Sunstone recycles capital with San Antonio buy

SAN ANTONIO, Texas - Demonstrating its ability to accretively recycle capital following disposition activity late last year, Sunstone Hotel Investors has agreed with Hyatt Hotels Corp. to acquire the fee-simple interest in the 630-room Hyatt Regency San Antonio Riverwalk 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.

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 and expected to enhance the desirability of the hotel's location and drive increased demand and foot traffic.

The hotel recently underwent a comprehensive $37 million guestroom renovation and does not have any meaningful required near-term capital needs.

The net purchase price implies a value of approximately $352,000 per key and represents an 11.1x multiple on the midpoint of the REIT’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 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.

Bryan Giglia

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Sunstone currently expects to close the acquisition in late April with the hotel contributing $12 to $13 million of hotel EBITDA and approximately $0.06 of adjusted FFO per diluted share during 2024.

“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,” said Sunstone CEO Bryan Giglia. “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.”

In October 2023, Sunstone sold the Boston Park Plaza for $370 million and is recycling a portion of the sale proceeds into the acquisition of the Hyatt Regency San Antonio Riverwalk at an approximately 8.0% cap 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 near term, Sunstone also 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.

Sunstone stated that 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 in San Antonio should combine to support robust earnings growth in the coming years.