Marriott key money has Host converting Turtle Bay to Ritz-Carlton

OAHU, Hawaii - Host Hotels & Resorts, Inc. has entered into an agreement with Blackstone Real Estate to acquire the fee simple interest in the 450-room Turtle Bay Resort on the North Shore of Oahu, Hawaii, including a 49-acre land parcel entitled for development, for approximately $680 million, net an estimated $45 million of key money from Marriott International (about $1.4 million per key with Blackstone reporting the sale at $725 million). Host intends to rebrand the property as a Ritz-Carlton and Marriott will manage the property and provide "favorable modifications on several existing management agreements."

Host reported that the purchase price allocation is expected to be $630 million for the resort and $50 million for the land parcel, subject to final appraisal. It said the acquisition price represents a 16.3x EBITDA multiple or a cap rate of approximately 5.3% on the resort’s 2024 estimated results. The purchase is subject to customary closing conditions and the transaction is expected to close in late July of 2024.

Blackstone purchased the hotel in 2018 for $332 million and subsequently invested significant capital in renovations. The resort was closed from March of 2020 to June of 2021 for the renovation, which included the guestrooms and bungalows, lobby, pools, restaurants, retail, meeting space, spa, a new club lounge, building systems, as well as an updated exterior and arrival experience.

With the planned Ritz-Carlton rebranding, we believe the resort will generate outsized growth as it stabilizes, further elevating the EBITDA growth profile of our portfolio.

James Risoleo

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Before taking into account the significant upside that is expected from The Ritz-Carlton branding, the resort is expected be one of Host’s top assets based on estimated full year 2024 results with an expected RevPAR of $570, Total RevPAR of $980, and EBITDA per key of $86,000. After ramping up from the recent renovation and the rebranding, Host expects the resort to stabilize between approximately 10-12x EBITDA in the 2027-2029 timeframe.

“We are thrilled to enter into an agreement to acquire Turtle Bay Resort, which will further expand and diversify our already strong presence in Hawaii,” said Host President and CEO James Risoleo. “Oahu is a high demand leisure destination with consistently high occupancy, an internationally diverse demand base, and high barriers to entry, resulting in slightly negative supply growth historically and essentially no anticipated near-term supply. In addition, because of the resort’s recent transformational renovation, we do not expect meaningful capital expenditures in the near term. We look forward to working with employees and local partners to build upon the resort’s preeminent position on the North Shore of Oahu. With the planned Ritz-Carlton rebranding, we believe the resort will generate outsized growth as it stabilizes, further elevating the EBITDA growth profile of our portfolio.”

The 49-acre oceanfront land parcel is entitled for development, and similar to the company’s strategy at other properties, Host intends to enhance its value over the long term.

Truist Securities C. Patrick Scholes opined on the deal, writing, “While our gut feel is that a product enhancement may be warranted over time, the headline price per key of $1.4 million (excluding the land parcel) and limited near-term CapEx does not strike us as negatively as compared to Host and peer resort acquisitions in 2021 in the heart of the pent-up leisure period. That said, we are not encouraged by luxury domestic summer leisure resort trends based on our forward bookings data and we see more immediate upside from this acquisition from the Ritz-Carlton rebranding and management than from macro leisure trends.”