Sunstone Results

Sunstone Hotel Investors Reports Results For Second Quarter 2015

Comparable Hotel Adjusted EBITDA Margin, including USALI Eleventh Revised Edition adoption and excluding non-current year property taxes, net increased 160 basis points to 34.9%.

Sunstone

Sunstone Hotel Investors, Inc. (NYSE: SHO) today announced results for the second quarter ended June 30, 2015.

Second Quarter 2015 Operational Results (as compared to Second Quarter 2014):

  • Comparable Hotel RevPAR, including adoption of the industry's Uniform System of Accounts for the Lodging Industry, Eleventh Revised Edition ("USALI Eleventh Revised Edition"), which became effective January 1, 2015, increased 7.1% to $184.05.
  • Comparable Hotel Adjusted EBITDA Margin, including USALI Eleventh Revised Edition adoption and excluding non-current year property taxes, net increased 160 basis points to 34.9%.
  • Adjusted EBITDA increased 16.9% to $110.4 million.
  • Adjusted FFO attributable to common stockholders per diluted share increased 10.3% to $0.43.
  • Income attributable to common stockholders increased 23.5% to $48.9 million.
  • Income attributable to common stockholders per diluted share increased 4.5% to $0.23.

John Arabia, President and Chief Executive Officer, stated, "During the second quarter, our portfolio produced strong top line growth while operating expenses were held in check. As a result, our Comparable Hotel Adjusted EBITDA increased 11% over prior year, and both our Adjusted EBITDA and Adjusted FFO per diluted share exceeded the high end of our guidance. Our most recently acquired hotels are performing at or above our initial expectations, and we believe these hotels will provide meaningful growth over the next several years as they continue to benefit from on-going capital investment. We remain confident that the lodging recovery remains intact, and we believe that our portfolio is well positioned to generate attractive earnings growth for the foreseeable future."

 

 

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,

2015

2014

Change

2015

2014

Change

Comparable Hotel RevPAR

$

184.05

$

172.39

6.8

%

$

167.14

$

156.69

6.7

%

Comparable Hotel RevPAR, including USALI Eleventh Revised Edition adoption

$

171.92

7.1

%

$

156.22

7.0

%

Comparable Hotel Occupancy

86.8

%

86.2

%

60

bps

83.2

%

82.3

%

90

bps

Comparable Hotel ADR

$

212.04

$

199.99

6.0

%

$

200.89

$

190.39

5.5

%

Comparable Hotel ADR, including USALI Eleventh Revised Edition adoption

$

199.44

6.3

%

$

189.82

5.8

%

Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net

34.9

%

33.8

%

110

bps

30.9

%

29.5

%

140

bps

Comparable Hotel Adjusted EBITDA Margin, including USALI Eleventh Revised Edition adoption and excluding non-current year property taxes, net

33.3

%

160

bps

29.1

%

180

bps

Net Income

$

53.7

$

43.5

$

54.9

$

40.0

Income Attributable to Common Stockholders per Diluted Share

$

0.23

$

0.22

$

0.22

$

0.17

Adjusted EBITDA

$

110.4

$

94.4

$

176.1

$

143.8

Adjusted FFO Attributable to Common Stockholders

$

89.6

$

72.2

$

134.6

$

99.8

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$

0.43

$

0.39

$

0.65

$

0.55

 

Disclosure regarding the non-GAAP financial measures in this release is included on pages 5 through 7. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 10 through 14 of this release.  

The Company's actual results for the quarter ended June 30, 2015 compare to its guidance originally provided as follows: 

Metric

Quarter Ended June 30, 2015 Guidance (1)

Quarter Ended June 30, 2015 Actual Results (unaudited)

Performance Relative to Prior Guidance Midpoint

Comparable Hotel RevPAR Growth, including USALI Eleventh Revised Edition adoption

+6.0% - 7.5%

7.1%

+0.3%

Net Income ($ millions)

$47 - $51

$54

+$5.0

Adjusted EBITDA ($ millions)

$103 - $107

$110

+$5.0

Adjusted FFO Attributable to Common Stockholders ($ millions)

$83 - $87

$90

+$5.0

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$0.40 - $0.42

$0.43

+$0.02

Diluted Weighted Average Shares Outstanding

207,800,000

207,800,000

 ̶ 

______________________

(1) Represents guidance presented on May 4, 2015.

Recent Developments

On July 24, 2015, the Company sold its $25.0 million 11.0% preferred equity investment (the "Preferred Equity Investment") and settled its $3.7 million working capital loan provided to the buyer of the Rochester Portfolio for an aggregate payment of $16.0 million, plus accrued interest. Both the Preferred Equity Investment and the working capital loan were carried net of deferred gains, resulting in zero balances on the Company's consolidated balance sheet. Accordingly, the Company will record a gain on sale of approximately $16.0 million during the third quarter of 2015.

Balance Sheet/Liquidity Update

As of June 30, 2015, the Company had approximately $187.2 million of cash and cash equivalents, including restricted cash of $88.5 million. Adjusting for $12.7 million of common and preferred dividends paid in July and the sale of the Preferred Equity Investment in July, the Company's pro forma cash and cash equivalents totaled $190.5 million, including restricted cash of $88.5 million.

As of June 30, 2015, the Company had total assets of $3.8 billion, including $3.5 billion of net investments in hotel properties, total consolidated debt of $1.3 billion and stockholders' equity of $2.3 billion. 

Capital Improvements

The Company invested $36.9 million into capital improvements of its portfolio during the three months ended June 30, 2015. The Company expects to invest approximately $145 million to $160 million into its portfolio in 2015, and expects $3.0 million to $5.0 millionof room revenue displacement resulting from the renovations. Major 2015 renovations in process include:

  • Boston Park Plaza: Year-to-date, the Company has invested $28.0 million to complete the repositioning of the hotel's public and retail space, which were completed on time and on budget. 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. 
  • Wailea Beach Marriott Resort & Spa: The Company has commenced on its comprehensive repositioning of the hotel, which includes renovation of the meeting space and one of the hotel's three pools in 2015. A complete renovation of all guestrooms and remaining public spaces is expected to be completed in 2016.

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 USALI Eleventh Revised Edition, which became effective in January 2015. Guidance for 2015 Comparable Hotel RevPAR and Comparable Hotel Adjusted 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 Adjusted EBITDA Margin change from prior year will differ slightly. The Company is presenting 2014 Comparable Hotel RevPAR and Comparable Hotel Adjusted EBITDA Margins on an as reported basis and on a pro forma basis, which will include the USALI Eleventh Revised Edition changes.

For the third quarter of 2015, the Company expects: 

Metric

Quarter Ended September 30, 2015     Guidance

Comparable Hotel RevPAR Growth

+3.0% - 4.0%

Net Income ($ millions)

$33 - $37

Adjusted EBITDA ($ millions)

$90 - $94

Adjusted FFO Attributable to Common Stockholders ($ millions)

$70 - $74

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$0.34 - $0.35

Diluted Weighted Average Shares Outstanding

207,900,000

For the full year of 2015, the Company expects: 

Metric

Prior Full Year 2015 Guidance (1)

Adjustments (2)

Adjusted Prior Full Year 2015 Guidance

Current Full Year 2015 Guidance

Change in Full Year 2015 Guidance Midpoint

Comparable Hotel RevPAR Growth

+5.0% - 7.0%

 ̶ 

+5.0% - 7.0%

+5.0% - 6.5%

-0.2%

Net Income ($ millions)

$109 - $123

-$3.2

$106 - $120

$110 - $121

+$2.5

Adjusted EBITDA ($ millions)

$344 - $356

-$3.2

$341 - $353

$347 - $356

+$4.5

Adjusted FFO Attributable to Common Stockholders ($ millions)

$262 - $274

-$3.2

$259 - $271

$265 - $274

+$4.5

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$1.26 - $1.32

-$0.02

$1.24 - $1.30

$1.28 - $1.32

+$0.03

Diluted Weighted Average Shares Outstanding

207,700,000

 ̶ 

207,700,000

207,700,000

 ̶ 

 

(1)

Reflects guidance presented on May 4, 2015.

(2)

Adjustments include the effects of the following: the sale of the Preferred Equity Investment in July 2015; the deferral of the $2 million Wailea Beach Marriott Resort & Spa guarantee payment from 2015 as this amount will now be paid in 2016, along with an additional $3 million.

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

  • Full year Comparable Hotel Adjusted EBITDA Margin (as compared to 2014 adjusted for the USALI Eleventh Revised Edition) expansion of approximately 75 to 125 basis points, an increase of 25 basis points to the midpoint of the prior range. 
  • Full year corporate overhead expense (excluding stock amortization and one-time expenses related to acquisition closing costs and severance charges) of approximately $21.5 million to $22.5 million, a reduction of $1.0 million to the midpoint of the prior range. 
  • Deferral of $2 million of the Wailea Beach Marriott Resort & Spa guarantee income from Q4 2015 to 2016. 
  • Full year interest expense of approximately $66 million to $67 million, including approximately $3 million in amortization of deferred financing fees, and excluding approximately $1.4 million of capital lease obligation interest. 
  • 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 $2.0 million to $3.0 million related to cancellations resulting from civil unrest in Baltimore, Maryland. The Company is pursuing a business interruption insurance claim for a portion of the disruption but may or may not receive any payments, and has not included any potential reimbursement in its current guidance. 
  • Full year preferred dividends of $9.2 million for the Series D cumulative redeemable preferred stock. 
  • Sale of the Preferred Equity Investment in July 2015, eliminating approximately $0.5 million and $0.7 million of interest income in Q3 2015 and Q4 2015, respectively, or $1.2 million for the second half of 2015.

Dividend Update 

On August 5, 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 October 15, 2015to common and preferred stockholders of record as of September 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.

 

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of August 6, 2015 has interests in 30 hotels comprised of 14,313 rooms. Sunstone's hotels are primarily in the urban, 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)

June 30,

December 31,

2015

2014

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

98,760

$

222,096

Restricted cash

88,456

82,074

Accounts receivable, net

52,174

34,227

Inventories

1,350

1,439

Prepaid expenses

11,616

14,909

Total current assets

252,356

354,745

Investment in hotel properties, net

3,532,156

3,538,129

Deferred financing fees, net

10,552

8,201

Goodwill

9,405

9,405

Other assets, net

16,329

14,485

Total assets

$

3,820,798

$

3,924,965

Liabilities and Equity

Current liabilities:

Accounts payable and accrued expenses

$

35,806

$

32,577

Accrued payroll and employee benefits

25,886

31,919

Dividends payable

12,735

76,694

Other current liabilities

44,174

36,466

Current portion of notes payable

135,825

121,328

Total current liabilities

254,426

298,984

Notes payable, less current portion

1,182,832

1,307,964

Capital lease obligations, less current portion

15,576

15,576

Other liabilities

35,265

33,607

Total liabilities

1,488,099

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 June 30, 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, 207,604,391 shares issued and outstanding at June 30, 2015 and 204,766,718 shares issued and outstanding at December 31, 2014

2,076

2,048

Additional paid in capital

2,456,604

2,418,567

Retained earnings

355,702

305,503

Cumulative dividends

(650,014)

(624,545)

Total stockholders' equity

2,279,368

2,216,573

Non-controlling interests in consolidated joint ventures

53,331

52,261

Total equity

2,332,699

2,268,834

Total liabilities and equity

$

3,820,798

$

3,924,965

 

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,

2015

2014

2015

2014

Revenues

Room

$

239,678

$

214,940

$

432,969

$

383,067

Food and beverage

79,265

68,733

151,449

128,644

Other operating

20,324

17,179

39,234

32,624

Total revenues

339,267

300,852

623,652

544,335

Operating expenses

Room

57,568

53,418

111,410

102,337

Food and beverage

52,812

45,109

103,031

88,017

Other operating

5,337

5,006

10,468

10,001

Advertising and promotion

15,567

13,655

30,927

26,626

Repairs and maintenance

11,381

10,706

22,939

21,587

Utilities

8,377

7,788

17,362

16,077

Franchise costs

10,818

10,261

19,418

18,338

Property tax, ground lease and insurance

23,151

21,413

46,764

40,465

Property general and administrative

37,107

31,963

71,556

60,885

Corporate overhead

6,923

7,674

21,176

14,233

Depreciation and amortization

40,873

37,973

81,580

75,588

Total operating expenses

269,914

244,966

536,631

474,154

Operating income

69,353

55,886

87,021

70,181

Interest and other income

1,828

891

2,774

1,607

Interest expense

(17,289)

(18,331)

(34,615)

(36,614)

Loss on extinguishment of debt

(2)

(2)

Income before income taxes and discontinued operations

53,890

38,446

55,178

35,174

Income tax provision

(233)

(110)

(318)

(334)

Income from continuing operations

53,657

38,336

54,860

34,840

Income from discontinued operations

5,199

5,199

Net income

53,657

43,535

54,860

40,039

Income from consolidated joint ventures attributable to non-controlling interests

(2,480)

(1,667)

(4,661)

(3,901)

Preferred stock dividends

(2,300)

(2,300)

(4,600)

(4,600)

Income attributable to common stockholders

$

48,877

$

39,568

$

45,599

$

31,538

Basic and diluted per share amounts:

Income from continuing operations attributable to common stockholders

$

0.23

$

0.19

$

0.22

$

0.14

Income from discontinued operations

0.03

0.03

Basic and diluted income attributable to common stockholders per common share

$

0.23

$

0.22

$

0.22

$

0.17

Basic and diluted weighted average common shares outstanding

207,577

182,604

207,091

181,836

Dividends 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, except per share amounts)

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

Net income

$

53,657

$

43,535

$

54,860

$

40,039

Operations held for investment:

   Depreciation and amortization

40,873

37,973

81,580

75,588

   Amortization of lease intangibles

1,029

1,030

2,057

2,058

   Interest expense

17,289

18,331

34,615

36,614

   Income tax provision

233

110

318

334

Non-controlling interests:

   Income from consolidated joint ventures attributable to non-controlling interests

(2,480)

(1,667)

(4,661)

(3,901)

   Depreciation and amortization

(854)

(824)

(1,701)

(1,645)

   Interest expense

(385)

(568)

(763)

(1,135)

EBITDA

109,362

97,920

166,305

147,952

Operations held for investment:

   Amortization of deferred stock compensation

1,786

1,944

4,681

3,316

   Amortization of favorable and unfavorable contracts, net

42

46

(179)

92

   Non-cash straightline lease expense

491

500

995

1,012

   Capital lease obligation interest - cash ground rent

(351)

(351)

(702)

(702)

   Gain on sale of assets, net

(1)

(49)

(1)

(55)

   Loss on extinguishment of debt

2

2

   Gain on redemption of note receivable

(939)

(939)

   Closing costs - completed acquisitions

102

158

   Prior year property tax adjustments, net

88

(357)

(100)

(3,235)

   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

(112)

(112)

(225)

(225)

   Prior year property tax adjustments, net

696

Discontinued operations:

   Gain on sale of assets, net

(5,199)

(5,199)

1,006

(3,476)

9,772

(4,142)

Adjusted EBITDA

$

110,368

$

94,444

$

176,077

$

143,810

 

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,

2015

2014

2015

2014

Net income

$

53,657

$

43,535

$

54,860

$

40,039

   Preferred stock dividends

(2,300)

(2,300)

(4,600)

(4,600)

Operations held for investment:

   Real estate depreciation and amortization

40,477

37,575

80,787

74,801

   Amortization of lease intangibles

1,029

1,030

2,057

2,058

   Gain on sale of assets, net

(1)

(49)

(1)

(55)

Non-controlling interests:

   Income from consolidated joint ventures attributable to non-controlling interests

(2,480)

(1,667)

(4,661)

(3,901)

   Real estate depreciation and amortization

(854)

(824)

(1,701)

(1,645)

Discontinued operations:

   Gain on sale of assets, net

(5,199)

(5,199)

FFO attributable to common stockholders

89,528

72,101

126,741

101,498

Operations held for investment:

   Write-off of deferred financing fees

455

455

   Amortization of favorable and unfavorable contracts, net

42

46

(179)

92

   Non-cash straightline lease expense

491

500

995

1,012

   Non-cash interest related to (gain) loss on derivatives, net

10

(125)

10

(234)

   Loss on extinguishment of debt

2

2

   Gain on redemption of note receivable

(939)

(939)

   Closing costs - completed acquisitions

102

158

   Prior year property tax adjustments, net

88

(357)

(100)

(3,235)

   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

(112)

(112)

(225)

(225)

   Non-cash interest related to loss on derivative

(2)

(2)

   Prior year property tax adjustments, net

696

35

54

7,880

(1,736)

Adjusted FFO attributable to common stockholders

$

89,563

$

72,155

$

134,621

$

99,762

FFO attributable to common stockholders per diluted share

$

0.43

$

0.39

$

0.61

$

0.56

Adjusted FFO attributable to common stockholders per diluted share

$

0.43

$

0.39

$

0.65

$

0.55

Basic weighted average shares outstanding

207,577

182,604

207,091

181,836

Shares associated with unvested restricted stock awards

183

475

291

473

Diluted weighted average shares outstanding

207,760

183,079

207,382

182,309

 

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Third Quarter 2015

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDA

Quarter Ended

September 30, 2015

Low

High

Net income

$

32,700

$

37,000

Depreciation and amortization

41,400

41,400

Amortization of lease intangibles

1,000

1,000

Interest expense

16,300

16,500

Income tax provision

400

400

Non-controlling interests

(3,100)

(3,500)

Amortization of deferred stock compensation

1,200

1,200

Non-cash straightline lease expense

400

400

Capital lease obligation interest - cash ground rent

(400)

(400)

Adjusted EBITDA

$

89,900

$

94,000

 

Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders

Net income

$

32,700

$

37,000

   Preferred stock dividends

(2,300)

(2,300)

   Real estate depreciation and amortization

40,800

40,800

   Amortization of lease intangibles

1,000

1,000

   Non-controlling interests

(2,800)

(3,200)

   Non-cash straightline lease expense

400

400

Adjusted FFO attributable to common stockholders

$

69,800

$

73,700

Adjusted FFO attributable to common stockholders per diluted share

$

0.34

$

0.35

Diluted weighted average shares outstanding

207,900

207,900

 

 

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

$

109,700

$

120,600

Depreciation and amortization

164,400

164,400

Amortization of lease intangibles

4,100

4,100

Interest expense

67,200

67,900

Income tax provision

1,000

1,000

Non-controlling interests

(11,800)

(14,400)

Amortization of deferred stock compensation

7,100

7,100

Non-cash straightline lease expense

1,400

1,400

Capital lease obligation interest - cash ground rent

(1,400)

(1,400)

Gain on redemption of note receivable

(900)

(900)

Prior year property tax adjustments, net

(100)

(100)

Boston Park Plaza relaunch costs

700

700

Lease termination costs

300

300

Costs associated with CEO severance

5,300

5,300

Adjusted EBITDA

$

347,000

$

356,000

 

Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders

Net income

$

109,700

$

120,600

Preferred stock dividends

(9,200)

(9,200)

Real estate depreciation and amortization

162,400

162,400

Amortization of lease intangibles

4,100

4,100

Non-controlling interests

(10,400)

(12,700)

Write-off of deferred financing fees

500

500

Non-cash straightline lease expense

1,400

1,400

Gain on redemption of note receivable

(900)

(900)

Prior year property tax adjustments, net

(100)

(100)

Boston Park Plaza relaunch costs

700

700

Lease termination costs

300

300

Costs associated with CEO severance

5,300

5,300

Amortization of deferred stock compensation associated with CEO severance

1,600

1,600

Adjusted FFO attributable to common stockholders

$

265,400

$

274,000

Adjusted FFO attributable to common stockholders per diluted share

$

1.28

$

1.32

Diluted weighted average shares outstanding

207,700

207,700

 

Sunstone Hotel Investors, Inc.

Non-GAAP Financial Measures

Comparable Hotel Adjusted EBITDA and Margins

(Unaudited and in thousands)

Three Months Ended

Six Months Ended

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net (1) (4)

34.9%

33.8%

30.9%

29.5%

Comparable Hotel Adjusted EBITDA Margin, including USALI adoption (2) (6)

34.8%

33.4%

30.9%

29.7%

Comparable Hotel Adjusted EBITDA Margin, including USALI adoption and excluding non-current year property taxes, net (3) (4) (6)

34.9%

33.3%

30.9%

29.1%

Total revenues

$

339,267

$

300,852

$

623,652

$

544,335

Non-hotel revenues (5)

(2,044)

(1,852)

(4,141)

(3,473)

USALI adjustments (6)

4,412

8,360

Total Actual Hotel Revenues

337,223

303,412

619,511

549,222

Prior ownership hotel revenues (7)

13,469

30,884

Prior ownership USALI adjustments (6)

77

166

Total Actual/Comparable Hotel Revenues

$

337,223

$

316,958

$

619,511

$

580,272

Net income

$

53,657

$

43,535

$

54,860

$

40,039

Non-hotel revenues (5)

(2,044)

(1,852)

(4,141)

(3,473)

Non-hotel operating expenses (8)

2,394

2,373

6,092

4,836

Corporate overhead

6,923

7,674

21,176

14,233

Depreciation and amortization

40,873

37,973

81,580

75,588

Interest and other income

(1,828)

(891)

(2,774)

(1,607)

Interest expense

17,289

18,331

34,615

36,614

Loss on extinguishment of debt

2

2

Income tax provision

233

110

318

334

Income from discontinued operations

(5,199)

(5,199)

Actual Hotel Adjusted EBITDA

117,499

102,054

191,728

161,365

Prior ownership pro forma net operating income (7)

1,809

6,500

Pro forma depreciation expense (7)

2,130

4,260

Comparable Hotel Adjusted EBITDA

117,499

105,993

191,728

172,125

Non-current year property taxes, net (4)

88

(353)

(100)

(3,231)

Comparable Hotel Adjusted EBITDA, excluding non-current year property taxes, net (4)

$

117,587

$

105,640

$

191,628

$

168,894

* Footnotes on page 15

(1)

 Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net is calculated as Comparable Hotel Adjusted EBITDA, excluding non-current year property taxes, net divided by Total revenues, net of non-hotel revenues, plus prior ownership hotel revenues.

(2)

 Comparable Hotel Adjusted EBITDA Margin, including USALI adoption is calculated as Comparable Hotel Adjusted EBITDA divided by Total Actual/Comparable Hotel Revenues.

(3)

 Comparable Hotel Adjusted EBITDA Margin, including USALI adoption and excluding non-current year property taxes, net is calculated as Comparable Hotel Adjusted EBITDA, excluding non-current year property taxes, net divided by Total Actual/Comparable Hotel Revenues.

(4)

 Non-current year property taxes, net for the three months ended June 30, 2015 and 2014 excludes the additional net expense of $0.1 million and net benefit of $0.4 million, respectively. Non-current year property taxes, net for the six months ended June 30, 2015 and 2014 excludes the additional net benefit of $0.1 million and $3.2 million, respectively.

(5)

 Non-hotel revenues represent revenues earned by BuyEfficient, as well as 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 Marriott Resort & Spa.

(6)

 USALI adjustments represent the changes needed to conform the Company's hotel revenues to the industry's Uniform System of Accounts for the Lodging Industry, Eleventh Revised Edition, which became effective January 1, 2015.

(7)

 Includes the Wailea Beach Marriott Resort & Spa hotel revenues and net operating income generated during the prior ownership period for the Wailea Beach Marriott Resort & Spa acquired by the Company on July 17, 2014, along with the Company's pro forma adjustment for depreciation expense. The Company obtained prior ownership information from the Wailea Beach Marriott Resort & Spa's previous owner during the due diligence period before acquiring the hotel. The Company performed a limited review of the information as part of its analysis of the acquisition. The Company determined the amount to include as pro forma depreciation expense by allocating the Company's purchase price of the hotel between the various components of the property (i.e. land, building, furniture, fixtures and equipment) based on the values included in existing tax records for the year ended December 31, 2013. Depreciable assets were then given lives ranging from 7 to 40 years.

(8)

 Non-hotel operating expenses represent expenses generated by BuyEfficient, as well as the following: the amortization of lease intangibles; the amortization of the favorable management agreement recorded in conjunction with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent Mile; non-cash straightline lease expense; and capital lease obligation interest - cash ground rent. Non-hotel operating expenses for the six months ended June 30, 2015 also includes $0.3 million in lease termination costs and $0.7 million in Boston Park Plaza relaunch costs. 

 

 



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