Strategic Hotels & Resorts Inc., the owner of luxury lodgings including New York’s Essex House and Miami’s Hotel Intercontinental, is turning into a takeover candidate after its founder’s abrupt exit.

Strategic Hotels said this month that chief executive officer Laurence Geller was leaving after leading the $1.2 billion company since its formation in 1997. Geller’s departure from the Chicago-based owner of resorts run by the Four Seasons and Ritz-Carlton chains could open the door for potential acquirers, according to KBW Inc. 

 “There’s always been this kind of backdrop of, ‘Is Strategic a takeout?,’ and it’s always because it just has a unique portfolio of these kind of Ritz-Carlton assets,” Smedes Rose, a New York-based analyst at KBW, said in an interview. “Laurence Geller being replaced sort of suddenly and by surprise, some investors are looking at that as a catalyst to the company now being sold.”

Strategic Hotels commands the highest average daily rate of any U.S. hotel real estate investment trust valued at more than $500 million, according to data compiled by Bloomberg. A buyer could offer $8 a share, a 32 percent premium, and still obtain the company’s luxury hotels at a discount to their net asset value, according to JMP Securities LLC. Potential acquirers could include private-equity firms or Host Hotels & Resorts Inc., another REIT, said Raymond James Financial Inc.

Buyer Interest

Raymond “Rip” Gellein, Strategic Hotels’s chairman who will also succeed Geller as CEO, declined to comment when asked on a Nov. 2 conference call whether the company had received expressions of interest from potential buyers. On a separate call last week, Gellein said that while Geller is gone, “nothing else about our team, our strategy or our vision is changing.”

Megan Hakes, a spokeswoman for Strategic Hotels, declined to comment further.

Strategic Hotels owns or holds stakes in luxury hotels and resorts in the U.S. and Europe, including Essex House, the 80-year-old Manhattan hotel on Central Park South that it acquired in September. The properties are run by management companies including Four Seasons Hotels and Resorts, Loews Corp., Marriott International Inc. and Ritz-Carlton Hotel Co.

Shares of Strategic Hotels peaked in July 2007 at $24.27, only to plunge to as low as 61 cents by March 2009 as the company posted record losses amid the fallout from the real estate slump and financial crisis.

While the hotel operator has since narrowed losses under a turnaround plan, the stock has never fully recovered, reaching only as high as $7.54 last year.

Stepping Down

Geller stepped down immediately as CEO and president and relinquished his board seat on Nov. 2. He will serve as an adviser to Gellein until year-end.

On Nov. 5, the first trading day after the news, shares of Strategic Hotels surged 13 percent, the most since March 2010.

Will Marks, a San Francisco-based analyst at JMP Securities, said potential buyers may view Geller’s departure as removing a hurdle to a deal for the company. Geller himself is barred under the terms of his separation agreement from making his own bid for the company for 18 months.

“Now investors — whether it’s opportunity funds, foreign investors, private equity — would consider making a bid or chasing the company, whereas before no one would have thought of making an offer for this company with Laurence Geller running it,” Marks said in an interview. “It was his company and it would have taken him actively marketing the company.”

Asset Value


Acquirers may be lured by the chance to snap up Strategic Hotels’ luxury properties for a bargain, Marks said.

He estimates the net asset value of the company’s hotels to be about $10 a share, 65 percent more than the company’s closing share price of $6.05 last week. Bids are more likely to come in at about $8 a share, Marks said.

“A buyer would just see it as an undervalued company,” he said.

A rise in takeover attempts for urban and luxury hotel properties, including Indian Hotels Co.’s rebuffed offer for Orient-Express Hotels Ltd., should highlight the attractiveness of Strategic Hotels’s net asset value for potential acquirers, Jonathan Mohraz, an analyst at New York-based JPMorgan Chase & Co., wrote in a Nov. 8 note to clients.

Prime Properties