Sunstone Hotel Investors reports results for First Quarter 2010
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Sunstone Hotel Investors reports results for First Quarter 2010
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2010-05-11
Sees strengthening demand trends
Maintains focus on growing portfolio through disciplined acquisitions
Looks to enhance portfolio quality through expanded renovations program
SAN CLEMENTE, CA –May 10, 2010 – Sunstone Hotel Investors, Inc. (the “Company”) (NYSE: SHO) today announced results for
the first quarter ended March 31, 2010.
RevPAR and hotel EBITDA margin information presented reflect the Company’s core 29 hotel portfolio on a pro forma basis.
First Quarter 2010 Operational Results:
• Total revenue was $160.7 million.
• Pro forma RevPAR was $94.68.
• Loss attributable to common stockholders was $26.3 million.
• Loss attributable to common stockholders per diluted share was $0.27.
• Adjusted EBITDA was $31.0 million.
• Adjusted FFO available to common stockholders was $3.9 million.
• Adjusted FFO available to common stockholders per diluted share was $0.04.
• Pro forma hotel EBITDA margin was 21.7%.
Art Buser, President and Chief Executive Officer, stated, “During the first quarter we saw a reversal of the negative trends our
industry experienced over the last year as demand rebounded. We believe our well-located portfolio of institutional quality hotels is
positioned to benefit from the recovery. We are highly focused on growing our portfolio, both through selective acquisitions of hotels
and through disciplined capital investments in our existing portfolio. Our mission remains to provide lodging real estate investors
with exceptional performance and appropriate risk. Simply put, Sunstone exists to outperform.”
SELECTED FINANCIAL DATA
($ in millions, except RevPAR and per share amounts)
(unaudited)
Three Months Ended March 31,
2010 2009 % Change
Total Revenue $ 160.7 $ 171.4 (6.2)%
Pro forma RevPAR (1) $ 94.68 $ 101.23 (6.5)%
Pro forma hotel EBITDA margin (1) 21.7% 24.1% (240) bps
Income available (loss attributable) to common stockholders $ (26.3 ) $ 0.9
Income available (loss attributable) to common stockholders per diluted share $ (0.27 ) $ 0.02
EBITDA $ 30.0 $ 62.4
Adjusted EBITDA $ 31.0 $ 38.9
FFO available to common stockholders $ (1.0 ) $ 31.3
Adjusted FFO available to common stockholders $ 3.9 $ 7.0
FFO available to common stockholders per diluted share (2) $ (0.01 ) $ 0.60
Adjusted FFO available to common stockholders per diluted share (2) $ 0.04 $ 0.13
(1) Includes the 29 hotels held for investment by the Company as of March 31, 2010, excluding the Mass Mutual eight hotels reclassified as “Operations Held for
Non-Sale Disposition” on the Company’s balance sheets and statements of operations, and the W San Diego, Renaissance Westchester and Marriott Ontario
Airport reclassified as discontinued operations on the Company’s balance sheets and statements of operations.
(2) Reflects Series C convertible preferred stock on a “non-converted” basis. On an “as-converted” basis, FFO available to common stockholders per diluted share is
$0.01 and $0.58, respectively, for the three months ended March 31, 2010 and 2009, and Adjusted FFO available to common stockholders per diluted share is
$0.05 and $0.15, respectively, for the three months ended March 31, 2010 and 2009.
The Company has filed with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the quarter ended March
31, 2010.
Disclosure regarding the non-GAAP financial measures in this release is included on pages 4 and 5. Disclosure regarding the pro
forma hotel EBITDA Margin is included on page 5 of this release. Reconciliations of non-GAAP financial measures to the most
comparable GAAP measure for each of the periods presented are included on pages 8, 9, and 10 of this release.
Acquisitions
The Company continues to analyze a variety of investment opportunities aimed at enhancing its portfolio quality and growth
prospects. The Company believes the lodging industry may be in the early stage of a credit-driven acquisitions opportunity, and as a
result seller price expectations currently remain relatively high. During the early stage of this opportunity, the Company is exploring
alternative structured investments, such as hotel debt or portfolio transactions, which may ultimately lead to opportunities to acquire
quality hotel assets at meaningful discounts to warranted value.
On April 30, 2010, the Company purchased two hotel loans with a combined principal amount of $32.5 million plus accrued interest
of approximately $800,000, for a total purchase price of $3.7 million. The loans include (i) a $30.0 million, 8.5% mezzanine loan
maturing in January 2017 secured by the equity interests in the Company’s Doubletree Guest Suites Times Square joint venture, and
(ii) a $2.5 million, 8.075% subordinate note maturing in November 2010 secured by the 101-room boutique hotel known as Twelve
Atlantic Station in Atlanta Georgia. The Company purchased the mezzanine loan for $3.45 million and the subordinate note for
$250,000. None of the debt on the Doubletree Guest Suites Times Square is in default, however interest on the mezzanine loan is
currently being deferred in accordance with the provisions of the loan. The subordinate note secured by the Twelve Atlantic Station is
currently in default. The Company will account for both loans using the cost recovery method until such time as the expected cash
flows from the loans are reasonably probable and estimable.
Independent Hotel Management RFP
During December 2009, the Company issued a request for proposal (“RFP”) to hotel management companies interested in managing
15 of its hotels currently managed by Sunstone Hotel Properties, Inc., a division of Interstate Hotels & Resorts, Inc. The purpose of
the RFP was to ensure that the Company has the most highly qualified management companies operating its hotels in order to
consistently deliver best in class results. The Company concluded this process in April 2010. Interstate Hotels & Resorts, Inc. will
continue to manage 13 of the Company’s 29 hotels. In addition, the Company has selected Davidson Hotel Company to manage its
Embassy Suites Chicago, and Sage Hospitality Resources to manage its Hilton Del Mar.
Balance Sheet/Liquidity Update
Ken Cruse, Chief Financial Officer, stated, “We believe that by appropriately managing our capital structure for the cycle we stand to
outperform. Our 2010 plan is focused on reducing our excess cash balance through a disciplined investment process while
maintaining reasonable levels of well staggered, flexible debt. Our objective is to maximize total returns to our stockholders through
enhanced growth in FFO per share and by expediting the future reintroduction of cash common dividends when appropriate. ”
As of March 31, 2010, the Company had approximately $374.0 million of cash and cash equivalents, including restricted cash of
$40.5 million. The Company intends to use a portion of its higher than historical cash balance for acquisition opportunities.
On March 31, 2010, total assets were $2.5 billion, including $1.9 billion of net investments in hotel properties, total debt, excluding
debt in the Company’s secured debt restructuring program, was $1.1 billion and stockholders’ equity was $0.9 billion. As previously
disclosed, the Company is in the process of prepaying the $81.0 million mortgage on its Hilton Times Square, and expects to complete
the prepayment by September 2010.
Financial Covenants
The Company is subject to compliance with various covenants under its Series C preferred stock and its 4.6% Exchangeable Senior
Notes due 2027 (the “Senior Notes”). As of March 31, 2010, the Company was in compliance with all covenants related to its Series C
preferred stock and its Senior Notes.
Capital Improvements
During the first quarter of 2010, the Company invested $8.6 million in capital improvements to its portfolio. In light of the industry
recovery and in order to position its portfolio for growth, the Company has expanded its 2010/2011 capital investment plan, and
currently intends to invest approximately $60.0 million to $80.0 million into capital improvements during 2010. The Company’s
capital improvements program is aimed at value-adding renovation and repositioning projects, including the following:
Embassy Suites Chicago - Guest suites, corridors and the lobby to be renovated beginning in the fourth quarter 2010.
Renaissance Washington DC – Guest rooms and certain meeting space to be renovated beginning in the third quarter 2010.
Kahler Grand Rochester - Deluxe rooms, meeting space and certain public areas to be renovated, and new energy efficient
windows to be installed beginning in late 2010.
Marriott Tysons Corner - Guestrooms and exterior to be renovated beginning in late second quarter 2010.
Dividend Update
On May 6, 2010, the Company’s board of directors declared a cash dividend of $0.50 per share payable to its Series A 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 July 15, 2010 to stockholders of record on June 30, 2010. No dividend was
declared on the Company’s common stock.
The Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income. The level of any
future dividends will be determined by the Company’s board of directors after considering taxable income projections, expected
capital requirements, and risks affecting the Company’s business. In light of the Company’s intent to distribute 100% of its annual
taxable income, future dividends may be reduced from past levels, or eliminated entirely. Dividends may be made in the form of cash
or a combination of cash and stock consistent with Internal Revenue Code regulations.
Earnings Call
The Company will host a conference call to discuss first quarter results on May 10, 2010, at 10:00 a.m. PDT. A live web cast of the
call will be available via the Investor Relations section of the Company’s website at www.sunstonehotels.com. Alternatively, investors
may dial 1-877-941-2928 (for domestic callers) or 1-480-629-9725 (for international callers) with passcode #4285247. A replay of the
web cast will also be archived on the website.
About Sunstone Hotel Investors, Inc.
Sunstone Hotel Investors, Inc. (“Sunstone”) is a lodging real estate investment trust (“REIT”) that, as of the date hereof, owns 37
hotels comprised of 12,900 rooms and, upon completion of certain previously announced deed back transactions, will own 29 hotels comprised of 10,966 rooms. Sunstone’s hotels are primarily in the upper upscale segment, and are generally operated under nationally
recognized brands, such as Marriott, Fairmont, Hilton, and Hyatt. For further information, please visit Sunstone’s website at
www.sunstonehotels.com.
This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forwardlooking
statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will” and other similar terms and phrases, including references to
assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known
and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those anticipated at the
time the forward-looking statements are made. These risks include, but are not limited to: volatility in the debt or equity markets
affecting our ability to acquire or sell hotel assets; national and local economic and business conditions, including the likelihood of a
prolonged U.S. recession; the ability to maintain sufficient liquidity and our access to capital markets; potential terrorist attacks, which
would affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel
business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt and equity agreements;
relationships with property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting
capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and
room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine wages, prices,
construction procedures and costs; our ability to identify, successfully compete for and complete acquisitions; the performance of
hotels after they are acquired; necessary capital expenditures and our ability to fund them and complete them with minimum
disruption; our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes; and
other risks and uncertainties associated with our business described in the Company’s filings with the Securities and Exchange
Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All
forward-looking information in this release is as of May 10, 2010, and the Company undertakes no obligation to update any forwardlooking
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.
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