Hotel Transaction Florida

175 Room Oceans Edge Hotel & Marina Key West, Florida Sold for $175 Million

Oceans Edge Hotel & Marina Key West, Florida - Marina
Oceans Edge Hotel & Marina Key West, Florida Sold for $175 million

Sunstone

Sunstone Hotel Investors, Inc.) (NYSE: SHO) announced that it has acquired the fee-simple interest in the 175-room Oceans Edge Hotel & Marina in Key West, Florida for $175 million. In addition, the Company announced that it had recently completed the disposition of the 199-room Marriott Park City in Park City, Utah for a gross sale price of $27.6 million. 

John Arabia, President and Chief Executive Officer stated, "The acquisition of Oceans Edge Hotel & Marina demonstrates a continuation of our strategy to recycle capital into higher quality, long-term relevant real estate while maintaining an industry leading balance sheet with ample investment capacity. Over the past 19 months, we have sold nearly $735 million of real estate and used a portion of those proceeds to return capital to our shareholders, to strengthen our already low-levered balance sheet and to redeploy proceeds into exceptional real estate. The Oceans Edge Hotel & Marina is a brand new, purpose-built hotel and marina that is of significantly higher quality than the majority of the Key West hotel supply.  The luxury resort and marina, which opened in January 2017, is expected to provide meaningful growth in the near term as it reaches stabilization, and over the long term due to the supply restrictions in the Key Westmarket."

The Company will provide an update to its 2017 guidance to incorporate the impact of these transactions with its second quarter earnings release on August 1, 2017. 

Oceans Edge Acquisition:

Oceans Edge Hotel & Marina ("Oceans Edge" or the "Hotel") is a newly constructed, purpose-built oceanfront hotel and marina complex that opened in January 2017.  The property is situated across 20 land and water acres on Stock Islandand is the largest purpose-built luxury resort and marina in Key West.  The Hotel is comprised of 175 waterfront rooms, including 86 suites, all of which have private balconies and sweeping views of the Atlantic Ocean.  The Hotel's rooms are spread across four buildings designed with signature Key West conch style architecture and have an average size of 470 square feet—some of the largest rooms available in the market.  The Hotel also boasts six swimming pools, a full-service restaurant, waterfront bar, on-site water sports and paddle shop and a fitness facility.  Described by the New York Timesas the "new old Key West", Stock Island offers an authentic Florida Keys vibe and is home to the Key West Symphony Orchestra, Tennessee Williams Theatre, numerous art galleries, a golf course and outstanding bars and restaurants.

As part of the transaction, Sunstone also acquired a combined 52 wet and dry boat slips and amenities in the attached marina which offers direct deep channel access to one of the most sought after fishing destinations in the country.     

The Oceans Edge purchase price represents an estimated 14.1x multiple on the midpoint of the 2018 forecasted Hotel Adjusted EBITDA range of $11.5 million to $13.3 million and an estimated 6.5% capitalization rate on the midpoint of 2018 forecasted Hotel net operating income.  Sunstone expects the stabilized yield on the purchase price of the Hotel to be between 8.0% and 9.0%. 

The Company funded the acquisition from available cash on hand including proceeds from the recent sale of the Marriott Park City and Fairmont Newport Beach, as well as net proceeds received from the Company's recent equity issuance under its "At the Market" ("ATM") equity distribution program. A definition of Hotel Adjusted EBITDA and a reconciliation to net operating income is set forth at the end of this release.

Oceans Edge is Sunstone's first acquisition in the highly desirable Key West market which boasts the highest RevPAR of any market in the United States.  Key West's favorable climate, diverse entertainment and recreational offerings and scenic beauty, make it a favorite year-round destination among travelers.  In addition, local rate of growth ordinances which limit development in the area create significant barriers to entry for new hotel supply. 

The Hotel will operate as an independent property and be managed by Singh Hospitality which has expertise in the local hotel market.  

Marriott Park City Disposition:

The Company completed the disposition of the 199-room Marriott Park City on June 14, 2017 for a contractual sale price of $27.6 million or approximately $138,400 per key.  The sale price represents a 8.9x multiple on the hotel's Adjusted EBITDA over the trailing four quarters of $3.1 million and a 9.5% capitalization rate on the hotel's net operating income over the trailing four-quarter period.  The sale resulted in a net book gain of $1.2 million and will increase 2017 taxable income by $4.4 million.  

At-the-Market Equity Distribution Program Update:

Through the date of this release, the Company has issued approximately 4.9 million shares of its common stock at an average price of $16.28 per share for gross proceeds of $79.4 million.  The shares were issued in connection with an ATM program pursuant to equity distribution agreements entered into by the Company during the first quarter of 2017.  The Company currently has $220.6 million remaining under its current ATM authorization.

Bryan Giglia, Chief Financial Officer stated, "Since the beginning of the second quarter, we issued approximately $79 million under our ATM program at a blended price of $16.28 per share. This additional capital helped fund the Oceans Edge acquisition while allowing us to maintain low leverage and significant investment capacity."

About Sunstone Hotel Investors:

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that, as of the date hereof, has interests in 27 hotels comprised of 13,202 rooms.  Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands such as Marriott, Hilton and Hyatt 

Property-Level Adjusted EBITDA Reconciliation

Oceans Edge Hotel & Marina

Plus:

Equals:

Hotel Adjusted

Less:

Equals:

Total

Hotel Adjusted

EBITDA

Hotel Net

FFO 

Revenues

Net Income

Depreciation

EBITDA

Margin

FF&E Reserve

Operating Income

Contribution

Estimated Sunstone Ownership Period 2017 - High (1)

$     7,600

$        2,200

$           1,400

$              3,600

47.4%

$               (304)

$                    3,296

$           3,600

Estimated Sunstone Ownership Period 2017 - Low (1)

$     7,000

$        1,800

$           1,400

$              3,200

45.7%

$               (280)

$                    2,920

$           3,200

Estimated Full Year 2018 - High (1)

$   26,500

$      10,100

$           3,200

$            13,300

50.2%

$            (1,060)

$                  12,240

$         13,300

Estimated Full Year 2018 - Low (1)

$   23,500

$        8,300

$           3,200

$            11,500

48.9%

$               (940)

$                  10,560

$         11,500

2018 EBITDA Multiple / Cap Rate at Midpoint (2)

14.1x 

6.5%

Marriott Park City

Plus:

Equals:

Hotel Adjusted

Less:

Equals:

Total

Hotel Adjusted

EBITDA

Hotel Net

FFO 

Revenues

Net Income

Depreciation

EBITDA

Margin

FF&E Reserve

Operating Income

Contribution

Trailing Four Quarters as of March 31, 2017 (3)

$   11,645

$        1,068

$           2,024

$              3,092

26.6%

$               (466)

$                    2,626

$           3,092

Trailing Four Quarters EBITDA Multiple / Cap Rate (2)

8.9x 

9.5%

 

 

(1)

Projections are subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission, which can cause actual results to differ materially from those projected.  Depreciation estimates subject to change based on final purchase price allocations to be completed after asset acquisition.

(2)

EBITDA Multiple calculated as Contractual Gross Sale Price divided by Hotel Adjusted EBITDA.  Cap Rate calculated as Hotel Net Operating Income divided by Contractual Gross Sale Price.

(3)

Data as provided in supplemental financial information reported on the Company's Current Report on Form 8-K, furnished February 21, 2017 and May 2, 2017.



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