Is Sunstone next REIT on chopping block?

NEW YORK CITY – Tarsadia Capital, a 3.4% economic interest holder of Sunstone Hotel Investors and the second largest stakeholder behind Blackstone, has sent a letter to the board of directors of Sunstone calling on the company to immediately commence a two-track process to pursue a sale of the entire company or a plan of sale and liquidation of the assets to “preserve and maximize value for shareholders.”

Tarsadia said Sunstone should form a Strategic Review Committee to explore all value-maximizing alternatives, including a dual-track process to sell its 14 hotels and/or a sale of the entire company, as well as refresh the board by appointing new independent directors in mutual agreement with Tarsadia.

As a long-term and engaged shareholder, Tarsadia Capital has encouraged the board to act with urgency on the company’s persistent undervaluation in the public markets, but to no avail. If the board desires to continue with the status quo, we are prepared to make the case for change directly to our fellow shareholders.

Michael Ching

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In its statement on Friday, Tarsadia, which sold hotels to Sunstone prior to its IPO in 2004, added, “Sunstone has been a public company for over 20 years and has been on a journey of shrinking into obsolescence. To maximize value for shareholders, it is essential that this board recognizes it is now time to realize the value of Sunstone’s portfolio before further value is destroyed. While it is disappointing to hear that the board disagrees with our view on the urgency to act now, it is not surprising based on Sunstone’s financial and stock performance track record.

“If the Board desires to continue with the status quo, we are prepared to make the case for change directly to our fellow shareholders.”

Hotel Investment Today has reached out to Sunstone for comment.

Most recently in June 2025, Sunstone completed the sale of the 252-room Hilton New Orleans St. Charles for a gross sale price of $47 million, or approximately $187,000 per key.

Just last week, Dallas-based REIT Braemar Hotels & Resorts announced its plans to sell off its portfolio as generally speaking they are not being rewarded for their asset values.

Truist Securities analyst C. Patrick Scholes published a note after the news about Sunstone broke agreeing a sales should be considered. He said as of the close on September 11, Sunstone shares were trading at 12.7x 2025 EV/EBITDA and 12.3x 2026E. However, he said Truist believes the underlying assets are worth at minimum 14x which would be worth ~$12/share; each 100 bps. in valuation is worth approximately +$1.20/share. “Sunstone owns some super-luxury assets (e.g. Wine Country) that we think can trade at least in the mid-teens if not higher; a number of other assets are in very difficult-to-build excellent locations such as Maui and Miami Beach,” he said.

Scholes added that Truist sees a much smaller pool of company buyers today, especially as high interest rates creates higher thresholds for go-private takeovers. “We see little appetite for public REIT mergers today given the continued stock price issues and negative investor sentiment following the late 2010s acquisitions by Pebblebrook, Park and RLJ,” he added.

Trajectory 'not tenable'

Tarsadia Capital Managing Director Michael Ching said, “Sunstone’s current trajectory as a subscale lodging REIT is simply not tenable. The board needs immediate refreshment and must commence a robust strategic alternatives process to unlock value for shareholders. As a long-term and engaged shareholder, Tarsadia Capital has encouraged the board to act with urgency on the company’s persistent undervaluation in the public markets, but to no avail. If the board desires to continue with the status quo, we are prepared to make the case for change directly to our fellow shareholders.”

In a letter to the Sunstone board of directors, Tarsadia said it believes Sunstone’s portfolio of 14 hotel properties, down from 60 properties in 2005, is “subscale and undervalued by public market investors. These factors—and the significant negative sentiment pressuring the Lodging REIT sector—have led to the persistent poor performance of the company’s stock.”

Tarsadia also pointed to how Sunstone and its lodging REIT peers have achieved the worst 10-year total return among all FTSE Nareit US Real Estate Property Sectors, declining from 4.5% in 2013 to 3.2% at the end of July 2025, becoming the fourth smallest REIT sector.

Source: Bloomberg

Tarsadia added that the Lodging REIT sector also trades at one of the steepest discounts to its net-asset-value (NAV) among its peers, reflecting its lack of acceptance by public equity investors.

It said Sunstone’s estimated discount to NAV of -30% as of September 2, 2025, is near the company's 13-year lows, and well below its long-term average of -15.5%.

Tarsadia continued by stating Sunstone’s small portfolio leads to concentration issues, where a single weather event, market catalyst or renovation can substantially change the earnings profile of the company. It said that currently, Sunstone’s top seven properties represent 85% of its total EBITDA, with the Hilton San Diego Bayfront—its largest hotel—contributing to 19% of its total EBITDA. “Meanwhile, the company's peer full-service Lodging REITs have much more diversified portfolios where the top seven properties represent 32% to 61% of EBITDA,” Tarsadia said.

Tarsadia added that Sunstone’s financial performance has also suffered, with 2024 EBITDA -28% below 2019 levels, the lowest among its full-service lodging REIT peers.

“Many publicly traded REITs have been frustrated with their share price underperformance and trading levels at significant discounts to NAV,” Tarsadia’s letter to the board continued. “However, several public REIT boards have determined to take proactive steps to preserve and maximize value for shareholders. For example, on August 4, 2025, the board of Elme Communities, a multi-family REIT, announced the conclusion of its strategic alternatives review process. Elme Communities decided to sell a substantial portion of their assets, liquidate the remaining assets and return all capital to shareholders.

“Then, on August 26, 2025, lodging REIT Braemar Hotels & Resorts, Inc., announced that it is initiating a process for the sale of the company. Monty J. Bennett, Chairman of the Board of Braemar Hotels & Resorts noted in the press release, ‘the reality is that the public markets have not been friendly to lodging REITs, including Braemar.’

“Richard Stockton, CEO of Braemar Hotels & Resorts also noted, ‘With improving economic conditions, continued strength in industry performance, limited new room supply, and healthy consumer spending, I believe we are entering a favorable environment for a potential sale.’”