Strategic Hotels & Resorts is using $95 million in stock to buy two Four Seasons hotels from the Woodbridge Company, which will become its largest investor.
The heavily-leveraged Strategic needs ways to retain and grow its 16-hotel portfolio of luxury properties without taking on more debt, said FBR Capital Markets analyst Patrick Scholes.
“These are world-class assets,” he said of the hotels, which are in Jackson Hole, Wyoming, and Palo Alto, California, and opened in 2004 and 2006.
Strategic will also issue 8 million shares of its common stock, or $50 million worth, to Woodbridge, the investment vehicle for the Thomson family of Canada.
The company will use that money to pay down debt.
Strategic has over $1 billion worth of debt and a market capitalization of about $1 billion.
“We look at this as deleveraging,” said Strategic Chief Executive Officer Laurence Geller.
The company has no current plans to acquire hotels or issue equity.
Strategic issued equity directly to one investor, but other companies have also used their equity to avoid taking on more leverage while buying assets, Scholes said. [nN0992732]
It also recently accepted a reduction in the size of its holdings in San Diego’s Hotel Del Coronado to keep a stake in the trophy asset while private equity firm Blackstone took the majority position. [nN07202657]
Strategic says the acquisition will add to earnings in the first quarter but declined to say by how much.
The Four Seasons transaction will give Woodbridge, which also owns a 55 percent stake in Thomson Reuters Corp (TRI.TO) (TRI.N), a 13.2 percent stake in Strategic.
Strategic’s shares closed on Tuesday at $6.43 on the New York Stock Exchange. It issued its shares to Woodbridge at $6.25 per share.