Sunstone to Turn Over W San Diego to Bank
S
unstone Hotel Investors Inc. has announced that it will default on the June mortgage payment for its W Hotel San Diego property, and turn the hotel over to lenders, after failing to lower interest payments.
Sunstone, the real estate investment trust, said that the opening of luxury boutique and convention hotels nearby has hurt the W San Diego.
Sunstone said its loan special servicer has declined the company's attempts at renegotiating interest payment. Therefore, the company would prefer turning it over to the bank rather than deal with hefty interest payments.
"While the company maintains more than adequate liquidity to support or repay this mortgage, we believe a conveyance of this hotel in settlement of the debt would be in the best interest of our stockholders," Chief Financial Officer, Ken Cruse, said in a statement.
Cruse said the move would deleverage Sunstone and add to its funds from operations — an industry profit measure — and credit profile.
Sunstone purchased the W San Diego in June 2006 for $96 million. The hotel carries a $65 million, fixed-rate commercial mortgage-backed securities loan with a 6.14 percent interest rate, which comes due Jan. 1, 2018. The mortgage principal translates to more than $250,000 in debt per room.
Between the credit crunch and job losses affecting business and vacation travel, hotel real estate investment trusts have been greatly affected, as evidenced by the Sunstone Hotel’s revenue per room drop of 24.5 percent. Analysts expect hotel margins will decline this year.
The company said that across its portfolio, revenue per available room slid 24.5 percent to $98.73 in the quarter ended May 31, nearly doubling the 13 percent drop it saw in the first quarter.
"We continue to run our business with the expectation that 2009 will be one of the deepest cyclical troughs the lodging industry has endured," Arthur Buser, president and CEO of Sunstone, said in a statement. "While we are generally pleased with our results thus far this year, as our recent revenue declines are largely the result of lower rate, rather than reduced occupancy, we expect margin control will become increasingly difficult."
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