Sunstone Hotel Investors Reports Operating Results for Fourth Quarter and Full Year 2011

ALISO VIEJO, Calif., Feb. 21, 2012 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) today announced results for the fourth quarter and year ended December 31, 2011.

Full Year 2011 Operational Results (as compared to Full Year 2010) (1):

  • Comparable Hotel RevPAR increased 7.2% to $123.91.
  • Comparable Hotel EBITDA Margin increased by 130 basis points to 27.8%.
  • Adjusted EBITDA increased by 33.8% to $212.5 million.
  • Adjusted FFO available to common stockholders per diluted share increased by 52.6% to $0.87.
  • Income available to common stockholders was $53.0 million (vs. $17.8 million in 2010).
  • Income available to common stockholders per diluted share was $0.45 (vs. $0.18 in 2010).

Fourth Quarter 2011 Operational Results (as compared to Fourth Quarter 2010) (1):

  • Comparable Hotel RevPAR increased 5.9% to $123.36.
  • Comparable Hotel EBITDA Margin increased by 90 basis points to 28.7%.
  • Adjusted EBITDA increased by 42.7% to $63.9 million.
  • Adjusted FFO available to common stockholders per diluted share increased by 45.0% to $0.29.
  • Income available to common stockholders was $43,000 (vs. $30.4 million in 2010).
  • Income available to common stockholders per diluted share was zero (vs. $0.28 in 2010).

Ken Cruse, President and Chief Executive Officer, stated, "During 2011 we established a new leadership team, improved our corporate governance structure and redefined our long-term strategy around three fundamentals: enhanced hotel profitability through aggressive asset management and capital investment; disciplined growth through selective acquisitions and capital recycling; and measured improvement of our cost of capital by methodically reducing our financial leverage. We continued our focus on enhanced hotel profitability by strengthening our asset management team, which helped drive a solid 130 basis point improvement in hotel EBITDA margins on a 7.2% increase in RevPAR.  Additionally, we invested over $100 million renovating our existing portfolio, which is now well positioned to capitalize on the lodging recovery.  Our focus on disciplined growth led to the acquisition of three high-quality hotels during 2011: the 1,190-room Hilton San Diego Bayfront; the 460-room Doubletree Guest Suites Times Square; and the 496-room JW Marriott New Orleans. Finally, we focused on measured reductions in our financial leverage by refinancing our only 2011 debt maturity, partially with cash on hand, while taking steps to improve liquidity through the sale of non-core assets.  Furthermore, we improved our transparency and accountability by implementing a stockholder-friendly supplemental disclosure package.  Looking ahead, we believe the combination of positive industry fundamentals, our highly focused and experienced team, strong liquidity, and our high-quality, recently renovated portfolio represent a compelling formula for growth and the creation of shareholder value."  

(1)

Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 32 Hotel Portfolio, which includes all hotels held for investment by the Company as of December 31, 2011. Comparable Hotel EBITDA Margin information excludes current and prior year real estate tax credits or charges. The Comparable 32 Hotel Portfolio also includes prior ownership results for the Doubletree Guest Suites Times Square acquired by the Company in January 2011, the JW Marriott New Orleans acquired by the Company in February 2011, and the Hilton San Diego Bayfront acquired by the Company in April 2011, for all periods presented. The Comparable 32 Hotel Portfolio for the year ended December 31, 2010 also includes results for the Renaissance Westchester during the period it was held in receivership prior to the Company's reacquisition of the hotel in June 2010.



SELECTED FINANCIAL DATA

($ in millions, except RevPAR and per share amounts)

(unaudited)












Three Months Ended December 31,


Year Ended December 31,


2011

2010

% Change


2011

2010

% Change











Total Revenue

$           245.1

$   176.9

38.6%


$   834.7

$   624.5

33.7%

Comparable Hotel RevPAR

$         123.36

$ 116.52

5.9%


$ 123.91

$ 115.54

7.2%











Comparable Hotel EBITDA Margin

28.7%

27.8%

90 bps


27.8%

26.5%

130 bps











Income available to common stockholders

$               0.0

$     30.4




$     53.0

$     17.8



Income available to common stockholders per diluted share

$             0.00

$     0.28




$     0.45

$     0.18



EBITDA

$             63.7

$     79.8




$   292.7

$   227.8



Adjusted EBITDA

$             63.9

$     44.8




$   212.5

$   158.8



FFO available to common stockholders

$             33.3

$     55.8




$   167.4

$   120.9



Adjusted FFO available to common stockholders

$             34.6

$     21.2




$   102.1

$     57.5



FFO available to common stockholders per diluted share (1)

$             0.28

$     0.52




$     1.43

$     1.21



Adjusted FFO available to common stockholders per diluted share (1)

$             0.29

$     0.20




$     0.87

$     0.57





(1)

Reflects the Series C convertible preferred stock on a "non-converted" basis. On an "as-converted" basis, FFO available to common stockholders per diluted share is $0.30 and $0.51, respectively, for the three months ended December 31, 2011 and 2010, and $1.43 and $1.22, respectively, for the years ended December 31, 2011 and 2010. On an "as-converted" basis, Adjusted FFO available to common stockholders per diluted share is $0.31 and $0.20, respectively, for the three months ended December 31, 2011 and 2010, and $0.89 and $0.61, respectively, for the years ended December 31, 2011 and 2010.



Disclosure regarding the non-GAAP financial measures in this release is included on pages 5 and 6. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 9 through 13 of this release.  

The Company's actual results for the year ended December 31, 2011 compare to its 2011 guidance as follows:

Metric

FY 2011
Prior Guidance (1)

FY 2011 Actual

Performance
Relative to Prior
Midpoint

Comparable Hotel RevPAR

+6% - 8%

+7.2%

+0.2%

Net Income ($ millions)

$76 - $81

$81.3

+$2.8

Adjusted EBITDA ($ millions)

$204 - $209

$212.5

+$6.0

Adjusted FFO ($ millions)

$93 - $98

$102.1

+$6.6

Adjusted FFO per diluted share

$0.79 - $0.84

$0.87

+$0.06



(1)

Reflects guidance presented on 11/07/2011. The net loss included in the prior guidance has been adjusted to include gains on the sales of the Royal Palm Miami Beach and the Valley River Inn ($14.9M), gain on the remeasurement of equity interests ($69.2M), gain on the extinguishment of debt related to discontinued operations ($18.1M) and impairment loss on the Royal Palm note ($10.9M).



Balance Sheet/Liquidity Update

As of December 31, 2011, the Company had approximately $218.4 million of cash and cash equivalents, including restricted cash of $67.9 million, total assets of $3.1 billion, including $2.8 billion of net investments in hotel properties, total consolidated debt of $1.6 billion and stockholders' equity of $1.3 billion.

On February 8, 2012, the Company repurchased $4.5 million of its 4.60% Exchangeable Senior Notes (the "Senior Notes") for a price of $4.57 million plus accrued interest of approximately $13,000. Subsequent to the repurchase, there are $58.0 million of the Senior Notes outstanding.  The Company's only near-term debt maturities include the $32.0 million mortgage secured by the Renaissance Long Beach and the Senior Notes, both of which are likely to be retired with a portion of the Company's unrestricted cash balance of $150.5 million when they mature or are put to the Company in July 2012 and January 2013, respectively.

Capital Improvements

The Company invested $18.0 million in capital improvements into its portfolio during the fourth quarter of 2011, and $100.4 million during the year ended December 31, 2011. In 2011, the Company renovated 3,267 hotel rooms (25% of total rooms) and refurbished the common area, meeting space and/or restaurants at 13 hotels.

2012 Outlook

The Company is providing guidance at this time but does not undertake to make updates for any developments in its business or changes in the operating environment.  Achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission.  The Company's guidance does not take into account any future hotel acquisitions, dispositions, debt repurchases or financings during 2012.  

For the first quarter of 2012, the Company expects:


Metric

Quarter Ended
March 31, 2012
Guidance

Comparable Hotel RevPAR

+3% - 5%

Net Loss ($ millions)

$(19) - $(17)

Adjusted EBITDA ($ millions)

$38 - $40

Adjusted FFO ($ millions)

$9 - $11

Adjusted FFO per diluted share

$0.07 - $0.09



For the full year 2012, the Company expects:  

Metric

2012 FY Guidance

Comparable Hotel RevPAR

+4% - 6%

Net Income (Loss) ($ millions)

$(4) - $8

Adjusted EBITDA ($ millions)

$223 - $235

Adjusted FFO ($ millions)

$105 - $117

Adjusted FFO per diluted share

$0.90 - $1.00



Full year 2012 guidance includes the following assumptions:

  • Capital investment of $85 to $100 million, including the $25 million renovation of the Renaissance Washington DC.
  • Hotel revenue renovation disruption of $3 to $5 million.
  • Corporate overhead expense (excluding stock amortization and one-time expenses related to future acquisition closing costs) of $19 to $20 million.
  • Interest expense of approximately $83 to $85 million, including $4 million in amortization of deferred financing fees.
  • Preferred dividends (Series A, C, and D) of approximately $30 million.

Mr. Cruse continued, "Our leading indicators – strong group bookings, increases in negotiated account rates and higher government per-diems – imply continued growth in 2012 and beyond.  Despite well telegraphed instances of softness in certain markets such as Washington DC, we expect mid-single digit RevPAR growth, margin expansion and continued growth in Adjusted FFO per diluted share in 2012."

Dividend Update

For income tax reporting purposes, the Company paid cash dividends of $2.50 and $1.472222 per share to its Series A and Series D cumulative redeemable preferred stockholders, respectively, and $1.965 per share to its Series C cumulative convertible redeemable preferred stockholders for the tax year ended December 31, 2011. All of the 2011 preferred dividends are taxed as ordinary income. Dividends paid to the Series A, Series C and Series D preferred stockholders satisfied the Company's 2011 taxable distribution requirements.

On February 16, 2012, the Company's Board of Directors declared a cash dividend of $0.50 per share payable to its Series A and Series D cumulative redeemable preferred stockholders and a cash dividend of $0.393 per share payable to its Series C cumulative convertible redeemable preferred stockholders. The dividends will be paid on or before April 15, 2012 to stockholders of record on March 31, 2012.  No dividend was declared on the Company's common stock.

Subject to certain limitations, the Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income, which may be reduced through the application of net operating losses. The level of any future dividends will be determined by the Company's Board of Directors after considering taxable income projections, expected capital requirements, risks affecting the Company's business and in context of the Company's leverage-reduction initiatives.  As a result, common stock dividends may be made in the form of cash or a combination of cash and stock consistent with Internal Revenue Service guidelines.

Supplemental Disclosures

Contemporaneous with this release, the Company has furnished a Form 8-K with unaudited financial information. This additional information is being provided as a supplement to information prepared in accordance with generally accepted accounting principles. The Company undertakes no obligation to update any of the information provided to conform to actual results or changes in the Company's portfolio, capital structure or future expectations.

Earnings Call

The Company will host a conference call to discuss fourth quarter and full year 2011 results on February 22, 2012, at 12:00 p.m. EST (9:00 a.m. PST). A live web cast of the call will be available via the Investor Relations section of the Company's website.  Alternatively, investors may dial 1-877-941-9205 (for domestic callers) or 1-480-629-9645 (for international callers). A replay of the web cast will also be archived on the website.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. ("Sunstone") is a lodging real estate investment trust ("REIT") that, as of December 31, 2011, has interests in 32 hotels comprised of 13,208 rooms.  Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Fairmont, Hyatt and Sheraton. For further information, please visit Sunstone's website at www.sunstonehotels.com.

Sunstone's mission is to create meaningful value for our stockholders by becoming the premier hotel owner.  Our values include transparency, trust, ethical conduct, communication and discipline.  We seek to employ a balanced, cycle-appropriate corporate strategy that encompasses the following:

  • Proactive portfolio management;
  • Intensive asset management;
  • Disciplined external growth; and
  • Measured balance sheet improvement.

This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will" and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: volatility in the debt or equity markets affecting our ability to acquire or sell hotel assets; national and local economic and business conditions, including the likelihood of a prolonged U.S. recession; the ability to maintain sufficient liquidity and our access to capital markets; potential terrorist attacks, which would affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt and equity agreements; relationships with property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine wages, prices, construction procedures and costs; our ability to identify, successfully compete for and complete acquisitions; the performance of hotels after they are acquired; necessary capital expenditures and our ability to fund them and complete them with minimum disruption; our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes; and other risks and uncertainties associated with our business described in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All forward-looking information in this release is as of February 21, 2012, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

This release should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q. Copies of these reports are available on our website at www.sunstonehotels.com and through the SEC's Electronic Data Gathering Analysis and Retrieval System ("EDGAR") at www.sec.gov.

Non-GAAP Financial Measures

We present the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; Adjusted EBITDA (as defined below); Funds From Operations, or FFO; Adjusted FFO (as defined below); and comparable hotel EBITDA and comparable hotel EBITDA margin.

EBITDA represents net income (loss) excluding: non-controlling interests; interest expense; provision for income taxes, including income taxes applicable to sale of assets; and depreciation and amortization. In addition, we have presented Adjusted EBITDA, which excludes: amortization of deferred stock compensation; the impact of any gain or loss from asset sales; impairment charges; and any other adjustments we have identified in this release. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because these measures help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from our operating results. We also use EBITDA and Adjusted EBITDA as measures in determining the value of hotel acquisitions and dispositions. A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth on page 9.  Reconciliations and the components of comparable hotel EBITDA and comparable hotel EBITDA margin are set forth on pages 12 and 13. We believe comparable hotel EBITDA and comparable hotel EBITDA margin are also useful to investors in evaluating our property-level operating performance.

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group. The Board of Governors of NAREIT in its March 1995 White Paper (as clarified in November 1999 and April 2002) defines FFO to mean net income (loss) (computed in accordance with GAAP), excluding non-controlling interests, gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs) and real estate-related impairment losses, and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes penalties, written-off deferred financing costs, non-real estate-related impairment losses and any other adjustments we have identified in this release. We believe that the presentation of FFO and Adjusted FFO provide useful information to investors regarding our operating performance because they are measures of our operations without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of assets and certain other items which we believe are not indicative of the performance of our underlying hotel properties.  We believe that these items are more representative of our asset base and our acquisition and disposition activities than our ongoing operations. We also use FFO as one measure in determining our results after taking into account the impact of our capital structure.  A reconciliation of net income to FFO and Adjusted FFO is set forth on page 9.  

The revenue and expense items associated with our commercial laundry facility, BuyEfficient and other miscellaneous non-hotel items have been excluded in presenting comparable hotel EBITDA margins. Management believes the calculation of comparable hotel EBITDA results in a more accurate presentation of hotel EBITDA margins of the Company's 32 comparable hotels. See pages 12 and 13 for reconciliations of comparable hotel EBITDA to the most comparable GAAP measure. Our 32 comparable hotels include all hotels in which the Company has interests as of December 31, 2011, plus the results of operations for the Renaissance Westchester during the period it was held in receivership prior to the Company's reacquisition of the hotel in June 2010, as well as prior ownership results for the Doubletree Guest Suites Times Square acquired by the Company in January 2011, the JW Marriott New Orleans acquired by the Company in February 2011, and the Hilton San Diego Bayfront acquired by the Company in April 2011.

We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the same manner. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin should not be considered as an alternative measure of our net income (loss), operating performance, cash flow or liquidity. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin can enhance an investor's understanding of our results of operations, these non-GAAP financial measures, when viewed individually, are not necessarily a better indicator of any trend as compared to GAAP measures such as net income (loss) or cash flow from operations. In addition, you should be aware that adverse economic and market conditions may harm our cash flow.

For Additional Information:

Bryan Giglia
Senior Vice President – Corporate Finance
Sunstone Hotel Investors, Inc.
(949) 382-3036

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)










December 31,


December 31,



2011


2010






Assets




Current assets:





Cash and cash equivalents

$        150,533


$        276,034


Restricted cash

67,898


54,954


Accounts receivable, net

32,536


17,285


Due from affiliates

6


44


Inventories

2,608


2,101


Prepaid expenses

10,272


7,808


Investment in hotel properties of discontinued operations, net

-


131,404


Investment in other real estate of discontinued operations, net

-


896


Other current assets of discontinued operations, net

-


5,128

Total current assets

263,853


495,654






Investment in hotel properties, net

2,777,826


1,902,819

Other real estate, net

11,859


11,116

Investments in unconsolidated joint ventures

-


246

Deferred financing fees, net

14,651


8,855

Interest rate cap derivative agreements

386


-

Goodwill

13,088


4,673

Other assets, net

19,577


12,743






Total assets

$     3,101,240


$     2,436,106






Liabilities and Equity




Current liabilities:





Accounts payable and accrued expenses

$          26,854


$          20,889


Accrued payroll and employee benefits

20,863


12,674


Due to Third-Party Managers

9,227


7,573


Dividends payable

7,437


5,137


Other current liabilities

28,465


16,907


Current portion of notes payable

53,935


16,196


Note payable of discontinued operations

-


11,773


Other current liabilities of discontinued operations, net

-


21,600

Total current liabilities

146,781


112,749






Notes payable, less current portion

1,516,542


1,115,334

Interest rate swap derivative agreement

1,567


-

Other liabilities

11,056


8,724

Total liabilities

1,675,946


1,236,807






Commitments and contingencies

-


-






Preferred stock, Series C Cumulative Convertible Redeemable Preferred





Stock, $0.01 par value, 4,102,564 shares authorized, issued and





outstanding at December 31, 2011 and 2010, liquidation





preference of $24.375 per share

100,000


100,000






Equity:





Stockholders' equity:





Preferred stock, $0.01 par value, 100,000,000 shares authorized.





    8.0% Series A Cumulative Redeemable Preferred Stock,





         7,050,000 shares issued and outstanding at December 31, 2011 and 2010,





         stated at liquidation preference of $25.00 per share

176,250


176,250


    8.0% Series D Cumulative Redeemable Preferred Stock,





         4,600,000 shares issued and outstanding at December 31, 2011 and zero issued





         and outstanding at December 31, 2010, stated at liquidation preference of





         $25.00 per share

115,000


-


Common stock, $0.01 par value, 500,000,000 shares authorized,





     117,265,090 shares issued and outstanding at December 31, 2011 and





     116,950,504 shares issued and outstanding at December 31, 2010

1,173


1,170


Additional paid in capital

1,312,566


1,313,498


Retained earnings

110,580


29,593


Cumulative dividends

(445,396)


(418,075)


Accumulated other comprehensive loss

(4,916)


(3,137)

Total stockholders' equity

1,265,257


1,099,299

Non-controlling interest in consolidated joint ventures

60,037


-

Total equity

1,325,294


1,099,299






Total liabilities and equity

$     3,101,240


$     2,436,106



Sunstone Hotel Investors, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)





















Three Months Ended December 31,


Year Ended December 31,



2011


2010


2011


2010










Revenues









Room


$ 164,945


$ 116,910


$ 572,289


$ 418,943

Food and beverage


62,043


48,159


196,524


159,365

Other operating


18,095


11,821


65,916


46,236

Total revenues


245,083


176,890


834,729


624,544

Operating expenses









Room


41,552


30,410


144,334


107,788

Food and beverage


42,406


34,088


143,120


116,856

Other operating


7,033


6,152


26,092


23,265

Advertising and promotion


12,627


9,443


41,952


32,225

Repairs and maintenance


9,896


7,914


33,766


27,161

Utilities


8,496


6,777


31,014


24,527

Franchise costs


8,439


5,596


29,115


21,474

Property tax, ground lease and insurance


17,661


9,626


63,423


40,980

Property general and administrative


28,629


21,336


98,642


74,535

Corporate overhead


4,830


7,461


25,746


21,971

Depreciation and amortization


34,888


23,110


127,945


92,374

Impairment loss


-


-


10,862


1,943

Total operating expenses


216,457


161,913


776,011


585,099

Operating income


28,626


14,977


58,718


39,445

Equity in earnings of unconsolidated joint ventures


-


80


21


555

Interest and other income


145


121


3,118


111

Interest expense


(22,236)


(16,939)


(82,965)


(70,174)

Gain on remeasurement of equity interests


-


-


69,230


-

Income (loss) from continuing operations


6,535


(1,761)


48,122


(30,063)

Income from discontinued operations


1,053


37,433


33,177


68,605

Net income


7,588


35,672


81,299


38,542

Income from consolidated joint venture attributable to non-controlling interest


(99)


-


(312)


-

Distributions to non-controlling interest


(8)


-


(30)


-

Preferred stock dividends and accretion


(7,437)


(5,137)


(27,321)


(20,652)

Undistributed income allocated to unvested restricted stock compensation


(1)


(174)


(636)


(102)

Income available to common stockholders


$          43


$   30,361


$   53,000


$   17,788










Basic per share amounts:









       Income (loss) from continuing operations available (attributable) to common stockholders


$     (0.01)


$     (0.07)


$       0.17


$     (0.51)

       Income from discontinued operations


0.01


0.35


0.28


0.69

Basic income available to common stockholders per common share


$           -


$       0.28


$       0.45


$       0.18










Diluted per share amounts:









       Income (loss) from continuing operations available (attributable) to common stockholders


$     (0.01)


$     (0.07)


$       0.17


$     (0.51)

       Income from discontinued operations


0.01


0.35


0.28


0.69

Diluted income available to common stockholders per common share


$           -


$       0.28


$       0.45


$       0.18










Weighted average common shares outstanding:









      Basic


117,265


107,266


117,206


99,709

      Diluted


117,265


107,266


117,206


99,709



Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

(Unaudited and in thousands, except per share amounts)








Reconciliation of Net Income to EBITDA and Adjusted EBITDA














Three Months Ended


Year Ended


December 31,


December 31,


2011

2010


2011

2010







Net income

$   7,588

$ 35,672


$   81,299

$   38,542

Operations held for investment:






  Depreciation and amortization

34,888

23,110


127,945

92,374

  Amortization of lease intangibles

1,036

55


4,007

281

  Interest expense

20,414

16,057


75,995

64,813

  Interest expense - default rate

-

-


-

884

  Amortization of deferred financing fees

967

492


3,232

1,585

  Write-off of deferred financing fees

21

-


21

1,585

  Loan penalties and fees

-

137


-

311

  Non-cash interest related to discount on Senior Notes

270

253


1,062

996

  Non-cash interest related to loss on derivatives

564

-


2,655

-

Non-controlling interests:






  Income from consolidated joint venture attributable to non-controlling interest

(99)

-


(312)

-

  Depreciation and amortization

(1,416)

-


(4,014)

-

  Interest expense

(557)

-


(1,562)

-

  Amortization of deferred financing fees

(57)

-


(160)

-

  Non-cash interest related to gain (loss) on derivative

1

-


(31)

-

Unconsolidated joint ventures:






  Depreciation and amortization

-

12


3

52

Discontinued operations:






  Depreciation and amortization

-

2,216


1,951

8,558

  Interest expense

43

969


515

9,283

  Interest expense - default rate

-

679


-

7,071

  Amortization of deferred financing fees

1

47


10

453

  Write-off of deferred financing fees

42

-


42

-

  Loan penalties and fees

-

94


-

1,021

EBITDA

63,706

79,793


292,658

227,809







Operations held for investment:






  Amortization of deferred stock compensation

575

1,537


2,745

3,942

  Non-cash straightline lease expense

696

206


2,398

944

  (Gain) loss on sale of assets

(10)

(1)


(83)

382

  Gain on remeasurement of equity interests

-

-


(69,230)

-

  Due diligence costs - abandoned project

-

21


-

959

  Closing costs - completed acquisitions

31

-


3,403

-

  Impairment loss

-

-


10,862

1,943

  Lawsuit settlement costs

-

-


1,620

-

  Costs associated with CEO severance

-

2,242


-

2,242

Non-controlling interests:






  Non-cash straightline lease expense

(111)

-


(354)

-

Unconsolidated joint ventures:






  Amortization of deferred stock compensation

-

11


2

32

Discontinued operations:






  Gain on sale of assets

(946)

-


(14,912)

-

  Impairment loss

-

-


1,495

-

  Gain on extinguishment of debt

-

(39,015)


(18,145)

(86,235)

  Closing costs - completed acquisition

-

22


-

6,796


235

(34,977)


(80,199)

(68,995)







Adjusted EBITDA

$ 63,941

$ 44,816


$ 212,459

$ 158,814













Reconciliation of Net Income to FFO and Adjusted FFO













Net income

$   7,588

$ 35,672


$   81,299

$   38,542

Preferred stock dividends

(7,437)

(5,137)


(27,321)

(20,652)

Operations held for investment:






  Real estate depreciation and amortization

34,590

22,966


126,776

91,824

  Real estate impairment loss

-

-


-

1,943

  Amortization of lease intangibles

1,036

55


4,007

281

  (Gain) loss on sale of assets

(10)

(1)


(83)

382

Non-controlling interests:






  Income from consolidated joint venture attributable to non-controlling interest

(99)

-


(312)

-

  Real estate depreciation and amortization

(1,416)

-


(4,014)

-

Discontinued operations:






  Real estate depreciation and amortization

-

2,216


1,951

8,558

  Gain on sale of assets

(946)

-


(14,912)

-

FFO available to common stockholders

33,306

55,771


167,391

120,878







Operations held for investment:






  Interest expense - default rate

-

-


-

884

  Write-off of deferred financing fees

21

-


21

1,585

  Loan penalties and fees

-

137


-

311

  Non-cash straightline lease expense

696

206


2,398

944

  Non-cash interest related to loss on derivatives

564

-


2,655

-

  Gain on remeasurement of equity interests

-

-


(69,230)

-

  Due diligence costs - abandoned project

-

21


-

959

  Closing costs - completed acquisitions

31

-


3,403

-

  Impairment loss

-

-


10,862

-

  Lawsuit settlement costs

-

-


1,620

-

  Costs associated with CEO severance

-

2,242


-

2,242

  Amortization of deferred stock compensation associated with CEO severance

-

1,074


-

1,074

Non-controlling interests:






  Non-cash straightline lease expense

(111)

-


(354)

-

  Non-cash interest related to gain (loss) on derivative

1

-


(31)

-

Discontinued operations:






  Interest expense - default rate

-

679


-

7,071

  Write-off of deferred financing fees

42

-


42

-

  Loan penalties and fees

-

94


-

1,021

  Impairment loss

-

-


1,495

-

  Gain on extinguishment of debt

-

(39,015)


(18,145)

(86,235)

  Closing costs - completed acquisition

-

22


-

6,796


1,244

(34,540)


(65,264)

(63,348)







Adjusted FFO available to common stockholders

$ 34,550

$ 21,231


$ 102,127

$   57,530







FFO available to common stockholders per diluted share

$     0.28

$     0.52


$       1.43

$       1.21







Adjusted FFO available to common stockholders per diluted share

$     0.29

$     0.20


$       0.87

$       0.57







Basic weighted average shares outstanding

117,265

107,266


117,206

99,709

Shares associated with unvested restricted stock awards

-

441


84

390

Diluted weighted average shares outstanding (1)

117,265

107,707


117,290

100,099



(1)

Diluted weighted average shares outstanding includes the Series C convertible preferred stock on a "non-converted" basis.  On an "as-converted" basis, FFO available to common stockholders per diluted share is $0.30 and $0.51, respectively, for the three months ended December 31, 2011 and 2010, and $1.43 and $1.22, respectively, for the years ended December 31, 2011 and 2010.  On an "as-converted" basis,  Adjusted FFO available to common stockholders per diluted share is $0.31 and $0.20, respectively, for the three months ended December 31, 2011 and 2010, and $0.89 and $0.61, respectively, for the years ended December 31, 2011 and 2010.



Sunstone Hotel Investors, Inc.

Reconciliation of Net Loss to Non-GAAP Financial Measures

Guidance for First Quarter 2012

(Unaudited and in thousands except per share amounts)






Reconciliation of Net Loss to Adjusted EBITDA






Quarter Ended


March 31, 2012


Low

High




Net loss

$ (18,650)

$ (16,650)

  Depreciation and amortization

35,000

35,000

  Amortization of lease intangibles

1,000

1,000

  Interest expense

20,250

20,250

  Amortization of deferred financing fees

1,000

1,000

  Non-controlling interests

(2,500)

(2,500)

  Non-cash interest related to discount on Senior Notes

275

275

  Amortization of deferred stock compensation

875

875

  Non-cash straightline lease expense

750

750

Adjusted EBITDA

$  38,000

$  40,000







Reconciliation of Net Loss to Adjusted FFO







Net loss

$ (18,650)

$ (16,650)

  Preferred stock dividends

(7,500)

(7,500)

  Real estate depreciation and amortization

34,750

34,750

  Non-controlling interests

(1,750)

(1,750)

  Amortization of lease intangibles

1,000

1,000

  Non-cash straightline lease expense

750

750

Adjusted FFO available to common stockholders

$    8,600

$  10,600







Adjusted FFO available to common stockholders per diluted share

$      0.07

$      0.09




Diluted weighted average shares outstanding

117,800

117,800



Sunstone Hotel Investors, Inc.

Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures

Guidance for Full Year 2012

(Unaudited and in thousands except per share amounts)





Reconciliation of Net Income (Loss) to Adjusted EBITDA






Year Ended


December 31, 2012


Low

High




Net income (loss)

$   (3,600)

$     8,400

  Depreciation and amortization

140,000

140,000

  Amortization of lease intangibles

4,000

4,000

  Interest expense

81,000

81,000

  Amortization of deferred financing fees

4,000

4,000

  Non-controlling interests

(10,000)

(10,000)

  Non-cash interest related to discount on Senior Notes

1,100

1,100

  Amortization of deferred stock compensation

3,500

3,500

  Non-cash straightline lease expense

3,000

3,000

Adjusted EBITDA

$ 223,000

$ 235,000







Reconciliation of Net Income (Loss) to Adjusted FFO







Net income (loss)

$   (3,600)

$     8,400

  Preferred stock dividends

(30,000)

(30,000)

  Real estate depreciation and amortization

139,000

139,000

  Non-controlling interests

(7,000)

(7,000)

  Amortization of lease intangibles

4,000

4,000

  Non-cash straightline lease expense

3,000

3,000

Adjusted FFO available to common stockholders

$ 105,400

$ 117,400







Adjusted FFO available to common stockholders per diluted share

$       0.90

$       1.00




Diluted weighted average shares outstanding

117,800

117,800



Sunstone Hotel Investors, Inc.

Comparable Hotel EBITDA Margins

(Unaudited and in thousands except hotels and rooms)





Three Months Ended December 31, 2011



Three Months Ended December 31, 2010


Actual (1)



Actual (2)


Acquired Hotels (3)


Comparable (4)

Number of Hotels

32



29


3


32

Number of Rooms

13,208



11,062


2,146


13,208










Hotel EBITDA Margin (5)

28.7%



25.9%


36.1%


28.4%

Hotel EBITDA Margin adjusted for prior year property tax credits (6)

28.7%



25.1%




27.8%










Hotel Revenues









    Room revenue

$         164,945



$         116,910


$         38,790


$         155,700

    Food and beverage revenue

62,043



48,159


11,202


59,361

    Other operating revenue

13,374



8,633


4,400


13,033

Total Hotel Revenues

240,362



173,702


54,392


228,094










Hotel Expenses









    Room expense

41,711



30,697


8,724


39,421

    Food and beverage expense

42,437



34,139


7,887


42,026

    Other hotel expense

60,046



42,740


13,288


56,028

    General and administrative expense

27,289



21,057


4,832


25,889

Total Hotel Expenses

171,483



128,633


34,731


163,364










Hotel EBITDA

68,879



45,069


19,661


64,730

Prior year property tax credits

-



(1,429)


-


(1,429)

Hotel EBITDA adjusted for prior year property tax credits

68,879



43,640


19,661


63,301










Non-hotel operating income

1,197



740


-


740

Amortization of lease intangibles

(1,036)



(55)


(1,007)


(1,062)

Non-cash straightline lease expense

(696)



(206)


(489)


(695)

Prior year property tax credits

-



1,429


-


1,429

Corporate overhead

(4,830)



(7,461)


-


(7,461)

Depreciation and amortization

(34,888)



(23,110)


(7,261)


(30,371)

Operating Income

28,626



14,977


10,904


25,881










Equity in earnings of unconsolidated joint ventures

-



80


-


80

Interest and other income

145



121


-


121

Interest expense

(22,236)



(16,939)


(3,886)


(20,825)

Income from discontinued operations

1,053



37,433


-


37,433

Net Income

$         7,588



$         35,672


$         7,018


$         42,690












(1)

Actual represents the Company's ownership results for the 32 hotels held for investment as of December 31, 2011.

(2)

Actual represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010. Excludes the Royal Palm Miami Beach, which was sold in April 2011, and the Valley River Inn, which was sold in October 2011.  Room count as of December 31, 2010 has been adjusted by 6 additional rooms which were added to the Courtyard by Marriott Los Angeles during the second quarter of 2011.

(3)

Acquired Hotels represents prior ownership results for the Doubletree Guest Suites Times Square acquired by the Company on January 14, 2011, the JW Marriott New Orleans acquired by the Company on February 15, 2011, and the Hilton San Diego Bayfront acquired by the Company on April 15, 2011.  Room count as of December 31, 2010 has been adjusted by 2 additional rooms which were added to the JW Marriott New Orleans during the fourth quarter of 2011.

(4)

Comparable represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010, plus the Doubletree Guest Suites Times Square acquired by the Company on January 14, 2011, the JW Marriott New Orleans acquired by the Company on February 15, 2011, and the Hilton San Diego Bayfront acquired by the Company on April 15, 2011.

(5)

Hotel EBITDA Margin is calculated as Hotel EBITDA divided by Total Hotel Revenues.

(6)

Hotel EBITDA Margin for the three months ended December 31, 2010 includes the benefit of $1.4 million in prior year property tax credits. Without this benefit, Comparable Hotel EBITDA Margin for the three months ended December 31, 2010 would have been 27.8%, or 90 basis points lower than the three months ended December 31, 2011.



Sunstone Hotel Investors, Inc.

Comparable Hotel EBITDA Margins

(Unaudited and in thousands except hotels and rooms)








































Year Ended December 31, 2011


Year Ended December 31, 2010


Actual (1)


Acquired Hotels (2)


Comparable (3)



Actual (4)


Reacquired Hotel (5)


Acquired Hotels (2)


Comparable (6)

Number of Hotels

32




32



29




3


32

Number of Rooms

13,208




13,208



11,062




2,146


13,208
















Hotel EBITDA Margin (7)

27.6%


32.3%


27.8%



25.1%


10.9%


32.4%


26.7%

Hotel EBITDA Margin adjusted for prior year property tax credits, net (8)

27.5%




27.8%



24.9%






26.5%
















Hotel Revenues















    Room revenue

$         572,289


$         24,150


$         596,439



$         418,943


$         4,931


$         132,022


$         555,896

    Food and beverage revenue

196,524


11,753


208,277



159,365


3,114


40,259


202,738

    Other operating revenue

47,541


2,873


50,414



33,754


240


16,240


50,234

Total Hotel Revenues

816,354


38,776


855,130



612,062


8,285


188,521


808,868
















Hotel Expenses















    Room expense

145,137


5,926


151,063



109,140


1,417


30,733


141,290

    Food and beverage expense

143,289


7,589


150,878



117,016


2,355


28,028


147,399

    Other hotel expense

208,855


9,120


217,975



158,756


2,403


50,460


211,619

    General and administrative expense

93,672


3,597


97,269



73,222


1,203


18,144


92,569

Total Hotel Expenses

590,953


26,232


617,185



458,134


7,378


127,365


592,877
















Hotel EBITDA

225,401


12,544


237,945



153,928


907


61,156


215,991

Prior year property tax credits, net

(600)


-


(600)



(1,429)


-


-


(1,429)

Hotel EBITDA adjusted for prior year property tax credits, net

224,801


12,544


237,345



152,499


907


61,156


214,562
















Non-hotel operating income

4,357


-


4,357



3,262


-


-


3,262

Amortization of lease intangibles

(4,007)


(140)


(4,147)



(281)


-


(4,028)


(4,309)

Non-cash straightline lease expense

(2,398)


(386)


(2,784)



(944)


-


(1,963)


(2,907)

Management company transition costs

(82)


-


(82)



(232)


-


-


(232)

Prior year property tax credits, net

600


-


600



1,429


-


-


1,429

Corporate overhead

(25,746)


-


(25,746)



(21,971)


-


-


(21,971)

Depreciation and amortization

(127,945)


(6,308)


(134,253)



(92,374)


(561)


(29,046)


(121,981)

Impairment loss

(10,862)


-


(10,862)



(1,943)






(1,943)

Operating Income

58,718


5,710


64,428



39,445


346


26,119


65,910
















Equity in earnings of unconsolidated joint ventures

21


-


21



555


-


-


555

Interest and other income

3,118


-


3,118



111


-


-


111

Interest expense

(82,965)


(3,008)


(85,973)



(70,174)


-


(15,657)


(85,831)

Gain on remeasurement of equity interests

69,230


-


69,230



-


-


-


-

Income from discontinued operations

33,177


-


33,177



68,605


-


-


68,605

Net Income

$         81,299


$         2,702


$         84,001



$         38,542


$         346


$         10,462


$         49,350



(1)

Actual represents the Company's ownership results for the 32 hotels held for investment as of December 31, 2011.

(2)

Acquired Hotels represents prior ownership results for the Doubletree Guest Suites Times Square acquired by the Company on January 14, 2011, the JW Marriott New Orleans acquired by the Company on February 15, 2011, and the Hilton San Diego Bayfront acquired by the Company on April 15, 2011. Room count as of December 31, 2010 has been adjusted by 2 additional rooms which were added to the JW Marriott New Orleans during the fourth quarter of 2011.

(3)

Comparable represents the Company's ownership results and prior ownership results for the 32 comparable hotels held for investment as of December 31, 2011.

(4)

Actual represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010.  Excludes the Royal Palm Miami Beach which was sold in April 2011, the Valley River Inn which was sold in October 2011,  the W San Diego which was deeded back to the lender in July 2010, the Marriott Ontario Airport which was sold by the receiver in August 2010, and eight hotels included in the Mass Mutual portfolio deeded back to the lender in November 2010, which have been reclassified as discontinued operations for the year ended December 31, 2010.  Room count as of December 31, 2010 has been adjusted by 6 additional rooms which were added to the Courtyard by Marriott Los Angeles during the second quarter of 2011.

(5)

Reacquired Hotel represents operating results for the Renaissance Westchester while it was held in receivership prior to the Company's reacquisition of the hotel on June 14, 2010.

(6)

Comparable represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010, plus the Renaissance Westchester during the period it was held in receivership prior to the Company's reacquisition of the hotel on June 14, 2010, the Doubletree Guest Suites Times Square acquired by the Company on January 14, 2011, the JW Marriott New Orleans acquired by the Company on February 15, 2011, and the Hilton San Diego Bayfront acquired by the Company on April 15, 2011.

(7)  

Hotel EBITDA Margin is calculated as Hotel EBITDA divided by Total Hotel Revenues.

(8)  

Hotel EBITDA Margin for the year ended December 31, 2011 includes the additional benefit of $0.9 million due to prior year property tax refunds, net of appeal fees, less additional expense of $0.3 million due to a prior year property tax assessment. Hotel EBITDA Margin for the year ended December 31, 2010 includes the benefit of $1.4 million in prior year property tax credits. Without the benefit of these tax adjustments, 2011 Comparable Hotel EBITDA Margin would have been 27.8%, or 130 basis points higher than 2010's Comparable Hotel EBITDA Margin of 26.5%.



SOURCE Sunstone Hotel Investors, Inc.



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