Sunstone Hotel’s Sale of Preferred Stock Is Off

Sunstone Hotel Investors Inc. on Thursday canceled plans to sell $50 million in preferred stock, saying the market has undervalued the real estate investment trust.

Shrugging off a decline in Sunstone’s stock price, company Chairman Robert A. Alter said the REIT will proceed with its planned sale of $150 million in bonds and won’t be hurt by the canceled sale of preferred shares.

“Our growth factor is as good as ever,” Alter said. “We’ll pay attention to running our hotel business, renting our rooms, and let the market take care of itself.”

Sunstone owns or co-owns 57 hotels in the West. Its common stock rose 25 cents Thursday to $11.44 on the New York Stock Exchange. The stock peaked at nearly $18 last fall and was trading at $16 as recently as April.

Many shareholders and fund managers, fearing rising property prices, overbuilding and REIT legislation, have turned cold on the industry recently. Companies that own hotels and office towers have been hit especially hard.

In addition, the plunge in the overall stock market has left pension funds, insurance companies and other institutional investors with little interest in new issues.

“With the market action being so poor, there are public offerings being pulled all over the place,” said Jeff Kilpatrick, president of Newport Securities Corp. in Costa Mesa.

Until the market steadies for two or three weeks, it will be difficult for any company to issue new stock, Kilpatrick predicted.