News Summary
Tarsadia Capital LLC is pushing Sunstone Hotel Investors Inc. to explore asset liquidation or seek a buyer due to the firm’s deteriorating performance. Holding a 3.4% stake, Tarsadia criticized the company’s reduced portfolio size and ongoing financial decline. They noted previous suggestions to the board were ignored and indicated readiness to appeal to other shareholders for change. With Sunstone’s portfolio diminishing from 60 properties to just 14, Tarsadia emphasized the urgent need for strategic action to restore investor confidence.
Newport Beach, CA – Tarsadia Capital LLC, which manages investments for the Tarsadia Group, is urging Sunstone Hotel Investors Inc. to either find a buyer or liquidate its assets due to the company’s poor performance and reduced portfolio size. Tarsadia, which owns a 3.4% stake in Sunstone, expressed concern that the company’s position as a subscale lodging Real Estate Investment Trust (REIT) is not sustainable.
In a recent letter, Tarsadia’s Managing Director highlighted the negative trajectory of Sunstone and noted that prior suggestions to the company’s board had gone unanswered. If the board continues to maintain the current course, Tarsadia is prepared to appeal directly to fellow shareholders to advocate for change.
Sunstone Hotel Investors has prominent shareholders, including BlackRock Inc., holding a 19% stake, The Vanguard Group with 16%, and State Street Corp. with a 6.7% stake. The company’s stock price has fluctuated significantly, ranging from almost $7 during the pandemic in 2020 to over $13 in 2022. As of now, shares are trading at $9.66, giving a market capitalization of approximately $1.8 billion on the New York Stock Exchange (NYSE: SHO).
In the letter, Tarsadia stressed the urgency of taking action in light of the lodging REIT sector’s recent performance, particularly with Sunstone’s portfolio shrinking from 60 properties in 2005 to just 14 currently, comprising about 7,000 rooms across various states. Some key assets include the Four Seasons Napa Valley, Hilton San Diego Bayfront, and JW Marriott in New Orleans. The firm warned that Sunstone has been diminishing as a public company for over 20 years, driving it towards potential obsolescence.
Tarsadia is adamant that the Sunstone board needs to realize the value of their portfolio before further declines occur. The company’s financial performance shows a persistent downward trend, with projections indicating Sunstone’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2024 will be 28% lower than 2019 figures, the lowest among its peers.
Moreover, Tarsadia highlighted that the broader REIT sector has realized the worst 10-year total returns compared to other sectors and noted that the Lodging REIT sector is trading at significant discounts to net-asset value (NAV). Specifically, Sunstone’s estimated discount to NAV is -30%, which is notably less favorable than its long-term average of -15.5%.
Out of Sunstone’s top seven properties, they contribute to about 85% of the total EBITDA, with the Hilton San Diego Bayfront being the most significant asset, contributing 19% alone. Despite securing $1.35 billion recently to manage debt obligations, Tarsadia remains critical of the company’s strategic choices and overall performance metrics.
In a bid to encourage necessary changes, Tarsadia is calling for the establishment of a Strategic Review Committee to explore all possible value-maximizing alternatives, and they are also advocating for new independent directors to be appointed to the Sunstone board. The firm insists that without immediate action, the future of Sunstone’s performance and investor confidence remains jeopardized.
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Additional Resources
- Finimize: Sunstone Hotel Investors
- Wikipedia: Real Estate Investment Trust
- GlobeNewswire: Tarsadia Capital Letter
- Google Search: Sunstone Hotel Investors
- Crain Currency: Tarsadia Capital Push
- Encyclopedia Britannica: Hotel Industry
- TipRanks: Sunstone Hotel Credit Agreement
- Google News: REIT
- Hotel Investment Today: Sunstone REIT
- Google Scholar: Sunstone Hotel Investors
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