Continues Transformation of Portfolio
Sunstone Hotel Investors, Inc. (NYSE:SHO) announced today that it has completed the sale of 13 hotels (the "Portfolio") for gross proceeds of $144.1 million, or 8.4x projected 2006 EBITDA for the Portfolio (reconciliation to net income below), to affiliates of Trinity Hotel Investors, LLC. The Portfolio consists of the following properties:
Property Location # of Rooms
Holiday Inn Boise, ID 265
Holiday Inn Craig, CO 152
Holiday Inn Price, UT 151
Holiday Inn Renton, WA 226
Holiday Inn San Diego (Mission Valley), CA 175
Crowne Plaza Englewood, NJ 194
Crowne Plaza Williamsburg, VA 303
Hawthorn Suites Kent, WA 152
Marriott Ogden, UT 292
Marriott Pueblo, CO 164
Courtyard Lynnwood, WA 164
Courtyard Fresno, CA 116
Courtyard Santa Fe, NM 213
Total Portfolio 2,567
Robert A. Alter, Chief Executive Officer, stated, "We are pleased to announce the sale of this portfolio of 13 non-strategic assets. By divesting 21% of our properties that only account for approximately 5.3% of EBITDA for the six months ended June 30, 2006, we will be able to redirect management resources toward optimizing our larger, higher growth assets that have a more meaningful impact on the Company. This transaction reduces the geographic distribution of our portfolio from 19 states to 14 states. Since October 2004, we have sold 19 non-strategic hotels and have acquired 13 high quality hotels. We plan to re-invest the proceeds from this sale into hotels that fit a similar profile to that of our other recent acquisitions."
The Company continues to upgrade its portfolio through actively recycling capital. Since 2001, the Company and its predecessors have sold 45 hotels with an average of 177 rooms per hotel and have acquired 32 hotels with an average of 367 rooms per hotel. Since 1999, the Company and its predecessors have sold a total of 69 hotels.
The Portfolio is being sold unencumbered of both debt and management.
Sunstone Pro Forma Portfolio Statistics
% Increase/
Pre-Sale Post-Sale (Decrease)
Total Hotels 63 50 (20.6%)
Total Rooms 18,495 15,928 (13.9%)
Number of States 19 14 (26.3%)
Rooms per Hotel 294 319 8.5%
1H 2006 Occupancy 72.9% 73.9% 1.0%
1H 2006 Average Daily Rate $136.02 $143.60 5.6%
1H 2006 RevPAR $99.10 $106.41 7.4%
Pre/Post Sale Portfolio by Region/Brand/Chain Scale Segment
Pre-Sale Sold
Portfolio Portfolio
% of % of
Hotels Rooms total Hotels Rooms total
REGION
California 24 6,290 34.0% 2 291 11.3%
Other West 15 3,362 18.2% 8 1,566 61.0%
Midwest 9 2,694 14.6% 0 0 0.0%
Middle Atlantic 7 3,012 16.3% 1 194 7.6%
South 5 2,062 11.1% 1 303 11.8%
Southwest 3 1,075 5.8% 1 213 8.3%
Total Portfolio 63 18,495 100.0% 13 2,567 100.0%
BRAND
Marriott 32 9,350 50.6% 5 949 37.0%
Hilton 7 2,112 11.4% 0 0 0.0%
InterContinental 11 2,301 12.4% 7 1,466 57.1%
Hyatt 5 1,757 9.5% 1 152 5.9%
Starwood 3 824 4.5% 0 0 0.0%
Other/Independent 5 2,151 11.6% 0 0 0.0%
Total Portfolio 63 18,495 100.0% 13 2,567 100.0%
CHAIN SCALE
Luxury / Upper Upscale 33 11,842 64.0% 2 456 17.8%
Upscale 21 4,898 26.5% 6 1,142 44.5%
Midscale 9 1,755 9.5% 5 969 37.7%
Total Portfolio 63 18,495 100.0% 13 2,567 100.0%
Post-Sale
Portfolio
% of
Hotels Rooms total
REGION
California 22 5,999 37.7%
Other West 7 1,796 11.3%
Midwest 9 2,694 16.9%
Middle Atlantic 6 2,818 17.7%
South 4 1,759 11.0%
Southwest 2 862 5.4%
Total Portfolio 50 15,928 100.0%
BRAND
Marriott 27 8,401 52.7%
Hilton 7 2,112 13.3%
InterContinental 4 835 5.2%
Hyatt 4 1,605 10.1%
Starwood 3 824 5.2%
Other/Independent 5 2,151 13.5%
Total Portfolio 50 15,928 100.0%
CHAIN SCALE
Luxury / Upper Upscale 31 11,386 71.5%
Upscale 15 3,756 23.6%
Midscale 4 786 4.9%
Total Portfolio 50 15,928 100.0%
Jon D. Kline, President and Chief Financial Officer, added, "We are continuing to migrate our portfolio upscale by disposing of our smaller hotels in non-core markets and acquiring larger, full service hotels located in top, high barrier to entry markets. The 13 hotels we have acquired since the October 2004 IPO produce on average more than twice the RevPAR of the hotels we sold today."
1H 2006
13 Hotel 2005/2006 %
Portfolio Acquisitions Difference
# of Hotels 13 13
Average Daily Rate $80.03 $184.71 130.8%
Occupancy 65.9% 74.0% 8.1%
RevPAR $52.71 $136.64 159.2%
Avg. Rooms per Hotel 197 463 135.0%
Use of Proceeds
Net proceeds of approximately $136.4 million (including a $5.6 million promissory note) from this sale will be reinvested into hotels similar to those acquired over the past two years. At this time, no specific properties are under contract. Pending such reinvestment, approximately $20.3 million of the net proceeds will be used to repay amounts outstanding under the Company's revolving credit facility and the balance of the net proceeds will be invested at a floating interest rate, currently approximately 5.0%. The Company's net proceeds may be affected by customary post-closing proration adjustments.
Impact on Third & Fourth Quarter 2006
The Portfolio represents approximately $1.8 million of projected EBITDA for the balance of the third quarter 2006 (September 2006) and approximately $4.0 million of projected EBITDA for fourth quarter 2006 (reconciliation to net income below). This will be partially offset by interest income from investment of the net proceeds pending investment in one or more hotel acquisitions. The Company anticipates that the net effect, exclusive of the impact of any subsequent hotel acquisitions or dispositions, will be a reduction in the Company's projected funds from operations (FFO) of ($0.02) per share and ($0.04) per share in the third quarter and fourth quarter 2006, respectively (reconciliation to net income below), from the amounts set forth in the Company's August 2, 2006 press release.
About Sunstone Hotel Investors, Inc.
Sunstone Hotel Investors, Inc. is a Southern California-based lodging real estate investment trust (REIT). The Company owns 50 hotels with an aggregate of 15,928 rooms primarily in the upper-upscale and upscale segments operated under franchises from nationally recognized hotel companies such as Marriott, Hyatt, Hilton, Starwood and Fairmont.
Logos, product and company names mentioned are the property of their respective owners.
