Sunstone Hotel Investors, Inc. Sells Hyatt Regency Century Plaza Hotel (United States)
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Sunstone Hotel Investors, Inc. Sells Hyatt Regency Century Plaza Hotel (United States)
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Category: North America & West Indies / Carribean islands - United States - Industry economy
- Group or hotel buyout
This is a press release selected by our editorial committee and published online for free on 2008-06-02
Concludes Successful Hotel Repositioning Investment
Separately Announces Tender Offer for up to 11% of its Outstanding Shares
Generates Significant Liquidity
Sunstone Hotel Investors, Inc. (NYSE: SHO)
announced today that it has sold its 726-room Hyatt Regency Century Plaza to Los Angeles real estate investor Next Century Associates, LLC for gross cash proceeds of approximately $366.5 million, which equates to approximately $505,000 per room and approximately 18.6x the hotel’s 2007 EBITDA (excluding guaranty payments).
“Shortly after I returned as interim CEO, we received an offer, which ultimately led to today’s announcement,” said Bob Alter, Executive Chairman. “This sale marks the conclusion of yet another highly successful hotel investment for Sunstone through which we created significant value for our stockholders by renovating, rebranding and repositioning an underperforming asset. We acquired the Century Plaza hotel in October of 2005 for approximately $400,000 per room and implemented a business plan that included conducting a major renovation, installing Hyatt as our new manager and positioning the hotel to maximize its appeal to both group and business travelers in light of the reemergence of Century City as the premier entertainment business market. In addition to a complete rooms and public space renovation, we added the successful X-Bar lounge and created a high-end Equinox health club in an underutilized 35,000 square foot building on the hotel grounds. During our ownership period, we implemented a number of successful asset management initiatives aimed at unlocking new revenue streams and achieving a strong return on our invested capital. Due in large part to the successful execution of our plan and a strong performance by the Hyatt team, the hotel’s annual EBITDA nearly tripled during our ownership period. Additionally, during our ownership period we received a total of $27 million in yield support payments from Hyatt, which guaranteed an annual 10% return on our equity through the third quarter of 2007. The combination of a well-planned renovation, creative asset management and meaningful yield support from Hyatt enabled Sunstone to realize a total internal rate of return of approximately 19% upon sale.”
The Company has updated its guidance for the second quarter of 2008 as well as full year 2008 to reflect the anticipated impact of the sale of the Hyatt Regency Century Plaza. Updated guidance is based on the assumption that the Company will successfully repurchase 6.2 million shares of common stock in the second half of 2008 with approximately $130 million of the net sale proceeds, and that the remaining net sale proceeds, totaling approximately $230 million, will be held in cash for the remainder of 2008. Based on these assumptions, the Company expects this transaction to result in a 20 to 30 basis point improvement in its 2008 net debt-to-Adjusted EBITDA ratio and to be neutral to slightly dilutive to its 2008 Adjusted FFO per share. The Company continues to analyze alternatives for the reinvestment of net asset sale proceeds expected to remain after the proposed stock repurchase, which depending on market conditions, may include hotel acquisitions, debt repayments, additional stock repurchases and/or a special common stockholder dividend, each of which may affect Adjusted EBITDA and/or Adjusted FFO per share in a manner not reflected in the earnings guidance the Company is providing herein. Also, in addition to the hotel sale announced today, and consistent with its strategic plan, the Company is evaluating the potential divestiture of a significant portfolio of non-core hotels, which may be completed as a portfolio sale, single asset sales, or not at all, depending on market conditions.
The Company does not undertake to make updates to its guidance for any developments in its business. Achievement of the anticipated results is subject to risks and uncertainties including those disclosed in the Company’s filings with the Securities and Exchange Commission. Other than the sale of the Hyatt Regency Century Plaza and the assumed stock repurchase of 6.2 million shares, the Company’s guidance does not take into account any additional hotel acquisitions, dispositions, stock repurchases or financings during 2008. As the level of demand for U.S. lodging is highly correlated to the overall U.S. economy, changes in U.S. economic performance may have a material effect on the Company’s results of operations.
Disclosure regarding the non-GAAP financial measures in this release is included on page 4. Reconciliations of non-GAAP financial measures to the next most comparable GAAP measure for each of the periods presented are included on pages 5 through 6 of this release.
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