ALISO VIEJO, Calif., Aug. 7, 2014 -- Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced results for the second quarter ended June 30, 2014.
Second Quarter 2014 Operational Results (as compared to Second Quarter 2013) (1):
Comparable Hotel RevPAR increased 6.2% to $171.69.
Comparable Hotel EBITDA Margins increased 130 basis points to 34.0%.
Adjusted EBITDA increased 34.4% to $94.5 million.
Adjusted FFO available to common stockholders per diluted share increased 30.0% to $0.39.
Income available to common stockholders was $39.3 million (vs. $15.1 million in 2013).
Income available to common stockholders per diluted share was $0.22 (vs. $0.09 in 2013).
Ken Cruse, Chief Executive Officer, stated, "During the second quarter our Comparable Hotel RevPAR grew by 6.2% and our Comparable Hotel EBITDA Margins increased by 130 basis points - both solid indications of the ongoing strength of our business. At 86.6%, our portfolio occupancy has surpassed prior peak levels, while group and transient demand continue to strengthen. Accordingly, we have increased the midpoint of our Adjusted EBITDA and Adjusted FFO/share guidance for the full year 2014. We believe business fundamentals support continued growth for Sunstone."
(1) Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 29 Hotel Portfolio, which includes all hotels held for investment by the Company as of June 30, 2014, and also includes prior ownership results in 2013 for the Hilton New Orleans St. Charles acquired in May 2013, the Boston Park Plaza acquired in July 2013 and the Hyatt Regency San Francisco acquired in December 2013. Comparable Hotel EBITDA Margin information excludes non-current year net property tax related adjustments, but includes the full impact of current year property tax related adjustments in the quarter such adjustments are realized.
(1) In 2013, Marriott converted its reporting calendar from a 13-period basis to a standard 12-month basis. Since Marriott's 2012 fiscal year ended on December 28, 2012, Marriott's 2013 first quarter and calendar year contain an additional three days, December 29, 2012 through December 31, 2012. The Comparable Portfolio for the six months ended June 30, 2013 has been adjusted for the effects of removing the three additional days from the operating statistics for the Company's ten Marriott-managed hotels.
Disclosure regarding the non-GAAP financial measures in this release is included on page 5. 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, 2014 compare to its guidance originally provided as follows:
Second Quarter 2014 Transaction Highlights
On June 2, 2014, the Company completed its previously announced acquisition of 7.3 acres of land underlying the Fairmont Newport Beach for $11.0 million. The acquisition of this land reduced the Company's ground lease expense by $0.1 million during the second quarter of 2014.
On June 25, 2014, the Company issued 18,000,000 shares of its common stock for net proceeds (after deducting the underwriting discount and estimated offering expenses) of approximately $262.5 million. The Company used the net proceeds from this offering to finance a portion of the previously announced acquisition of the Wailea Beach Marriott Resort & Spa (the "Marriott Wailea").
On July 17, 2014, the Company completed its previously announced acquisition of the 544-room Marriott Wailea. The contractual purchase price of $325.5 million, including $4.5 million of unrestricted cash received upon acquisition, was funded with a combination of cash and 4,034,970 shares of the Company's common stock valued at $60.0 million ($14.87 per share).
Separately, the Company and its joint venture partner have agreed to certain loan amendment terms with the existing lenders of the loan secured by the Hilton San Diego Bayfront, the balance of which was $229.7 million as of June 30, 2014. The loan amendment will extend the maturity date from 2016 to 2019 and reduce the interest rate from three-month LIBOR plus 325 basis points to one-month LIBOR plus 225 basis points. The partnership expects to incur approximately $1.3 million in fees associated with the amendment, and expects to finalize the amendment during the third quarter.
Balance Sheet/Liquidity Update
As of June 30, 2014, the Company had approximately $448.7 million of cash and cash equivalents, including restricted cash of $88.0 million. Adjusting for the Company's purchase of the Marriott Wailea in July 2014, the Company's pro forma cash and cash equivalents totaled $183.2 million, including restricted cash.
As of June 30, 2014, the Company had total assets of $3.8 billion, including $3.2 billion of net investments in hotel properties, total consolidated debt of $1.4 billion and stockholders' equity of $2.2 billion.
The Company invested $32.5 million into capital improvements of its portfolio during the second quarter of 2014, and $65.8 million during the first six months of 2014. Projects completed to date include hotel renovations at the Hilton Garden Inn Chicago Downtown/Magnificent Mile (lobby, corridors, guest rooms and bathrooms), the Renaissance Long Beach (corridors, guest rooms and bathrooms), and the Renaissance Orlando (conference center). Additionally, the Company completed the renovation of 660 rooms at the 803-room Hyatt Regency San Francisco. The Company incurred approximately $1.9 million and $0.7 million of revenue disruption during the first and second quarters of 2014, respectively, in line with management's expectations. 2014 renovations in process and/or completed include:
: The Company completed the renovation of all 660 standard guestrooms during the second quarter. The Company's renovation increased the room count for the hotel to 803. The Company expects to commence phase two of the renovation program, which includes the hotel's guest suites and public spaces, in the fourth quarter of 2014, and expects to complete phase two as space is available to minimize disruption.
: The Company is investing approximately $18.0 million to $19.0 million, primarily in the third and fourth quarters, to upgrade the hotel's infrastructure, including the preparation of approximately 30,000 square feet of unoccupied retail space to rent to third-party tenants. During the seasonally slower fourth quarter 2014 and first quarter 2015, the Company will commence and substantially complete phase two of the renovation program, which includes the hotel's meeting rooms and public spaces.
The Company expects to invest approximately $60.0 million in 2015 and 2016 to upgrade the guest experience including soft goods renovation of all guestrooms, complete renovation of meeting rooms and the creation of a comprehensive resort pool and recreation experience.
The Company's achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission. The Company's guidance does not take into account the impact of any unanticipated developments in its business or changes in its operating environment, nor does it take into account any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, prior-year property tax assessments and/or credits, debt repurchases or unannounced financings during 2014.
For the third quarter the Company expects:
For the full year the Company expects:
(1) Reflects guidance presented on May 5, 2014.
Third quarter and full year 2014 guidance are based in part on the following assumptions:
Full year comparable hotel EBITDA margin expansion of approximately 50 to 125 basis points (an increase of 12.5 bps over the midpoint of prior guidance).
Full year corporate overhead expense (excluding stock amortization and one-time expenses related to future acquisition closing costs) of approximately $21 million to $22 million.
Full year interest expense of approximately $69 million, including $3 million in amortization of deferred financing fees.
Full year preferred dividends of $9.2 million for the Series D cumulative redeemable preferred stock.
On August 6, 2014, the Company's Board of Directors declared a cash dividend of $0.05 per share payable to its common stockholders. The Company's Board of Directors also declared a cash dividend of $0.50 per share payable to its Series D cumulative redeemable preferred stockholders. The dividends will be paid on or before October 15, 2014 to common and preferred stockholders of record on September 30, 2014.
Subject to certain limitations, the Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income. Based on the guidance provided herein, the Company expects full year 2014 taxable income to result in required distributions of $0.50 - $0.55 per share. The level and constitution 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 long-term leverage targets. As a result, any future common stock dividends may be comprised of cash only, or a combination of cash and stock, consistent with Internal Revenue Service guidelines.
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 has 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.
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Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of August 7, 2014 has interests in 30 hotels comprised of 14,304 rooms. Sunstone's hotels are primarily in the upper upscale segment and are 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. As demand for lodging generally fluctuates with the overall economy (we refer to these changes in demand as the lodging cycle), we seek to employ a balanced, cycle-appropriate corporate strategy that encompasses the following: