Blackstone takes stake in Sunstone

Private equity giant Blackstone Group at the end of June acquired a 4.1% stake (8.65 million shares) in hotel REIT Sunstone Hotel Investors, Irvine, California.

Sunstone has been a focus of investor speculation with suggestions it could go be sold after former CEO John Arabia left in September 2021 and CFO Bryan Giglia took over in March. The company suspended its quarterly dividend in February only to resume it at US$0.05/share with its 2Q22 earnings report. This is the same amount last paid pre-pandemic and analysts from Truist Securities termed it a “catch-up dividend” similar to pre-2020.

In March, R.W. Baird analyst Michael Bellisario called the leadership moves the least expensive and most frictionless changes. “The door is left slightly open, in our opinion, from the perspective of shareholders wanting to push for more change and/or an eventual sale of the company, particularly if progress is not made on closing the valuation discount over the near term,” he wrote.

Sunstone this year acquired The Confidante Miami Beach

Like many of its competitors, Sunstone has been reporting better operating results with room nights for 2H22 pacing at 82% of pre-pandemic levels with ADR +5%. Group pace for 2H22 is down 15% versus the same time in 2019. Group ADR was +7% in 2Q22 (versus 2019).

Sunstone also continues to repurchase outstanding shares, most recently 3.2 million shares at an average price of US$10.65 for a total of US$34.4 million. This follows 1Q where the company repurchased 3.9 million shares at an average price of US$11.19 for a total of US$43.4 million.

Blackstone is now among the top five biggest investors of Sunstone, which owns 15 hotels in the U.S., more notably the Montage Healdsburg in northern California’s Sonoma wine region. Sunstone also has acquired the Hilton San Diego Bayfront and the 339-key Confidante Miami Beach for US$232 million (US$684,000 per key), which is set to be rebranded as the Andaz Miami Beach.

In March, Sunstone completed the sale of the 368-key Embassy Suites Chicago and the 360-key Hilton Garden Inn Chicago Downtown/Magnificent Mile. The hotels were sold for a combined price of US$129.5 million (US$178,000 per key).

Blackstone continues to add to its hotel portfolio after having acquired Extended Stay America last year along with Starwood Capital for more than US$6 billion. It also worked with Starwood Capital earlier this year to acquire 111 WoodSpring Suites assets from Brookfield Asset Management for US$1.5 billion.