Sunstone hotel investors reports results of operations for third quarter 2008
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Sunstone hotel investors reports results of operations for third quarter 2008
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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 2008-11-06
Sunstone Hotel Investors, Inc. (the “Company”) (NYSE:
SHO) today announced results of operations for the third quarter ended September 30, 2008.
Third Quarter 2008 Operational Statistics:
Total revenue was $239.2 million.
• Total portfolio occupancy was 78.5%, and total portfolio average daily rate was $158.34.
• Total portfolio RevPAR was $124.30.
• Comparable portfolio RevPAR was $124.93.
• Net income was $10.8 million.
• Income available to common stockholders was $5.6 million.
• Income available to common stockholders per diluted share was $0.11.
• Adjusted EBITDA was $68.5 million.
• Adjusted FFO available to common stockholders was $37.4 million.
• Adjusted FFO available to common stockholders per diluted share (“FFO per share”) was $0.69.
• Total hotel operating profit margin was 28.8%.
• Comparable hotel operating profit margin was 29.5%.
Robert A. Alter, Chief Executive Officer and Executive Chairman, stated, “Even in this uncertain and
unprecedented environment, we believe our portfolio is well positioned. Year-to-date total RevPAR is up
1.2% over last year, and up more than 9% over 2006 levels. Sunstone has prepared for the challenges our
industry now faces by taking a number of prudent steps, including selling the Hyatt Regency Century
Plaza, recapitalizing our balance sheet with long-term fixed rate debt, and completing a major portfolio
renovation program in 2007. As a result, we now hold more than $232 million in cash, including restricted
cash; we have no amounts outstanding on our $200 million credit facility; we face no near-term debt
maturities and our assets are largely free of major capital requirements. In the near term, our primary focus
is on maximizing our excess cash. We believe we have the assets, liquidity, balance sheet and team to
weather the current environment. ”
Art Buser, President, stated, “We have made good progress towards appropriately scaling the cost
structures of our hotels and corporate office for current business levels. In addition to the success we’ve
had working with our managers to reduce operating costs at our hotels, we have also made meaningful
year-over-year reductions in our corporate overhead. Going forward, we are committed to improving our
operating efficiency and focusing on our capital expenditure program.”
Contemporaneously with this press release, the Company has filed its Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2008 with the Securities and Exchange Commission.
Disclosure regarding the non-GAAP financial measures in this release is included on page 6. Disclosure
regarding the Comparable Portfolio is included on page 7 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 10 through 12 of this release.
For the third quarter 2008, total portfolio RevPAR decreased 2.1% as compared to the third quarter 2007,
driven by a 260 basis point decrease in occupancy partially offset by a 1.1% increase in average daily room
rate. Comparable RevPAR decreased 1.3% as compared to the third quarter 2007, driven by a 230 basis
point decrease in occupancy partially offset by a 1.6% increase in average daily room rate.
For the third quarter 2008, total hotel operating profit margins decreased 120 basis points as compared to
the third quarter 2007 (from 30.0% to 28.8%). Comparable hotel operating profit margins decreased 120
basis points as compared to the third quarter 2007 (from 30.7% to 29.5%) (see page 12 for a reconciliation
of hotel operating income to the comparable GAAP measure).
Acquisitions, Dispositions, Investments and Financings
On May 30, 2008, the Company sold the Hyatt Regency Century Plaza for gross proceeds of $366.5
million, resulting in a net gain of $42.1 million. The net proceeds from this sale were initially held by an
accommodator to facilitate a potential tax-deferred like-kind exchange. Subsequent to the end of the second
quarter and upon the expiration of the like-kind exchange identification period, the Company elected not to
proceed with a like-kind exchange and withdrew the proceeds from the accommodator. As described
below, a portion of the proceeds were used to repay credit facility borrowings used to fund the Tender
Offer. Additional proceeds were used to fund the purchase of 32.6 acres of land underlying the Company’s
Renaissance Orlando hotel, open-market repurchases of the Company’s common stock and other general
corporate purposes. The remaining proceeds of approximately $159.5 million were held as unrestricted
cash and cash equivalents as of September 30, 2008.
On February 21, 2008, the Company announced that its board of directors had authorized the Company to
repurchase up to $150 million of its common stock during 2008 (the “2008 Repurchase Program”). On July
8, 2008, the Company completed a modified “Dutch Auction” tender offer to purchase shares of its
common stock (the “Tender Offer”). In accordance with the terms and conditions of the Tender Offer, the
Company accepted for purchase 7,374,179 shares at a price of $17.50 per share, for a total cost of $129.0
million (excluding fees and costs of the Tender Offer). On August 5, 2008, the board of directors
authorized an increase of $100 million to the 2008 Repurchase Program. During the third quarter of 2008,
the Company repurchased an additional 3,000,000 shares of its common stock at a cost of $42.1 million. As
of September 30, 2008, the Company had incurred $1.5 million in fees and commissions related to these
stock repurchases, and had remaining authorization to repurchase up to approximately $67.1 million of its
common stock under the 2008 Repurchase Program.
On September 5, 2008, the Company purchased 32.6 acres of land underlying its Renaissance Orlando
hotel for a gross purchase price of $30.7 million. Prior to its acquisition of the land, the Company had
leased the land from a third-party.
Balance Sheet/Liquidity Update
As of September 30, 2008, the Company had approximately $232.1 million of cash and cash equivalents,
including restricted cash. The Company is currently maintaining a higher than historical cash balance in
light of the recent turbulence in the credit markets and the economic downturn. As of September 30, 2008,
the Company had no outstanding indebtedness under its credit facility, and had $3.9 million in outstanding
irrevocable letters of credit backed by the credit facility, leaving, as of that date, up to $196.1 million
available under the credit facility. The credit facility requires the Company to meet certain financial
covenants, and the Company’s ability to meet these covenants may be affected by changes in the economy
or operations. A failure to meet any of these covenants would reduce or eliminate the Company’s ability to
borrow under the credit facility. If it becomes likely that such a covenant failure may occur, the Company
may seek to renegotiate the terms of its credit facility, or it may elect to terminate the credit facility.
Additionally, the Company believes it could obtain mortgages on, or pledge to a secured facility, one or
more of its eleven unencumbered hotels. The Company’s current business plan does not contemplate the
use of the credit facility. On September 30, 2008, total assets were $2.8 billion, including $2.5 billion of net
investments in hotel properties, total debt was $1.7 billion and stockholders’ equity was $0.9 billion.
Hotel Renovations
During the third quarter 2008, the Company invested $20.9 million in capital projects.
Full Year 2008 Outlook
updates for any subsequent developments in its business. Achievement of the anticipated results is subject
to risks and uncertainties, including those disclosed in the Company’s filings with the Securities and
Exchange Commission. The Company’s guidance does not take into account any additional hotel
acquisitions, dispositions, stock repurchases or financings during 2008. As the level of demand for U.S.
lodging is highly correlated to the overall U.S. economy, changes in U.S. economic performance could
have a material effect on the Company’s results of operations.
For the full year 2008, the Company expects total portfolio RevPAR to range from a decrease of
approximately 4.0% to a decrease of approximately 1.0% compared to the full year 2007. Additionally, for
the full year 2008:
• Income available to common stockholders is expected to be approximately $60.6 million to $70.6
million;
• Adjusted EBITDA is expected to be approximately $275.0 million to $285.0 million;
• Adjusted FFO available to common stockholders is expected to be approximately $149.5 million
to $159.5 million; and
• Adjusted FFO available to common stockholders per diluted share is expected to be approximately
$2.58 to $2.75.
Dividend Update
The Company will recognize a tax gain in 2008 on the sale of the Hyatt Regency Century Plaza. Internal
Revenue Service rules generally require a REIT, at its election, to either pay tax on any capital gains
recognized during the year, or distribute such capital gains to its stockholders within 30 days of the year
end. The combination of the Company’s regular income and tax gain is expected to result in a required
distribution higher than the prior quarterly dividend of $0.35 per common share. The Company expects to
structure its fourth quarter dividend as a special, partial cash and partial stock, dividend in the interest of
maximizing its cash position and flexibility in this uncertain economic environment. The board of directors
expects to announce the structure, amount and timing of the fourth quarter dividend in December, when the
Company believes the amount of its 2008 taxable income may be more accurately estimated.
The level of any future quarterly dividends will be determined by the Company’s board of directors after
considering long-term operating projections, expected capital requirements, and risks affecting the
Company’s business. The Company currently intends to maintain its dividend level at 100% of its taxable
income, which may result in a reduction in its dividends going forward
Earnings Call
The Company will host a conference call to discuss third quarter results on November 5, 2008, at 2 p.m.
PST. 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 1-800-240-5318 (for domestic
callers) or 303-262-2130 (for international callers). A replay of the web cast will also be archived on the
website.
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