Sunstone Hotel Investors, Inc. (SHO), a lodging real estate investment trust (REIT), recently penned an agreement to sell three hotels - Doubletree Guest Suites Minneapolis, Hilton Del Mar, and the Marriott Troy. The three hotels are expected to fetch an adjusted price of $107.1 million. The transaction is likely to close by third quarter of 2012, subject to mandatory regulatory approvals and closing conditions.
The gross selling price signifies a forward capitalization rate of around 8.2% on the company's estimated net operating income in 2012. The selling price includes the mortgage debt assumption and deferred management fees worth $75.6 million and $2.1 million, respectively. The company expects to receive gross proceeds of $29.4 from the disposition of these hotels.
Doubletree Guest Suites Minneapolis, a 229-room hotel, is located in the heart of downtown Minneapolis under the brand Doubletree by Hilton. Hilton Del Mar is a 257-room hotel located in San Diego, California under the brand Hilton Hotels & Resorts. Both the hotels are operated by Hilton Worldwide. The Marriott Troy, a 350-room hotel, is situated near downtown Detroit in Michigan and is operated by Marriott International, Inc. (MAR) under its signature brand Marriott Hotels & Resorts.
In addition, Sunstone Hotel stated the completion of disposition of another Marriott property - Marriott Del Mar - located in San Diego. The hotel, comprising of 284 rooms, is located in California and was sold for a gross price of $66.0 million. Sunstone received the gross proceeds of $18.9 million for the disposition, which excludes the assumption of the existing mortgage debt of $47.1 million.
Sunstone expects the disposition to restructure its overall portfolio. For the 12 months ended June 30, 2012, the four hotels generated a combined RevPAR and EBITDA per key which was much lower than 30% of the company's portfolio average revenue. The completed asset sale, combined with the awaiting assets sale, marks the achievement of company's planned disposition program for the year 2012.
The company also expects the hotels sales to reduce their overall indebtedness by roughly $122.7 million and increase the liquidity by $48.3 million. Also, recently the company stated the amendment of a revolving credit facility worth $150 million which was slated to mature in November 2013. The company announced the removal of the 1% LIBOR floor and reduction of the interest rate pricing grid. The pricing grid has been reduced to a range of 175 to 350 basis points (bps) from the earlier range of 325 to 425 bps. The facility is now slated to mature in November 2015, with one year extension option. This will likely boost the company's strategy of strengthening its balance sheet position.
Aliso Viejo, California-based Sunstone owns, acquires, sells and renovates luxury, upper upscale and upscale full-service hotels across the United States. The company operates the hotels under world class brands of Marriott, Hyatt Hotels Corp. (H) and Starwood Hotels & Resorts Worldwide Inc. (HOT).
We maintain our Neutral recommendation on Sunstone. Also, the company carries a Zacks #3 Rank (short-term Hold rating).