CHICAGO — Strategic Hotels & Resorts, Inc. (NYSE: BEE) has signed a letter agreement to acquire the 49 percent interest in the InterContinental Chicago hotel currently owned by its joint venture partner, an affiliate of The Government of Singapore Investment Corporation (GIC). The ownership interest will change hands in exchange for approximately 10.8 million shares of common stock at an agreed upon issuance price of $6.50 per share and $11.8 million of cash consideration plus closing adjustments for working capital.
According to the company, the transaction values the hotel at $288.3 million, or $364,000 per key.
Strategic Hotels & Resorts, Inc. CEO Laurence Geller said in a statement that the impetus to acquire this ownership interest is based on upside potential for the property, which is located at 505 N. Michigan Ave. at the heart of the Magnificent Mile. Because of what he called “virtually zero growth among its competitive set,” Geller said the InterContinental Chicago “is poised to meet and possibly surpass previous peak performance levels.”
“The InterContinental Chicago is a core asset in our portfolio,” added Gellar. “With this transaction, we are able to preserve our ownership on attractive terms, while singularly benefiting from the tremendous upside inherent in the hotel's luxury lodging and current and future dining offerings.”
The 792-room InterContinental Chicago consists of two towers, the 42-story historic tower and the 26-story main tower, and features 42,000 square feet of function space, including six ballrooms and 30 meeting rooms. The hotel also features an ENO wine tasting room, a Starbucks franchise on Michigan Avenue, and will feature a new Michael Jordan-themed steakhouse scheduled to open later this year.
The transaction, which is subject to the negotiation and execution of definitive agreements and customary closing conditions, is expected to close in the second quarter.
— Dan Marcec
UPDATE – 5/24: Returning a call this afternoon for a follow-up comment, a representative of Strategic Hotels & Resorts added several comments on the transaction.
“We bought the property at a very attractive valuation, in line with two recent trades in the market — around $350,000 a key for the W Chicago and about $390,000 a key for the Westin River North,” he said. “And we believe our location is better than both of those. From a strategic perspective, we love the market, love the asset, and we know the capital expenditure opportunities there.”
“In addition, we’ve spent the last two years restructuring our balance sheet — we haven't been in 'growth mode,'” he said. “Since this wasn’t an auction, but a one-off deal with our partners, here we were able to grow without leveraging our balance sheet.”