Sector Snap: Hotels Mixed After Hotel Default

KRISTEN A. LEE

NEW YORK (AP) — 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.

On Sunday, a real estate investment trust, announced it will default on its June mortgage payment for the 258-room W Hotel in San Diego after failing to lower its interest payments.

In a note to investors, Stifel Nicolaus & Co. analyst Rod Petrik said other repossessions may be on tap. "We would not be surprised to see more companies throw back keys to lenders on other secured hotel loans," he wrote.

Petrik noted that most hotel loans underwritten from 2004 to 2007 are underwater because property values have dropped as much as 50 percent from their peak in 2007.

Sunstone purchased the W San Diego in June 2006 for $96 million, which Friedman Billings Ramsey analyst C. Patrick Scholes noted was close to the peak of the market. 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.