Sunstone Hotel Investors Results

Sunstone Hotel Investors Reports Results For Fourth Quarter And Full Year 2018

Sunstone

Sunstone Hotel Investors, Inc. today announced results for the fourth quarter and year ended December 31, 2018.

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

  • Net income increased 276.0% to $77.8 million. Excluding the effect of the gain on the three hotels sold during the fourth quarter of 2018, net income would have increased 43.0%.
  • Income attributable to common stockholders per diluted common share increased 357.1% to $0.32. Excluding the effect of the gain on the three hotels sold during the fourth quarter of 2018, income attributable to common stockholders per diluted common share would have increased 57.1%.
  • 22 Hotel Total Portfolio RevPAR increased 5.9% to $186.34.
  • 21 Hotel Comparable Portfolio RevPAR increased 5.6% to $188.02.
  • 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net and hurricane-related business interruption insurance proceeds increased 30 basis points to 30.4%.
  • Adjusted EBITDAre, excluding noncontrolling interest increased 5.6% to $83.6 million.
  • Adjusted FFO attributable to common stockholders per diluted share increased 3.6% to $0.29.

Full Year 2018 Operational Results (as compared to Full Year 2017):

  • Net income increased 69.3% to $259.1 million.
  • Income attributable to common stockholders per diluted common share increased 78.0% to $1.05.
  • 22 Hotel Total Portfolio RevPAR increased 2.9% to $189.60.
  • 21 Hotel Comparable Portfolio RevPAR increased 2.8% to $191.74.
  • 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net and hurricane-related business interruption insurance proceeds decreased 50 basis points to 30.9%.
  • Adjusted EBITDAre, excluding noncontrolling interest decreased 2.0% to $331.8 million. The decline in Adjusted EBITDAre, excluding noncontrolling interest is primarily attributable to asset sales that occurred in 2018.
  • Adjusted FFO attributable to common stockholders per diluted share decreased 4.1% to $1.17.

John Arabia, President and Chief Executive Officer, stated, "2018 marked a successful year for Sunstone as we increased our ownership of Long-Term Relevant Real Estate® through the selective disposition of six non-core hotels, the acquisition of both the land underlying the JW Marriott New Orleans and the perpetual rights to leased spaces at the Renaissance Washington DC, and through $150 million of capital investment throughout our portfolio. These capital investments, which are expected to drive growth in 2019 and beyond, include full renovations of the Marriott Boston Long Wharf and JW Marriott New Orleans and the completed development of a brand new, 46,000 square foot meeting facility at the Renaissance Orlando at SeaWorld®. Additionally, our portfolio of Long-Term Relevant Real Estate® outperformed our expectations, resulting in RevPAR and profitability significantly above the high-end of our prior guidance range. This better-than-expected operating performance benefited from strong fourth quarter room rate growth, combined with solid growth in food and beverage and other revenues."

Mr. Arabia continued, "In the past several years we have not only improved our portfolio but also built up significant financial optionality and capacity that represents meaningful earnings accretion once our excess capital is deployed.  Over time, we expect to gradually divest of our few remaining non-core assets while recycling sales proceeds and our significant existing financial capacity into Long-Term Relevant Real Estate® as attractive opportunities arise."

UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA

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

Three Months Ended December 31,

Year Ended December 31,

2018

2017

Change

2018

2017

Change

Net Income

$

77.8

$

20.7

276.0

%

$

259.1

$

153.0

69.3

%

Income Attributable to Common Stockholders per Diluted Share

$

0.32

$

0.07

357.1

%

$

1.05

$

0.59

78.0

%

22 Hotel Total Portfolio RevPAR (1)

$

186.34

$

176.03

5.9

%

$

189.60

$

184.33

2.9

%

21 Hotel Comparable Portfolio RevPAR (1)

$

188.02

$

178.04

5.6

%

$

191.74

$

186.59

2.8

%

21 Hotel Comparable Portfolio Occupancy (1)

82.2

%

81.0

%

120

bps

83.8

%

84.1

%

(30)

bps

21 Hotel Comparable Portfolio ADR (1)

$

228.74

$

219.80

4.1

%

$

228.81

$

221.87

3.1

%

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

30.4

%

30.1

%

30

bps

30.9

%

31.4

%

(50)

bps

Adjusted EBITDAre, excluding noncontrolling interest

$

83.6

$

79.2

5.6

%

$

331.8

$

338.6

(2.0)

%

Adjusted FFO Attributable to Common Stockholders

$

66.8

$

62.5

6.8

%

$

264.2

$

271.0

(2.5)

%

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$

0.29

$

0.28

3.6

%

$

1.17

$

1.22

(4.1)

%

(1)

The 22 Hotel Total Portfolio is comprised of all hotels owned by the Company as of December 31, 2018, plus the Marriott Tysons Corner, sold in December 2018. The 21 Hotel Comparable Portfolio is comprised of all hotels owned by the Company as of December 31, 2018. For the year ended December 31, 2017, both the 22 Hotel Total Portfolio and the 21 Hotel Comparable Portfolio include prior ownership results for the Oceans Edge Resort & Marina acquired in July 2017.

(2)

The 21 Hotel Comparable Portfolio Adjusted EBITDAre Margins exclude any prior year property tax adjustments, net and hurricane-related business interruption proceeds.

The Company's actual results for the quarter and year ended December 31, 2018 compare to its guidance originally provided as follows:

Metric

Quarter Ended

December 31, 2018

Guidance (1)

Quarter Ended

December 31, 2018

Actual Results

(unaudited)

Performance

Relative to Prior

Guidance Midpoint

Net Income ($ millions) (2)

$29 to  $33

$78

+ $47

22 Hotel Total Portfolio RevPAR Growth (3)

 + 3.0% to + 5.0%

5.9%

+ 1.9%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$78  to  $81

$84

+ $4

Adjusted FFO Attributable to Common Stockholders ($ millions)

$60  to  $63

$67

+ $5

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$0.26  to  $0.28

$0.29

+ $0.02

Diluted Weighted Average Shares Outstanding

227,700,000

227,500,000

- 200,000

Metric

Full Year 2018

Guidance (1)

Full Year 2018

Actual Results

(unaudited except

Net Income)

Performance

Relative to Prior

Guidance Midpoint

Net Income ($ millions) (2)

$211 to  $214

$259

+ $47

22 Hotel Total Portfolio RevPAR Growth (3)

+ 2.0% to + 3.0%

2.9%

+ 0.4%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$326  to  $329

$332

+ $4

Adjusted FFO Attributable to Common Stockholders ($ millions)

$257  to  $260

$264

+ $6

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$1.13  to  $1.15

$1.17

+ $0.03

Diluted Weighted Average Shares Outstanding

226,500,000

226,300,000

- 200,000

(1)

Reflects guidance presented on November 5, 2018.

(2)

Net income includes a $48.2 million gain on the sales of the Marriott Tysons Corner, the Hilton North Houston and the Marriott Houston (the "Houston hotels"). Excluding this gain, pro forma net income performance relative to prior guidance midpoint would be $(2) for both the fourth quarter and year ended December 31, 2018.

(3)

The 22 Hotel Total Portfolio RevPAR Growth is comprised of all hotels owned by the Company as of December 31, 2018, plus the Marriott Tysons Corner sold in December 2018.

2018 Highlights

  • Enhanced the overall quality of the portfolio and increased the concentration of Long-Term Relevant Real Estate® through the disposition of six hotels with prior year RevPAR that was 44% below the 2018 21 Hotel Comparable Portfolio RevPAR of $191.74.
  • Acquired the land underlying the JW Marriott New Orleans.
  • Acquired the exclusive perpetual rights to portions of the Renaissance Washington DC that were previously leased.
  • Completed over $150 million of capital improvements throughout the portfolio, including:
    • January 2019 opening of 46,000 square feet of new state-of-the-art meeting space, including a new 16,400 square foot ballroom on vacant land adjacent to the Renaissance Orlando at SeaWorld®.
    • April 2018 conversion of vacant retail space into 8,000 square feet of new meeting space at the Boston Park Plaza.
    • Full guestroom renovation of the Marriott Boston Long Wharf, including a complete redesign of all guestrooms and bathrooms, the creation of an M Club and the addition of three new guestrooms.
    • Full guestroom renovation of the JW Marriott New Orleans, including a complete redesign of all guestrooms, enlarging many of the bathrooms and converting a majority of the bathtubs to showers.
    • $4 million of investment into environmental and sustainability projects, including LED lighting retrofits to increase efficiency and reduce energy consumption, conversion of certain hotel engineering components to more sustainable energy sources and the installation of variable frequency mechanical equipment and smart sensors to reduce overall energy consumption.
  • Returned $157 million of cash in the form of dividends to the Company's stockholders.
  • Further enhanced the Company's already strong liquidity position, ending 2018 with over $809 million of total unrestricted cash on hand. After adjusting for the January 2019 payment of common and preferred dividends, the Company has over $682 million of total pro forma unrestricted cash available for future investment.

Balance Sheet/Liquidity Update

As of December 31, 2018, the Company had $862.4 million of cash and cash equivalents, including restricted cash of $53.1 million, total assets of $4.0 billion, including $3.0 billion of net investments in hotel properties, total consolidated debt of $982.8 million and stockholders' equity of $2.7 billion.

Capital Improvements

The Company invested $33.1 million and $150.8 million into capital improvements of its portfolio during the quarter and year ended December 31, 2018, respectively. In 2019, the Company expects to invest approximately $125 million to $145 million into its portfolio. Based on the expected timing and scope of the 2019 projects, the Company expects $4.0 million to $5.0 million of total revenue displacement related to its major capital improvement projects in 2019, which represents a $5.5 million reduction from the levels witnessed in 2018. A selection of the Company's planned 2019 capital improvement projects include:

  • Hilton San Diego Bayfront: The Company expects to invest approximately $22 million to $24 million, with a portion spent in 2018, to renovate all 1,190 guestrooms and suites. The work will include the replacement of guestroom soft goods and renovation of corridors. The renovation began during the fourth quarter of 2018, and is expected to be completed during the third quarter of 2019. In addition, the Company expects to reposition the food and beverage offerings at the hotel, which will allow for the conversion of certain existing restaurant space into additional meeting space. The food and beverage repositioning work is currently anticipated to occur in 2020. The Company expects $2.5 million to $3.0 million of revenue displacement during the first three quarters of 2019 in connection with the guestroom soft goods replacement and corridor renovation.
  • Renaissance Harborplace: The Company expects to invest approximately $21 million to $23 million, with a portion spent in 2018, to renovate all 622 guestrooms and suites. The renovation includes the complete redesign of all guestrooms and bathrooms, including the conversion of 445 bathtubs to showers. The renovation began during the fourth quarter of 2018, and is expected to be completed during the second quarter of 2019. The Company expects approximately $1.0 million to $1.5 million of revenue displacement in the first half of 2019.
  • Hyatt Regency San Francisco: The Company expects to invest approximately $6 million to convert currently under-utilized corridor space into 17 new guestrooms. The conversion includes the addition of 15 rooms that will offer striking views of the San Francisco bay and surrounding area. Construction of the new guestrooms is expected to begin during the fourth quarter of 2019 and be completed in the second quarter of 2020. The Company does not anticipate any revenue displacement related to the construction.
  • Environmental and Sustainability Projects: The Company expects to invest approximately $4 million to $10 million into additional environmental and sustainability projects in 2019, including the installation of solar panels at certain hotels in the portfolio, additional LED lighting retrofits and the modernization of other mechanical equipment intended to reduce its overall energy consumption.

2019 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 2019.

The Company's 2019 guidance does not include any residual impact from the recent government shutdown or any additional impact from any future government shutdowns, which could likely have a prolonged negative impact on its business.

For the first quarter of 2019, the Company expects:

Metric

Quarter Ended

March 31, 2019

Guidance (1)

Net Income ($ millions)

$10  to  $14

21 Hotel Comparable Portfolio RevPAR Growth

 + 2.5% to + 4.5%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$59  to  $62

Adjusted FFO Attributable to Common Stockholders ($ millions)

$42  to  $45

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$0.18  to  $0.20

Diluted Weighted Average Shares Outstanding

227,700,000

For the full year of 2019, the Company expects:

Metric

Full Year 2019

Guidance (1)

Net Income ($ millions)

$109  to  $134

21 Hotel Comparable Portfolio RevPAR Growth

 0.0% to + 3.0%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

$300  to  $324

Adjusted FFO Attributable to Common Stockholders ($ millions)

$229  to  $254

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$1.01  to  $1.11

Diluted Weighted Average Shares Outstanding

228,000,000

(1)

See page 13 for detailed reconciliations of Net Income to non-GAAP financial measures.

First quarter and full year 2019 guidance are based in part on the following assumptions:

  • Full year revenue displacement of $4.0 million to $5.0 million, related to planned 2019 capital investment projects.
  • Full year Adjusted EBITDAre, excluding noncontrolling interest displacement of approximately $3.0 million to $4.0 million, related to planned 2019 capital investment projects.
  • Full year 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin is expected to decline 25 basis points to 75 basis points.
  • Full year corporate overhead expense (excluding deferred stock amortization) of approximately $23 million.
  • Full year amortization of deferred stock compensation expense of approximately $9 million.
  • Full year interest expense of approximately $51 million, including approximately $3 million in amortization of deferred financing costs and approximately $3 million of capital lease obligation interest. Full year interest expense does not include any noncash gain or loss 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 February 11, 2019, 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 April 15, 2019 to stockholders of record as of March 29, 2019.

The Company expects to continue to pay a quarterly cash dividend of $0.05 per share of common stock throughout 2019. Consistent with the Company's past practice and to the extent that the expected regular quarterly dividends for 2019 do not satisfy the annual distribution requirements, the Company expects to satisfy the annual distribution requirement by paying a "catch-up" dividend in January 2020. 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.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of February 12, 2019 has interests in 21 hotels comprised of 10,780 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)

December 31,

December 31,

2018

2017

Assets

Current assets:

Cash and cash equivalents

$

809,316

$

488,002

Restricted cash

53,053

71,309

Accounts receivable, net

33,844

34,219

Inventories

1,078

1,323

Prepaid expenses

11,183

10,464

Assets held for sale, net

122,807

Total current assets

908,474

728,124

Investment in hotel properties, net

3,030,998

3,106,066

Deferred financing costs, net

3,544

1,305

Other assets, net

29,817

22,317

Total assets

$

3,972,833

$

3,857,812

Liabilities and Equity

Current liabilities:

Accounts payable and accrued expenses

$

30,425

$

31,810

Accrued payroll and employee benefits

25,039

26,687

Dividends and distributions payable

126,461

133,894

Other current liabilities

44,962

44,502

Current portion of notes payable, net

5,838

5,477

Liabilities of assets held for sale

189

Total current liabilities

232,725

242,559

Notes payable, less current portion, net

971,225

977,282

Capital lease obligations, less current portion

27,009

26,804

Other liabilities

30,703

28,989

Total liabilities

1,261,662

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 December 31, 2018 and 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 December 31, 2018 and 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, 228,246,247 shares issued and outstanding at December 31, 2018 and 225,321,660 shares issued and outstanding at December 31, 2017

2,282

2,253

Additional paid in capital

2,728,684

2,679,221

Retained earnings

1,182,722

932,277

Cumulative dividends and distributions

(1,440,202)

(1,270,013)

Total stockholders' equity

2,663,486

2,533,738

Noncontrolling interest in consolidated joint venture

47,685

48,440

Total equity

2,711,171

2,582,178

Total liabilities and equity

$

3,972,833

$

3,857,812

Sunstone Hotel Investors, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

(unaudited)

Revenues

Room

$

191,132

$

199,532

$

799,369

$

829,320

Food and beverage

67,199

73,990

284,668

296,933

Other operating

22,521

16,668

75,016

67,385

Total revenues

280,852

290,190

1,159,053

1,193,638

Operating expenses

Room

50,281

53,019

210,204

213,301

Food and beverage

46,187

50,457

193,486

201,225

Other operating

4,681

4,272

17,169

16,392

Advertising and promotion

13,708

13,762

55,523

58,572

Repairs and maintenance

10,627

11,653

43,111

46,298

Utilities

6,791

7,575

29,324

30,419

Franchise costs

8,442

9,314

35,423

36,681

Property tax, ground lease and insurance

18,756

20,239

82,414

83,716

Other property-level expenses

31,414

33,510

132,419

138,525

Corporate overhead

8,191

7,232

30,247

28,817

Depreciation and amortization

36,268

38,583

146,449

158,634

Impairment loss

5,626

1,394

40,053

Total operating expenses

235,346

255,242

977,163

1,052,633

Gain on sale of assets

48,174

116,961

45,474

Operating income

93,680

34,948

298,851

186,479

Interest and other income

3,451

1,743

10,500

4,340

Interest expense

(16,081)

(10,425)

(47,690)

(51,766)

Loss on extinguishment of debt

(835)

(820)

(835)

(824)

Income before income taxes and discontinued operations

80,215

25,446

260,826

138,229

Income tax (provision) benefit, net

(2,459)

(4,766)

(1,767)

7,775

Income from continuing operations

77,756

20,680

259,059

146,004

Income from discontinued operations

7,000

Net income

77,756

20,680

259,059

153,004

Income from consolidated joint venture attributable to noncontrolling interest

(1,425)

(1,284)

(8,614)

(7,628)

Preferred stock dividends

(3,208)

(3,208)

(12,830)

(12,830)

Income attributable to common stockholders

$

73,123

$

16,188

$

237,615

$

132,546

Basic and diluted per share amounts:

Income from continuing operations attributable to common stockholders

$

0.32

$

0.07

$

1.05

$

0.56

Income from discontinued operations

0.03

Basic and diluted income attributable to common stockholders per common share

$

0.32

$

0.07

$

1.05

$

0.59

Basic and diluted weighted average common shares outstanding

227,068

224,147

225,924

221,898

Distributions declared per common share

$

0.54

$

0.58

$

0.69

$

0.73

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 December 31,

Year Ended December 31,

2018

2017

2018

2017

Net income

$

77,756

$

20,680

$

259,059

$

153,004

Operations held for investment:

Depreciation and amortization

36,268

38,583

146,449

158,634

Amortization of lease intangibles

65

62

93

251

Interest expense

16,081

10,425

47,690

51,766

Income tax provision (benefit), net

2,459

4,766

1,767

(7,775)

Gain on sale of assets, net

(48,176)

(11)

(116,916)

(45,747)

Impairment loss

5,626

1,394

40,053

EBITDAre

84,453

80,131

339,536

350,186

Operations held for investment:

Amortization of deferred stock compensation

2,069

1,854

9,007

8,042

Amortization of favorable and unfavorable contracts, net

(5)

3

(2)

218

Noncash ground rent

(287)

(281)

(1,147)

(1,122)

Capital lease obligation interest - cash ground rent

(593)

(590)

(2,361)

(1,867)

Loss on extinguishment of debt

835

820

835

824

Hurricane-related uninsured losses (insurance proceeds), net

41

(990)

1,690

Closing costs - completed acquisition

729

Prior year property tax adjustments, net

(320)

(251)

(203)

(800)

Property-level restructuring, severance and management transition costs

29

29

Noncontrolling interest:

Income from consolidated joint venture attributable to noncontrolling interest

(1,425)

(1,284)

(8,614)

(7,628)

Depreciation and amortization

(641)

(620)

(2,556)

(2,767)

Interest expense

(545)

(482)

(1,982)

(1,950)

Noncash ground rent

73

73

290

290

Loss on extinguishment of debt

(205)

(205)

Discontinued operations:

Gain on sale of assets

(7,000)

(810)

(922)

(7,694)

(11,546)

Adjusted EBITDAre, excluding noncontrolling interest

$

83,643

$

79,209

$

331,842

$

338,640

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 December 31,

Year Ended December 31,

2018

2017

2018

2017

Net income

$

77,756

$

20,680

$

259,059

$

153,004

Preferred stock dividends

(3,208)

(3,208)

(12,830)

(12,830)

Operations held for investment:

Real estate depreciation and amortization

36,020

38,486

145,827

158,177

Amortization of lease intangibles

65

62

93

251

Gain on sale of assets, net

(48,176)

(11)

(116,916)

(45,747)

Impairment loss

5,626

1,394

40,053

Noncontrolling interest:

Income from consolidated joint venture attributable to noncontrolling interest

(1,425)

(1,284)

(8,614)

(7,628)

Real estate depreciation and amortization

(641)

(620)

(2,556)

(2,767)

Discontinued operations:

Gain on sale of assets

(7,000)

FFO attributable to common stockholders

60,391

59,731

265,457

275,513

Operations held for investment:

Amortization of favorable and unfavorable contracts, net

(5)

3

(2)

218

Noncash ground rent

(287)

(281)

(1,147)

(1,122)

Noncash interest on derivatives and capital lease obligations, net

3,805

(1,777)

(1,190)

3,106

Loss on extinguishment of debt

835

820

835

824

Hurricane-related uninsured losses (insurance proceeds), net

41

(990)

1,690

Closing costs - completed acquisition

729

Prior year property tax adjustments, net

(320)

(251)

(203)

(800)

Property-level restructuring, severance and management transition costs

29

29

Noncash income tax provision (benefit), net

2,232

4,393

1,132

(9,235)

Noncontrolling interest:

Noncash ground rent

73

73

290

290

Noncash interest on derivative, net

(25)

(1)

(30)

Loss on extinguishment of debt

(205)

(205)

6,362

2,791

(1,247)

(4,535)

Adjusted FFO attributable to common stockholders

$

66,753

$

62,522

$

264,210

$

270,978

FFO attributable to common stockholders per diluted share

$

0.27

$

0.27

$

1.17

$

1.24

Adjusted FFO attributable to common stockholders per diluted share

$

0.29

$

0.28

$

1.17

$

1.22

Basic weighted average shares outstanding

227,068

224,147

225,924

221,898

Shares associated with unvested restricted stock awards

474

566

377

391

Diluted weighted average shares outstanding

227,542

224,713

226,301

222,289

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for First Quarter and Full Year 2019

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDAre, Excluding Noncontrolling Interest

Quarter Ended

Year Ended

March 31, 2019

December 31, 2019

Low

High

Low

High

Net income

$

10,200

$

13,800

$

109,000

$

134,200

Depreciation and amortization

36,200

36,000

144,800

144,200

Amortization of lease intangibles

100

100

300

300

Interest expense

12,900

12,700

51,200

50,800

Income tax provision

300

300

1,300

1,300

Noncontrolling interest

(1,900)

(2,100)

(12,300)

(12,500)

Amortization of deferred stock compensation

2,100

2,100

9,300

9,300

Noncash ground rent

(300)

(300)

(1,200)

(1,200)

Capital lease obligation interest - cash ground rent

(600)

(600)

(2,400)

(2,400)

Adjusted EBITDAre, excluding noncontrolling interest

$

59,000

$

62,000

$

300,000

$

324,000

Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders

Net income

$

10,200

$

13,800

$

109,000

$

134,200

Preferred stock dividends

(3,200)

(3,200)

(12,800)

(12,800)

Real estate depreciation and amortization

36,000

35,800

143,800

143,200

Amortization of lease intangibles

100

100

300

300

Noncontrolling interest

(1,300)

(1,500)

(10,100)

(10,300)

Noncash ground rent

(300)

(300)

(1,200)

(1,200)

Noncash interest on capital lease obligations

100

100

200

200

Adjusted FFO attributable to common stockholders

$

41,600

$

44,800

$

229,200

$

253,600

Adjusted FFO attributable to common stockholders per diluted share

$

0.18

$

0.20

$

1.01

$

1.11

Diluted weighted average shares outstanding

227,700

227,700

228,000

228,000

Sunstone Hotel Investors, Inc.

Non-GAAP Financial Measures

21 Hotel Comparable Portfolio Adjusted EBITDAre and Margins

(Unaudited and in thousands)

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1)

30.5%

30.2%

30.9%

31.5%

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

30.4%

30.1%

30.9%

31.4%

Total revenues

$

280,852

$

290,190

$

1,159,053

$

1,193,638

Non-hotel revenues (3)

(28)

(20)

(94)

(82)

Hurricane-related business interruption insurance proceeds (4)

(4,959)

(5,771)

Total Actual Hotel Revenues

275,865

290,170

1,153,188

1,193,556

Prior ownership hotel revenues (5)

9,249

Sold hotel revenues (6)

(6,501)

(35,151)

(67,065)

(154,963)

Total 21 Hotel Comparable Portfolio Revenues

$

269,364

$

255,019

$

1,086,123

$

1,047,842

Net income

$

77,756

$

20,680

$

259,059

$

153,004

Non-hotel revenues (3)

(28)

(20)

(94)

(82)

Non-hotel operating expenses, net (7)

(784)

(775)

(3,282)

(2,396)

Property-level restructuring, severance and management transition costs (8)

29

29

Hurricane-related business interruption insurance proceeds (4)

(4,959)

(5,771)

Hurricane-related uninsured losses (9)

41

110

1,690

Hospitality procurement supply rebate (10)

(1,088)

Corporate overhead

8,191

7,232

30,247

28,817

Depreciation and amortization

36,268

38,583

146,449

158,634

Impairment loss

5,626

1,394

40,053

Gain on sale of assets

(48,174)

(116,961)

(45,474)

Interest and other income

(3,451)

(1,743)

(10,500)

(4,340)

Interest expense

16,081

10,425

47,690

51,766

Loss on extinguishment of debt

835

820

835

824

Income tax provision (benefit), net

2,459

4,766

1,767

(7,775)

Income from discontinued operations

(7,000)

Actual Hotel Adjusted EBITDAre

84,223

85,635

349,884

367,721

Prior ownership hotel Adjusted EBITDAre (5)

2,856

Sold hotel Adjusted EBITDAre (6)

(1,975)

(8,634)

(14,394)

(40,873)

21 Hotel Comparable Portfolio Adjusted EBITDAre

82,248

77,001

335,490

329,704

Prior year property tax adjustments, net (11)

(320)

(251)

(203)

(800)

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

$

81,928

$

76,750

$

335,287

$

328,904

* Footnotes on page 15

(1)

21 Hotel Comparable Portfolio Adjusted EBITDAre Margin is calculated as 21 Hotel Comparable Portfolio Adjusted EBITDAre divided by Total 21 Hotel Comparable Portfolio Revenues.

(2)

21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net is calculated as 21 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net divided by Total 21 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)

Hurricane-related business interruption insurance proceeds include $0.8 million and $5.0 million received in the first quarter of 2018 and fourth quarter of 2018, respectively, at the Oceans Edge Resort & Marina related to Hurricane Irma disruption in 2017 and 2018.

(5)

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

(6)

Sold hotel includes hotel revenues and Adjusted EBITDAre generated during the Company's ownership periods for Marriott Tysons Corner, sold in December 2018, the Houston hotels, sold in October 2018, the Hyatt Regency Newport Beach, sold in July 2018, 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)

Property-level restructuring, severance and management transition costs include $29,000 in management transitions costs incurred in the fourth quarter of 2018 at the Hilton New Orleans St. Charles.

(9)

Hurricane-related uninsured losses for 2018 include $0.1 million at the Oceans Edge Resort & Marina and a total of $5,000 at the Houston hotels. Hurricane-related uninsured losses for the fourth quarter of 2017 include an adjustment totaling $(0.1) million at the Houston hotels, and additional cost of $0.1 million at the Oceans Edge Resort & Marina. Hurricane-related uninsured losses for 2017 include the following costs: a total of $0.8 million at the Houston hotels; $0.8 million at the Oceans Edge Resort & Marina; and $0.1 million at the Renaissance Orlando at SeaWorld®.

(10)

Hospitality procurement supply rebate includes a one-time $1.1 million rebate received from one of the Company's third-party management companies during 2018.

(11)

Prior year property tax adjustments, net for both the fourth quarters of 2018 and 2017 exclude the additional net benefit of $0.3 million. Prior year property tax adjustments, net for years 2018 and 2017 exclude the additional net benefit of $0.2 million and $0.8 million, respectively.

SOURCE Sunstone Hotel Investors, Inc.



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