Sunstone Hotel Investors Inc. is offloading another property as it seeks to unlock value following a shareholder push to sell the company and amid stronger performance from its coastal resorts.
Sunstone is selling the 821-room Hyatt Regency San Francisco to affiliates of New York-based Blackstone Real Estate for $279 million, or approximately $340,000 per key.
Sunstone, a real estate investment trust (REIT) based in Aliso Viejo, originally purchased the San Francisco property in 2013 for $262.5 million, or approximately $327,000 per room, for its location in the city’s central business district.
Sunstone said selling the Hyatt Regency San Francisco is a way for the company to reorganize its assets and put money back into its coffers.
“To date, we have successfully redeployed nearly $70 million of the proceeds into the repurchase of our common and preferred stock, at discounts to net asset value and liquidation value,” Chief Executive Bryan Giglia said in a June 23 statement.
The $279 million price “represents a 21.4x multiple” on the property’s adjusted EBITDA (for real estate) and “a 3.5% cap rate on hotel net operating income” for 12 months ended May 31, according to the company.
Sunstone said it repurchased 4.4 million shares of its common stock at an average price of $9.24 per share, for an aggregate repurchase amount of $40.5 million before expenses.
The sale leaves the company with 13 hotels in its portfolio, including Marriott Long Beach Downtown and Montage Healdsburg.
“The sale is consistent with our strategy of more actively managing the portfolio to capitalize on higher private market values and recycle the proceeds into more accretive options on a risk-adjusted basis,” Giglia added.
Last year, the company divested the Hilton New Orleans and repurchased stock with proceeds from that sale as well.
Sunstone said it was still evaluating how to distribute the remaining proceeds from the San Francisco sale. The REIT expects the deal with Blackstone to close in late July or early August.
“While we have already generated value by deploying a portion of the proceeds, the remaining liquidity increases our flexibility and facilitates our ability to reinvest in a manner that will provide our investors with superior returns and greater per-share (net asset value) NAV growth,” Giglia said.
On the day of the announcement, shares dropped 1% to $11.74 apiece with a $2.2 billion market cap (NYSE: SHO).
Sunstone’s Resort Portfolio; Shareholder Letter
In May, Sunstone credited growth in its first-quarter results to “solid performances” from its resort properties.
The REIT reported that revenue per available room (RevPAR), a key industry metric, for its 14 hotels increased 14% for the period ended March 31. The average daily rate was $344.19 and occupancy was 74.1%.
“While the strength was broad-based, we were particularly encouraged by our resort portfolio, including solid first-quarter performance at Andaz Miami Beach,” Giglia said in a May 5 statement.
The Andaz is another example of Sunstone’s strategy of selling property and then using the funds to either grow its portfolio or boost shareholder value, company officials said.
Sunstone acquired Andaz Miami Beach, previously known as The Confidante Miami Beach, in 2022 for $232 million and fully renovated the resort using funds from the previous sales of three hotels in Chicago.
“Our first quarter results demonstrate the embedded growth potential of our portfolio as we benefit from our prior investments and some of our larger markets continue to normalize,” Giglia said.
The company also raised its outlook for 2026 “to reflect the outperformance in the first quarter,” the CEO added.
Last September, shareholder Tarsadia Capital LLC requested that Sunstone either find a buyer or liquidate its assets.
Tarsadia Capital, which manages investments for Newport Beach’s Tarsadia Group, owns a 3.4% stake in Sunstone.
The letter asked Sunstone to act immediately based on the recent performance of the lodging REIT industry and the company’s own “shrinking portfolio” of hotel properties since its initial public offering in 2004.
“Sunstone’s current trajectory as a subscale lodging REIT is simply not tenable,” Managing Director Michael Ching said in a statement. “The Board needs immediate refreshment and must commence a robust strategic alternatives process to unlock value for shareholders.”
At press time, Sunstone shares were trading at $11.23 a piece with a $2.1 billion market cap.
“We remain committed to addressing the valuation discount at which we trade and realizing the embedded value of our portfolio for our shareholders,” Giglia said in May. “While the transaction market has been quiet in recent years, we are beginning to see incremental activity, which may provide a more constructive backdrop in which to execute our capital recycling strategy.”