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Sunstone To Acquire Hilton San Diego Bayfront Hotel

Hilton San Diego Bayfront

Sunstone Hotel Investors Inc., said Tuesday it has agreed to take a 75% controlling stake in the Hilton San Diego Bayfront for $475.0 million. The company's first quarter-to-date revenue per available room increased about 5.4 percent as its gateway markets and recent acquisitions continued to outperform expectations.

For its 32 hotel Comparable Portfolio, which excludes the Royal Palm Miami Beach Hotel, Sunstone expects RevPAR or revenue per available room to rise 5.4 percent for the first quarter.

Sunstone revealed a definitive agreement of $475.0 million to acquire the 75% majority interest in a joint venture that owns the 1,190-room Hilton San Diego Bayfront located in San Diego. The valuation translates into about $399,000 per key.

After the acquisition which is expected to close during the second quarter, Sunstone said it expects to enter into $240.0 million of non-recourse senior mortgage debt with an expected maturity in April 2016, which will bear an annual interest rate of LIBOR plus approximately 325 basis points. Certain closing conditions related to the debt might impact the final terms of the acquisition.

The Bayfront hotel has about 165,000 square feet of meeting space and 4.3 acres of outdoor waterfront event space, with the highest ratio of meeting space to hotel rooms in downtown San Diego. In its second year of operation which was 2010, the hotel generated RevPAR of $139.51, EBITDA of $34.3 million and net income of $14.3 million.

Ken Cruse, President, said, "This transaction is consistent with our strategy of acquiring high-quality, upper-upscale branded hotels at discount valuations." The total valuation represents a 13.8x 2010 EBITDA multiple.

Sunstone has reached a definitive agreement to sell the 409-room Royal Palm for $130.0 million. At closing, it will receive $40.0 million in cash and will provide a $90.0 million secured purchase money loan to the buyer. The company will also retain an "earn out" right which will enable it to receive future payments of up to $20.0 million in the event that the hotel achieves certain return hurdles.

On an 'as if' or pro forma basis, Sunstone expects 2010 pro forma RevPAR to exceed $115 and 2010 pro forma EBITDA per key to be approximately $15,300.

Sunstone said it would consolidate management of its 460-room Hilton Times Square and its 460-room Doubletree Guest Suites Times Square under Highgate Hotels. It also reached a tentative agreement to rebrand the Doubletree Guest Suites Times Square into the Hilton Suites Times Square, following renovation to be completed in the second quarter of 2012.

Separately, Sunstone announced today that it intends to issue shares of Cumulative Redeemable Preferred Stock subject to market conditions, over the near-term. The net proceeds would be contributed to its wholly owned subsidiary Sunstone Hotel Partnership, LLC, for growth capital expenditures, future acquisitions and other general corporate purposes, including working capital.

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