Investor Group to Buy Sunstone

Sunstone Hotel Investors Inc., which owns 59 hotels, mostly in the Western U.S., said Tuesday it has accepted a sweetened buyout offer of nearly $453 million by an investor group that includes top Sunstone management.

SHP Acquisition, which plans to take the San Clemente company private, would pay $10.35 per share in cash, a 37% increase over its previous offer in April. In addition, SHP would absorb Sunstone’s debt of about $440 million.

Some analysts voiced concern that the company is being sold for less than it’s worth. Most real estate investment trusts’ stock prices have slumped this year as REITs have fallen out of favor with Wall Street.

The price declines have provided a convenient excuse for companies to go private, perhaps to investors’ disadvantage, analysts said.

“The price being paid for these assets is below the net asset value,” said Brian Rogers, an analyst at Putnam, Lovell, de Guardiola & Thornton Inc. He estimated the company’s value at $12 per share.

Sunstone, which went public in 1995, acquires hotels and re-brands the properties under major franchise names, such as Hilton, Marriott and Holiday Inn.

The company’s debt has piled up as it was forced to spend heavily to renovate some of its older properties.

The stock slumped as the company encountered competition from new hotels and found it more difficult to get access to capital. The shares have lost about 20% of their value during the last year. On Tuesday, the stock closed at $9.44, up 50 cents, on the New York Stock Exchange.

In becoming a privately held firm, Sunstone should have an easier time raising money for acquisitions, executives said.

SHP Acquisition is a partnership of Sunstone Chairman Robert Alter, other Sunstone management and Westbrook Partners, a real estate investment firm that already owns a 9.6% stake in the company.

Westbrook would become the majority shareholder, said Alter, who would remain chairman and chief executive.

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Bloomberg News was used in compiling this report.