Sawgrass Marriott's new owner is public company, but not publicly traded

  • By Mark Basch
  • | 12:00 p.m. October 13, 2014
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The new owner of the Sawgrass Marriott Golf Resort & Spa is a public company, but it’s not publicly traded.

Carey Watermark Investors Inc. sold shares of stock in an initial public offering that lasted two years, from September 2011 through September 2013, with almost 19,000 investors buying 57.8 million shares of stock for $10 each.

However, there is no trading market for those shares. The investors bought shares because of the promise of cash distributions. Carey Watermark, which operates as a real estate investment trust, pays a daily distribution with an annual yield of 5.5 percent on the initial $10 investment.

“There is no public market for our shares; a public market is unlikely ever to develop and we are not required ever to provide you with liquidity for your shares. If you have to sell your shares, it will likely be at a discount,” the firm cautioned in its Securities and Exchange Commission filings.

Carey Watermark last week announced it bought the Sawgrass Marriott from an affiliate of Goldman Sachs for an undisclosed price. The Ponte Vedra Beach resort became the 24th property in the investment firm’s portfolio.

“We were formed to take advantage of current and future opportunities to invest in lodging and lodging-related properties. We believe that current dynamics in the lodging industry offer attractive opportunities for us to acquire quality properties at prices often below replacement cost, with the potential to achieve long-term growth in value and generate attractive returns for our stockholders,” its SEC filings said.

While the financial details for the Sawgrass Marriott deal have not yet been revealed, Carey Watermark likely got a good deal on the property, compared with its previous owners.

The resort was acquired by two Irish investment partnerships, RQB Resort LP and RQB Development LP, for $220 million in 2006. The partnership still owed $193 million on its loan from Goldman Sachs Mortgage Co. in 2010 when it filed for Chapter 11 bankruptcy, after failing to negotiate a loan restructuring with Goldman Sachs.

During the Chapter 11 proceedings, Goldman Sachs appraisers valued the Sawgrass Marriott property at $132 million, after its value dropped during the last recession.

RQB could not come up with financing to pay off the $132 million, so it turned the property over to Goldman Sachs in 2011.

Goldman Sachs officials remained mum about the firm’s plans for the property, but it put the resort up for sale early this year.

In Carey Watermark, the resort is getting an owner with a strong financial backing. In addition to the IPO that raised more than $570 million, the firm is in the process of a follow-up public sale of up to $350 million in common stock plus another $300 million in stock sold through a dividend reinvestment plan.

The firm said last week it intends to spend $25 million on renovations to the Sawgrass Marriott, after Goldman Sachs spent $20.3 million on renovations this year.

Carey Watermark said Marriott International will manage the resort for the firm. Carey Watermark doesn’t actually have any employees itself. The investment firm is managed by an affiliate of W.P. Carey Inc., a publicly traded company that provides long-term sale-leaseback and financing plans for corporations.

Carey Watermark said in its most recent SEC filing that its hotel portfolio has performed strongly, with occupancy of 77.3 percent, an average daily rate of $185.61 and revenue per available room of $143.55 in the first six months of this year.

That’s better than the U.S. lodging industry’s overall performance of 63.7 percent occupancy, average daily rate of $114.06 and revenue per available room of $72.64, according to data from Smith Travel Research, Carey Watermark said.

Medtronic alters financing for deal

Medtronic Inc. remains committed to its plan to move its corporate headquarters to Ireland once it completes its merger with Dublin-based Covidien plc, but because of new U.S. Treasury Department regulations targeting companies that move their headquarters overseas, Medtronic did announce a new financing plan for the deal.

Instead of using about $13.5 billion in cash from its foreign subsidiaries to help finance the $42.9 billion acquisition of Covidien, Medtronic said it will borrow $16 billion from external sources.

Medtronic is one of several U.S. companies that have announced plans this year to merge with a foreign company and move their headquarters overseas to take advantage of lower corporate tax rates, a strategy known as an inversion.

In response, the Treasury last month announced several new regulations to discourage inversions, including rules that make it more difficult for U.S. companies to access cash earned from foreign subsidiaries without paying U.S. taxes on that money.

The new rules did cause one U.S. corporation to call off a merger and a planned inversion. Raleigh, N.C.-based Salix Pharmaceuticals Ltd. terminated its merger agreement with Italy-based Cosmo Pharmaceuticals S.p.A. on Oct. 3.

Salix CEO Carolyn Logan said in a news release that after the merger agreement was announced in July, “the changed political environment has created more uncertainty regarding the potential benefits we expected to achieve.”

Medtronic, however, said the new rules will not discourage the company from going ahead with the merger of the two medical device makers.

“Despite the additional expense of the new financing, the strategic benefits of the transaction remain compelling. The transaction is still expected to be accretive to Medtronic’s cash earnings in fiscal year 2016, the first full fiscal year, and significantly accretive thereafter,” Medtronic said in a news release.

While moving its corporate headquarters to Ireland, Medtronic intends to keep its operational headquarters at its current offices in Minneapolis.

The company also has the headquarters for its surgical technologies division in Jacksonville, where it employs about 700 people.

Medtronic on Friday announced the structure of its executive team after the Covidien merger, which will keep current Chairman and CEO Omar Ishrak at the top. However, the company has not said how or if the merger will impact the Jacksonville operations.

“The new executive committee members will be evaluating and selecting their management teams and structures over the coming weeks. We hope to have the next level of the structure announced by the middle of November,” Medtronic spokesman Fernando Vivanco said by email, in response to a question about the Jacksonville operations.

Investors seemed happy with Medtronic’s altered financing plan. Its stock rose $2.22 to $65.02 on Oct. 3 after it announced the new plan.

However, Moody’s Investors Services said it is placing Medtronic’s credit rating under review for a possible downgrade because of the new financing arrangement.

“In light of the newly proposed Treasury rules, Medtronic’s acquisition of Covidien is no longer as attractive because the company will significantly increase leverage and likely lose certain tax benefits,” said Moody’s Vice President and Senior Credit Officer Diana Lee in a news release.

Analyst downgrades FIS stock

As Fidelity National Information Services Inc., or FIS, continues to expand internationally, another analyst expressed concern about the impact of foreign operations on its earnings.

Avondale Partners analyst Peter Heckmann last week downgraded Jacksonville-based FIS from “outperform” to “market perform.”

“FIS Global will report third quarter results at the end of the month and we believe results will match or modestly exceed consensus forecasts. We are modestly trimming our post-third quarter forecasts, primarily due to increased foreign exchange headwinds,” Heckmann said in a research note.

“We are estimating currency represented a 1-2 percent tailwind to the international segment in the quarter. With the international segment representing approximately 20 percent of revenue (with the three primary currencies being the Euro, the Brazilian Real and the U.K. Pound), the company generally benefits from a weaker U.S. dollar. Given the recent strength of the dollar, it appears currency will convert from a modest tailwind to a more significant headwind in the fourth quarter and into next year,” he said.

The previous week, Goldman Sachs analysts initiated coverage on FIS with a “sell” rating, saying it expected growth in the company’s international segment may dilute profit margins.

Stein Mart sales up again

Stein Mart Inc. last week reported total sales for the five weeks ended Oct. 4 rose 6.5 percent to $119.4 million and comparable-store sales rose 4.9 percent.

Comparable-store sales are sales at stores open for more than one year and are a key indicator of a retailer’s performance.

Stein Mart had 268 stores in operation at the end of September, compared with 263 a year earlier.

Stein Mart’s results Avondale Partners analyst Mark Montagna said the strong September sales portend well for the rest of this year.

“Typically, if an apparel retailer is on trend with third-quarter fashion it will be on trend with fourth-quarter fashion,” Montagna said in a research note.

“The strong comp we anticipated did materialize for September, which reinforces our conviction toward third-quarter and fourth-quarter EPS,” he said.

The third quarter is typically a low earnings quarter for Stein Mart. Montagna said after seeing September sales results, he is raising his third-quarter forecast from break even to a profit of 1 cent a share.

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