ALISO
VIEJO, Calif., April 10,
2024 /PRNewswire/ -- Sunstone Hotel Investors, Inc.
(the "Company" or "Sunstone") (NYSE: SHO) announced that it has
entered into a definitive agreement with an affiliate of Hyatt
Hotels Corporation to acquire the fee-simple interest in the
630-room Hyatt Regency San Antonio Riverwalk (the "Hotel"). The
exceptionally well-located Hotel is situated directly between
San Antonio's famous Riverwalk and
the Alamo, the two most visited
tourist sites in Texas. The
acquisition includes nearly two acres of riverfront land and a
516-space parking garage, located adjacent to the Alamo Visitor
Center and Museum which is currently under development. The Hotel
recently underwent a comprehensive $37
million guestroom renovation and does not have any
meaningful required near-term capital needs. Sunstone is acquiring
the hotel for a gross purchase price of $230
million. Hyatt will continue to manage the Hotel under the
Hyatt Regency brand and will contribute approximately $8 million of key money as part of the
transaction, subject to the terms of the Company's management
agreement with Hyatt.
Inclusive of the incentives offered by Hyatt, the net purchase
price implies a value of approximately $352,000 per key and represents an 11.1x multiple
on the midpoint of the Company's estimate of 2024 hotel EBITDA and
a 8.0% capitalization rate based on the midpoint of projected hotel
net operating income. The acquisition will be funded from cash on
hand using a portion of the sale proceeds from the previously
completed disposition of Boston Park Plaza.
The Company currently expects to close the acquisition in late
April and that the hotel will contribute $12 to $13 million
of hotel EBITDA and approximately $0.06 of adjusted FFO per diluted share during
the Company's ownership period in 2024. The Company will provide
additional details on the transaction, including the impact on its
previously provided full year outlook as part of its first quarter
earnings call in early May.
Bryan Giglia, Chief Executive
Officer, stated, "We are excited to announce our planned
acquisition of Hyatt Regency San Antonio Riverwalk which
demonstrates our ability to accretively recycle capital following
our disposition activity late last year. This is the best-located
hotel in the city, situated in the heart of the Riverwalk, at the
front door of the Alamo, and steps
away from the convention center. Our premiere location allows the
hotel to benefit from an attractive combination of group and
transient demand in a market that continues to experience positive
demographic shifts, increasing hotel demand, and a
business-friendly backdrop. The Hotel has been recently renovated
and is in great shape with minimal near-term capital needs but has
opportunities to drive additional earnings over the long term."
Mr. Giglia continued, "The acquisition of Hyatt Regency San
Antonio Riverwalk allows us to redeploy capital at a higher
long-term return and is a great example of the value we can create
through our investment lifecycle approach. The addition of this
hotel, combined with our two recently launched brand conversions
and the completion of our transformative investment later this year
at Andaz Miami Beach, will position Sunstone for significant
earnings growth as we move into 2025. We also retain
additional liquidity and balance sheet capacity that we can use to
thoughtfully grow our portfolio and drive incremental earnings,
superior returns, and greater per-share NAV growth."
Transaction Benefits
Sunstone believes the acquisition of Hyatt Regency San Antonio
Riverwalk will further the Company's short and long-term objectives
and be additive to its stockholders in the following ways:
Accretive Redeployment of Capital at a Compelling
Yield: In October 2023, the
Company sold the Boston Park Plaza for $370
million, reflecting a trailing capitalization rate of 7.1%,
excluding future capital needs, or an implied capitalization rate
of 6.1%, inclusive of expected near-term capital investments. The
Company is recycling a portion of the sale proceeds into the
acquisition of the Hotel at an approximately 8.0% capitalization
rate and is avoiding the incremental capital spend and earnings
disruption that would have been incurred through continued
ownership of Boston Park Plaza. In the fourth quarter of 2023, the
Company deployed $20 million of the
sale proceeds to repurchase its common stock at a discount to
consensus estimates of NAV. The Company expects to redeploy the
remaining sale proceeds into additional accretive acquisitions or
opportunistic share repurchases.
Well-Located Hotel Real Estate: Hyatt Regency
San Antonio Riverwalk is the best-located hotel in the market,
situated on the highest foot-traffic area of the famed Riverwalk,
at the front entrance of the Alamo, and steps away from the convention
center. The adjacent Alamo site is
currently undergoing a transformative restoration and enhancement,
including the addition of a visitor center and museum with a total
investment of $500 million, which we
expect will further enhance the desirability of the Hotel's
location and drive increased demand and foot traffic.
Increased Diversification: The addition of
the Hotel bolsters the Company's near-term earnings capacity and
brings further balance and diversification to the portfolio. The
Hotel allows for increased geographic diversification in a market
that is benefiting from positive demographic shifts and a
business-friendly backdrop. The year-round nature of market demand
will provide additional balance to our cash flow, improving our
already high-quality portfolio of convention, urban and resort
assets.
Leading Group and Leisure Market: The San
Antonio market benefits from diverse and dynamic demand generators
that include the 1.6 million square foot Henry B. Gonzalez
Convention Center, Texas' top
leisure attractions with the Alamo
and Riverwalk, and a vibrant technology and defense industry. In
the near term, the Company expects the market to benefit from the
$2.5 billion expansion of the
San Antonio International Airport,
the $500 million redevelopment of the
Alamo Visitor Center and Museum, and the recent $325 million of upgrades to the convention
center. In addition, San Antonio
group demand is expected to benefit in the near term, while the
adjacent convention centers in Austin and Dallas are offline for construction.
Further Supports a Compelling Growth Profile into
2025: The addition of the Hotel adds another layer of
earnings growth for the Company's portfolio. Having recently
completed the conversion of The Westin Washington, DC Downtown and the Marriott Long
Beach Downtown and with the in-process transformation of Andaz
Miami Beach expected to be completed by year-end, the incremental
full-year earnings from the acquisition of the Hotel should combine
to support robust earnings growth for Sunstone in the coming
years.
The Company currently anticipates closing the transaction in
late April 2024. The acquisition of
the Hotel is subject to the satisfaction of customary closing
conditions, and the Company can give no assurance that the
acquisition of the Hotel will close. The forecast amounts
referenced in this release are based on the Company's assumptions
of operating performance and the Company cannot assure you that the
forecasts will be achieved.
The term "Hyatt" is used in this release for convenience to
refer to Hyatt Hotels Corporation and/or one or more of its
affiliates.
About Sunstone Hotel Investors:
Sunstone Hotel Investors, Inc. is a lodging real estate
investment trust ("REIT"). Sunstone's strategy is to create
long-term stakeholder value through the acquisition, active
ownership, and disposition of well-located hotel and resort real
estate. For further information, please visit Sunstone's website at
www.sunstonehotels.com.
For Additional Information:
Aaron Reyes
Chief Financial Officer
Sunstone Hotel Investors, Inc.
(949) 382-3018
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of federal securities laws and regulations. These
forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "predict,"
"project," "should," "will" and other similar terms and phrases,
including opinions, references to assumptions and forecasts of
future results. Forward-looking statements are not guarantees of
future performance and involve known and unknown risks,
uncertainties and other factors that may cause the actual results
to differ materially from those anticipated at the time the
forward-looking statements are made. These risks include, but are
not limited to: we own upper upscale and luxury hotels located in
urban and resort destinations in an industry that is highly
competitive; events beyond our control, including economic
slowdowns or recessions, pandemics, natural disasters, civil unrest
and terrorism; inflation increasing costs such as wages,
employee-related benefits, food costs, commodity costs, including
those used to renovate or reposition our hotels, property taxes,
property and liability insurance, utilities and borrowing costs;
system security risks, data protection breaches, cyber-attacks and
systems integration issues, including those impacting the Company's
suppliers, hotel managers or franchisors; a significant portion of
our hotels are geographically concentrated so we may be harmed by
economic downturns or natural disasters in these areas of the
country; we face possible risks associated with the physical and
transitional effects of climate change; uninsured or underinsured
losses could harm our financial condition; the operating results of
some of our hotels are significantly reliant upon group and
transient business generated by large corporate customers, and the
loss of such customers for any reason could harm our operating
results; the increased use of virtual meetings and other similar
technologies could lessen the need for business-related travel,
and, therefore, demand for rooms in our hotels may be adversely
affected; our hotels require ongoing capital investment and we may
incur significant capital expenditures in connection with
acquisitions, repositionings and other improvements, some of which
are mandated by applicable laws or regulations or agreements with
third parties, and the costs of such renovations, repositionings or
improvements may exceed our expectations or cause other problems;
delays in the acquisition, renovation or repositioning of hotel
properties may have adverse effects on our results of operations
and returns to our stockholders; accounting for the acquisition of
a hotel property or other entity involves assumptions and
estimations to determine fair value that could differ materially
from the actual results achieved in future periods; volatility in
the debt and equity markets may adversely affect our ability to
acquire, renovate, refinance or sell our hotels; we may pursue
joint venture investments that could be adversely affected by our
lack of sole decision-making authority, our reliance on a
co-venturer's financial condition and disputes between us and our
co-venturer; we may be subject to unknown or contingent liabilities
related to recently sold or acquired hotels, as well as hotels we
may sell or acquire in the future; we may seek to acquire a
portfolio of hotels or a company, which could present more risks to
our business and financial results than the acquisition of a single
hotel; the sale of a hotel or portfolio of hotels is typically
subject to contingencies, risks and uncertainties, any of which may
cause us to be unsuccessful in completing the disposition; the
illiquidity of real estate investments and the lack of alternative
uses of hotel properties could significantly limit our ability to
respond to adverse changes in the performance of our hotels; we may
issue or invest in hotel loans, including subordinated or mezzanine
loans, which could involve greater risks of loss than senior loans
secured by income-producing real properties; if we make or invest
in mortgage loans with the intent of gaining ownership of the hotel
secured by or pledged to the loan, our ability to perfect an
ownership interest in the hotel is subject to the sponsor's
willingness to forfeit the property in lieu of the debt; one of our
hotels is subject to a ground lease with an unaffiliated party, the
termination of which by the lessor for any reason, including due to
our default on the lease, could cause us to lose the ability to
operate the hotel altogether and may adversely affect our results
of operations; because we are a REIT, we depend on third-parties to
operate our hotels; we are subject to risks associated with our
operators' employment of hotel personnel; most of our hotels
operate under a brand owned by Marriott, Hilton, Hyatt, Four
Seasons or Montage. Should any of these brands experience a
negative event, or receive negative publicity, our operating
results may be harmed; our franchisors and brand managers may adopt
new policies or change existing policies which could result in
increased costs that could negatively impact our hotels; future
adverse litigation judgments or settlements resulting from legal
proceedings could have an adverse effect on our financial
condition; claims by persons regarding our properties could affect
the attractiveness of our hotels or cause us to incur additional
expenses; the hotel business is seasonal and seasonal variations in
business volume at our hotels will cause quarterly fluctuations in
our revenue and operating results; changes in the debt and equity
markets may adversely affect the value of our hotels; certain of
our hotels have in the past become impaired and additional hotels
may become impaired in the future; laws and governmental
regulations may restrict the ways in which we use our hotel
properties and increase the cost of compliance with such
regulations. Noncompliance with such regulations could subject us
to penalties, loss of value of our properties or civil damages;
corporate responsibility, specifically related to ESG factors and
commitments, may impose additional costs and expose us to new risks
that could adversely affect our results of operations, financial
condition and cash flows; our franchisors and brand managers may
require us to make capital expenditures pursuant to property
improvement plans or to comply with brand standards; termination of
any of our franchise, management or operating lease agreements
could cause us to lose business or lead to a default or
acceleration of our obligations under certain of our debt
instruments; the growth of alternative reservation channels could
adversely affect our business and profitability; the failure of
tenants in our hotels to make rent payments or otherwise comply
with the material terms of our retail and restaurant leases may
adversely affect our results of operations; we rely on our
corporate and hotel senior management teams, the loss of whom may
cause us to incur costs and harm our business; we could be harmed
by inadvertent errors, misconduct or fraud that is
difficult to detect; if we fail to maintain effective internal
control over financial reporting and disclosure controls and
procedures, we may not be able to accurately report our financial
results or identify and prevent fraud; we have
outstanding debt which may restrict our financial flexibility;
certain of our debt is subject to variable interest rates, which
creates uncertainty in the amount of interest expense we will incur
in the future and may negatively impact our operating results; our
stock repurchase program may not enhance long-term stockholder
value, and could cause volatility in the price of our common and
preferred stock and could diminish our cash reserves; and other
risks and uncertainties associated with the Company's business
described in its filings with the Securities and Exchange
Commission. Although the Company believes the expectations
reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that the
expectations will be attained or that any deviation will not be
material. All forward-looking information provided herein is as of
the date of this release, and the Company undertakes no obligation
to update any forward-looking statement to conform the statement to
actual results or changes in the Company's expectations.
This release should be read together with the consolidated
financial statements and notes thereto included in our most recent
reports on Form 10-K and Form 10-Q. Copies of these reports are
available on our website at www.sunstonehotels.com and through the
SEC's Electronic Data Gathering Analysis and Retrieval System
("EDGAR") at www.sec.gov.
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SOURCE Sunstone Hotel Investors, Inc.