ROCHESTER, MN—SunstoneInvestors Inc. has agreed to sell four hotels totaling 1,222 rooms and a commercial retail facility here for $230 million.
The four hotels include the 660-room Kahler Grand, the 271-room Kahler Inn & Suites, the 202-room Marriott Rochester and the 89-room Residence Inn by Marriott Rochester. The company expects to retain a $25 million, 11-percent dividend yield preferred equityin the four hotels. The hospitality REIT has interests in 26 hotels comprised of 11,632 rooms.
Sunstone intends to use the net proceeds from the sale of the Rochester Portfolio for general corporate purposes, which may include hotel acquisitions, renovations of our existing hotels, reduction of our debt or preferred securities or other corporate purposes. The sale is expected to close this week.
Ken Cruse, President and CEO, said his team continues to make solid progress against a plan to improve the company’s portfolio quality while strengthening the balance sheet. He said with the U.S. demand-to-supply ratio well above historical norms and his portfolio running at nearly 80-percent occupancy, Sunstone’s pricing power continues to improve.
“By selling the Rochester hotels at a sub-7-percent cap rate on 2012 operating income, we will improve our portfolio RevPAR by over $5.50 (or by 4 percent), while increasing our Hotel EBITDA per key by approximately $625 (or by 3 percent), to over $20,000 on a pro forma basis for 2012. Additionally, this sale will reduce our overall indebtedness by approximately $27 million,” Cruse said in a statement. “Upon completion of the Rochester Portfolio sale, our total debt will have been reduced by $85 million thus far in 2013 when combined with the redemption of the remaining $58 million of our exchangeable senior notes. Following these transactions, our pro forma cash position will exceed $250 million and we will maintain full access to our $150 million credit facility, enhancing our ability to capitalize on a wide range of opportunities consistent with our stated business objectives.”