ALISO VIEJO, California—After the departure of CEO Art Buser from Sunstone Hotel Investors, founder Bob Alter will make some changes regarding the company’s strategy, he said during a conference call Monday. The company still will target luxury and upper-upscale hotels with high-performing brand flags, but transaction interest will be more focused and the execution of acquisitions will be performed with more haste.
“Sunstone hasn’t made a lot of acquisitions over the past few years,” Alter said. “There were a number of transactions the company worked on that didn’t come together for lots of reasons. Moving forward, we will make sure that some of these transactions in the future do happen. We will continue to rebuild relationships with the brokerage community and owners.”
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Bob Alter |
Sunstone announced Buser’s resignation Friday, citing “a mutual agreement” between the board and Buser, who was appointed president in July 2008 and advanced to CEO in July 2009.
Alter said, as he interviewed Sunstone’s board members prior to the decision, he sensed frustration with the company’s ability to make a decision regarding a transaction and stick with that decision.
“It’s more about having the team as a group work on decisions, make the right decisions and move forward,” he said. “We’re clearly going to analyze, decide and move forward.”
Since Buser was named president, the hotel real-estate trust’s portfolio shrank from 45 hotels to 31 hotels and the stock price fell to US$9.78 per share from US$17.69 per share.
“There were multiple directors who took exception over a broad range of factors relating to Art’s role, style and conduct,” Alter said. “The board believes Sunstone is well positioned with its new leadership role to execute its growth strategy.”
Rod Petrik, managing director with Stifel Nicolaus who is focused on analyzing hotel real estate investment trusts, found the timing of Buser’s departure “a little strange.”
“We though Art Buser was doing a pretty good job,” Petrik said. “In canvassing some of Sunstone’s shareholders, it seemed as though some of them were in the stock because of Art Buser’s presence.”
Petrik defended Buser’s decisions to give several hotels back to the banks, saying many of those hotels were bought and over-leveraged under Alter’s watch.
“That had nothing to do with Art; Art came in to fix those problems,” Petrik said. “If you look back at the peak of the market, that was when Bob was in charge. At the peak, you had a number of REITs who all sold out. Sunstone was in the collection that didn’t sell out or ran out of time.”
Instead of acquisition aggression, Petrik said he thinks Buser’s departure was probably because of a personality conflict. “Bob has a reputation as being a difficult guy to work with,” he said. “Part of the problem, when you have the founder as co-chairman and you kind of have two active co-chairs, it puts the CEO in a difficult position to make decisions.”
Prior to joining Sunstone, Buser worked at Jones Lang LaSalle Hotels Americas for 11 years.
Moving forward
Alter, who founded the REIT in 1995, will take co-responsibility of the company alongside Ken Cruse, who was named president. In the short-term, Alter and Cruse will lead the company and advise in asset management from the roles of executive chairman and president, respectively. Long-term plans seem to have Cruse transitioning into the CEO role, although there is no timetable set for that promotion.
“I will be much more involved until we name a CEO, and we do not have a timeline on it,” Buser said. “I don’t want to get caught in the situation of trying to pin that down. When Ken is ready to be CEO, he will be.”
Petrik said that decision may negatively affect share prices. “I think it’s important for a public company to have a full-time CEO,” he said. “If anything, it’s an unstable executive office.”
Shares of Sunstone Hotel Investors were downgraded to “neutral” from “outperform” on Monday by R.W. Baird for the same reason. Sunstone shares were trading at US$9.96 per share as of 10:20 a.m. today and are down approximately 4.2% since Thursday.
“We believe the departure of Buser may signal a change in strategy or execution for the company, and until we have more clarity regarding the new management team and its strategy, we believe investors will be better suited waiting on the sidelines,” analyst David Loeb said in a research note.
Alter suggested Cruse will eventually become CEO, but wants him to get experience under his belt first to avoid another leadership flop.
“Since 2007 we’ve gone to the plate twice, we’ve struck out for various reasons twice, and we clearly believe internal candidates is the way to go right now,” Alter said. “I clearly can give him a lot of guidance and the two of us will work as a team. Whether that’s better or worse than actually having the title CEO, I think the two of us can prove that we will be effective.”
As far as CFO—the position Cruse vacates—Alter said the company will name a replacement as soon as January. The candidate will most likely be promoted from within, he said.