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Sunstone Hotel Investors, Inc. announced that it has entered into a purchase and sale agreement to sell the 284-room Marriott Del Mar for a contractual purchase price of $66 million ($232,000/key). The contractual 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 transaction, subject to customary closing conditions, including the assumption of the existing $47.2 million mortgage, is expected to close on or around June 30, 2012. During the Company’s anticipated 2012 ownership period, the Marriott Del Mar is expected to generate approximately $2.1 million of hotel EBITDA. Upon completion of the sale and assumption of the mortgage debt by the buyer, the Company expects to receive net proceeds, before customary transaction costs and credits, of approximately $19 million.
Completed Acquisition
On June 4, 2012, the company completed the previously announced acquisition of the 417-room Wyndham Chicago and has rebranded the hotel the Hyatt Chicago Magnificent Mile. Concurrent with the closing of the $88.4 million acquisition, the Company issued 5,454,164 shares of common stock to the seller, The Blackstone Group, valued at $58.4 million ($10.71/share) at the time the transaction was announced. The Company registered the 5,454,164 shares issued to The Blackstone Group through an automatic shelf registration statement filed with the Securities and Exchange Commission on June 4, 2012. The balance of the acquisition was funded with cash on hand.
Ken Cruse, President and Chief Executive Officer, stated, "We are pleased to announce the pending sale of the Marriott Del Mar and the closing of our previously announced purchase of the Hyatt Chicago Magnificent Mile. Consistent with our stated business plan, by divesting of a highly-levered, sub-market hotel and acquiring an unencumbered, high-quality central business district hotel, we have improved our portfolio quality and growth profile while deleveraging our balance sheet. We may look to opportunistically sell additional non-core assets in transactions that help advance our portfolio quality and balance sheet objectives. In accordance with our corporate practice, we will announce any future dispositions after receiving a non-refundable deposit from the buyer and when we believe the probability of closing is high."
Corporate Impact
The pending sale of the Marriott Del Mar, assuming a June 30, 2012 closing date, is expected to reduce full-year 2012 Adjusted EBITDA by approximately $2.7 million, Adjusted FFO by approximately $1.4 million and net income by approximately $0.3 million, in each case as provided on May 2, 2012. The sale of the Marriott Del Mar reduces the Company’s total debt by $47.2 million, resulting in total debt reduction, in addition to contractual amortization, of $185.4 million since 2011. Full-year Adjusted EBITDA, Adjusted FFO and net income impact excludes one-time closing costs resulting from the transaction.
The acquisition of the Hyatt Chicago Magnificent Mile is expected to increase second-quarter 2012 Adjusted EBITDA by $0.9 million, Adjusted FFO by $0.9 million and net income by $0.6 million, in each case as provided on May 2, 2012. The acquisition of the Hyatt Chicago Magnificent Mile is expected to increase full-year 2012 Adjusted EBITDA by $4.1 million, Adjusted FFO by $4.1 million and net income by $2.2 million, in each case as provided on May 2, 2012. Second-quarter and full-year Adjusted EBITDA, Adjusted FFO, and net income impact excludes one-time closing and brand/manager transition costs resulting from the transaction.
The company has updated its forecasted weighted average share count to reflect the issuance of 5,454,164 shares of common stock on June 4, 2012.
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