Sunstone Hotel Investors Reports Results For Fourth Quarter And Full Year 2012 Announces Executive Promotions

ALISO VIEJO, Calif., Feb. 19, 2013 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced results for the fourth quarter and year ended December 31, 2012.

Fourth Quarter 2012 Operational Results (as compared to Fourth Quarter 2011) (1):

  • Comparable Hotel RevPAR increased 3.6% to $137.02.
  • Comparable Hotel EBITDA Margin increased by 120 basis points to 30.2%.
  • Adjusted EBITDA increased by 6.6% to $68.2 million.
  • Adjusted FFO per diluted share increased by 3.4% to $0.30.
  • Income available to common stockholders was $3.6 million (vs. $43,000 in 2011).
  • Income available to common stockholders per diluted share was $0.03 (vs. zero in 2011).

Full Year 2012 Operational Results (as compared to Full Year 2011) (1):

  • Comparable Hotel RevPAR increased 5.6% to $139.22.
  • Comparable Hotel EBITDA Margin increased by 110 basis points to 28.9%.
  • Adjusted EBITDA increased by 14.1% to $242.5 million.
  • Adjusted FFO per diluted share increased by 16.1% to $1.01.
  • Income available to common stockholders was $17.8 million (vs. $53.0 million in 2011).
  • Income available to common stockholders per diluted share was $0.14 (vs. $0.45 in 2011).

Ken Cruse, Chief Executive Officer, stated, "In 2012 and thus far in 2013, we have made solid progress against our plan to create significant shareholder value while improving the quality and scale of our portfolio and gradually deleveraging our balance sheet.  We are currently working to further improve the quality and competitiveness of our portfolio through a number of high-quality renovations, and earlier this year we completed the sale of our low RevPAR Rochester hotel and laundry portfolio at an attractive valuation.  Also in January, we continued to improve our balance sheet by repaying our final $58 million of exchangeable senior notes and by initiating the par redemption of our $176 million 8% Series A Preferred securities.  Upon completion of the Series A redemption, we will have eliminated approximately $420 million of balance sheet leverage over the past year, which puts us on a clear path to achieve our long-term credit targets."   

Mr. Cruse continued, "Our portfolio is now comprised primarily of institutional grade hotels, well located within key growth markets.  Moreover, we now hold approximately $300 million of investable cash, a significant portion of which we intend to deploy toward quality hotel acquisitions, further improving the competitiveness and scale of our portfolio.  With the U.S. demand-to-supply ratio well above historical norms and our portfolio running at nearly 80% occupancy, industry fundamentals are constructive.  We expect to see material growth in Hotel EBITDA as the recovery in the lodging cycle continues." 

(1)

 

 

 

Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 26 Hotel Portfolio, which includes all hotels held for investment by the Company as of December 31, 2012, and also includes prior ownership results as applicable in 2012 and 2011 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, the Hilton San Diego Bayfront acquired by the Company in April 2011, the Hyatt Chicago Magnificent Mile acquired by the Company in June 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company in July 2012. Comparable Hotel EBITDA Margin information excludes current and prior year net property tax and CAM adjustments.

 

SELECTED FINANCIAL DATA

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

(unaudited)










Three Months Ended December 31,


Years Ended December 31,


2012

2011

% Change


2012

2011

% Change

Total Revenue

$   233.0

$  215.6

8.0%


$   829.1

$   721.8

14.9%

Comparable Hotel RevPAR

$ 137.02

$ 132.28

3.6%


$ 139.22

$ 131.89

5.6%

Comparable Hotel Occupancy

75.4%

74.5%

    90 bps 


79.2%

76.4%

280 bps

Comparable Hotel ADR

$ 181.73

$ 177.56

2.3%


$ 175.78

$ 172.63

1.8%









Comparable Hotel EBITDA Margin

30.2%

29.0%

  120 bps 


28.9%

27.8%

110 bps









Net income

$     11.1

$      7.6



$     49.6

$     81.3


Income available to common stockholders

$       3.6

$      0.0



$     17.8

$     53.0


Income available to common stockholders per diluted share

$     0.03

$    0.00



$     0.14

$     0.45


EBITDA

$     66.9

$    63.7



$   272.5

$   292.7


Adjusted EBITDA

$     68.2

$    63.9



$   242.5

$   212.5


FFO

$     39.5

$    33.3



$   121.3

$   167.4


Adjusted FFO

$     41.3

$    34.6



$   128.6

$   102.1


FFO per diluted share (1)

$     0.29

$    0.28



$     0.95

$     1.43


Adjusted FFO per diluted share (1)

$     0.30

$    0.29



$     1.01

$     0.87


























(1)

Reflects the Series C convertible preferred stock on a "non-converted" basis. On an "as-converted" basis, FFO per diluted share is $0.29 and $0.30, respectively, for the three months ended December 31, 2012 and 2011, and $0.97 and $1.43, respectively, for the years ended December 31, 2012 and 2011. On an "as-converted" basis, Adjusted FFO per diluted share is $0.31 for both the three months ended December 31, 2012 and 2011, and $1.02 and $0.89, respectively, for the years ended December 31, 2012 and 2011.

Disclosure regarding the non-GAAP financial measures in this release is included on page 7. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 10 through 14 of this release. 

The Company's actual results for the quarter and year ended December 31, 2012 compare to its guidance provided on November 2, 2012 as follows:

 

Metric (unaudited)

Quarter Ended December 31, 2012 Guidance (1)

Quarter Ended December 31, 2012 Actual Results

Performance Relative to Prior Guidance Midpoint

Comparable Hotel RevPAR 

+1.5% - 3.0%

3.6%

+1.35%

Net Income (Loss) ($ millions) (2)

$(1) - $4

$11

$10

Adjusted EBITDA ($ millions)

$58 - $63

$68

$8

Adjusted FFO ($ millions)

$31 - $36

$41

$8

Adjusted FFO per diluted share

$0.23 - $0.27

$0.30

$0.05

Diluted Weighted Average Shares Outstanding

135,700,000

135,622,000

(78,000)











Metric (unaudited)

FY 2012 Guidance (1)

FY 2012 Actual Results

Performance Relative to Prior Guidance Midpoint

Comparable Hotel RevPAR 

+4.5% - 5.0%

5.6%

+0.85%

Net Income ($ millions) (2)

$45 - $50

$50

$3

Adjusted EBITDA ($ millions)

$232 - $237

$243

$9

Adjusted FFO ($ millions)

$118 - $123

$129

$9

Adjusted FFO per diluted share

$0.93 - $0.97

$1.01

$0.06

Diluted Weighted Average Shares Outstanding

127,500,000

127,301,000

(199,000)






(1)

Reflects guidance presented on November 2, 2012, including anticipated Hurricane Sandy hotel revenue and EBITDA disruption of $3.0 million to $6.0 million and $2.0 million to $4.0 million, respectively, for the fourth quarter and full year, which were higher than actual disruption.

(2)

Reflects net income (loss) adjusted for the impact of income tax expense associated with the application of net operating loss carryforwards.

 

Balance Sheet/Liquidity Update

On January 22, 2013, the Company's operating partnership, Sunstone Hotel Partnership, LLC, completed the previously announced repurchase and redemption of the remaining $58.0 million balance of its 4.60% Exchangeable Senior Notes due 2027 (the "Senior Notes") for a price of $58.0 million, including accrued interest of approximately $23,000.

On January 28, 2013, the Company announced its intention to redeem all 7,050,000 shares of its 8% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") for $176.3 million, plus accrued dividends to and including the date of redemption totaling $2.3 million. The Company will redeem the Series A Preferred Stock on March 1, 2013, using cash received from the common stock offering announced on January 28, 2013. After the redemption date, the Company will have no outstanding shares of Series A Preferred Stock, and all rights of the holders of such shares will be terminated. Because the redemption of the Series A Preferred Stock is a redemption in full, trading of the Series A Preferred Stock on the New York Stock Exchange will cease after the redemption date.

On February 1, 2013, the Company issued 22,000,000 shares of its common stock and received approximately $256.7 million in proceeds (the "Offering"). The Company will use a portion of these proceeds to redeem all of its Series A Preferred Stock (as described above), and will use the remaining proceeds for potential future acquisitions, and for other general corporate purposes, including working capital and capital investment in its portfolio.  The underwriter has an option to purchase up to 3,300,000 additional shares, which expires on February 28, 2013.

As of December 31, 2012, the Company had approximately $235.6 million of cash and cash equivalents, including restricted cash of $78.4 million.  At the completion of the previously announced portfolio sale of four hotels and a commercial laundry facility in Rochester, Minnesota (the "Rochester Portfolio Sale"), the Company received approximately $20.0 million of cash and deposited approximately $145.0 million with a 1031 exchange accommodator to facilitate a potential future like-kind exchange. Adjusting for the funds received from the Rochester Portfolio Sale and the Offering, the defeasance and prepayment of the debt secured by the Kahler Grand and the commercial laundry, the repurchase of the remaining $58.0 million of the Senior Notes and the pending redemption of the Series A Preferred Stock, the Company's pro forma cash balance as of December 31, 2012 was approximately $420.0 million of cash and cash equivalents, including restricted cash of approximately $80.0 million

As of December 31, 2012, the Company had total assets of approximately $3.1 billion, including $2.7 billion of net investments in hotel properties, total consolidated debt included in continuing operations of $1.4 billion and stockholders' equity of $1.5 billion.

Dispositions Update

On January 25, 2013, the Company completed the Rochester Portfolio Sale for a gross sales price of $230.0 million. The four hotels included the 660-room Kahler Grand, the 271-room Kahler Inn & Suites, the 202-room Marriott Rochester and the 89-room Residence Inn by Marriott Rochester. The Company has retained a $25.0 million 11% dividend yield preferred equity investment in the entity that owns the four hotels. In addition, as previously announced, the Company defeased the outstanding $26.7 million mortgage secured by the Kahler Grand for a total cost of approximately $30.0 million, and prepaid the $0.4 million loan secured by the laundry facility. Though the Company intends to reinvest $145.0 million of the net proceeds from the sale through a like-kind exchange, no assurances can be given as to the timing or likelihood of such reinvestment.

Capital Improvements

The Company invested $32.7 million into capital improvements of its portfolio during the fourth quarter of 2012, and $109.3 million during the year ended December 31, 2012.

The Company began renovating several of its hotels in the fourth quarter 2012 and will continue these renovations during 2013. The Company incurred approximately $3.4 million of revenue disruption during full year 2012 and expects to incur approximately $8.0 million to $10.0 million of revenue disruption during full year 2013. The Company's estimates for full-year renovation-related revenue disruption have been increased from the previously announced range of $6.0 million to $8.0 million in part due to the acceleration of the rooms renovations at the Renaissance Long Beach and the Renaissance Orlando, both now scheduled to commence during the fourth quarter of 2013. The majority of the 2013 displacement is expected to occur during the first half of 2013. Significant renovations in-process as of the first quarter 2013 include:

  • Hilton Times Square:  The Company expects to invest approximately $15.0 million to fully renovate all guestrooms, guest bathrooms and corridors of the 460-room Hilton Times Square, creating a rich and appealing new rooms product. The renovation commenced in January 2013 and is expected to be completed during the second quarter 2013.
  • Hyatt Chicago Magnificent Mile:  The Company expects to invest approximately $25.0 million on a complete renovation and repositioning of the 417-room Hyatt Chicago Magnificent Mile. The complete renovation will include all public spaces and guestrooms/bathrooms, elevating the hotel to a sophisticated destination catering to high-rated business transient and group travelers. The renovation commenced during the fourth quarter 2012 and is expected to be completed during the third quarter 2013. 
  • Hyatt Regency Newport Beach:  The Company expects to invest approximately $12.0 million to renovate all guestrooms and recreation facilities, as well as certain public spaces of the 403-room Hyatt Regency Newport Beach, establishing the hotel as a high quality resort destination catering to a broad range of business, leisure and group travelers. The renovation commenced during the fourth quarter 2012 and is expected to be completed during the second quarter 2013.  
  • Renaissance Westchester:  The Company expects to invest approximately $12.0 million to renovate all guestrooms and public spaces of the 347-room Renaissance Westchester, transforming the rooms and public spaces into stylish yet functional meeting, socializing and relaxing venues. The renovation commenced during the fourth quarter 2012 and is expected to be completed during the second quarter 2013.   

2013 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 the impact of any future hotel acquisitions, dispositions, re-brandings, management changes, transition costs, prior-year property tax assessments and/or credits, debt repurchases or financings during 2013.  The Company expects to apply its remaining net operating loss carryforwards to reduce taxable income in 2013. The application of the net operating loss carryforwards is viewed as a non-recurring event and therefore the Company has treated any state and federal taxes associated with the application of net operating loss carryforwards as one-time expenses and added them back to Adjusted FFO.  

For the first quarter of 2013, the Company expects:


Metric

Quarter Ended March 31, 2013 Guidance

Comparable Hotel RevPAR 

+2.0% - 3.0%

Net Loss ($ millions) 

$(9) - $(7)

Adjusted EBITDA ($ millions)

$36 - $38

Adjusted FFO ($ millions)

$11 - $13

Adjusted FFO per diluted share

$0.07 - $0.09

Diluted Weighted Average Shares Outstanding

151,000,000



For the full year 2013, the Company expects:



Metric

Year Ended December 31, 2013 Guidance

Comparable Hotel RevPAR 

+3.5% - 5.5%

Net Income ($ millions) 

$40 - $52

Adjusted EBITDA ($ millions)

$224 - $236

Adjusted FFO ($ millions)

$132 - $144

Adjusted FFO per diluted share

$0.84 - $0.92

Diluted Weighted Average Shares Outstanding

157,000,000

First quarter and full year 2013 guidance is based in part on the following assumptions:

  • No impact from the reinvestment of currently available cash.
    • While no assurances can be made as to the timing, amount, valuation or nature of future hotel investments, the Company plans to invest between $250.0 million and $300.0 million of its current cash balance towards hotel acquisitions during 2013. Assuming acquisitions are completed at current market multiples (between 13.0x and 14.0x 2013 EBITDA), and assuming such acquisitions are unencumbered of debt, such acquisitions would be expected to generate between $18.0 million and $23.0 million of additional Adjusted EBITDA and approximately $0.11 to $0.15 of additional Adjusted FFO per diluted share on a full year, pro forma basis. The Company will provide information regarding the timing and current year earnings impact of any hotel investments when and if such investments are consummated.
  • The issuance of 22,000,000 shares of common stock on February 1, 2013.
  • The redemption of all 7,050,000 shares of the Company's Series A Preferred Stock on March 1, 2013.
  • Full year capital investment of $100.0 million to $120.0 million.
  • Hotel revenue disruption of $8.0 million to $10.0 million related to renovation projects, with approximately $6.0 million to $7.0 million of renovation disruption occurring in the first quarter (primarily related to renovations at the Hilton Times Square and Hyatt Chicago Magnificent Mile).
  • First quarter renovation-related hotel RevPAR disruption of approximately 475 to 500 basis points.
  • Full year renovation-related hotel RevPAR disruption of approximately 100 to 125 basis points.
  • Full year comparable Hotel EBITDA Margin expansion of approximately 50 to 100 basis points.
  • Full year corporate overhead expense (excluding stock amortization and one-time expenses related to future acquisition closing costs) of $21.0 million to $22.0 million.
  • Full year interest expense of approximately $70.0 million to $72.0 million, including $3.0 million in amortization of deferred financing fees.
  • Full year preferred dividends of approximately $18.0 million for the Series C cumulative convertible redeemable preferred stock, the Series D cumulative redeemable preferred stock and the Series A Preferred Stock through the March 1, 2013 redemption date.

Executive Promotions

The Company has made the following executive promotions effective as of February 15, 2013: 

John Arabia promoted from EVP of Corporate Strategy & Chief Financial Officer to President.   Mr. Arabia joined Sunstone in April of 2011 and has provided strong leadership of Sunstone's finance function, while adding depth and perspective to Sunstone's strategic planning process and other disciplines. Mr. Arabia was instrumental in developing and executing on Sunstone's long term financial plan which has resulted in a material improvement in the Company's leverage profile and a reduction in the Company's cost of capital.  In his new role, Mr. Arabia will continue to oversee Sunstone's finance, investor relations and strategic planning functions.  Additionally, Mr. Arabia will be responsible for identifying and executing certain value-adding transactions and will play a significant role in the Company's Portfolio Management process.  Mr. Arabia will serve as a member of the Company's Portfolio Management and Investment Committees. Mr. Arabia will report directly to Mr. Cruse.

Bryan Giglia promoted from SVP Finance to SVP and Chief Financial Officer.  Mr. Giglia joined Sunstone in March of 2004 and has served as a key leader in Sunstone's finance department for nine years.  During that time Mr. Giglia has exhibited solid command of all of Sunstone's finance-related functions and has distinguished himself as a key member of Sunstone's leadership team.  In his new role, Mr. Giglia will be responsible for overseeing all facets of the Company's corporate finance, accounting and tax functions.  Additionally, Mr. Giglia will serve as a member of the Company's Portfolio Management and Investment Committees. Mr. Giglia will report directly to Mr. Arabia.

Robert Springer promoted from SVP Acquisitions to SVP and Chief Investment Officer.  Mr. Springer joined Sunstone in May of 2011 and has materially enhanced Sunstone's acquisitions and dispositions function by adding additional decision support tools, improving Sunstone's screening process and incorporating a new multi-departmental deal review process.  In his new role, Mr. Springer will continue to oversee all aspects of the Company's acquisitions and dispositions process.  Additionally, Mr. Springer will serve as a member of the Company's Portfolio Management and Investment Committees. Mr. Springer will report directly to Mr. Cruse.

Lindsay Monge promoted from SVP and Corporate Treasurer to SVP and Chief Administrative Officer, Secretary and Treasurer.  Mr. Monge joined Sunstone in July of 2000 and has served as a key leader at Sunstone for over twelve years. Mr. Monge's role spans many disciplines, including treasury, risk management, human resources and information technology.  In his new role, Mr. Monge will continue to oversee the Company's treasury, risk management, human resources and information technology departments.  Additionally, Mr. Monge will serve as a member of the Company's Portfolio Management and Investment Committees.  Mr. Monge will report directly to Mr. Arabia.

David Sloan promoted from VP Legal to SVP and General Counsel.  Mr. Sloan joined Sunstone in February of 2007 and has served as a key leader in Sunstone's legal department for over six years.  During that time Mr. Sloan has developed a solid command of all of Sunstone's legal and transaction-related functions and has distinguished himself as a key member of Sunstone's leadership team.  In his new role, Mr. Sloan will be responsible for managing third party legal advisors and overseeing all legal aspects of Sunstone's transactional, contractual, corporate and reporting functions.  Additionally, Mr. Sloan will serve as a member of the Company's Portfolio Management and Investment Committees. Mr. Sloan will report directly to Mr. Cruse.

Mr. Cruse stated, "In 2011, we redefined Sunstone.  We added a number of talented new members to our leadership team; we established a new long term vision and new core values; and we fostered a new corporate culture rooted in teamwork, collaboration, discipline and strategic focus.  We also developed a new, cycle-appropriate strategy aimed at creating significant shareholder value while improving the quality and scale of our portfolio and gradually deleveraging our balance sheet.  Over the past two years, our senior leadership team has evolved into a cohesive and highly-productive unit.  As part of Sunstone's continued evolution, it gives me great pleasure to announce a number of senior leadership promotions.  Our team, vision and strategic plan are now fully in place, and I could not be more enthusiastic about Sunstone's future, nor could I be more proud to be part of such a deep and talented organization."  

Dividend Update

On February 15, 2013, the Company's Board of Directors declared a cash dividend of $0.50 per share payable to its 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, 2013 to stockholders of record on March 31, 2013.  No dividend was declared on the Company's common stock, as the Company intends to deploy excess cash flow from operations toward internal renovation investments and gradual deleveraging.

Subject to certain limitations, the Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income.  The Company expects to apply its remaining net operating loss carryforwards to reduce its taxable income in 2013, which will affect the level of potential common stock dividends declared for 2013. 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 2012 on February 20, 2013, 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 1-888-549-7750 (for domestic callers) or 1-480-629-9722 (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 has interests in 26 hotels comprised of 11,632 rooms.  Sunstone's hotels are primarily in the upper upscale segment and are operated under nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont 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.  Our goal is to improve the quality and scale of our portfolio while methodically deleveraging our balance sheet. As demand for lodging generally fluctuates with the overall economy (we refer to these changes in demand as the lodging cycle), 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; international, national and local economic and business conditions, including the likelihood of a 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 19, 2013, 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 includes EBITDA but excludes: amortization of deferred stock compensation; the impact of any gain or loss from asset sales; impairment charges; prior year property tax and other adjustments; 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 10.  Reconciliations and the components of comparable hotel EBITDA and comparable hotel EBITDA margin are set forth on pages 13 and 14. 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 includes FFO but excludes penalties, written-off deferred financing costs, non-real estate-related impairment losses, income tax provisions 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 10. 

The revenue and expense items associated with 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 26 comparable hotels. See pages 13 and 14 for reconciliations of comparable hotel EBITDA to the most comparable GAAP measure. Our 26 comparable hotels include all hotels held for investment as of December 31, 2012, and also includes prior ownership results as applicable in 2011 and 2012 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, the Hilton San Diego Bayfront acquired by the Company in April 2011, the Hyatt Chicago Magnificent Mile acquired by the Company in June 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company in July 2012.

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 better indicators 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
Sunstone Hotel Investors, Inc.
(949) 382-3036

 

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)













December 31,


December 31,



2012


2011






Assets




Current assets:





Cash and cash equivalents

$            157,217


$            149,198


Restricted cash

78,394


55,359


Accounts receivable, net

27,498


29,677


Inventories

1,377


1,210


Prepaid expenses

10,739


9,834


Assets held for sale, net

132,335


279,945

Total current assets

407,560


525,223






Investment in hotel properties, net

2,681,877


2,532,232

Deferred financing fees, net

11,931


14,340

Goodwill

9,405


9,405

Other assets, net

25,902


20,040






Total assets

$         3,136,675


$         3,101,240






Liabilities and Equity




Current liabilities:





Accounts payable and accrued expenses

$              22,646


$              24,848


Accrued payroll and employee benefits

23,734


20,727


Due to Third-Party Managers

3,663


3,378


Dividends payable

7,437


7,437


Other current liabilities

30,304


25,392


Current portion of notes payable

76,723


49,505


Notes payable of assets held for sale

27,270


153,587


Liabilities of assets held for sale

8,228


11,064

Total current liabilities

200,005


295,938






Notes payable, less current portion

1,286,666


1,367,385

Capital lease obligations, less current portion

15,621


-

Other liabilities

15,070


12,623

Total liabilities

1,517,362


1,675,946






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, 2012 and December 31, 2011, 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, 2012 and December 31, 2011, 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, 2012 and December 31, 2011, stated at liquidation preference of $25.00 per share

115,000


115,000


Common stock, $0.01 par value, 500,000,000 shares authorized, 135,237,438 shares issued and outstanding at December 31, 2012 and 117,265,090 shares issued and outstanding at December 31, 2011

1,352


1,173


Additional paid in capital

1,493,397


1,312,566


Retained earnings

158,376


110,580


Cumulative dividends

(475,144)


(445,396)


Accumulated other comprehensive loss

(5,335)


(4,916)

Total stockholders' equity

1,463,896


1,265,257

Non-controlling interest in consolidated joint ventures

55,417


60,037

Total equity

1,519,313


1,325,294






Total liabilities and equity

$         3,136,675


$         3,101,240






 

 

Sunstone Hotel Investors, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)




























 Three Months Ended December 31, 


 Years Ended December 31, 






2012


2011


2012


2011













 Revenues 












 Room 





$                   160,817


$                   147,073


$                   576,146


$                   501,183

 Food and beverage 





57,798


55,635


200,810


175,103

 Other operating 





14,352


12,938


52,128


45,508

 Total revenues 





232,967


215,646


829,084


721,794

 Operating expenses 












 Room 





40,910


37,338


147,932


128,225

 Food and beverage 





39,333


37,702


139,106


126,139

 Other operating 





4,391


4,007


16,162


14,004

 Advertising and promotion 





12,096


11,368


42,474


37,226

 Repairs and maintenance 





9,251


8,658


32,042


29,067

 Utilities 





6,760


7,153


25,596


25,537

 Franchise costs 





8,644


7,493


30,067


25,595

 Property tax, ground lease and insurance 





16,587


16,417


66,830


58,010

 Property general and administrative 





26,229


25,049


94,642


85,293

 Corporate overhead 





5,430


4,766


24,316


25,453

 Depreciation and amortization 





34,339


31,126


130,907


113,708

 Impairment loss 





-


-


-


10,862

 Total operating expenses 





203,970


191,077


750,074


679,119

 Operating income 





28,997


24,569


79,010


42,675

 Equity in earnings of unconsolidated joint ventures





-


-


-


21

 Interest and other income 





142


145


297


3,115

 Interest expense 





(18,721)


(20,051)


(76,821)


(74,195)

 Loss on extinguishment of debt 





-


-


(191)


-

 Gain on remeasurement of equity interests 





-


-


-


69,230

 Income before income taxes and discontinued operations 





10,418


4,663


2,295


40,846

 Income tax provision 





(1,148)


-


(1,148)


-

 Income from continuing operations 





9,270


4,663


1,147


40,846

 Income from discontinued operations 





1,844


2,925


48,410


40,453

 Net income 





11,114


7,588


49,557


81,299

 Income from consolidated joint venture attributable to non-controlling interest 





(67)


(99)


(1,761)


(312)

 Distributions to non-controlling interest 





(7)


(8)


(31)


(30)

 Preferred stock dividends 





(7,437)


(7,437)


(29,748)


(27,321)

 Undistributed income allocated to unvested restricted stock compensation 





(41)


(1)


(203)


(636)

 Income available to common stockholders 





$                       3,562


$                            43


$                     17,814


$                     53,000













Basic and diluted per share amounts:












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


$                         0.01


$                       (0.02)


$                       (0.24)


$                         0.11

        Income from discontinued operations





0.02


0.02


0.38


0.34

Basic and diluted income available to common stockholders per common share





$                         0.03


$                            -


$                         0.14


$                         0.45

























Basic and diluted weighted average common shares outstanding





135,237


117,265


127,027


117,206













 

 

 

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


Years Ended


December 31,


December 31,


2012

2011


2012

2011







Net income

$                  11,114

$                    7,588


$                  49,557

$                  81,299

Operations held for investment:






   Depreciation and amortization

34,339

31,126


130,907

113,708

   Amortization of lease intangibles

1,143

1,029


4,319

3,979

   Interest expense

17,757

18,252


71,664

67,319

   Amortization of deferred financing fees

886

944


3,690

3,138

   Write-off of deferred financing fees

-

21


3

21

   Non-cash interest related to discount on Senior Notes

267

270


1,058

1,062

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

(189)

564


406

2,655

   Income tax provision

1,148

-


1,148

-

Non-controlling interests:






   Income from consolidated joint venture attributable to non-controlling interest

(67)

(99)


(1,761)

(312)

   Depreciation and amortization

(1,424)

(1,416)


(5,685)

(4,014)

   Interest expense

(549)

(557)


(2,252)

(1,562)

   Amortization of deferred financing fees

(56)

(57)


(224)

(160)

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

-

1


(1)

(31)

Unconsolidated joint ventures:






   Depreciation and amortization

-

-


-

3

Discontinued operations:






   Depreciation and amortization

2,182

3,762


13,164

16,188

   Amortization of lease intangibles

-

7


14

28

   Interest expense

380

2,205


6,231

9,191

   Amortization of deferred financing fees

7

24


74

104

   Write-off of deferred financing fees

-

42


185

42

EBITDA

66,938

63,706


272,497

292,658







Operations held for investment:






   Amortization of deferred stock compensation

812

575


3,466

2,745

   Non-cash straightline lease expense

694

696


2,777

2,398

   Capital lease obligation interest - cash ground rent

(351)

-


(819)

-

   (Gain) loss on sale of assets

(4)

(10)


18

(83)

   Gain on remeasurement of equity interests

-

-


-

(69,230)

   Loss on extinguishment of debt

-

-


191

-

   Closing costs - completed acquisitions

-

31


1,965

3,403

   Impairment loss

-

-


-

10,862

   Lawsuit settlement costs, net

-

-


158

1,553

   Prior year property tax and CAM adjustments, net

-

-


621

-

   Hotel laundry closing costs

199

-


623

-

Non-controlling interests:






   Non-cash straightline lease expense

(111)

(111)


(450)

(354)

   Prior year property tax adjustments, net

-

-


(202)

-

Unconsolidated joint ventures:






   Amortization of deferred stock compensation

-

-


-

2

Discontinued operations:






   Gain on sale of assets, net

-

(946)


(38,292)

(14,912)

   Impairment loss

-

-


-

1,495

   Gain on extinguishment of debt

-

-


-

(18,145)

   Lawsuit settlement (reversal) costs

-

-


(48)

67


1,239

235


(29,992)

(80,199)







Adjusted EBITDA

$                  68,177

$                  63,941


$                242,505

$                212,459













Reconciliation of Net Income to FFO and Adjusted FFO













Net income

$                  11,114

$                    7,588


$                  49,557

$                  81,299

Preferred stock dividends

(7,437)

(7,437)


(29,748)

(27,321)

Operations held for investment:






   Real estate depreciation and amortization

34,005

30,828


129,668

112,539

   Amortization of lease intangibles

1,143

1,029


4,319

3,979

   (Gain) loss on sale of assets

(4)

(10)


18

(83)

Non-controlling interests:






   Income from consolidated joint venture attributable to non-controlling interest

(67)

(99)


(1,761)

(312)

   Real estate depreciation and amortization

(1,424)

(1,416)


(5,685)

(4,014)

Discontinued operations:






   Real estate depreciation and amortization

2,182

3,762


13,164

16,188

   Amortization of lease intangibles

-

7


14

28

   Gain on sale of assets, net

-

(946)


(38,292)

(14,912)

FFO

39,512

33,306


121,254

167,391







Operations held for investment:






   Non-cash straightline lease expense

694

696


2,777

2,398

   Write-off of deferred financing fees

-

21


3

21

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

(189)

564


406

2,655

   Gain on remeasurement of equity interests

-

-


-

(69,230)

   Loss on extinguishment of debt

-

-


191

-

   Closing costs - completed acquisitions

-

31


1,965

3,403

   Impairment loss

-

-


-

10,862

   Lawsuit settlement costs, net

-

-


158

1,553

   Prior year property tax and CAM adjustments, net

-

-


621

-

   Hotel laundry closing costs

199

-


623

-

   Income tax provision

1,148

-


1,148

-

Non-controlling interests:






   Non-cash straightline lease expense

(111)

(111)


(450)

(354)

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

-

1


(1)

(31)

   Prior year property tax adjustments, net

-

-


(202)

-

Discontinued operations:






   Write-off of deferred financing fees

-

42


185

42

   Impairment loss

-

-


-

1,495

   Gain on extinguishment of debt

-

-


-

(18,145)

   Lawsuit settlement (reversal) costs

-

-


(48)

67


1,741

1,244


7,376

(65,264)







Adjusted FFO

$                  41,253

$                  34,550


$                128,630

$                102,127







FFO per diluted share

$                      0.29

$                      0.28


$                      0.95

$                      1.43







Adjusted FFO per diluted share

$                      0.30

$                      0.29


$                      1.01

$                      0.87







Basic weighted average shares outstanding

135,237

117,265


127,027

117,206

Shares associated with unvested restricted stock awards

385

-


274

84

Diluted weighted average shares outstanding (1)

135,622

117,265


127,301

117,290







(1) Diluted weighted average shares outstanding includes the Series C convertible preferred stock on a "non-converted" basis.  On an "as-converted" basis, FFO per diluted share is $0.29 and $0.30, respectively, for the three months ended December 31, 2012 and 2011, and $0.97 and $1.43, respectively, for the years ended December 31, 2012 and 2011. On an "as-converted" basis, Adjusted FFO per diluted share is $0.31 for both the three months ended December 31, 2012 and 2011, and $1.02 and $0.89, respectively, for the years ended December 31, 2012 and 2011.







 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Loss to Non-GAAP Financial Measures

Guidance for First Quarter 2013

(Unaudited and in thousands except per share amounts)







Reconciliation of Net Loss to Adjusted EBITDA








Quarter Ended


March 31, 2013


Low

High




Net loss (1)

$                       (9,100)

$                       (7,100)

   Depreciation and amortization

27,500

27,500

   Amortization of lease intangibles

1,200

1,200

   Interest expense

16,450

16,450

   Amortization of deferred financing fees

800

800

   Non-controlling interests

(3,000)

(3,000)

   Amortization of deferred stock compensation

1,300

1,300

   Capital lease obligation interest - cash ground rent

(350)

(350)

   Non-cash straightline lease expense

700

700

Adjusted EBITDA

$                       35,500

$                       37,500







Reconciliation of Net Loss to Adjusted FFO







Net loss (1)

$                       (9,100)

$                       (7,100)

   Preferred stock dividends

(6,300)

(6,300)

   Real estate depreciation and amortization

27,200

27,200

   Non-controlling interests

(2,500)

(2,500)

   Amortization of lease intangibles

1,200

1,200

   Non-cash straightline lease expense

700

700

Adjusted FFO

$                       11,200

$                       13,200







Adjusted FFO per diluted share

$                           0.07

$                           0.09




Diluted weighted average shares outstanding

151,000

151,000




(1)  Net loss does not include the gain on sale from the Rochester portfolio.




 

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Full Year 2013

(Unaudited and in thousands except per share amounts)







Reconciliation of Net Income to Adjusted EBITDA








Year Ended


December 31, 2013


Low

High




Net income (1)

$                       40,400

$                       52,400

   Depreciation and amortization

110,000

110,000

   Amortization of lease intangibles

5,000

5,000

   Interest expense

68,000

68,000

   Amortization of deferred financing fees

3,000

3,000

   Non-controlling interests

(11,000)

(11,000)

   Amortization of deferred stock compensation

5,000

5,000

   Income tax provision

2,000

2,000

   Capital lease obligation interest - cash ground rent

(1,400)

(1,400)

   Non-cash straightline lease expense

3,000

3,000

Adjusted EBITDA

$                     224,000

$                     236,000







Reconciliation of Net Income to Adjusted FFO







Net income (1)

$                       40,400

$                       52,400

   Preferred stock dividends

(18,000)

(18,000)

   Real estate depreciation and amortization

108,600

108,600

   Non-controlling interests

(8,700)

(8,700)

   Amortization of lease intangibles

5,000

5,000

   Income tax provision

2,000

2,000

   Non-cash straightline lease expense

3,000

3,000

Adjusted FFO

$                     132,300

$                     144,300







Adjusted FFO per diluted share

$                           0.84

$                           0.92




Diluted weighted average shares outstanding

157,000

157,000




(1)  Net income does not include the gain on sale from the Rochester portfolio.

 

 

 

Sunstone Hotel Investors, Inc.

Comparable Hotel EBITDA Margins

(Unaudited and in thousands except hotels and rooms)






























Three Months Ended December 31, 2012



Three Months Ended December 31, 2011



Actual (1)



Actual (2)


Prior Ownership Adjustments (3)


Comparable (4)

Number of Hotels

26



24


2


26

Number of Rooms

11,632



10,858


774


11,632











Hotel EBITDA Margin (5)

30.3%



28.8%


31.8%


29.0%

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

30.2%



28.8%




29.0%











Hotel Revenues









     Room revenue

$                               160,817



$                          147,073


$                              9,073


$                          156,146

     Food and beverage revenue

57,798



55,635


1,433


57,068

     Other operating revenue

12,879



11,524


584


12,108

Total Hotel Revenues

231,494



214,232


11,090


225,322











Hotel Expenses









     Room expense

40,711



37,338


2,077


39,415

     Food and beverage expense

39,333



37,702


892


38,594

     Other hotel expense

56,342



53,436


3,345


56,781

     General and administrative expense

25,024



24,010


1,253


25,263

Total Hotel Expenses

161,410



152,486


7,567


160,053











Hotel EBITDA

70,084



61,746


3,523


65,269

Prior year property tax

(208)



-


-


-

Hotel EBITDA adjusted for prior year property tax

69,876



61,746


3,523


65,269











Non-hotel operating income

367



440


-


440

Amortization of lease intangibles

(1,143)



(1,029)


-


(1,029)

Non-cash straightline lease expense

(694)



(696)


-


(696)

Capital lease obligation interest - cash ground rent

351



-


351


351

Hotel laundry closing costs

(199)



-


-


-

Prior year property tax and CAM adjustments

208



-


-


-

Corporate overhead

(5,430)



(4,766)


-


(4,766)

Depreciation and amortization 

(34,339)



(31,126)


(3,059)


(34,185)

Operating Income

28,997



24,569


815


25,384











Interest and other income

142



145


-


145

Interest expense 

(18,721)



(20,051)


(351)


(20,402)

Income tax provision

(1,148)



-


-


-

Income from discontinued operations

1,844



2,925


-


2,925

Net Income

$                            11,114



$                              7,588


$                                 464


$                              8,052





















(1)

Actual represents the Company's ownership results for the 26 hotels held for investment as of December 31, 2012.

(2)

Actual represents the Company's ownership results for the 24 hotels held for investment as of December 31, 2011.  

(3)

Prior Ownership Adjustments represent prior ownership results for the Hyatt Chicago Magnificent Mile acquired by the Company on June 4, 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company on July 19, 2012, along with the Company's pro forma adjustments for capital lease obligation interest and depreciation expense.

(4)

Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for capital lease obligation interest and depreciation expense as applicable for the 26 hotels held for investment as of December 31, 2012.

(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, 2012 includes the additional benefit of $0.2 million in prior year property tax credits. Without this benefit, Actual Hotel EBITDA margin for the three months ended December 31, 2012 would have been 30.2%.











 

 

 

Sunstone Hotel Investors, Inc.

Comparable Hotel EBITDA Margins

(Unaudited and in thousands except hotels and rooms)




































Year Ended December 31, 2012


Year Ended December 31, 2011



Actual (1)


Prior Ownership Adjustments (2)


Comparable (3)


Actual (4)


Prior Ownership Adjustments (5)


Comparable (6)

Number of Hotels

26




26


24


2


26

Number of Rooms

11,632




11,632


10,858


774


11,632














Hotel EBITDA Margin(7)

29.2%


21.0%


29.0%


27.6%


30.1%


27.8%

Hotel EBITDA Margin adjusted for prior year property tax and CAM adjustments, net (8)

29.1%




28.9%


27.5%




27.8%














Hotel Revenues












     Room revenue

$                 576,146


$                  15,204


$           591,350


$               501,183


$                 57,921


$               559,104

     Food and beverage revenue

200,810


2,149


202,959


175,103


17,846


192,949

     Other operating revenue

46,134


1,046


47,180


40,143


5,260


45,403

Total Hotel Revenues

823,090


18,399


841,489


716,429


81,027


797,456














Hotel Expenses












     Room expense

147,309


4,064


151,373


128,225


13,905


142,130

     Food and beverage expense

139,106


1,416


140,522


126,139


11,030


137,169

     Other hotel expense

207,003


7,144


214,147


182,943


23,913


206,856

     General and administrative expense

89,480


1,904


91,384


81,500


7,766


89,266

Total Hotel Expenses

582,898


14,528


597,426


518,807


56,614


575,421














Hotel EBITDA

240,192


3,871


244,063


197,622


24,413


222,035

Prior year property tax and CAM adjustments, net

(704)


-


(704)


(600)


-


(600)

Hotel EBITDA adjusted for prior year property tax and CAM adjustments, net

239,488


3,871


243,359


197,022


24,413


221,435














Non-hotel operating income

1,582


-


1,582


1,535


-


1,535

Amortization of lease intangibles

(4,319)


-


(4,319)


(3,979)


(140)


(4,119)

Non-cash straightline lease expense

(2,777)


-


(2,777)


(2,398)


(386)


(2,784)

Capital lease obligation interest - cash ground rent

819


585


1,404


-


1,404


1,404

Hotel laundry closing costs

(623)


-


(623)


-


-


-

Management company transition costs

(641)


-


(641)


(82)


-


(82)

Prior year property tax and CAM adjustments, net

704


-


704


600


-


600

Corporate overhead

(24,316)


-


(24,316)


(25,453)


-


(25,453)

Depreciation and amortization 

(130,907)


(5,531)


(136,438)


(113,708)


(18,545)


(132,253)

Impairment loss

-


-


-


(10,862)


-


(10,862)

Operating Income

79,010


(1,075)


77,935


42,675


6,746


49,421














Equity in earnings of unconsolidated joint ventures

-


-


-


21


-


21

Interest and other income

297


-


297


3,115


-


3,115

Interest expense 

(76,821)


(585)


(77,406)


(74,195)


(4,412)


(78,607)

Loss on extinguishment of debt

(191)


-


(191)


-


-


-

Gain on remeasurement of equity interests

-


-


-


69,230


-


69,230

Income tax provision

(1,148)


-


(1,148)


-


-


-

Income from discontinued operations

48,410


-


48,410


40,453


-


40,453

Net Income

$                49,557


$                 (1,660)


$            47,897


$                   81,299


$                 2,334


$                  83,633



























(1)

Actual represents the Company's ownership results for the 26 hotels held for investment as of December 31, 2012.

(2)

Prior Ownership Adjustments represent prior ownership results for the Hyatt Chicago Magnificent Mile acquired by the Company on June 4, 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company on July 19, 2012, along with the Company's pro forma adjustments for capital lease obligation interest and depreciation expense.  

(3)

Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for capital lease obligation interest and depreciation expense as applicable for the 26 hotels held for investment as of December 31, 2012.

(4)

Actual represents the Company's ownership results for the 24 hotels held for investment as of December 31, 2011.  

(5)

Prior Ownership Adjustments represent 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, the Hilton San Diego Bayfront acquired by the Company on April 15, 2011, the Hyatt Chicago Magnificent Mile acquired by the Company on June 4, 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company on July 19, 2012, along with the Company's pro forma adjustments for non-cash amortization of lease intangibles, non-cash straightline lease expense, capital lease obligation interest and depreciation expense.  

(6)

Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for non-cash amortization of lease intangibles, non-cash straightline lease expense, capital lease obligation interest and depreciation expense as applicable for the 26 hotels held for investment as of December 31, 2012.

(7)

Hotel EBITDA Margin is calculated as Hotel EBITDA divided by total hotel revenues.

(8)

Hotel EBITDA Margin for the year ended December 31, 2012 includes the additional net benefit of $0.5 million in prior year property tax credits and a $0.2 million prior year CAM refund. Hotel EBITDA Margin for the year ended December 31, 2011 includes the additional net benefit of $0.6 million due to prior year property tax credits and assessments. Without these additional net benefits, Comparable Hotel EBITDA margin for  the years ended December 31, 2012 and 2011 would have been 28.9% and 27.8%, respectively.














 

 

SOURCE Sunstone Hotel Investors, Inc.



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