Sunstone Hotel Investors Results

Sunstone Hotel Investors Reports Results For Third Quarter 2019

Sunstone Hotel Investors, Inc. (NYSE: SHO), the owner of Long-Term Relevant Real Estate in the hospitality sector, today announced results for the third quarter ended September 30, 2019.

Third Quarter 2019 Operational Results (as compared to Third Quarter 2018):

  • Net income decreased 63.4% to $33.5 million. Excluding the effect of the four hotels sold during the third and fourth quarters of 2018, net income would have decreased 12.0%.
  • Income attributable to common stockholders per diluted common share decreased 68.4% to $0.12. Excluding the effect of the four hotels sold during the third and fourth quarters of 2018, income attributable to common stockholders per diluted common share would have decreased 14.3%.
  • 21 Hotel Total Portfolio RevPAR increased 0.9% to $201.93.
  • 20 Hotel Comparable Portfolio RevPAR increased 0.9% to $202.57.
  • 20 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net decreased 1.5% to $85.8 million.
  • 20 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net decreased 100 basis points to 30.8%.
  • Adjusted EBITDAre, excluding noncontrolling interest decreased 4.0% to $81.2 million. Excluding the effect of the four hotels sold during the third and fourth quarters of 2018, Adjusted EBITDAre, excluding noncontrolling interest would have decreased 2.3%.
  • Adjusted FFO attributable to common stockholders per diluted share decreased 3.3% to $0.29. Excluding the effect of the four hotels sold during the third and fourth quarters of 2018, Adjusted FFO attributable to common stockholders per diluted share would have remained constant at $0.29.

John Arabia, President and Chief Executive Officer, stated, "We are pleased with our third quarter operating results and earnings, which met or exceeded our previously provided guidance despite moderating revenue growth and a challenging expense environment. Our favorable geographic concentration combined with the quality and condition of our hotels resulted in above average revenue growth compared to the industry average of the Luxury and Upper Upscale hotels in the top 25 markets."

Mr. Arabia added, "Subsequent to the end of the quarter, we were able to take advantage of a favorable transaction market and dispose of the leasehold interest in the Courtyard by Marriott Los Angeles at a trailing cap rate considerably lower than that implied by our current share price. This transaction not only makes sense financially, but further concentrates our 20-hotel portfolio in Long-Term Relevant Real Estate. We expect to distribute the gain on this sale to our stockholders through our fourth quarter dividend. Additionally, we retain significant liquidity that provides us with the ability to create long-term shareholder value through the continued repurchases of our common stock or through the acquisition of additional Long-Term Relevant Real Estate."

UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA

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

 
                                   
 

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
 

2019

 

2018

 

Change

   

2019

 

2018

 

Change

 
                                   

Net Income

$

33.5

 

$

91.6

 

(63.4)

%

 

$

97.4

 

$

181.3

 

(46.3)

%

Income Attributable to Common Stockholders per Diluted Share

$

0.12

 

$

0.38

 

(68.4)

%

 

$

0.36

 

$

0.73

 

(50.7)

%

                                   

21 Hotel Total Portfolio RevPAR (1)

$

201.93

 

$

200.21

 

0.9

%

 

$

197.26

 

$

192.91

 

2.3

%

20 Hotel Comparable Portfolio RevPAR (1)

$

202.57

 

$

200.73

 

0.9

%

 

$

197.97

 

$

193.50

 

2.3

%

                                   

20 Hotel Comparable Portfolio Occupancy (1)

 

86.2

%

 

86.4

%

(20)

 bps

   

84.1

%

 

84.1

%

 bps

20 Hotel Comparable Portfolio ADR (1)

$

235.00

 

$

232.33

 

1.1

%

 

$

235.40

 

$

230.08

 

2.3

%

                                   

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

 

30.8

%

 

31.8

%

(100)

 bps

   

30.7

%

 

31.0

%

(30)

 bps

                                   

Adjusted EBITDAre, excluding noncontrolling interest

$

81.2

 

$

84.6

 

(4.0)

%

 

$

244.8

 

$

248.2

 

(1.4)

%

Adjusted FFO Attributable to Common Stockholders

$

65.7

 

$

67.9

 

(3.1)

%

 

$

195.0

 

$

197.5

 

(1.3)

%

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$

0.29

 

$

0.30

 

(3.3)

%

 

$

0.86

 

$

0.87

 

(1.1)

%

                                       
                                   

(1)

The 21 Hotel Total Portfolio is comprised of all hotels owned by the Company as of September 30, 2019. The 20 Hotel Comparable Portfolio excludes the Courtyard by Marriott Los Angeles, which was classified as held for sale as of September 30, 2019, and subsequently sold in October 2019.

(2)

The 20 Hotel Comparable Portfolio Adjusted EBITDAre Margins exclude any prior year property tax adjustments, net.

Information regarding the non-GAAP financial measures disclosed in this release is provided below in "Non-GAAP Financial Measures." Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included later in this release.

The Company's actual results for the quarter ended September 30, 2019 compare to its guidance originally provided as follows:

             

Metric

 

Quarter Ended

September 30, 2019

Guidance (1)

 

Quarter Ended

September 30, 2019

Actual Results

(unaudited)

 

Performance

Relative to Prior

Guidance Midpoint

Net Income ($ millions)

 

$32  to  $36

 

$34

 

?

21 Hotel Total Portfolio RevPAR Growth

 

- 0.5% to + 1.5%

 

0.9%

 

+ 0.4%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

 

$79  to  $82

 

$81

 

+ $1

Adjusted FFO Attributable to Common Stockholders ($ millions)

 

$62  to  $65

 

$66

 

+ $3

Adjusted FFO Attributable to Common Stockholders per Diluted Share

 

$0.27  to  $0.29

 

$0.29

 

+ $0.01

Diluted Weighted Average Shares Outstanding

 

225,000,000

 

224,800,000

 

- 200,000

                 
             

(1)

Reflects guidance presented on August 1, 2019.

Recent Developments

On October 23, 2019, the Company sold the leasehold interest in the 187-room Courtyard by Marriott Los Angeles for a gross sale price of $50 million or approximately $267,000 per key. The sale price represents a 13.8x multiple on trailing 12-month hotel Adjusted EBITDAre and a 6.2% capitalization rate on trailing 12-month net operating income.

Through the date of this release, the Company has repurchased 3,783,936 shares of its common stock at an average price of $13.22 per share. Approximately $250 million of authorization capacity under the Company's $300 million stock repurchase program remains.

Balance Sheet/Liquidity Update

As of September 30, 2019, the Company had $776.2 million of cash and cash equivalents, including restricted cash of $46.2 million, total assets of $3.9 billion, including $2.9 billion of net investments in hotel properties, total consolidated debt of $977.1 million and stockholders' equity of $2.7 billion.

Capital Improvements

The Company invested $22.5 million and $75.3 million into capital improvements of its portfolio during the three and nine months ended September 30, 2019, respectively. In 2019, the Company expects to invest approximately $100 million to $110 million into its portfolio. As of the quarter ended September 30, 2019, the Company completed its previously announced 2019 renovation programs at the Hilton San Diego Bayfront, the Renaissance Harborplace and the Hyatt Regency San Francisco.  The Company incurred approximately $5 million of total revenue displacement during the first nine months of 2019 related to is major capital improvement projects.

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, legal settlements, 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, stock repurchases or unannounced financings during 2019.

For the fourth quarter of 2019, the Company expects:

     

Metric

 

Quarter Ended

December 31, 2019

Guidance (1)

Net Income ($ millions)

 

$62 to $67

20 Hotel Comparable Portfolio RevPAR Growth

 

- 1.5% to + 0.5%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

 

$68  to  $72

Adjusted FFO Attributable to Common Stockholders ($ millions)

 

$51  to  $55

Adjusted FFO Attributable to Common Stockholders per Diluted Share

 

$0.23  to  $0.25

Diluted Weighted Average Shares Outstanding

 

224,100,000

For the full year of 2019, the Company expects:

                     

Metric

 

Prior

Full Year 2019

Guidance (2)

 

Adjustments (3)

 

Adjusted Prior

Full Year 2019

Guidance

 

Current

Full Year 2019

Guidance (1)

 

Change in

Full Year 2019

Guidance

Midpoint

Net Income ($ millions)

 

$117  to  $130

 

+ $43

 

$160  to  $173

 

$159 to $164

 

- $5

20 Hotel Comparable Portfolio RevPAR Growth

 

+ 0.75% to + 2.75%

 

0.0%

 

+ 0.75% to + 2.75%

 

+ 1.0% to + 2.0%

 

- 0.25%

Adjusted EBITDAre, excluding noncontrolling interest ($ millions)

 

$312  to  $324

 

- $1

 

$311  to  $323

 

$313  to  $317

 

- $2

Adjusted FFO Attributable to Common Stockholders ($ millions)

 

$243  to  $255

 

- $1

 

$242  to  $254

 

$246  to  $250

 

$0

Adjusted FFO Attributable to Common Stockholders per Diluted Share

 

$1.07  to  $1.13

 

$0.00

 

$1.07  to  $1.13

 

$1.09  to  $1.11

 

$0

Diluted Weighted Average Shares Outstanding

 

226,200,000

 

?

 

226,200,000

 

226,000,000

 

- 200,000

                         
 

(1)

Detailed reconciliations of Net Income to non-GAAP financial measures are provided later in this release.

(2)

Reflects guidance presented on August 1, 2019.

(3)

Adjustments reflect the anticipated fourth quarter operating income for the Courtyard by Marriott Los Angeles, as well as the estimated gain on the sale of the hotel.

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

  • Full year total revenue displacement of approximately $5 million and full year Adjusted EBITDAre, excluding noncontrolling interest displacement of approximately $4 million related to 2019 major capital investment projects.
  • Full year 20 Hotel Comparable Portfolio Adjusted EBITDAre Margin is expected to decline 50 basis points to 75 basis points.
  • 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 $56 million, including approximately $3 million in amortization of deferred financing costs, approximately $3 million of finance lease obligation interest and approximately $7 million of noncash 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

The Company expects to declare a fourth quarter "catch-up" dividend (the "Fourth Quarter Dividend") to stockholders of record as of December 31, 2019 of approximately $0.50 to $0.60 per share of common stock, payable in January 2020. The Fourth Quarter Dividend includes the expected gain from the sale of the Courtyard by Marriott Los Angeles. Excluding the gain on sale, the Fourth Quarter Dividend range would be approximately $0.35 to $0.45 per share of common stock, and when combined with the cumulative $0.15 per share dividend paid to date in 2019, would represent the Company's total annual distribution from business operations. The Fourth Quarter Dividend is expected to be paid in cash, and the Company will declare the final amount of the dividend in December 2019. The amount of the Fourth Quarter Dividend could be impacted by a variety of factors, including a material change in expected operating performance or by future asset sales that may result in a net taxable gain or loss. 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.

The Company's board of directors declared 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 January 15, 2020 to stockholders of record as of December 31, 2019.

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 the date of this release has interests in 20 hotels comprised of 10,609 rooms. Sunstone's business is to acquire, own, asset manage and renovate or reposition 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



Logos, product and company names mentioned are the property of their respective owners.