By Zacks Equity Research

Sunstone Hotel Investors (SHO), a real-estate investment trust, recently priced a secondary offering of 11 million shares at $10.45 each. To cover any over-allotments, Sunstone also plans to offer a 30-day option to the underwriters for purchasing an additional 1.65 million shares.

The net proceeds from the offering will be contributed to its subsidiary, Sunstone Hotel Partnership, LLC, in exchange for additional membership units in the operating partnership.

The operating partnership will eventually utilize the net proceeds to renovate a Chicago Hyatt hotel, fund the $92 million purchase of a Hilton Garden Inn in Chicago and for other general corporate purposes.

The 357-room Hilton Garden Inn in Chicago is expected to generate approximately $4.1 million of EBITDA and $3.7 million of net operating income this year.

Sunstone had approximately $198.2 million in cash and cash equivalents at the end of March, including restricted cash of $72 million and total consolidated debt of $1.6 billion. The company owns, acquires and renovates full-service hotels across the United States operating them under well-known brand names such as Marriot, Hiton, Fairmont and Sheraton.

Sunstone currently retains a Zacks No. 2 Rank, which translates into a short-term "buy" rating. We also have a long-term "neutral" recommendation on the stock. One of its competitors, Host Hotels & Resorts (HST) also holds a Zacks No. 2 Rank.

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