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Sunstone Hotel Investors, Inc., the owner of Long-Term Relevant Real Estate in the lodging industry, announced that it has completed the previously announced acquisition of the 339-room The Confidante Miami Beach for a purchase price of $232 million, or $684,000 per key. The Company will invest approximately $60 million to reposition the Hotel into a premiere beachfront resort under Hyatt’s luxury, lifestyle Andaz brand. Upon completion of the renovation, Sunstone will own a well-located, fully renovated, beachfront resort at a highly attractive all-in basis. The Company expects the Hotel will generate an 8% to 9% stabilized net operating income yield on the total investment in the Hotel, including the planned repositioning. The renovation program will begin in phases, starting in the fourth quarter of 2022 with completion expected to occur in the first half of 2024 when the Hotel will debut as Andaz Miami Beach.
The Company expects the Hotel will generate $3.5 to $4.0 million of EBITDA during its ownership period in 2022. The acquisition was funded from available cash and with $140 million of proceeds received from the Company’s previously undrawn revolving credit facility. Together with the expected funding for the previously announced acquisition of the remaining 25% joint venture interest in the Hilton San Diego Bayfront which is expected to close by the end of June, the Company anticipates having an outstanding credit facility balance at the end of the second quarter of approximately $240 million. Based on the Company’s anticipated leverage ratio as of the end of the second quarter, borrowings on the credit facility are expected to bear interest at the rate of one-month LIBOR plus 1.50%.
The Company’s operations for April and May 2022 reflect accelerating hotel demand as compared to the first quarter of 2022. While leisure travel continues to be robust, the greatest demand growth is occurring at the Company’s urban and group-oriented hotels which are experiencing an increase in near-term booking activity, higher than expected attendance at group events, and increased business transient volume.