Sunstone Hotel parts worth more than whole - analyst

Sunstone Hotel (NYSE:SHO) should consider a sale as the sum of its parts is worth more than its whole, according to a Truist analyst, after an investor called on the company to consider selling itself. 

Earlier on Friday, Tarsadia, which owns a 3.4% stake in Sunstone Hotel (NYSE:SHO), called on the hotel REIT to to sell itself or liquidate its assets. Tarsadia also wants the real estate investment trust to appoint new directors to its 8-member board.

"As of yesterday's close, SHO shares were trading at 12.7x 2025 EV/EBITDA and 12.3x 2026E," Truist analyst Charles Scholes, who has a hold rating and $10 price target on Sunstone, wrote in a note on Friday. "However, we believe the underlying assets are worth at minimum 14x which would be worth ~$12/share; each 100 bps."

Likely buyers of the individual assets include private equity and/or high net worth individuals/families/sovereign wealth looking for trophy assets, according to Scholes. He  sees a smaller pool of company buyers as high interest rates create higher thresholds for go-private transactions. 

"This activism is not 100% a surprise given share performance for SHO and hotel REITS overall and a related disconnect between underlying asset valuation and equity valuation," Scholes added.