Transaction Action in Hotel REIT Sector

9/10/2015 | By Allen Kenney
Lukas Hartwich

In the latest episode of the NAREIT Podcast, Lukas Hartwich, a senior analyst with Green Street Advisors, discussed the recent transaction activity in the hotel sector.

Since the middle of August,Strategic Hotels & Resorts, Inc.(NYSE: BEE) announced a sale agreement with private equity firm Blackstone and Ashford Hospitality Prime Inc. (NYSE: AHP) said it is exploring strategic alternatives. Hartwich attributed the interest in lodging sector to discounted asset values in the public markets. The hotel sector is currently trading at a rate of roughly 20 percent below net asset value (NAV), according to Hartwich, which he described as a “pretty wide gap” relative to historical data.

“You’ve got a bunch of hotel companies now where the value of their underlying real estate trades for a higher price in the private market than it does in the public market, so I think that disconnect is the main reason why you’re seeing some activity in terms of take-outs and rumors around other corporate events,” he said.

Hartwich noted that interest in hotel REIT assets is zeroed in on the luxury and limited-service segments. Looking ahead, Hartwich said the driver in lodging M&A will continue to be assets trading at discounts.

Hartwich speculated that more deals in the hotel sector are on the way. “I think we’re just getting started,” he said.

Blackstone to Purchase Strategic Hotels for $6 Billion

9/8/2015 | By Sarah Borchersen-Keto
Blackstone to Purchase Strategic Hotels for $6 Billion

Strategic Hotels & Resorts, Inc. (NYSE: BEE) said Sept. 8 that private equity firm Blackstone Group LP has agreed to purchase the REIT for approximately $6 billion.

Blackstone agreed to pay $14.25 in cash for each Strategic share. That represents a premium of approximately 13 percent above the intra-day trading price on July 23, when a news report pointed to a potential transaction. The acquisition includes Strategic subsidiary Strategic Hotels Funding LLC as well as all of the firm’s outstanding debt.

“We believe this transaction capitalizes on our unique portfolio, strong asset management platform and continued operating outperformance over the past several years,” said Rip Gellein, Strategic’s chairman and CEO.

Strategic announced in August that it was considering strategic alternatives, including a sale.

Strategic focuses on the luxury hotel segment. In May, the company closed on the acquisition of the Four Seasons Austin hotel for $197 million. Strategic’s portfolio also includes the JW Marriott Essex House Hotel in New York, the Four Seasons Resort in Jackson Hole, Wyo., and The Ritz Carlton at Half Moon Bay, Calif.

Tyler Henritze, co-head of U.S. acquisitions for Blackstone Real Estate, said the Strategic assets represent   one of the highest-quality luxury hotel portfolios in the U.S. He also said Blackstone remains “confident in the fundamentals of the sector despite recent market volatility.”

Meanwhile, Wes Golladay, analyst at RBC Capital Markets, said the sale is likely to have a positive impact on the lodging sector and could trigger additional transactions. Blackstone’s involvement in the deal gives a more accurate read on the value of the sector because of the firm’s emphasis on assets’  cash flows, he said.

“Had it been a sovereign wealth fund or wealthy individual, they would have paid any price to get the assets and it wouldn’t have been truly indicative of their value,” Golladay said.