Blackstone to buy Strategic Hotels for $6bn

The transaction marks the New York-based private equity and real estate giant’s second takeover of a public REIT this year.

The Blackstone Group has agreed to buy Strategic Hotels & Resorts, a Chicago-based hotel real estate investment trust, for $14.25 per share in cash, or a total of approximately $3.9 billion. Including the assumption of Strategic’s outstanding debt, the transaction, which will be made on behalf of the firm’s latest global property fund, Blackstone Real Estate Partners VIII, will have a total value of roughly $6 billion.

Blackstone’s offer price represents a premium of approximately 13 percent above the unaffected intra-day trading price on July 23, when a potential sale of the company was reported. On August 17, Strategic confirmed that it was considering potential strategic alternatives for the company, including a possible sale.

“We are excited about the opportunity to acquire one of the highest quality luxury hotel portfolios in the US,” said Tyler Henritze, co-head of US acquisitions for Blackstone Real Estate, in a statement. “As long term investors in the lodging industry, we remain confident in the fundamentals of the sector despite recent market volatility.”

“Our board and management team have consistently stated that we would consider any opportunity that maximizes stockholder value,” said Raymond Gellein, Strategic’s chairman and chief executive. “We believe this transaction capitalizes on our unique portfolio, strong asset management platform and continued operating outperformance over the past several years. 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.”

The transaction, which is expected to close during the first quarter of next year, follows Blackstone’s acquisition earlier this year of Excel Trust, a San Diego-based retail-focused REIT, for approximately $2 billion in cash. That purchase was made on behalf of the firm’s core-plus real estate fund, Blackstone Property Partners. The investment manager’s last take-private deal in the lodging industry was the $1.2 billion acquisition of Apple REIT Six, announced in November 2012.

Strategic Hotels & Resorts owns and manages high-end hotels and resorts in the US, with ownership in 17 properties encompassing 7,921 rooms and 847,000 square feet of multi-purpose meeting and banqueting space. Blackstone declined to comment, but PERE understands that the luxury hotels – which include the Hotel del Coronado in San Diego and the JW Marriott Essex House in New York, are located in resort and urban locations where it is difficult to build today, and overall are not easy to acquire.

Despite acquiring Strategic at a premium, Blackstone is said to be planning to create value by increasing operational efficiencies at the hotel properties and potentially selling individual assets at attractive prices. The transaction is not being viewed as an entity-level investment, but rather than an asset-level transaction where the properties are likely to be sold off to various buyers.

The strategy for Strategic therefore will differ from some of Blackstone’s previous hotel investments. The firm is the majority shareholder in listed hotel companies Hilton Worldwide, Extended Stay America and La Quinta, all of which Blackstone took private in the mid-2000s and then brought to initial public offering in 2013 and 2014.

New York-based law firm Simpson Thacher & Bartlett LLP advised Blackstone on the deal.