Strategic Hotels and Resorts Inc (NYSE:BEE) hasn’t been as strategic as some shareholders would have liked. We’ll get to that soon, but for now, there’s one important point that needs to be made: the luxury hotel market has improved considerably over the past four years, and revenue per room has increased throughout the industry. Yet, Strategic Hotels & Resorts is still unable to turn a profit. While revenue has moved north over the past two years, Strategic Hotels & Resorts lives in the red on an annual and quarterly basis. Fortunately, there is a potential solution.
The current situation
Strategic Hotels and Resorts Inc (NYSE:BEE) is a REIT that operates luxury hotels in North America and Europe. It operates hotels under the following brand names: Embassy Suites, Four Seasons, Hilton, Hyatt, InterContinental, Loews, Marriot, and Ritz-Carlton. Its standout properties include JW Marriot Essex House in Manhattan; the Four Seasons in Punta Cana, Mexico; and the Four Seasons in Jackson Hole, Wyoming. Altogether, Strategic Hotels & Resorts operates 19 properties.
Shareholders are upset because they believe Strategic Hotels and Resorts Inc (NYSE:BEE) is burdened with corporate overhead, which is diluting shareholder value. To put it bluntly, they think management stinks. Whether these shareholders should be upset or not is arguable. On one hand, the company is constantly losing money, and there is no yield (not that there should be considering the company’s leveraged position). On the other hand, the stock has appreciated more than 100% over the past three years.
What shareholders really want is for Strategic Hotels and Resorts Inc (NYSE:BEE) to be acquired, as they feel that $14 is likely. Note: the stock is currently trading at $8.87. Earlier this year, Orange Capital (owner of 3.7% of Strategic Hotels & Resorts) lobbied for Strategic Hotels & Resorts to explore the benefits of a sale.
Strategic Hotels & Resorts recently hired Eastdil Secured, an investment bank, for assistance with a potential sale, and to find interested parties. The stock popped more than 10% on this news. The question now is whether or not a sale will take place. If so, then investors will have a big win on their hands. If not, then it will likely be difficult for Strategic Hotels & Resorts to see sustainable stock price appreciation. The stock has been performing well for years, but if profits are difficult to come by, then the long-term outlook is poor.