| SAN CLEMENTE, CA � June 7, 2009 � Sunstone Hotel Investors,
Inc. (the �Company�) (NYSE: SHO) today provided an update on its recent
operating performance and finance transactions.
Preliminary Operations Update Through May 31, 2009:
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May total portfolio RevPAR was $98.91, down 24.4% to prior year.
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Quarter-to-date total portfolio RevPAR was $98.73, down 24.5% to prior
year.
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Year-to-date total portfolio RevPAR was $97.53, down 19.6% to prior year.
Arthur Buser, President and Chief Executive Officer, stated, �We continue
to run our business with the expectation that 2009 will be one of the deepest
cyclical troughs the lodging industry has endured. We have used this cyclical
decline as an opportunity to implement permanent improvements to our hotel-level
operating models. Specifically, we have asked our operators to do as we
have done at our corporate office - develop �zero-based� budgets and adjust
staffing models for minimum business levels. While we are generally pleased
with our results thus far this year, as our recent revenue declines are
largely the result of lower rate, rather than reduced occupancy, we expect
margin control will become increasingly difficult. On the finance side,
we have continued to execute on a comprehensive finance plan designed to
reduce corporate risk and increase financial flexibility.�
Finance Update
Year-to-date the Company has repurchased $187.5 million of its exchangeable
senior notes at a 36.4% weighted average discount to par resulting in $70.7
million of value creation and a blended yield to put of 20.3%; issued common
equity for net proceeds of $99.1 million; sold the Marriott Napa for $36.0
million; and amended its exchangeable notes indenture to provide for added
flexibility in managing its secured debt. By executing on these transactions,
the Company has achieved four critical objectives:
-
addressed its expected capital needs through 2014;
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deleveraged its capital structure;
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enhanced its liquidity (to more than $180.0 million in unrestricted cash);
and
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improved its ability to manage its secured debt portfolio.
W Hotel San Diego
 As
noted above, on May 20, 2009, the Company amended its exchangeable notes
indenture to provide that defaults by its subsidiaries on non-recourse
indebtedness less than $300.0 million would not result in an acceleration
of its exchangeable notes prior to maturity. This amendment was specifically
aimed at improving the Company�s ability to manage its secured debt portfolio
in the context of the inherent inflexibilities of commercial mortgage backed
securities (�CMBS�) debt.
As a consequence of significant and continuing deterioration in demand
for luxury lodging and the introduction of numerous new competitive hotels
in the San Diego market (including a number of luxury boutique hotels,
two additional Starwood-branded hotels and a 1,190-room convention hotel),
the operations of the Company�s 258-room W Hotel San Diego (421 West B
Street) have declined materially. In the Company�s estimation the hotel�s
operations have been permanently impaired as a result of the aforementioned
factors. The hotel is currently forecasting 2009 EBITDA of between $1.8
and $2.2 million.
The hotel is encumbered by a $65.0 million, fixed-rate CMBS mortgage
that bears an interest rate of 6.14%. The mortgage matures January 1, 2018,
and is non-recourse to the Company. Scheduled 2009 debt service on the
mortgage is approximately $4.0 million. The principal amount of the mortgage
equates to more than 30-times the hotel�s 2009 forecasted EBITDA, and more
than $250,000 in debt per room.
Over the last several months, the Company has attempted to work with
the hotel�s CMBS special servicer to amend the terms of the mortgage to
provide for a reduction in current interest payments. The special servicer
has recently declined the Company�s proposed modifications. As a result,
the Company has elected not to make the June 1st debt service payment on
the hotel�s mortgage. 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.
While the Company�s elective default of the W San Diego mortgage was
precipitated by a number of unique, market and hotel-specific factors,
in the future other factors may lead the Company to pursue similar options
with certain of its other mortgaged hotels. The Company believes such cases
will be limited in number. For perspective, the average mortgage debt per
room of the Company�s mortgaged hotels equates to approximately $129,500,
approximately half that of the W San Diego.
Ken Cruse, Chief Financial Officer, stated, �As a result of negative
supply and demand fundamentals in the San Diego market, we believe the
intrinsic value of the W San Diego is now meaningfully below the principal
amount of its debt. While the Company maintains more than adequate liquidity
to support or repay this mortgage, we believe a conveyance of this hotel
in settlement of the debt would be in the best interest of our stockholders
as it would deleverage the Company, and would be accretive to both the
Company�s FFO per share and credit profile.�
Credit Facility Amendment
The Company expects to close on the previously announced amendment
to its revolving credit facility by the end of the second quarter.
About Sunstone Hotel Investors, Inc.
Sunstone Hotel Investors, Inc. (�Sunstone�) is a lodging real estate
investment trust (�REIT�) that, as of the date hereof, has interests in
43 hotels comprised of 14,755 rooms primarily in the upper-upscale segment.
Sunstone�s hotels are generally operated under nationally recognized brands,
such as Marriott, Hilton, Hyatt, Fairmont and Starwood. For further information,
please visit Sunstone�s website at www.sunstonehotels.com.
Forward-Looking Statements
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 current U.S. recession which may
be prolonged; 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; our ability to successfully complete negotiations
for an amendment to our revolving credit agreement; 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. Unless otherwise
noted, all forward-looking information in this release is as of June 7,
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. |
