News for the Hospitality Executive
ALISO VIEJO, Calif., May 2, 2012 -- Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) today announced results for the first quarter ended March 31, 2012.
First Quarter 2012 Operational Results (as compared to First Quarter 2011) (1) :
Ken Cruse, President and Chief Executive Officer, stated, "Our portfolio's solid operating performance during the quarter and the earnings from recently acquired hotels drove a 33% year-over-year improvement in Adjusted EBITDA, and a 71% year-over-year improvement in Adjusted FFO per diluted share. Lodging demand trends continue to improve and industry fundamentals are very positive. First quarter group booking productivity for our portfolio was at its highest level since 2006. As a result, our 2012 group booking pace is now up over 8% and our 2013 group pace is now up over 20% as compared to the same time last year. Accordingly, we have increased our full-year 2012 guidance."
Mr. Cruse continued, "We remain focused on improving our portfolio quality and scale while gradually deleveraging our balance sheet through creatively sourced, attractively valued transactions. To this end, today we announced our acquisition of the 417-room Wyndham Chicago for a net acquisition price of $88.4 million, or $212,000 per key. The acquisition will be funded using a portion of our sizeable cash balance and by issuing $58.4 million of common shares directly to the seller, an affiliate of The Blackstone Group, at a net price of $10.71 per share. We are excited to have Blackstone as a significant investor in Sunstone, and we look forward to deepening our relationship. We are also pleased to expand our relationship with Hyatt Hotels Corporation. We believe Hyatt is the most attractive brand for this hotel due to Hyatt's ability to attract high-end business travel and corporate groups, including the vast number of medical meetings generated within walking distance of the hotel. Given the hotel's unique upside opportunities and the mutual benefits of the transaction, Hyatt provided us with an attractive package of franchise and economic terms. After rebranding the hotel as the Hyatt Chicago Magnificent Mile, and completing a comprehensive renovation and repositioning program aimed at making the hotel one of Chicago's top business destinations, we anticipate our all-in investment will be approximately $250,000 per key, which we believe will lead to attractive post-renovation returns. There will be no debt incurred in connection with this acquisition."
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 12 of this release.
The Company's actual results for the quarter ended March 31, 2012 compare to its prior guidance as follows:
The Company has signed a purchase and sale agreement to acquire the 417-room Wyndham Chicago from an affiliate of The Blackstone Group for a total purchase price of $88.4 million (approximately $212,000 per key). The hotel is well located one block east of Michigan Avenue on the corner of North St. Claire Street in Chicago's famed Magnificent Mile district, and is adjacent to Northwestern Medical Hospital, Chicago's Feinberg School of Medicine, and the new 23-story, state-of-the-art, Ann & Robert Lurie Children's Memorial Hospital that opens in June 2012. The hotel is subject to an 85-year building lease. Upon closing, the Company will rebrand the hotel the Hyatt Chicago Magnificent Mile and will immediately embark on a $25 million renovation program (a portion of which will be funded by Hyatt). Following the scheduled renovation and after the hotel reaches stabilization as a Hyatt-branded hotel, the Company anticipates that its all-in investment will be roughly $250,000 per key, which the Company estimates will equate to a below 10.0x multiple on anticipated stabilized EBITDA. The hotel will be funded with $30.0 million of cash on hand and $58.4 million of the Company's common stock, which will be issued to the seller at a price equivalent to $10.71 per share. The hotel will be managed by Davidson Hotels & Resorts under a franchise agreement with an affiliate of Hyatt Hotels Corporation. The Company expects the purchase of the hotel to close during the second quarter of 2012.
Jonathan D. Gray, Global Head of Real Estate of The Blackstone Group stated, "We are excited about this transaction with Sunstone. We believe the company and its management are well positioned to take advantage of the continued recovery in the lodging cycle and we look forward to building our relationship with Sunstone."
Balance Sheet/Liquidity Update
As of March 31, 2012, the Company had approximately $198.2 million of cash and cash equivalents, including restricted cash of $72.0 million, total assets of $3.1 billion, including $2.8 billion of net investments in hotel properties, total consolidated debt of $1.6 billion and stockholders' equity of $1.2 billion.
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. After this repayment, the Company's only near-term debt maturity is the 4.60% Exchangeable Senior Notes outstanding balance of $58.0 million, which is likely to be retired with a portion of the Company's unrestricted cash balance on or before January 15, 2013, the first optional repurchase date.
John Arabia, Chief Financial Officer stated, "Following the repayment of the mortgage on our Renaissance Long Beach and upon closing our acquisition of the Hyatt Chicago Magnificent Mile, we will hold 13 unencumbered hotels. Our remaining mortgages have well-staggered maturities and, in aggregate, pay below-market interest rates, and we have access to multiple forms of liquidity. While we believe Sunstone is attractively capitalized for the current phase of the lodging cycle, we remain committed to gradually deleveraging over the next several years while building shareholder value. Our acquisition of the Hyatt Chicago Magnificent Mile, which will have no debt, and our repayment of the mortgage on the Renaissance Long Beach are highly consistent with our stated plan."
The Company invested $21.8 million in capital improvements into its portfolio during the first quarter of 2012.
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 existing 32 Hotel Portfolio and does not take into account the impact of the pending Hyatt Chicago Magnificent Mile acquisition or any future hotel acquisitions, dispositions, re-brandings or management change transition costs, debt repurchases or financings during 2012.
For the second quarter of 2012, the Company expects:
For the full year 2012, the Company expects:
Full-year 2012 guidance is also based on the following assumptions:
John Arabia continued, "We have increased our guidance based on our strong first quarter operating results and our elevated confidence in business trends. We expect the acceleration in group bookings and healthy transient demand, combined with very low industry-wide supply trends to drive meaningful RevPAR and margin growth for the next several years."
On May 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 July 15, 2012 to stockholders of record on June 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 losses. 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.
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.
The Company will host a conference call to discuss first quarter results on May 3, 2012, at 9:00 a.m. EDT (6:00 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 1-877-941-2333 (for domestic callers) or 1-480-629-9724 (for international callers). A replay of the web cast will also be archived on the website.
The following table includes information related to the Wyndham Chicago, which will be rebranded the Hyatt Chicago Magnificent Mile:
About Sunstone Hotel Investors, Inc.
Sunstone Hotel Investors, Inc. ("Sunstone") is a lodging real estate investment trust ("REIT") that, as of March 31, 2012, has interests in 32 hotels comprised of 13,208 rooms. Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Fairmont, Hyatt 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 May 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 hotel EBITDA and comparable 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 hotel EBITDA and comparable hotel EBITDA margin are set forth on page 12. We believe comparable hotel EBITDA and comparable 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 hotel EBITDA margins. Management believes the calculation of comparable hotel EBITDA results in a more accurate presentation of hotel EBITDA margins of the Company's 32 comparable hotels. See page 12 for a reconciliation of comparable hotel EBITDA to the most comparable GAAP measure. Our 32 comparable hotels include all hotels in which the Company has interests as of March 31, 2012, 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.
We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable 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 hotel EBITDA and comparable 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 hotel EBITDA and comparable 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 hotel EBITDA and comparable 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.
Reports 4th Qtr 2011 Net Income of $43 million Compared to $30.4
million Same Period Prior Year; RevPAR Grows 5.9% / February 2012
Reports 3rd Qtr 2011 Loss of $24 million Compared to Income of $18.3
million Same Period Prior Year; RevPAR Grows 6.2%; Robert Alter to
Retire / November 2011
Reports 2nd Qtr 2011 Net Income of $31.1 million Compared with a Loss
of $4.9 million Same Period Prior Year; RevPAR Grows 7.2% / August
Reports a 1st Qtr 2011 Net Income of $45.7 million Compared with a Loss
of $26.2 million Same Period Prior Year; RevPAR Grows 7.6% / May
Reports a 1st Qtr 2010 Loss $26.3 million Compared with a Prior-year
Profit of $876,000; RevPAR Falls 6.5% with Occupancy Rising to 67% from
65.6% / May 2010
|Sunstone Hotel Investors Provides Business Update - Forfeits Additional 11 Hotels to Mass Mutual, Holder of $246 million Loan on the Hotels; Expects a $83 million Impairment Charge Related to the Forfeitures / January 2010|