Drives strong margin performance through expense controls - Looks to expand portfolio size and quality through disciplined acquisitions - Maintains substantial cash balance
Sunstone Hotel Investors, Inc. (the "Company") (NYSE:SHO) today announced results for the fourth quarter and year ended December 31, 2009.
RevPAR and hotel EBITDA margin information presented reflect the 29 hotel portfolio on a pro forma basis. The 29 hotel portfolio excludes the W San Diego which was conveyed to a receiver in September 2009, the Renaissance Westchester, which was conveyed to a receiver in December 2009, and the Marriott Ontario Airport and eight of the 11 hotels securing the Company's non-recourse loan with Massachusetts Mutual Life Insurance Company (the "Mass Mutual eight hotels"), which are in the process of being conveyed to receivers.
Fourth Quarter 2009 Operational Results:
• Total revenue was $192.6 million.
• Pro forma RevPAR was $97.31.
• Loss attributable to common stockholders was $133.2 million.
• Loss attributable to common stockholders per diluted share was $1.45.
• Adjusted EBITDA was $44.8 million.
• Adjusted FFO available to common stockholders was $16.2 million.
• Adjusted FFO available to common stockholders per diluted share was $0.18.
• Pro forma hotel EBITDA margin was 23.8%.
Full Year 2009 Operational Results:
• Total revenue was $717.8 million.
• Pro forma RevPAR was $102.09.
• Loss attributable to common stockholders was $290.8 million.
• Loss attributable to common stockholders per diluted share was $4.17.
• Adjusted EBITDA was $168.6 million.
• Adjusted FFO available to common stockholders was $47.3 million.
• Adjusted FFO available to common stockholders per diluted share was $0.68.
• Pro forma hotel EBITDA margin was 24.8%.
Advertisement
Art Buser, President and Chief Executive Officer, stated, "2009 was a transformational year for Sunstone. During 2009, to establish a strong foundation for future growth and stability, we took a number of critical steps to improve our liquidity and capital structure. During the year we retooled our hotel and corporate operations, creating a new, more efficient operating model. At the same time, we refined our portfolio by divesting of 14 non-core hotels. We took advantage of a dislocated credit market by opportunistically repurchasing a significant portion of our debt at a discount to par, and we enhanced our balance sheet by eliminating significant near-term debt maturities while meaningfully increasing our equity base. In spite of the turbulent conditions, we reflect back on the year with a sense of accomplishment and, more importantly, we look ahead with confidence and optimism. With almost $400 million of cash on hand, we have more than double the cash required to repay our debt maturing over the next five years, and we are well positioned for acquisition opportunities."
SELECTED FINANCIAL DATA
($ in millions, except RevPAR and per share amounts)
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
--------------------------- ---------------------------
2009 2008 % Change 2009 2008 % Change
--------------------------- ---------------------------
Total Revenue $192.6 $235.1 (18.1)% $717.8 $881.5 (18.6)%
Pro forma
RevPAR(1) $97.31 $112.89 (13.8)% $102.09 $124.85 (18.2)%
Pro forma hotel
EBITDA margin(1) 23.8% 28.4% (460) bps 24.8% 29.5% (470) bps
Income available
(loss attributable)
to common
stockholders $(133.2) $(12.5) $(290.8) $49.5
Income available
(loss attributable)
to common
stockholders per
diluted share $(1.45) $(0.26) $(4.17) $0.92
EBITDA $(75.9) $50.3 $(51.3) $304.2
Adjusted EBITDA $44.8 $70.0 $168.6 $285.1
FFO available to
common
stockholders $(106.4) $35.6 $(162.1) $154.7
Adjusted FFO
available to
common
stockholders $16.2 $38.5 $47.3 $157.6
FFO available to
common
stockholders per
diluted share(2) $(1.15) $0.68 $(2.32) $2.68
Adjusted FFO
available to
common
stockholders per
diluted share(2) $0.18 $0.74 $0.68 $2.73
(1) Includes the 29 hotels we owned as of December 31, 2009, excluding
the Marriott Ontario Airport and the Mass Mutual eight hotels
reclassified as "Operations Held for Non-Sale Disposition" on our
balance sheets and statements of operations, and the W San Diego and
the Renaissance Westchester reclassified as discontinued operations
on our balance sheets and statements of operations.
(2) Reflects Series C convertible preferred stock on an "as-converted"
basis if such treatment is dilutive.
Acquisitions
The Company continues to analyze a variety of investment opportunities aimed at enhancing its portfolio quality and growth prospects. The Company expects to see an increasing number of discount acquisition opportunities over the next three years as the number of hotels facing mortgage maturity defaults - and which consequently may face inadvertent changes in ownership - will continue to increase through the end of 2012. As the lodging industry is in the early stage of this credit-driven acquisitions opportunity, seller price expectations currently remain relatively high. The Company believes that the optimal conditions for discount hotel acquisitions may not fully develop until the volume of maturity defaults begins to crest later in 2010 and into 2011. During the early stage of this opportunity, the Company is exploring alternative structured investments, such as hotel debt or portfolio transactions, which may ultimately lead to opportunities to acquire quality hotel assets at meaningful discounts to warranted value.
Independent Hotel Management RFP
During December 2009, the Company issued a request for proposal ("RFP") to hotel management companies interested in managing certain of its hotels currently managed by Sunstone Hotel Properties, Inc., a division of Interstate Hotels & Resorts, Inc. The purpose of the RFP is to ensure that the Company has the most highly qualified management companies operating its hotels in order to consistently deliver best in class results. The Company anticipates completing the RFP process during the first half of 2010.
Balance Sheet/Liquidity Update
Ken Cruse, Chief Financial Officer stated, "During 2009 we executed on a comprehensive, well-timed finance plan designed to improve our credit profile and financial flexibility, reduce our debt levels and enhance our corporate liquidity. We accomplished all of these objectives. As a result, we finished the year with a substantial equity base, significant excess cash, and just $180.8 million of debt maturities through 2014. We are very well positioned to capitalize on growth opportunities going forward."
As of December 31, 2009, the Company had approximately $397.8 million of cash and cash equivalents, including restricted cash of $39.1 million. The Company intends to use a portion of its higher than historical cash balance for acquisition opportunities.
On December 31, 2009, total assets were $2.5 billion, including $1.9 billion of net investments in hotel properties, total debt, excluding debt in the Company's secured debt restructuring program, was $1.1 billion and stockholders' equity was $0.9 billion.
The Company continues to negotiate with Mass Mutual regarding the resolution of the 11 hotels comprising the collateral pool for a $246.0 million mortgage loan. The Company has offered to make a partial payment on the mortgage loan in an effort to secure the release of three of the 11 hotels: Courtyard by Marriott Los Angeles, Kahler Inn & Suites Rochester and Marriott Rochester, representing a total of 653 rooms. Accordingly, the Company has included these three hotels in operations held for investment. If the Company and Mass Mutual reach agreement on this proposal, the Company has offered to deed back the remaining eight hotels to Mass Mutual in satisfaction of the debt balance that will remain after the payment of the release price. If the Company and Mass Mutual are unable to reach agreement on this proposal, the Company intends to deed back all 11 hotels in satisfaction of the entire debt balance and without making a cash payment to Mass Mutual. The Company hopes to complete this process in the first quarter, but no assurance can be given that either the partial release or the deed-in-lieu transaction will be consummated, or upon their timing or terms.
On February 23, 2010, the Company elected to terminate its $85.0 million senior secured credit facility. The decision to terminate the credit facility was made in view of the Company's strong liquidity position and the restrictive terms of the existing credit facility. The credit facility, which had been secured by mortgages on five of the Company's hotels, had no outstanding borrowings and backed $2.9 million in outstanding irrevocable letters of credit. The Company's business plan does not contemplate the use of revolving credit during 2010. The termination of the credit facility will eliminate approximately $0.6 million in fees and associated costs per annum, and will further improve the Company's financial flexibility by eliminating restrictive covenants and encumbrances. The Company expects to enter into a new, appropriately sized and structured credit facility in the future when its business plan contemplates the use of revolving credit.
Financial Covenants
The Company is subject to compliance with various covenants under its Series C preferred stock and its 4.6% Exchangeable Senior Notes due 2027 (the "Senior Notes"). As of December 31, 2009, the Company was in compliance with all covenants related to its Series C preferred stock and its Senior Notes.
Impairments and Other Charges
In conjunction with the Company's annual year-end impairment evaluation, the Company recorded an impairment loss of $88.2 million in order to reduce the carrying values of six of the Mass Mutual portfolio hotels to their fair values as of December 31, 2009. The six hotels are currently held for non-sale disposition in advance of being deeded-back to Mass Mutual, along with two additional hotels, in satisfaction of their associated debt. The six hotels and their respective impairment charges were: Marriott Provo $11.2 million; Holiday Inn Downtown San Diego $7.2 million; Holiday Inn Express San Diego (Old Town) $1.4 million; Marriott Salt Lake City (University Park) $6.8 million; Hilton Huntington $41.1 million; and Renaissance Atlanta Concourse $20.5 million.
During the fourth quarter of 2009, the Company's Doubletree Guest Suites Times Square joint venture recorded an impairment loss in order to reduce the carrying value of the hotel to its fair value. This impairment reduced the partners' equity in the joint venture to a deficit. The Company has no guaranteed obligations to fund any losses of the partnership, therefore the Company's impairment loss was limited to its remaining $26.0 million investment in the partnership. The impairment charge was taken against equity in net losses of unconsolidated joint ventures, effectively reducing the Company's investment in the partnership to zero on its balance sheet as of December 31, 2009.
In December 2009, the Company determined that a $5.6 million note received from the buyer of 13 hotels the Company sold in 2006, along with the related interest accrued on the note may be uncollectible. As such, the Company recorded an allowance for bad debt of $5.6 million to reserve both the discounted note and the related interest receivable in full as of December 31, 2009.
Capital Improvements
During the fourth quarter of 2009, the Company invested $10.6 million in capital improvements to its portfolio. The Company's 2009 capital improvement investments totaled $44.1 million.
Dividend Update
On February 18, 2010, the Company's board of directors declared a cash dividend of $0.50 per share payable to its Series A 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 April 15, 2010 to stockholders of record on March 31, 2010. No dividend was declared on the Company's common stock.
The Company intends to make dividends on its stock in amounts equivalent to 100% of its annual taxable income. The level of any future dividends will be determined by the Company's board of directors after considering taxable income projections, expected capital requirements, and risks affecting the Company's business. In light of the Company's intent to distribute 100% of its annual taxable income, future dividends may be reduced from past levels, or eliminated entirely. Dividends may be made in the form of cash or a combination of cash and stock consistent with Internal Revenue Code regulations.
Drives strong margin performance through expense controls - Looks to expand portfolio size and quality through disciplined acquisitions - Maintains substantial cash balance
