At the end of last year, Sunstone Hotel Investors Inc. (NYSE: SHO) had slimmed down its portfolio of hotel properties to 20, compared to 30 at the end of 2014.
The selling season has continued for the real estate investment trust in 2020, which is amassing a war chest for opportunistic buys next year.
Irvine-based Sunstone’s portfolio now is down to 18 after a sizeable hotel sale in Los Angeles.
Sunstone, Orange County’s 15th-largest public company by market value, most recently offloaded the 502-room Renaissance Los Angeles Airport for $91.5 million, or about $182,300 per key. The deal closed in mid-December.
Attractive Sale
The new owner of the Los Angeles hotel, located just off Century Blvd., was not immediately disclosed.
The hotel most recently underwent a renovation in 2018 and has a rooftop pool, fitness center, restaurant and 18,000 square feet of event space.
Last year, the property had revenue of $32 million, according to Sunstone. That figure is expected to be much lower in 2020 due to the lack of business travel over the course of the pandemic.
President and Chief Executive John Arabia said the sale still marks an “attractive valuation compared to pre-COVID levels.”
“The completed sale further concentrates our portfolio into long-term relevant real estate and increases our already considerable liquidity,” Arabia added in a statement. “Our company is well positioned to navigate the current environment and to capitalize on opportunities as they arise.”
The deal, which was announced on Dec. 8, is the second sale for the company this year, following the $80 million deal in July for a Baltimore hotel.
The 622-room Renaissance Harborplace in Baltimore sold for about $129,000 per key. It’s the second sale for the Sunstone, which owns 18 hotels totaling 9,495 rooms.
One of its better-known properties, the Hilton Times Square in New York, reportedly closed for good in October, due to a lack of visitors to the area this year. Sunstone has been reportedly eyeing a give-back of that property, which it bought in 2006 for about $243 million, to its lenders.
On the Offense
In its third quarter earnings release last month, Sunstone said six of the company’s hotels remained open during the entire quarter.
Revenue per available room for the 19-hotel portfolio, including the recently-sold asset, dropped nearly 92% to $17.58; RevPAR for the open hotels decreased 81% to $37.37.
Six additional hotels opened during the third quarter and four more have reopened so far during the fourth quarter, leaving 16 of 19 hotels open.
These reopenings, combined with increasing RevPAR and “aggressive cost containment has further reduced our cash burn rate,” Arabia said, noting that the firm’s cash burn rate has decreased to between $16 million and $20 million per month before capital investments.
“We expect this figure to decline further, and eventually return to profitability, as recently reopened hotels ramp up and as portfolio occupancy and profits gradually increase,” he said.
Arabia added that the company is prepared to “go on offense with or without incremental borrowing.
“We are in an enviable position shared by few others, and we intend to take advantage of it.”
