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CORRECTED-UPDATE 2-Sunstone buys two hotel loans for $3.7 mln

By Abhishek Takle BANGALORE, May 10 (Reuters) - Lodging real estate investment trust Sunstone Hotel Investors Inc said it purchased two hotel loans for about $3.7 million, as it works its way around a sluggish market for hotel deals. Shares of the company rose 9 percent to an intra-day high of $12.50. The Dow Jones U.S. Hotels Index was up 7 percent late Monday morning. The company said it bought a $30 million, 8.5 percent mezzanine loan secured by equity interests in its Double Tree Guest Suites Times Square joint venture, maturing January 2017. The company, which primarily owns upper-upscale hotels operated by brands like Marriott, Hilton and Hyatt also bought a $2.5 million, 8.075 percent subordinate note secured by boutique-hotel Twelve Atlantic Station in Atlanta, Georgia. "Sunstone probably views these as better investments from a shareholder perspective than buying hotels for which we know it's difficult to find bargain basement prices right now," Deutsche Bank analyst Chris Woronka told Reuters. Like several buyers looking to buy assets at discounted prices, Sunstone has run up against a valuation gap where sellers are reluctant to sell, holding out instead for higher prices in anticipation of a recovery. To get past this, the company is exploring hotel debt and portfolio transactions. "Dollar outlay is small doesn't mean they wont acquire hotel assets. For now this is the most attractive investment they could find with those same dollars," Woronka said. Separately, for the first quarter the company reported funds from operations or FFO of 4 cents a share and said revenue per available room rose 6.5 percent. The company had pre-announced these numbers in April. (Reporting by Abhishek Takle; Editing by Unnikrishnan Nair) Keywords: SUNSTONEHOTELS/ (abhishek.takle@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S.

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