San Diego Source
Hotel del Coronado Part of Blackstone Acquisition
By Thor Kamban Biberman
The Blackstone Group which until last year had owned a majority stake in the Hotel del Coronado, will acquire the resort along with the rest of Strategic Hotels & Resorts’ assets for about $6 billion.
A New York-based Blackstone (NYSE: BX) entity known as Blackstone Real Estate Partners VIII LP is by early next year set to acquire all outstanding shares of common stock of Chicago-based Strategic Hotels & Resorts Inc. (NYSE: BEE) for $14.25 per share in cash, and all of the outstanding membership units of the company’s subsidiary, Strategic Hotels Funding LLC, not held by the company, for $14.25 per unit in cash.
Last year that Strategic acquired the remaining 63.6 percent stake in the 757-room Hotel del Coronado for $210 million in cash, plus the assumption of $475 million in mortgage debt.
Blackstone bailed out the hotel by buying that 63.6 percent stake just before Strategic was expected to default on a $600 million loan in 2011.
The exact terms as they pertain to the Hotel del alone weren’t clear; Atlas Hospitality Group pegged the hotel’s value at about $800 million in fall 2014.
Alan Reay, Atlas Hospitality Group president, said this is a good deal for Blackstone — given that a fund of the REIT is acquiring Strategic’s 17-property, nearly 8,000-room portfolio for about $750,000 per room.
Reay added that about $1 million per room is about the going rate for trophy assets.
“The Montage [Laguna Beach] sold for $1.4 million per-room (in January), and the Hotel del sold for the equivalent of $1 million per room in June 2014,” Reay said.
Reay said it was common knowledge that Strategic was in play and emphasized that there are few funds in the world as large as Blackstone that would be interested.
“Only a few players could have done this — the Chinese maybe –but Strategic already had a well-established relationship with Blackstone,” Reay said.
Strategic for its part said it was simple economics.
“Our board and management team have consistently stated that we would consider any opportunity that maximizes stockholder value,” said Raymond L. “Rip” Gellein, chairman and CEO of Strategic, in a statement. “The board thoroughly considered various alternatives over the course of the past few years, and this all-cash offer from Blackstone creates significant stockholder value with a high degree of execution certainty.”
“We are excited about the opportunity to acquire one of the highest quality luxury hotel portfolios in the U.S.,” added Tyler Henritze, co-head of U.S. acquisitions for Blackstone.
Strategic confirmed on Aug. 17 that its board of directors had retained JP Morgan (NYSE: JPM) and was exploring possible strategic alternatives for the company, including its possible sale.
The offer price represents a premium of approximately 13 percent more than the unaffected intra-day trading price on July 23.
Completion of the transaction is expected by the first quarter of 2016, and is contingent upon closing conditions including the approval of Strategic Hotel’s stockholders, who will vote on the transaction at a special meeting on a yet to be announced date.
Furthermore, the transaction is not subject to a financing contingency. The Strategic Hotels board of directors already unanimously approved the merger agreement.
Strategic Hotels & Resorts Inc. has ownership interests in 17 properties with an aggregate of 7,921 rooms and 847,000 square feet of multipurpose meeting and banquet space.
Along with the Hotel del, Strategic also owns such properties as the Ritz-Carlton Half Moon Bay, The Westin St. Francis in San Francisco and Manhattan’s Essex House.
Blackstone’s real estate business was founded in 1991 and has $92 billion in investor capital under management.
Major Blackstone investments include Hilton Worldwide, Invitation Homes (single-family homes), Logicor (pan-European logistics), SCP (Chinese shopping malls) and prime office buildings in the world’s major cities.