Strategic Hotels plans upgrades

By Chris Reiter

LOS ANGELES (Reuters) - Strategic Hotels & Resorts Inc. BEE.N, which invests in luxury hotels, plans to spend $500 million to $750 million in capital expenditures over the next three years as it focuses on expanding and upgrading hotels rather than buying new properties, its chief executive said on Wednesday.

The hotel industry is in the midst of a multiyear boom with demand soaring and few new hotels opening. That has allowed hotels to steadily raise rates and led to a surge in hotel valuations.

Speaking at the Reuters Hotels and Casinos 2007 Summit in Los Angeles, Laurence Geller said Strategic Hotels didn't plan any acquisitions this year in part because of the high valuations that hotels are currently commanding.

"It's a sellers' market," said Geller. "That's one reason in part why I'm being cautious about buying."

Strategic Hotels, a real estate investment trust, owns 20 luxury hotels and resorts, including the Marriott Paris Champs Elysees, the Ritz-Carlton Half Moon Bay near San Francisco, and the Four Seasons Hotel in Washington, D.C. Strategic Hotels focuses on upgrading its properties by adding retail and meeting space, spas, and restaurants.

This year, Geller said the company plans to spend $100 million on projects such as adding wine rooms, which he says bring in about $750,000 in annual revenue in a relatively small space.

Strategic Hotels sees its properties as platforms for selling entertainment, retail and other services in addition to lodging. It aggressively invests in order to boost revenue and profit.

Geller said the company, which is focusing on growing high-end hotels, plans to sell its Marriott Lincolnshire, north of Chicago, in the next 24 months.

The Hyatt Regency hotels in Phoenix and La Jolla near San Diego do not fit with Strategic Hotels' portfolio over the long term, he said.

Also, the Hyatt Regency New Orleans, which has been closed since Hurricane Katrina and is not likely to reopen until the middle or third quarter next year, has lost appeal for the company, as the city shows few signs of recovery.

Strategic Hotels, which has spent more than $35 million on refurbishing the hotel, aims to sell at least a stake to cut its risk, Geller said.

"New Orleans is a study in ineptitude at every level," said Geller. "New Orleans may well be the worst tragedy of best intentions I've seen."

Strategic Hotels' future hotel acquisitions would likely be focused on western and central Europe, Geller said, adding that Budapest is an attractive market.

Geller said that there were no plans by the management or the board for the trust to go private but he has received numerous phone calls since Equity Office Properties Trust EOP.N accepted a $23 billion bid from private equity firm Blackstone Group last week.

"It is curious how many new best friends I have," he said.

Strategic Hotels shares were down 2 percent at $21.03 in afternoon trade on the New York Stock Exchange.