Increases current cash position, including restricted cash, to
$409.9 million Executes on finance plan aimed at improving
liquidity and reducing leverage Evaluates hotel acquisition
opportunities SAN CLEMENTE, Calif., Nov. 4 /PRNewswire-FirstCall/
-- Sunstone Hotel Investors, Inc. (the "Company") (NYSE:SHO) today
announced results for the third quarter ended September 30, 2009.
All RevPAR and hotel EBITDA margin information presented reflect
the 38 hotel portfolio on a pro forma basis, which excludes the W
San Diego, which was conveyed to a receiver during the third
quarter, and the Marriott Ontario Airport, which is in the process
of being conveyed to a receiver. Third Quarter 2009 Operational
Results: -- Total revenue was $176.0 million. -- Total RevPAR was
$101.78. -- Loss attributable to common stockholders was $23.1
million. -- Loss attributable to common stockholders per diluted
share was $0.31. -- Adjusted EBITDA was $40.1 million. -- Adjusted
FFO available to common stockholders was $10.3 million. -- Adjusted
FFO available to common stockholders per diluted share was $0.14.
-- Hotel EBITDA margin was 23.8%. Art Buser, President and Chief
Executive Officer, stated, "We continue to drive operational
efficiencies throughout our portfolio resulting in impressive
margin performance which we believe will enhance our operations for
years to come. We also have executed on a number of finance
initiatives designed to reduce corporate risk and provide capacity
to capitalize on future opportunities. Going forward, we believe
nimble, well-capitalized public lodging companies will have
opportunities to create significant long-term shareholder value."
SELECTED FINANCIAL DATA ($in millions, except RevPAR and per share
amounts) (unaudited) ---------- Three Months Ended Nine Months
Ended September 30, September 30, ------------------
----------------- 2009 2008 % Change 2009 2008 % Change ---- ----
-------- ---- ---- -------- Total Revenue $176.0 $220.1 (20.0)%
$536.7 $663.0 (19.0)% Total RevPAR (1) 101.78 $127.49 (20.2)%
$100.75 $125.43 (19.7)% Income available (loss attributable) to
common stockholders $(23.1) $4.4 (625.0)% $(157.7) $61.6 (356.0)%
Income available (loss attributable) to common stockholders per
diluted share $(0.31) $0.09 (444.4)% $(2.53) $1.11 (327.9)% EBITDA
$37.9 $68.5 (44.7)% $27.8 $257.2 (89.2)% Adjusted EBITDA $40.1
$68.5 (41.5)% $123.8 $215.1 (42.4)% FFO available to common
stockholders $5.0 $36.5 (86.3)% $(55.7) $119.1 (146.8)% Adjusted
FFO available to common stockholders $10.3 $36.5 (71.8)% $31.0
$119.1 (74.0)% FFO available to common stockholders per diluted
share (2) $0.07 $0.68 (89.7)% $(0.89) $1.99 (144.7)% Adjusted FFO
available to common stockholders per diluted share (2) $0.14 $0.68
(79.4)% $0.50 $1.99 (74.9)% Hotel EBITDA margin (1) 23.8% 29.5%
(570) bps 24.5% 29.5% (500) bps (1) Includes the 38 hotels we owned
as of September 30, 2009, excluding the Marriott Ontario Airport
reclassified as "Operations Held for Non-Sale Disposition" on our
balance sheets and statements of operations, and the W San Diego
reclassified as discontinued operations on our balance sheets and
statements of operations. (2) Reflects Series C convertible
preferred stock on an "as-converted" basis if such treatment is
dilutive. Contemporaneously with this press release, the Company
has filed with the Securities and Exchange Commission its Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
2009. Disclosure regarding the non-GAAP financial measures in this
release is included on pages 5 and 6. Disclosure regarding the
Hotel EBITDA Margin is included on page 6 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 9 and 10 of this release. Transactions Equity
Offering. Subsequent to the end of the Company's third quarter, the
Company issued 23,000,000 shares of its common stock, including the
underwriters' over-allotment of 3,000,000 shares. Net proceeds from
this offering of approximately $158.6 million were contributed to
Sunstone Hotel Partnership LLC, a subsidiary, which will use the
proceeds for working capital and other general corporate purposes,
which may include hotel acquisitions. Secured Finance Initiatives.
The Company has initiated a secured debt restructuring program to
proactively address value and cash flow deficits among certain of
its mortgaged hotels. The primary goal of this program is to
achieve benefits for the Company's stockholders through loan
amendments, or in certain cases, consensual transfers to the
lenders of the hotel assets in full satisfaction of the debt. Loans
within the Company's secured debt restructuring program generally
meet two criteria: (1) the hotel is not generating sufficient cash
flow to cover debt service, and under the current terms of the
mortgage, the hotel is not expected to generate sufficient cash
flow for the foreseeable future, and (2) the present value of the
hotel is significantly less than the principal amount of the
applicable loan. The loans secured by such hotels, subject to
customary exceptions, are non-recourse to the Company. As of
September 30, 2009, five of the Company's loans totaling $471.4
million are or have been subject to the Company's secured debt
restructuring program. Each of these five loans is discussed
further below. W San Diego. Effective September 30, 2009,
possession and control of the W San Diego was transferred to a
court-appointed receiver. In connection with this transfer, the
Company deconsolidated this hotel and reclassified the assets and
liabilities, including the $29.0 million hotel asset and the
hotel's $65.0 million mortgage indebtedness, to discontinued
operations on its balance sheets. Additionally, the Company
reclassified the W San Diego's results of operations and cash flows
to discontinued operations on its statements of operations and cash
flows. Once title to the hotel is transferred, the Company will
record a gain on extinguishment of debt, and the net assets and
liabilities will be removed from the Company's balance sheets.
Marriott Ontario Airport. In September 2009, the Company elected to
cease the subsidization of debt service on the non-recourse
mortgage for the Marriott Ontario Airport, which may result in a
default under the non-recourse mortgage. The Company believes the
value of this hotel is now significantly less than the principal
amount of the mortgage. Prior to the time that the Company elected
to discontinue subsidizing operating expenses at this hotel, the
Company made several attempts to work with the special servicer
handling the Marriott Ontario Airport loan to seek modification of
the repayment terms. While the special servicer declined the
Company's request for a proposed modification of this loan, the
lender was under no duty to agree to any such proposed
modification. 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 of the debt.
In conjunction with this potential default, the Company has
reclassified the assets, liabilities and results of operations of
the Marriott Ontario Airport to "operations held for non-sale
disposition" on its balance sheets, statements of operations and
statements of cash flows. This hotel had a net book value of $16.6
million, and the amount of debt outstanding under the mortgage was
$25.5 million at September 30, 2009. Renaissance Westchester. In
August 2009, the Company elected to cease the subsidization of debt
service on the non-recourse mortgage for the Renaissance
Westchester, which resulted in a default under the mortgage. The
Company believes the value of this hotel is now significantly less
than the principal amount of the mortgage. The Company continues to
work with the special servicer responsible for the Renaissance
Westchester loan towards reaching a modification of this loan, but
the Company cannot provide any assurance that it will achieve such
a result. Absent a modification, the Company may elect to surrender
the hotel to the lender or cooperate with the lender's appointment
of a receiver. This hotel had a net book value of $25.0 million,
and the amount of debt outstanding under the mortgage was $29.4
million at September 30, 2009. Massachusetts Mutual Life Insurance
Company. The Company currently is in discussions with Massachusetts
Mutual Life Insurance Company, or Mass Mutual, to negotiate an
amendment to a $246.3 million, 5.95% non-recourse mortgage loan
that matures in 2011. The Company elected not to make the November
1 debt service payment on this loan, which is expected to result in
a default under this loan. This loan is currently secured by 11 of
the Company's hotels, comprised of 2,587 rooms --Renaissance
Atlanta Concourse; Hilton Huntington; Courtyard by Marriott Los
Angeles; Residence Inn by Marriott Manhattan Beach; Marriott Provo;
Kahler Inn & Suites Rochester; Marriott Rochester; Courtyard by
Marriott San Diego (Old Town); Holiday Inn Downtown, San Diego;
Holiday Inn Express San Diego (Old Town); and Marriott Salt Lake
City (University Park). The Company is seeking an amendment to the
terms of this loan because it believes that the present value of
the hotels securing this loan is currently less than the
outstanding principal amount of this loan. The Company cannot
provide any assurances that it will be successful in its efforts to
amend the terms of this loan. Absent an amendment, the Company may
elect to surrender the hotels to the lender or cooperate with the
lender's appointment of a receiver. The 11 hotels securing this
loan had a net book value including goodwill of $258.8 million at
September 30, 2009. Renaissance Baltimore. The Company is currently
finalizing an amendment to the $105.2 million non-recourse mortgage
loan secured by the Renaissance Baltimore. If executed, the
amendment would result in the elimination of amortization on this
loan for a period of up to 30 months. The Company anticipates
executing this amendment during the fourth quarter. Hotel Sales. On
July 31, 2009, the Company sold the 202-room Hyatt Suites Atlanta
Northwest for gross proceeds of $8.5 million, which equates to
22.7x projected 2009 EBITDA. Hotel Acquisitions. The Company
believes that the recent declines in demand for lodging and
continuing capital constraints may lead to opportunities to acquire
hotels at discount valuations. The Company is actively analyzing
various potential hotel acquisition opportunities, with
prioritization based on the following criteria: -- Valuation: The
Company is analyzing acquisition targets that are expected to trade
at a discount relative to the Company's current enterprise value
per key and/or EBITDA multiple. -- Value-Add: As the costs of
construction, renovations, labor and materials have declined from
peak levels, the Company is evaluating acquisitions where selective
renovation/repositioning work add value. -- Synergies: Economies of
scale, ownership efficiencies, improved pricing power and staff
sharing, may be realized by owning multiple hotels within the same
market. -- Outperforming Markets: The Company seeks to invest in
strong locations within markets that are expected to outperform the
U.S. average in terms of growth in lodging demand. -- Pipeline: The
Company is exploring preferred relationships with current owners of
hotel real estate, who may look to divest of such real estate in
the future. While discount acquisition opportunities appear to be
increasing in number, there can be no assurances that the Company
will be successful in executing on its plan to acquire quality
hotel assets at discount valuations. Balance Sheet/Liquidity Update
Ken Cruse, Chief Financial Officer, stated, "We continue to
proactively manage our balance sheet, and remain focused on
creating long-term stockholder value. Through the successful
execution of our various finance initiatives this year, we have
positioned the Company to enter the next business cycle in a
position of strength." As of September 30, 2009, the Company had
approximately $251.3 million of cash and cash equivalents,
including restricted cash of $48.7 million. Subsequent to September
30, 2009, the Company increased its cash position by approximately
$158.6 million to approximately $409.9 million as net proceeds were
received from the Company's equity offering. As of September 30,
2009, the Company had no outstanding indebtedness under its $85.0
million credit facility, and had $3.1 million in outstanding
irrevocable letters of credit backed by the credit facility. The
Company continues to maintain a higher than historical cash balance
in light of the ongoing economic downturn and for acquisition
opportunities. On September 30, 2009, excluding the Marriott
Ontario Airport and the W San Diego, total assets were $2.5
billion, including $2.2 billion of net investments in hotel
properties, total debt was $1.4 billion and stockholders' equity
was $0.9 billion. Financial Covenants The Company is subject to
compliance with various covenants under its credit facility, its
Series C preferred stock, and its 4.6% Exchangeable Senior Notes
due 2027 (the "Senior Notes"). If the Company fails to meet certain
of the credit facility's covenants, a default may occur, which may
result in a reduction in, or the complete elimination of, funds
available under the credit facility. If the Company fails to meet
certain financial covenants for four consecutive quarters with
respect to the Company's Series C preferred stock, a financial
ratio violation will occur. As anticipated, as of September 30,
2009, the Company failed one of the financial covenants regarding
its Series C preferred stock. If the Company remains out of
compliance with this covenant for the next three quarters, a
financial ratio violation will occur. If a financial ratio
violation occurs, among other things, the Company would be
restricted from paying dividends on its common stock, and would
incur a 50 basis point per quarter dividend increase on the Series
C preferred stock. Additionally, the Series C preferred
stockholders would gain the right to appoint one board member.
Unless operations improve from current levels, the Company believes
it may incur a financial ratio violation with respect to its Series
C preferred stock during the second half of 2010. In the event the
Company were to default on indebtedness in excess of $300.0
million, and such default resulted in the acceleration of the
maturity of such indebtedness, either the trustee or the holders of
not less than 25% in principal amount of the outstanding Senior
Notes may declare the Senior Notes and any unpaid interest due and
payable. As of November 4, 2009, the only indebtedness currently in
default and whose maturity has been accelerated is the $29.4
million non-recourse loan for the Renaissance Westchester. Goodwill
and Other Impairment Losses During the third quarter of 2009, in
light of the continuing economic turbulence, the Company determined
that an intra-year impairment analysis should be performed as of
September 30, 2009. In conjunction with this impairment evaluation,
the Company determined that the goodwill associated with the
Marriott Rochester may be impaired as of September 30, 2009, and,
accordingly, the Company recorded an impairment loss of $2.2
million to goodwill and other impairment losses. Hotel Renovations
During the third quarter of 2009, the Company invested $7.4 million
in capital projects. Dividend Update On October 21, 2009, the
Company's board of directors declared a cash dividend of $0.50 per
share payable to its Series A 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 January 15, 2010 to stockholders of
record on December 31, 2009. No dividend was declared on the
Company's common stock. The Company intends to make dividends on
its stock in amounts equivalent to 100% of its annual taxable
income. The level of any future dividends will be determined by the
Company's board of directors after considering taxable income
projections, expected capital requirements, and risks affecting the
Company's business. In light of the Company's intent to distribute
100% of its annual taxable income, future dividends may be reduced
from past levels, or eliminated entirely. Dividends may be made in
the form of cash or a combination of cash and stock consistent with
Internal Revenue Code regulations. Earnings Call The Company will
host a conference call to discuss third quarter results on November
4, 2009, at 2:00 p.m. PST. 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 1-877-941-2927 (for domestic callers) or 1-480-629-9725
(for international callers) with passcode #4173224. 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 40 hotels comprised of 14,006 rooms primarily in the
upper-upscale segment operated under nationally recognized brands,
such as Marriott, Hyatt, Fairmont and Hilton. 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 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
November 4, 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. 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 http://www.sunstonehotels.com/ and
through the SEC's Electronic Data Gathering Analysis and Retrieval
System ("EDGAR") at http://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: (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) adjusted hotel EBITDA and hotel EBITDA
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 page 9.
A reconciliation and the components of adjusted hotel EBITDA and
hotel EBITDA margin are set forth on page 10. We believe adjusted
hotel EBITDA and 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 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 page 9. We
caution investors that amounts presented in accordance with our
definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, adjusted
hotel EBITDA and 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, adjusted hotel EBITDA
and 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, adjusted
hotel EBITDA and 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, adjusted hotel EBITDA and 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. Hotel EBITDA Margin Information
The revenue and expense items associated with the Company's two
commercial laundry facilities and the one hotel property held for
non-sale disposition, any guaranty payments, and other
miscellaneous non-hotel items have been shown below the adjusted
hotel EBITDA line in presenting hotel EBITDA margins. Management
believes the calculation of adjusted hotel EBITDA results in a more
accurate presentation of hotel EBITDA margins of the Company's
portfolio of hotels. See page 10 for a reconciliation of adjusted
hotel EBITDA to the comparable GAAP measure. ***Tables to Follow***
Mass Mutual 11 Asset Crossed Portfolio Hyatt Suites Atlanta
Northwest (in thousands) (in thousands) Full Year 2009 Full Year
2009 Forecast (1) Forecast Total Revenue $110,174 Total Revenue
$5,841 Net Loss $(5,117) Net Loss $(525) Plus: Depreciation 14,514
Plus: Depreciation 900 Plus: Interest Expense 14,616 --- Plus:
Penalties (2) 987 Adjusted Hotel EBITDA $375 --- ==== Adjusted
Hotel EBITDA 25,000 ------ Less: Interest Expense (14,616) Less:
Penalties (987) Less: Amortization (3) (23,037) Less: FF&E
Reserves (4,407) ------ Portfolio Cash Flow $(18,047) ======== (1)
Pro forma for full year amortization and penalties. (2) Assumes
full-year of yield maintenance payments on excess amortization. (3)
Assumes full-year of amortization payments. Sunstone Hotel
Investors, Inc. Consolidated Balance Sheets (In thousands, except
share data) September 30, December 31, 2009 2008 ---- ----
(unaudited) Assets Current assets: Cash and cash equivalents
$202,578 $176,748 Restricted cash 48,685 40,105 Accounts
receivable, net 24,674 34,119 Due from affiliates 79 109
Inventories 2,560 2,731 Prepaid expenses 8,724 7,199 Investment in
hotel properties of discontinued operations, net - 169,848
Investment in hotel property of operations held for non-sale
disposition, net 16,597 - Other current assets of discontinued
operations, net - 4,790 Other current assets of operations held for
non-sale disposition, net 1,724 847 ----- --- Total current assets
305,621 436,496 Investment in hotel properties, net 2,155,052
2,256,962 Investment in hotel property of operations held for
non-sale disposition, net - 26,001 Other real estate, net 14,117
14,640 Investments in unconsolidated joint ventures 25,948 28,770
Deferred financing costs, net 8,405 11,200 Goodwill 6,450 13,404
Other assets, net 12,220 18,138 ------ ------ Total assets
$2,527,813 $2,805,611 ========== ========== Liabilities and
Stockholders' Equity Current liabilities: Accounts payable and
accrued expenses $22,623 $16,798 Accrued payroll and employee
benefits 8,429 8,096 Due to Interstate SHP 13,150 15,163 Dividends
payable 5,137 12,499 Other current liabilities 30,361 29,890
Current portion of notes payable 288,863 12,452 Current portion of
note payable of operations held for non-sale disposition 25,547 550
Other current liabilities of discontinued operations, net 35,428
70,100 Other current liabilities of operations held for non-sale
disposition 969 911 --- --- Total current liabilities 430,507
166,459 Notes payable, less current portion 1,131,188 1,592,850
Note payable, less current portion of operations held for non-sale
disposition - 25,406 Other liabilities 6,496 6,388 ----- -----
Total liabilities 1,568,191 1,791,103 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 September 30, 2009 and December 31, 2008,
liquidation preference of $24.375 per share 99,846 99,696
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 September 30,
2009 and December 31, 2008, stated at liquidation preference of
$25.00 per share 176,250 176,250 Common stock, $0.01 par value,
500,000,000 shares authorized, 73,861,385 shares issued and
outstanding at September 30, 2009 and 47,864,654 shares issued and
outstanding at December 31, 2008 739 479 Additional paid in capital
960,089 829,274 Retained earnings 119,016 260,659 Cumulative
dividends (392,390) (347,922) Accumulated other comprehensive loss
(3,928) (3,928) ------ ------ Total stockholders' equity 859,776
914,812 ------- ------- Total liabilities and stockholders' equity
$2,527,813 $2,805,611 ========== ========== Sunstone Hotel
Investors, Inc. Unaudited Consolidated Statements of Operations (In
thousands, except per share data) Three Months Ended Nine Months
Ended September 30, September 30, ------------------
------------------ 2009 2008 2009 2008 ---- ---- ---- ---- Revenues
Room $119,177 $149,192 $351,550 $438,332 Food and beverage 40,715
52,610 136,180 168,839 Other operating 13,853 14,983 41,353 44,289
Total revenues of operations held for non-sale disposition 2,271
3,352 7,649 11,507 ----- ----- ----- ------ Total revenues 176,016
220,137 536,732 662,967 ------- ------- ------- ------- Operating
expenses Room 29,118 31,977 84,005 94,628 Food and beverage 31,958
39,654 100,735 122,693 Other operating 7,222 8,146 21,797 24,283
Advertising and promotion 9,740 11,102 31,336 34,271 Repairs and
maintenance 7,534 8,243 23,086 24,839 Utilities 7,768 9,455 22,598
25,629 Franchise costs 6,833 8,522 19,494 23,703 Property tax,
ground lease and insurance 12,272 11,880 36,103 37,266 Property
general and administrative 20,153 24,414 61,907 73,447 Corporate
overhead 4,340 5,122 14,929 17,031 Depreciation and amortization
26,511 26,399 80,391 79,726 Total operating expenses of operations
held for non-sale disposition 2,324 3,032 7,564 9,776 Goodwill and
other impairment losses 2,209 - 64,045 - Impairment loss of
operations held for non-sale disposition - - 8,857 - --- --- -----
--- Total operating expenses 167,982 187,946 576,847 567,292
------- ------- ------- ------- Operating income (loss) 8,034
32,191 (40,115) 95,675 Equity in net losses of unconsolidated joint
ventures (515) (23) (2,616) (1,545) Interest and other income 240
1,365 1,116 3,044 Interest expense (24,467) (24,216) (70,516)
(72,259) Interest expense of operations held for non-sale
disposition (375) (361) (1,074) (1,079) Gain (loss) on
extinguishment of debt (20) - 54,559 - --- --- ------ --- Income
(loss) from continuing operations (17,103) 8,956 (58,646) 23,836
Income (loss) from discontinued operations (845) 963 (82,997)
54,631 ---- --- ------- ------ Net income (loss) (17,948) 9,919
(141,643) 78,467 Dividends paid on unvested restricted stock
compensation - (278) (447) (741) Preferred stock dividends and
accretion (5,187) (5,233) (15,562) (15,697) Undistributed income
allocated to unvested restricted stock compensation - - - (69)
Undistributed income allocated to Series C preferred stock - - -
(355) --- --- --- ---- Income available (loss attributable) to
common stockholders $(23,135) $4,408 $(157,652) $61,605 ========
====== ========= ======= Basic per share amounts: Income (loss)
from continuing operations available (attributable) to common
stockholders $(0.30) $0.07 $(1.20) $0.13 Income (loss) from
discontinued operations (0.01) 0.02 (1.33) 0.98 ----- ---- -----
---- Basic income available (loss attributable) to common
stockholders per common share $(0.31) $0.09 $(2.53) $1.11 ======
===== ====== ===== Diluted per share amounts: Income (loss) from
continuing operations available (attributable) to common
stockholders $(0.30) $0.07 $(1.20) $0.13 Income (loss) from
discontinued operations (0.01) 0.02 (1.33) 0.98 ----- ---- -----
---- Diluted income available (loss attributable) to common
stockholders per common share $(0.31) $0.09 $(2.53) $1.11 ======
===== ====== ===== Weighted average common shares outstanding:
Basic 73,857 49,878 62,382 55,573 ====== ====== ====== ======
Diluted 73,857 49,950 62,382 55,652 ====== ====== ====== ======
Dividends declared per common share $- $0.35 $- $1.05 == ===== ==
===== Sunstone Hotel Investors, Inc. Reconciliation of Income
Available (Loss Attributable) to Common Stockholders to Non-GAAP
Financial Measures (Unaudited and in thousands except per share
amounts) Reconciliation of Income Available (Loss Attributable) to
Common Stockholders to EBITDA and Adjusted EBITDA Three Months
Ended Nine Months Ended September 30, September 30, --------------
-------------- 2009 2008 2009 2008 ---- ---- ---- ---- Income
available (loss attributable) to common stockholders $(23,135)
$4,408 $(157,652) $61,605 Dividends paid on unvested restricted
stock compensation - 278 447 741 Series A and C preferred stock
dividends 5,187 5,233 15,562 15,697 Undistributed income allocated
to unvested restricted stock compensation - - - 69 Undistributed
income allocated to Series C preferred stock - - - 355 Amortization
of deferred stock compensation 938 1,117 3,286 3,255 Continuing
operations: Depreciation and amortization 26,511 26,399 80,391
79,726 Interest expense 20,492 22,895 64,010 68,387 Amortization of
deferred financing fees 718 431 1,626 1,257 Write-off of deferred
financing fees - - 284 - Loan penalties and fees 3,020 - 3,020 -
Non-cash interest related to discount on Senior Notes 237 890 1,576
2,615 Unconsolidated joint ventures: Depreciation and amortization
1,306 1,271 3,860 3,808 Interest expense 638 1,214 1,986 3,971
Amortization of deferred financing fees 45 328 137 1,053
Amortization of deferred stock compensation 12 13 28 77 Operations
held for non-sale disposition: Depreciation and amortization 202
301 814 906 Interest expense 349 356 1,041 1,067 Amortization of
deferred financing fees 4 5 11 12 Loan penalties and fees 22 - 22 -
Discontinued operations: Depreciation and amortization 314 2,344
4,298 9,559 Interest expense 1,021 1,021 3,028 3,040 Amortization
of deferred financing fees 2 2 7 7 Loan penalties and fees 51 - 51
- -- --- -- --- EBITDA 37,934 68,506 27,833 257,207 ------ ------
------ ------- (Gain) loss on sale of assets (18) - 12,698 (42,108)
(Gain) loss on extinguishment of debt 20 - (54,559) - Impairment
loss - continuing operations 2,209 - 64,045 - Impairment loss -
operations held for non-sale disposition - - 8,857 - Impairment
loss - discontinued operations - - 64,964 - --- --- ------ ---
2,211 - 96,005 (42,108) ----- --- ------ ------- Adjusted EBITDA
$40,145 $68,506 $123,838 $215,099 ======= ======= ======== ========
Reconciliation of Income Available (Loss Attributable) to Common
Stockholders to FFO and Adjusted FFO Income available (loss
attributable) to common stockholders $(23,135) $4,408 $(157,652)
$61,605 Dividends paid on unvested restricted stock compensation -
278 447 741 Series C preferred stock dividends - 1,708 - 5,122
Undistributed income allocated to unvested restricted stock
compensation - - - 69 Undistributed income allocated to Series C
preferred stock - - - 355 Real estate depreciation and amortization
- continuing operations 26,367 26,211 79,930 79,090 Real estate
depreciation and amortization - operations held for non-sale
disposition 202 301 814 906 Real estate depreciation and
amortization - unconsolidated joint ventures 1,288 1,259 3,806
3,784 Real estate depreciation and amortization - discontinued
operations 314 2,344 4,298 9,559 (Gain) loss on sale of assets (18)
- 12,698 (42,108) --- --- ------ ------- FFO available to common
stockholders 5,018 36,509 (55,659) 119,123 ----- ------ -------
------- Continuing operations: Write-off of deferred financing fees
- - 284 - Loan penalties and fees 3,020 - 3,020 - Operations held
for non-sale disposition: Loan penalties and fees 22 - 22 -
Discontinued operations: Loan penalties and fees 51 - 51 - (Gain)
loss on extinguishment of debt 20 - (54,559) - Impairment loss -
continuing operations 2,209 - 64,045 - Impairment loss - operations
held for non-sale disposition - - 8,857 - Impairment loss -
discontinued operations - - 64,964 - --- --- ------ --- 5,322 -
86,684 - ----- --- ------ --- Adjusted FFO available to common
stockholders $10,340 $36,509 $31,025 $119,123 ======= =======
======= ======== FFO available to common stockholders per diluted
share $0.07 $0.68 $(0.89) $1.99 ===== ===== ====== ===== Adjusted
FFO available to common stockholders per diluted share $0.14 $0.68
$0.50 $1.99 ===== ===== ===== ===== Diluted weighted average shares
outstanding before adjustments for Series C preferred stock 73,929
49,950 62,382 55,652 Shares associated with Series C preferred
stock - 4,103 - 4,103 --- ----- --- ----- Diluted weighted average
shares outstanding (1) 73,929 54,053 62,382 59,755 ====== ======
====== ====== 2008 restated due to stock dividend (2): FFO
available to common stockholders per diluted share $0.61 $1.83
===== ===== Adjusted FFO available to common stockholders per
diluted share $0.61 $1.83 ===== ===== Diluted weighted average
shares outstanding 59,497 64,941 ====== ====== (1) Diluted weighted
average shares outstanding includes the Series C convertible
preferred stock on an "as-converted" basis if such treatment is
dilutive. (2) Diluted weighted average common shares and per share
FFO and Adjusted FFO for the three and nine months ended September
30, 2008 have been retroactively adjusted for the effect of shares
of common stock issued pursuant to the stock dividend paid in
January 2009 on an "as-converted" basis for the Series C
convertible preferred stock. Sunstone Hotel Investors, Inc. Hotel
EBITDA Margins (Unaudited and in thousands except hotels and rooms)
Three Months Ended Nine Months Ended September 30, September 30,
------------------ ------------------ 2009 (1) 2008 (1) 2009 (1)
2008 (1) -------- -------- -------- -------- Number of Hotels 38 38
38 38 Number of Rooms 13,247 13,247 13,247 13,247 ---- ---- ----
---- Hotel EBITDA margin (2) 23.8% 29.5% 24.5% 29.5% ==== ==== ====
==== Hotel Revenues Room revenue $119,177 $149,192 $351,550
$438,332 Food and beverage revenue 40,715 52,610 136,180 168,839
Other operating revenue 9,817 11,016 29,484 32,508 ----- ------
------ ------ Total Hotel Revenues 169,709 212,818 517,214 639,679
Hotel Expenses Room expense 29,411 32,245 84,751 95,377 Food and
beverage expense 31,972 39,666 100,770 122,730 Other hotel expense
48,169 54,097 144,211 160,787 General and administrative expense
19,702 23,996 60,571 72,153 ------ ------ ------ ------ Total Hotel
Expenses 129,254 150,004 390,303 451,047 Adjusted Hotel EBITDA
40,455 62,814 126,911 188,632 Marriott Ontario Airport: Total
revenues of operations held for non-sale disposition 2,271 3,352
7,649 11,507 Total operating expenses of operations held for
non-sale disposition (2,324) (3,032) (7,564) (9,776) Impairment
loss of operations held for non-sale disposition - - (8,857) -
Non-hotel operating income 692 578 1,985 1,600 Prior year property
tax supplementals and credits, net - - (874) 469 Corporate overhead
(4,340) (5,122) (14,929) (17,031) Depreciation and amortization
(26,511) (26,399) (80,391) (79,726) Goodwill and other impairment
losses (2,209) - (64,045) - ------ --- ------- --- Operating Income
(Loss) 8,034 32,191 (40,115) 95,675 Equity in net losses of
unconsolidated joint ventures (515) (23) (2,616) (1,545) Interest
and other income 240 1,365 1,116 3,044 Interest expense (24,467)
(24,216) (70,516) (72,259) Interest expense of operations held for
non-sale disposition (375) (361) (1,074) (1,079) Gain (loss) on
extinguishment of debt (20) - 54,559 - Income (loss) from
discontinued operations (845) 963 (82,997) 54,631 ---- --- -------
------ Net Income (Loss) $(17,948) $9,919 $(141,643) $78,467
======== ====== ========= ======= (1) Represents our ownership
results for the 38 hotels we owned as of the end of the period,
excluding the Marriott Ontario Airport, reclassified as "Operations
Held for Non-Sale Disposition" on our balance sheets and statements
of operations, and the W San Diego, reclassified as discontinued
operations on our balance sheets and statements of operations. (2)
Hotel EBITDA margin is calculated as adjusted hotel EBITDA divided
by total hotel revenues. Sunstone Hotel Investors, Inc. Operating
Statistics by Region (Unaudited) Three Months Ended September 30,
2009 ------------------------------------- Number Number Occupancy
Average Comparable Region of Hotels of Rooms Percentages Daily Rate
RevPAR ------ --------- -------- ----------- ---------- ------
California (1) 13 3,680 80.9% $123.38 $99.81 Other West (2) 7 2,123
66.8% 107.67 71.92 Midwest (3) 7 2,177 73.5% 124.74 91.68 Middle
Atlantic (4) 9 4,099 74.9% 178.07 133.37 South (5) 2 1,168 71.6%
105.57 75.59 --- ----- ---- ------ ----- Total 38 13,247 74.7%
$136.25 $101.78 == ====== ==== ======= ======= Three Months Ended
September 30, 2008 Percent -------------------------------------
Change in Occupancy Average Comparable Comparable Region
Percentages Daily Rate RevPAR RevPAR ------ ----------- ----------
------ ------ California (1) 83.4% $151.24 $126.13 -20.9% Other
West (2) 78.9% 117.66 92.83 -22.5% Midwest (3) 74.1% 148.82 110.28
-16.9% Middle Atlantic (4) 80.5% 207.61 167.13 -20.2% South (5)
76.1% 123.87 94.27 -19.8% ---- ------ ----- ----- Total 79.6%
$160.16 $127.49 -20.2% ==== ======= ======= ===== Nine Months Ended
September 30, 2009 ------------------------------------ Number
Number Occupancy Average Comparable Region of Hotels of Rooms
Percentages Daily Rate RevPAR ------ --------- -------- -----------
---------- ------ California (1) 13 3,680 75.2% $126.37 $95.03
Other West (2) 7 2,123 66.4% 114.29 75.89 Midwest (3) 7 2,177 64.9%
127.60 82.81 Middle Atlantic (4) 9 4,099 71.7% 185.15 132.75 South
(5) 2 1,168 71.0% 127.48 90.51 --- ----- ---- ------ ----- Total 38
13,247 70.6% $142.70 $100.75 == ====== ==== ======= ======= Nine
Months Ended September 30, 2008 Percent
------------------------------------ Change in Occupancy Average
Comparable Comparable Region Percentages Daily Rate RevPAR RevPAR
------ ----------- ---------- ------ ------ California (1) 81.5%
$150.58 $122.72 -22.6% Other West (2) 77.7% 120.66 93.75 -19.1%
Midwest (3) 69.1% 146.34 101.12 -18.1% Middle Atlantic (4) 76.6%
210.70 161.40 -17.8% South (5) 78.3% 148.77 116.49 -22.3% ----
------ ------ ----- Total 77.1% $162.69 $125.43 -19.7% ==== =======
======= ===== (1) Does not include the Marriott Ontario Airport,
reclassified as "Operations Held for Non-Sale Disposition" on our
balance sheets and statements of operations, and the W San Diego,
reclassified as discontinued operations on our balance sheets and
statements of operations. (2) Includes Oregon, Texas and Utah. (3)
Includes Illinois, Michigan and Minnesota. (4) Includes Maryland,
Massachusetts, New York, Pennsylvania, Virginia and District of
Columbia. (5) Includes Florida and Georgia. Sunstone Hotel
Investors, Inc. Operating Statistics by Brand (Unaudited) Three
Months Ended September 30, 2009
------------------------------------- Number of Number Occupancy
Average Comparable Brand Hotels of Rooms Percentages Daily Rate
RevPAR ----- ------- -------- ----------- ---------- ------
Marriott (1) 23 8,221 73.4% $135.78 $99.66 Hilton 7 2,435 76.7%
168.24 129.04 InterContinental 2 345 86.7% 99.39 86.17 Hyatt 1 403
82.8% 129.78 107.46 Other Brand Affiliations (2) 2 647 76.9% 115.82
89.07 Independent 3 1,196 72.1% 97.15 70.05 --- ----- ---- -----
----- Total 38 13,247 74.7% $136.25 $101.78 == ====== ==== =======
======= Three Months Ended September 30, 2008 Percent
------------------------------------- Change in Occupancy Average
Comparable Comparable Brand Percentages Daily Rate RevPAR RevPAR
----- ----------- ---------- ------ ------ Marriott (1) 79.1%
$155.09 $122.68 -18.8% Hilton 82.9% 207.72 172.20 -25.1%
InterContinental 74.4% 130.60 97.17 -11.3% Hyatt 85.6% 164.33
140.67 -23.6% Other Brand Affiliations (2) 82.7% 146.57 121.21
-26.5% Independent 74.0% 101.79 75.32 -7.0% ---- ------ ----- ----
Total 79.6% $160.16 $127.49 -20.2% ==== ======= ======= ===== Nine
Months Ended September 30, 2009
------------------------------------ Number of Number Occupancy
Average Comparable Brand Hotels of Rooms Percentages Daily Rate
RevPAR ----- ------ -------- ----------- ---------- ------ Marriott
(1) 23 8,221 70.3% $146.38 $102.91 Hilton 7 2,435 72.1% 163.75
118.06 InterContinental 2 345 76.2% 103.47 78.84 Hyatt 1 403 74.5%
125.67 93.62 Other Brand Affiliations (2) 2 647 73.3% 124.30 91.11
Independent 3 1,196 64.7% 100.18 64.82 --- ----- ---- ------ -----
Total 38 13,247 70.6% $142.70 $100.75 == ====== ==== =======
======= Nine Months Ended September 30, 2008 Percent
------------------------------------ Change in Occupancy Average
Comparable Comparable Brand Percentages Daily Rate RevPAR RevPAR
----- ----------- ---------- ------ ------ Marriott (1) 76.9%
$162.34 $124.84 -17.6% Hilton 80.4% 198.31 159.44 -26.0%
InterContinental 73.0% 131.65 96.10 -18.0% Hyatt 81.3% 154.26
125.41 -25.3% Other Brand Affiliations (2) 81.1% 149.59 121.32
-24.9% Independent 68.7% 101.76 69.91 -7.3% ---- ------ ----- ----
Total 77.1% $162.69 $125.43 -19.7% ==== ======= ======= ===== (1)
Does not include the Marriott Ontario Airport, reclassified as
"Operations Held for Non-Sale Disposition" on our balance sheets
and statements of operations. (2) Includes a Fairmont and a
Sheraton. Does not include the W San Diego, reclassified as
discontinued operations on our balance sheets and statements of
operations. Sunstone Hotel Investors, Inc. Debt Summary (Unaudited
- dollars in thousands) September November Interest 30, 4, Rate/
Maturity 2009 Recent 2009 Debt Collateral Spread Date Balance
Events(1) Balance ---- ---------- ------ ---- ------- ---------
------- Fixed Rate Debt --------- Secured Hilton Times Mortgage
Debt Square 5.92% 12/1/2010 $81,000 $81,000 Secured Mortgage Debt
(2) 11 Hotels 5.95% 5/1/2011 246,342 246,342 Secured Renaissance
Mortgage Debt Long Beach 4.98% 7/1/2012 34,186 34,186 Secured
Renaissance Mortgage Debt Westchester 4.98% 7/1/2012 29,352 29,352
Rochester Secured laundry Mortgage Debt facility 9.88% 6/1/2013
3,533 3,533 Secured Doubletree Mortgage Debt Minneapolis 5.34%
5/1/2015 18,130 18,130 Secured Hilton Del Mortgage Debt Mar 5.34%
5/1/2015 26,292 26,292 Secured Marriott Mortgage Debt Houston 5.34%
5/1/2015 24,135 24,135 Marriott Secured Ontario Mortgage Debt
Airport 5.34% 5/1/2015 25,547 25,547 Marriott Secured Park Mortgage
Debt City 5.34% 5/1/2015 15,733 15,733 Secured Marriott Mortgage
Debt Philadelphia 5.34% 5/1/2015 28,507 28,507 Secured Marriott
Mortgage Debt Troy 5.34% 5/1/2015 36,908 36,908 Marriott Secured
Tysons Mortgage Debt Corner 5.34% 5/1/2015 47,095 47,095 Secured
The Kahler Mortgage Debt Grand 5.34% 5/1/2015 29,032 29,032 Secured
Valley River Mortgage Debt Inn 5.34% 5/1/2015 12,115 12,115 Secured
Renaissance Mortgage Debt Harborplace 5.13% 1/1/2016 105,241
105,241 Secured Marriott Del Mortgage Debt Mar 5.69% 1/11/2016
48,000 48,000 Hilton Secured Houston Mortgage Debt North 5.66%
3/11/2016 33,802 33,802 Renaissance Orlando Resort Secured at Sea
Mortgage Debt World(R) 5.52% 7/1/2016 86,125 86,125 Embassy Secured
Suites Mortgage Debt Chicago 5.58% 3/1/2017 75,000 75,000 Marriott
Secured Boston Long Mortgage Debt Wharf 5.58% 4/11/2017 176,000
176,000 Embassy Secured Suites Mortgage Debt La Jolla 6.60%
6/1/2019 70,000 70,000 Secured Renaissance Mortgage Debt Washington
DC 5.95% 5/1/2021 134,453 134,453 Exchangeable Senior Notes
Guaranty 4.60% 7/15/2027 62,500 62,500 ------ ------ Total Fixed
Rate Debt 1,449,028 1,449,028 L + Credit 3.75%- Facility 5 Hotels
5.25% 7/17/2011 - - --- --- TOTAL DEBT $1,449,028 $- $1,449,028
========== == ========== Preferred Stock ----------------- Series A
Cumulative redeemable preferred 8.00% perpetual $176,250 $-
$176,250 ======== == ======== Series C Cumulative convertible
redeemable preferred 6.45% perpetual $100,000 $- $100,000 ========
== ======== Debt Statistics ----------------- % Fixed Rate Debt
100.0% 100.0% % Floating Rate Debt 0.0% 0.0% Average Interest Rate
5.61% 5.61% Weighted Average Maturity of Debt (includes amounts
outstanding on the Credit Facility)(3) 6.3 years 6.3 years (1)
Reflects net additional draws and repayments on our credit
facility. (2) Cross-collateralized loan with life insurance
company. (3) 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 6 years. Bryan Giglia Vice President -
Corporate Finance Sunstone Hotel Investors, Inc. (949) 369-4236
DATASOURCE: Sunstone Hotel Investors, Inc. CONTACT: Bryan Giglia,
Vice President - Corporate Finance of Sunstone Hotel Investors,
Inc., +1-949-369-4236 Web Site: http://www.sunstonehotels.com/
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