Sunstone Hotel Investors, Inc. (SHO), a lodging real estate investment trust (:REIT), recently announced that it has entered into a purchase and sale agreement to acquire the Hilton Garden Inn Chicago Downtown/Magnificent Mile for a gross purchase price of $91.75 million.
The purchase price signifies a forward capitalization rate of around 7.7% on the company’s estimated net operating income in 2012. The transaction is expected to close in the third quarter of 2012.
Illinois, Chicago-based Hilton Garden Inn is renowned for its modern and luxurious amenities. The 357-room, 23-story Hotel caters to the business and leisure travelers as it is in close proximity to the most demanded tourists’ locations like the Art Institute of Chicago, ‘Magnificent Mile’ along Michigan Avenue, Michigan Avenue Shopping and River North attractions.
Sunstone expects the acquisition to improve the overall portfolio given the hotel’s superior RevPAR (Revenue per Available Room) and EBITDA (Earnings Before Interest Expense, Taxes, Depreciation and Amortization) per key, strong urban location and close proximity to Sunstones’ other hotels in downtown Chicago.
Management stated that Sunstone is experiencing continuing growth within its existing portfolio. As of June 15, 2012, comparable hotel RevPAR experienced a quarter-to-date increase of 7.5%.
Additionally, the balance sheet position of the company is also expected to improve as the acquisition is totally funded with cash, thus incurring no mortgage debt for the Hotel. Subsequent to closing of the transaction, Sunstone will have 14 unencumbered hotels.
Recently, Sunstone announced the closing of the previously announced acquisition of the 417-room Wyndham Chicago and rebranding it to Hyatt Chicago Magnificent Mile. The company now owns two hotels, Embassy Suites Chicago and Hyatt Chicago Magnificent Mile in downtown Chicago area, along with the newly acquired Hilton Garden Inn. Management aims to coordinate revenue management of the three hotels to effectively manage the operations of its portfolio in the downtown area.
Aliso Viejo, California-based Sunstone owns, acquires, sells and renovates luxury, upper upscale and upscale full-service hotels across the United States. The company operates the hotels under world class brands like Marriott, Hilton, Hyatt, Fairmont and Sheraton. With the completion of the acquisition, the company will have 33 hotels, held for investment, comprising 13, 698 rooms.
Sunstone, which competes with the likes of Host Hotels & Resorts Inc. (HST) and FelCor Lodging Trust Inc. (FCH) has a long-term Neutral recommendation and holds a Zacks #2 Rank signifying a short term ‘Buy’ rating.
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