice Hotels (CHH), citing concerns about regulatory issues and valuation.

"Bear hug" letter: The offer of $90 per share, including $49.50 in cash and 0.324 shares of Choice's common stock for each Wyndham share, represents a 20% premium over Wyndham's recent closing price. Choice had been privately pursuing the acquisition of Wyndham since May. But on Tuesday, Wyndham made its intentions public by sending a "bear hug" letter.

Offer denied: Despite the attractive terms and the proposal's total value nearing $7.8 billion ($9.8 billion, including debt), Wyndham's board remained unswayed. Wyndham stated that Choice Hotels undervalued its growth potential and that the deal came with significant business and execution risks, highlighting concerns about the extended regulatory timeline and franchisee churn. Wyndham executives expressed concerns that Choice was unwilling to address these concerns during discussions over the last few months.

Potential hotel empire: If the merger were to proceed, it would bring together two major players in the budget hotel industry, combining Choice's 22 brands, including Quality Inn and Comfort Inn, with Wyndham's 24 brands, such as Super 8 and Days Inn, across a total 16,567 properties. A merger could position the combined company to compete with larger lodging rivals like Marriott (MAR) and Hilton (HLT), which cater more to higher-end travelers.

➥ THE TAKEAWAY 

Merger mismatch: While Choice Hotels aimed to create a budget hotel powerhouse with its $7.8B takeover offer, Wyndham's rejection and concerns over business risks put the merger's future into question, potentially impacting the competitive landscape in the hotel industry. The potential merger could significantly impact the US budget hotel landscape. But whether the two hotel giants can find common ground is anyone’s guess.

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CONSTRUCTION BLUES

US Homebuilder Confidence Hits 9-Month Low as Rates Surge

US homebuilder sentiment hit a nine-month low in October, reflecting the impact of rising mortgage rates and reduced affordability in residential real estate.

Home price pressures: The National Association of Home Builders/Wells Fargo gauge fell by 4 points to 40 this month. It’s the third consecutive monthly decline, weaker than most economists had predicted. Although some buyers have turned to new construction due to limited resale inventory, the recent surge in mortgage rates, reaching the highest level in two decades, could slow down housing even more.

Supply squeeze: Builder sentiment has declined due to decreasing transaction volumes, particularly among younger buyers priced out due to higher rates. This also impacts the cost and availability of builder development and construction loans, harming housing supply and affordability. Declining sentiment is also reflected in measures of current and expected sales, as well as prospective buyer traffic, which have reached their lowest levels since the beginning of the year.

Increasing incentives: To boost home sales amid high interest rates, builders are increasingly providing financial incentives, with 62% offering deals this month, matching the previous high in December. This trend is influenced by the Fed's indication of prolonging elevated borrowing costs, which could also keep mortgage rates high.

➥ THE TAKEAWAY

Housing headwinds: The US homebuilding outlook is concerning, with declining sentiment and sales driven by rising mortgage rates and reduced affordability. Builder sentiment in all four major US regions is falling, reflecting a broader industry-wide challenge. Builders are using more financial incentives to attract buyers, but the industry faces challenges, especially with the prospect of sustained high rates in the near future.

📊 FEAR & GREED SURVEY

The Fear and Greed Commercial Real Estate Survey by John Burns Research and Consulting and CRE Daily is live! Take our quick 3-minute survey to help us understand investor sentiment in today’s market.

✍️ DAILY PICKS

  • Debt dilemma: NYC landlords with WeWork (WE) as a top tenant are at risk of facing $2.6B in CMBS debt, with nearly 80% of these loans watchlisted, delinquent, or in default.

  • Payback plan: New details have emerged regarding the settlement between Elie Schwartz, Nightingale Properties, and CrowdStreet investors, with Schwartz planning to sell assets to repay investors after allegations of misappropriated funds.

  • Refi of the day: The Moinian Group has successfully refinanced its Marc apartment tower in NYC's Theater District with a $136M loan from Freddie Mac (FMCC).

  • Bond blitz: Wells Fargo (WF) and JPMorgan (JPM) borrowed a combined $13B from the US investment-grade market after reporting strong Q3 earnings, signaling a potential wave of bank issuance during earnings season.

  • Leasing lull: NYC's industrial market experienced a 29.4% YoY drop in new leases and renewals in Q3, as e-commerce demand waned due to in-person shopping resurgence and inventory limitations.

  • Branded residences: The Ritz-Carlton is partnering with Howard Hughes Holdings (HHC) to develop its first standalone branded residences in Texas in response to increasing demand for hotel-like homes.

  • Earnings dip: Goldman Sachs (GS) experienced a 33% drop in profit due to real estate writedowns and a continued slump in dealmaking, despite trading revenue surpassing estimates.

  • Deal of the day: HASTA Capital has purchased the AMLI Design District, a 314-unit property in Dallas, from AMLI Residential.

  • Commission crisis: The residential housing market's lucrative broker commission system is facing antitrust scrutiny from the Justice Department, potentially weakening NAR and impacting the traditional 5–6% commission structure.

  • Retail realities: According to Cushman & Wakefield (CWK), the retail market in Q3 remained robust due to strong tenant demand, low vacancy rates, and rising rents. But a closer look reveals challenges in the sector…

  • Contract terminated: K.C. Conway, chief economist of CCIM, has been suspended from his position due to disputes involving his firm's involvement in brokerage services, ultimately leading to the termination of their consulting agreement.

📈 CHART OF THE DAY

Orlando Repeats As Top-Ranked US Market for Industrial Rent Growth in Third Quarter

Orlando ranks first in the US for industrial rent growth in Q3. It’s the city’s second consecutive quarter leading the nation in YoY industrial rent growth.

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