51.1 F
Laguna Hills
Thursday, Mar 28, 2024
-Advertisement-

Ex-Sunstone CEO’s Basic Bet: What Goes Up Must Come Down

Ken Cruse, who recently left the top job at Aliso Viejo-based hotel investor Sunstone Hotel Investors Inc., has started an investment company that will try to take advantage of the next downturn in the hospitality industry.

Sunstone announced on Jan. 19 that it had replaced Cruse as chief executive with John Arabia, the company’s president. Cruse, who had held the chief executive’s position with Sunstone for nearly four years, also resigned from the company’s board of directors.

A reason for the executive change was not immediately disclosed by the real estate investment trust, which had a recent market value of about $3.6 billion and has seen its stock rise nearly 30% since the start of 2014.

Cruse “will be pursuing other opportunities,” the company said in a statement.

Arabia, who has been with the company for about four years, becomes the fifth chief executive of Sunstone in the past 10 years.

“This year, the independent directors concluded that a different management style would be more appropriate as the company continues to execute on its in-place strategy,” Keith Locker, the company’s nonexecutive chairman of the board, said in a call with analysts following the announcement.

New Venture

Cruse, reached by phone last week, said he’s starting a new venture called Alphawave Investors.

The locally based company is expected to invest in hotel-related companies through a variety of debt and equity instruments, much like a hedge fund, he said.

A key to the venture will be the ability to take short positions in hotel companies in anticipation of the next down cycle for the industry.

“We’re in the sixth year of a cyclical recovery,” Cruse said. “The hotel market is very cyclical. In the next four to five years, there absolutely will be bumps in the road,” he said.

Cruse, who is in line to receive nearly $14 million as part of his exit package with Sunstone, said he’s been in talks with a number of institutional investors to raise funds for Alphawave.

Cruse said he’s had the idea for the venture for awhile and that turning over the reins at Sunstone makes sense now, given the strength of the company’s existing team.

“Sunstone is going to do terrific,” he said.

Cruse said Arabia is the right person to lead the company.

Sunstone is not a target for the new venture, in terms of taking a short position, Cruse said.

“There are far more attractive opportunities for acquisitions,” he said, adding that Sunstone is “very well positioned for the next down cycle.”

No Strategy Change

Sunstone, for its part, indicated that it is not planning a change in direction following this month’s executive moves. Company officials said no additional changes or additions to its management team are planned.

The company’s strategy over the past several years, “has been quite simple and very consistent” Arabia said during the company’s recent analyst call.

Strategy

“First, we invest in high-quality hotel real estate in dynamic markets at an anticipated return premium to our cost of capital. Second, we actively asset manage and methodically reinvest capital into our portfolio to drive internal profit growth.

“Third, we adhere to a low-levered balance sheet that maximizes our financial flexibility and allows us to take advantage of attractive investment opportunities, no matter the market conditions. Fourth, we believe in transparency and shareholder-friendly corporate governance. And finally, we believe in fair and mutually beneficial arrangements with our operating, brand, and capital partners.

“This strategy has not changed,” Arabia added.

Sunstone owns 30 hotels totaling 14,303 rooms across the country, including the Fairmont Newport Beach and the Hyatt Regency Newport Beach.

The company made its largest acquisition in nearly three years in mid-2014, when it agreed to pay $325.7 million for the 544-room Wailea Beach Marriott Resort & Spa in Maui. An estimated $65 million renovation project is now under way at the property.

Cruse, at the time the Hawaii deal was struck, said the hotel industry still had a few more years to go before the next down cycle kicked in; last week he said that was still the case.

“We’re not at the top of the escalator,” he said.

OC saw a good example of that sentiment last week, with the $360 million sale of the Montage Laguna Beach (see story, page 6). The $1.4 million-per-room value of that deal is the priciest on record for a local resort property.

Sunstone, meanwhile, will look for opportunities, however the market turns.

“None of us knows how long this cycle will go,” Arabia said during this month’s call with analysts. “What we need to do is we need to prepare to take advantage (of the market), both through thick and thin.”

There will be lots of distress among hotel companies with high debt loads when the next downturn hits, according to Cruse.

“Even well-run companies, through no fault of their own, the market is going to turn against them.”

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-