SAN CLEMENTE, CA-Negotiations have terminated for the time being in locally based Sunstone Investors' reported bid to buy the 1,625-room Hyatt Manchester San Diego for a price that was believed to be in the range of $580 million. However, analysts David Loeb and Andrew Wittmann of Milwaukee-based Robert W. Baird & Co. say that "We would not rule out the potential for Sunstone or another REIT buying the hotel eventually."

The Baird analysts, in a newly issued report on Sunstone, note that the attorney for hotel owner Doug Manchester informed the San Diego Unified Port District that the prospective deal with Sunstone has been terminated. The deal would require the port district's approval for a change of ownership because the hotel is land leased from the district.

Loeb and Wittmann say that they and other initially viewed the Hyatt Manchester deal as positive, but eventually observers came to believe that Sunstone needed to offer potentially significant equity to finance the deal―and that caused shares of Sunstone's stock to weaken.

Nonetheless, the Baird analysts are reiterating their outperform rating for the San Clemente-based REIT's stock.

Among the reasons for the Baird rating is that "Sunstone's portfolio is one of the more diversified portfolios of its peer group in regard to geography, brand and segment," their analysis says. The report also cites "recent asset recycling" that has positioned Sunstone's portfolio to be distinctly up-scale as well as aggressive asset management by which the REIT has returned numerous hotels to lenders, thus eliminating properties that "were a drain on cash flow and shareholder value."

If Sunstone were to eventually acquire the Hyatt Manchester, it would mark the company's return to the San Diego market after existing four hotels there by handing them over to lenders or special servicers: the Courtyard by Marriott San Diego Old Town, Holiday Inn Downtown, Holiday Inn Express San Diego Old Town and the W Hotel.