IRVINE, CA – May 14, 2021 – Sunstone Hotel Investors, Inc. (the “Company” or “Sunstone”) (NYSE: SHO), the owner of Long-Term Relevant Real Estate® in the hospitality sector, today announced results for the first quarter ended March 31, 2021.
First Quarter 2021 Operational Results (as compared to First Quarter 2020):
- Resumption of Hotel Operations: 15 of the Company’s 17 hotels were in operation for the entirety of the first quarter 2021.
- Net Loss: Net loss was $55.3 million as compared to $162.5 million.
- 17 Hotel Portfolio RevPAR: 17 Hotel Portfolio RevPAR decreased 69.5% to $42.19.
- Adjusted EBITDAre: Adjusted EBITDAre, excluding noncontrolling interest decreased 203.7% to $(14.7) million.
- Adjusted FFO: Adjusted FFO attributable to common stockholders per diluted share decreased 1,200.0% to $(0.13).
Information regarding the non-GAAP financial measures disclosed in this release is provided below in “Non-GAAP Financial Measures.” Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included later in this release.
John Arabia, President and Chief Executive Officer, stated, “In the first quarter, our portfolio achieved sequential monthly growth in occupancy, ADR and RevPAR, and our March portfolio results materially exceeded our expectations and achieved breakeven EBITDA. Leisure demand is exceptionally strong and is expected to remain above pre-pandemic levels at many of our hotels for the foreseeable future. Furthermore, the nascent recovery in both commercial transient demand and traditional group business that started in the fourth quarter of 2020 is gaining steam and is expected to accelerate meaningfully in the second half of 2021 as vaccination distribution expands and state restrictions continue to ease. Several group functions have already transpired, and meeting planners remain confident that additional events will be held in the coming months at several of our hotels. The steady and robust increase in transient reservations and the material rebound in group production give us greater confidence that our portfolio is likely to experience rapid growth in revenues and profits as the year progresses.”
Mr. Arabia continued, “Consistent with our stated tactics, we have deployed a portion of our excess liquidity to fund the early-cycle acquisition of Montage Healdsburg, which is a spectacular resort, ideally located in one of the most sought-after and highest-rated leisure destinations in the U.S. The resort, which took over 15 years to develop, is a perfect example of Long-Term Relevant Real Estate, and its addition elevates the overall quality and growth prospects of our portfolio. Leveraging our industry relationships, we acquired the resort on an off-market basis and at a discount to what it would cost to develop today. Additionally, we funded 25% of the transaction with attractively structured perpetual preferred equity issued directly to the seller that aligns our interests and gives us additional optionality. With a strong balance sheet and a growing deal pipeline, we would expect Montage Healdsburg to be the first of several acquisitions of LTRR to be completed over the early stages of this new operating cycle.”
COVID-19: On April 1, 2021, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, whose operations were temporarily suspended in March 2020 due to the COVID-19 pandemic, resumed operations. As of the date of this release, operations remain temporarily suspended at only the Renaissance Westchester (see table below).
Since the Company’s COVID-19-related occupancy low point of 1.6% in April 2020, the Company has experienced slow but steady improvements in hotel demand. During January, February and March 2021, as the number of COVID-19 cases decreased and the vaccine distribution program increased, occupancy at the 17 Hotels accelerated to 13.3%, 22.4% and 29.1%, respectively. In March 2021, the Embassy Suites La Jolla, the Oceans Edge Resort & Marina, the Renaissance Washington DC and the Wailea Beach Resort all achieved occupancies greater than 50.0%. The Company also experienced demand increases, most significantly in leisure travel over the President’s Day weekend and during Spring Break, at its hotels in Long Beach, New Orleans, Orlando and San Diego.
Leisure demand continues to accelerate and business transient and group demand, which have been slower to return, are both demonstrating positive growth. While the preponderance of recent group business has been composed primarily of government, emergency management and medical-related groups, several of our hotels have begun to host traditional group business, including corporate groups. In March 2021, both the Renaissance Orlando at SeaWorld® and the Wailea Beach Resort hosted traditional group events attracting attendance above their contracted levels. The Company is beginning to see events with more guests and events that take place over longer periods of time. A significant portion of the group business on-the-books for the second half of 2021 continues to hold to their contractual program dates, anticipating a continued improvement in conditions allowing for groups to meet. The Company believes that the return of traditional business transient and group business will ultimately depend on the speed and efficacy of the vaccine distribution and the degree to which that allows the Company to return to normal. The Company expects the demand recovery to extend past 2021, and it is encouraged by the recent pace of future group bookings, which leads the Company to believe that its portfolio will perform materially better in the second half of 2021 and specifically in the fourth quarter of 2021.
Acquisition: On April 22, 2021, the Company acquired the fee-simple interest in the 130-room Montage Healdsburg (the “Resort”). The newly constructed luxury Resort, which was completed in December 2020, was acquired for a gross purchase price of $265.0 million. The acquisition was funded with cash on hand and through the direct issuance of $66.25 million of Series G Cumulative Redeemable Preferred Stock (the “Series G preferred stock”) to the seller of the Resort. The Series G preferred stock, which is callable at the liquidation preference plus accrued and unpaid dividends by the Company at any time, will accrue dividends at an initial rate equal to the Resort’s annual net operating income yield on the Company’s investment in the Resort. The Series G preferred stock is not convertible into any other security. The Resort will continue to be managed by Montage Hotels & Resorts.
Montage Healdsburg sits adjacent to the separately owned Montage Residences Healdsburg, which, together with the Resort, comprise a 258-acre destination. Montage Residences Healdsburg will feature 40 to-be-built luxury homes that will be eligible to participate in the optional turn-key resort rental program. The seller of the Resort will continue to own and be responsible for the development and sales of Montage Residences Healdsburg.
Capital Investments: The Company invested $6.5 million into its portfolio during the first quarter ended March 31, 2021. In 2021, the Company expects to invest approximately $70 million to $80 million.
Balance Sheet/Liquidity Update
As of March 31, 2021, the Company had $365.3 million of cash and cash equivalents, including restricted cash of $45.0 million, total assets of $2.9 billion, including $2.4 billion of net investments in hotel properties, total consolidated debt of $747.1 million and stockholders’ equity of $2.0 billion. Adjusting for the cash used to fund the acquisition of Montage Healdsburg, pro forma cash and cash equivalents, including restricted cash, would have been $166.5 million as of March 31, 2021.
As of March 31, 2021 and through the date of this release, the status of the Company’s 17 Hotels owned at the end of the first quarter is as follows:
Preliminary April 2021 results for the first 28 days of the month for the 16 hotels open during the entire period and the Montage Healdsburg include the following ($ in millions, except RevPAR and ADR):
(1) April 2021 results are preliminary and may be adjusted during the Company’s month-end close process.
(2) Montage Healdsburg was acquired by the Company on April 22, 2021. Includes prior ownership results obtained by the Company from the prior owner of Montage Healdsburg during the due diligence period before acquiring the hotel. The Company performed a limited review of the information as part of its analysis of the acquisition. The newly developed hotel opened in December 2020; therefore, there is no prior year information.
Due to continued uncertainty regarding the duration and extent of the COVID-19 pandemic, the Company cannot provide further assurances regarding the pandemic’s effect on the Company’s results, and the Company does not intend to provide further updates unless deemed appropriate.
On April 30, 2021, the Company’s Board of Directors declared cash dividends of $0.434375 per share payable to its Series E cumulative redeemable preferred stockholders and $0.403125 per share payable to its Series F cumulative redeemable preferred stockholders. The dividends will be paid on July 15, 2021 to stockholders of record as of June 30, 2021. On April 30, 2021, the Company’s Board of Directors also declared a cash dividend of $0.110259 per share payable to its Series G preferred stockholder. The dividends will be paid on July 15, 2021 to the stockholder of record as of June 30, 2021, and reflect a pro-rated amount for the days outstanding in the applicable dividend period.
The Company has suspended its quarterly common stock cash dividends. The resumption in quarterly common dividends will be determined by the Company’s Board of Directors after considering the Company’s obligations under its various financing agreements, projected taxable income, compliance with its debt covenants, long-term operating projections, expected capital requirements and risks affecting the Company’s business.
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 the information in this release and other filings with the SEC. 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.
The Company will host a conference call to discuss first quarter 2021 financial results on May 4, 2021, at 12:00 p.m. Eastern Time (9:00 a.m. Pacific Time). A live webcast of the call will be available via the Investor Relations section of the Company’s website at www.sunstonehotels.com. Alternatively, interested parties may dial 1-844-915-4230 and reference conference ID 5247223 to listen to the live call. A replay of the webcast will also be archived on the website.