SAN CLEMENTE, CA-Negotiations have terminated for the time beingin locally based Sunstone Investors' reported bid to buy the1,625-room Hyatt Manchester San Diego for a price that was believedto be in the range of $580 million. However, analysts David Loeband Andrew Wittmann of Milwaukee-based Robert W. Baird & Co.say that "We would not rule out the potential for Sunstone oranother REIT buying the hotel eventually."

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The Baird analysts, in a newly issued report on Sunstone, notethat the attorney for hotel owner Doug Manchester informed the SanDiego Unified Port District that the prospective deal with Sunstonehas been terminated. The deal would require the port district'sapproval for a change of ownership because the hotel is land leasedfrom the district.

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Loeb and Wittmann say that they and other initially viewed theHyatt Manchester deal as positive, but eventually observers came tobelieve that Sunstone needed to offer potentially significantequity to finance the deal―and that caused shares ofSunstone's stock to weaken.

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

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Among the reasons for the Baird rating is that "Sunstone'sportfolio is one of the more diversified portfolios of its peergroup in regard to geography, brand and segment," their analysissays. The report also cites "recent asset recycling" that haspositioned Sunstone's portfolio to be distinctly up-scale as wellas aggressive asset management by which the REIT has returnednumerous hotels to lenders, thus eliminating properties that "werea drain on cash flow and shareholder value."

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If Sunstone were to eventually acquire the Hyatt Manchester, itwould mark the company's return to the San Diego market afterexisting four hotels there by handing them over to lenders orspecial servicers: the Courtyard by Marriott San Diego Old Town,Holiday Inn Downtown, Holiday Inn Express San Diego Old Town andthe W Hotel.

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