Blackstone Group LP agreed to buy Strategic Hotels & Resorts Inc. for about $3.93 billion, expanding its lodging holdings to include luxury properties such as Manhattan’s Essex House, Â the Ritz-Carlton in Half Moon Bay, California and the Four Seasons in Austin.
Blackstone offered $14.25 a share in cash for Strategic, about 13 percent more than the unaffected intraday trading price on July 23, when Bloomberg reported on a potential transaction for the Chicago-based real estate investment trust. The firm also will buy the outstanding units of a subsidiary, Strategic Hotels Funding LLC, not held by the company, according to a statement Tuesday.
Blackstone, the world’s largest private-equity firm, is wagering on increasing demand for luxury hotels. In May, Blackstone bought three high-end resorts — the JW Marriott and the Ritz-Carlton in Orlando, Florida, and the JW Marriott Phoenix Desert Ridge in Arizona — for about $1.25 billion from a group led by Paulson & Co. The New York-based firm is also the biggest shareholder in hotel companies Hilton Worldwide Holdings Inc. and LaQuinta Holdings Inc., based in Irving.Â
The Strategic deal “reinforces the fact that Blackstone has a lot of capital to put to work,” Michael Kim, an analyst who covers the firm at Sandler O’Neill & Partners LP in New York, said in a telephone interview. “They’re certainly still finding opportunities to deploy that capital.”
Strategic owns 18 high-end properties in urban centers and resort areas, including the Four Seasons in Jackson Hole, Wyoming, and the Fairmont in Scottsdale, Arizona. The REIT had hired bankers to explore a sale and attracted suitors including Bill Gates’s Cascade Investment, which increased its stake last month to 9.8 percent.
“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,” Strategic Chairman and Chief Executive Officer Raymond L. “Rip” Gellein said in the statement.
Strategic had a previous business relationship with Blackstone, jointly owning the luxury Hotel del Coronado in San Diego. Strategic took full control of that property last year after buying Blackstone’s stake.
Blackstone’s purchase is expected to be completed in the first quarter of 2016 and isn’t subject to a financing contingency, the companies said. Including debt, the transaction is valued at about $6 billion.
“We are excited about the opportunity to acquire one of the highest-quality luxury hotel portfolios in the U.S.,” Tyler Henritze, co-head of U.S. acquisitions for Blackstone Real Estate, said in the statement. “As long term investors in the lodging industry, we remain confident in the fundamentals of the sector despite recent market volatility.”
The occupancy rate at luxury properties reached 70.9 percent this year through June, up from 69.2 percent a year earlier, according to Hendersonville, Tennessee-based research firm STR Inc.