Sector Snap: Hotels Mixed After Hotel Default

The San Diego W, along with the rest of the hotel industry, has been battered by a sharp decline in travel spending that began during the financial crisis last fall and accelerated early this year. High-end hotels like the W have suffered the greatest declines as consumers and businesses have either delayed vacations and meetings or traded down to less expensive properties.

Sunstone, which has interests in 43 mostly high-end hotels, said revenue per available room across its portfolio was down 24.4 percent in May. Revenue per available room, or revpar, is a key gauge of a hotelier's performance because it measures both occupancy and room rates.

In a statement, Chief Financial Officer Ken Cruse said Sunstone had more than enough liquidity to repay the mortgage, but believed turning it over was in the best interest of stockholders.

Last month, the company had laid the groundwork for such a move by amending the covenants on its exchangeable bonds to allow the company to default on up to $300 million in non-recourse debt without triggering the maturities of those notes.

In a conference call with investors after the market closed on Monday, Sunstone executives said they would consider turning over other hotels if they meet certain criteria, including that their "intrinsic value" is permanently below the amount of the mortgage.