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 Sunstone Hotel Investors, Inc. Reports Net Income of $6.8 million for the Quarter
Ended June 30, 2005, Compared to Pro Forma Income of $6.4 million
for the Quarter ended June 30, 2004; RevPAR for the 51 Hotels During
the 2nd Qtr Up 11.0% / Hotel Operating Statistics
.
SAN CLEMENTE, Calif., Aug. 8, 2005 - Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) today announced results of operations for the second quarter and six months ended June 30, 2005.

HIGHLIGHTS

Q2 2005:

  • Same-store revenue per available room ("RevPAR") growth of 11.0% over Q2 2004.
  • Total revenue of $132.2 million.
  • Adjusted EBITDA of $39.7 million.
  • Income available to common stockholders (including OP unit holders) of $6.8 million.
  • Adjusted FFO to common stockholders (including OP unit holders) of $24.8 million.
  • Adjusted FFO per diluted share (including OP units) of $0.63.
  • Total capital expenditures of $9.8 million.
Adjusted EBITDA and Adjusted FFO exclude a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and write-off of deferred financing costs associated with the early retirement of debt and a $2.1 million reserve taken due to a pending contract issue. Please refer to the definitions of Adjusted EBITDA and Adjusted FFO on page 11 and to the reconciliation schedule on page 13 for a tabular presentation of our results.

Robert A. Alter, Chief Executive Officer, stated, "We are very pleased with the 11.0% year over year same-store RevPAR increase, led by our California hotels which realized a 15.1% RevPAR increase over the prior year period. In June and July, we closed approximately $660.0 million of acquisitions and are pleased to add high quality assets like the Renaissance Washington D.C., Renaissance Orlando at Sea World, Renaissance Baltimore Harborplace Hotel and the Fairmont Newport Beach to our existing portfolio. These acquisitions further migrate our portfolio upscale which I continue to believe will disproportionately benefit from the industry recovery."

The Company has filed contemporaneously with this press release the Form 10-Q with the SEC for the quarterly period ended June 30, 2005. In addition to the required financial information included in the Form 10-Q, the Company has included for the comparable periods (quarter and six months ended June 30, 2004) unaudited pro forma income statements that include the impact of the initial public offering and related formation and structuring transactions (as defined in the Company's prospectus dated October 20, 2004). The Company believes that these unaudited pro forma income statements are useful to enhance the comparability of the quarter and six months ended June 30, 2005 with prior periods. The Company has also included an unaudited pro forma balance sheet as of June 30, 2005 and pro forma income statements for the quarter and six months ended June 30, 2005 that include the impact of the recent acquisitions as well as the related financings of the six Renaissance Hotels, the Sheraton Cerritos and the Fairmont Newport Beach as if they incurred as of the beginning of the respective periods.

Disclosure regarding the non-GAAP financial measures included in this release is included as an attachment to this release, along with a reconciliation to the most comparable GAAP measure during each of the periods presented.

The Company has taken a $2.1 million reserve due to a contract interpretation issue with a customer relating to applicable contract rates during the period from early 2003 through May 2005. We have a continuing relationship with this customer and expect a resolution by year end.

Second Quarter Highlights:

Listed below are certain highlights from the Company's unaudited historical and pro forma financial statements. Please refer to the reconciliation schedule on page 13 for a tabular presentation of our results.

  • Total revenue was $132.2 million for the quarter ended June 30, 2005, compared to total pro forma revenue of $120.7 million and total historical revenue of $123.6 for the quarter ended June 30, 2004.
  • Income available to common stockholders (including OP unit holders) was $6.8 million for the quarter ended June 30, 2005, compared to pro forma income from continuing operations of $6.4 million and historical net income of $3.7 million for the quarter ended June 30, 2004. Income available to common stockholders for the quarter ended June 30, 2005 includes a $2.1 million reserve related to a pending contract issue.
  • Income available to common stockholders per diluted share (including OP units) was $0.17 for the quarter ended June 30, 2005, compared to pro forma income from continuing operations per diluted share of $0.16 for the quarter ended June 30, 2004.
  • Adjusted EBITDA (as defined on page 11), was $39.7 million for the quarter ended June 30, 2005, compared to pro forma Adjusted EBITDA of $31.0 million and historical Adjusted EBITDA of $31.3 million for the quarter ended June 30, 2004. Adjusted EBITDA for the quarter ended June 30, 2005 excludes a $2.4 million gain on sale of assets and $2.1 million reserve taken due to a pending contract issue. Historical Adjusted EBITDA excludes a ($0.3) million loss on the sale of assets for the quarter ended June 30, 2004.
  • Adjusted Funds from Operations available to common stockholders (including OP unit holders) (as defined on page 11), was $24.8 million for the quarter ended June 30, 2005, compared to pro forma Adjusted FFO of $19.4 million and historical Adjusted FFO of $18.4 million for the quarter ended June 30, 2004. Adjusted FFO for the quarter ended June 30, 2005 excludes a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $2.1 million reserve taken due to a pending contract issue. Historical Adjusted FFO excludes a ($0.3) million loss on the sale of assets for the quarter ended June 30, 2004.
  • Adjusted FFO available to common stockholders per diluted share (including OP units) was $0.63 for the quarter ended June 30, 2005. Adjusted FFO for the quarter ended June 30, 2005 excludes a $0.06 gain on sale of assets, $0.09 of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $0.05 reserve taken due to a pending contract issue.
Second quarter results were negatively impacted by the delayed closing of the Fairmont Newport Beach acquisition (closed July 11, 2005) and by timing issues related to the issuance of 7.3 million common shares and $250.0 million debt financing (closed June 22, 2005) that were completed during the period ending June 30, 2005 but did not have any corresponding EBITDA in the period due to the timing of the acquisitions.

Comparable pro forma hotel RevPAR for the 51 hotels (excluding Residence Inn by Marriott located in Rochester, Minnesota which opened June 2004) owned during the entire second quarter increased 11.0% as compared to the second quarter of 2004, driven by an increase in occupancy of 1.5 percentage points and a 8.8% increase in average room rate. Comparable pro forma hotel adjusted operating profit margins for the second quarter increased 300 basis points (from 28.2% to 31.2%).

First Six Months Highlights:

Listed below are certain highlights from the Company's historical and unaudited pro forma financial statements. Please refer to the reconciliation schedule on page 13 for a tabular presentation of our results.

  • Total revenue was $248.8 million for the six months ended June 30, 2005, compared to total pro forma revenue of $231.0 million and total historical revenue of $236.6 million for the six months ended June 30, 2004.
  • Income available to common stockholders (including OP unit holders) was $8.3 million for the six months ended June 30, 2005,compared to pro forma loss from continuing operations of ($1.8) million and historical net loss of ($21.7) million for the six months ended June 30, 2004. Income available to common stockholders for the six months ended June 30, 2005 includes a $2.1 million charge for a reserve taken due to a pending contract issue.
  • Income available to common stockholders per diluted share (including OP units) was $0.21 for the six months ended June 30, 2005, compared to pro forma loss from continuing operations per diluted share of ($0.05) for the six months ended June 30, 2004. Income available to common stockholders per diluted share for the six months ended June 30, 2005 includes a $2.1 million charge for a reserve taken due to a pending contract issue.
  • Adjusted EBITDA, was $68.9 million for the six months ended June 30, 2005, compared to pro forma Adjusted EBITDA of $55.0 million and historical Adjusted EBITDA of $60.6 million for the six months ended June 30, 2004. Adjusted EBITDA for the quarter ended June 30, 2005 excludes a $2.4 million gain on sale of assets and a $2.1 million reserve taken due to a pending contract issue. Pro forma Adjusted EBITDA for the six months ended June 30, 2004 excludes $7.4 million of impairment losses from continuing operations and historical Adjusted EBITDA excludes a ($0.4) million loss on the sale of assets, $7.4 million of impairment losses from continuing operations and $17.0 million of impairment losses on discontinued operations.
  • Adjusted Funds from Operations available to common stockholders (including OP unit holders) was $40.4 million for the six months ended June 30, 2005, compared to pro forma Adjusted FFO of $31.8 million and historical Adjusted FFO of $32.2 million for the six months ended June, 2004. Adjusted FFO for the six months ended June 30, 2005 excludes a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $2.1 million reserve taken due to a pending contract issue. Pro forma Adjusted FFO for the six months ended June 30, 2004, excludes $7.4 million of impairment losses from continuing operations and historical Adjusted FFO for the six months ended June 30, 2004 excludes a ($0.4) million loss on the sale of assets, $7.4 million of impairment losses from continuing operations and $17.0 million of impairment losses on discontinued operations.
  • Adjusted FFO available to common stockholders per diluted share (including OP units) was $1.03 for the six months ended June 30, 2005. Adjusted FFO for the six months ended June 30, 2005 excludes a $0.06 gain on sale of assets, $0.09 of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $0.05 reserve taken due to a pending contract issue.
The period was negatively impacted by the delayed closing of the Fairmont Newport Beach acquisition (closed July 11, 2005) and by timing issues related to the issuance of 7.3 million common shares and $250.0 million debt financing (closed June 22, 2005) that were completed during the period ending June 30, 2005 but did not have any corresponding EBITDA in the period due to the timing of the acquisitions.

Comparable pro forma hotel RevPAR for the 51 hotels (excluding Residence Inn by Marriott located in Rochester, Minnesota which opened June 2004) owned during the entire first six months increased 9.8% as compared to the first six months of 2004, driven by an increase in occupancy of 1.8 percentage points and a 7.0% increase in average room rate. Comparable pro forma hotel adjusted operating profit margins for the second quarter increased 220 basis points (from 26.7% to 28.9%).

Outlook

The Company is providing guidance at this time but does not undertake to update it for any developments in its business. Achievement of the anticipated results is subject to the risks disclosed in the Company's filings with the Securities and Exchange Commission. The Company has provided guidance for both the third quarter and full year 2005 as well as guidance for a pro forma full year 2005 which reflects all 2005 acquisition and financing transactions as if they occurred on January 1, 2005.

Third Quarter 2005 Outlook

The Company expects comparable hotel RevPAR for the third quarter of 2005 to increase approximately 7.0% to 9.0% over the third quarter of 2004. Based upon this guidance, the Company estimates that for the third quarter 2005 its:

  • Income available to common stockholders (including OP unit holders) should be approximately $5.2 million to $8.2 million;
  • Income available to common stockholders per diluted share (including OP units) should be approximately $0.10 to $0.16;
  • Adjusted EBITDA should be approximately $42.0 million to $45.0 million;
  • Adjusted FFO available to common stockholders (including OP unit holders) should be approximately $23.0 million to $26.0 million;
  • Adjusted FFO available to common stockholders per diluted share (including OP units) should be approximately $0.46 to $0.52;
  • Hotel operating margins should increase approximately 150-200 basis points over the second quarter of 2004; and
  • Total capital expenditures for the portfolio should be $15.0 million to $18.0 million, including $4.0 million of work at the Fairmont Newport Beach.
Full Year 2005 Outlook

The Company expects comparable hotel RevPAR for the full year 2005 to increase approximately 7.0% to 9.0% (which is an increase from 6.0% to 8.0% provided at the first quarter end earnings call in May) over the full year 2004. Based upon this guidance, the Company estimates that for the full year 2005 its:

  • Income available to common stockholders (including OP unit holders) should be approximately $25.9 million to $29.9 million;
  • Income available to common stockholders per diluted share (including OP units) should be approximately $0.58 to $0.67;
  • Adjusted EBITDA should be approximately $159.6 million to $163.6 million;
  • Adjusted FFO available to common stockholders (including OP unit holders) should be approximately $93.2 million to $97.2 million;
  • Adjusted FFO available to common stockholders per diluted share (including OP units) should be approximately $2.09 to $2.18;
  • Hotel operating margins should increase approximately 150-200 basis points over 2004; and
  • Total capital expenditures for the portfolio should be $65.0 million to $75.0 million, including expenditures on the Fairmont Newport Beach and the acquired Renaissance Hotels.
Full year Adjusted EBITDA and Adjusted FFO guidance exclude a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and write-off of deferred financing costs associated with the early retirement of debt and a $2.1 million reserve taken due to a pending contract issue.

The management agreement with Interstate Hotels and Resorts, which relates to 48 of the Company's hotels, has been amended to keep the management fee at 1.75% for the balance of 2005. In addition, the amended agreement provides that the management fee in 2006 will be 2.0%. Prior to the amendment, the management agreement had provided for the fee to increase to 1.85% on July 1, 2005 and 2.1% on January 1, 2006.

Pro forma Full Year 2005 Outlook

Due to the materiality of the recent acquisitions and financings, the Company has provided pro forma full year guidance that reflects all 2005 acquisition and financing transactions as if they occurred on January 1, 2005. Full year pro forma Adjusted EBITDA and Adjusted FFO guidance exclude a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and write-off of deferred financing costs associated with the early retirement of debt and a $2.1 million reserve taken due to a pending contract issue. Based upon this guidance, the Company estimates that for the pro forma full year 2005 its:

  • Pro forma income available to common stockholders (including OP unit holders) should be approximately $34.4 million to $38.4 million;
  • Pro forma Adjusted EBITDA should be approximately $186.6 million to $190.6 million;
  • Pro forma Adjusted FFO available to common stockholders (including OP unit holders) should be approximately $110.7 million to $114.7 million;
  • Pro forma Adjusted FFO available to common stockholders per diluted share (including OP units) should be approximately $2.21 to $2.29;
Disclosure regarding the non-GAAP financial measures included in this press release is included as an attachment to this release, along with reconciliation to the most comparable GAAP measure.

Recent Developments - Acquisitions

In July 2005, the Company completed the previously announced acquisition of the 444-room Sutton Place Hotel in Newport Beach, California for $72.3 million. The company has commenced on the complete renovation of the hotel's guestrooms and public areas. The hotel has been re-branded the Fairmont Newport Beach.

In July 2005, the Company also completed the previously announced acquisition of the remaining 75% interest in the Renaissance Washington, D.C. The Company had previously acquired 25% of the hotel as part of the Renaissance Portfolio acquisitions completed in June 2005.

Balance Sheet / Liquidity Update

As of June 30, 2005, the Company had $96.3 million of cash and cash equivalents (including restricted cash). Total assets were $1.8 billion, including $1.6 billion of net investments in hotel properties and unconsolidated joint ventures (25% interest in the Renaissance Washington, D.C.), total debt of $967.2 million, and stockholders' equity of $671.9 million.

In June 2005, the Company and selling stockholders closed its public offering of 12.2 million shares of common stock for gross proceeds of $285.0 million. In addition to the 3.0 million primary shares sold by the company, 9.2 million secondary shares were sold by affiliates of Westbrook Real Estate Partners, L.L.C., reducing their fully-diluted ownership interest in the Company to approximately 9.0%.

In June 2005, the Company also sold 4.0 million shares of common stock to an affiliate of GIC Real Estate, an investment arm of the Government of Singapore as well as 0.3 million shares of common stock to Security Capital Preferred Growth Incorporated, an investment vehicle advised by Security Capital Research & Management Incorporated. In July 2005, the Company also sold $100.0 million of Series C Convertible Redeemable Preferred Stock to Security Capital Preferred Growth Incorporated. The convertible preferred stock pays a base dividend of 6.45%, has a conversion price of $24.375 and is callable at par after five years.

In June 2005, concurrent with the closing of the six Renaissance Hotel portfolio, the Company closed on the financings of four individual fixed rate loans totaling $250.0 million. Two of the mortgages, totaling $65.0 million, mature in 2012 with a weighted average rate of 4.98%, and the remaining two mortgages, totaling $185.0 million, mature in 2016 with a weighted average rate of 5.20%.

Capital Expenditures

In the second quarter of 2005, the Company invested $9.8 million in capital expenditures across its portfolio of which $2.0 million was spent on the Fairmont Newport Beach.

Dividend Update

During the second quarter, the Company declared a dividend of $0.285 per share payable to its common stockholders (including OP unit holders) and a dividend of $0.5778 per share payable to its Series A cumulative redeemable preferred stockholders of record as of June 30, 2005. The dividend was paid on July 15, 2005. The level of future dividends will be determined by the Company's quarterly operating results and expected capital requirements.
 
 

SUNSTONE HOTEL INVESTORS, INC.
Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures
(Unaudited)
Reconciliation of Net Income (Loss) to EBITDA and EBITDA as adjusted

Three Months Ended June 30, Six Months Ended June 30,
                                Pro Forma                 Pro Forma
                         2005     2004    2004     2005    2004      2004

Income (loss)
available to
common
stockholders     $6,118   $5,852  $3,855  $7,527  $(1,638) $(21,490)
Preferred stock
dividends         2,414       --      --   2,802       -- --
Minority interest
(OP unit holders)   643      516    (158)    794     (144) (166)
Depreciation and
amortization -
continuing
operations       14,942   13,320  13,893  29,005   26,839 27,732
Depreciation and
amortization -
discontinued
operations           --       --     831     291       -- 2,057
Amortization of
deferred stock
compensation        483       --      --   1,014       -- --
Interest expense
continuing
operations       11,155   11,263  11,743  22,205   22,525 24,083
Interest expense
discontinued
operations           68       --     557     281       -- 1,272
Depreciation and
amortization -
deferred financing
fees                560       --   1,387   1,682       -- 2,509
Prepayment
penalties         2,834       --      --   2,834       -- --
Write-off of
deferred financing
costs               761       --      --     761       -- --
Income taxes -
continuing
operations           --       --  (1,502)     --       -- (199)
Income taxes -
discontinued
      operations           --       --     380      --       --        60
     EBITDA            39,978   30,951  30,986  69,196   47,582    35,858

(Gain)/loss on
sale of assets   (2,384)      --     280  (2,384)      -- 381
Impairment loss
continuing
operations           --       --      --      --    7,439 7,439
Impairment loss
discontinued
operations           --       --      --      --       -- 16,954
Reserve for contract
interpretation
      issue             2,136       --      --   2,136       --        --
                         (248)      --     280    (248)   7,439    24,774

     Adjusted EBITDA  $39,730  $30,951 $31,266 $68,948  $55,021   $60,632

Reconciliation of Net Income (Loss) to FFO and FFO as adjusted
Income (loss)
available to
common
stockholders     $6,118   $5,852  $3,855  $7,527  $(1,638) $(21,490)
Minority interest
(OP unit holders)   643      516    (158)    794     (144) (166)
Real estate
depreciation
and amortization -
continuing
operations       14,657   13,000  13,573  28,426   26,099 26,992
Real estate
depreciation and
amortization -
discontinued
operations           --       --     831     291       -- 2,057
(Gain)/loss on
sale of assets   (2,384)      --     280  (2,384)      -- 381
FFO available to
common
stockholders     19,034   19,368  18,381  34,654   24,317 7,774
(including OP
unit holders)

Prepayment
penalties         2,834       --      --   2,834       -- --
Write-off of
deferred financing
costs               761       --      --     761       -- --
Impairment loss
continuing
operations           --       --      --      --    7,439 7,439
Impairment loss
discontinued
operations           --       --      --      --       -- 16,954
Reserve for contract
interpretation
      issue             2,136       --      --   2,136       --        --
                        5,731       --      --   5,731    7,439    24,393

Adjusted FFO
available to
common
stockholders    $24,765  $19,368 $18,381 $40,385  $31,756 $32,167
(including OP
unit holders)

Adjusted FFO
available to
common stockholders
per share         $0.63    $0.49           $1.03    $0.81
Diluted weighted
average shares
outstanding,
including OP
units            39,603   39,603          39,060   39,060
 
 
 

SUNSTONE HOTEL INVESTORS, INC.
Reconciliation of Net Income to Non-GAAP Financial Measures
Quarter Ended September 30, 2005 and Year Ended 2005 (Unaudited)

Reconciliation of Net Income to EBITDA and EBITDA as adjusted
Pro Forma 2005 (1)
                        Quarter Ended      Year Ended       Year Ended
                        September 30,     December 31,     December 31,

Low End  High End  Low End  High End  Low End High End
of Range  of Range of Range of Range  of Range of Range
Income available
to common
stockholders    $4,700   $7,400  $23,400  $27,000  $31,300  $34,900
Preferred stock
      dividends        2,400    2,400    7,700    7,700    9,600    9,600

     Minority interest   500      800    2,500    2,900    3,100    3,500
Depreciation and
amortization -
continuing
operations      18,000   18,000   65,000   65,000   74,000 74,000
Depreciation and
amortization
deferred
financing fees     700      700    2,900    2,900    2,800 2,800
Amortization of
deferred stock
compensation       300      300    1,400    1,400    1,400 1,400
Interest expense
continuing
operations      15,400   15,400   53,400   53,400   61,100 61,100
Prepayment
penalties,
write-off of
deferred
financing costs
associated with
the early
      retirement of debt  --       --    3,600    3,600    3,600    3,600

     EBITDA          $42,000  $45,000 $159,900 $163,900 $186,900 $190,900

(Gain)/loss on
sale of assets     $--      $-- $(2,400) $(2,400) $(2,400) $(2,400)
Reserve for
contract
interpretation
issue               --       --    2,100    2,100    2,100 2,100
Adjusted EBITDA $42,000  $45,000 $159,600 $163,600 $186,600 $190,600
 

Reconciliation of Net Income to FFO and FFO as adjusted

Income available
to common
      stockholders    $4,700   $7,400  $23,400  $27,000  $31,300  $34,900

     Minority interest   500      800    2,500    2,900    3,100    3,500
Real estate
depreciation and
amortization -
continuing
operations      17,800   17,800   64,000   64,000   73,000 73,000
(Gain)/loss on
sale of assets      --       --  (2,400)  (2,400)  (2,400)  (2,400)
FFO available to
common stockholders
(including OP
unit holders)   23,000   26,000   87,500   91,500  105,000  109,000

Prepayment
penalties,
write-off of
deferred
financing
costs
associated with
the early
retirement of debt  --       --    3,600    3,600    3,600 3,600
Reserve for contract
interpretation
issue               --       --    2,100    2,100    2,100 2,100
Adjusted FFO
available to
common stockholders
(including OP
unit holders)  $23,000  $26,000  $93,200  $97,200 $110,700 $114,700

Diluted weighted
average shares
outstanding,
including OP
units (2)       49,999   49,999   44,496   44,496   49,999 49,999
Adjusted FFO
available to
common
stockholders
(including OP
unit holders)
per share and
unit (2)         $0.46    $0.52    $2.09    $2.18    $2.21 $2.29

(1)  Pro forma EBITDA & FFO include the acquisition hotels, including
those closed in July 2005, as if they were acquired, and the related
financings were completed, on January 1, 2005.
(2)  Diluted weighted average shares outstanding includes Series C
Convertible Preferred on an as-converted basis.
 
 

SUNSTONE HOTEL INVESTORS, INC.
Hotel Operating Results
(unaudited)

                                Quarter Ended          Six Months Ended

                                     Pro Forma                Pro Forma
                            June 30,  June 30,     June 30,     June 30,
                              2005      2004         2005         2004

     Number of Hotels (1)       51       51           51           51
     Number of Rooms (1)    12,630   12,630       12,630       12,630
% change in hotel
RevPAR (1)             11.3%                  9.8%
Hotel operating profit
margin (2) (3)         31.2%    28.2%        28.9%        26.7%
Hotel Revenues
Room revenue          92,593   83,199      172,217      157,343
Food and beverage
revenue              28,986   27,388       54,761       52,635
Other operating
       revenue              10,615   10,080       21,773       21,004
     Total Hotel Revenues  132,194  120,667      248,751      230,982
 

Hotel Expenses
Room expense          19,449   18,047       37,233       35,106
Food and beverage
       expense              19,579   18,771       37,870       36,242
      Other hotel expense   37,497   36,387       74,978       71,690
General and
administrative
       expense              14,413   13,380       26,865       26,374
     Total Hotel Expenses   90,938   86,585      176,946      169,412
 

     Hotel Operating Income 41,256   34,082       71,805       61,570
 

General and
administrative
corporate            2,763    2,763        5,751        5,751
Depreciation and
      amortization          15,425   13,803       30,019       27,853
     Impairment loss            --        0           --        7,439

     Operating Income       23,068   17,516       36,035       20,527

Interest and other
      income                 1,398      114        1,704          216
     Interest expense      (15,247) (11,263)     (27,415)     (22,525)
     Minority interest        (643)    (516)        (794)         144
Benefit from
(provision for)
income tax                         --           --           --
Gain from discontinued
operations             2,092       --        2,935           --
Reserve for contract
      dispute (4)           (2,136)      --       (2,136)          --
     NET INCOME (LOSS)       8,532    5,851(5)    10,329       (1,638)(5)
 

(1)  Includes 51 hotels.  Excludes Rochester Residence Inn (opened
June 2004) which was not open for the entire period in 2004 and
hotels acquired during, or subsequent to, Q2 2005.
(2)  Quarter and six months ended June 30, 2005 hotel operating profit
margin is calculated as the hotel adjusted operating income divided
by the hotel revenues per the schedule above.  We use hotel
operating income for the same reasons as EBITDA, which are more
fully set forth on page 11 of this release.
(3)  Quarter and six months ended June 30, 2004 Pro forma hotel operating
profit margin is calculated as the pro forma hotel adjusted
operating income divided by the pro forma hotel revenues per the
schedule above.  We use hotel operating income for the same reasons
as EBITDA, which are more fully set forth on page 11 of this
release.
(4)  Total reserve of $2.1 million for 2003 - 2005 disputes have been
excluded from 2005 quarter and six month ended results.
(5)  Pro forma income from continuing operations.
 
 

SUNSTONE HOTEL INVESTORS, INC.
Debt Summary
(unaudited)
 

                                                 Interest Rate /   Maturity
             Debt               Collateral            Spread          Date

Fixed Rate Debt
     Secured Mortgage Debt   1 hotel                  8.51%          2007
     Secured Mortgage Debt   1 hotel                  8.25%          2008
     Secured Mortgage Debt   1 hotel                  8.25%          2008
Secured Mortgage
      Debt (3)               26 hotels                5.95%          2011
     Secured Mortgage Debt   Rochester laundry
                             facility                 9.88%          2013
     Secured Mortgage Debt   10 hotels - individual,
                             non cross-collateralized
                             loans                    5.34%          2015
     Secured Mortgage Debt   2 hotels - individual,
                             non cross-collateralized
                             loans                    4.98%          2012
     Secured Mortgage Debt   2 hotels - individual,
                             non cross-collateralized
                             loans                    5.20%          2016
     Secured Mortgage Debt   1 hotel                  8.78%          2009
     Secured Mortgage Debt   1 hotel                  7.50%          2008

Total Fixed Rate Debt
Floating Rate Debt
Secured Mortgage
Debt (3)               26 hotels            L + 2.35% 2007
Unsecured Term Loan
Facility               No mortgages         L + 2.25% 2008

Total Floating Rate Debt
TOTAL MORTGAGE DEBT
Secured Revolving
Credit Facility        8 hotels     L + 1.50% - 2.00% 2007
TOTAL DEBT
Preferred / Convertible Stock
     Series A & B                                     8.00%     perpetual
     Series C                                         6.45%     perpetual

% Fixed
% Floating
Average Interest Rate (1)
Weighted Average Maturity of Debt
 

                                  Q2 2005          Recent        31-Jul-05
                              Ending Balance    Events (2)   Ending Balance

Fixed Rate Debt
     Secured Mortgage Debt       13,884,318                      13,884,318
     Secured Mortgage Debt       37,415,926                      37,415,926
     Secured Mortgage Debt       36,356,501                      36,356,501
     Secured Mortgage Debt (3)  250,000,000                     250,000,000
     Secured Mortgage Debt        6,296,916                       6,296,916
     Secured Mortgage Debt      276,000,000                     276,000,000
     Secured Mortgage Debt       65,000,000                      65,000,000
     Secured Mortgage Debt      185,000,000                     185,000,000
     Secured Mortgage Debt        9,157,265                       9,157,265
     Secured Mortgage Debt               --      53,970,216      53,970,216

     Total Fixed Rate Debt      879,110,926                     933,081,142

Floating Rate Debt
Secured Mortgage Debt (3)   13,085,440              -- 13,085,440
Unsecured Term Loan
      Facility                  $75,000,000                     $75,000,000
 

     Total Floating Rate Debt    88,085,440                      88,085,440

     TOTAL MORTGAGE DEBT       $967,196,366                  $1,021,166,582

Secured Revolving Credit
      Facility                           --                              --

     TOTAL DEBT                $967,196,366                  $1,021,166,582

Preferred / Convertible Stock
      Series A & B             $121,250,000                    $121,250,000
      Series C                 $100,000,000                    $100,000,000

     % Fixed                          90.9%                           91.4%
     % Floating                        9.1%                            8.6%
     Average Interest Rate (1)        5.80%                           5.89%
Weighted Average Maturity
of Debt                    7.59 years                      7.19 years

(1)  Assumes LIBOR of 3.35%
(2)  Reflects debt assumed from 75% interest in Renaissance Washington,
D.C. acquisition
(3)  Cross-collateralized loan with life insurance company
 

SUNSTONE HOTEL INVESTORS, INC.
Pro Forma Hotel Operating Statistics by Region
(unaudited)

Quarter ended June 30, 2005
                          Number    Number   Occupancy    Average
      REGION             of Hotels of Rooms Percentages Daily Rate  RevPAR
     California              18      3,824     83.8%     $111.90    $93.74
     Other West (1)          16      3,440     69.9%      $82.16    $57.42
     Midwest (2)              8      2,614     66.6%     $122.81    $81.81
     Middle Atlantic (3)      3        782     77.0%     $140.65   $108.30
     South (4)                3        895     77.0%     $123.14    $94.77
     Southwest (5)            3      1,075     79.3%      $91.33    $72.43

        Total Portfolio      51     12,630     75.2%     $107.04    $80.45
 
 

                                              Six months ended June 30, 2005
                          Number    Number   Occupancy    Average
      REGION             of Hotels of Rooms Percentages Daily Rate  RevPAR
     California              18      3,824     81.6%     $107.56    $87.82
     Other West (1)          16      3,440     68.7%      $84.69    $58.14
     Midwest (2)              8      2,614     61.6%     $117.62    $72.39
     Middle Atlantic (3)      3        782     68.2%     $137.44    $93.75
     South (4)                3        895     68.0%     $123.73    $84.13
     Southwest (5)            3      1,075     79.5%      $90.19    $71.66

        Total Portfolio      51     12,630     72.0%     $104.49    $75.23
 

                               Quarter ended June 30, 2004
                           Occupancy      Average             Percent Change
     REGION               Percentages   Daily Rate  RevPAR     in RevPAR
     California              79.7%      $102.17     $81.47       15.1%
     Other West (1)          68.1%       $77.03     $52.43        9.5%
     Midwest (2)             65.8%      $113.21     $74.46        9.9%
     Middle Atlantic (3)     79.0%      $126.95    $100.30        8.0%
     South (4)               75.4%      $117.03     $88.26        7.4%
     Southwest (5)           84.0%       $80.15     $67.33        7.6%

        Total Portfolio      73.7%       $98.34     $72.46       11.0%
 

                             Six months ended June 30, 2004
                           Occupancy     Average              Percent Change
     REGION               Percentages   Daily Rate  RevPAR     in RevPAR
     California              76.7%      $100.02     $76.70       14.5%
     Other West (1)          65.8%       $80.52     $52.96        9.8%
     Midwest (2)             61.8%      $108.57     $67.06        7.9%
     Middle Atlantic (3)     75.1%      $124.35     $93.41        0.4%
     South (4)               64.2%      $116.02     $74.45       13.0%
     Southwest (5)           82.5%       $85.30     $70.40        1.8%

        Total Portfolio      70.2%       $97.66     $68.52        9.8%

(1)  Includes Colorado, Idaho, Oregon, Utah and Washington.
(2)  Includes Illinois, Michigan and Minnesota.  Does not include
Residence Inn by Marriott located in Rochester, Minnesota (opened
June 2004) which does not have a comparable period in 2004.
(3)  Includes New Jersey, New York and Pennsylvania.
(4)  Includes Georgia and Virginia
(5)  Includes New Mexico and Texas
 

SUNSTONE HOTEL INVESTORS, INC.
Pro Forma Hotel Operating Statistics by Brand
(unaudited)
Quarter ended June 30, 2005
                           Number    Number  Occupancy    Average
      Brand              of Hotels of Rooms Percentages Daily Rate    RevPAR
     Marriott (1)             24     5,660       76.8%     $114.23    $87.73
     Hilton                    5     1,333       77.8%     $144.21   $112.13
     InterContinental         13     2,539       72.7%      $84.44    $61.41
     Hyatt                     4     1,029       76.5%     $112.48    $86.09
Other Franchise
      Affiliations (2)         2       834       79.8%      $85.20    $67.99
     Independent               3     1,235       65.7%      $85.61    $56.26

        Total Portfolio       51    12,630       75.2%     $107.04    $80.45
 
 
 

                                               Six months ended June 30, 2005
                           Number    Number  Occupancy    Average
      Brand              of Hotels of Rooms Percentages Daily Rate    RevPAR
     Marriott (1)             24     5,660       74.5%     $113.66    $84.73
     Hilton                    5     1,333       71.8%     $132.36    $95.10
     InterContinental         13     2,539       68.4%      $80.93    $55.38
     Hyatt                     4     1,029       74.1%     $109.83    $81.36
Other Franchise
      Affiliations (2)         2       834       82.5%      $85.29    $70.36
     Independent               3     1,235       59.2%      $84.18    $49.80

        Total Portfolio       51    12,630       72.0%     $104.49    $75.23
 

                               Quarter ended June 30, 2004
                           Occupancy     Average              Percent Change
     Brand                Percentages   Daily Rate  RevPAR     in RevPAR
     Marriott (1)            75.2%      $105.62     $79.47       10.4%
     Hilton                  76.2%      $131.45    $100.22       11.9%
     InterContinental        72.5%       $77.47     $56.19        9.3%
     Hyatt                   71.4%      $101.20     $72.24       19.2%
Other Franchise
      Affiliations (2)       82.6%       $78.69     $64.99        4.6%
     Independent             62.2%       $79.78     $49.59       13.4%

        Total Portfolio      73.7%       $98.34     $72.46       11.0%
 

                             Six months ended June 30, 2004
                           Occupancy     Average              Percent Change
     Brand                Percentages   Daily Rate  RevPAR     in RevPAR
     Marriott (1)            72.0%      $106.52     $76.69       10.5%
     Hilton                  68.7%      $124.55     $85.60       11.1%
     InterContinental        68.5%       $75.72     $51.86        6.8%
     Hyatt                   68.8%       $99.74     $68.58       18.6%
Other Franchise
      Affiliations (2)       82.3%       $84.31     $69.37        1.4%
     Independent             59.9%       $78.33     $46.90        6.2%

        Total Portfolio      70.2%       $97.66     $68.52        9.8%
 

(1)  Does not include Residence Inn by Marriott located in Rochester,
Minnesota (opened June 2004) which does not have a comparable period
in 2004.
(2)  Includes Sheraton and Wyndham

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that, as of the date hereof, owns 60 hotels with an aggregate of 16,683 rooms primarily in the upper- upscale segment operated under brands owned by nationally- recognized companies, such as Marriott, Hilton, InterContinental, Hyatt and Fairmont. 

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," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will," "continue" and other similar terms and phrases, including references to assumptions and forecasts of future results. 

.

Investor Relations
Sunstone Hotel Investors, Inc.
(949) 369-4204
http://www.sunstonehotels.com
 

.
Also See: Name Dispute Prompts Former Owner of Sutton Place Hotel Newport Beach to File Lawsuit Against Sunstone Hotels Investors Inc. and Fairmont Hotels & Resorts / July 2005
Opened in 1962, the Hyatt Newporter Receives $13 million Remodel; Owner Sunstone Gives the 403 room Hotel New Name - Hyatt Regency Newport Beach / Sandi Cain / November 2004


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