Total Revenue increases 4.6%
Total Hotel RevPAR increases 3.7%
Announces $100 million increase to stock repurchase program
SAN CLEMENTE, Calif., Aug. 5 /PRNewswire-FirstCall/ -- Sunstone Hotel
Investors, Inc. (the 'Company') (NYSE: SHO) today announced results of
operations for the second quarter ended June 30, 2008.
Second Quarter 2008 Highlights (as compared to second quarter 2007):
-- Total revenue increased 4.6% to $255.2 million.
-- Total portfolio RevPAR increased 3.7% to $130.24.
-- Comparable portfolio RevPAR increased 2.6% to $128.45.
-- Net income decreased 7.1% to $69.2 million.
-- Income available to common stockholders decreased 7.6% to $61.1
million.
-- Income available to common stockholders per diluted share decreased
4.5% from $1.10 to $1.05.
-- Adjusted EBITDA decreased 1.0% to $85.2 million.
-- Adjusted FFO available to common stockholders increased 5.3% to $54.1
million.
-- Adjusted FFO available to common stockholders per diluted share
increased 8.8% from $0.80 to $0.87.
-- Total hotel operating profit margin increased 80 bps to 31.7%.
-- Comparable hotel operating profit margin increased 20 bps to 31.6%.
Robert A. Alter, Chief Executive Officer and Executive Chairman, stated,
'We are pleased with our portfolio's performance during the second quarter,
especially considering the overall softness in industry fundamentals.'
'During the quarter, the Company announced the selection of Art Buser as
President. Art began his employment with Sunstone on July 21 and he will
become CEO in 2009 after a transition period during which I will remain CEO.
I've known Art for many years and consider him to be an exceptional leader,
with the right values, integrity and intelligence to lead Sunstone for many
years to come,' Alter said.
'Also during the quarter, after receiving an unsolicited purchase offer,
we sold the 726-room Hyatt Regency Century Plaza for gross proceeds of $366.5
million. As we announced on June 2nd, this sale marks the completion of a
highly successful investment for Sunstone through which we realized an
exceptional return after renovating, rebranding, and repositioning a
previously underperforming hotel. As a result of this sale, we ended the
quarter in a strong liquidity position, with $443.7 million of cash and cash
equivalents on hand. Subsequent to the end of the quarter, we invested
approximately $129 million to repurchase approximately 7.4 million shares of
our common stock at a price significantly below our estimated net asset value.
As evidenced by our announcement today of an additional $100 million stock
repurchase authorization, we continue to believe that our stock is a very
compelling investment alternative,' Alter said.
'We believe our balance sheet provides strong dividend support and capital
resources to take advantage of investment opportunities we expect to arise
during this phase of the lodging cycle as less well-capitalized hotel owners
become compelled to sell,' Alter said. 'The lodging industry is a street
corner-by-street corner business. We believe we have the best growth
potential among our peers. Our assets are located on great street corners,
our capital deployment strategy is focused on intelligent repositioning,
rebranding and renovating projects, and our asset management expertise is
second to none. Our current strategy is to focus on internal cost
efficiencies while maintaining a conservative balance sheet and a disciplined
approach to investments.'
SELECTED FINANCIAL DATA
($ in millions, except RevPAR and per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 % Change 2008 2007 % Change
Total Revenue $255.2 $244.1 4.6% $479.7 $448.2 7.0%
Total RevPAR $130.24 $125.60 3.7% $121.47 $117.91 3.0%
Comparable RevPAR (1) $128.45 $125.22 2.6% $119.62 $117.66 1.7%
Income available to
common stockholders $61.1 $66.2 (7.6)% $58.6 $67.1 (12.7)%
Income available to
common stockholders
per diluted share $1.05 $1.10 (4.5)% $1.00 $1.13 (11.5)%
EBITDA $127.3 $138.2 (7.9)% $188.7 $199.0 (5.2)%
Adjusted EBITDA $85.2 $86.1 (1.0)% $146.6 $146.9 (0.2)%
FFO available to common
stockholders $54.1 $46.3 16.8% $84.3 $76.2 10.6%
Adjusted FFO available
to common stockholders $54.1 $51.4 5.3% $84.3 $81.3 3.7%
FFO available to common
stockholders per
diluted share (2) $0.87 $0.72 20.8% $1.35 $1.20 12.5%
Adjusted FFO available
to common
stockholders per diluted
share (2) $0.87 $0.80 8.8% $1.35 $1.28 5.5%
Total Hotel Operating
Profit Margin 31.7% 30.9% 80bps 28.9% 28.5% 40bps
Comparable Hotel
Operating Profit Margin 31.6% 31.4% 20bps 28.8% 29.0% -20bps
(1) Includes 42 'Comparable' hotels (including prior ownership periods).
Excludes two 'Non-comparable' hotels that experienced material and
prolonged business interruption during either the current or
preceding calendar year (Renaissance Baltimore and Renaissance
Orlando).
(2) Reflects series C convertible preferred stock on an 'as-converted'
basis.
Contemporaneously with this press release, the Company has filed its
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008
with the Securities and Exchange Commission.
Disclosure regarding the non-GAAP financial measures in this release is
included on page 6. Disclosure regarding the Comparable Portfolio is included
on page 7 of this release. Reconciliations of non-GAAP financial measures to
the most comparable GAAP measure for each of the periods presented are
included on pages 10 through 12 of this release.
Performance Relative to Guidance
The following table compares our guidance for the second quarter 2008
(as updated on June 2, 2008) to our actual results.
Guidance Actual Second
Quarter 2008
Total Portfolio RevPAR Growth 4.0% to 6.0% 3.7 %
Comparable RevPAR Growth 4.0% to 6.0% 2.6 %
Adjusted EBITDA $84.0 million to $85.2 million
$86.8 million
Adjusted FFO available to
common stockholders
per diluted share $0.84 to $0.88 $0.87
Total Hotel Operating Profit
Margin +50 bps to +100 bps +80 bps
Comparable Hotel Operating
Profit Margin +50 bps to +100 bps +20 bps
For the second quarter 2008, total portfolio RevPAR increased 3.7% as
compared to the second quarter 2007, driven by an increase of 4.0% in average
daily room rate offset by a decrease of 20 basis points in occupancy.
Comparable RevPAR, excluding two 'Non-comparable' hotels that experienced
material and prolonged business interruption during either the current or
preceding calendar year (the Renaissance Baltimore and the Renaissance
Orlando), increased 2.6% as compared to the second quarter 2007, driven by an
increase of 3.9% in average daily room rate offset by a decrease of 100 basis
points in occupancy.
For the second quarter 2008, total hotel operating profit margins
increased 80 basis points as compared to the second quarter 2007 (from 30.9%
to 31.7%). Comparable hotel operating profit margins increased 20 basis
points as compared to the second quarter 2007 (from 31.4% to 31.6%) (see page
12 for a reconciliation of hotel operating income to the comparable GAAP
measure).
Acquisitions, Dispositions, Investments and Financings
On May 30, 2008, the Company sold the Hyatt Regency Century Plaza for
gross proceeds of $366.5 million, resulting in a net gain of $42.1 million.
As of June 30, 2008, the net proceeds from this sale were presented on the
Company's balance sheet as cash proceeds held by accommodator to facilitate a
potential tax-deferred exchange. Subsequent to the end of the second quarter
and upon the expiration of the exchange asset identification period, the
Company withdrew the proceeds from the accommodator, and used a portion to
repay credit facility borrowings used to fund the Tender Offer described below
and other general corporate purposes. As a result, the remaining proceeds of
approximately $221.0 million are currently held as unrestricted cash and cash
equivalents. By withdrawing the funds from the accommodator, the Company will
recognize a tax gain on the sale of the property. Internal Revenue Service
rules generally require a REIT, at its election, either to pay tax on any
capital gains recognized during the year, or to declare a special distribution
of those capital gains to its stockholders before the year end. At this time,
the Company continues to analyze these options.
On February 21, 2008, the Company announced that its board of directors
had authorized the Company to repurchase up to $150 million of its common
stock during 2008 (the '2008 Repurchase Program'). On July 8, 2008, the
Company completed a modified 'Dutch Auction' tender offer (the 'Tender Offer')
to purchase up to 6,200,000 shares of its common stock at a price per share
not less than $16.75 and not greater than $19.25. The Tender Offer expired on
June 27, 2008, and on July 8, 2008, the Company announced the final results
and settlement of the Tender Offer. In accordance with the terms and
conditions of the Tender Offer, the Company accepted for purchase 7,374,179
shares (6,200,000 shares initially offered to be purchased plus an additional
1,174,179 shares -- the maximum increase permitted without amending or
extending the Tender Offer), at a price of $17.50 per share, for a total cost
of $129.0 million (excluding fees and costs of the Tender Offer). As noted
above, the Tender Offer was initially funded with a draw on the Company's
credit facility, which was subsequently repaid using a portion of the net
proceeds from the sale of the Hyatt Regency Century Plaza. As of August 5,
2008, the Company has repurchased 8,108,486 shares since the beginning of the
year. On August 5, 2008, the board of directors authorized an increase of $100
million to the 2008 Repurchase Program. With this increase, the Company has
$109.2 million remaining under the 2008 Repurchase Program.
Considering the economic environment, the Company intends to invest excess
cash on a measured basis.
Balance Sheet/Liquidity Update
As of June 30, 2008, the Company had approximately $443.7 million of cash
and cash equivalents (including cash proceeds held by an accommodator to
facilitate a potential tax-deferred exchange and restricted cash). As of June
30, 2008, the Company had no outstanding indebtedness under its credit
facility, and had $5.3 million in outstanding irrevocable letters of credit
backed by the credit facility, leaving, as of that date, up to $194.7 million
available under the credit facility. On June 30, 2008, total assets were $3.0
billion, including $2.5 billion of net investments in hotel properties, total
debt was $1.7 billion and stockholders' equity was $1.1 billion.
Hotel Renovations
During the second quarter 2008, the Company invested $27.9 million in
capital projects.
Management Succession
On June 19, 2008, the Company announced the appointment of Arthur L. Buser
as President of the Company effective July 21, 2008. Upon completion of a
transition period that is expected to conclude no later than July 1, 2009, Mr.
Buser will be appointed Chief Executive Officer. During the transition
period, Robert A. Alter will remain Chief Executive Officer and Executive
Chairman of the board of directors. Upon Mr. Buser's appointment to Chief
Executive Officer, Mr. Alter will remain as Executive Chairman.
Outlook
The Company is providing guidance for the third quarter and full year 2008
at this time but does not undertake to make updates for any subsequent
developments in its business. 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 any additional hotel acquisitions, dispositions,
stock repurchases or financings during 2008. As the level of demand for U.S.
lodging is highly correlated to the overall U.S. economy, changes in U.S.
economic performance could have a material effect on the Company's results of
operations.
Third Quarter 2008 Outlook
For the third quarter 2008, the Company expects total portfolio RevPAR to
range from a decrease of approximately 2.0% to flat as compared to the third
quarter 2007 and Comparable RevPAR, excluding two 'Non-comparable' hotels
(Renaissance Baltimore and the Renaissance Orlando), to range from a decrease
of approximately 1.0% to an increase of approximately 1.0% as compared to the
third quarter 2007 (see page 7 for an explanation of measures relating to
comparability). Additionally, for the third quarter 2008:
-- Income available to common stockholders is expected to be
approximately $4.3 million to $6.5 million;
-- Adjusted EBITDA is expected to be approximately $67.7 million to $69.9
million;
-- Adjusted FFO available to common stockholders is expected to be
approximately $36.3 million to $38.5 million;
-- Adjusted FFO available to common stockholders per diluted share is
expected to be approximately $0.65 to $0.69;
-- Total hotel operating profit margins are expected to decrease
approximately 50 - 100 basis points compared to the third quarter
2007; and
-- Comparable hotel operating profit margins are expected to decrease
approximately 50 - 100 basis points compared to the third quarter
2007.
Full Year 2008 Outlook
For the full year 2008, the Company expects total portfolio RevPAR to
range from a decrease of approximately 1.0% to an increase of approximately
1.5% compared to the full year 2007 and Comparable RevPAR, excluding two
'Non-comparable' hotels (Renaissance Baltimore and the Renaissance Orlando),
to range from a decrease of approximately 1.0% to an increase of approximately
1.5% compared to the full year 2007. Additionally, for the full year 2008:
-- Income available to common stockholders is expected to be
approximately $68.1 million to $85.1 million;
-- Adjusted EBITDA is expected to be approximately $285.4 million to
$302.4 million;
-- Adjusted FFO available to common stockholders is expected to be
approximately $160.3 million to $177.3 million;
-- Adjusted FFO available to common stockholders per diluted share is
expected to be approximately $2.72 to $3.00;
-- Total hotel operating profit margins are expected to range from a
decrease of approximately 100 basis points to flat compared to the
prior year; and
-- Comparable hotel operating profit margins are expected to range from a
decrease of approximately 100 basis points to flat compared to the
prior year.
Dividend Update
On August 5, 2008, the Company declared a dividend of $0.35 per share
payable to its common stockholders. The Company also declared a dividend of
$0.50 per share payable to its Series A cumulative redeemable preferred
stockholders and a dividend of $0.404 per share payable to its Series C
cumulative convertible redeemable preferred stockholders. The dividends will
be paid on October 15, 2008 to stockholders of record on September 30, 2008.
The level of any future quarterly dividends will be determined by the
Company's board of directors after considering operating results, expected
capital requirements and risks affecting the Company's business.
Earnings Call
The Company will host a conference call to discuss second quarter results
on August 5, 2008, at 2 p.m. PDT. A live web cast of the call will be
available via the Investor Relations section of the Company's website at
http://www.sunstonehotels.com. Alternatively, investors may dial
1-800-366-7449 (for domestic callers) or 303-262-2139 (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. is a lodging real estate investment trust
('REIT') that, as of the date hereof, has interests in 45 hotels comprised of
15,354 rooms primarily in the upper-upscale segment operated under nationally
recognized brands, such as Marriott, Hilton, Hyatt, Fairmont and Starwood.
For further information, please visit the Company's website at
http://www.sunstonehotels.com.
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 possibility of a U.S. recession; 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 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 5, 2008, 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.
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: (1) Earnings
Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; (2)
Adjusted EBITDA (as defined below); (3) Funds From Operations, or FFO; (4)
Adjusted FFO (as defined below); and (5) hotel operating income and hotel
operating profit margin for the purpose of our operating margins.
EBITDA represents income available to common stockholders excluding:
(1) preferred stock dividends; (2) amortization of deferred stock
compensation; (3) interest expense (including prepayment penalties, if any);
(4) provision for income taxes, including income taxes applicable to sale of
assets; and (5) depreciation and amortization. In addition, we have presented
Adjusted EBITDA, which excludes: (1) the impact of any gain or loss from asset
sales; (2) impairment charges; and (3) 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
preferred stock dividends) 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 income available to common stockholders to
EBITDA and Adjusted EBITDA is set forth on pages 10 and 11. A reconciliation
and the components of hotel operating income and hotel operating profit margin
are set forth on page 12. We believe hotel operating income and hotel
operating profit 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 gains and losses from
sales of property, plus real estate-related depreciation and amortization
(excluding amortization of deferred financing costs), and after adjustment for
unconsolidated partnerships and joint ventures. We also present Adjusted FFO,
which excludes prepayment penalties, written-off deferred financing costs,
impairment losses and 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 income available to common stockholders to FFO
and Adjusted FFO is set forth on pages 10 and 11.
We caution investors that amounts presented in accordance with our
definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, hotel operating
income and hotel operating profit 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, hotel operating income and hotel operating profit margin should
not be considered as an alternative measure of our net income, operating
performance, cash flow or liquidity. EBITDA, Adjusted EBITDA, FFO, Adjusted
FFO, hotel operating income and hotel operating profit 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, hotel operating income and
hotel operating profit 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 or cash flow from operations. In
addition, you should be aware that adverse economic and market conditions may
harm our cash flow.
Comparable Portfolio Information
The Company's definition of 'Comparable Portfolio' includes those hotels
owned as of the reporting date which have not experienced material and
prolonged business interruption due to renovations, re-branding or property
damage during either the calendar year presented or the preceding calendar
year. For the third quarter and full year 2008, the Comparable Portfolio is
expected to exclude the Renaissance Orlando and the Renaissance Baltimore. We
refer to these excluded hotels as 'Non-comparable' hotels. Also, the revenue
and expense items associated with the Company's two commercial laundry
facilities, BuyEfficient, LLC (for 2007), and other miscellaneous non-hotel
items have been shown below the hotel operating income line in presenting
comparable hotel operating margins. Management believes the definition of
Comparable Portfolio as well as the calculation of hotel operating income
results in a more accurate presentation of the trends in RevPAR and comparable
hotel operating margins of the Company's stabilized portfolio of hotels. See
page 12 for a reconciliation of hotel operating income to the comparable GAAP
measure.
***Tables to Follow***
Sunstone Hotel Investors, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
June 30, December 31,
2008 2007
(unaudited)
Assets
Current assets:
Cash and cash equivalents $38,940 $67,412
Cash proceeds held by accommodator 361,017 -
Restricted cash 43,783 48,442
Accounts receivable, net 34,888 36,703
Due from affiliates 78 932
Inventories 2,990 3,190
Prepaid expenses 5,997 9,021
Total current assets 487,693 165,700
Investment in hotel properties, net 2,467,761 2,786,821
Other real estate, net 15,033 14,526
Investment in unconsolidated joint ventures 29,286 35,816
Deferred financing costs, net 12,136 12,964
Goodwill 16,251 16,251
Other assets, net 15,457 17,074
Total assets $3,043,617 $3,049,152
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $28,837 $28,540
Accrued payroll and employee benefits 10,522 18,133
Due to Interstate SHP 13,600 15,051
Dividends payable 25,775 25,995
Other current liabilities 37,784 39,817
Current portion of notes payable 11,396 9,815
Total current liabilities 127,914 137,351
Notes payable, less current portion 1,706,707 1,712,336
Other liabilities 6,144 6,034
Total liabilities 1,840,765 1,855,721
Commitments and contingencies
Preferred stock, Series C Cumulative
Convertible Redeemable Preferred Stock,
$0.01 par value, 4,102,564 shares
authorized, issued and outstanding at
June 30, 2008 and December 31, 2007,
liquidation preference of $24.375 per
share 99,596 99,496
Stockholders' equity:
Preferred stock, $0.01 par value,
100,000,000 shares authorized. 8.0%
Series A Cumulative Redeemable
Preferred Stock, 7,050,000 shares
issued and outstanding at June 30,
2008 and December 31, 2007, stated at
liquidation preference of $25.00 per
share 176,250 176,250
Common stock, $0.01 par value,
500,000,000 shares authorized,
58,196,122 shares issued and
outstanding at June 30, 2008 and
58,815,271 shares issued and
outstanding at December 31, 2007 582 588
Additional paid in capital 978,167 987,554
Retained earnings 261,481 191,208
Cumulative dividends (313,224) (261,665)
Total stockholders' equity 1,103,256 1,093,935
Total liabilities and stockholders' equity $3,043,617 $3,049,152
Sunstone Hotel Investors, Inc.
Unaudited Consolidated Income Statements
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenues
Room $171,111 $163,176 $319,057 $297,921
Food and beverage 68,111 65,597 128,510 121,356
Other operating 16,014 15,292 32,100 28,890
Total revenues 255,236 244,065 479,667 448,167
Operating expenses
Room 36,095 34,733 69,756 65,114
Food and beverage 46,566 44,582 91,573 84,388
Other operating 8,973 9,885 18,072 19,205
Advertising and promotion 13,174 12,663 26,247 24,378
Repairs and maintenance 9,222 9,021 18,316 17,335
Utilities 8,802 7,775 17,766 15,394
Franchise costs 9,963 9,361 17,926 16,756
Property tax, ground lease and
insurance 14,478 13,572 28,191 26,035
Property general and administrative 27,631 27,888 54,327 52,001
Corporate overhead 5,264 9,442 11,987 16,718
Depreciation and amortization 28,919 27,065 58,555 51,498
Total operating expenses 209,087 205,987 412,716 388,822
Operating income 46,149 38,078 66,951 59,345
Equity in net losses of
unconsolidated joint ventures (56) (110) (1,522) (1,461)
Interest and other income 1,101 678 1,679 1,337
Interest expense (24,578) (23,706) (49,060) (43,530)
Income from continuing operations 22,616 14,940 18,048 15,691
Income from discontinued
operations 46,602 59,532 52,225 63,609
Net income 69,218 74,472 70,273 79,300
Preferred stock dividends and
accretion (5,232) (5,188) (10,464) (10,375)
Undistributed income allocated to
Series C preferred stock (2,858) (3,113) (1,226) (1,799)
Income available to common
stockholders $61,128 $66,171 $58,583 $67,126
Basic per share amounts:
Income from continuing
operations available
to common stockholders $0.30 $0.16 $0.13 $0.09
Income from discontinued
operations 0.75 0.94 0.87 1.05
Basic income available to common
stockholders per common share $1.05 $1.10 $1.00 $1.14
Diluted per share amounts:
Income from continuing
operations available
to common stockholders $0.25 $0.11 $0.11 $0.06
Income from discontinued
operations 0.80 0.99 0.89 1.07
Diluted income available to common
stockholders per common share $1.05 $1.10 $1.00 $1.13
Weighted average common shares
outstanding:
Basic 58,186 60,230 58,452 59,022
Diluted 58,276 60,364 58,546 59,175
Dividends paid per common share $0.35 $0.32 $0.70 $0.64
Sunstone Hotel Investors, Inc.
Reconciliation of Income Available to Common Stockholders to Non-GAAP
Financial Measures
(Unaudited and in thousands except per share amounts)
Reconciliation of Income Available to Common Stockholders to EBITDA and
Adjusted EBITDA
Three Months Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
Income available to common
stockholders $61,128 $66,171 $58,583 $67,126
Series A and C preferred stock
dividends 5,232 5,188 10,464 10,375
Undistributed income allocated to
Series C preferred stock 2,858 3,113 1,226 1,799
Amortization of deferred stock
compensation 1,089 1,861 2,138 3,106
Continuing operations:
Depreciation and amortization 28,919 27,065 58,555 51,498
Interest expense 24,159 23,388 48,222 42,949
Amortization of deferred
financing fees 419 318 838 581
Unconsolidated joint ventures:
Depreciation and amortization 1,263 1,233 2,537 2,466
Interest expense 1,236 1,957 2,757 3,874
Amortization of deferred
financing fees 327 330 725 660
Amortization of deferred stock
compensation 64 - 64 -
Discontinued operations:
Depreciation and amortization 653 3,207 2,592 6,360
Interest expense - 3,500 - 7,383
Amortization of deferred
financing fees - 44 - 69
Write-off of deferred financing fees - 362 - 362
Prepayment penalties - 415 - 415
EBITDA 127,347 138,152 188,701 199,023
Gain on sale of assets (42,108) (55,938) (42,108) (55,938)
Costs associated with CEO succession
and executive officer severance - 3,864 - 3,864
(42,108) (52,074) (42,108) (52,074)
Adjusted EBITDA $85,239 $86,078 $146,593 $146,949
Reconciliation of Income Available to Common Stockholders to FFO and Adjusted
FFO
Income available to common
stockholders $61,128 $66,171 $58,583 $67,126
Series C preferred stock dividends 1,707 1,662 3,414 3,325
Undistributed income allocated to
Series C preferred stock 2,858 3,113 1,226 1,799
Real estate depreciation and
amortization - continuing operations 28,644 26,847 58,107 51,059
Real estate depreciation and
amortization - unconsolidated joint
ventures 1,251 1,233 2,525 2,466
Real estate depreciation and
amortization - discontinued
operations 653 3,207 2,592 6,360
Gain on sale of assets (42,108) (55,938) (42,108) (55,938)
FFO available to common stockholders 54,133 46,295 84,339 76,197
Discontinued operations:
Write-off of deferred financing fees - 362 - 362
Prepayment penalties - 415 - 415
Costs associated with CEO succession
and executive officer severance - 3,864 - 3,864
Amortization of deferred stock
compensation associated with
executive officer severance - 437 - 437
- 5,078 - 5,078
Adjusted FFO available to common
stockholders $54,133 $51,373 $84,339 $81,275
FFO available to common stockholders
per diluted share $0.87 $0.72 $1.35 $1.20
Adjusted FFO available to common
stockholders per diluted share $0.87 $0.80 $1.35 $1.28
Diluted weighted average shares
outstanding (1) 62,379 64,467 62,648 63,277
(1) Diluted weighted average shares outstanding includes the Series C
Convertible Preferred Stock on an as-converted basis. Additionally,
during the third quarter 2007, the Company revised its methodology for
computation of diluted earnings per share by applying the treasury
stock method to unvested restricted stock awards. As a result of the
revision, the unvested restricted stock awards for purposes of
calculating FFO and Adjusted FFO available to common stockholders per
diluted share have decreased by 496,000 and 402,000 shares for the
three and six months ended June 30, 2007, respectively.
Sunstone Hotel Investors, Inc.
Reconciliation of Income Available to Common Stockholders to Non-GAAP
Financial Measures
Guidance for the Quarter Ending September 30, 2008 and Full Year 2008
(Unaudited and in thousands except per share amounts)
Reconciliation of Income Available to Common Stockholders to EBITDA and
Adjusted EBITDA
Quarter Ending Full Year
September 30, December 31,
2008 2008
Low End High End Low End High End
of Range of Range of Range of Range
Income available to common
stockholders $4,300 $6,500 $68,100 $85,100
Series A preferred stock dividends 3,500 3,500 14,100 14,100
Series C preferred stock dividends 1,700 1,700 6,700 6,700
Undistributed income allocated to
Series C preferred stock - - 1,200 1,200
Amortization of deferred stock
compensation 1,300 1,300 4,600 4,600
Continuing operations:
Depreciation and amortization 29,200 29,200 119,400 119,400
Interest expense 24,300 24,300 96,700 96,700
Amortization of deferred
financing fees 400 400 1,700 1,700
Unconsolidated joint venture:
Depreciation and amortization 1,300 1,300 5,200 5,200
Interest expense 1,300 1,300 5,300 5,300
Amortization of deferred
financing fees 400 400 1,700 1,700
Amortization of deferred stock
compensation - - 100 100
Discontinued operations:
Depreciation and amortization - - 2,600 2,600
EBITDA 67,700 69,900 327,400 344,400
Gain on sale of assets - - (42,000) (42,000)
Adjusted EBITDA $67,700 $69,900 $285,400 $302,400
Reconciliation of Income Available to Common Stockholders to FFO and Adjusted
FFO
Income available to common
stockholders $4,300 $6,500 $68,100 $85,100
Series C preferred stock dividends 1,700 1,700 6,700 6,700
Undistributed income allocated to
Series C preferred stock - - 1,200 1,200
Continuing operations:
Real estate depreciation and
amortization 29,000 29,000 118,500 118,500
Unconsolidated joint venture:
Real estate depreciation and
amortization 1,300 1,300 5,200 5,200
Discontinued operations:
Depreciation and amortization - - 2,600 2,600
FFO available to common stockholders 36,300 38,500 202,300 219,300
Gain on sale of assets - - (42,000) (42,000)
Adjusted FFO available to common
stockholders $36,300 $38,500 $160,300 $177,300
Adjusted FFO available to common
stockholders per diluted share $0.65 $0.69 $2.72 $3.00
Diluted weighted average shares
outstanding (1) 55,621 55,621 59,015 59,015
(1) Diluted weighted average shares outstanding includes the Series C
Convertible Preferred Stock on an as-converted basis.
Sunstone Hotel Investors, Inc.
Comparable Hotel Operating Margins
(Unaudited and in thousands except hotels and rooms)
Three Months Ended June 30, 2008
Actual Non- Comparable
June 30, comparable June 30,
2008(1) Hotels(2) 2008(3)
Number of Hotels 44 (2) 42
Number of Rooms 14,894 (1,403) 13,491
Hotel operating profit margin (7) 31.7% 32.8% 31.6%
Hotel Revenues
Room revenue $171,111 $(17,651) $153,460
Food and beverage revenue 68,111 (10,304) 57,807
Other operating revenue 12,141 (1,272) 10,869
Total Hotel Revenues 251,363 (29,227) 222,136
Hotel Expenses
Room expense 36,343 (3,660) 32,683
Food and beverage expense 46,578 (6,471) 40,107
Other hotel expense 61,454 (6,860) 54,594
General and administrative expense 27,183 (2,647) 24,536
Total Hotel Expenses 171,558 (19,638) 151,920
Hotel Operating Income 79,805 (9,589) 70,216
Non-hotel operating income 527 527
Corporate overhead (5,264) 114 (5,150)
Depreciation and amortization (28,919) 3,573 (25,346)
Operating Income 46,149 (5,902) 40,247
Equity in net losses of
unconsolidated joint ventures (56) (56)
Interest and other income 1,101 (15) 1,086
Interest expense (24,578) 1,239 (23,339)
Income from discontinued operations 46,602 46,602
Net Income $69,218 $(4,678) $64,540
Three Months Ended June 30, 2007
Prior Compa-
Actual Ownership Non- rable
June 30, Adjust- comparable June 30,
2007(4) ments(5) Subtotal Hotels(2) 2007(3)
Number of Hotels 44 44 (2) 42
Number of Rooms 14,894 14,894 (1,403) 13,491
Hotel operating profit
margin (7) 30.9% 29.7% 30.9% 26.5% 31.4%
Hotel Revenues
Room revenue $163,176 $1,727 $164,903 $(15,255) $149,648
Food and beverage
revenue 65,597 929 66,526 (8,809) 57,717
Other operating
revenue 11,276 63 11,339 (895) 10,444
Total Hotel Revenues 240,049 2,719 242,768 (24,959) 217,809
Hotel Expenses
Room expense 35,034 416 35,450 (3,359) 32,091
Food and beverage
expense 44,612 617 45,229 (5,707) 39,522
Other hotel expense 59,177 573 59,750 (6,249) 53,501
General and
administrative
expense 27,138 305 27,443 (3,042) 24,401
Total Hotel Expenses 165,961 1,911 167,872 (18,357) 149,515
Hotel Operating Income 74,088 808 74,896 (6,602) 68,294
Non-hotel operating income 497 497 497
Corporate overhead (9,442) (9,442) 38 (9,404)
Depreciation and
amortization (27,065) (27,065) 3,153 (23,912)
Operating Income 38,078 808 38,886 (3,411) 35,475
Equity in net losses of
unconsolidated joint ventures (110) (110) (110)
Interest and other income 678 678 (80) 598
Interest expense (23,706) (23,706) 1,250 (22,456)
Income from discontinued
operations 59,532 59,532 59,532
Net Income $74,472 $808 $75,280 $(2,241) $73,039
Six Months Ended June 30, 2008
Actual Non- Comparable
June 30, comparable June 30,
2008(1) Hotels(2) 2008(3)
Number of Hotels 44 (2) 42
Number of Rooms 14,894 (1,403) 13,491
Hotel operating profit margin (7) 28.9% 30.1% 28.8%
Hotel Revenues
Room revenue $319,057 $(33,103) $285,954
Food and beverage revenue 128,510 (20,207) 108,303
Other operating revenue 24,286 (2,606) 21,680
Total Hotel Revenues 471,853 (55,916) 415,937
Hotel Expenses
Room expense 70,237 (6,876) 63,361
Food and beverage expense 91,598 (12,926) 78,672
Other hotel expense 120,096 (13,175) 106,921
General and administrative expense 53,451 (6,126) 47,325
Total Hotel Expenses 335,382 (39,103) 296,279
Hotel Operating Income 136,471 (16,813) 119,658
Non-hotel operating income 1,022 1,022
Corporate overhead (11,987) 174 (11,813)
Depreciation and amortization (58,555) 7,090 (51,465)
Operating Income 66,951 (9,549) 57,402
Equity in net losses of
unconsolidated joint ventures (1,522) (1,522)
Interest and other income 1,679 (37) 1,642
Interest expense (49,060) 2,482 (46,578)
Income from discontinued operations 52,225 52,225
Net Income $70,273 $(7,104) $63,169
Six Months Ended June 30, 2007
Prior
Actual Ownership Non- Comparable
June 30, Adjust- comparable June 30,
2007(4) ments(6) Subtotal Hotels(2) 2007(3)
Number of Hotels 44 44 (2) 42
Number of Rooms 14,894 14,894 (1,403) 13,491
Hotel operating profit
margin (7) 28.8% 21.2% 28.5% 24.5% 29.0%
Hotel Revenues
Room revenue $297,921 $10,295 $308,216 $(28,279) $279,937
Food and beverage
revenue 121,356 5,213 126,569 (16,957) 109,612
Other operating
revenue 20,907 981 21,888 (1,846) 20,042
Total Hotel Revenues 440,184 16,489 456,673 (47,082) 409,591
Hotel Expenses
Room expense 65,701 2,815 68,516 (6,432) 62,084
Food and beverage
expense 84,453 3,743 88,196 (11,289) 76,907
Other hotel expense 112,911 4,257 117,168 (11,968) 105,200
General and
administrative
expense 50,467 2,178 52,645 (5,846) 46,799
Total Hotel Expenses 313,532 12,993 326,525 (35,535) 290,990
Hotel Operating Income 126,652 3,496 130,148 (11,547) 118,601
Non-hotel operating income 909 909 909
Corporate overhead (16,718) (16,718) 51 (16,667)
Depreciation and
amortization (51,498) (51,498) 6,264 (45,234)
Operating Income 59,345 3,496 62,841 (5,232) 57,609
Equity in net losses of
unconsolidated joint
ventures (1,461) (1,461) (1,461)
Interest and other income 1,337 1,337 (172) 1,165
Interest expense (43,530) (43,530) 2,474 (41,056)
Income from discontinued
operations 63,609 63,609 63,609
Net Income $79,300 $3,496 $82,796 $(2,930) $79,866
(1) Represents our ownership results for the 44 hotels we owned as of the
end of the period.
(2) Represents our ownership results for the 2 'non-comparable' hotels
that experienced material and prolonged business interruption during
either the current or preceding calendar year (Renaissance Baltimore
and Renaissance Orlando).
(3) Represents our ownership and prior ownership results (for the 2007
period) for 42 'comparable' hotels we owned as of June 30, 2008,
excluding the 2 'non-comparable' hotels that experienced material and
prolonged business interruption during either the current or preceding
calendar year (Renaissance Baltimore and Renaissance Orlando).
(4) Represents our ownership results for the 44 hotels we owned as of the
end of the period.
(5) Represents prior ownership results for the 1 hotel acquired subsequent
to March 31, 2007 (Marriott Boston Quincy).
(6) Represents prior ownership results for the 3 hotels acquired during
the first six months of 2007 (Renaissance LAX, Marriott Long Wharf and
Marriott Boston Quincy).
(7) Hotel operating profit margin is calculated as hotel operating income
divided by total hotel revenues.
Sunstone Hotel Investors, Inc.
Comparable Portfolio Operating Statistics by Region
(Unaudited)
Three Months Ended June 30, 2008
Average
Number Number Occupancy Daily Comparable
Region of Hotels of Rooms Percentages Rate RevPAR
California 17 4,803 81.1% $154.15 $125.02
Other West (1) 7 2,123 77.6% 116.98 90.78
Midwest (2) 8 2,500 68.4% 144.97 99.16
Middle Atlantic (3) 8 3,476 83.7% 222.42 186.17
South (4) 2 589 78.1% 117.46 91.74
Total Comparable
Portfolio 42 13,491 78.7% $163.22 $128.45
Three Months Ended June 30, 2007
Percent
Change in
Occupancy Average Comparable Comparable
Region Percentages Daily Rate RevPAR RevPAR
California 81.1% $151.23 $122.65 1.9%
Other West (1) 80.6% 106.09 85.51 6.2%
Midwest (2) 69.5% 141.82 98.56 0.6%
Middle Atlantic (3) 84.6% 212.84 180.06 3.4%
South (4) 82.1% 121.00 99.34 -7.7%
Total Comparable
Portfolio 79.7% $157.12 $125.22 2.6%
Six Months Ended June 30, 2008
Average
Number Number Occupancy Daily Comparable
Region of Hotels of Rooms Percentages Rate RevPAR
California 17 4,803 79.7% $151.49 $120.74
Other West (1) 7 2,123 77.1% 122.22 94.23
Midwest (2) 8 2,500 64.3% 138.92 89.33
Middle Atlantic (3) 8 3,476 75.3% 215.48 162.26
South (4) 2 589 78.6% 119.03 93.56
Total Comparable
Portfolio 42 13,491 75.2% $159.07 $119.62
Six Months Ended June 30, 2007
Percent
Change in
Occupancy Average Comparable Comparable
Region Percentages Daily Rate RevPAR RevPAR
California 78.7% $150.23 $118.23 2.1%
Other West (1) 80.3% 111.60 89.61 5.2%
Midwest (2) 67.2% 133.73 89.87 -0.6%
Middle Atlantic (3) 78.1% 203.77 159.14 2.0%
South (4) 81.9% 122.76 100.54 -6.9%
Total Comparable
Portfolio 76.8% $153.20 $117.66 1.7%
(1) Includes Oregon, Texas and Utah.
(2) Includes Illinois, Michigan and Minnesota.
(3) Includes Maryland, Massachusetts, New York, Pennsylvania, Virginia and
District of Columbia. Excludes the Renaissance Baltimore which
experienced material and prolonged business interruption during either
the current or preceding calendar year.
(4) Includes Florida and Georgia. Excludes the Renaissance Orlando which
experienced material and prolonged business interruption during either
the current or preceding calendar year.
Sunstone Hotel Investors, Inc.
Comparable Portfolio Operating Statistics by Brand
(Unaudited)
Three Months Ended June 30, 2008
Average
Number Number Occupancy Daily Comparable
Brand of Hotels of Rooms Percentages Rate RevPAR
Marriott (1) 24 7,682 79.8% $162.01 $129.28
Hilton 6 1,955 83.1% 228.07 189.53
InterContinental 3 665 66.8% 116.86 78.06
Hyatt 2 605 74.4% 137.28 102.14
Other Brand
Affiliations (2) 4 1,385 82.3% 149.53 123.06
Independent 3 1,199 69.1% 102.40 70.76
Total Comparable
Portfolio 42 13,491 78.7% $163.22 $128.45
Three Months Ended June 30, 2007
Percent
Change in
Occupancy Average Comparable Comparable
Brand Percentages Daily Rate RevPAR RevPAR
Marriott (1) 80.2% $155.91 $125.04 3.4%
Hilton 83.9% 215.67 180.95 4.7%
InterContinental 73.0% 110.55 80.70 -3.3%
Hyatt 80.6% 147.74 119.08 -14.2%
Other Brand Affiliations (2) 84.4% 149.10 125.84 -2.2%
Independent 68.1% 94.98 64.68 9.4%
Total Comparable
Portfolio 79.7% $157.12 $125.22 2.6%
Six Months Ended June 30, 2008
Average
Number Number Occupancy Daily Comparable
Brand of Hotels of Rooms Percentages Rate RevPAR
Marriott (1) 24 7,682 76.2% $158.71 $120.94
Hilton 6 1,955 78.3% 215.17 168.48
InterContinental 3 665 61.0% 113.45 69.20
Hyatt 2 605 77.2% 138.00 106.54
Other Brand
Affiliations (2) 4 1,385 79.7% 149.85 119.43
Independent 3 1,199 66.0% 101.74 67.15
Total Comparable
Portfolio 42 13,491 75.2% $159.07 $119.62
Six Months Ended June 30, 2007
Percent
Change in
Occupancy Average Comparable Comparable
Brand Percentages Daily Rate RevPAR RevPAR
Marriott (1) 77.0% $153.67 $118.33 2.2%
Hilton 80.2% 200.39 160.71 4.8%
InterContinental 73.2% 108.85 79.68 -13.2%
Hyatt 76.2% 147.17 112.14 -5.0%
Other Brand
Affiliations (2) 82.4% 149.70 123.35 -3.2%
Independent 65.9% 93.83 61.83 8.6%
Total Comparable
Portfolio 76.8% $153.20 $117.66 1.7%
(1) Excludes the Renaissance Baltimore and Renaissance Orlando which
experienced material and prolonged business interruption during either
the current or preceding calendar year.
(2) Includes a Fairmont, a Sheraton, a W Hotel, and a Wyndham.
Sunstone Hotel Investors, Inc.
Debt Summary
(Unaudited - dollars in thousands)
Interest June 30, August 1,
Rate/ Maturity 2008 Recent 2008
Debt Collateral Spread Date Balance Events(1) Balance
Fixed Rate Debt
Secured Mortgage
Debt 1 hotel 5.92% 2010 $81,000 $81,000
Secured Mortgage
Debt (2) 11 hotels 5.95% 2011 248,164 248,164
Secured Mortgage
Debt (3) 2 hotels 4.98% 2012 65,000 65,000
Rochester
Secured Mortgage laundry
Debt facility 9.88% 2013 4,469 4,469
Secured Mortgage
Debt (3) 10 hotels 5.34% 2015 270,410 270,410
Secured Mortgage
Debt (3) 2 hotels 5.30% 2016 196,060 196,060
Secured Mortgage
Debt 1 hotel 5.69% 2016 48,000 48,000
Secured Mortgage
Debt 1 hotel 5.66% 2016 34,000 34,000
Secured Mortgage
Debt 1 hotel 5.58% 2017 75,000 75,000
Secured Mortgage
Debt 1 hotel 5.58% 2017 176,000 176,000
Secured Mortgage
Debt 1 hotel 6.14% 2018 65,000 65,000
Secured Mortgage
Debt 1 hotel 6.60% 2019 70,000 70,000
Secured Mortgage
Debt 1 hotel 5.95% 2021 135,000 135,000
Exchangeable
Senior Notes Guaranty 4.60% 2027 250,000 250,000
Total Fixed
Rate Debt 1,718,103 1,718,103
Credit Facility Unsecured L +
0.90%-1.50% 2011 - -
TOTAL DEBT $1,718,103 $- $1,718,103
Preferred Stock
Series A cumulative
redeemable preferred 8.00% perpetual $176,250 - $176,250
Series C cumulative
convertible redeemable
preferred 6.63% perpetual $100,000 - $100,000
Debt Statistics
% Fixed Rate Debt 100.0% 100.0%
% Floating Rate Debt 0.0% 0.0%
Average Interest Rate 5.52% 5.52%
Weighted Average Maturity of Debt
(includes amounts outstanding on the
Credit Facility) (4) 9.0 years 9.0 years
(1) Reflects net additional draws and repayments on our credit facility.
(2) Cross-collateralized loan with life insurance company.
(3) Individual, non cross-collateralized loans.
(4) Assumes the exchangeable senior notes remain outstanding to maturity.
If the exchangeable senior notes were redeemed upon the first call
date, the weighted average maturity would be approximately 7 years.
For Additional Information:
Bryan Giglia
Vice President - Corporate Finance
Sunstone Hotel Investors, Inc.
(949) 369-4204
SOURCE Sunstone Hotel Investors, Inc.