ALISO VIEJO, California—Less than a month after announcing new leadership and a more aggressive acquisition strategy, Sunstone Hotel Investors is backing up its talk by announcing the purchase of Doubletree Guest Suites Times Square.
The real estate investment trust has owned 38% of the property since 2006 and expects to close on a deal for the remaining 62% today, the company reported during a conference call Thursday. Sunstone founder and chairman Bob Alter said he is comfortable valuing the property at approximately US$350 million if it were to go to market today. That value includes rental income from electronic signage outside the building in the Times Square area.
The purchase is one example of a new direction Sunstone will head in 2011, Alter said. The company has nearly US$400 million of equity readily available to disperse, as well as a US$150-million undrawn line of credit, said new president and CFO Ken Cruse.
“We have a significant pool of dry powder for acquisitions,” he said. “And we’re not averse to using some leverage moving forward.”
Missing out
Alter last month said Sunstone missed out on some key 2010 acquisitions he hoped to obtain. In parting ways with former CEO Art Buser and promoting Ken Cruse to president, Alter said he would be more active in ensuring Sunstone closes quickly on promising deals.
The Doubletree, he said, is just one example. “Since I became more actively involved with the Sunstone team, we have accomplished a lot,” he said. “Going forward, my plan is to work with the Sunstone team to grow the portfolio and enhance the portfolio through smart acquisitions.”
Neither Cruse nor Alter would identify specific properties they are targeting, but Cruse confirmed Sunstone “has one or more deals we are currently working on.”
“I won’t be surprised if, on our next call in February, we’ll have more deals to talk about,” he said. “We see a number of attractive opportunities.”
In a separate interview, Cruse told Bloomberg that Sunstone plans to spend US$1 billion on upscale business hotels in 2011.
Sunstone’s forecast
In addition to a more aggressive acquisitions strategy, Sunstone executives forecasted stronger revenue for the company moving forward. Although revenue per available room across the portfolio increased throughout 2010, Sunstone’s profits didn’t see the large spikes the rest of the industry did. Cruse said the gap between average industry fundamentals and Sunstone’s deficits tightened as 2010 came to an end, and he expects Sunstone will be more in line with industry averages in 2011.
“We’re clearly not satisfied with where we are today. In short, Sunstone is in the back of the pack in terms of multiples and valuations,” Cruse said. “Going forward our objectives are clear, and we are highly confident on our ability to drive value.”
Cruse said Sunstone will “selectively sell certain non-core assets, improve credit metrics over time and bring on one or more leaders in key roles.”
“We will execute,” he said.