The $370 million sale of the Boston Park Plaza, since rebranded under a Hilton flag, gives former owner Sunstone Hotel Investors a unique opportunity to reshape its portfolio.
However, Sunstone CEO Bryan Giglia said his company will be patient in considering buying opportunities.
During the company's third-quarter earnings call Tuesday, Giglia said ideally any deal would expand the company's diversity in markets and brands.
"We believe that successfully recycling this capital into a superior growth hotel is pivotal to our ability to add value and finding the right acquisition or a combination of the right acquisition and increment share repurchases is paramount," he said.
A newer hotel property also is likely to be more profitable, Giglia said.
"We were investing millions of dollars each year just in infrastructure and building systems to keep the 100-year-old building [Boston Park Plaza] in good operating condition," he said. "As we looked forward to the next renovation, we were increasingly aware that while our initial renovation played to the hotel's strengths — its public spaces, including elaborate meeting space, a grand lobby and impressive gym — the next renovation would need to address its shortcomings, including the 249-square-foot average guestroom size and inadequate bathrooms, both of which will be expensive and highly disruptive to earnings."
Giglia said he's confident Sunstone can get a deal done even in a difficult environment, or even split the proceeds into multiple smaller acquisitions, but the company is also not in a rush and well-positioned from a tax standpoint.
"We have sufficient [net operating losses] to offset any gains resulting from the sale, and so we can be thoughtful as we evaluate reinvestment opportunities and not be constrained by the timing limitations associated with a 1031 exchange," he said. "In addition, the timing of the disposition aligns well with the seasonal nature of operations, as the hotel has historically not generated positive earnings from December to February."
Maui Disruption
Giglia said one of the largest properties in the hotel-focused real estate investment trust's portfolio was disrupted in the quarter by wildfires in Hawaii.
Sunstone's Wailea Beach Resort in Maui avoided damage from the fires but experienced a dip and shift in demand patterns related to the fires.
"We were very fortunate that none of the hotel associates at the Wailea Beach Resort were harmed during the fires on Maui, and the hotel did not sustain any physical damage," he said. "In the aftermath of the fires, the hotel team partnered with the world central kitchen to prepare and distribute more than 8,600 meals to members of the community."
Giglia said Sunstone expected a pullback in leisure demand at the resort prior to the fires, but the wildfires "changed the dynamic of the entire market."
"The hotel did a fantastic job of taking care of all the associates and then taking care of the guests, which were not their typical guests," Giglia said. "They were guests that were either displaced or going out to help during the day. While the hotel was running at a decent occupancy, there was really no one around during the day, and that's not really how that hotel works."
Third-Quarter Performance
In the third quarter, disruptions in Maui and other resort markets were enough to drive down overall performance for Sunstone, despite an uptick at its urban and convention hotels.
Comparable revenue per available room was roughly flat year over year at $222.54. RevPAR was up 7.4%, however, at its urban and convention hotels.
Adjusted earnings before interested, taxes, depreciation and amortization for real estate declined 0.2% year over year to $63.7 million, and net income was $15.6 million compared to $20.5 million in the same period a year prior.
As of publication time, Sunstone's stock was trading at $9.59 a share, up 1.4% year to date. The NYSE Composite was up 1.5% for the same period.