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Wednesday, Aug 10, 2022

Sunstone Adds Sunshine With Miami Acquisition

HOTELS: $232M buy; $60M more for revamp

Irvine’s Sunstone Hotel Investors Inc. (NYSE: SHO) is heading back to the beach under new Chief Executive Bryan Giglia.

The hotel and resort-focused real estate investment trust, valued around $2.5 billion as of last week, said earlier this month it was under contract to buy the Confidante Miami Beach hotel, a 339-unit property located along a busy stretch of upscale waterfront hotels in Miami.

Sunstone is paying $232 million, or $684,000 per key, for the hotel, which was built around 1940 and last owned by Hyatt Hotels Corp. (NYSE: H).

The REIT said it plans to spend another $60 million to upgrade the Confidante, which Giglia described during an earnings call this month as “the worst house on the best block” for that stretch of Miami Beach.

“We really like this location in Miami, and we believe that we can fix this house and really get the returns that we’re looking for,” he said.

A similar renovation strategy was enacted for Sunstone’s Wailea resort in Maui, which it bought in 2014; that Marriott resort is now among Sunstone’s best-performing properties.

The Miami hotel will be rebranded to the Andaz Miami Beach, a Hyatt brand. Renovation will begin late this year with plans to finish the process during the first half of 2024.

Key West Neighbor

The Miami deal marks the first acquisition for Sunstone under the watch of Giglia, who was named CEO in March.

He was previously CFO for the REIT, and in 2015 won a CFO of the Year Award from the Business Journal (see profiles on 2022 CFO Award winners throughout this edition).

Giglia’s first moves as CEO were to exit the Chicago market—an area “hindered by excess supply,” the CEO said earlier this year—selling off a trio of properties for a cumulative $197 million. A portion of the proceeds from those sales went to the Miami purchase.

The deal marks the third property for Sunstone in Florida; its last big acquisition in the state was the 175-room Oceans Edge Hotel & Marina in Key West in 2017. It paid $1 million a room for that property.

The addition of the Miami property will boost Sunstone’s portfolio to 15 hotels and resorts.

The deal is expected to close by the end of June.

Upon completion of the revamps, Sunstone anticipates having an all-in basis of approximately $900,000 per key for the Miami Beach resort. Valuations for similar assets are well in excess of $1 million per key, the REIT said.

“Upon completion of the planned renovation, we will have transformed the earnings potential of the hotel and we will own a premier Miami Beach luxury resort at a highly attractive all-in basis in a resilient, supply-constrained market that has continued to demonstrate meaningful rate growth,” Giglia said in a statement.

Record ADRs

Occupancy for Sunstone’s portfolio increased to almost 68% in March with a rebound of business travel and corporate group events, officials said this month.

The investor also reported a 9.8% increase in average daily rates (ADR) to $280 for the first quarter, the highest quarterly rate ever seen for Sunstone’s portfolio.

Giglia attributed the jump to growth at oceanfront properties such as the Wailea and Key West resorts.

A pair of newly added properties in California’s Napa Valley is seeing ADRs in the $1,100 range, officials said.


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