Strategic Hotels Re-Acquires Asset - Analyst Blog

By Zacks | August 27, 2012 AAA

Strategic Hotels & Resorts, Inc. (BEE), a real estate investment trust (REIT), recently announced that it has signed an agreement with Dubai Investment Group to acquire Essex House Hotel for approximately $362.3 million. The transaction is projected to be closed by September 7, 2012.

The acquisition is comprised of 509 hotel rooms, nine condominium units and considerable hotel-level cash reserves. Strategic Hotels obtained $190.0 million loan in its first mortgage financing deal from Bank of America Corp. (BAC) to fund the transaction. The company intends to fund the balance amount in cash using other alternatives such as joint venture options or asset sales. Post-acquisition, Strategic Hotels plans to invest around $18.3 million towards renovation and redevelopment, and for branding purposes.

Located in New York, New York, The Jumeirah Essex House (commonly known as Essex House Hotel) is a 44-storey luxurious hotel property. The 509 guest rooms feature world-class amenities for business and leisure travelers. In 2005, Essex House Hotel was sold to Dubai Investment Group by an affiliate of Strategic Hotels for approximately $440.0 million.

Strategic Hotels has signed a 50-year management agreement with Marriott International, Inc. (MAR) to rebrand the hotel under the JW Marriott brand as the JW Marriott Essex House New York. As per the agreement signed between the two parties, Marriott will ensure a net operating income (NOI) of up to $21.5 million per year for a period of 8 years. Marriott's payment of NOI is subject to a maximum cap of $14 million in 2013 and $12 million per year from 2014 to 2020. Incidentally, the hotel was previously owned by Marriott between 1969 to 1985, before changing hands to a subsidiary of Strategic Hotels.

Marriott is a Maryland-based leading lodging company having more than 3,700 properties in 73 countries and territories. It operates and franchises hotels under 15 brands including Marriott, The Ritz-Carlton, JW Marriott, Bulgari and EDITION.

Strategic Hotels owns and provides value-enhancing asset management of famous hotels and resorts in the United States, Mexico and Europe. The company currently owns 17 properties comprising 7,762 rooms spanning 840,000 square feet of space.

We presently have a long-term Neutral recommendation on the Strategic Hotels. However, it carries a Zacks #2 Rank (a short-term Buy rating).

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