Sunstone Hotel Investors to acquire San Antonio Hyatt

Sunstone Hotel Investors has entered into a definitive agreement with an affiliate of Hyatt Hotels to acquire the fee-simple interest in the 630-room Hyatt Regency San Antonio Riverwalk for a gross purchase price of $230 million. Other terms were not disclosed. 

The acquisition includes nearly two acres of riverfront land and a 516-space parking garage, located adjacent to the Alamo Visitor Center and Museum which is currently under development. 

The hotel, in between San Antonio's Riverwalk and the Alamo, recently underwent a $37 million guestroom renovation and does not have any meaningful required near-term capital needs. Hyatt will continue to manage the hotel under the Hyatt Regency brand and will contribute approximately $8 million of key money as part of the transaction, subject to the terms of the company's management agreement with Hyatt.

Inclusive of the incentives offered by Hyatt, the net purchase price implies a value of approximately $352,000 per key and represents an 11.1x multiple on the midpoint of the company's estimate of 2024 hotel earnings before interest, taxes, depreciation and amortization and a 8 percent capitalization rate based on the midpoint of projected hotel net operating income. The acquisition will be funded from cash on hand using a portion of the sale proceeds from the previously completed disposition of Boston Park Plaza. 

The company currently expects to close the acquisition in late April and that the hotel will contribute $12 to $13 million of hotel EBITDA and approximately $0.06 of adjusted funds from operations per diluted share during the company's ownership period in 2024. The company will provide additional details on the transaction, including the impact on its previously provided full year outlook as part of its first quarter earnings call in early May.

"We are excited to announce our planned acquisition of Hyatt Regency San Antonio Riverwalk which demonstrates our ability to accretively recycle capital following our disposition activity late last year," Sunstone CEO Bryan Giglia said in a statement. "This is the best-located hotel in the city, situated in the heart of the Riverwalk, at the front door of the Alamo, and steps away from the convention center. Our premiere location allows the hotel to benefit from an attractive combination of group and transient demand in a market that continues to experience positive demographic shifts, increasing hotel demand, and a business-friendly backdrop. The hotel has been recently renovated and is in great shape with minimal near-term capital needs but has opportunities to drive additional earnings over the long term."

"The acquisition of Hyatt Regency San Antonio Riverwalk allows us to redeploy capital at a higher long-term return and is a great example of the value we can create through our investment lifecycle approach. The addition of this hotel, combined with our two recently launched brand conversions and the completion of our transformative investment later this year at Andaz Miami Beach, will position Sunstone for significant earnings growth as we move into 2025. We also retain additional liquidity and balance sheet capacity that we can use to thoughtfully grow our portfolio and drive incremental earnings, superior returns, and greater per-share NAV growth."

Transaction Benefits

Sunstone said the acquisition of Hyatt Regency San Antonio Riverwalk will further the company's short and long-term objectives and be additive to its stockholders in the following ways:

  • Accretive redeployment of capital at a compelling yield: In October, the company sold the Boston Park Plaza for $370 million, reflecting a trailing capitalization rate of 7.1 percent, excluding future capital needs, or an implied capitalization rate of 6.1 percent, inclusive of expected near-term capital investments. The company is recycling a portion of the sale proceeds into the acquisition of the Hotel at an approximately 8 percent capitalization rate and is avoiding the incremental capital spend and earnings disruption that would have been incurred through continued ownership of Boston Park Plaza. In the fourth quarter of 2023, the company deployed $20 million of the sale proceeds to repurchase its common stock at a discount to consensus estimates of NAV. The company expects to redeploy the remaining sale proceeds into additional accretive acquisitions or opportunistic share repurchases.  
  • Well-located hotel real estate: Hyatt Regency San Antonio Riverwalk is situated on the highest foot-traffic area of the Riverwalk, at the front entrance of the Alamo, and steps away from the convention center. The adjacent Alamo site is currently undergoing restoration and enhancement, including the addition of a visitor center and museum with a total investment of $500 million, that Hyatt expects will drive increased demand and foot traffic.
  • Increased diversification: The addition of the hotel bolsters the company's near-term earnings capacity and brings further balance and diversification to the portfolio. The hotel allows for increased geographic diversification in a market that is benefiting from positive demographic shifts and a business-friendly backdrop. The year-round nature of market demand will provide additional balance to our cash flow, improving our already high-quality portfolio of convention, urban and resort assets.
  • Leading group and leisure market: The San Antonio market benefits from demand generators that include the 1.6-million-square-foot Henry B. Gonzalez Convention Center, the Alamo and Riverwalk and a solid technology and defense industry. In the near term, the company expects the market to benefit from the $2.5 billion expansion of the San Antonio International Airport, the $500 million redevelopment of the Alamo Visitor Center and Museum, and the recent $325 million of upgrades to the convention center. In addition, San Antonio group demand is expected to benefit in the near term, while the adjacent convention centers in Austin and Dallas are offline for construction.
  • Further supports a compelling growth profile into 2025: The addition of the hotel adds another layer of earnings growth for the Company's portfolio. Having recently completed the conversion of The Westin Washington, D.C. Downtown and the Marriott Long Beach Downtown and with the in-process transformation of Andaz Miami Beach expected to be completed by year-end, the incremental full-year earnings from the acquisition of the Hotel should combine to support robust earnings growth for Sunstone in the coming years.

The company currently anticipates closing the transaction in late April. The acquisition of the hotel is subject to the satisfaction of customary closing conditions.