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.
SOURCE Sunstone Hotel Investors, Inc.
