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Completes Acquisition of the 357-Room Hilton Garden Inn Chicago Downtown/Magnificent Mile
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ALISO VIEJO, Calif., Aug. 2, 2012 - Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) today announced results for the second quarter ended June 30, 2012. Second Quarter 2012 Operational Results (as compared to Second Quarter 2011)(1):
Ken Cruse, President and Chief Executive Officer, stated, "Our team continued to execute on our balanced business plan during the second quarter. Proactive asset management helped to drive strong results, including a 7.6% increase in our Comparable Hotel RevPAR, a 110-basis-point improvement in our Comparable Hotel EBITDA Margins and a 16.7% increase in our Adjusted FFO per share. Additionally, we took several steps toward our goal of gradually delevering our balance sheet while improving the quality and scale of our portfolio. During the quarter, we repaid one mortgage, and we announced the pending sale of a highly levered hotel as well as the equity-funded acquisitions of two high-quality, unlevered urban hotels. We will continue to pursue high-quality acquisitions using our shares as currency when such acquisitions can be executed at attractive relative valuations." Mr. Cruse continued, "Looking ahead, we continue to build a solid base for future growth. On a same-store basis, our managers booked more group room nights in the second quarter 2012 than in any other second quarter over the past five years. In spite of difficult macroeconomic conditions, lodging industry fundamentals remain highly constructive, with capital costs and supply trends at record lows, and demand for lodging approaching record highs. Accordingly, we continue to believe the U.S. lodging industry is in the first half of a prolonged growth phase and we remain focused on delivering industry leading stockholder returns through the continued execution of our balanced business plan."
Disclosure regarding the non-GAAP financial measures in this release is included on pages 5 and 6. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 9 through 13 of this release. The Company's actual results for the quarter ended June 30, 2012 compare to its prior guidance as follows:
Acquisitions Update On July 19, 2012, the Company completed the previously announced acquisition of the 357-room Hilton Garden Inn Chicago Downtown/Magnificent Mile for a gross purchase price of $91.75 million. The acquisition was funded with a portion of the proceeds received from the Company's public offering of 12.1 million shares of its common stock (including the underwriter's exercise of its overallotment option). On June 4, 2012, the Company completed the previously announced acquisition of the 417-room Wyndham Chicago, which the Company rebranded the Hyatt Chicago Magnificent Mile. The contractual purchase price of $88.425 million consisted of a combination of cash and 5.5 million shares of the Company's common stock initially valued at $58.425 million ($10.71/share). Based on the $9.38 closing price of the Company's common stock on the NYSE on June 4, 2012, the total purchase price of the Wyndham Chicago hotel for accounting purposes was $81.16 million, which was funded with $29.7 million of cash on hand (including $0.3 million of proration credits) and the Company's common stock valued at $51.16 million, issued directly to the seller, the Blackstone Group. Disposition Update On June 6, 2012, the Company announced it had entered into a purchase-and-sale agreement to sell the 284-room Marriott Del Mar for a contractual purchase price of $66.0 million ($232,000/key). The sale of the hotel is subject to the buyer's assumption of the existing $47.2 million mortgage. The Company and the buyer are working to finalize the assumption with the loan's special servicer and expect to finalize the sale and loan assumption during the third quarter of 2012. Balance Sheet/Liquidity Update On April 26, 2012, the Company used existing cash to repay its $32.2 million non-recourse mortgage secured by the Renaissance Long Beach, which was scheduled to mature on July 1, 2012. On June 25, 2012, the Company completed a public offering of 12.1 million shares of its common stock (including the underwriter's exercise of its overallotment option) for total net proceeds of approximately $126.2 million. A portion of the proceeds from this offering were used to acquire the Hilton Garden Inn Chicago Downtown/Magnificent Mile. The remaining proceeds will be used for potential future acquisitions, capital investment in the Company's portfolio, including the renovation of the Hyatt Chicago Magnificent Mile, and other general corporate purposes, including working capital. As of June 30, 2012, the Company had approximately $277.9 million of cash and cash equivalents, including restricted cash of $73.3 million. As noted above, the Company used approximately $91.75 million of its unrestricted cash to purchase the Hilton Garden Inn Chicago Downtown/Magnificent Mile on July 19, 2012. As of June 30, 2012, the Company had total assets of approximately $3.2 billion, including $2.8 billion of net investments in hotel properties, total consolidated debt related to continuing operations of $1.5 billion and stockholders' equity of $1.4 billion. John Arabia, Chief Financial Officer, stated, "We continue to make meaningful progress towards our stated goals of reducing leverage in a shareholder friendly manner and maintaining strong liquidity, while, at the same time, growing our portfolio's quality and scale. Since January 2011, we have improved our leverage ratio though a combination of highly equitized acquisitions and the repayment or elimination of approximately $221 million of debt, including debt secured by the Marriott Del Mar which will be eliminated upon the hotel's anticipated sale during the third quarter of 2012. Our liquidity is strong, our near-term debt maturities are few, and we have several avenues in which to achieve our stated goals of reducing leverage and creating shareholder value." Capital Improvements The Company invested $26.7 million in capital improvements into its portfolio during the second quarter of 2012, and $48.5 million during the six months ended June 30, 2012. 2012 Outlook Achievement of the Company's 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 includes the Company's ownership period for all 2012 acquisitions and dispositions and does not take into account the impact of any future hotel acquisitions, dispositions, re-brandings or management change transition costs, prior-year property tax assessments and/or credits, potential income tax expense if the Company elects to apply net operating loss carryforwards, debt repurchases or financings during 2012. For the third quarter of 2012, the Company expects:
For the full year 2012, the Company expects:
Third-quarter and full-year 2012 guidance is also based on the following assumptions:
Dividend Update On August 2, 2012, the Company's Board of Directors declared a cash dividend of $0.50 per share payable to its Series A and Series D 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 or before October 15, 2012 to stockholders of record on September 30, 2012. No dividend was declared on the Company's common stock, as the Company intends to deploy excess cash flow from operations toward internal renovation investments and gradual deleveraging. Subject to certain limitations, the Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income, which may be reduced through the application of net operating loss carryforwards. The level of any future dividends will be determined by the Company's Board of Directors after considering taxable income projections, expected capital requirements, risks affecting the Company's business and in context of the Company's leverage-reduction initiatives. As a result, common stock dividends may be made in the form of cash or a combination of cash and stock consistent with Internal Revenue Service guidelines. Supplemental Disclosures Contemporaneous with this release, the Company has furnished a Form 8-K with unaudited financial information. This additional information is being provided as a supplement to information prepared in accordance with generally accepted accounting principles. The Company undertakes no obligation to update any of the information provided to conform to actual results or changes in the Company's portfolio, capital structure or future expectations. Earnings Call The Company will host a conference call to discuss second quarter results on August 3, 2012, at 12:00 p.m. EDT (9:00 a.m. PDT). A live web cast of the call will be available via the Investor Relations section of the Company's website. Alternatively, investors may dial 1-800-762-8779 (for domestic callers) or 1-480-629-9645 (for international callers). A replay of the web cast will also be archived on the website. About Sunstone Hotel Investors, Inc. Sunstone Hotel Investors, Inc. ("Sunstone") is a lodging real estate investment trust ("REIT") that, as of August 2, 2012, has interests in 33 hotels held for investment comprised of 13,698 rooms. Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont and Sheraton. For further information, please visit Sunstone's website at www.sunstonehotels.com. Sunstone's mission is to create meaningful value for our stockholders by becoming the premier hotel owner. Our values include transparency, trust, ethical conduct, communication and discipline. We seek to employ a balanced, cycle-appropriate corporate strategy that encompasses the following:
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 August 2, 2012, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. This release should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q. Copies of these reports are available on our website at www.sunstonehotels.com and through the SEC's Electronic Data Gathering Analysis and Retrieval System ("EDGAR") at www.sec.gov. Non-GAAP Financial Measures We present the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; Adjusted EBITDA (as defined below); Funds From Operations, or FFO; Adjusted FFO (as defined below); and comparable and pro forma hotel EBITDA and comparable and pro forma hotel EBITDA margin. EBITDA represents net income (loss) excluding: non-controlling interests; interest expense; provision for income taxes, including income taxes applicable to sale of assets; and depreciation and amortization. In addition, we have presented Adjusted EBITDA, which excludes: amortization of deferred stock compensation; the impact of any gain or loss from asset sales; impairment charges; and any 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 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 net income (loss) to EBITDA and Adjusted EBITDA is set forth on page 9. A reconciliation and the components of comparable and pro forma hotel EBITDA and comparable and pro forma hotel EBITDA margin are set forth on pages 12 and 13. We believe comparable and pro forma hotel EBITDA and comparable and pro forma 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 non-controlling interests, gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs) and real estate-related impairment losses, and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes penalties, written-off deferred financing costs, non-real estate-related impairment losses and any 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 net income (loss) to FFO and Adjusted FFO is set forth on page 9. The revenue and expense items associated with our commercial laundry facility, BuyEfficient and other miscellaneous non-hotel items have been excluded in presenting comparable and pro forma hotel EBITDA margins. Management believes the calculation of comparable and pro forma hotel EBITDA results in a more accurate presentation of hotel EBITDA margins of the Company's 31 comparable hotels and 33 pro forma hotels. See pages 12 and 13 for a reconciliation of comparable and pro forma hotel EBITDA to the most comparable GAAP measure. Our 31 comparable hotels include all hotels in which the Company has interests as of June 30, 2012, excluding the Marriott Del Mar, which has been classified as held for sale and included in discontinued operations due to its probable sale within the next year, and the Hyatt Chicago Magnificent Mile, which is currently experiencing material and prolonged business interruption due to rebranding and renovation, plus prior ownership results as applicable in 2011 for the Doubletree Guest Suites Times Square acquired by the Company in January 2011, the JW Marriott New Orleans acquired by the Company in February 2011, and the Hilton San Diego Bayfront acquired by the Company in April 2011. Our 33 pro forma hotels include the 31 comparable hotels, plus the Company's ownership as applicable and prior ownership for the Hyatt Chicago Magnificent Mile acquired by the Company in June 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company in July 2012. We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable and pro forma hotel EBITDA and comparable and pro forma 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, comparable and pro forma hotel EBITDA and comparable and pro forma 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, comparable and pro forma hotel EBITDA and comparable and pro forma 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, comparable and pro forma hotel EBITDA and comparable and pro forma 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. For Additional Information: Bryan Giglia |
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| Contact: Bryan Giglia |