Sunstone Resort Traders, Inc. (NYSE: SHO) introduced that it has entered right into a definitive settlement with an affiliate of Hyatt Lodges Company to accumulate the fee-simple curiosity within the 630-room Hyatt Regency San Antonio Riverwalk. The exceptionally well-located Resort is located straight between San Antonio’s well-known Riverwalk and the Alamo, the 2 most visited vacationer websites in Texas.Â
The acquisition contains almost two acres of riverfront land and a 516-space parking storage, situated adjoining to the Alamo Customer Middle and Museum which is at present beneath improvement. The Resort lately underwent a complete $37 million guestroom renovation and doesn’t have any significant required near-term capital wants. Sunstone is buying the resort for a gross buy worth of $230 million. Hyatt will proceed to handle the Resort beneath the Hyatt Regency model and can contribute roughly $8 million of key cash as a part of the transaction, topic to the phrases of the Firm’s administration settlement with Hyatt.
Inclusive of the incentives provided by Hyatt, the web buy worth implies a price of roughly $352,000 per key and represents an 11.1x a number of on the midpoint of the Firm’s estimate of 2024 resort EBITDA and a 8.0% capitalization fee based mostly on the midpoint of projected resort internet working revenue. The acquisition might be funded from money available utilizing a portion of the sale proceeds from the beforehand accomplished disposition of Boston Park Plaza.Â
The Firm at present expects to shut the acquisition in late April and that the resort will contribute $12 to $13 million of resort EBITDA and roughly $0.06 of adjusted FFO per diluted share throughout the Firm’s possession interval in 2024. The Firm will present further particulars on the transaction, together with the influence on its beforehand supplied full 12 months outlook as a part of its first quarter earnings name in early Might.
Bryan Giglia, Chief Govt Officer, acknowledged, “We’re excited to announce our deliberate acquisition of Hyatt Regency San Antonio Riverwalk which demonstrates our capacity to accretively recycle capital following our disposition exercise late final 12 months. That is the best-located resort within the metropolis, located within the coronary heart of the Riverwalk, on the entrance door of the Alamo, and steps away from the conference middle. Our premiere location permits the resort to profit from a gorgeous mixture of group and transient demand in a market that continues to expertise optimistic demographic shifts, growing resort demand, and a business-friendly backdrop. The Resort has been lately renovated and is in nice form with minimal near-term capital wants however has alternatives to drive further earnings over the long run.”
Mr. Giglia continued, “The acquisition of Hyatt Regency San Antonio Riverwalk permits us to redeploy capital at the next long-term return and is a superb instance of the worth we will create via our funding lifecycle strategy. The addition of this resort, mixed with our two lately launched model conversions and the completion of our transformative funding later this 12 months at Andaz Miami Seaside, will place Sunstone for important earnings development as we transfer into 2025. Â We additionally retain further liquidity and steadiness sheet capability that we will use to thoughtfully develop our portfolio and drive incremental earnings, superior returns, and higher per-share NAV development.”
Transaction Advantages
Sunstone believes the acquisition of Hyatt Regency San Antonio Riverwalk will additional the Firm’s quick and long-term targets and be additive to its stockholders within the following methods:
Accretive Redeployment of Capital at a Compelling Yield: In October 2023, the Firm offered the Boston Park Plaza for $370 million, reflecting a trailing capitalization fee of seven.1%, excluding future capital wants, or an implied capitalization fee of 6.1%, inclusive of anticipated near-term capital investments. The Firm is recycling a portion of the sale proceeds into the acquisition of the Resort at an roughly 8.0% capitalization fee and is avoiding the incremental capital spend and earnings disruption that may have been incurred via continued possession of Boston Park Plaza. Within the fourth quarter of 2023, the Firm deployed $20 million of the sale proceeds to repurchase its frequent inventory at a reduction to consensus estimates of NAV. The Firm expects to redeploy the remaining sale proceeds into further accretive acquisitions or opportunistic share repurchases. Â
Nicely-Positioned Resort Actual Property:Â Hyatt Regency San Antonio Riverwalk is the best-located resort available in the market, located on the best foot-traffic space of the famed Riverwalk, on the entrance entrance of the Alamo, and steps away from the conference middle. The adjoining Alamo website is at present present process a transformative restoration and enhancement, together with the addition of a customer middle and museum with a complete funding of $500 million, which we count on will additional improve the desirability of the Resort’s location and drive elevated demand and foot site visitors.
Elevated Diversification:Â The addition of the Resort bolsters the Firm’s near-term earnings capability and brings additional steadiness and diversification to the portfolio. The Resort permits for elevated geographic diversification in a market that’s benefiting from optimistic demographic shifts and a business-friendly backdrop. The year-round nature of market demand will present further steadiness to our money movement, enhancing our already high-quality portfolio of conference, city and resort property.
Main Group and Leisure Market:Â The San Antonio market advantages from various and dynamic demand mills that embrace the 1.6 million sq. foot Henry B. Gonzalez Conference Middle, Texas’ high leisure sights with the Alamo and Riverwalk, and a vibrant expertise and protection trade. Within the close to time period, the Firm expects the market to profit from the $2.5 billion enlargement of the San Antonio Worldwide Airport, the $500 million redevelopment of the Alamo Customer Middle and Museum, and the latest $325 million of upgrades to the conference middle. As well as, San Antonio group demand is anticipated to profit within the close to time period, whereas the adjoining conference facilities in Austin and Dallas are offline for building.
Additional Helps a Compelling Progress Profile into 2025:Â The addition of the Resort provides one other layer of earnings development for the Firm’s portfolio. Having lately accomplished the conversion of The Westin Washington, DC Downtown and the Marriott Lengthy Seaside Downtown and with the in-process transformation of Andaz Miami Seaside anticipated to be accomplished by year-end, the incremental full-year earnings from the acquisition of the Resort ought to mix to help strong earnings development for Sunstone within the coming years.
The Firm at present anticipates closing the transaction in late April 2024. The acquisition of the Resort is topic to the satisfaction of customary closing situations, and the Firm can provide no assurance that the acquisition of the Resort will shut. The forecast quantities referenced on this launch are based mostly on the Firm’s assumptions of working efficiency and the Firm can’t guarantee you that the forecasts might be achieved.