Sunstone Hotel Investors just sold a low-yielding urban hotel into a private bid that values the rooms at a multiple the listed equity does not receive. Blackstone Real Estate affiliates bought Hyatt Regency San Francisco in late July. Management frames the sale as delivering future growth today and has already recycled a slice of proceeds into discounted common and preferred stock. The debate is whether that recycling, plus a still-ramping Miami Beach resort, can close the gap between private hotel values and the public multiple.
The second-quarter print already showed the per-share math working even before the sale closed. Adjusted funds from operations, the lodging trust cash-earnings yardstick after preferred claims, rose to $0.32 a share. That gain outpaced the hotel earnings lift because the share count kept shrinking. Strip out Andaz Miami Beach and comparable room revenue per available room still rose 4.3 percent. Hotel margins nonetheless contracted as expenses grew faster than rooms. The company is selling low-yield assets and buying its own cheap stock, yet the remaining hotels are not expanding margins.
Portfolio room revenue per available room rose 9.3 percent. Adjusted hotel-level earnings increased only in the mid-single digits. Management raised the full-year room-revenue growth outlook after the sale. The new funds-from-operations guide still implies a public multiple far below the private print on Hyatt. Can the remaining proceeds and the Andaz ramp expand per-share value faster than San Diego group weakness and wage pressure erode it?