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nottheSEC (71.99)

Is it time to REIT-TREAT? Default by Sunstone making all hotel reits jittery

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June 11, 2009 – Comments (4) | RELATED TICKERS: DRH , HST

On Caps I have exited my pick on HST and DRH because I believe there has been a scare in the luxury market when Sunstone Hotel DEFAULTED on the 5 star luxury W hotel.

I personally own Hotel Reits DRH and HST for my protfolio and have had a substantial "haircut" over the past two years. There is a direct correlation bewteen Sunstone' and my Reits. Both primarilly deal in the business and luxury sector, aka 4-5 Star hotel such as i Marriott®, Ritz-Carlton®, Westin®, Sheraton®, W®, St. Regis®, The Luxury Collection®, Hyatt®, Fairmont®, Four Seasons®, Hilton®, and Swissôtel®.

My question is this the time to buy when others are fearful because if the economy improves Revpar goes up OR are the hotels so discounted now Revpar will not be hampered for years? I note that rooms at Hilton's Waldorf Astoria in NYC are down greatly this year.

From the fine folks at Yahoo below details on the Sunstone default:

Hotel stocks closed mixed on Monday after Sunstone Hotel Investors Inc. said it will turn the keys to a W Hotel in San Diego over to its lenders, and analysts predicted that more hotels may follow.

http://finance.yahoo.com/news/Sector-Snap-Hotels-mixed-apf-15471091.html?.v=1

For those unexperienced in Hotel reits REVPAR is REVenue Per Avaialble Room. It is a metric used to measure hotels similiar to comps in retail

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4 Comments – Post Your Own

#1) On June 11, 2009 at 11:20 AM, nottheSEC (71.99) wrote:

Your thoughts? Thanks

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#2) On June 11, 2009 at 11:55 AM, jstegma (99.67) wrote:

Avoid anything related to the travel industry right now.  A lot of people are scaling back on their retirement plans, and less travel will be one of the first changes they plan.  There is an excess supply of hotel rooms and competition will drive down prices.  Businesses are very cost conscious about travel these days.  The economy will stabilize eventually, but it doesn't look like we'll be returning to the good old days any time soon.

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#3) On June 23, 2009 at 11:56 AM, lazarusrising (< 20) wrote:

Sunstone way overpaid and did poor due diligence as the W went from being the only luxury boutique to several in the few years they owned it.  Convention calendar traffic faltered, eliminating previous compresion. Intense muddling in operations by asset managers was a distraction.  Appears that Sunstone is selling and defaulting on riskier properties in preparation to go private.  History repeats itself.  Also see St Regis Resort default - owner's dodging debt that was irrationally piled on

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#4) On September 18, 2009 at 11:19 PM, modernbuildings (< 20) wrote:

SHO is over invested in the Southern California economy... more so than others and desperately needed an accomodation from the creditor that apparently they did not get. That was one reason for the default.

In my opinion, another reason was to send a message to the rest of the creditors involved with their properties in the formely super-heated southern California market. If they do not get flexible their role will be transformed from that of lender to an operator / owner of the hotel.

They are not the only ones over-invested in California and I think this action by SHO will help the other REITS deal with their own creditors.

I like the REITS at this time... prefer the ones that own tangible property that had an equity cushion before the recesion started. They have lost equity but still have enough room in their balance sheet to survive this.

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