The newly appointed chief executive of Irvine’s Sunstone Hotel Investors Inc., Bryan Giglia, is continuing his predecessors’ strategy of repositioning the portfolio of Orange County’s largest public company in the hotel industry towards what it calls “long-term relevant real estate” via an exit of the Chicago hospitality market, an area which it believes is oversupplied.
Sunstone (NYSE: SHO) recently sold a pair of Windy City properties, its only remaining holdings in the city, bringing the company’s portfolio down to 14 hotels and resorts.
As of seven years ago, it owned well over 30 properties.
The REIT completed selling a 368-room Embassy Suites and a 361-room Hilton Garden Inn in Chicago; they were sold for $129.5 million combined, or about $178,000 per key. The deals come about a month after Sunstone sold a Hyatt in Chicago for an additional $67.5 million.
The Chicago market “has been hindered by excess supply and an inability to drive meaningful rate and profitability growth,” Giglia said in a statement.
“With these sales, we have now largely completed our non-core disposition program and we are actively looking to grow the portfolio,” he said.
Sunstone returned to the market as a buyer last year after a several-year pause.
The company added a pair of high-end properties in Northern California’s Napa-area properties to its portfolio in 2021, paying $265 million for the newly built Montage Healdsburg, and another $177.5 million for the Four Seasons Resort and Residences Napa Valley in Calistoga. Both sold for upward of $2 million a key.
The two Northern California properties were the first purchase for Sunstone since 2017.
Irvine-based Montage International operates the 258-acre Healdsburg resort under a long-term management contract.
The Chicago sales are the first big transactions under Giglia’s leadership. Sunstone’s former chief financial officer was named CEO last month.
Former CEO John Arabia left the company in September, and the top role had been filled on an interim basis by Chairman Doug Pasquale.
Giglia first joined the company in 2004 upon graduating from the University of Southern California’s MBA program after spending time at the Hilton Hotel Corporation in various accounting positions.
In 2015, he was recognized by the Business Journal at its CFO of the Year Awards event.
Giglia is facing questions over the company’s prior stewardship, including its bonus program.
New York-based labor union Unite Here, whose members work at several of the company’s properties, called upon Sunstone shareholders a week ago to consider the investors firm’s performance and multiple bonuses given to its executives last September.
This includes a severance package of $9.9 million for Arabia and Pasquale’s cash bonus of $1.8 million for his time as interim CEO.
The union questioned the direction of Sunstone’s financial performance upon consideration of hospitality employees’ workload and the industry’s growing hotel room demand. Sunstone’s annual meeting is set for April 28 and Unite Here is urging investors to vote against a pay proposal, citing the company’s “alarming” yearly performance.
In February, Sunstone reported revenue of $509 million for 2021, about half of pre-pandemic levels. It reported net income at $138 million, up from a net loss of $39.4 million a year ago.
The REIT’s valued around $2.6 billion.
As of mid-March, the company reported its total portfolio occupancy at the highest level since the start of the pandemic with an occupancy rate of 64%. Recuperating from low business volumes and group cancellations from surging Covid-19 cases in the beginning of 2022, Sunstone said it has increased its forward booking activity.
Weekly booking activity for the next six months continued to accelerate in March and is nearing pre-pandemic run rates, according to the company.
“As we emerge from the pandemic, our portfolio is among the best positioned to capitalize on the recovery in corporate and group travel demand and our balance sheet provides ample capacity to grow per share earnings,” Giglia said.