Sunstone Hotel Investors Inc (SHO) 2010 Q4 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the Sunstone Hotel Investors fourth quarter and full-year 2010 earnings call. At this time all participants are in a listen only mode. Following today's prepared remarks, instructions will be given for the question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded today, Thursday, February 17. I would now like to turn the conference over to Mr. Bryan Giglia, Senior Vice President of Corporate Finance of Sunstone Hotel Investors. Please go ahead, sir.

Thank you. And good evening, everyone, and thank you for joining us tonight. By now you should have all received a copy of our earnings release which was filed this evening. If you do not yet have a copy, you can access it on our website at www.sunstonehotels.com.

Before we begin this conference, I would like remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties including those described in our prospectuses, 10-Qs, 10-Ks, and other filings with the SEC which could cause actual results to differ materially from those projected.

We caution you to consider those factors in evaluating our forward-looking statements. We also note that this call may contain non-GAAP financial information including EBITDA, adjusted EBITDA, FFO, adjusted FFO and hotel EBITDA margins. We are providing that information as supplement to information prepared in accordance with Generally Accepted Accounting Principles. Unless stated otherwise, all RevPAR and margin figures discussed on today's call will be pro forma for the 30 hotel portfolio, which we owned at the end of the fourth quarter, excluding the Royal Palm Miami Beach, which we acquired during the third quarter of 2010 and which is undergoing a major renovation and repositioning.

In some instances we referred to our 32 hotel portfolio, which excludes the Royal Palm but includes the two hotels which we acquired earlier this year, the DoubleTree Guest Suites Times Square and the J.W. Marriott in New Orleans. These properties are included in our pro forma basis as if we owned those properties for the entire 2010.

Pro forma adjusted EBITDA and pro forma adjusted FFO per share reflects the operations of the Royal Palm for our period of ownership and exclude the hotels that we disposed of in 2010 as reported in our earnings release. Please refer to our earnings release for reconciliations of pro forma adjusted EBITDA, and adjusted FFO, and adjusted FFO per share to income available to the common stockholders.

With us today are Ken Cruse, President, Chief Financial Officer; Marc Hoffman, Chief Operating Officer; Bob Alter, Executive Chairman is also on the call and will be available during the question and answer portion. To begin our discussion, I'd like to turn the call over to Ken.

Good afternoon, everyone, and thank you for joining us today. During today's call I will review Sunstone's fourth quarter and full year results, our year-to-date acquisitions activity, and changes we have made in our leadership team. Marc will then provide operating details for our hotels and provide some insights into 2011 pace, and finally, I'll wrap up with a review of our liquidity and leverage targets as well as a touch on our 2011 business plan.

Fourth quarter results. Pro forma for adjusted EBITDA for the fourth quarter was $43.3 million, and adjusted FFO per share was $0.19. Both of which were ahead of Street consensus. For the fourth quarter, our comparable portfolio produced RevPAR of 5.7% above the prior year. Occupancy was up slightly at 66.3% and average daily rate was up $8.07 to $154.51. An increase of 5.5% over the prior year. Comparable fourth quarter RevPAR for the 32 hotel portfolio which, as Bryan noted, includes our two recent acquisitions on a pro forma basis was up 7.1% in the fourth quarter 2010 versus the fourth quarter 2009.

Fourth quarter margins for our comparable 30 hotel portfolio were up 250 basis points from last year. Adjusting for property tax credits received at several of our hotels, fourth quarter margins would have been up 170 basis points. And if you were to include the two recent acquisition hotels on a pro forma basis, fourth quarter margins for our 32 hotel portfolio were up 300 basis points in Q4 on an absolute basis or 230 basis points after adjusting for the property tax credits I just mentioned.

The solid margin performance our portfolio generated in the fourth quarter is a product of the great job our asset management team and operators have done, reengineering our hotels for improved efficiency and more flexible operations. Many of our operators are now employing what we call a full cross utilization model, where staff are training to be skilled in many areas within our hotel, so that they may be deployed when and where needed. For example, rather than hiring front desk managers, which is a very functionally specific role, our hotels typically hire operations managers now, who can flex into other aspects of the hotel operation as needed. By fully redefining our operation models, we have realized meaningful improvements in productivity. As a result, trough margins for our portfolio calculated on a same-store basis were roughly 300 basis points higher at the nadir of the recent cycle than they were during the cyclical trough experienced during 2003.

Looking at full year 2010, our comparable 30 hotel portfolio RevPAR came in at 2.6% above 2009. Occupancy increased 1 point and average daily rate was up 1.1%. Comparable full-year RevPAR for the 32 hotel portfolio was up on a pro forma basis 3.7% to the prior year. Full-year margins for our comparable 30 hotel portfolio were up 30 basis points to last year, adjusting for the property tax credits I previously mentioned, the full-year margins were roughly flat to last year. And if you include the two recent acquisitions on a pro forma basis, full-year margins were up 90 basis points and 70 basis points adjusted for the property tax credit.

Looking forward to 2011, we continue to believe that the stimulative policies leading to continued improvement in the broader economy will drive to the ongoing recovery in lodging demand. We expect pricing power to improve in many of our hotel locations, especially the high barrier assets such as Washington, D.C., New York, and Boston. On the acquisitions front, our focus in 2011 is to enhance the quality and scale of our portfolio by selectively acquiring institutional quality, upper upscale hotels, and strong markets.

Increasing our presence in the top long-term growth markets in the US is fundamental to our strategy. Consistent with this plan, today we announced the acquisition of the 494 room J.W. Marriott in New Orleans for $93.8 million or approximately $190,000 per key. The hotel is located near the world famous New Orleans French Quarter in the heart of downtown New Orleans with excellent accessibility, the convention center, and a Class A office corridor. Our all-in cost of $94.3 million represents a 12.8 times EBITDA multiple based on the hotel's 2010 results of operation. The acquisition included the assumption of a $42.2 million loan which matures on September 1, 2015, and which bears an interest rate of 5.45%. The loan is subject to a 25-year amortization schedule. The J.W. Marriott was an off-market transaction and, as I noted in today's release, will be immediately additive to our portfolio quality and credit profile.

With a 2010 RevPAR of almost $115, the J.W. New Orleans ranked in the upper third of our portfolio in terms of RevPAR production. In 2010 RevPAR in the New Orleans lodging market grew by more than 17% and ranked first out of the US top 25 markets in terms of RevPAR growth. Moreover, New Orleans posts strong underlying market fundamentals, including limited new hotel supply and a robust foundation of convention and leisure demand that we believe will produce superior RevPAR growth for years to come.

Additionally, over $20 billion of infrastructure and construction projects are in final design or are underway in the local market, which will serve to enhance the city's overall appeal and drive commerce. The New Orleans acquisition compliments our previously announced off-market acquisition of the DoubleTree Guest Suites Times Square, which we completed on January 14, of this year. This irreplaceable asset into 2010 with a RevPAR of over $300 and hotel adjusted EBITDA of $19.5 million. The hotel performed strongly in January with RevPAR up approximately 14% to last year. We are currently focused on evaluating opportunities to synergize the 920 rooms we own between the two Times Square hotels, the DoubleTree and the Hilton.

My last topic today relates to our senior leadership team. Earlier this week we announced that John Arabia will be joining the team as our CFO and EVP of Corporate Strategy. I have known and respected John for many years. He will bring a wealth of experience, strong relationships, and a sound strategic focus, which will complement the skills of our already deep and talented team. In his role, John will oversee our financial disciplines and will be integral to the development and execution of our corporate strategy. Now, with that, let me turn the call over to Marc to go through the quarter in greater detail.

Thank you, Ken. In terms of the regional performance for our fourth quarter, the year-over-year growth in RevPAR of our Los Angeles Orange County hotels was up 6.4% led by a double digit growth at the Renaissance Long Beach. Our La Jolla and Del Mar Hotels grew by 2.8% over the last year for RevPAR. For full year, our Los Angeles and Orange County hotels were up just slightly, 1.6%, led by high growth at the Hyatt Newport Beach and LAX Courtyard, but we are hindered by flat to slightly negative growth at the Renaissance Long Beach and the Newport Fairmont.

For Q4, our other West Coast region was down 11.8% compared to last year. Our Portland Marriott was up 9.2% in Q4, but our other set was off significantly -- was offset significantly by the two Houston hotels in Eugene. For a full year this region was down -- excuse me, was down 9% with strong growth at the Portland Marriott, again offset by those same three hotels.

We expect continued weakness at our Houston properties in the first half of 2011 due to the loss of the significant piece of annual government business we have spoken about before. However, we have seen better RevPAR growth in January and February than expected, and believe that our year-over-year Houston RevPAR comp will get much easier earlier than we expected.

Our Midwest region was up 5.9% to last year in the fourth quarter, driven by double digit growth in Minneapolis and positive ADR growth in Chicago and Troy. During the full year our Midwest region was up 3.8%, again led by double digit growth in Minneapolis and mild growth at Troy and our Rochester portfolio. Finally, our East region in the comparable portfolio for the 32 hotels was up 10.1% for the fourth quarter. This was led by double digit RevPAR growth in Orlando, Baltimore, and Boston, with 17.3%, 19.2%, and 13.4% respectively. Other hotels with positive RevPAR growth in the fourth quarter include -- DoubleTree Guest Suites, Times Square, Renaissance DC, and Westchester Renaissance.

New York City, Boston, and Washington, D.C. continue to be leading indicator markets. Our Hilton Times Square had rates in Q4 2010 higher than Q4 2009 in 67 out of 92 nights. They had 25 sellouts in Q4 of 2010 and 30 sellouts in Q4 2009. Boston demonstrated a strong growth in the fourth quarter with 26 sellouts in 2010 compared to 19 in 2009; had higher rates 57 nights compared to 2009. Renaissance DC is a great example where the hotel was strategically focusing on driving rate and had higher rate in 81 out of 92 days in the compared quarter. Looking at full year for the comparable 32 hotel portfolio within the East region, the hotels were up 6.3% in RevPAR. Strong growth was led by high single digits to double digit growth at Boston Long Wharf, Renaissance Baltimore, and DoubleTree Guest Suites Times Square.

Let me take a moment and speak to you about improving business trends and business mix. As expected, fourth quarter results reflected a RevPAR reacceleration as compared to the third quarter results. Fourth quarter RevPAR for our comparable 30 hotel portfolio finished up 5.7% to last year. Our three large convention hotels, the Renaissance Baltimore, DC, and Orlando, were up [19.2%], 4% and 17.3% compared to Q4. In January these three large convention hotels continued to see positive RevPAR growth up over 5%.

Our 2010 group booking pace improved significantly from where we started in the beginning of 2010. At the end of January 2010, 2010 group booking pace was negative 18% to the prior year. At the end of December 2010, the 2010 group booking pace was down 0.5%. Collectively, our hotels picked up over 340,000 group rooms in the year for the year. In addition, our hotels booked for 2010 and all future years 37.5% more rooms during the fourth quarter and 18.2% more rooms during the full year as compared to 2009.

Moving onto to 2011, our 2011 group booking pace continues to strengthen. Pace for the comparable portfolio was up 11.2%, driven by a 9.6% increase in occupancy and a 1.5% increase in ADR. Our three largest group hotels are booking rooms in 2011 at rates of approximately 10% higher than the 2010 rate. Other hotels showing strong booking pace, include the West -- Renaissance Westchester, Marriott Tysons, Del Mar Hilton, and both Hilton and Marriott, Houston. While many hotels are still in the final negotiations for their accounts, currency backed at corporate volume rates are increasing 4% to 8%.

In the area of operations and asset management, I'd like to take a minute to drill down on a few of our other operations and asset management initiatives. We are continuing to selectively drive rate wherever possible as a key asset management initiative. In Q4 27 of our 33 hotels achieved an ADR increase over the prior year. The majority of these rate increases were achieved through mix shifting business and limiting lower rated discounted bookings. We had success with this strategy at the Boston Long Wharf, Hyatt Newport Beach, Marriott Troy, Marriott Rochester, Grand Taylor Rochester. And for example, the Marriott Troy used this message -- method to increase their rate 18.4% in the quarter.

And, as I mentioned on our last business update call, we have also driven meaningful rate gains in Washington, D.C. Renaissance, Marriott Quincy, and Minneapolis DoubleTree. These three hotels, along with the above mentioned previously, had high single digit double -- high single double digit ADR growth in Q4. For full year, 17 of our 33 hotels had positive ADR increases. Most of these increases came in the back half of the year with 26 hotels having positive ADR in the second half of 2010 compared to nine hotels in the first half of the year.

A number of our hotels improved their RevPAR index in Q4 with Royal Palm, DoubleTree Minneapolis, and Sheraton Cerritos, all gaining more than 5% market share. In other initiatives we continue to work on outsourcing laundry and parking. We are evaluating and upgrading dated parking equipment with state-of-the-art system that are maximizing revenue by reducing leakage and increasing garage productivity. At Renaissance Orlando, where we recently upgraded the system, we have seen a 60% increase in parking profits. We are in the process of installing these new systems at Tysons Corner, Quincy, Del Mar Hilton, and Minneapolis. We continue to look for opportunities to upgrade our parking system and other productivity improvements across our portfolio. With that, let me turn the call back to Ken to review our liquidity and finance activity.

Thanks a lot, Marc. I'll just quickly run through our balance sheet and credit targets, and then I'll finish by touching on the high points from our business plan before we open up the call to questions. First, with respect to our credit profile, we ended the fourth quarter with approximately $334 million in cash and cash equivalents, including restricted cash. We pulled 12 unencumbered hotels and our debt maturity is at strength, with the exception of the DoubleTree Times Square, which we intend to refinance during the second half of this year through April of 2015 we have just $100 million of debt maturity. And we have a well staggered maturity schedule thereafter. And upon the anticipated refinancing of the DoubleTree Times Square later this year, we expect our debt will have an average tenor of approximately seven years, one of the longest in our space.

The DoubleTree Times Square debt is our only floating rate loan. Other than that, 100% of our interest expense is fixed, including the new J.W. New Orleans loan that we assumed earlier this week, which is a floating rate loan that was (inaudible). And our weighted average cost of debt is 5.5%. We continue to improve the credit profile of the Company and we are focused on achieving a leverage level that provides us with balance sheet capacity, capitalized on deals at all points in the cycle.

Looking ahead, I'll spend a moment or two on our 2011 business plan. Sunstone has a solid platform for full growth. We own a portfolio of 33 well located institutional quality hotels, we have a great team aligned in the -- and focused on smartly driving stockholder value. Our balance sheet and credit statistics are improving and industry fundamentals are strong.

Our 2011 business plan is primarily aimed at correcting the value deficit we see in Sunstone shares. We will achieve this by focusing on the following. First, we will improve the profitability of our portfolio through continued creative asset management efforts. Second, we will enhance the corporate -- our corporate credit statistics through a measured approach to deleveraging. Third, we will smartly increase our portfolio of size and quality through accretive acquisitions such as the two deals we announced earlier this year. Fourth, we will improve our communications and accessibility by continuing our inter-quarter calls. And fifth, we will build a stable and cohesive talent based organization by selectively adding key players such as John Arabia, whom we announced earlier today -- earlier this week. Excuse me.

We believe that our business plan represents a balanced approach to creating stockholder value, and we are very optimistic about 2007, and while we are not providing guidance today, early indications from our hotels imply continued acceleration and RevPAR trend throughout the year. We will continue our business update calls to provide realtime data points on our business throughout the year as well. I'd like to thank you at this point for your interest in Sunstone and now we will open up the call to questions. Operator, please go ahead.

Ladies and gentlemen, at this time we will now begin the question-and-answer session.

(Operator instructions)

Our first question comes from the line of Shaun Kelley from Bank of America. Please, go ahead.

Hi, guys. Good afternoon. Just wanted to ask a couple of quick questions about the New Orleans asset to start. Could you just give us a sense for that hotel? I know it's going to be a little bit different with some of the, some of the issues that New Orleans has had, but could you give us a sense of how far off of peak EBITDA that is and maybe some of the other kind of cap rate, and/or like a forecast of what you think that asset can do this year?

Sure. We're not going to be able to give a forecast for this year, other than by saying that we do see a fairly meaningful improvement in the productivity of the hotel over the prior years. The hotel is generating EBITDA in 2011 that was very strong. As we noted in our call, the RevPAR transfer to New Orleans market was a top growth market in 2010, so the terms were very positive in '10. The hotel has continued to improve in performance over the last several years, and once again, we expect that it will continue to improve by going forward.

That's helpful, and then I guess just one on the -- just on the projected CapEx. You guys gave a strong detail for how you thought you were going to, kind of all the different project level numbers. I mean, is there -- in terms of investment, I assume all that's being funded out of cash, so is there anything -- will the remainder of the cash balance really just be focused on acquisition opportunities as they come up at this point?

Yes, that's right. We ended the year with a fairly sizable cash balance. We deployed a portion of our cash for the DoubleTree Times Square acquisition, as well as the small amount of cash on the J.W. New Orleans deal, but both of them came with an assumed debt which has very attractive terms. So, at this point, there's a portion of our cash flow that will go to CapEx but we have a fairly considerable amount of [dry powder] for acquisitions.

Okay, that's helpful. That's it for me.

Thank you. And our next question comes from the line of Dennis Forst with KeyBanc. Please go ahead.

Yes. I was a little confused, Ken, about the occupancy ADR numbers. For the full 31 properties, what was the RevPAR absolute number in the fourth quarter and the year?

It's actually for the 32 hotel portfolios, the RevPAR number was $114 for the full year.

Okay. But you didn't own that 32nd property DoubleTree until early this year, right?

Yes. If you want that just for the portfolio that was owned at the end of the year?

Yes, what the actual fourth quarter RevPAR was for the 31 properties. In the release it's got the comparable 30 excluding the Royal Palms. I wanted to know what it was including the Royal Palms.

Yes, the number in the release was for the fourth quarter $102.44 and $104.18, and we do not break out the Royal Palm independently. That hotel is not in our comparable set as it's undergoing a considerable renovation.

And what exactly does that considerable renovation mean? How many rooms are you selling these days, because there is a table in your release that shows that it had a positive cash flow in the fourth quarter?

Yes. No, it had a positive cash flow in the fourth quarter. It's got 409 keys and currently, all the keys are in service, but the hotel itself is undergoing the early stages of a fairly significant renovation. So it met our criteria for not including it in our comparable statistics.

Okay. Will it be shown as a single line item until the renovations are completed?

No. We typically don't break out individual hotels.

Okay. So, it won't -- it will be included in the income statement but not in the RevPAR numbers, is that right?

That is correct. It will not be in the comparable RevPAR numbers until we complete the renovation work.

Okay, and then lastly, the discontinued operations. Do those go away after this fourth quarter?

Yes.

Okay. Good. Thanks.

Thanks, Dennis.

Thank you. And our next question comes from the line of Joshua Attie from Citi. Please go ahead.

Hi. Thank you. I just wanted to follow up on Shaun's question, and I'm sorry if I missed this in your answer, but can you talk about what the EBITDA of New Orleans has been historically? So, the $7.5 million that it did last year, how does that compare to maybe 2007 and then also 2000? And maybe talk about, I know there was a renovation at the property that may have distorted some of the results.

Sure, happy to provide historical numbers. And as I mentioned, it's outperformed in 2010 versus its historical trend. It was a little over $5 million in 2007, $6.5 million in '08, $5.5 million in '09, and as we mentioned earlier in the release it was north of seven in 2010.

Was there -- When did the renovation happen at that property?

Yes, that was -- that took place in 2005.

Okay. So the '07 number would have been fully reflective of the ramp-up of the renovation?

Yes, the conversion.

Okay, thank you. And as you think about acquisitions in general, and there's a lot of very large assets in the market, how do you think about concentration risks and I guess, how large would you be willing to go with a specific asset given your size?

Yes. Good question, Josh. We have, for example, 920 keys in the Times Square submarket of Manhattan and the EBITDA production of those assets represent about 20% of our portfolio RevPAR -- or portfolio EBITDA, and we're very comfortable with that presence. And I think once we have pushed north of that 20% level, though, we certainly would want to look to diversify geographically.

Okay. Thank you.

You're welcome.

Thank you.

(Operator Instructions)

And our next question comes from the line of David Katz with Jeffries & Company. Please go ahead.

Hi, afternoon.

Hi, David.

Hi. I wanted to ask about the New Orleans acquisition and how that, sort of, came about. Was that a competitive bidding process, or was that an off-market or a quasi off-market transaction?

No, David. That, similar to the DoubleTree Times Square deal, was conducted fully off-market through relationships.

Right. And when I -- obviously, it struck me as a relatively attractive price. Is there any color you can provide as to why the owner wanted to sell? Was this financially challenged in any way?

No. Actually the opposite. I think the seller wanted to sell, because this is an asset in a market that has performed quite well. And in fact, they had a fairly short-term horizon on their investments, so they were looking to monetize this asset, whereas we see it as a great long-term market and a great long-term asset. So, timing was right and obviously, based on the multiple we paid and the price per key we paid, the value was absolutely right.

Right. So, in that context, what I'm trying to, perhaps draw a circle around, is the population of opportunities like this that might be out there. Because I think most of the street, maybe expecting that foreclosures and other financial challenges being the key driver of creating opportunities for you all, but this one, wasn't in that category at all. So, just trying to get a sense for how deep this reservoir is and how many more of these you could look at and/or handle.

Yes, I would tell you that we are certainly not going to sit here and promise that there will be hundreds and hundreds of these types of acquisitions, but we believe that the relationships that our team has, including, you know, as we mentioned before, Lou Wolff and Bob Alter, who were actively involved in this process. I think we have a wealth of opportunities out there that are available through nontraditional marketing channels.

Right. And did this one come through Bob or right from your management team, I assume?

No. Actually, this was a deal that Bob Alter brought to us.

He did?

Yes.

Okay. Well, congrats on that. Thanks very much.

You're welcome.

Thank you. And our next question comes from the line of Michael Salinsky from RBC Capital Markets. Please go ahead.

Good afternoon, guys.

Hi.

The first question relates to CapEx. You identified a number of projects that you're working on, but what is the total spend you guys are looking at in terms of outlays, as we look at sources and uses of capital over the next 12 months?

Sure. Consistent with our prior discussions on CapEx, first of all, we have spent some time refining the program for 2011 just to make certain that the focus was absolutely on areas that were going to drive revenue and profitability within our hotel. So, we have refined the program to be a little bit tighter program than what we had initially anticipated but the dollar amount at this point is somewhere between $100 million and $130 million in 2011.

Okay, that's helpful.

A good portion of that would come from reserves.

Secondly, as we look at the amount of renovations, obviously, a lot of them are in the first quarter. Can you quantify how much, since you're not providing RevPAR guidance for the full year, but can you quantify how much of a disruption impact you expect probably in the first quarter, I think is the most relevant from renovations?

Sure. Actually, it's not as much as you would think. The total disruption in the first quarter is probably not going to be more than about $350,000 in revenue.

That's a lot less than I thought. Interesting. Third, looking at your capital plans again for the year, I mean, is there -- you guys talked about being aggressive in the acquisition markets. We're also hearing that there's quite a bit of people out there looking for quality assets. Is there a thought to recycle any of your non-core assets at this point?

We're always looking to manage our portfolio and certainly there are several assets that we would classify as not long-term holds. So, there could be some activity on the selling non-core assets later on this year.

Are you guys actively marketing anything right now?

We are not actively marketing anything.

Okay. Thanks. That's all for me, guys. Thanks.

Thanks, Mike.

Thank you. And our next question comes from the line of Bill Crow with Raymond James. Please go ahead.

Good afternoon, guys. I know you're not giving guidance, but I think most of us in the call kind of think the industry this year is somewhere in the up 6 to 8 or 6 to 9 range. Do you feel comfortable that your portfolio can be within that broader range on a RevPAR growth respective, or are there still enough kind of nagging market specific issues where you might not be able to hit that industry growth until, say, 2012?

No. Bill, I would say the contrary. In 2010 our portfolio was impacted from renovation disruption and changes over in management and a variety of different factors that we've identified and we believe we've addressed. So, we certainly expect our portfolio in 2011 will perform at or, our expectation is, above industry norms.

Okay. And then the hesitancy then to give guidance is what?

The hesitancy to give guidance is that we much prefer to spend our time talking about what we have done rather than making prognostications about what we will do.

Okay. All right. The market is just buying stocks based on future as opposed to past, so that's the only thing I would say, but I appreciate it.

That's why you have a job.

That's right. Thanks, Ken. Appreciate it.

You're welcome.

Thank you. And our next question comes from the line of Smedes Rose from KBW Asset Management. Please go ahead.

Hi. Thanks, I just wanted to ask you again on possibly selling some assets in secondary markets. Is it your sense that -- we know there's a market to buy and sell assets in the top markets, but is there a market emerging? Are banks going to lend to buyers in secondary markets even if there are buyers that are wanting to purchase those kinds of assets, like something like the Eugene Valley Inn, or can you -- could you dispose of stuff like that if you wanted to?

We have been very surprised about how quickly the secured finance markets for launching assets have recovered, and while the initial loans -- and Hilton Times Square is a good example of that, were done on major commercial assets in primary markets. We are seeing that lending market continues to evolve. And we do expect, as this year progresses, you'll see lending pick back up on secondary market assets.

As well, this is Bob Alter, as well, a number of our assets have in place long-term debt that goes out 15, 16, 17, 18, all of that debt is assumable and we specifically did that debt with a certain assumable quantifiable numbers. So that we can sell assets and have people pay to -- pay us to the balance and assume those balances.

The other thing I wanted to ask you is looking at where the J.W. Marriott in New Orleans traded when Clearview bought it. It looks like on the one hand good pricing but it's also significantly up over that trade. Was that just an unusual circumstance where the buyer was able to really get it for some particular reason just way below what it really should have gone for? It just seems like a lot of appreciation for a three-year hold on their end?

We are very happy for the Clearview guys. We happen to know a few people over there and this was not a deal that we were looking to make a big profit for that group, but we're happy when we can create a win-win outcome.

The reality is that the New Orleans market has recovered significantly in the post Katrina aftermath, and there's been a great deal of infrastructure work done on that market, a great deal of attention paid on really resetting that market to where it should be. So, yes, it's performed very well and we believe the asset is going to perform much, much better over the next five years.

And, in tying that question back to the couple before, why is the seller a seller at this price, and really he -- the seller -- the Clearview bought the asset, then rode the quote storm and now we are on the other side of it. So, at this point they're happy to take some money off the table and move onto the next transaction for them. So, it is a win-win. I think that the seller here is happy and the buyer is happy, which, we always believe, is the way we continue to do relationships into the future.

Okay. Thank you.

I also would like to correct what Mark just stepped out in his number, this placement of first quarter number we gave out as 350, it's actually 650 in the first quarter. We missed adding up a number. I'm sorry.

Thank you. And our next question comes from the line of Michael Bellisario from Robert W. Baird. Please go ahead.

Good afternoon, guys. I wanted to talk about something that was in the press release the other day relating to John's hiring. This one might actually be for Bob. It mentions John becoming President in about a year. Can you just walk us through that process and what it means for Ken in the next year?

Well, we're kind of telegraphing his future. No, no. Actually, it's not the first time somebody asked that question. The way that the agreement with John is, is that over a period of what's described as kind of 36 months, the Company has committed to make him President upon achieving certain goals. And, in fact, our progression of Ken and I running the Company together ultimately, our goal would be to have Ken become CEO. And then our goal would then have, as the Company met those goals, and John had met those goals, then he would become President over, I guess it's 24 months, and then be on the board in 36 months.

Okay. That's very helpful. Thank you.

And at this time I am showing no further questions in my queue. I would like to turn the conference back to management for closing comments.

Great. Thank you all for joining us today. We appreciate your interest in Sunstone and we look forward to speaking with you during our intra-quarter call in April. Thank you.

Ladies and gentlemen, this does conclude our conference for today. We thank you for your participation and at this time you may now disconnect.