Sunstone Hotel Investors Results

Sunstone Hotel Investors Reports Results For Second Quarter 2018

Net income decreased 0.3% to $51.3 million. Excluding the effect of the gain on hotel sold during the second quarter of 2017, net income would have increased by 2.1%.

Sunstone

Sunstone Hotel Investors, Inc (NYSE: SHO), the owner of Long-Term Relevant Real Estate in the hospitality sector, yesterday announced results for the second quarter ended June 30, 2018.

Second Quarter 2018 Operational Results (as compared to Second Quarter 2017):

  • Net income decreased 0.3% to $51.3 million. Excluding the effect of the gain on hotel sold during the second quarter of 2017, net income would have increased by 2.1%.
  • Income attributable to common stockholders per diluted common share decreased 4.8% to $0.20. Excluding the effect of the gain on hotel sold during the second quarter of 2017, income attributable to common stockholders per diluted common share would have been flat.
  • 24 Hotel Comparable Portfolio RevPAR increased 2.0% to $195.85.
  • 24 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net decreased 60 basis points to 34.1%. Excluding the Hyatt Regency San Francisco, the JW Marriott New Orleans, the Marriott Boston Long Wharf and the Renaissance Los Angeles Airport, all of which were under rooms renovation during the second quarter of 2018, the 20 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net would have increased 10 basis points
  • Adjusted EBITDAre, excluding noncontrolling interest decreased 1.0% to $101.2 million.
  • Adjusted FFO attributable to common stockholders per diluted share decreased 2.6% to $0.37.

John Arabia, President and Chief Executive Officer, stated, "Our portfolio operating results exceeded our expectations due to stronger-than-anticipated room rate growth and significant increases in both food and beverage revenues and other income. As a result, our second quarter Adjusted EBITDAre and Adjusted FFO per diluted share exceeded the high end of our guidance, and we increased our full-year outlook for both operating fundamentals and earnings. In addition, we recently completed several transactions that enhance our portfolio quality. Following these transactions, we maintain significant financial capacity, which we expect to methodically and prudently invest into Long-Term Relevant Real Estate to further enhance our portfolio quality and earnings."

UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA

($ in millions, except RevPAR, ADR and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

Change

2018

2017

Change

Net Income

$

51.3

$

51.4

(0.3)

%

$

89.7

$

115.2

(22.1)

%

Income Attributable to Common Stockholders per Diluted Share

$

0.20

$

0.21

(4.8)

%

$

0.35

$

0.47

(25.5)

%

24 Hotel Comparable Portfolio RevPAR (1)

$

195.85

$

192.07

2.0

%

$

178.58

$

177.26

0.7

%

24 Hotel Comparable Portfolio Occupancy (1)

85.5

%

87.0

%

(150)

bps

82.0

%

82.8

%

(80)

bps

24 Hotel Comparable Portfolio ADR (1)

$

229.06

$

220.77

3.8

%

$

217.78

$

214.08

1.7

%

24 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1) (2)

34.1

%

34.7

%

(60)

bps

30.4

%

31.5

%

(110)

bps

Adjusted EBITDAre, excluding noncontrolling interest

$

101.2

$

102.3

(1.0)

%

$

163.6

$

171.8

(4.8)

%

Adjusted FFO Attributable to Common Stockholders

$

83.7

$

84.9

(1.4)

%

$

129.6

$

138.0

(6.1)

%

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$

0.37

$

0.38

(2.6)

%

$

0.58

$

0.63

(7.9)

%

(1)

The 24 Hotel Comparable Portfolio is comprised of all hotels owned by the Company as of June 30, 2018, except the Hyatt Regency Newport Beach, which was classified as held for sale at June 30, 2018 and was subsequently sold in July 2018. The 24 Hotel Comparable Portfolio includes prior ownership results for the Oceans Edge Resort & Marina acquired in July 2017.

(2)

The 24 Hotel Comparable Portfolio Adjusted EBITDAre Margins exclude any prior year property tax adjustments, net.

Disclosures regarding the non-GAAP financial measures in this release are included on pages 6 through 8. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 11 through 16 of this release.

The Company's actual results for the quarter ended June 30, 2018 compare to its guidance originally provided as follows:

Metric

Prior

Quarter Ended

June 30, 2018

Guidance (1)

Adjustments (2)

Adjusted Prior

Second Quarter

2018 Guidance

Quarter Ended

June 30, 2018

Actual Results

(unaudited)

Performance

Relative to Prior

Guidance Midpoint

Net Income ($ millions)

$48 to  $51

?

$48 to  $51

$51

+ $2

25 Hotel Comparable Portfolio RevPAR Growth (3)

+ 0.5% to + 2.5%

?

+ 0.5% to + 2.5%

2.0%

+ 0.5%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$96  to  $99

?

$96  to  $99

$101

+ $4

Adjusted FFO Attributable to Common Stockholders ($ millions)

$77  to  $81

?

$77  to  $81

$84

+ $5

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$0.34  to  $0.36

$0

$0.34  to  $0.36

$0.37

+ $0.02

Diluted Weighted Average Shares Outstanding

224,800,000

+ 800,000

225,600,000

225,500,000

- 100,000

(1)

Reflects guidance presented on May 7, 2018.

(2)

Adjustments reflect the weighted average of the common shares issued during the second quarter 2018 under the Company's ATM Agreements.

(3)

The 25 Hotel Comparable Portfolio RevPAR Growth is comprised of all 25 hotels owned by the Company as of June 30, 2018, and includes prior ownership results for the Oceans Edge Resort & Marina acquired in July 2017.

Recent Developments

On July 12, 2018, a subsidiary of the Company purchased the land underlying the 501-room JW Marriott New Orleans for $15.0 million. Prior to this purchase, the Company leased the approximately one acre of land from an unaffiliated third party for an annual rent payment of $625,000. The ground rent is reset every 10 years based on market factors, with the next rent reset scheduled for 2024.

On July 10, 2018, the Company sold the leasehold interest in the 408-room Hyatt Regency Newport Beach for a gross sale price of $95.0 million or approximately $233,000 per key. The hotel is subject to a short term ground lease that is scheduled to mature in 2048. The sale price represents a 9.7x multiple on trailing 12-month hotel Adjusted EBITDAre and an 8.6% capitalization rate on trailing 12-month net operating income.

On May 31, 2018, the Company acquired the exclusive perpetual rights to use portions of the Renaissance Washington DC building that the Company had previously leased from an unaffiliated third party for $18.4 million, including closing costs. The acquisition eliminates approximately $1.3 million of annual space rent.

During the second quarter of 2018, the Company issued 2,590,854 shares of its common stock for gross proceeds of $45.1 million. The shares were issued in connection with an "At the Market" ("ATM") program pursuant to Equity Distribution Agreements ("ATM Agreements"), which the Company entered into during the first quarter of 2017 with Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC. Under the ATM Agreements, the Company is authorized to issue common stock having an aggregate offering amount of up to $300.0 million. As of June 30, 2018, the Company had $175.5 million available for sale under the ATM Agreements.

John Arabia added, "The combination of these transactions further advances our strategy of owning a portfolio of Long-Term Relevant Real Estate. Over the last three years we have sold approximately $1.0 billion of our lower quality or leasehold hotels, and redeployed a portion of those proceeds into Long-Term Relevant Real Estate. Additionally, following these transactions, our percentage of earnings generated from hotels subject to ground leases has declined over the past several years from approximately 50% to approximately 18%."

Balance Sheet/Liquidity Update

As of June 30, 2018, the Company had $619.9 million of cash and cash equivalents, including restricted cash of $75.0 million, total assets of $3.8 billion, including $3.1 billion of net investments in hotel properties, total consolidated debt of $986.6 million and stockholders' equity of $2.6 billion.

Capital Improvements

The Company invested $41.3 million into capital improvements of its portfolio during the three months ended June 30, 2018. In 2018, the Company expects to invest approximately $150 million to $175 million into its portfolio. Several of the 2018 projects began in the fourth quarter 2017 and have been completed during the first half of 2018. Based on the expected timing and scope of its 2018 projects, the Company expects $9 million to $11 million of total revenue displacement related to all capital projects in 2018, of which approximately $9 million of total revenue displacement was incurred during the first half of 2018. The anticipated revenue displacement is expected to reduce the Company's 2018 total Comparable Portfolio RevPAR growth by approximately 100 basis points. A selection of the Company's planned 2018 capital investment projects include:

  • Renaissance Orlando at SeaWorld®: The Company is currently constructing 46,500 square feet of new meeting space, including a 16,400 square foot ballroom, on vacant land adjacent to the hotel's existing 150,000 square feet of total event and meeting space. Total cost for the new meeting space is expected to be $22 million to $24 million, with a portion spent in 2017. The new, state-of-the-art meeting space is expected to allow the hotel to increase the number of group rooms sold by approximately 20,000 room nights annually. Construction of the new meeting space began during the fourth quarter 2017, and is expected to be completed during the first quarter 2019. The Company expects zero to $1 million of total revenue displacement during the second half of 2018 related to the construction.
  • Marriott Boston Long Wharf: The Company expects to invest approximately $31 million, with a portion spent in 2017, to renovate all 412 guestrooms and suites. The renovation, which will better position the hotel with high-end group and business travelers, includes the complete redesign of all guestrooms and bathrooms, including enlarging many of the existing bathrooms and converting 346 bathtubs to showers, as well as expanding and upgrading the concierge lounge. The renovation began during the fourth quarter 2017, and is substantially complete. Approximately $6 million of total revenue was displaced during the first half of 2018.
  • JW Marriott New Orleans: The Company expects to invest $26 million to $28 million, with a portion spent in 2017, to renovate all 501 guestrooms and suites. The renovation includes the complete redesign of all guestrooms and bathrooms, including enlarging many of the existing bathrooms and converting 381 bathtubs to showers. The renovation began during the second quarter 2018, and is expected to be completed during the fourth quarter 2018. The Company expects $2 million to $3 million of total revenue displacement during 2018.

2018 Outlook

The Company's 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 the impact of any unanticipated developments in its business, changes in its operating environment, or any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, noncash impairment expense, changes in deferred tax assets or valuation allowances, severance costs associated with restructuring hotel services, uninsured property losses, early lease termination costs, prior year property tax assessments or credits, debt repurchases/repayments, or unannounced financings during 2018. The Company's 2018 guidance does include anticipated displacement from the scheduled 2018 capital investment projects. The Company expects the negative impact of its 2018 capital investment projects to result in approximately 100 basis points less annual RevPAR growth and approximately $6 million to $8 million less Adjusted EBITDAre, excluding noncontrolling interest. The Company's 2018 guidance does not anticipate any acceleration in business travel resulting from the recent federal tax cuts or other stimulus programs.

For the third quarter of 2018, the Company expects:

Metric

Quarter Ended

September 30, 2018

Guidance (1)

Net Income ($ millions)

$84 to  $88

24 Hotel Comparable Portfolio RevPAR Growth

 + 1.25% to + 3.25%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$79  to  $82

Adjusted FFO Attributable to Common Stockholders ($ millions)

$62  to  $65

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$0.27  to  $0.29

Diluted Weighted Average Shares Outstanding

227,500,000

For the full year of 2018, the Company expects:

Metric

Prior

Full Year 2018

Guidance (2)

Adjustments (3)

Adjusted Prior

Full Year 2018

Guidance

Current

Full Year 2018

Guidance (1)

Change in

Full Year 2018

Guidance Midpoint

Net Income ($ millions)

$145 to  $164

+ $48

$193 to  $212

$193 to  $210

- $1

24 Hotel Comparable Portfolio RevPAR Growth

 0% to + 2.5%

?

 0% to + 2.5%

 + 0.5% to + 2.5%

+ 0.25%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$310  to  $328

- $5

$305  to  $323

$310  to  $326

+ $4

Adjusted FFO Attributable to Common Stockholders ($ millions)

$242  to  $261

- $5

$237  to  $256

$242  to  $258

+ $4

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$1.07  to  $1.16

- $0.02

$1.05  to  $1.13

$1.07  to  $1.14

+ $0.02

Diluted Weighted Average Shares Outstanding

225,000,000

+ 1,500,000

226,500,000

226,500,000

?

(1)

See pages 13 and 14 for detailed reconciliations of Net Income to non-GAAP financial measures.

(2)

Reflects guidance presented on May 7, 2018.

(3)

Adjustments reflect the operating results for the Hyatt Regency Newport Beach before its sale in July 2018, as well as the estimated gain on the sale of the hotel. Adjustments also reflect the acquisitions of certain space at the Renaissance Washington DC and the land underlying the JW Marriott New Orleans, both of which were previously leased from unaffiliated third parties, and the weighted average of the common shares issued during the second quarter 2018 under the Company's ATM Agreements.

Third quarter and full year 2018 guidance are based in part on the following assumptions:

  • Full year 24 Hotel Comparable Portfolio RevPAR guidance is negatively impacted by approximately 100 basis points, resulting from planned 2018 capital investment projects, a selection of which are discussed above.
  • Full year revenue displacement of $9 million to $11 million, related to planned 2018 capital investment projects.
  • Full year Adjusted EBITDAre, excluding noncontrolling interest displacement of approximately $6 million to $8 million, related to planned 2018 capital investment projects.
  • Full year 24 Hotel Comparable Portfolio Adjusted EBITDAre Margin is expected to decline 50 basis points to 100 basis points, which is negatively impacted by approximately 40 basis points resulting from planned 2018 capital investment projects.
  • Full year corporate overhead expense (excluding deferred stock amortization) of approximately $21 million.
  • Full year amortization of deferred stock compensation expense of approximately $9 million.
  • Full year interest expense of approximately $45 million, including approximately $3 million in amortization of deferred financing fees, approximately $2 million of capital lease obligation interest and approximately $4 million noncash gain on derivatives.
  • Full year total preferred dividends of $13 million, which includes the Series E and Series F cumulative redeemable preferred stock.

Dividend Update

On July 27, 2018, the Company's board of directors declared a cash dividend of $0.05 per share of common stock, as well as cash dividends of $0.434375 per share payable to its Series E cumulative redeemable preferred stockholders and $0.403125 per share payable to its Series F cumulative redeemable preferred stockholders. The dividends will be paid on October 15, 2018 to stockholders of record as of September 28, 2018.

The Company expects to continue to pay a quarterly cash dividend of $0.05 per share of common stock throughout 2018. Consistent with the Company's past practice and to the extent that the expected regular quarterly dividends for 2018 do not satisfy the annual distribution requirements, the Company expects to satisfy the annual distribution requirement by paying a "catch-up" dividend in January 2019. The level of any future quarterly dividends will be determined by the Company's board of directors after considering long-term operating projections, expected capital requirements, and risks affecting the Company's business.

Supplemental Disclosures

Contemporaneous with this release, the Company has furnished a Form 8-K with unaudited financial information. This additional information is being provided as a supplement to the information in this release and other filings with the SEC. The Company has no obligation to update any of the guidance or other information provided to conform to actual results or changes in the Company's portfolio, capital structure or future expectations.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of July 30, 2018 has interests in 24 hotels comprised of 12,046 rooms. Sunstone's primary business is to acquire, own, asset manage and renovate hotels considered to be Long-Term Relevant Real Estate, the majority of which are operated under nationally recognized brands, such as Marriott, Hilton and Hyatt.

 

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

June 30,

December 31,

2018

2017

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

544,900

$

488,002

Restricted cash

74,989

71,309

Accounts receivable, net

46,540

34,219

Inventories

1,223

1,323

Prepaid expenses

11,289

10,464

Assets held for sale, net

42,389

122,807

Total current assets

721,330

728,124

Investment in hotel properties, net

3,089,181

3,106,066

Deferred financing fees, net

785

1,305

Other assets, net

34,317

22,317

Total assets

$

3,845,613

$

3,857,812

Liabilities and Equity

Current liabilities:

Accounts payable and accrued expenses

$

37,495

$

31,810

Accrued payroll and employee benefits

19,776

26,687

Dividends and distributions payable

14,620

133,894

Other current liabilities

46,662

44,502

Current portion of notes payable, net

5,653

5,477

Liabilities of assets held for sale

4,061

189

Total current liabilities

128,267

242,559

Notes payable, less current portion, net

974,309

977,282

Capital lease obligations, less current portion

26,904

26,804

Other liabilities

30,802

28,989

Total liabilities

1,160,282

1,275,634

Commitments and contingencies

Equity:

Stockholders' equity:

Preferred stock, $0.01 par value, 100,000,000 shares authorized:

6.95% Series E Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, stated at liquidation preference of $25.00 per share

115,000

115,000

6.45% Series F Cumulative Redeemable Preferred Stock, 3,000,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, stated at liquidation preference of $25.00 per share

75,000

75,000

Common stock, $0.01 par value, 500,000,000 shares authorized, 228,254,255 issued and outstanding at June 30, 2018 and 225,321,660 shares issued and outstanding at December 31, 2017

2,283

2,253

Additional paid in capital

2,724,379

2,679,221

Retained earnings

1,017,181

932,277

Cumulative dividends and distributions

(1,299,121)

(1,270,013)

Total stockholders' equity

2,634,722

2,533,738

Noncontrolling interest in consolidated joint venture

50,609

48,440

Total equity

2,685,331

2,582,178

Total liabilities and equity

$

3,845,613

$

3,857,812

Sunstone Hotel Investors, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Revenues

Room

$

220,304

$

223,653

$

400,580

$

414,020

Food and beverage

79,292

78,621

153,558

154,122

Other operating

17,851

16,522

34,755

31,397

Total revenues

317,447

318,796

588,893

599,539

Operating expenses

Room

54,900

54,557

105,995

105,849

Food and beverage

50,885

50,969

101,039

101,506

Other operating

4,357

4,033

8,298

7,864

Advertising and promotion

14,316

14,911

28,222

29,857

Repairs and maintenance

10,851

10,796

21,954

21,763

Utilities

6,974

7,291

14,449

14,513

Franchise costs

9,961

9,881

17,814

17,936

Property tax, ground lease and insurance

21,508

20,791

43,289

42,078

Other property-level expenses

35,518

35,766

69,425

70,504

Corporate overhead

7,594

7,573

14,696

14,352

Depreciation and amortization

37,334

39,525

74,022

80,332

Impairment loss

1,394

1,394

Total operating expenses

255,592

256,093

500,597

506,554

Operating income

61,855

62,703

88,296

92,985

Interest and other income

2,966

849

4,457

1,570

Interest expense

(11,184)

(13,084)

(20,060)

(24,333)

Loss on extinguishment of debt

(4)

Gain on sale of assets

1,189

15,659

45,474

Income before income taxes

53,637

51,657

88,352

115,692

Income tax (provision) benefit, net

(2,375)

(242)

1,365

(450)

Net income

51,262

51,415

89,717

115,242

Income from consolidated joint venture attributable to noncontrolling interest

(2,374)

(2,183)

(4,813)

(4,175)

Preferred stock dividends

(3,207)

(3,207)

(6,414)

(6,414)

Income attributable to common stockholders

$

45,681

$

46,025

$

78,490

$

104,653

Basic and diluted per share amounts:

Basic and diluted income attributable to common stockholders per common share

$

0.20

$

0.21

$

0.35

$

0.47

Basic and diluted weighted average common shares outstanding

225,232

220,130

224,760

219,614

Distributions declared per common share

$

0.05

$

0.05

$

0.10

$

0.10

Sunstone Hotel Investors, Inc

Reconciliation of Net Income to Non-GAAP Financial Measures

(Unaudited and in thousands)

Reconciliation of Net Income to EBITDAre and Adjusted EBITDAre, Excluding Noncontrolling Interest

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net income

$

51,262

$

51,415

$

89,717

$

115,242

Operations held for investment:

Depreciation and amortization

37,334

39,525

74,022

80,332

Amortization of lease intangibles

63

63

126

126

Interest expense

11,184

13,084

20,060

24,333

Income tax provision (benefit), net

2,375

242

(1,365)

450

Loss (gain) on sale of assets, net

6

(1,180)

(15,663)

(45,750)

Impairment loss

1,394

1,394

EBITDAre

103,618

103,149

168,291

174,733

Operations held for investment:

Amortization of deferred stock compensation

2,865

2,591

4,865

4,340

Amortization of favorable and unfavorable contracts, net

2

96

5

195

Noncash ground rent

(292)

(285)

(573)

(560)

Capital lease obligation interest - cash ground rent

(589)

(351)

(1,178)

(702)

Loss on extinguishment of debt

4

Hurricane-related insurance proceeds net of uninsured losses

(1,084)

(1,015)

Closing costs - completed acquisitions

374

374

Prior year property tax adjustments, net

136

(101)

117

(101)

Noncontrolling interest:

Income from consolidated joint venture attributable to noncontrolling interest

(2,374)

(2,183)

(4,813)

(4,175)

Depreciation and amortization

(640)

(612)

(1,278)

(1,487)

Interest expense

(489)

(488)

(924)

(945)

Noncash ground rent

73

73

145

145

(2,392)

(886)

(4,649)

(2,912)

Adjusted EBITDAre, excluding noncontrolling interest

$

101,226

$

102,263

$

163,642

$

171,821

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to FFO Attributable to Common Stockholders and

Adjusted FFO Attributable to Common Stockholders

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net income

$

51,262

$

51,415

$

89,717

$

115,242

Preferred stock dividends

(3,207)

(3,207)

(6,414)

(6,414)

Operations held for investment:

Real estate depreciation and amortization

37,243

39,402

73,837

80,080

Amortization of lease intangibles

63

63

126

126

Loss (gain) on sale of assets, net

6

(1,180)

(15,663)

(45,750)

Impairment loss

1,394

1,394

Noncontrolling interest:

Income from consolidated joint venture attributable to noncontrolling interest

(2,374)

(2,183)

(4,813)

(4,175)

Real estate depreciation and amortization

(640)

(612)

(1,278)

(1,487)

FFO attributable to common stockholders

83,747

83,698

136,906

137,622

Operations held for investment:

Amortization of favorable and unfavorable contracts, net

2

96

5

195

Noncash ground rent

(292)

(285)

(573)

(560)

Noncash interest on derivatives and capital lease obligations, net

(1,040)

1,006

(4,177)

349

Loss on extinguishment of debt

4

Hurricane-related insurance proceeds net of uninsured losses

(1,084)

(1,015)

Closing costs - completed acquisitions

374

374

Prior year property tax adjustments, net

136

(101)

117

(101)

Noncash income tax provision (benefit), net

2,147

(1,819)

Noncontrolling interest:

Noncash ground rent

73

73

145

145

Noncash interest on derivative, net

(4)

(1)

(4)

(62)

1,163

(7,318)

402

Adjusted FFO attributable to common stockholders

$

83,685

$

84,861

$

129,588

$

138,024

FFO attributable to common stockholders per diluted share

$

0.37

$

0.38

$

0.61

$

0.63

Adjusted FFO attributable to common stockholders per diluted share

$

0.37

$

0.38

$

0.58

$

0.63

Basic weighted average shares outstanding

225,232

220,130

224,760

219,614

Shares associated with unvested restricted stock awards

277

291

310

277

Diluted weighted average shares outstanding

225,509

220,421

225,070

219,891

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Third Quarter 2018

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDAre, Excluding Noncontrolling Interest

Quarter Ended

September 30, 2018

Low

High

Net income

$

84,100

$

87,600

Depreciation and amortization

36,100

36,000

Amortization of lease intangibles

100

100

Interest expense

12,600

12,400

Income tax provision

1,200

1,200

Gain on sale of assets, net

(53,000)

(53,100)

Noncontrolling interest

(3,300)

(3,400)

Amortization of deferred stock compensation

2,100

2,100

Noncash ground rent

(300)

(300)

Capital lease obligation interest - cash ground rent

(600)

(600)

Adjusted EBITDAre, excluding noncontrolling interest

$

79,000

$

82,000

Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders

Net income

$

84,100

$

87,600

Preferred stock dividends

(3,200)

(3,200)

Real estate depreciation and amortization

36,000

35,900

Amortization of lease intangibles

100

100

Gain on sale of assets, net

(53,000)

(53,100)

Noncontrolling interest

(2,800)

(2,900)

Noncash ground rent

(300)

(300)

Noncash interest on derivatives and capital lease obligations, net

100

100

Noncash income tax provision

1,000

1,000

Adjusted FFO attributable to common stockholders

$

62,000

$

65,200

Adjusted FFO attributable to common stockholders per diluted share

$

0.27

$

0.29

Diluted weighted average shares outstanding

227,500

227,500

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Full Year 2018

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDAre, Excluding Noncontrolling Interest

Year Ended

December 31, 2018

Low

High

Net income

$

193,300

$

210,200

   Depreciation and amortization

146,200

146,000

   Amortization of lease intangibles

300

300

   Interest expense

45,200

44,800

   Income tax provision, net

100

100

   Gain on sale of assets, net

(68,700)

(68,800)

   Impairment loss

1,400

1,400

   Noncontrolling interest

(12,400)

(12,600)

   Amortization of deferred stock compensation

9,000

9,000

   Noncash ground rent

(1,100)

(1,100)

   Capital lease obligation interest - cash ground rent

(2,400)

(2,400)

   Hurricane-related insurance proceeds net of uninsured losses

(1,000)

(1,000)

   Prior year property tax adjustments, net

100

100

Adjusted EBITDAre, excluding noncontrolling interest

$

310,000

$

326,000

Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders

Net income

$

193,300

$

210,200

Preferred stock dividends

(12,800)

(12,800)

Real estate depreciation and amortization

145,700

145,500

Amortization of lease intangibles

300

300

Gain on sale of assets, net

(68,700)

(68,800)

Impairment loss

1,400

1,400

Noncontrolling interest

(10,400)

(10,600)

Noncash ground rent

(1,100)

(1,100)

Noncash interest on derivatives and capital lease obligations, net

(4,100)

(4,100)

Hurricane-related insurance proceeds net of uninsured losses

(1,000)

(1,000)

Prior year property tax adjustments, net

100

100

Noncash income tax benefit, net

(800)

(800)

Adjusted FFO attributable to common stockholders

$

241,900

$

258,300

Adjusted FFO attributable to common stockholders per diluted share

$

1.07

$

1.14

Diluted weighted average shares outstanding

226,500

226,500

Sunstone Hotel Investors, Inc.

Non-GAAP Financial Measures

24 Hotel Comparable Portfolio Adjusted EBITDAre and Margins

(Unaudited and in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

24 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1)

34.1%

34.7%

30.4%

31.5%

24 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net  (2)

34.1%

34.7%

30.4%

31.5%

Total revenues

$

317,447

$

318,796

$

588,893

$

599,539

Non-hotel revenues (3)

(21)

(22)

(41)

(40)

Total Actual Hotel Revenues

317,426

318,774

588,852

599,499

Recently acquired hotel prior ownership revenues (4)

4,126

8,106

Held for sale hotel revenues (5)

(10,514)

(10,900)

(19,390)

(20,191)

Sold hotel revenues (6)

(15,210)

(603)

(33,554)

Total 24 Hotel Comparable Portfolio Revenues

$

306,912

$

296,790

$

568,859

$

553,860

Net income

$

51,262

$

51,415

$

89,717

$

115,242

Non-hotel revenues (3)

(21)

(22)

(41)

(40)

Non-hotel operating expenses, net (7)

(785)

(446)

(1,558)

(881)

Hurricane-related uninsured losses (8)

16

85

Corporate overhead

7,594

7,573

14,696

14,352

Depreciation and amortization

37,334

39,525

74,022

80,332

Impairment loss

1,394

1,394

Interest and other income

(2,966)

(849)

(4,457)

(1,570)

Interest expense

11,184

13,084

20,060

24,333

Loss on extinguishment of debt

4

Gain on sale of assets

(1,189)

(15,659)

(45,474)

Income tax provision (benefit), net

2,375

242

(1,365)

450

Actual Hotel Adjusted EBITDAre

107,387

109,333

176,894

186,748

Recently acquired hotel prior ownership Adjusted EBITDAre (4)

1,300

2,478

Held for sale hotel Adjusted EBITDAre (5)

(2,803)

(3,026)

(5,008)

(5,426)

Sold hotel Adjusted EBITDAre (6)

(4,531)

943

(9,430)

24 Hotel Comparable Portfolio Adjusted EBITDAre

104,584

103,076

172,829

174,370

Prior year property tax adjustments, net (9)

136

(101)

117

(101)

24 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net

$

104,720

$

102,975

$

172,946

$

174,269

* Footnotes on page 16

(1)

24 Hotel Comparable Portfolio Adjusted EBITDAre Margin is calculated as 24 Hotel Comparable Portfolio Adjusted EBITDAre divided by Total 24 Hotel Comparable Portfolio Revenues.

(2)

24 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net is calculated as 24 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net divided by Total 24 Hotel Comparable Portfolio Revenues.

(3)

Non-hotel revenues include the amortization of favorable and unfavorable tenant lease contracts recorded in conjunction with the Company's acquisitions of the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, the Hilton New Orleans St. Charles, the Hyatt Regency San Francisco and the Wailea Beach Resort.

(4)

Recently acquired hotel includes hotel revenues and Adjusted EBITDAre generated during the prior ownership period for the Oceans Edge Resort & Marina, acquired in July 2017.

(5)

Held for sale hotel includes hotel revenues and Adjusted EBITDAre generated by the Hyatt Regency Newport Beach, which the Company classified as held for sale at June 30, 2018 and subsequently sold in July 2018.

(6)

Sold hotel includes hotel revenues and Adjusted EBITDAre generated during the Company's ownership period for the Marriott Philadelphia and the Marriott Quincy, both of which were sold in January 2018, along with the Marriott Park City and the Fairmont Newport Beach, sold in June 2017 and February 2017, respectively.

(7)

Non-hotel operating expenses, net include the following: the amortization of lease intangibles; the amortization of a favorable management agreement; noncash ground rent; and capital lease obligation interest - cash ground rent.

(8)

Hurricane-related uninsured losses for the second quarter of 2018 include $16,000 at the Oceans Edge Resort & Marina. Hurricane-related uninsured losses for the first six months of 2018 include $80,000 at the Oceans Edge Resort & Marina and a total of $5,000 at the two Houston hotels.

(9)

Prior year property tax adjustments, net for both the three and six months ended June 30, 2018 exclude the additional net expense of $0.1 million. Prior year property tax adjustments, net for both the three and six months ended June 30, 2017 exclude the additional net benefit of $0.1 million.

SOURCE Sunstone Hotel Investors, Inc.



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