The company completes the sale of the Marriott Del Mar and amends and restates its senior unsecured revolving credit facility.
ALISO VIEJO- Sunstone Hotel Investors, Inc. announced that it has entered into an agreement to sell the 229-room Doubletree Guest Suites Minneapolis, the 257-room Hilton Del Mar, and the 350-room Marriott Troy (“Three-Hotel Portfolio”) for an adjusted gross sale price of $107.1 million ($128,100/key), including the assumption of approximately $75.6 million in mortgage debt and $2.1 million of deferred management fees. The Company also announced that it has completed the previously announced sale of the 284-room Marriott Del Mar for $66.0 million ($232,400/key), which included the assumption of $47.1 million in mortgage debt. Additionally, the Company announced that it has amended its $150.0 million revolving credit facility, resulting in the elimination of the facility’s LIBOR floor, a reduction in the facility’s effective interest rate, and an extension of the facility’s term to November 2015.
Ken Cruse, President and CEO, stated, “The Three-Hotel Portfolio sale we announced today, coupled with our previously announced sale of the Marriott Del Mar, are solid steps toward our stated corporate goals of improving our portfolio quality while strengthening our balance sheet. For the trailing 12 months ended June 30, 2012, the four disposition hotels generated combined RevPAR of $91.54 and EBITDA per key of $12,400, both of which are more than 30% below our portfolio average. By selling these four relatively small, highly-levered, lower RevPAR hotels we will reduce our overall indebtedness by approximately $122.7 million, increase our cash position by approximately $48.3 million, improve our asset concentrations in key growth markets and increase our overall portfolio RevPAR and EBITDA per key. While we may look to advance our portfolio and credit objectives through additional asset sales in the future, the transactions announced today mark the completion of our planned 2012 dispositions program.”
Pending Sale of the Three-Hotel Portfolio
The $107.1 million adjusted gross sale price for the Three-Hotel Portfolio includes $75.6 million in mortgage debt and approximately $2.1 million of deferred management fees, which will be assumed by the buyer. The adjusted gross sale price represents a 10.2x multiple on 2012 forecasted hotel EBITDA of $10.5 million and an 8.2% capitalization rate on 2012 forecasted hotel net operating income. The Company expects to receive gross proceeds, before customary transaction costs and credits, of approximately $29.4 million. The transaction, subject to customary closing conditions, including the purchaser’s assumption of existing mortgages, is expected to close during the third-quarter 2012.
Completed Sale of the Marriott Del Mar
On August 23, 2012, the Company closed on the previously announced sale of the 284-room Marriott Del Mar located in Del Mar, California. The gross sale price of $66.0 million ($232,400 per key) included the assumption of the existing mortgage secured by the hotel which totaled $47.1 million on the date of the sale. The gross sale price represents a 13.7x multiple on 2012 forecasted hotel EBITDA of $4.8 million and a 5.9% capitalization rate on 2012 forecasted hotel net operating income. The Company received gross proceeds, before customary transaction costs and credits, of approximately $18.9 million from the sale of the Marriott Del Mar.
Combined Impact of the 2012 Dispositions Program
The $173.1 million ($154,600/key) combined adjusted gross sale price for the four hotels equates to an 11.3x multiple on 2012 forecasted hotel EBITDA of $15.3 million and a 7.3% capitalization rate on 2012 forecasted hotel net operating income.
The combined dispositions will have the following effects on the Company:
- Indebtedness will be reduced by approximately $122.7 million.
- Average interest rate will be reduced by approximately 4 bps to 4.97%.
- Average term to maturity will be increased by approximately 0.3 years to 5.5 years, as the mortgages associated with the four hotels mature in 2015 and 2016.
- Liquidity will be increased by approximately $48.3 million.
- Average hotel size will increase by 17 keys to 428.
- Q2 2012 trailing twelve month Comparable Hotel RevPAR would have been $131.25, or approximately $3.00 higher than reported.
- Q2 2012 trailing twelve month portfolio EBITDA per key would have been $19,400, or approximately $600 higher than reported.
The impact of the sale of the Marriott Del Mar was included in the Company’s third quarter and full year guidance provided on August 2, 2012. The pending sale of the Three-Hotel Portfolio, assuming a third quarter 2012 closing date, is expected to reduce third-quarter 2012 Adjusted EBITDA by $0.3 million and Adjusted FFO by $0.2 million. Both Adjusted FFO per diluted share and net income for the third quarter 2012 are not expected to be affected by the pending sale of the Three-Hotel Portfolio. The pending sale of the Three-Hotel Portfolio is expected to decrease full-year 2012 Adjusted EBITDA by $3.0 million, Adjusted FFO by $1.8 million, Adjusted FFO per diluted share by $0.01 and net income by $0.1 million. Third-quarter and full-year Adjusted EBITDA, Adjusted FFO, Adjusted FFO per diluted share and net income impact excludes gain/loss on sale and one-time closing costs resulting from the transaction.
Amended and Restated Credit Facility
The Company has amended and restated its $150.0 million senior unsecured revolving credit facility, which was scheduled to mature in November 2013. The pricing on the amended revolving credit facility has been significantly reduced and the 1% LIBOR floor has been eliminated. The maturity of the credit facility has been extended to November 2015 with an option to extend to November 2016. The amended credit facility’s interest rate is based on a pricing grid with a range of 175 to 350 basis points, which represents a reduction from the previous grid that ranged from 325 to 425 basis points over LIBOR depending on the Company’s leverage ratio. The credit facility also includes an accordion option that allows the Company to request additional lender commitments up to a total of $350.0 million. The credit facility currently has no outstanding borrowings; however, the Company has $3.8 million in outstanding irrevocable letters of credit backed by the credit facility.
John V. Arabia, Chief Financial Officer, stated, “We are pleased with the strength of our lender relationships and our ability to extend term, lower pricing and establish more borrower-friendly covenants. While our long-term goal is to further reduce leverage, the amended facility provides well-priced additional liquidity and the ability to increase the commitment amount in the future.”
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