Sunstone Hotel Investors Reports Results For Second Quarter 2014

07 Aug, 2014, 16:06 ET from Sunstone Hotel Investors, Inc.

ALISO VIEJO, Calif., Aug. 7, 2014 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced results for the second quarter ended June 30, 2014.

Second Quarter 2014 Operational Results (as compared to Second Quarter 2013) (1):

  • Comparable Hotel RevPAR increased 6.2% to $171.69.
  • Comparable Hotel EBITDA Margins increased 130 basis points to 34.0%.
  • Adjusted EBITDA increased 34.4% to $94.5 million.
  • Adjusted FFO available to common stockholders per diluted share increased 30.0% to $0.39.
  • Income available to common stockholders was $39.3 million (vs. $15.1 million in 2013).
  • Income available to common stockholders per diluted share was $0.22 (vs. $0.09 in 2013).

Ken Cruse, Chief Executive Officer, stated, "During the second quarter our Comparable Hotel RevPAR grew by 6.2% and our Comparable Hotel EBITDA Margins increased by 130 basis points - both solid indications of the ongoing strength of our business.  At 86.6%, our portfolio occupancy has surpassed prior peak levels, while group and transient demand continue to strengthen. Accordingly, we have increased the midpoint of our Adjusted EBITDA and Adjusted FFO/share guidance for the full year 2014.  We believe business fundamentals support continued growth for Sunstone."

(1)

Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 29 Hotel Portfolio, which includes all hotels held for investment by the Company as of June 30, 2014, and also includes prior ownership results in 2013 for the Hilton New Orleans St. Charles acquired in May 2013, the Boston Park Plaza acquired in July 2013 and the Hyatt Regency San Francisco acquired in December 2013.  Comparable Hotel EBITDA Margin information excludes non-current year net property tax related adjustments, but includes the full impact of current year property tax related adjustments in the quarter such adjustments are realized.

 

SELECTED STATISTICAL AND FINANCIAL DATA

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

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

Change

2014

2013

Change

Comparable Hotel RevPAR (1)

$ 171.69

$ 161.74

6.2%

$ 153.95

$ 143.59

7.2%

Comparable Hotel Occupancy (1)

86.6%

84.4%

220

bps

82.2%

79.1%

310

bps

Comparable Hotel ADR (1)

$ 198.26

$ 191.63

3.5%

$ 187.29

$ 181.53

3.2%

Comparable Hotel EBITDA Margin

34.0%

32.7%

130

bps

29.2%

27.6%

160

bps

Net Income

$     43.5

$     20.0

$     40.0

$     48.9

Adjusted EBITDA

$     94.5

$     70.3

$   143.8

$   108.7

Adjusted FFO Available to Common Stockholders

$     72.2

$     48.7

$     99.8

$     62.7

Adjusted FFO Available to Common Stockholders per Diluted Share

$     0.39

$     0.30

$     0.55

$     0.40

(1)

In 2013, Marriott converted its reporting calendar from a 13-period basis to a standard 12-month basis. Since Marriott's 2012 fiscal year ended on December 28, 2012, Marriott's 2013 first quarter and calendar year contain an additional three days, December 29, 2012 through December 31, 2012. The Comparable Portfolio for the six months ended June 30, 2013 has been adjusted for the effects of removing the three additional days from the operating statistics for the Company's ten Marriott-managed hotels.

Disclosure regarding the non-GAAP financial measures in this release is included on page 5. 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 quarter ended June 30, 2014 compare to its guidance originally provided as follows:

Metric

Quarter Ended June 30, 2014 Guidance

Quarter Ended June 30, 2014 Actual Results, Excluding June 2014 Equity Offering (unaudited)

Impact of June 2014 Equity Offering

Quarter Ended June 30, 2014 Actual Results (unaudited)

Performance Relative to Prior Guidance Midpoint

Comparable Hotel RevPAR Growth

+4.0% - 6.0%

6.2%

-

6.2%

1.2%

Net Income ($ millions)

$33 - $36

$44

-

$44

$9

Adjusted EBITDA ($ millions)

$89 - $92

$95

-

$95

$4

Adjusted FFO Available to Common Stockholders ($ millions)

$67 - $70

$72

-

$72

$3

Adjusted FFO Available to Common Stockholders per Diluted Share

$0.37 - $0.39

$0.40

-

$0.39

$0.01

Diluted Weighted Average Shares Outstanding

181,900,000

181,900,000

1,179,000

183,079,000

1,179,000

Second Quarter 2014 Transaction Highlights

On June 2, 2014, the Company completed its previously announced acquisition of 7.3 acres of land underlying the Fairmont Newport Beach for $11.0 million. The acquisition of this land reduced the Company's ground lease expense by $0.1 million during the second quarter of 2014.

On June 25, 2014, the Company issued 18,000,000 shares of its common stock for net proceeds (after deducting the underwriting discount and estimated offering expenses) of approximately $262.5 million. The Company used the net proceeds from this offering to finance a portion of the previously announced acquisition of the Wailea Beach Marriott Resort & Spa (the "Marriott Wailea").

Recent Developments

On July 17, 2014, the Company completed its previously announced acquisition of the 544-room Marriott Wailea. The contractual purchase price of $325.5 million, including $4.5 million of unrestricted cash received upon acquisition, was funded with a combination of cash and 4,034,970 shares of the Company's common stock valued at $60.0 million ($14.87 per share).

Separately, the Company and its joint venture partner have agreed to certain loan amendment terms with the existing lenders of the loan secured by the Hilton San Diego Bayfront, the balance of which was $229.7 million as of June 30, 2014. The loan amendment will extend the maturity date from 2016 to 2019 and reduce the interest rate from three-month LIBOR plus 325 basis points to one-month LIBOR plus 225 basis points. The partnership expects to incur approximately $1.3 million in fees associated with the amendment, and expects to finalize the amendment during the third quarter.

Balance Sheet/Liquidity Update

As of June 30, 2014, the Company had approximately $448.7 million of cash and cash equivalents, including restricted cash of $88.0 million. Adjusting for the Company's purchase of the Marriott Wailea in July 2014, the Company's pro forma cash and cash equivalents totaled $183.2 million, including restricted cash.

As of June 30, 2014, the Company had total assets of $3.8 billion, including $3.2 billion of net investments in hotel properties, total consolidated debt of $1.4 billion and stockholders' equity of $2.2 billion.

Capital Improvements

The Company invested $32.5 million into capital improvements of its portfolio during the second quarter of 2014, and $65.8 million during the first six months of 2014.  Projects completed to date include hotel renovations at the Hilton Garden Inn Chicago Downtown/Magnificent Mile (lobby, corridors, guest rooms and bathrooms), the Renaissance Long Beach (corridors, guest rooms and bathrooms), and the Renaissance Orlando (conference center).  Additionally, the Company completed the renovation of 660 rooms at the 803-room Hyatt Regency San Francisco.  The Company incurred approximately $1.9 million and $0.7 million of revenue disruption during the first and second quarters of 2014, respectively, in line with management's expectations. 2014 renovations in process and/or completed include:

  • Hyatt Regency San Francisco:  The Company completed the renovation of all 660 standard guestrooms during the second quarter. The Company's renovation increased the room count for the hotel to 803. The Company expects to commence phase two of the renovation program, which includes the hotel's guest suites and public spaces, in the fourth quarter of 2014, and expects to complete phase two as space is available to minimize disruption.
  • Boston Park Plaza:  The Company is investing approximately $18.0 million to $19.0 million, primarily in the third and fourth quarters, to upgrade the hotel's infrastructure, including the preparation of approximately 30,000 square feet of unoccupied retail space to rent to third-party tenants. During the seasonally slower fourth quarter 2014 and first quarter 2015, the Company will commence and substantially complete phase two of the renovation program, which includes the hotel's meeting rooms and public spaces.
  • Marriott Wailea:  The Company expects to invest approximately $60.0 million in 2015 and 2016 to upgrade the guest experience including soft goods renovation of all guestrooms, complete renovation of meeting rooms and the creation of a comprehensive resort pool and recreation experience.

2014 Outlook

The Company's 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 unanticipated developments in its business or changes in its operating environment, nor does it take into account any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, prior-year property tax assessments and/or credits, debt repurchases or unannounced financings during 2014.   

For the third quarter the Company expects:

Metric

Quarter Ended September 30, 2014 Guidance

Comparable Hotel RevPAR Growth

+4.0% - 5.5%

Net Income ($ millions) 

$26 - $29

Adjusted EBITDA ($ millions)

$83 - $86

Adjusted FFO Available to Common Stockholders ($ millions)

$61 - $64

Adjusted FFO Available to Common Stockholders per Diluted Share

$0.30 - $0.32

Diluted Weighted Average Shares Outstanding

203,400,000

For the full year the Company expects:

Metric

Prior 2014 FY Guidance (1)

Impact of Equity Offering and Marriott Wailea Acquisition

Adjusted Prior 2014 FY  Guidance

2014 FY Guidance

Change in 2014 FY Guidance Midpoint

Comparable Hotel RevPAR Growth

+4.5% - 6.5%

(0.25%)

+4.25% - 6.25%

+4.5% - 6.5%

+0.25%

Net Income ($ millions) 

$66 - $81

$2 - $3

$68 - $84

$73 - $84

+$2.5

Adjusted EBITDA ($ millions)

$281 - $296

$6 - $8

$287 - $304

$296 - $307

+$6.0

Adjusted FFO Available to Common Stockholders ($ millions)

$196 - $211

$6 - $8

$202 - $219

$211 - $222

+$6.0

Adjusted FFO Available to Common Stockholders per Diluted Share

$1.07 - $1.16

($0.04 - $0.03)

$1.03 - $1.13

$1.09 - $1.14

+$0.03

Diluted Weighted Average Shares Outstanding

182,100,000

11,400,000

193,500,000

193,500,000

-

(1)

Reflects guidance presented on May 5, 2014.

Third quarter and full year 2014 guidance are based in part on the following assumptions:

  • Full year comparable hotel EBITDA margin expansion of approximately 50 to 125 basis points (an increase of 12.5 bps over the midpoint of prior guidance).
  • Full year corporate overhead expense (excluding stock amortization and one-time expenses related to future acquisition closing costs) of approximately $21 million to $22 million.
  • Full year interest expense of approximately $69 million, including $3 million in amortization of deferred financing fees.
  • Full year preferred dividends of $9.2 million for the Series D cumulative redeemable preferred stock.

Dividend Update

On August 6, 2014, the Company's Board of Directors declared a cash dividend of $0.05 per share payable to its common stockholders. The Company's Board of Directors also declared a cash dividend of $0.50 per share payable to its Series D cumulative redeemable preferred stockholders. The dividends will be paid on or before October 15, 2014 to common and preferred stockholders of record on September 30, 2014. 

Subject to certain limitations, the Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income.  Based on the guidance provided herein, the Company expects full year 2014 taxable income to result in required distributions of $0.50 - $0.55 per share. The level and constitution 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 long-term leverage targets. As a result, any future common stock dividends may be comprised of cash only, 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 has 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 second quarter 2014 financial results on August 8, 2014, at 12:00 p.m. Eastern Time (9:00 a.m. Pacific Time). A live web cast of the call will be available via the Investor Relations section of the Company's website.  Alternatively, investors may dial 1-888-359-3627 (for domestic callers) or 1-719-325-2463 (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. is a lodging real estate investment trust ("REIT") that as of August 7, 2014 has interests in 30 hotels comprised of 14,304 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. 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
  • Continued balance sheet strength.

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 August 7, 2014, 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 Available to Common Stockholders (as defined below); hotel EBITDA; and hotel EBITDA margin. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO Available to Common Stockholders, hotel EBITDA and hotel EBITDA margin as calculated by us, may not be comparable to other companies that do not define such terms exactly as the Company. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

EBITDA is a commonly used measure of performance in many industries. We believe EBITDA is useful to investors in evaluating our operating performance because this measure helps 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 believe the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. In addition, certain covenants included in our indebtedness use EBITDA as a measure of financial compliance. We also use EBITDA as a measure in determining the value of hotel acquisitions and dispositions.

Historically, we have adjusted EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful information to investors regarding our operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income, is beneficial to an investor's complete understanding of our operating performance.

We believe that the presentation of FFO provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified non-cash items such as real estate depreciation and amortization, amortization of lease intangibles, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance. Our presentation of FFO conforms to the National Association of Real Estate Investment Trusts' ("NAREIT") definition of FFO. This may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

We also present Adjusted FFO Available to Common Stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, and may facilitate comparisons of operating performance between periods and our peer companies.

We adjust EBITDA and FFO for the following items, which may occur in any period, and refer to these measures as either Adjusted EBITDA or Adjusted FFO Available to Common Stockholders:

  • Amortization of favorable and unfavorable contracts: we exclude the non-cash amortization of the favorable management contract asset recorded in conjunction with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent Mile, along with the favorable tenant lease assets recorded in conjunction with our acquisitions of the Hilton New Orleans St. Charles and the Hyatt Regency San Francisco, and the unfavorable tenant lease liabilities recorded in conjunction with our acquisitions of the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile and the Hyatt Regency San Francisco. The amortization of favorable and unfavorable contracts does not reflect the underlying performance of our hotels.
  • Ground rent adjustments: we exclude the non-cash expense incurred from straightlining our ground lease obligations as this expense does not reflect the underlying performance of our hotels.
  • Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired because, like interest expense, their removal helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure.
  • Acquisition costs: under GAAP, costs associated with completed acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company.
  • Consolidated partnership adjustments: we deduct the non-controlling partner's pro rata share of any EBITDA or FFO adjustments related to our consolidated Hilton San Diego Bayfront partnership.
  • Cumulative effect of a change in accounting principle: from time to time, the FASB promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments because they do not reflect our actual performance for that period.
  • Impairment losses: we exclude the effect of impairment losses because we believe that including them in Adjusted EBITDA and Adjusted FFO Available to Common Stockholders is not consistent with reflecting the ongoing performance of our remaining assets.
  • Other adjustments: we exclude other adjustments such as lawsuit settlement costs, prior year property tax assessments and/or credits, management company transition costs, and departmental closing costs, including severance, because we do not believe these costs reflect our actual performance and/or the ongoing operations of our hotels.

In addition, to derive Adjusted EBITDA we exclude the non-cash expense incurred with the amortization of deferred stock compensation as this expense does not reflect the underlying performance of our hotels. We also include an adjustment for the cash ground lease expense recorded on the Hyatt Chicago Magnificent Mile's building lease. Upon acquisition of this hotel, we determined that the building lease was a capital lease, and, therefore, we include a portion of the capital lease payment each month in interest expense. We include an adjustment for ground lease expense on capital leases in order to more accurately reflect the operating performance of the Hyatt Chicago Magnificent Mile. We also exclude the effect of gains and losses on the disposition of depreciable assets because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, material gains or losses from the depreciated value of the disposed assets could be less important to investors given that the depreciated asset value often does not reflect its market value.

To derive Adjusted FFO Available to Common Stockholders, we also exclude the non-cash gains or losses on our derivatives, as well as preferred stock dividends and any original issuance costs associated with the redemption of preferred stock, and any federal and state taxes associated with the application of net operating loss carryforwards. We believe that these items are not reflective of our ongoing finance costs.

In presenting hotel EBITDA and hotel EBITDA margins, the revenue and expense items associated with BuyEfficient and other miscellaneous non-hotel items have been excluded. We believe the calculation of hotel EBITDA results in a more accurate presentation of the hotel EBITDA margins for our hotels, and that these non-GAAP financial measures are useful to investors in evaluating our property-level operating performance.

Our 29 comparable hotels include all hotels held for investment as of June 30, 2014, and also include prior ownership results as applicable in 2013 for the Hilton New Orleans St. Charles acquired in May 2013, the Boston Park Plaza acquired in July 2013, and the Hyatt Regency San Francisco acquired in December 2013.

Our 30 pro forma comparable hotels include the 29 comparable hotels plus prior ownership results in 2014 and 2013 for the Marriott Wailea acquired in July 2014.

Our presentation of Comparable Hotel RevPAR, Comparable Hotel Occupancy and Comparable Hotel ADR include the effects of removing three additional days (December 29, 2012 through December 31, 2012) from Marriott's fiscal 2013 calendar for the Company's ten Marriott-managed hotels.

Reconciliations of net income to EBITDA, Adjusted EBITDA, FFO and Adjusted FFO Available to Common Stockholders are set forth on page 9.  Reconciliations and the components of hotel EBITDA and hotel EBITDA margin are set forth on pages 12 and 13.

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

June 30,

December 31,

2014

2013

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$      360,702

$         104,363

Restricted cash

87,975

89,306

Accounts receivable, net

43,093

29,941

Inventories

1,275

1,464

Prepaid expenses

11,571

12,612

Total current assets

504,616

237,686

Investment in hotel properties, net

3,230,895

3,231,382

Deferred financing fees, net

7,747

9,219

Goodwill

9,405

9,405

Other assets, net

30,297

21,106

Total assets

$   3,782,960

$      3,508,798

Liabilities and Equity

Current liabilities:

Accounts payable and accrued expenses

$        30,192

$           25,116

Accrued payroll and employee benefits

26,463

29,933

Dividends payable

12,370

11,443

Other current liabilities

38,173

30,288

Current portion of notes payable

122,835

23,289

Total current liabilities

230,033

120,069

Notes payable, less current portion

1,269,587

1,380,786

Capital lease obligations, less current portion

15,576

15,586

Other liabilities

34,106

39,958

Total liabilities

1,549,302

1,556,399

Commitments and contingencies

-

-

Equity:

Stockholders' equity:

Preferred stock, $0.01 par value, 100,000,000 shares authorized. 8.0% Series D Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, stated at liquidation preference of $25.00 per share

115,000

115,000

Common stock, $0.01 par value, 500,000,000 shares authorized, 199,447,209 shares issued and outstanding at June 30, 2014 and 180,858,699 shares issued and outstanding at December 31, 2013

1,994

1,809

Additional paid in capital

2,335,709

2,068,721

Retained earnings

260,518

224,364

Cumulative dividends

(535,281)

(511,444)

Total stockholders' equity

2,177,940

1,898,450

Non-controlling interest in consolidated joint ventures

55,718

53,949

Total equity

2,233,658

1,952,399

Total liabilities and equity

$   3,782,960

$      3,508,798

 

Sunstone Hotel Investors, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

 Three Months Ended June 30, 

 Six Months Ended June 30, 

2014

2013

2014

2013

 Revenues 

 Room 

$   214,940

$   168,260

$   383,067

$   300,883

 Food and beverage 

68,733

52,842

128,644

102,470

 Other operating 

17,179

13,536

32,624

26,206

 Total revenues 

300,852

234,638

544,335

429,559

 Operating expenses 

 Room 

53,418

40,537

102,337

77,991

 Food and beverage 

45,109

35,058

88,017

70,154

 Other operating 

5,006

3,887

10,001

8,129

 Advertising and promotion 

13,655

11,240

26,626

22,505

 Repairs and maintenance 

10,706

8,275

21,587

16,649

 Utilities 

7,788

6,129

16,077

12,312

 Franchise costs 

10,261

8,771

18,338

15,249

 Property tax, ground lease and insurance 

21,413

19,297

40,465

37,765

 Property general and administrative 

31,963

25,288

60,885

48,894

 Corporate overhead 

7,674

7,359

14,233

13,530

 Depreciation and amortization 

37,973

32,175

75,588

66,191

 Total operating expenses 

244,966

198,016

474,154

389,369

 Operating income 

55,886

36,622

70,181

40,190

 Interest and other income 

891

788

1,607

1,351

 Interest expense 

(18,331)

(17,272)

(36,614)

(34,686)

 Loss on extinguishment of debt 

-

-

-

(44)

 Income before income taxes and discontinued operations 

38,446

20,138

35,174

6,811

 Income tax provision 

(110)

(129)

(334)

(6,286)

 Income from continuing operations 

38,336

20,009

34,840

525

 Income from discontinued operations 

5,199

-

5,199

48,410

 Net income  

43,535

20,009

40,039

48,935

 Income from consolidated joint venture attributable to non-controlling interest 

(1,659)

(1,226)

(3,885)

(1,523)

 Distributions to non-controlling interest 

(8)

(8)

(16)

(16)

 Dividends paid on unvested restricted stock compensation 

(97)

-

(197)

-

 Preferred stock dividends and redemption charges 

(2,300)

(3,510)

(4,600)

(14,413)

 Undistributed income allocated to unvested restricted stock compensation 

(206)

(126)

(87)

(264)

 Income available to common stockholders 

$     39,265

$     15,139

$     31,254

$     32,719

Basic and diluted per share amounts:

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

$         0.19

$         0.09

$         0.14

$       (0.10)

        Income from discontinued operations

0.03

-

0.03

0.31

Basic and diluted income available to common stockholders per common share

$         0.22

$         0.09

$         0.17

$         0.21

Basic and diluted weighted average common shares outstanding

182,604

160,843

181,836

155,987

Dividends declared per common share

$         0.05

$            -

$         0.10

$            -

 

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 June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Net income

$   43,535

$   20,009

$     40,039

$     48,935

Operations held for investment:

   Depreciation and amortization

37,973

32,175

75,588

66,191

   Amortization of lease intangibles

1,030

1,028

2,058

2,056

   Interest expense

18,331

17,272

36,614

34,686

   Income tax provision

110

129

334

6,286

Non-controlling interests:

   Income from consolidated joint venture attributable to non-controlling interest

(1,659)

(1,226)

(3,885)

(1,523)

   Depreciation and amortization

(824)

(903)

(1,645)

(2,338)

   Interest expense

(568)

(592)

(1,135)

(1,169)

Discontinued operations:

   Interest expense

-

-

-

99

EBITDA

97,928

67,892

147,968

153,223

Operations held for investment:

   Amortization of deferred stock compensation

1,944

1,241

3,316

2,316

   Amortization of favorable and unfavorable contracts, net

46

115

92

229

   Non-cash straightline lease expense

500

342

1,012

1,035

   Capital lease obligation interest - cash ground rent

(351)

(351)

(702)

(702)

   Gain on sale of assets

(49)

(5)

(55)

(5)

   Loss on extinguishment of debt

-

-

-

44

   Closing costs - completed acquisitions

102

690

158

837

   Lawsuit settlement costs

-

358

-

358

   Prior year property tax adjustments, net

(357)

106

(3,235)

106

Non-controlling interests:

   Non-cash straightline lease expense

(112)

(112)

(225)

(225)

   Prior year property tax adjustments, net

-

-

696

-

Discontinued operations:

   Gain on sale of assets, net

(5,199)

-

(5,199)

(51,620)

   Loss on extinguishment of debt

-

-

-

3,115

(3,476)

2,384

(4,142)

(44,512)

Adjusted EBITDA

$   94,452

$   70,276

$   143,826

$   108,711

Reconciliation of Net Income to FFO and Adjusted FFO available to common stockholders

Net income 

$   43,535

$   20,009

$     40,039

$     48,935

Operations held for investment:

   Real estate depreciation and amortization

37,575

31,831

74,801

65,503

   Amortization of lease intangibles

1,030

1,028

2,058

2,056

   Gain on sale of assets

(49)

(5)

(55)

(5)

Non-controlling interests:

   Income from consolidated joint venture attributable to non-controlling interest

(1,659)

(1,226)

(3,885)

(1,523)

   Real estate depreciation and amortization

(824)

(903)

(1,645)

(2,338)

Discontinued operations:

   Gain on sale of assets, net

(5,199)

-

(5,199)

(51,620)

FFO

74,409

50,734

106,114

61,008

Operations held for investment:

   Preferred stock dividends and redemption charges

(2,300)

(3,510)

(4,600)

(14,413)

   Amortization of favorable and unfavorable contracts, net

46

115

92

229

   Non-cash straightline lease expense

500

342

1,012

1,035

   Non-cash interest related to gain on derivatives, net

(125)

(260)

(234)

(417)

   Loss on extinguishment of debt

-

-

-

44

   Closing costs - completed acquisitions

102

690

158

837

   Lawsuit settlement costs

-

358

-

358

   Prior year property tax adjustments, net

(357)

106

(3,235)

106

   Income tax provision related to prior years

-

129

-

6,286

   Preferred stock redemption charges

-

129

-

4,770

Non-controlling interests:

   Non-cash straightline lease expense

(112)

(112)

(225)

(225)

   Non-cash interest related to loss on derivative

-

(1)

-

(1)

   Prior year property tax adjustments, net

-

-

696

-

Discontinued operations:

   Loss on extinguishment of debt

-

-

-

3,115

(2,246)

(2,014)

(6,336)

1,724

Adjusted FFO available to common stockholders

$   72,163

$   48,720

$     99,778

$     62,732

FFO per diluted share

$       0.41

$       0.31

$         0.58

$         0.39

Adjusted FFO available to common stockholders per diluted share

$       0.39

$       0.30

$         0.55

$         0.40

Basic weighted average shares outstanding

182,604

160,843

181,836

155,987

Shares associated with unvested restricted stock awards

475

385

473

344

Diluted weighted average shares outstanding

183,079

161,228

182,309

156,331

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Third Quarter 2014

(Unaudited and in thousands except per share amounts)

Reconciliation of Net Income to Adjusted EBITDA

Quarter Ended

September 30, 2014

Low

High

Net income

$ 26,300

$ 29,300

   Depreciation and amortization

40,050

40,050

   Amortization of lease intangibles

1,000

1,000

   Interest expense

17,000

17,000

   Income tax provision

300

300

   Non-controlling interests

(3,300)

(3,300)

   Amortization of deferred stock compensation

1,800

1,800

   Non-cash straightline lease expense

600

600

   Capital lease obligation interest - cash ground rent

(350)

(350)

Adjusted EBITDA

$ 83,400

$ 86,400

Reconciliation of Net Income to Adjusted FFO available to common stockholders

Net income

$ 26,300

$ 29,300

   Preferred stock dividends

(2,300)

(2,300)

   Real estate depreciation and amortization

38,000

38,000

   Non-controlling interests

(2,500)

(2,500)

   Amortization of lease intangibles

1,000

1,000

   Non-cash straightline lease expense

600

600

Adjusted FFO available to common stockholders

$ 61,100

$ 64,100

Adjusted FFO available to common stockholders per diluted share

$     0.30

$     0.32

Diluted weighted average shares outstanding

203,400

203,400

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Full Year 2014

(Unaudited and in thousands except per share amounts)

Reconciliation of Net Income to Adjusted EBITDA

Year Ended

December 31, 2014

Low

High

Net income

$   72,800

$   83,800

   Depreciation and amortization

156,200

156,200

   Amortization of lease intangibles

4,000

4,000

   Interest expense

69,500

69,500

   Income tax provision

1,000

1,000

   Non-controlling interests

(12,000)

(12,000)

   Amortization of deferred stock compensation

6,000

6,000

   Non-cash straightline lease expense

2,800

2,800

   Capital lease obligation interest - cash ground rent

(1,400)

(1,400)

   Prior year property tax adjustments, net

(2,900)

(2,900)

Adjusted EBITDA

$ 296,000

$ 307,000

Reconciliation of Net Income to Adjusted FFO available to common stockholders

Net income

$   72,800

$   83,800

   Preferred stock dividends

(9,200)

(9,200)

   Real estate depreciation and amortization

154,000

154,000

   Non-controlling interests

(11,000)

(11,000)

   Amortization of lease intangibles

4,000

4,000

   Non-cash straightline lease expense

2,800

2,800

   Prior year property tax adjustments, net

(2,900)

(2,900)

Adjusted FFO available to common stockholders

$ 210,500

$ 221,500

Adjusted FFO available to common stockholders per diluted share

$       1.09

$       1.14

Diluted weighted average shares outstanding

193,500

193,500

 

Sunstone Hotel Investors, Inc.

Comparable Hotel EBITDA and Margins

(Unaudited and in thousands except hotels and rooms)

Three Months Ended June 30, 2014

Three Months Ended June 30, 2013

Actual/Comparable (1)

2014 Acquisition (2)

Pro Forma Comparable (3)

Actual (4)

2013 Acquisitions (5)

Comparable (6)

2014 Acquisition (2)

Pro Forma Comparable (3)

Number of Hotels

29

1

30

27

2

29

1

30

Number of Rooms

13,760

544

14,304

11,903

1,857

13,760

544

14,304

Hotel EBITDA Margin (7)

34.1%

29.2%

33.9%

33.0%

31.3%

32.7%

30.6%

32.6%

Hotel EBITDA Margin adjusted for non-current year property tax related adjustments, net (8)

34.0%

33.8%

33.0%

32.7%

32.6%

Hotel Revenues

     Room revenue

$                       214,940

$                       9,531

$                              224,471

$ 168,260

$                       34,175

$          202,435

$                       9,467

$                              211,902

     Food and beverage revenue

68,733

2,713

71,446

52,842

10,803

63,645

2,145

65,790

     Other operating revenue

15,327

1,225

16,552

11,848

1,777

13,625

1,286

14,911

Total Hotel Revenues

299,000

13,469

312,469

232,950

46,755

279,705

12,898

292,603

Hotel Expenses

     Room expense

53,418

2,537

55,955

40,537

9,693

50,230

2,425

52,655

     Food and beverage expense

45,109

2,123

47,232

35,058

8,147

43,205

1,901

45,106

     Other hotel expense

67,663

3,424

71,087

56,548

9,269

65,817

3,333

69,150

     General and administrative expense

30,756

1,446

32,202

24,034

5,016

29,050

1,293

30,343

Total Hotel Expenses

196,946

9,530

206,476

156,177

32,125

188,302

8,952

197,254

Hotel EBITDA

102,054

3,939

105,993

76,773

14,630

91,403

3,946

95,349

Non-current year property tax related adjustments, net

(353)

-

(353)

106

-

106

-

106

Hotel EBITDA adjusted for non-current year property tax related adjustments, net

101,701

3,939

105,640

76,879

14,630

91,509

3,946

95,455

Non-hotel operating income

704

-

704

517

-

517

-

517

Amortization of lease intangibles

(1,030)

-

(1,030)

(1,028)

-

(1,028)

-

(1,028)

Amortization of favorable and unfavorable contracts, net

(46)

-

(46)

(115)

-

(115)

-

(115)

Non-cash straightline lease expense

(500)

-

(500)

(342)

-

(342)

-

(342)

Capital lease obligation interest - cash ground rent

351

-

351

351

-

351

-

351

Non-current year property tax related adjustments, net

353

-

353

(106)

-

(106)

-

(106)

Corporate overhead

(7,674)

-

(7,674)

(7,359)

-

(7,359)

-

(7,359)

Depreciation and amortization 

(37,973)

(2,130)

(40,103)

(32,175)

(4,764)

(36,939)

(2,130)

(39,069)

Operating Income

55,886

1,809

57,695

36,622

9,866

46,488

1,816

48,304

Interest and other income

891

-

891

788

-

788

-

788

Interest expense 

(18,331)

-

(18,331)

(17,272)

(1,328)

(18,600)

-

(18,600)

Income tax provision

(110)

-

(110)

(129)

-

(129)

-

(129)

Income from discontinued operations

5,199

-

5,199

-

-

-

-

-

Net Income

$                         43,535

$                       1,809

$                                45,344

$   20,009

$                         8,538

$            28,547

$                       1,816

$                                30,363

 

(1)

Actual/Comparable represents the Company's ownership results for the 29 Comparable Hotels held for investment as of June 30, 2014.

(2)

2014 Acquisition represents prior ownership results for the Marriott Wailea acquired on July 17, 2014, along with the Company's pro forma adjustment for depreciation.

(3)

Pro Forma Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for interest and depreciation expense as applicable for the 30 Pro Forma Comparable Hotels, which includes the 29 Comparable Hotels, plus the Marriott Wailea.

(4)

Actual represents the Company's ownership results for the 27 hotels held for investment as of June 30, 2013.  The room count has been adjusted to include one room added by the Renaissance Westchester during the third quarter of 2013, two rooms added by the Hyatt Chicago Magnificent Mile during the third quarter of 2013, eight rooms added by the Doubletree Guest Suites Times Square during the first quarter of 2014, and four rooms and two rooms added by the Hilton Garden Inn Chicago Downtown/Magnificent Mile and the Courtyard by Marriott Los Angeles, respectively, during the second quarter of 2014.

(5)

2013 Acquisitions represent prior ownership results for the Hilton New Orleans St. Charles acquired on May 1, 2013, the Boston Park Plaza acquired on July 2, 2013, and the Hyatt Regency San Francisco acquired on December 2, 2013, along with the Company's pro forma adjustments for interest and depreciation expense. The room count has been adjusted to include one room added by the Boston Park Plaza during the first quarter of 2014, and one room added by the Hyatt Regency San Francisco during the second quarter of 2014.

(6)

Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for interest and depreciation expense as applicable for the 29 Comparable Hotels.

(7)

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

(8)

Hotel EBITDA Margin for the three months ended June 30, 2014 includes the additional net benefit of $0.4 million related to prior year property tax related adjustments. Excluding these non-current year adjustments, Actual/Comparable and Pro Forma Comparable Hotel EBITDA margins for the three months ended June 30, 2014 would have been 34.0% and 33.8%, respectively. Hotel EBITDA Margin for the three months ended June 30, 2013 includes the additional net expense of $0.1 million related to prior year property tax related adjustments. Excluding these non-current year adjustments, Actual, Comparable and Pro Forma Comparable Hotel EBITDA margins for the three months ended June 30, 2013 would have been 33.0%, 32.7% and 32.6%, respectively.

 

Sunstone Hotel Investors, Inc.

Comparable Hotel EBITDA and Margins

(Unaudited and in thousands except hotels and rooms)

Six Months Ended June 30, 2014

Six Months Ended June 30, 2013

Actual/Comparable (1)

2014 Acquisition (2)

Pro Forma Comparable (3)

Actual (4)

2013 Acquisitions (5)

Comparable (6)

2014 Acquisition (2)

Pro Forma Comparable (3)

Number of Hotels

29

1

30

27

2

29

1

30

Number of Rooms

13,760

544

14,304

11,903

1,857

13,760

544

14,304

Hotel EBITDA Margin (7)

29.8%

34.8%

30.1%

28.6%

22.0%

27.5%

36.9%

28.1%

Hotel EBITDA Margin adjusted for non-current year property tax related adjustments, net (8)

29.2%

29.5%

28.6%

27.6%

28.1%

Hotel Revenues

     Room revenue

$                       383,067

$                     22,408

$                              405,475

$ 300,883

$                       57,934

$          358,817

$                     22,143

$                              380,960

     Food and beverage revenue

128,644

5,859

134,503

102,470

18,208

120,678

4,932

125,610

     Other operating revenue

29,151

2,617

31,768

23,030

3,618

26,648

2,718

29,366

Total Hotel Revenues

540,862

30,884

571,746

426,383

79,760

506,143

29,793

535,936

Hotel Expenses

     Room expense

102,337

5,510

107,847

77,991

18,373

96,364

5,270

101,634

     Food and beverage expense

88,017

4,397

92,414

70,154

15,255

85,409

3,940

89,349

     Other hotel expense

130,720

7,208

137,928

110,166

19,276

129,442

6,781

136,223

     General and administrative expense

58,423

3,009

61,432

46,292

9,281

55,573

2,807

58,380

Total Hotel Expenses

379,497

20,124

399,621

304,603

62,185

366,788

18,798

385,586

Hotel EBITDA

161,365

10,760

172,125

121,780

17,575

139,355

10,995

150,350

Non-current year property tax related adjustments, net

(3,231)

-

(3,231)

106

-

106

-

106

Hotel EBITDA adjusted for non-current year property tax related adjustments, net

158,134

10,760

168,894

121,886

17,575

139,461

10,995

150,456

Non-hotel operating income

1,097

-

1,097

749

-

749

-

749

Amortization of lease intangibles

(2,058)

-

(2,058)

(2,056)

-

(2,056)

-

(2,056)

Amortization of favorable and unfavorable contracts, net

(92)

-

(92)

(229)

-

(229)

-

(229)

Non-cash straightline lease expense

(1,012)

-

(1,012)

(1,035)

-

(1,035)

-

(1,035)

Capital lease obligation interest - cash ground rent

702

-

702

702

-

702

-

702

Non-current year property tax related adjustments, net

3,231

-

3,231

(106)

-

(106)

-

(106)

Corporate overhead

(14,233)

-

(14,233)

(13,530)

-

(13,530)

-

(13,530)

Depreciation and amortization 

(75,588)

(4,260)

(79,848)

(66,191)

(9,884)

(76,075)

(4,260)

(80,335)

Operating Income

70,181

6,500

76,681

40,190

7,691

47,881

6,735

54,616

Interest and other income

1,607

-

1,607

1,351

-

1,351

-

1,351

Interest expense 

(36,614)

-

(36,614)

(34,686)

(2,647)

(37,333)

-

(37,333)

Loss on extinguishment of debt

-

-

-

(44)

-

(44)

-

(44)

Income tax provision

(334)

-

(334)

(6,286)

-

(6,286)

-

(6,286)

Income from discontinued operations

5,199

-

5,199

48,410

-

48,410

-

48,410

Net Income

$                         40,039

$                       6,500

$                                46,539

$   48,935

$                         5,044

$            53,979

$                       6,735

$                                60,714

 

(1)

Actual/Comparable represents the Company's ownership results for the 29 Comparable Hotels held for investment as of June 30, 2014.

(2)

2014 Acquisition represents prior ownership results for the Marriott Wailea acquired on July 17, 2014, along with the Company's pro forma adjustment for depreciation.

(3)

Pro Forma Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for interest and depreciation expense as applicable for the 30 Pro Forma Comparable Hotels, which includes the 29 Comparable Hotels, plus the Marriott Wailea.

(4)

Actual represents the Company's ownership results for the 27 hotels held for investment as of June 30, 2013. The room count has been adjusted to include one room added by the Renaissance Westchester during the third quarter of 2013, two rooms added by the Hyatt Chicago Magnificent Mile during the third quarter of 2013, eight rooms added by the Doubletree Guest Suites Times Square during the first quarter of 2014, and four rooms and two rooms added by the Hilton Garden Inn Chicago Downtown/Magnificent Mile and the Courtyard by Marriott Los Angeles, respectively, during the second quarter of 2014.

(5)

2013 Acquisitions represent prior ownership results for the Hilton New Orleans St. Charles acquired on May 1, 2013, the Boston Park Plaza acquired on July 2, 2013, and the Hyatt Regency San Francisco acquired on December 2, 2013, along with the Company's pro forma adjustments for interest and depreciation expense. The room count has been adjusted to include one room added by the Boston Park Plaza during the first quarter of 2014, and one room added by the Hyatt Regency San Francisco during the second quarter of 2014.

(6)

Comparable represents the Company's ownership results, prior ownership results and the Company's pro forma adjustments for interest and depreciation expense as applicable for the 29 Comparable Hotels.

(7)

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

(8)

Hotel EBITDA Margin for the six months ended June 30, 2014 includes the net additional benefit of $3.2 million related to prior year property tax related adjustments. Excluding these non-current year adjustments, Actual/Comparable and Pro Forma Comparable Hotel EBITDA margins for the six months ended June 30, 2014 would have been 29.2% and 29.5%, respectively. Hotel EBITDA Margin for the six months ended June 30, 2013 includes the additional net expense of $0.1 million related to prior year property tax related adjustments. Excluding these non-current year adjustments, Actual, Comparable and Pro Forma Comparable Hotel EBITDA margins for the six months ended June 30, 2013 would have been 28.6%, 27.6% and 28.1%, respectively.

 

For Additional Information: Bryan Giglia Sunstone Hotel Investors, Inc. (949) 382-3036

SOURCE Sunstone Hotel Investors, Inc.



RELATED LINKS

http://www.sunstonehotels.com