The parent of the STK steakhouse chain has agreed to acquire the Katsuya and Cleo restaurant brands from SBEEG Holdings LLC, or SBE, for about $75 million and 200,000 warrants at $5 per share, company officials said Thursday.
The ONE Group Hospitality Inc., based in New York, said it plans to grow both brands as standalone concepts, but also as part of its growing hotel foodservice portfolio.
As part of the deal, The ONE Group will also have a strategic relationship to open the restaurants in the SLS, Redbury and Hyde Hotels owned by SBE. ONE Group also has a hospitality services agreement with Melia Hotels International, which could eventually bring the Katsuya and Cleo brands to those hotels as well.
“This is a win-win transaction for both companies, Sam Nazarian, SBE chairman and CEO, said in a statement. “With its considerable scale and expertise, The ONE Group is ideally positioned to expand the Katsuya and Cleo brands and incorporate them and the other ONE Group brands at many of our planned SLS, Redbury and Hyde hotel properties. This marks the beginning of an exciting, synergistic relationship that will encourage the continued expansion of our respective hotel and food and beverage brands, both domestically and internationally.”
For SBE, the move marks another step in an ongoing shift to a more “asset light” operation.
In June, SBE and CIM Group sold the SLS South Beach to GoldenPeaks Capital Real Estate for $125 million, according to the Miami Herald. Earlier this year, SBE sold the SLS Beverly Hills for nearly $200 million. SBE continues to manage both properties.
SBE also said it would spin off its real estate development arm into a new entity called Dakota Development.
SBE is still growing its hotel brands. In addition to the Baha Mar Hotel and Residences, under construction in the Bahamas, the company has 12 other properties under development across the U.S. and Mexico.
Under the deal, the ONE Group will take ownership of four Katsuya locations in Los Angeles, and take licensing fees from two managed Katsuya locations in SLS Hotels in Las Vegas and Miami. ONE Group won’t manage those SLS units because their operations are so interlinked with hotel operations.
“To extract them would be too complicated,” said Jonathan Segal, CEO of The ONE Group.
In the Middle East, three licensed Katsuya restaurants will continue to be operated by Alshaya, which plans another 14 of the high-end Asian restaurants there.
ONE Group will also receive licensing fees from another Katsuya restaurant scheduled to open this fall in the Baha Mar. Another licensed location is scheduled to open at the SLS Lux Brickell in Miami in 2017.
The ONE Group will also receive licensing fees from three Cleo restaurants under management agreements in Los Angeles, Las Vegas and Miami. A Cleo location is also scheduled to open at the Baha Mar.
“It makes total sense,” Segal said. “Hoteliers don’t want to do food and beverage; they want to focus on their hotel operations, so there’s a growing market for companies like ours that specialize in the food and beverage.”
Katsuya, a contemporary Asian concept created by chef Katsuya Uechi and designer Philippe Starck, and Cleo, with its upscale Mediterranean theme developed by chef Danny Elmaleh, are both slick, high-end brands that will fit alongside the modern and high-energy STK.
SBE said it expects ONE Group to open at least 10 restaurants in SLS, Redbury and Hyde hotels over the next five years.
The ONE Group has 11 STK locations, with more in the works. In addition, the first of its secondary STK Rebel restaurants, with a similar but more accessibly priced menu, is under construction in Miami and Denver.
The ONE Group reported a 19-percent increase in net revenue for the first quarter, of $9.7 million, compared with $8.2 million a year ago, primarily due to the opening of an STK restaurant in Washington, D.C., in April 2014 and the reopening of a steakhouse in Miami in March 2015. Same-store sales fell 3.5 percent for the quarter, which the company attributed to severe winter weather.
More on proposed acquisition
Food and beverage sales at owned and managed Katsuya and Cleo locations reached $56.6 million for the fiscal year ended Dec. 31, 2014, the company said.
Segal said the proposed acquisition will increase pro forma adjusted earnings before interest taxes depreciation and amortization, or EBITDA, for 2014 to $14.9 million, compared with $7.8 million reported earlier by the company.
SBE includes in its restaurant portfolio a number of concepts by celebrated chef José Andrés, including The Bazaar, Bazaar Meat, Tres and Ku Noodle.
SBE also holds a stake in the growing Umami Burger chain, as well as the fast-casual 800 Degrees Neapolitan Pizzeria concept, and a number of nightlife concepts, such as The Abbey, Greystone Manor, The Library and The Emerson.
Nazarian stepped down as head of the company last year to take a sabbatical after admitting to cocaine use and alcohol problems. He returned as chairman and CEO of the hospitality group in April.
As a result, three board members from private-equity firm Cain Hoy Enterprises reportedly departed. Cain Hoy had offered to invest $500 million in future SBE projects.
This story has been revised to reflect the following correction:
Correction: July 9, 2015 An earlier version of this story misspelled the name of the Baha Mar.