Sunstone Hotel Investors Reports Results for Third Quarter 2009 |
SAN CLEMENTE, Calif., Nov. 4 /PRNewswire-FirstCall/ -- Sunstone Hotel Investors, Inc. (the "Company") today announced results for the third quarter ended September 30, 2009. All RevPAR and hotel EBITDA margin information presented reflect the 38 hotel portfolio on a pro forma basis, which excludes the W San Diego, which was conveyed to a receiver during the third quarter, and the Marriott Ontario Airport, which is in the process of being conveyed to a receiver.
Third Quarter 2009 Operational Results: -- Total revenue was $176.0 million. -- Total RevPAR was $101.78. -- Loss attributable to common stockholders was $23.1 million. -- Loss attributable to common stockholders per diluted share was $0.31. -- Adjusted EBITDA was $40.1 million. -- Adjusted FFO available to common stockholders was $10.3 million. -- Adjusted FFO available to common stockholders per diluted share was $0.14. -- Hotel EBITDA margin was 23.8%. Art Buser, President and Chief Executive Officer, stated, "We continue to drive operational efficiencies throughout our portfolio resulting in impressive margin performance which we believe will enhance our operations for years to come. We also have executed on a number of finance initiatives designed to reduce corporate risk and provide capacity to capitalize on future opportunities. Going forward, we believe nimble, well-capitalized public lodging companies will have opportunities to create significant long-term shareholder value."
SELECTED FINANCIAL DATA ($in millions, except RevPAR and per share amounts) (unaudited) ---------- Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2009 2008 % Change 2009 2008 % Change ---- ---- -------- ---- ---- -------- Total Revenue $176.0 $220.1 (20.0)% $536.7 $663.0 (19.0)% Total RevPAR (1) 101.78 $127.49 (20.2)% $100.75 $125.43 (19.7)% Income available (loss attributable) to common stockholders $(23.1) $4.4 (625.0)% $(157.7) $61.6 (356.0)% Income available (loss attributable) to common stockholders per diluted share $(0.31) $0.09 (444.4)% $(2.53) $1.11 (327.9)% EBITDA $37.9 $68.5 (44.7)% $27.8 $257.2 (89.2)% Adjusted EBITDA $40.1 $68.5 (41.5)% $123.8 $215.1 (42.4)% FFO available to common stockholders $5.0 $36.5 (86.3)% $(55.7) $119.1 (146.8)% Adjusted FFO available to common stockholders $10.3 $36.5 (71.8)% $31.0 $119.1 (74.0)% FFO available to common stockholders per diluted share (2) $0.07 $0.68 (89.7)% $(0.89) $1.99 (144.7)% Adjusted FFO available to common stockholders per diluted share (2) $0.14 $0.68 (79.4)% $0.50 $1.99 (74.9)% Hotel EBITDA margin (1) 23.8% 29.5% (570) bps 24.5% 29.5% (500) bps (1) Includes the 38 hotels we owned as of September 30, 2009, excluding the Marriott Ontario Airport reclassified as "Operations Held for Non-Sale Disposition" on our balance sheets and statements of operations, and the W San Diego reclassified as discontinued operations on our balance sheets and statements of operations. (2) Reflects Series C convertible preferred stock on an "as-converted" basis if such treatment is dilutive. Contemporaneously with this press release, the Company has filed with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009. Disclosure regarding the non-GAAP financial measures in this release is included on pages 5 and 6. Disclosure regarding the Hotel EBITDA Margin is included on page 6 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 9 and 10 of this release. Transactions Equity Offering. Subsequent to the end of the Company's third quarter, the Company issued 23,000,000 shares of its common stock, including the underwriters' over-allotment of 3,000,000 shares. Net proceeds from this offering of approximately $158.6 million were contributed to Sunstone Hotel Partnership LLC, a subsidiary, which will use the proceeds for working capital and other general corporate purposes, which may include hotel acquisitions. Secured Finance Initiatives. The Company has initiated a secured debt restructuring program to proactively address value and cash flow deficits among certain of its mortgaged hotels. The primary goal of this program is to achieve benefits for the Company's stockholders through loan amendments, or in certain cases, consensual transfers to the lenders of the hotel assets in full satisfaction of the debt. Loans within the Company's secured debt restructuring program generally meet two criteria: (1) the hotel is not generating sufficient cash flow to cover debt service, and under the current terms of the mortgage, the hotel is not expected to generate sufficient cash flow for the foreseeable future, and (2) the present value of the hotel is significantly less than the principal amount of the applicable loan. The loans secured by such hotels, subject to customary exceptions, are non-recourse to the Company. As of September 30, 2009, five of the Company's loans totaling $471.4 million are or have been subject to the Company's secured debt restructuring program. Each of these five loans is discussed further below. W San Diego. Effective September 30, 2009, possession and control of the W San Diego was transferred to a court-appointed receiver. In connection with this transfer, the Company deconsolidated this hotel and reclassified the assets and liabilities, including the $29.0 million hotel asset and the hotel's $65.0 million mortgage indebtedness, to discontinued operations on its balance sheets. Additionally, the Company reclassified the W San Diego's results of operations and cash flows to discontinued operations on its statements of operations and cash flows. Once title to the hotel is transferred, the Company will record a gain on extinguishment of debt, and the net assets and liabilities will be removed from the Company's balance sheets. Marriott Ontario Airport. In September 2009, the Company elected to cease the subsidization of debt service on the non-recourse mortgage for the Marriott Ontario Airport, which may result in a default under the non-recourse mortgage. The Company believes the value of this hotel is now significantly less than the principal amount of the mortgage. Prior to the time that the Company elected to discontinue subsidizing operating expenses at this hotel, the Company made several attempts to work with the special servicer handling the Marriott Ontario Airport loan to seek modification of the repayment terms. While the special servicer declined the Company's request for a proposed modification of this loan, the lender was under no duty to agree to any such proposed modification. At this point, the Company does not expect further negotiation with the special servicer, and the Company is prepared to convey the hotel to the lender in lieu of repayment of the debt. In conjunction with this potential default, the Company has reclassified the assets, liabilities and results of operations of the Marriott Ontario Airport to "operations held for non-sale disposition" on its balance sheets, statements of operations and statements of cash flows. This hotel had a net book value of $16.6 million, and the amount of debt outstanding under the mortgage was $25.5 million at September 30, 2009. Renaissance Westchester. In August 2009, the Company elected to cease the subsidization of debt service on the non-recourse mortgage for the Renaissance Westchester, which resulted in a default under the mortgage. The Company believes the value of this hotel is now significantly less than the principal amount of the mortgage. The Company continues to work with the special servicer responsible for the Renaissance Westchester loan towards reaching a modification of this loan, but the Company cannot provide any assurance that it will achieve such a result. Absent a modification, the Company may elect to surrender the hotel to the lender or cooperate with the lender's appointment of a receiver. This hotel had a net book value of $25.0 million, and the amount of debt outstanding under the mortgage was $29.4 million at September 30, 2009. Massachusetts Mutual Life Insurance Company. The Company currently is in discussions with Massachusetts Mutual Life Insurance Company, or Mass Mutual, to negotiate an amendment to a $246.3 million, 5.95% non-recourse mortgage loan that matures in 2011. The Company elected not to make the November 1 debt service payment on this loan, which is expected to result in a default under this loan. This loan is currently secured by 11 of the Company's hotels, comprised of 2,587 rooms --Renaissance Atlanta Concourse; Hilton Huntington; Courtyard by Marriott Los Angeles; Residence Inn by Marriott Manhattan Beach; Marriott Provo; Kahler Inn & Suites Rochester; Marriott Rochester; Courtyard by Marriott San Diego (Old Town); Holiday Inn Downtown, San Diego; Holiday Inn Express San Diego (Old Town); and Marriott Salt Lake City (University Park). The Company is seeking an amendment to the terms of this loan because it believes that the present value of the hotels securing this loan is currently less than the outstanding principal amount of this loan. The Company cannot provide any assurances that it will be successful in its efforts to amend the terms of this loan. Absent an amendment, the Company may elect to surrender the hotels to the lender or cooperate with the lender's appointment of a receiver. The 11 hotels securing this loan had a net book value including goodwill of $258.8 million at September 30, 2009. Renaissance Baltimore. The Company is currently finalizing an amendment to the $105.2 million non-recourse mortgage loan secured by the Renaissance Baltimore. If executed, the amendment would result in the elimination of amortization on this loan for a period of up to 30 months. The Company anticipates executing this amendment during the fourth quarter. Hotel Sales. On July 31, 2009, the Company sold the 202-room Hyatt Suites Atlanta Northwest for gross proceeds of $8.5 million, which equates to 22.7x projected 2009 EBITDA. Hotel Acquisitions. The Company believes that the recent declines in demand for lodging and continuing capital constraints may lead to opportunities to acquire hotels at discount valuations. The Company is actively analyzing various potential hotel acquisition opportunities, with prioritization based on the following criteria:
-- Valuation: The Company is analyzing acquisition targets that are expected to trade at a discount relative to the Company's current enterprise value per key and/or EBITDA multiple. -- Value-Add: As the costs of construction, renovations, labor and materials have declined from peak levels, the Company is evaluating acquisitions where selective renovation/repositioning work add value. -- Synergies: Economies of scale, ownership efficiencies, improved pricing power and staff sharing, may be realized by owning multiple hotels within the same market. -- Outperforming Markets: The Company seeks to invest in strong locations within markets that are expected to outperform the U.S. average in terms of growth in lodging demand. -- Pipeline: The Company is exploring preferred relationships with current owners of hotel real estate, who may look to divest of such real estate in the future. While discount acquisition opportunities appear to be increasing in number, there can be no assurances that the Company will be successful in executing on its plan to acquire quality hotel assets at discount valuations. Balance Sheet/Liquidity Update Ken Cruse, Chief Financial Officer, stated, "We continue to proactively manage our balance sheet, and remain focused on creating long-term stockholder value. Through the successful execution of our various finance initiatives this year, we have positioned the Company to enter the next business cycle in a position of strength." As of September 30, 2009, the Company had approximately $251.3 million of cash and cash equivalents, including restricted cash of $48.7 million. Subsequent to September 30, 2009, the Company increased its cash position by approximately $158.6 million to approximately $409.9 million as net proceeds were received from the Company's equity offering. As of September 30, 2009, the Company had no outstanding indebtedness under its $85.0 million credit facility, and had $3.1 million in outstanding irrevocable letters of credit backed by the credit facility. The Company continues to maintain a higher than historical cash balance in light of the ongoing economic downturn and for acquisition opportunities. On September 30, 2009, excluding the Marriott Ontario Airport and the W San Diego, total assets were $2.5 billion, including $2.2 billion of net investments in hotel properties, total debt was $1.4 billion and stockholders' equity was $0.9 billion. Financial Covenants The Company is subject to compliance with various covenants under its credit facility, its Series C preferred stock, and its 4.6% Exchangeable Senior Notes due 2027 (the "Senior Notes"). If the Company fails to meet certain of the credit facility's covenants, a default may occur, which may result in a reduction in, or the complete elimination of, funds available under the credit facility. If the Company fails to meet certain financial covenants for four consecutive quarters with respect to the Company's Series C preferred stock, a financial ratio violation will occur. As anticipated, as of September 30, 2009, the Company failed one of the financial covenants regarding its Series C preferred stock. If the Company remains out of compliance with this covenant for the next three quarters, a financial ratio violation will occur. If a financial ratio violation occurs, among other things, the Company would be restricted from paying dividends on its common stock, and would incur a 50 basis point per quarter dividend increase on the Series C preferred stock. Additionally, the Series C preferred stockholders would gain the right to appoint one board member. Unless operations improve from current levels, the Company believes it may incur a financial ratio violation with respect to its Series C preferred stock during the second half of 2010. In the event the Company were to default on indebtedness in excess of $300.0 million, and such default resulted in the acceleration of the maturity of such indebtedness, either the trustee or the holders of not less than 25% in principal amount of the outstanding Senior Notes may declare the Senior Notes and any unpaid interest due and payable. As of November 4, 2009, the only indebtedness currently in default and whose maturity has been accelerated is the $29.4 million non-recourse loan for the Renaissance Westchester. Goodwill and Other Impairment Losses During the third quarter of 2009, in light of the continuing economic turbulence, the Company determined that an intra-year impairment analysis should be performed as of September 30, 2009. In conjunction with this impairment evaluation, the Company determined that the goodwill associated with the Marriott Rochester may be impaired as of September 30, 2009, and, accordingly, the Company recorded an impairment loss of $2.2 million to goodwill and other impairment losses. Hotel Renovations During the third quarter of 2009, the Company invested $7.4 million in capital projects. Dividend Update On October 21, 2009, 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 January 15, 2010 to stockholders of record on December 31, 2009. 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 third quarter results on November 4, 2009, at 2:00 p.m. PST. A live web cast of the call will be available via the Investor Relations section of the Company's website at http://www.sunstonehotels.com/. Alternatively, investors may dial 1-877-941-2927 (for domestic callers) or 1-480-629-9725 (for international callers) with passcode #4173224. 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 the date hereof, has interests in 40 hotels comprised of 14,006 rooms primarily in the upper-upscale segment operated under nationally recognized brands, such as Marriott, Hyatt, Fairmont and Hilton. For further information, please visit the Company's website at http://www.sunstonehotels.com/. This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will" and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: volatility in the debt or equity markets affecting our ability to acquire or sell hotel assets; national and local economic and business conditions, including the likelihood of a prolonged U.S. recession; the ability to maintain sufficient liquidity and our access to capital markets; potential terrorist attacks, which would affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt and equity agreements; relationships with property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine wages, prices, construction procedures and costs; our ability to identify, successfully compete for and complete acquisitions; the performance of hotels after they are acquired; necessary capital expenditures and our ability to fund them and complete them with minimum disruption; our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes; and other risks and uncertainties associated with our business described in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All forward-looking information in this release is as of November 4, 2009, 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 http://www.sunstonehotels.com/ and through the SEC's Electronic Data Gathering Analysis and Retrieval System ("EDGAR") at http://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: (1) Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; (2) Adjusted EBITDA (as defined below); (3) Funds From Operations, or FFO; (4) Adjusted FFO (as defined below); and (5) adjusted hotel EBITDA and hotel EBITDA margin for the purpose of our operating margins. EBITDA represents income available to common stockholders excluding: (1) preferred stock dividends; (2) amortization of deferred stock compensation; (3) interest expense (including prepayment penalties, if any); (4) provision for income taxes, including income taxes applicable to sale of assets; and (5) depreciation and amortization. In addition, we have presented Adjusted EBITDA, which excludes: (1) the impact of any gain or loss from asset sales; (2) impairment charges; and (3) 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 preferred stock dividends) 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 income available to common stockholders to EBITDA and Adjusted EBITDA is set forth on page 9. A reconciliation and the components of adjusted hotel EBITDA and hotel EBITDA margin are set forth on page 10. We believe adjusted hotel EBITDA and 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 gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes prepayment penalties, written-off deferred financing costs, impairment losses and 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 income available to common stockholders to FFO and Adjusted FFO is set forth on page 9. We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, adjusted hotel EBITDA and 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, adjusted hotel EBITDA and 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, adjusted hotel EBITDA and 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, adjusted hotel EBITDA and hotel EBITDA margin can enhance an investor's understanding of our results of operations, these non-GAAP financial measures, when viewed individually, are not necessarily a better indicator of any trend as compared to GAAP measures such as net income (loss) or cash flow from operations. In addition, you should be aware that adverse economic and market conditions may harm our cash flow. Hotel EBITDA Margin Information The revenue and expense items associated with the Company's two commercial laundry facilities and the one hotel property held for non-sale disposition, any guaranty payments, and other miscellaneous non-hotel items have been shown below the adjusted hotel EBITDA line in presenting hotel EBITDA margins. Management believes the calculation of adjusted hotel EBITDA results in a more accurate presentation of hotel EBITDA margins of the Company's portfolio of hotels. See page 10 for a reconciliation of adjusted hotel EBITDA to the comparable GAAP measure.
***Tables to Follow*** Mass Mutual 11 Asset Crossed Portfolio Hyatt Suites Atlanta Northwest (in thousands) (in thousands) Full Year 2009 Full Year 2009 Forecast (1) Forecast Total Revenue $110,174 Total Revenue $5,841 Net Loss $(5,117) Net Loss $(525) Plus: Depreciation 14,514 Plus: Depreciation 900 Plus: Interest Expense 14,616 --- Plus: Penalties (2) 987 Adjusted Hotel EBITDA $375 --- ==== Adjusted Hotel EBITDA 25,000 ------ Less: Interest Expense (14,616) Less: Penalties (987) Less: Amortization (3) (23,037) Less: FF&E Reserves (4,407) ------ Portfolio Cash Flow $(18,047) ======== (1) Pro forma for full year amortization and penalties. (2) Assumes full-year of yield maintenance payments on excess amortization. (3) Assumes full-year of amortization payments. Sunstone Hotel Investors, Inc. Consolidated Balance Sheets (In thousands, except share data) September 30, December 31, 2009 2008 ---- ---- (unaudited) Assets Current assets: Cash and cash equivalents $202,578 $176,748 Restricted cash 48,685 40,105 Accounts receivable, net 24,674 34,119 Due from affiliates 79 109 Inventories 2,560 2,731 Prepaid expenses 8,724 7,199 Investment in hotel properties of discontinued operations, net - 169,848 Investment in hotel property of operations held for non-sale disposition, net 16,597 - Other current assets of discontinued operations, net - 4,790 Other current assets of operations held for non-sale disposition, net 1,724 847 ----- --- Total current assets 305,621 436,496 Investment in hotel properties, net 2,155,052 2,256,962 Investment in hotel property of operations held for non-sale disposition, net - 26,001 Other real estate, net 14,117 14,640 Investments in unconsolidated joint ventures 25,948 28,770 Deferred financing costs, net 8,405 11,200 Goodwill 6,450 13,404 Other assets, net 12,220 18,138 ------ ------ Total assets $2,527,813 $2,805,611 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $22,623 $16,798 Accrued payroll and employee benefits 8,429 8,096 Due to Interstate SHP 13,150 15,163 Dividends payable 5,137 12,499 Other current liabilities 30,361 29,890 Current portion of notes payable 288,863 12,452 Current portion of note payable of operations held for non-sale disposition 25,547 550 Other current liabilities of discontinued operations, net 35,428 70,100 Other current liabilities of operations held for non-sale disposition 969 911 --- --- Total current liabilities 430,507 166,459 Notes payable, less current portion 1,131,188 1,592,850 Note payable, less current portion of operations held for non-sale disposition - 25,406 Other liabilities 6,496 6,388 ----- ----- Total liabilities 1,568,191 1,791,103 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 September 30, 2009 and December 31, 2008, liquidation preference of $24.375 per share 99,846 99,696 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 September 30, 2009 and December 31, 2008, stated at liquidation preference of $25.00 per share 176,250 176,250 Common stock, $0.01 par value, 500,000,000 shares authorized, 73,861,385 shares issued and outstanding at September 30, 2009 and 47,864,654 shares issued and outstanding at December 31, 2008 739 479 Additional paid in capital 960,089 829,274 Retained earnings 119,016 260,659 Cumulative dividends (392,390) (347,922) Accumulated other comprehensive loss (3,928) (3,928) ------ ------ Total stockholders' equity 859,776 914,812 ------- ------- Total liabilities and stockholders' equity $2,527,813 $2,805,611 ========== ========== Sunstone Hotel Investors, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2009 2008 2009 2008 ---- ---- ---- ---- Revenues Room $119,177 $149,192 $351,550 $438,332 Food and beverage 40,715 52,610 136,180 168,839 Other operating 13,853 14,983 41,353 44,289 Total revenues of operations held for non-sale disposition 2,271 3,352 7,649 11,507 ----- ----- ----- ------ Total revenues 176,016 220,137 536,732 662,967 ------- ------- ------- ------- Operating expenses Room 29,118 31,977 84,005 94,628 Food and beverage 31,958 39,654 100,735 122,693 Other operating 7,222 8,146 21,797 24,283 Advertising and promotion 9,740 11,102 31,336 34,271 Repairs and maintenance 7,534 8,243 23,086 24,839 Utilities 7,768 9,455 22,598 25,629 Franchise costs 6,833 8,522 19,494 23,703 Property tax, ground lease and insurance 12,272 11,880 36,103 37,266 Property general and administrative 20,153 24,414 61,907 73,447 Corporate overhead 4,340 5,122 14,929 17,031 Depreciation and amortization 26,511 26,399 80,391 79,726 Total operating expenses of operations held for non-sale disposition 2,324 3,032 7,564 9,776 Goodwill and other impairment losses 2,209 - 64,045 - Impairment loss of operations held for non-sale disposition - - 8,857 - --- --- ----- --- Total operating expenses 167,982 187,946 576,847 567,292 ------- ------- ------- ------- Operating income (loss) 8,034 32,191 (40,115) 95,675 Equity in net losses of unconsolidated joint ventures (515) (23) (2,616) (1,545) Interest and other income 240 1,365 1,116 3,044 Interest expense (24,467) (24,216) (70,516) (72,259) Interest expense of operations held for non-sale disposition (375) (361) (1,074) (1,079) Gain (loss) on extinguishment of debt (20) - 54,559 - --- --- ------ --- Income (loss) from continuing operations (17,103) 8,956 (58,646) 23,836 Income (loss) from discontinued operations (845) 963 (82,997) 54,631 ---- --- ------- ------ Net income (loss) (17,948) 9,919 (141,643) 78,467 Dividends paid on unvested restricted stock compensation - (278) (447) (741) Preferred stock dividends and accretion (5,187) (5,233) (15,562) (15,697) Undistributed income allocated to unvested restricted stock compensation - - - (69) Undistributed income allocated to Series C preferred stock - - - (355) --- --- --- ---- Income available (loss attributable) to common stockholders $(23,135) $4,408 $(157,652) $61,605 ======== ====== ========= ======= Basic per share amounts: Income (loss) from continuing operations available (attributable) to common stockholders $(0.30) $0.07 $(1.20) $0.13 Income (loss) from discontinued operations (0.01) 0.02 (1.33) 0.98 ----- ---- ----- ---- Basic income available (loss attributable) to common stockholders per common share $(0.31) $0.09 $(2.53) $1.11 ====== ===== ====== ===== Diluted per share amounts: Income (loss) from continuing operations available (attributable) to common stockholders $(0.30) $0.07 $(1.20) $0.13 Income (loss) from discontinued operations (0.01) 0.02 (1.33) 0.98 ----- ---- ----- ---- Diluted income available (loss attributable) to common stockholders per common share $(0.31) $0.09 $(2.53) $1.11 ====== ===== ====== ===== Weighted average common shares outstanding: Basic 73,857 49,878 62,382 55,573 ====== ====== ====== ====== Diluted 73,857 49,950 62,382 55,652 ====== ====== ====== ====== Dividends declared per common share $- $0.35 $- $1.05 == ===== == ===== Sunstone Hotel Investors, Inc. Reconciliation of Income Available (Loss Attributable) to Common Stockholders to Non-GAAP Financial Measures (Unaudited and in thousands except per share amounts) Reconciliation of Income Available (Loss Attributable) to Common Stockholders to EBITDA and Adjusted EBITDA Three Months Ended Nine Months Ended September 30, September 30, -------------- -------------- 2009 2008 2009 2008 ---- ---- ---- ---- Income available (loss attributable) to common stockholders $(23,135) $4,408 $(157,652) $61,605 Dividends paid on unvested restricted stock compensation - 278 447 741 Series A and C preferred stock dividends 5,187 5,233 15,562 15,697 Undistributed income allocated to unvested restricted stock compensation - - - 69 Undistributed income allocated to Series C preferred stock - - - 355 Amortization of deferred stock compensation 938 1,117 3,286 3,255 Continuing operations: Depreciation and amortization 26,511 26,399 80,391 79,726 Interest expense 20,492 22,895 64,010 68,387 Amortization of deferred financing fees 718 431 1,626 1,257 Write-off of deferred financing fees - - 284 - Loan penalties and fees 3,020 - 3,020 - Non-cash interest related to discount on Senior Notes 237 890 1,576 2,615 Unconsolidated joint ventures: Depreciation and amortization 1,306 1,271 3,860 3,808 Interest expense 638 1,214 1,986 3,971 Amortization of deferred financing fees 45 328 137 1,053 Amortization of deferred stock compensation 12 13 28 77 Operations held for non-sale disposition: Depreciation and amortization 202 301 814 906 Interest expense 349 356 1,041 1,067 Amortization of deferred financing fees 4 5 11 12 Loan penalties and fees 22 - 22 - Discontinued operations: Depreciation and amortization 314 2,344 4,298 9,559 Interest expense 1,021 1,021 3,028 3,040 Amortization of deferred financing fees 2 2 7 7 Loan penalties and fees 51 - 51 - -- --- -- --- EBITDA 37,934 68,506 27,833 257,207 ------ ------ ------ ------- (Gain) loss on sale of assets (18) - 12,698 (42,108) (Gain) loss on extinguishment of debt 20 - (54,559) - Impairment loss - continuing operations 2,209 - 64,045 - Impairment loss - operations held for non-sale disposition - - 8,857 - Impairment loss - discontinued operations - - 64,964 - --- --- ------ --- 2,211 - 96,005 (42,108) ----- --- ------ ------- Adjusted EBITDA $40,145 $68,506 $123,838 $215,099 ======= ======= ======== ======== Reconciliation of Income Available (Loss Attributable) to Common Stockholders to FFO and Adjusted FFO Income available (loss attributable) to common stockholders $(23,135) $4,408 $(157,652) $61,605 Dividends paid on unvested restricted stock compensation - 278 447 741 Series C preferred stock dividends - 1,708 - 5,122 Undistributed income allocated to unvested restricted stock compensation - - - 69 Undistributed income allocated to Series C preferred stock - - - 355 Real estate depreciation and amortization - continuing operations 26,367 26,211 79,930 79,090 Real estate depreciation and amortization - operations held for non-sale disposition 202 301 814 906 Real estate depreciation and amortization - unconsolidated joint ventures 1,288 1,259 3,806 3,784 Real estate depreciation and amortization - discontinued operations 314 2,344 4,298 9,559 (Gain) loss on sale of assets (18) - 12,698 (42,108) --- --- ------ ------- FFO available to common stockholders 5,018 36,509 (55,659) 119,123 ----- ------ ------- ------- Continuing operations: Write-off of deferred financing fees - - 284 - Loan penalties and fees 3,020 - 3,020 - Operations held for non-sale disposition: Loan penalties and fees 22 - 22 - Discontinued operations: Loan penalties and fees 51 - 51 - (Gain) loss on extinguishment of debt 20 - (54,559) - Impairment loss - continuing operations 2,209 - 64,045 - Impairment loss - operations held for non-sale disposition - - 8,857 - Impairment loss - discontinued operations - - 64,964 - --- --- ------ --- 5,322 - 86,684 - ----- --- ------ --- Adjusted FFO available to common stockholders $10,340 $36,509 $31,025 $119,123 ======= ======= ======= ======== FFO available to common stockholders per diluted share $0.07 $0.68 $(0.89) $1.99 ===== ===== ====== ===== Adjusted FFO available to common stockholders per diluted share $0.14 $0.68 $0.50 $1.99 ===== ===== ===== ===== Diluted weighted average shares outstanding before adjustments for Series C preferred stock 73,929 49,950 62,382 55,652 Shares associated with Series C preferred stock - 4,103 - 4,103 --- ----- --- ----- Diluted weighted average shares outstanding (1) 73,929 54,053 62,382 59,755 ====== ====== ====== ====== 2008 restated due to stock dividend (2): FFO available to common stockholders per diluted share $0.61 $1.83 ===== ===== Adjusted FFO available to common stockholders per diluted share $0.61 $1.83 ===== ===== Diluted weighted average shares outstanding 59,497 64,941 ====== ====== (1) Diluted weighted average shares outstanding includes the Series C convertible preferred stock on an "as-converted" basis if such treatment is dilutive. (2) Diluted weighted average common shares and per share FFO and Adjusted FFO for the three and nine months ended September 30, 2008 have been retroactively adjusted for the effect of shares of common stock issued pursuant to the stock dividend paid in January 2009 on an "as-converted" basis for the Series C convertible preferred stock. Sunstone Hotel Investors, Inc. Hotel EBITDA Margins (Unaudited and in thousands except hotels and rooms) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2009 (1) 2008 (1) 2009 (1) 2008 (1) -------- -------- -------- -------- Number of Hotels 38 38 38 38 Number of Rooms 13,247 13,247 13,247 13,247 ---- ---- ---- ---- Hotel EBITDA margin (2) 23.8% 29.5% 24.5% 29.5% ==== ==== ==== ==== Hotel Revenues Room revenue $119,177 $149,192 $351,550 $438,332 Food and beverage revenue 40,715 52,610 136,180 168,839 Other operating revenue 9,817 11,016 29,484 32,508 ----- ------ ------ ------ Total Hotel Revenues 169,709 212,818 517,214 639,679 Hotel Expenses Room expense 29,411 32,245 84,751 95,377 Food and beverage expense 31,972 39,666 100,770 122,730 Other hotel expense 48,169 54,097 144,211 160,787 General and administrative expense 19,702 23,996 60,571 72,153 ------ ------ ------ ------ Total Hotel Expenses 129,254 150,004 390,303 451,047 Adjusted Hotel EBITDA 40,455 62,814 126,911 188,632 Marriott Ontario Airport: Total revenues of operations held for non-sale disposition 2,271 3,352 7,649 11,507 Total operating expenses of operations held for non-sale disposition (2,324) (3,032) (7,564) (9,776) Impairment loss of operations held for non-sale disposition - - (8,857) - Non-hotel operating income 692 578 1,985 1,600 Prior year property tax supplementals and credits, net - - (874) 469 Corporate overhead (4,340) (5,122) (14,929) (17,031) Depreciation and amortization (26,511) (26,399) (80,391) (79,726) Goodwill and other impairment losses (2,209) - (64,045) - ------ --- ------- --- Operating Income (Loss) 8,034 32,191 (40,115) 95,675 Equity in net losses of unconsolidated joint ventures (515) (23) (2,616) (1,545) Interest and other income 240 1,365 1,116 3,044 Interest expense (24,467) (24,216) (70,516) (72,259) Interest expense of operations held for non-sale disposition (375) (361) (1,074) (1,079) Gain (loss) on extinguishment of debt (20) - 54,559 - Income (loss) from discontinued operations (845) 963 (82,997) 54,631 ---- --- ------- ------ Net Income (Loss) $(17,948) $9,919 $(141,643) $78,467 ======== ====== ========= ======= (1) Represents our ownership results for the 38 hotels we owned as of the end of the period, excluding the Marriott Ontario Airport, reclassified as "Operations Held for Non-Sale Disposition" on our balance sheets and statements of operations, and the W San Diego, reclassified as discontinued operations on our balance sheets and statements of operations. (2) Hotel EBITDA margin is calculated as adjusted hotel EBITDA divided by total hotel revenues. Sunstone Hotel Investors, Inc. Operating Statistics by Region (Unaudited) Three Months Ended September 30, 2009 ------------------------------------- Number Number Occupancy Average Comparable Region of Hotels of Rooms Percentages Daily Rate RevPAR ------ --------- -------- ----------- ---------- ------ California (1) 13 3,680 80.9% $123.38 $99.81 Other West (2) 7 2,123 66.8% 107.67 71.92 Midwest (3) 7 2,177 73.5% 124.74 91.68 Middle Atlantic (4) 9 4,099 74.9% 178.07 133.37 South (5) 2 1,168 71.6% 105.57 75.59 --- ----- ---- ------ ----- Total 38 13,247 74.7% $136.25 $101.78 == ====== ==== ======= ======= Three Months Ended September 30, 2008 Percent ------------------------------------- Change in Occupancy Average Comparable Comparable Region Percentages Daily Rate RevPAR RevPAR ------ ----------- ---------- ------ ------ California (1) 83.4% $151.24 $126.13 -20.9% Other West (2) 78.9% 117.66 92.83 -22.5% Midwest (3) 74.1% 148.82 110.28 -16.9% Middle Atlantic (4) 80.5% 207.61 167.13 -20.2% South (5) 76.1% 123.87 94.27 -19.8% ---- ------ ----- ----- Total 79.6% $160.16 $127.49 -20.2% ==== ======= ======= ===== Nine Months Ended September 30, 2009 ------------------------------------ Number Number Occupancy Average Comparable Region of Hotels of Rooms Percentages Daily Rate RevPAR ------ --------- -------- ----------- ---------- ------ California (1) 13 3,680 75.2% $126.37 $95.03 Other West (2) 7 2,123 66.4% 114.29 75.89 Midwest (3) 7 2,177 64.9% 127.60 82.81 Middle Atlantic (4) 9 4,099 71.7% 185.15 132.75 South (5) 2 1,168 71.0% 127.48 90.51 --- ----- ---- ------ ----- Total 38 13,247 70.6% $142.70 $100.75 == ====== ==== ======= ======= Nine Months Ended September 30, 2008 Percent ------------------------------------ Change in Occupancy Average Comparable Comparable Region Percentages Daily Rate RevPAR RevPAR ------ ----------- ---------- ------ ------ California (1) 81.5% $150.58 $122.72 -22.6% Other West (2) 77.7% 120.66 93.75 -19.1% Midwest (3) 69.1% 146.34 101.12 -18.1% Middle Atlantic (4) 76.6% 210.70 161.40 -17.8% South (5) 78.3% 148.77 116.49 -22.3% ---- ------ ------ ----- Total 77.1% $162.69 $125.43 -19.7% ==== ======= ======= ===== (1) Does not include the Marriott Ontario Airport, reclassified as "Operations Held for Non-Sale Disposition" on our balance sheets and statements of operations, and the W San Diego, reclassified as discontinued operations on our balance sheets and statements of operations. (2) Includes Oregon, Texas and Utah. (3) Includes Illinois, Michigan and Minnesota. (4) Includes Maryland, Massachusetts, New York, Pennsylvania, Virginia and District of Columbia. (5) Includes Florida and Georgia. Sunstone Hotel Investors, Inc. Operating Statistics by Brand (Unaudited) Three Months Ended September 30, 2009 ------------------------------------- Number of Number Occupancy Average Comparable Brand Hotels of Rooms Percentages Daily Rate RevPAR ----- ------- -------- ----------- ---------- ------ Marriott (1) 23 8,221 73.4% $135.78 $99.66 Hilton 7 2,435 76.7% 168.24 129.04 InterContinental 2 345 86.7% 99.39 86.17 Hyatt 1 403 82.8% 129.78 107.46 Other Brand Affiliations (2) 2 647 76.9% 115.82 89.07 Independent 3 1,196 72.1% 97.15 70.05 --- ----- ---- ----- ----- Total 38 13,247 74.7% $136.25 $101.78 == ====== ==== ======= ======= Three Months Ended September 30, 2008 Percent ------------------------------------- Change in Occupancy Average Comparable Comparable Brand Percentages Daily Rate RevPAR RevPAR ----- ----------- ---------- ------ ------ Marriott (1) 79.1% $155.09 $122.68 -18.8% Hilton 82.9% 207.72 172.20 -25.1% InterContinental 74.4% 130.60 97.17 -11.3% Hyatt 85.6% 164.33 140.67 -23.6% Other Brand Affiliations (2) 82.7% 146.57 121.21 -26.5% Independent 74.0% 101.79 75.32 -7.0% ---- ------ ----- ---- Total 79.6% $160.16 $127.49 -20.2% ==== ======= ======= ===== Nine Months Ended September 30, 2009 ------------------------------------ Number of Number Occupancy Average Comparable Brand Hotels of Rooms Percentages Daily Rate RevPAR ----- ------ -------- ----------- ---------- ------ Marriott (1) 23 8,221 70.3% $146.38 $102.91 Hilton 7 2,435 72.1% 163.75 118.06 InterContinental 2 345 76.2% 103.47 78.84 Hyatt 1 403 74.5% 125.67 93.62 Other Brand Affiliations (2) 2 647 73.3% 124.30 91.11 Independent 3 1,196 64.7% 100.18 64.82 --- ----- ---- ------ ----- Total 38 13,247 70.6% $142.70 $100.75 == ====== ==== ======= ======= Nine Months Ended September 30, 2008 Percent ------------------------------------ Change in Occupancy Average Comparable Comparable Brand Percentages Daily Rate RevPAR RevPAR ----- ----------- ---------- ------ ------ Marriott (1) 76.9% $162.34 $124.84 -17.6% Hilton 80.4% 198.31 159.44 -26.0% InterContinental 73.0% 131.65 96.10 -18.0% Hyatt 81.3% 154.26 125.41 -25.3% Other Brand Affiliations (2) 81.1% 149.59 121.32 -24.9% Independent 68.7% 101.76 69.91 -7.3% ---- ------ ----- ---- Total 77.1% $162.69 $125.43 -19.7% ==== ======= ======= ===== (1) Does not include the Marriott Ontario Airport, reclassified as "Operations Held for Non-Sale Disposition" on our balance sheets and statements of operations. (2) Includes a Fairmont and a Sheraton. Does not include the W San Diego, reclassified as discontinued operations on our balance sheets and statements of operations. Sunstone Hotel Investors, Inc. Debt Summary (Unaudited - dollars in thousands) September November Interest 30, 4, Rate/ Maturity 2009 Recent 2009 Debt Collateral Spread Date Balance Events(1) Balance ---- ---------- ------ ---- ------- --------- ------- Fixed Rate Debt --------- Secured Hilton Times Mortgage Debt Square 5.92% 12/1/2010 $81,000 $81,000 Secured Mortgage Debt (2) 11 Hotels 5.95% 5/1/2011 246,342 246,342 Secured Renaissance Mortgage Debt Long Beach 4.98% 7/1/2012 34,186 34,186 Secured Renaissance Mortgage Debt Westchester 4.98% 7/1/2012 29,352 29,352 Rochester Secured laundry Mortgage Debt facility 9.88% 6/1/2013 3,533 3,533 Secured Doubletree Mortgage Debt Minneapolis 5.34% 5/1/2015 18,130 18,130 Secured Hilton Del Mortgage Debt Mar 5.34% 5/1/2015 26,292 26,292 Secured Marriott Mortgage Debt Houston 5.34% 5/1/2015 24,135 24,135 Marriott Secured Ontario Mortgage Debt Airport 5.34% 5/1/2015 25,547 25,547 Marriott Secured Park Mortgage Debt City 5.34% 5/1/2015 15,733 15,733 Secured Marriott Mortgage Debt Philadelphia 5.34% 5/1/2015 28,507 28,507 Secured Marriott Mortgage Debt Troy 5.34% 5/1/2015 36,908 36,908 Marriott Secured Tysons Mortgage Debt Corner 5.34% 5/1/2015 47,095 47,095 Secured The Kahler Mortgage Debt Grand 5.34% 5/1/2015 29,032 29,032 Secured Valley River Mortgage Debt Inn 5.34% 5/1/2015 12,115 12,115 Secured Renaissance Mortgage Debt Harborplace 5.13% 1/1/2016 105,241 105,241 Secured Marriott Del Mortgage Debt Mar 5.69% 1/11/2016 48,000 48,000 Hilton Secured Houston Mortgage Debt North 5.66% 3/11/2016 33,802 33,802 Renaissance Orlando Resort Secured at Sea Mortgage Debt World(R) 5.52% 7/1/2016 86,125 86,125 Embassy Secured Suites Mortgage Debt Chicago 5.58% 3/1/2017 75,000 75,000 Marriott Secured Boston Long Mortgage Debt Wharf 5.58% 4/11/2017 176,000 176,000 Embassy Secured Suites Mortgage Debt La Jolla 6.60% 6/1/2019 70,000 70,000 Secured Renaissance Mortgage De |
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