Sunstone Results

Sunstone Hotel Investors Reports Results For First Quarter 2015

Adjusted Comparable Hotel RevPAR increased 7.0% to $150.12 - Adjusted Comparable Hotel EBITDA Margins increased 220 basis points to 26.2%.

Sunstone

Sunstone Hotel Investors, Inc. (NYSE: SHO) yesterday announced results for the first quarter ended March 31, 2015.

First Quarter 2015 Operational Results (as compared to First Quarter 2014) (1):

  • Adjusted Comparable Hotel RevPAR increased 7.0% to $150.12.
  • Adjusted Comparable Hotel EBITDA Margins increased 220 basis points to 26.2%.
  • Adjusted EBITDA increased 33.1% to $65.7 million.
  • Adjusted FFO available to common stockholders per diluted share increased 46.7% to $0.22.
  • Loss attributable to common stockholders decreased 59.2% to $3.3 million.
  • Loss attributable to common stockholders per diluted share decreased 50.0% to $0.02.

John Arabia, President and Chief Executive Officer, stated, "Our portfolio exceeded our first quarter expectations driven by a combination of stronger than anticipated group demand, continued gains in food and beverage, increased ancillary income, solid expense control and margin expansion. With the exception of the New York City market, which continues to lag other U.S. major markets, our portfolio continues to demonstrate strong revenue growth, resulting in an increase to the midpoint of our 2015 Adjusted EBITDA and Adjusted FFO guidance."

Mr. Arabia continued, "We recently completed the renovation of the lobby, common areas, meeting space and various retail spaces at the Boston Park Plaza and are very excited about the hotel's prospects. Furthermore, our other two most recent acquisitions – the Hyatt Regency San Francisco and the Marriott Wailea Beach Resort – are on track to materially outperform our underwriting for 2015 results. Our portfolio is in great shape and is well positioned, our balance sheet provides us with substantial financial flexibility and investment capacity, and our team is highly focused on creating shareholder value from both internal and external sources."

(1) Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 30 Hotel Portfolio, which includes all hotels held for investment by the Company as of March 31, 2015, and also includes prior ownership results as applicable for the Marriott Wailea acquired in July 2014. Adjusted Comparable Hotel RevPAR and Adjusted Comparable Hotel EBITDA Margin information include the Comparable Portfolio for the three months ended March 31, 2014 adjusted to conform to the industry's Uniform System of Accounts for the Lodging Industry, Eleventh Revised Edition, which became effective in January 2015. Comparable Hotel EBITDA Margin and Adjusted Comparable Hotel EBITDA Margin information exclude non-current year net property tax related adjustments, but include the full impact of current year property tax related adjustments in the quarter such adjustments are realized.

SELECTED STATISTICAL AND FINANCIAL DATA

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

(unaudited)

Three Months Ended March 31,

2015

2014

Change

Comparable Hotel RevPAR

$

150.12

$

140.70

6.7

%

Adjusted Comparable Hotel RevPAR (1)

140.24

7.0

%

Comparable Hotel Occupancy

79.6

%

78.3

%

130

bps

Comparable Hotel ADR

$

188.59

$

179.69

5.0

%

Adjusted Comparable Hotel ADR (1)

$

179.10

5.3

%

Comparable Hotel EBITDA Margin

26.2

%

24.4

%

180

bps

Adjusted Comparable Hotel EBITDA Margin (1)

24.0

%

220

bps

Net Income (Loss)

$

1.2

$

(3.5)

Loss Attributable to Common Stockholders per Diluted Share

$

(0.02)

$

(0.04)

Adjusted EBITDA

$

65.7

$

49.4

Adjusted FFO Available to Common Stockholders

$

45.1

$

27.6

Adjusted FFO Available to Common Stockholders per Diluted Share

$

0.22

$

0.15

 

(1) Presentation conforms to the industry's Uniform System of Accounts for the Lodging Industry, Eleventh Revised Edition, which became effective in January 2015. 

Disclosure regarding the non-GAAP financial measures in this release is 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 March 31, 2015 compare to its guidance originally provided as follows: 

Metric

Quarter Ended 

March 31, 2015 

Guidance (1)

Quarter Ended 

March 31, 2015 

Actual Results 

(unaudited)

Performance Relative 

to Prior 

Guidance Midpoint

Adjusted Comparable Hotel RevPAR Growth

+5.0% - 6.5%

7.0%

+1.2%

Net Income ($ millions) (2)

$2 - $5

$1

($3)

Adjusted EBITDA ($ millions)

$58 - $61

$66

+$6

Adjusted FFO Available to Common Stockholders ($ 

millions)

$37 - $40

$45

+$6

Adjusted FFO Available to Common Stockholders per 

Diluted Share

$0.18 - $0.19

$0.22

+$0.03

Diluted Weighted Average Shares Outstanding

206,600,000

207,000,000

400,000

(1) Represents guidance presented on February 17, 2015.

(2) Net income for the first quarter ended March 31, 2015 includes the effects of $0.7 million in property-level restructuring costs, and $0.3 million in lease termination costs. Excluding these items, first quarter net income would have been $2 million, or $2 million below the prior guidance midpoint.

Recent Developments

On April 2, 2015, the Company entered into a new $400.0 million senior unsecured credit facility, which replaced its existing $150.0 million senior unsecured credit facility. The new credit facility's interest rate is based on a pricing grid with a range of 155 to 230 basis points over LIBOR, depending on the Company's leverage ratios, and represents a decline in pricing from the old credit facility of approximately 30 to 60 basis points. The term of the new credit facility is four years, expiring in April 2019, with an option to extend for an additional one year subject to the satisfaction of certain customary conditions. The new credit facility also includes an accordion option, which allows the Company to request additional lender commitments for up to a total capacity of $800.0 million. 

On May 1, 2015, the Company repaid $99.1 million of debt secured by four of its hotels: the Marriott Houston, the Marriott Park City, the Marriott Philadelphia and the Marriott Tysons Corner. Following the repayment of the four mortgages, the Company has 18 unencumbered hotels.

Balance Sheet/Liquidity Update

As of March 31, 2015, the Company had approximately $244.2 million of cash and cash equivalents, including restricted cash of $87.3 million. Adjusting for $12.7 million of common and preferred dividends paid in April and the repayment of $99.1 million of debt secured by the four hotels, the Company's pro forma cash and cash equivalents totaled $132.4 million, including restricted cash of $87.3 million.

As of March 31, 2015, the Company had total assets of $3.9 billion, including $3.5 billion of net investments in hotel properties, total consolidated debt of $1.4 billion and stockholders' equity of $2.2 billion. Following the repayment of $99.1 million of debt secured by the four hotels, the Company's pro forma consolidated debt totaled $1.3 billion.

Capital Improvements

The Company invested $36.1 million into capital improvements of its portfolio during the three months ended March 31, 2015. The Company incurred approximately $1.3 million of room revenue disruption at the Boston Park Plaza during the three months ended March 31, 2015, in line with management's expectations. The Company expects to invest approximately $145 million to $160 millioninto its portfolio in 2015 – a reduction of $20.0 million due to the timing of fourth quarter projects - and expects $3.0 million to $5.0 million of room revenue displacement resulting from the renovations. Major 2015 renovations in process include:

  • Boston Park Plaza:  The Company has substantially completed the repositioning of the hotel's first four floors, including the following: complete renovation of all public spaces and meeting rooms; the addition of 9,000 square feet of new meeting space; and the renovation and completion of approximately 30,000 square feet of formally unoccupied retail space, which has already been leased to third-party tenants. Additionally, the Company has substantially completed its investment to upgrade the hotel's infrastructure, including HVAC systems, elevators, building facade and roofing systems. During the seasonally slower fourth quarter 2015 and first quarter 2016, the Company will commence and substantially complete the final phase of the renovation program, which includes the hotel's guestrooms and suites, consistent with prior expectations. 
  • Marriott Wailea:  In 2015, the Company plans to complete renovations of both the guestrooms and meeting spaces. The Company anticipates minimal revenue disruption in 2015. In 2016, the Company expects to complete a renovation of the resort's public spaces, as well as the creation of comprehensive resort pool and recreation facilities.

2015 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 or changes in its operating environment, nor does it take into account any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, early lease termination costs, prior year property tax assessments and/or credits, debt repurchases or unannounced financings during 2015. The guidance presented takes into account various accounting changes as stipulated by the industry's Uniform System of Accounts for the Lodging Industry, Eleventh Revised Edition (the "USALI Eleventh Revised Edition"), which became effective in January 2015. Guidance for 2015 Comparable Hotel RevPAR and Comparable Hotel EBITDA Margins has been presented to reflect growth rates compared to prior year as if these 2014 statistics included the USALI Eleventh Revised Edition changes. Actual Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin change from prior year will differ slightly. The Company is presenting 2014 Comparable Hotel RevPAR and Comparable Hotel EBITDA Margins on an as reported basis and on a pro forma basis, which will include the USALI Eleventh Revised Edition changes.

For the second quarter of 2015, the Company expects: 

Metric

Quarter Ended   

June 30, 2015     

Guidance

Comparable Hotel RevPAR Growth

+ 6.0% - 7.5%

Net Income ($ millions)

$47 - $51

Adjusted EBITDA ($ millions)

$103 - $107

Adjusted FFO Available to Common Stockholders ($ millions)

$83 - $87

Adjusted FFO Available to Common Stockholders per Diluted Share

$0.40 - $0.42

Diluted Weighted Average Shares Outstanding

207,800,000

For the full year of 2015, the Company expects: 

Metric

Prior Full Year 

2015

Guidance (1)

Revised Full Year 

2015 

Guidance

Change in Full Year 

2015 Guidance 

Midpoint

Comparable Hotel RevPAR Growth

+ 5.0% - 7.0%

+ 5.0% - 7.0%

0.0%

Net Income ($ millions)

$117 - $139

$109 - $123

$(12)

Adjusted EBITDA ($ millions)

$336 - $356

$344 - $356

+$4

Adjusted FFO Available to Common Stockholders ($ millions)

$254 - $274

$262 - $274

+$4

Adjusted FFO Available to Common Stockholders per Diluted Share

$1.22 - $1.32

$1.26 - $1.32

+$0.02

Diluted Weighted Average Shares Outstanding

207,400,000

207,700,000

300,000

(1) Reflects guidance presented on February 17, 2015.

Second quarter and full year 2015 guidance are based in part on the following assumptions:

  • Full year guarantee payment of $2 million related to the Marriott Wailea. 
  • Full year Comparable Hotel EBITDA Margin (as compared to 2014 adjusted for the USALI Eleventh Revised Edition) expansion of approximately 50 to 100 basis points, which excludes any guarantee payments. 
  • Full year corporate overhead expense (excluding stock amortization and one-time expenses related to acquisition closing costs and severance charges) of approximately $22.5 million to $23.5 million. 
  • Full year interest expense of approximately $66 million to $67 million, including approximately $3 million in amortization of deferred financing fees. 
  • Full year expense of approximately $0.7 million in one-time costs related to the Boston Park Plaza retail, meeting space and lobby relaunch, and $0.3 million in one-time costs related to an early lease termination at the Boston Park Plaza. 
  • Full year hotel revenue disruption of $0.5 million to $1.0 million related to cancellations resulting from civil unrest in Baltimore, Maryland. 
  • Full year preferred dividends of $9.2 million for the Series D cumulative redeemable preferred stock.

Dividend Update 

On May 1, 2015, the board of directors declared a cash dividend of $0.05 per share of common stock, as well as a cash dividend of $0.50 per share payable to its Series D cumulative redeemable preferred stockholders. The dividends will be paid on July 15, 2015 to common and preferred stockholders of record as of June 30, 2015. 

The Company expects to continue to pay a regular quarterly dividend of $0.05 per share of common stock throughout 2015.  To the extent that the expected regular quarterly dividends for 2015 do not satisfy the Company's annual distribution requirements, the Company expects to satisfy the annual distribution requirement by paying a "catch up" dividend in January 2016, which dividend may be paid in cash and/or a combination of cash and shares of common stock.  However, 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. 

Corporate Governance

Effective May 1, 2015, Douglas M. Pasquale was appointed non-executive Chairman of the Board of Directors, as part of the Company's previously announced Chairman rotation. Mr. Pasquale succeeds Keith M. Locker, who will continue to serve as a Board member. Mr. Locker stated, "Doug has made a significant contribution to Sunstone since joining the Board in 2011. I am very confident that Sunstone, under Doug's leadership, will continue to drive shareholder value, maintain best-in-class corporate governance, and represent the best interests of our shareholders. I look forward to continuing to work with Doug, the rest of the Board and management in the future."

Mr. Pasquale added, "Under Keith's tenure as Independent Chairman, Sunstone has grown its assets by $1.1 billion, and generated total shareholder returns of roughly 141%. We thank Keith for his many contributions, and I personally look forward to continuing to work with Keith, John, and the entire Board and management team to create value for our shareholders."   

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 information prepared in accordance with generally accepted accounting principles. The Company has no obligation to update any of the 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 May 4, 2015 has interests in 30 hotels comprised of 14,306 rooms. Sunstone's hotels are primarily in the upper upscale segment and are operated under nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont and Sheraton. 

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

March 31,

December 31,

2015

2014

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

156,972

$

222,096

Restricted cash

87,260

82,074

Accounts receivable, net

50,907

34,227

Inventories

1,371

1,439

Prepaid expenses

15,890

14,909

Total current assets

312,400

354,745

Investment in hotel properties, net

3,537,125

3,538,129

Deferred financing fees, net

7,572

8,201

Goodwill

9,405

9,405

Other assets, net

14,855

14,485

Total assets

$

3,881,357

$

3,924,965

Liabilities and Equity

Current liabilities:

Accounts payable and accrued expenses

$

35,811

$

32,577

Accrued payroll and employee benefits

22,964

31,919

Dividends payable

12,734

76,694

Other current liabilities

44,159

36,466

Current portion of notes payable

235,970

121,328

Total current liabilities

351,638

298,984

Notes payable, less current portion

1,187,447

1,307,964

Capital lease obligations, less current portion

15,576

15,576

Other liabilities

34,670

33,607

Total liabilities

1,589,331

1,656,131

Commitments and contingencies

Equity:

Stockholders' equity:

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

8.0% Series D Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and 

outstanding at March 31, 2015 and December 31, 2014, stated at liquidation preference 

of $25.00 per share

115,000

115,000

Common stock, $0.01 par value, 500,000,000 shares authorized, 207,518,510 shares issued and 

     outstanding at March 31, 2015 and 204,766,718 shares issued and outstanding at December 

     31, 2014

2,075

2,048

Additional paid in capital

2,454,720

2,418,567

Retained earnings

304,525

305,503

Cumulative dividends

(637,279)

(624,545)

Total stockholders' equity

2,239,041

2,216,573

Non-controlling interests in consolidated joint ventures

52,985

52,261

Total equity

2,292,026

2,268,834

Total liabilities and equity

$

3,881,357

$

3,924,965

 

 

Sunstone Hotel Investors, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended March 31,

2015

2014

(unaudited)

Revenues

Room

$

193,291

$

167,529

Food and beverage

72,184

64,429

Other operating

18,910

15,473

Total revenues

284,385

247,431

Operating expenses

Room

53,842

48,321

Food and beverage

50,219

47,539

Other operating

5,131

5,023

Advertising and promotion

15,360

12,971

Repairs and maintenance

11,558

10,881

Utilities

8,985

8,289

Franchise costs

8,600

8,077

Property tax, ground lease and insurance

23,613

19,052

Property general and administrative

34,449

28,809

Corporate overhead

14,253

6,559

Depreciation and amortization

40,707

37,615

Total operating expenses

266,717

233,136

Operating income

17,668

14,295

Interest and other income

946

716

Interest expense

(17,326)

(18,283)

Income (loss) before income taxes

1,288

(3,272)

Income tax provision

(85)

(224)

Net income (loss)

1,203

(3,496)

Income from consolidated joint ventures attributable to non-

controlling interests

(2,181)

(2,234)

Preferred stock dividends

(2,300)

(2,300)

Loss attributable to common stockholders

$

(3,278)

$

(8,030)

Basic and diluted per share amounts:

Basic and diluted loss attributable to common stockholders per 

common share

$

(0.02)

$

(0.04)

Basic and diluted weighted average common shares 

outstanding

206,600

181,061

Dividends declared per common share

$

0.05

$

0.05

 

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA

Three Months Ended March 31,

2015

2014

Net income (loss)

$

1,203

$

(3,496)

Operations held for investment:

   Depreciation and amortization

40,707

37,615

   Amortization of lease intangibles

1,028

1,028

   Interest expense

17,326

18,283

   Income tax provision

85

224

Non-controlling interests:

   Income from consolidated joint ventures attributable to non-controlling interests

(2,181)

(2,234)

   Depreciation and amortization

(847)

(821)

   Interest expense

(378)

(567)

EBITDA

56,943

50,032

Operations held for investment:

   Amortization of deferred stock compensation

2,895

1,372

   Amortization of favorable and unfavorable contracts, net

(221)

46

   Non-cash straightline lease expense

504

512

   Capital lease obligation interest - cash ground rent

(351)

(351)

   Gain on sale of assets

(6)

   Closing costs - completed acquisitions

56

   Prior year property tax adjustments, net

(188)

(2,878)

   Boston Park Plaza relaunch costs

683

   Lease termination costs

300

   Costs associated with CEO severance

5,257

Non-controlling interests:

   Non-cash straightline lease expense

(113)

(113)

   Prior year property tax adjustments, net

696

8,766

(666)

Adjusted EBITDA

$

65,709

$

49,366

 

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income (Loss) to FFO and Adjusted FFO Available to Common Stockholders

Three Months Ended March 31,

2015

2014

Net income (loss)

$

1,203

$

(3,496)

Operations held for investment:

   Real estate depreciation and amortization

40,310

37,226

   Amortization of lease intangibles

1,028

1,028

   Gain on sale of assets

(6)

Non-controlling interests:

   Income from consolidated joint ventures attributable to non-controlling interests

(2,181)

(2,234)

   Real estate depreciation and amortization

(847)

(821)

FFO

39,513

31,697

Operations held for investment:

   Preferred stock dividends

(2,300)

(2,300)

   Amortization of favorable and unfavorable contracts, net

(221)

46

   Non-cash straightline lease expense

504

512

   Non-cash interest related to gain on derivatives, net

(109)

   Closing costs - completed acquisitions

56

   Prior year property tax adjustments, net

(188)

(2,878)

   Boston Park Plaza relaunch costs

683

   Lease termination costs

300

   Costs associated with CEO severance

5,257

   Amortization of deferred stock compensation associated with CEO severance

1,623

Non-controlling interests:

   Non-cash straightline lease expense

(113)

(113)

   Prior year property tax adjustments, net

696

5,545

(4,090)

Adjusted FFO available to common stockholders

$

45,058

$

27,607

FFO per diluted share

$

0.19

$

0.17

Adjusted FFO available to common stockholders per diluted share

$

0.22

$

0.15

Basic weighted average shares outstanding

206,600

181,061

Shares associated with unvested restricted stock awards

398

469

Diluted weighted average shares outstanding

206,998

181,530

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Second Quarter 2015

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDA

Quarter Ended

June 30, 2015

Low

High

Net income

$

46,500

$

50,900

   Depreciation and amortization

40,500

40,500

   Amortization of lease intangibles

1,000

1,000

   Interest expense

16,300

16,300

   Income tax provision

100

100

   Non-controlling interests

(3,300)

(3,700)

   Amortization of deferred stock compensation

1,900

1,900

   Non-cash straightline lease expense

400

400

   Capital lease obligation interest - cash ground rent

(400)

(400)

Adjusted EBITDA

$

103,000

$

107,000

Reconciliation of Net Income to Adjusted FFO Available to Common Stockholders

Net income

$

46,500

$

50,900

   Real estate depreciation and amortization

39,900

39,900

   Amortization of lease intangibles

1,000

1,000

   Non-controlling interests

(2,900)

(3,200)

   Preferred stock dividends

(2,300)

(2,300)

   Non-cash straightline lease expense

400

400

Adjusted FFO available to common stockholders

$

82,600

$

86,700

Adjusted FFO available to common stockholders per diluted share

$

0.40

$

0.42

Diluted weighted average shares outstanding

207,800

207,800

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Full Year 2015

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDA

Year Ended

December 31, 2015

Low

High

Net income

$

108,800

$

123,100



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