Sunstone Hotel Investors (NYSE: SHO) Third Quarter 2012 Comparable Hotel RevPAR Increased 5.1%

2012-11-05
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  • Sunstone Comparable Hotel EBITDA Margin increased by 130 basis points to 28.8%.

    Sunstone Hotel Investors, Inc. (NYSE: SHO) announced results for the third quarter ended September 30, 2012.

    Third Quarter 2012 Operational Results (as compared to Third Quarter 2011) (1):

    • Comparable Hotel RevPAR increased 5.1% to $138.01.
    • Comparable Hotel EBITDA Margin increased by 130 basis points to 28.8%.
    • Adjusted EBITDA increased by 14.6% to $60.1 million.
    • Adjusted FFO per diluted share increased by 15.0% to $0.23.
    • Income available to common stockholders was $30.9 million (vs. a loss attributable to common stockholders of $24.0 million in 2011).
    • Income available to common stockholders per diluted share was $0.23 (vs. a loss attributable to common stockholders per diluted share of $0.20 in 2011).

    Ken Cruse, President and Chief Executive Officer, stated, "During the third quarter our portfolio benefitted from solid demand trends and continued improvements in operational efficiency, which helped drive a 130-basis-point increase in our Comparable Hotel EBITDA Margin and a 15% increase in our Adjusted FFO per diluted share.  Also during the third quarter we continued to improve our portfolio quality while deleveraging our balance sheet by acquiring an unlevered primary-market hotel and divesting of four highly levered, low-RevPAR secondary-market hotels."

    Mr. Cruse continued, "We continue to make value-adding investments into our portfolio.  We recently completed a $25 million full guestroom and bathroom renovation of our 807-room Renaissance Washington DC. While the renovation resulted in short-term displacement – negatively impacting our portfolio's Comparable Hotel RevPAR by 170 basis points and Hotel EBITDA Margins by 60 basis points in the third quarter – we believe the project will drive material outperformance at this hotel going forward.   To this point, our 2013 group booking pace at the Renaissance Washington DC is now up more than 22% year-over-year, and the hotel now has more group rooms on the books for 2013 than in any year since 2007."

    Mr. Cruse added, "In spite of solid industry fundamentals, with any cyclical recovery there will be periods of softer-than-anticipated growth in select markets.  Accordingly, we have moderated our guidance for RevPAR and profitability growth for the remainder of 2012.  With 2013 group booking pace up 8.1%, muted supply trends, and continued growth in transient demand, we remain positive in our outlook for 2013 and beyond." 

    (1)

    Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 30 Hotel Portfolio, which includes all hotels in which the Company has interests as of September 30, 2012, and also includes prior ownership results as applicable in 2012 and 2011 for the Doubletree Guest Suites Times Square acquired by the Company in January 2011, the JW Marriott New Orleans acquired by the Company in February 2011, the Hilton San Diego Bayfront acquired by the Company in April 2011, the Hyatt Chicago Magnificent Mile acquired by the Company in June 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company in July 2012. Comparable Hotel EBITDA Margin information excludes current and prior year net property tax and CAM adjustments.

     

     

    SELECTED FINANCIAL DATA

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

    (unaudited)

    Three Months Ended September 30,

    Nine Months Ended September 30,

    2012

    2011

    % Change

    2012

    2011

    % Change

    Total Revenue

    $   221.1

    $  197.5

    11.9%

    $   642.8

    $   551.1

    16.6%

    Comparable Hotel RevPAR

    $ 138.01

    $ 131.36

    5.1%

    $ 134.36

    $ 126.51

    6.2%

    Comparable Hotel Occupancy

    80.7%

    78.4%

      230 bps 

    78.9%

    75.6%

    330 bps

    Comparable Hotel ADR

    $ 171.02

    $ 167.55

    2.1%

    $ 170.29

    $ 167.34

    1.8%

    Comparable Hotel EBITDA Margin

    28.8%

    27.5%

      130 bps 

    28.8%

    27.6%

    120 bps

    Net income (loss)

    $     39.6

    $   (16.6 )

    $     38.4

    $     73.7

    Income available (loss attributable) to common stockholders

    $     30.9

    $   (24.0 )

    $     14.3

    $     53.0

    Income available (loss attributable) to common stockholders per diluted share

    $     0.23

    $   (0.20 )

    $     0.11

    $     0.45

    EBITDA

    $     96.5

    $    38.6

    $   205.6

    $   229.0

    Adjusted EBITDA

    $     60.1

    $    52.4

    $   174.3

    $   148.5

    FFO

    $     30.1

    $      9.6

    $     81.7

    $   134.1

    Adjusted FFO

    $     31.6

    $    23.7

    $     87.4

    $     67.6

    FFO per diluted share (1)

    $     0.22

    $    0.08

    $     0.66

    $     1.14

    Adjusted FFO per diluted share (1)

    $     0.23

    $    0.20

    $     0.70

    $     0.58

    (1)

    Reflects the Series C convertible preferred stock on a "non-converted" basis. On an "as-converted" basis, FFO per diluted share is $0.23 and $0.09, respectively, for the three months ended September 30, 2012 and 2011, and $0.67 and $1.14, respectively, for the nine months ended September 30, 2012 and 2011. On an "as-converted" basis, Adjusted FFO per diluted share is $0.24 and $0.21, respectively, for the three months ended September 30, 2012 and 2011, and $0.71 and $0.59, respectively, for the nine months ended September 30, 2012 and 2011.

    Disclosure regarding the non-GAAP financial measures in this release is included on page 6. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 9 through 13 of this release. 

    The Company's actual results for the quarter ended September 30, 2012 compare to its prior guidance, adjusted for dispositions completed in the third quarter 2012, as follows:

    Metric

    Quarter Ended September 30, 2012 Guidance (1)

    Impact of Dispositions (2)

    Adjusted Prior Quarter Ended September 30, 2012 Guidance

    Quarter Ended September 30, 2012 Actual Results (3)

    Performance Relative to Adjusted Prior Guidance Midpoint

    Comparable Hotel RevPAR 

    +3% - 5%

    +3% - 5%

    5.1%

    +1.1%

    Net Income ($ millions)

    $1 - $4

    $1 - $4

    $2.0

    ($0.5)

    Adjusted EBITDA ($ millions)

    $57 - $60

    ($0.3)

    $57 - $60

    $60.1

    +$1.6

    Adjusted FFO ($ millions)

    $28 - $31

    ($0.2)

    $28 - $31

    $31.6

    +$2.1

    Adjusted FFO per diluted share

    $0.20 - $0.23

    $0.20 - $0.23

    $0.23

    +$0.02

    Diluted Weighted Average Shares Outstanding

    135,700,000

    135,700,000

    135,554,000

    (146,000)

    (1) Reflects guidance presented on August 2, 2012.

    (2) Reflects supplemental financial data presented in the transaction press release dated September 10, 2012.

    (3) Reflects net income adjusted to exclude gain on sale of assets and closing costs - completed acquisition.

    Acquisitions / Dispositions Update

    On July 19, 2012, the Company completed the previously announced acquisition of the 357-room Hilton Garden Inn Chicago Downtown/Magnificent Mile for a gross purchase price of $91.75 million. The acquisition was funded with a portion of the proceeds received from the Company's public offering of 12.1 million shares of its common stock (including the underwriter's exercise of its overallotment option). 

    On August 23, 2012, the Company completed the previously announced sale of the 284-room Marriott Del Mar for a gross sales price of $66.0 million. The Company received net proceeds of $17.7 million after proration adjustments and closing costs, including the assumption of the existing mortgage secured by the hotel which totaled $47.1 million on the date of sale, and recognized a gain on the sale of $25.5 million during the third quarter 2012.

    On September 14, 2012, the Company completed the previously announced portfolio sale of the 229-room Doubletree Guest Suites Minneapolis, the 257-room Hilton Del Mar, the 350-room Marriott Troy and an office building next to the Marriott Troy (the "Portfolio Sale") for an adjusted gross sales price of $107.2 million, including the assumption of approximately $75.6 million in mortgage debt and approximately $2.2 million of deferred management fees. The Company received net proceeds from the Portfolio Sale of $28.6 million after proration adjustments, closing costs and the debt and deferred management fee assumptions, and recognized a $12.7 million gain on the sale during the third quarter 2012.

    Balance Sheet/Liquidity Update

    In September 2012, the Company amended and restated its $150.0 million senior unsecured revolving credit facility, which was scheduled to mature in November 2013. The pricing on the amended revolving credit facility was reduced and the 1% LIBOR floor was eliminated. The maturity of the credit facility was extended by two years to November 2015 with an option to extend to November 2016. The amended credit facility's interest rate is based on a pricing grid with a range of 175 to 350 basis points, which represents a reduction from the previous grid that ranged from 325 to 425 basis points over LIBOR depending on the Company's leverage ratio. The credit facility also includes an accordion option that allows the Company to request additional lender commitments up to a total of $350.0 million.

    As of September 30, 2012, the Company had approximately $241.3 million of cash and cash equivalents, including restricted cash of $76.8 million.

    As of September 30, 2012, the Company had total assets of approximately $3.1 billion, including $2.8 billion of net investments in hotel properties, total consolidated debt of $1.4 billion and stockholders' equity of $1.5 billion.

    John Arabia, Chief Financial Officer, stated, "We continue to methodically execute on our balanced business plan and patiently de-lever our balance sheet in a shareholder friendly manner. Since the end of 2011, we have decreased total leverage by approximately$190 million, reducing our net debt plus preferred to Adjusted EBITDA, from approximately 8.2 times to approximately 6.8 times. We will continue to look for opportunities to grow the Company through highly-equitized acquisitions, but only when such acquisitions may be executed at attractive valuations relative to our cost of equity. Accordingly, given the recent softness in the value of our shares, we do not see equity-funded acquisitions as an attractive option at this time. The recent amendment to our undrawn credit facility provides us with incremental access to capital at a lower cost and with less restrictive covenants. That said, we do not currently expect to use our credit facility to fund acquisitions."

    Capital Improvements

    The Company invested $28.2 million in capital improvements into its portfolio during the third quarter of 2012, and $76.6 million during the nine months ended September 30, 2012.

    The Company will begin renovating several of its hotels beginning in the fourth quarter 2012 and continuing into 2013. The Company expects approximately $2 million of revenue disruption during the fourth quarter 2012 and $6.0 - $8.0 million of revenue disruption during full-year 2013, the majority of which is expected to occur during the first quarter 2013. Significant near term renovations include:

    • Hilton Times Square:  The Company expects to invest approximately $15.0 million to fully renovate all guestrooms, guest bathrooms and corridors of the 460-room Hilton Times Square, creating a rich and appealing new rooms product. The renovation is expected to commence in January 2013 and is expected to be completed by April 2013.
    • Hyatt Chicago Magnificent Mile:  The Company expects to invest approximately $25.0 million on a complete renovation and repositioning of the 417-room Hyatt Chicago Magnificent Mile. The complete renovation will include all public spaces and guestrooms/bathrooms, elevating the hotel to a sophisticated destination catering to high-rated business transient and group travelers. The renovation is expected to commence during the fourth quarter 2012 and is expected to be completed during the third quarter 2013. 
    • Hyatt Regency Newport Beach:  The Company expects to invest approximately $12.0 million to renovate all guestrooms and recreation facilities, as well as certain public spaces of the 403-room Hyatt Regency Newport Beach, establishing the hotel as a high quality resort destination catering to a broad range of business, leisure and group travelers. The renovation is expected to commence during the fourth quarter 2012 and is expected to be completed during the second quarter 2013.  
    • Renaissance Westchester:  The Company expects to invest approximately $12.0 million to renovate all guestrooms and public spaces of the 347-room Renaissance Westchester, transforming the rooms and public spaces into stylish yet functional meeting, socializing and relaxing venues. The renovation is expected to commence during the fourth quarter 2012 and is expected to be completed during the second quarter 2013.  

    Hurricane Sandy Update

    Following a preliminary physical inspection of its hotels, the Company is pleased to report that none of its hotels have reported any material damage related to Hurricane Sandy.  The Company is assessing the short-term earnings impact of Hurricane Sandy and has included preliminary expectations for fourth quarter disruption in its 2012 Outlook.  

    2012 Outlook

    Achievement of the Company's 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 includes the Company's ownership period for all 2012 acquisitions and dispositions, as well as preliminary expected disruption resulting from Hurricane Sandy subject to further review, and does not take into account the impact of any future hotel acquisitions, dispositions, re-brandings, management changes, transition costs, prior-year property tax assessments and/or credits, debt repurchases or financings during 2012.  Assuming no additional capital transactions are completed in 2012, the Company expects to apply net operating loss carryforwards to reduce taxable income in 2012. The application of the net operating loss carryforwards is viewed as a non-recurring event and therefore the Company will treat any state and federal taxes associated with the application of net operating loss carryforwards as a one-time expense and add them back to Adjusted EBITDA and Adjusted FFO.

    For the fourth quarter of 2012, the Company expects:

    Metric

    Quarter Ended December 31, 2012 Guidance

    Comparable Hotel RevPAR 

    +1.5% - 3.0%

    Net Income (Loss) ($ millions) (1)

    $(1) - $4

    Adjusted EBITDA ($ millions)

    $58 - $63

    Adjusted FFO ($ millions)

    $31 - $36

    Adjusted FFO per diluted share

    $0.23 - $0.27

    Diluted Weighted Average Shares Outstanding

    135,700,000

    (1) Reflects net income adjusted for the impact of income tax expense associated

          with the application of net operating loss carryforwards.

    For the full year 2012, the Company expects: 

    Metric

    Prior 2012 FY Guidance (1)

    Impact of Dispositions (2)

    Adjusted Prior 2012 FY Guidance

    Current 2012 FY Guidance (Prior to Hurricane Sandy Impact)

    Change to Adjusted Prior Guidance Midpoint

    Current 2012 FY Guidance (Including Current Estimate of Hurricane Sandy Impact)

    Change to Adjusted Prior Guidance Midpoint

    Comparable Hotel RevPAR 

    +5% - 7%

    +5% - 7%

    +5% - 5.5%

    (0.75%)

    +4.5% - 5.0%

    (1.25%)

    Net Income ($ millions) (3)

    $15 - $22

    ($0.1)

    $15 - $22

    $11 - $14

    ($6.0)

    $7 - $12

    ($9.0)

    Adjusted EBITDA ($ millions)

    $239 - $245

    ($3.0)

    $236 - $242

    $236 - $239

    ($1.5)

    $232 - $237

    ($4.5)

    Adjusted FFO ($ millions)

    $123 - $130

    ($1.8)

    $121 - $128

    $122 - $125

    ($1.0)

    $118 - $123

    ($4.0)

    Adjusted FFO per diluted share

    $0.97 - $1.02

    ($0.01)

    $0.96 - $1.01

    $0.96 - $0.98

    ($0.02)

    $0.93 - $0.97

    ($0.04)

    Diluted Weighted Average Shares Outstanding

    127,900,000

    127,900,000

    127,500,000

    (400,000)

    127,500,000

    (400,000)

    (1) Reflects guidance presented on August 2, 2012.

    (2) Reflects supplemental financial data presented in the transaction press release dated September 10, 2012.

    (3) Reflects net income adjusted for the impact of income tax expense associated with the application of net operating loss carryforwards.

    Fourth-quarter and full-year 2012 guidance is also based on the following assumptions:

    • Full-year capital investment of $85 to $100 million, including the $25 million renovation of the Renaissance Washington DC. Hotel revenue disruption of $3 to $5 million related to renovation projects, with approximately $2 million of hotel revenue renovation disruption in the fourth quarter.
    • Fourth-quarter RevPAR guidance assumes that hotel revenue renovation disruption will negatively impact fourth-quarter RevPAR growth by 50 to 75 basis points
    • Hotel revenue and EBITDA disruption of $3 to $4 million and $2 to $4 million, respectively, for the fourth-quarter and full-year related to Hurricane Sandy, resulting in a reduction to fourth-quarter and full-year RevPAR growth of 100 to 150 basis points and 30 to 60 basis points, respectively.
    • Full-year comparable Hotel EBITDA Margins to increase by 50 to 100 basis points, which includes the impact of renovation displacement and Hurricane Sandy disruption.
    • Full-year corporate overhead expense (excluding stock amortization and one-time expenses related to future acquisition closing costs) of $19 to $20 million.
    • Full-year interest expense of approximately $80 to $82 million, including $4 million in amortization of deferred financing fees.
    • Full-year preferred dividends (Series A, C and D) of approximately $30 million.

    Dividend Update

    On October 31, 2012, the Company's Board of Directors declared a cash dividend of $0.50 per share payable to its Series A and Series D cumulative redeemable preferred stockholders and a cash dividend of $0.393 per share payable to its Series C cumulative convertible redeemable preferred stockholders. The dividends will be paid on or before January 15, 2013 to stockholders of record on December 31, 2012.  No dividend was declared on the Company's common stock, as the Company intends to deploy excess cash flow from operations toward internal renovation investments and gradual deleveraging.

    Subject to certain limitations, the Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income.  The Company expects to apply net operating loss carryforwards to reduce its taxable income in 2012, which will affect the level of common stock dividends declared for 2012. The level of any future dividends will be determined by the Company's Board of Directors after considering taxable income projections, expected capital requirements, risks affecting the Company's business and in context of the Company's leverage-reduction initiatives.  As a result, common stock dividends may be made in the form of cash or a combination of cash and stock consistent with Internal Revenue Service guidelines.

    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 undertakes 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. ("Sunstone") is a lodging real estate investment trust ("REIT") that has interests in 30 hotels comprised of 12,854 rooms.  Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont and Sheraton. For further information, please visit Sunstone's website at www.sunstonehotels.com.

    Sunstone's mission is to create meaningful value for our stockholders by becoming the premier hotel owner.  Our values include transparency, trust, ethical conduct, communication and discipline.  We seek to employ a balanced, cycle-appropriate corporate strategy that encompasses the following:

    • Proactive portfolio management;
    • Intensive asset management;
    • Disciplined external growth; and
    • Measured balance sheet improvement.

    Non-GAAP Financial Measures

    We present the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; Adjusted EBITDA (as defined below); Funds From Operations, or FFO; Adjusted FFO (as defined below); and comparable hotel EBITDA and comparable hotel EBITDA margin.

    EBITDA represents net income (loss) excluding: non-controlling interests; interest expense; provision for income taxes, including income taxes applicable to sale of assets; and depreciation and amortization. In addition, we have presented Adjusted EBITDA, which includes EBITDA but excludes: amortization of deferred stock compensation; the impact of any gain or loss from asset sales; impairment charges; prior year property tax and other adjustments; and any other adjustments we have identified in this release. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because these measures help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from our operating results. We also use EBITDA and Adjusted EBITDA as measures in determining the value of hotel acquisitions and dispositions. A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is set forth on page 9.  Reconciliations and the components of comparable hotel EBITDA and comparable hotel EBITDA margin are set forth on pages 12 and 13. We believe comparable hotel EBITDA and comparable hotel EBITDA margin are also useful to investors in evaluating our property-level operating performance.

    We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group. The Board of Governors of NAREIT in its March 1995 White Paper (as clarified in November 1999 andApril 2002) defines FFO to mean net income (loss) (computed in accordance with GAAP), excluding non-controlling interests, gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs) and real estate-related impairment losses, and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which includes FFO but excludes penalties, written-off deferred financing costs, non-real estate-related impairment losses and any other adjustments we have identified in this release. We believe that the presentation of FFO and Adjusted FFO provide useful information to investors regarding our operating performance because they are measures of our operations without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of assets and certain other items which we believe are not indicative of the performance of our underlying hotel properties.  We believe that these items are more representative of our asset base and our acquisition and disposition activities than our ongoing operations. We also use FFO as one measure in determining our results after taking into account the impact of our capital structure.  A reconciliation of net income (loss) to FFO and Adjusted FFO is set forth on page 9. 

    The revenue and expense items associated with our commercial laundry facility, BuyEfficient and other miscellaneous non-hotel items have been excluded in presenting comparable hotel EBITDA margins. Management believes the calculation of comparable hotel EBITDA results in a more accurate presentation of hotel EBITDA margins of the Company's 30 comparable hotels. See pages 12 and 13 for a reconciliation of comparable EBITDA to the most comparable GAAP measure. Our 30 comparable hotels include all hotels in which the Company has interests as of September 30, 2012, and also includes prior ownership results as applicable in 2011 and 2012 for the Doubletree Guest Suites Times Square acquired by the Company in January 2011, the JW Marriott New Orleans acquired by the Company in February 2011, the Hilton San Diego Bayfront acquired by the Company in April 2011, the Hyatt Chicago Magnificent Mile acquired by the Company in June 2012 and the Hilton Garden Inn Chicago Downtown/Magnificent Mile acquired by the Company in July 2012.

    We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the same manner. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin should not be considered as an alternative measure of our net income (loss), operating performance, cash flow or liquidity. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin can enhance an investor's understanding of our results of operations, these non-GAAP financial measures, when viewed individually, are not necessarily better indicators of any trend as compared to GAAP measures such as net income (loss) or cash flow from operations. In addition, you should be aware that adverse economic and market conditions may harm our cash flow.

    For Additional Information:

    Bryan Giglia 

    Senior Vice President – Corporate Finance 

    Sunstone Hotel Investors, Inc. 

    (949) 382-3036

     

    Sunstone Hotel Investors, Inc.

    Consolidated Balance Sheets

    (In thousands, except share data)

    September 30,

    December 31,

    2012

    2011

    (unaudited)

    Assets

    Current assets:

    Cash and cash equivalents

    $           164,469

    $         149,852

    Restricted cash

    76,790

    55,778

    Accounts receivable, net

    28,534

    31,182

    Inventories

    2,664

    2,517

    Prepaid expenses

    9,554

    10,008

    Assets held for sale, net

    0

    144,479

    Total current assets

    282,011

    393,816

    Investment in hotel properties, net

    2,800,682

    2,650,258

    Other real estate, net

    9,855

    9,754

    Deferred financing fees, net

    12,865

    14,421

    Goodwill

    13,088

    13,088

    Other assets, net

    26,441

    19,903

    Total assets

    $        3,144,942

    $      3,101,240

    Liabilities and Equity

    Current liabilities:

    Accounts payable and accrued expenses

    $             25,267

    $           26,310

    Accrued payroll and employee benefits

    22,326

    20,727

    Due to Third-Party Managers

    9,050

    9,039

    Dividends payable

    7,437

    7,437

    Other current liabilities

    37,829

    25,979

    Current portion of notes payable

    77,579

    51,279

    Notes payable of assets held for sale

    0

    124,543

    Liabilities of assets held for sale

    0

    3,354

    Total current liabilities

    179,488

    268,668

    Notes payable, less current portion

    1,318,102

    1,394,655

    Capital lease obligations, less current portion

    15,630

    -

    Other liabilities

    14,789

    12,623

    Total liabilities

    1,528,009

    1,675,946

    Commitments and contingencies

    -

    -

    Preferred stock, Series C Cumulative Convertible Redeemable Preferred Stock, $0.01 par value, 4,102,564 shares authorized, issued and outstanding at September 30, 2012 and December 31, 2011, liquidation preference of $24.375 per share

    100,000

    100,000

    Equity:

    Stockholders' equity:

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

         8.0% Series A Cumulative Redeemable Preferred Stock, 7,050,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, stated at liquidation preference of $25.00 per share

    176,250

    176,250

         8.0% Series D Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, stated at liquidation preference of $25.00 per share

    115,000

    115,000

    Common stock, $0.01 par value, 500,000,000 shares authorized, 135,237,438 shares issued and outstanding at September 30, 2012 and 117,265,090 shares issued and outstanding at December 31, 2011

    1,352

    1,173

    Additional paid in capital

    1,492,528

    1,312,566

    Retained earnings

    147,329

    110,580

    Cumulative dividends

    (467,707)

    (445,396)

    Accumulated other comprehensive loss

    (4,740)

    (4,916)

    Total stockholders' equity

    1,460,012

    1,265,257

    Non-controlling interest in consolidated joint ventures

    56,921

    60,037

    Total equity

    1,516,933

    1,325,294

    Total liabilities and equity

    $        3,144,942

    $      3,101,240

     

     

    Sunstone Hotel Investors, Inc.

    Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)

    (In thousands, except per share data)

     Three Months Ended September 30, 

     Nine Months Ended September 30, 

    2012

    2011

    2012

    2011

     Revenues 

     Room 

    $   156,725

    $   139,824

    $   443,022

    $   380,826

     Food and beverage 

    46,191

    40,920

    148,574

    124,838

     Other operating 

    18,163

    16,743

    51,243

    45,454

     Total revenues 

    221,079

    197,487

    642,839

    551,118

     Operating expenses 

     Room 

    39,911

    35,325

    112,566

    96,160

     Food and beverage 

    34,616

    32,366

    104,426

    93,165

     Other operating 

    6,986

    6,506

    20,074

    18,112

     Advertising and promotion 

    10,740

    9,669

    31,760

    27,250

     Repairs and maintenance 

    8,299

    7,775

    24,561

    22,094

     Utilities 

    7,686

    7,867

    21,039

    20,914

     Franchise costs 

    8,306

    7,282

    22,443

    19,046

     Property tax, ground lease and insurance 

    18,102

    16,484

    52,237

    43,641

     Property general and administrative 

    24,493

    22,881

    73,202

    64,595

     Corporate overhead 

    6,148

    6,852

    18,975

    20,771

     Depreciation and amortization 

    36,529

    32,490

    102,899

    88,241

     Impairment loss 

    -

    10,862

    -

    10,862

     Total operating expenses 

    201,816

    196,359

    584,182

    524,851

     Operating income 

    19,263

    1,128

    58,657

    26,267

     Equity in earnings of unconsolidated joint ventures

    -

    -

    -

    21

     Interest and other income 

    18

    1,543

    155

    2,970

     Interest expense 

    (19,709)

    (20,021)

    (59,309)

    (55,449)

     Loss on extinguishment of debt 

    -

    -

    (191)

    -

     Gain on remeasurement of equity interests 

    -

    -

    -

    69,230

     Income (loss) from continuing operations 

    (428)

    (17,350)

    (688)

    43,039

     Income from discontinued operations 

    39,984

    797

    39,131

    30,672

     Net income (loss) 

    39,556

    (16,553)

    38,443

    73,711

     (Income) loss from consolidated joint venture attributable to non-controlling interest 

    (827)

    31

    (1,694)

    (213)

     Distributions to non-controlling interest 

    (8)

    (8)

    (24)

    (22)

     Preferred stock dividends 

    (7,437)

    (7,437)

    (22,311)

    (19,884)

     Undistributed income allocated to unvested restricted stock compensation 

    (352)

    -

    (162)

    (638)

     Income available (loss attributable) to common stockholders 

    $     30,932

    $   (23,967)

    $     14,252

    $     52,954

     Comprehensive income (loss) 

    $     39,615

    $   (16,553)

    $     38,619

    $     73,711

    Basic per share amounts:

            Income (loss) from continuing operations available (attributable) to common stockholders

    $       (0.07)

    $       (0.21)

    $       (0.20)

    $         0.19

            Income from discontinued operations

    0.30

    0.01

    0.31

    0.26

    Basic income available (loss attributable) to common stockholders per common share

    $         0.23

    $       (0.20)

    $         0.11

    $         0.45

    Diluted per share amounts:

            Income (loss) from continuing operations available (attributable) to common stockholders

    $       (0.07)

    $       (0.21)

    $       (0.20)

    $         0.19

            Income from discontinued operations

    0.30

    0.01

    0.31

    0.26

    Diluted income available (loss attributable) to common stockholders per common share

    $         0.23

    $       (0.20)

    $         0.11

    $         0.45

    Weighted average common shares outstanding:

           Basic

    135,236

    117,254

    124,271

    117,186

           Diluted

    135,236

    117,254

    124,271

    117,186

     

     

    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

    Nine Months Ended

    September 30,

    September 30,

    2012

    2011

    2012

    2011

    Net income (loss)

    $   39,556

    $  (16,553)

    $     38,443

    $     73,711

    Operations held for investment:

       Depreciation and amortization

    36,529

    32,490

    102,899

    88,241

       Amortization of lease intangibles

    1,120

    1,028

    3,176

    2,950

       Interest expense

    18,417

    17,841

    55,095

    50,351

       Amortization of deferred financing fees

    929

    823

    2,825

    2,215

       Write-off of deferred financing fees

    -

    -

    3

    -

       Non-cash interest related to discount on Senior Notes

    267

    270

    791

    792

       Non-cash interest related to loss on derivatives

    96

    1,087

    595

    2,091



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

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