Sunstone Offer Could Start a Trend
Sunstone Hotel Investors Inc., which received an $813-million buyout offer from a management-led investor group late Monday, could be one of several U.S. hotel companies to be taken private, industry analysts said Tuesday.
Other hotel companies, including RFS Hotel Investors Inc., LaSalle Hotel Properties, Prime Hospitality Corp. and Lodgian Inc., also might get acquisition offers from private groups. Their shares have fallen as a record pace of hotel building has created new competition, lowering occupancies and slowing profit growth.
“Any of them could be take-out candidates because they’re not that big, from a capitalization standpoint,” said Raymond James & Associates analyst Paul Puryear.
San Clemente-based Sunstone owns 56 hotels in the western United States. They operate under brands such as Marriott, Holiday Inn and Hilton. The company received an offer of $9.50 to $10 a share from a group formed by Sunstone Chief Executive Robert Alter and other executives.
The group also said it would assume Sunstone’s debt, which stands at $399 million, according to a Securities and Exchange Commission filing made last month. Sunstone said it has 41.4 million shares outstanding, including partnership units and preferred stock convertible to common shares.
The group’s offer represented a 25% premium above the Monday share price. On Tuesday, Sunstone shares surged 19%, or $1.44, to close at $9 in New York Stock Exchange trading.
Its shares are still 38% below their year-ago prices, after competition and disruptions caused by renovations of hotels hurt profits.
“There is potential value that isn’t going to be realized in the public markets,” said Brad Cohen, an analyst at Sands Brothers & Co. “Maybe they’re better off in private hands.”
Alter’s group, SHP Acquisition LLC, also includes management of Westbrook Funds III, a closely held real estate fund that owns 9.6% of Sunstone’s shares.
The offer for Sunstone follows Patriot American Hospitality Inc.’s agreement last month to sell a controlling stake to a private group led by financiers Leon Black and Thomas Lee. That group agreed to invest up to $1 billion in the fourth-largest U.S. hotel company and arrange $2.45 billion in loans.
