Provides Preliminary Third Quarter Results Demonstrates Progress on
Secured Finance Initiatives SAN CLEMENTE, Calif., Oct. 14
/PRNewswire-FirstCall/ -- Sunstone Hotel Investors, Inc. (the
"Company") (NYSE:SHO) today provided preliminary results for the
third quarter ended September 30, 2009 and provided updates on its
secured finance initiatives. Operations Updates The preliminary
financial information for the fiscal quarter ended September 30,
2009 reflects preliminary results from the Company's unaudited
financial statements and is subject to customary adjustments that
may arise during the completion of the financial statement closing
process. All RevPAR and hotel operating margin information
presented reflect the 38 hotel portfolio on a pro forma basis,
which excludes the W San Diego hotel, which was conveyed to a
receiver during the third quarter, and the Marriott Ontario Airport
hotel, which is in the process of being conveyed to a receiver.
While the Company has not finalized its quarterly financial
statement closing process, it currently expects to report the
following for the three months ended September 30, 2009: -- Total
revenue is expected to be approximately $176.0 million, a decline
of approximately 20% from third quarter 2008. -- Pro forma Total
RevPAR is expected to be approximately $101.78, a decline of
approximately 20.2% from third quarter 2008. -- Adjusted EBITDA is
expected to be approximately $40.1 million, a decline of
approximately 41% from third quarter 2008. -- Adjusted FFO/share is
expected to be approximately $0.14, a decline of approximately 79%
from third quarter 2008. -- Pro forma hotel operating margins are
expected to decline approximately 570 basis points compared to
third quarter 2008. -- Loss attributable to common stockholders is
expected to be approximately $23.1 million. Art Buser, President
and Chief Executive Officer, stated, "During the third quarter, our
asset management team continued to work diligently with our
operators to drive efficiencies that produced better than expected
third quarter margin performance and which we believe will benefit
our portfolio for years to come. During the same time period, our
finance team executed on a series of finance initiatives aimed at
reducing corporate risk and unlocking value. We are now seeing
early signs of firming demand, even as private asset values remain
low. As a result, we believe we are moving into a phase of the
cycle where well-capitalized, proactive public companies may have
opportunities to create significant value through acquisitions. We
believe the Sunstone team is well qualified to capitalize on these
emerging opportunities." Secured Finance Initiatives -- Asset
Deed-Backs - The Company successfully negotiated the terms of an
order to appoint a receiver for the W San Diego hotel, which
resulted in the deconsolidation of the $29.0 million hotel asset
and its associated $65.0 million mortgage from our consolidated
financials. The Company also is working with the special servicer
to facilitate a deed-back to the lender of the Marriott Ontario
Airport hotel, which has a book value of $16.6 million and a $25.5
million mortgage. -- Loan Amendment - The Company is seeking to
finalize an amendment to the $105.2 million mortgage loan secured
by its Renaissance Baltimore hotel. If finalized, the amendment
will result in the elimination of scheduled amortization on the
loan for a period of up to 30 months. -- Loan Renegotiations - The
Company is currently in amendment negotiations with the special
servicer of the $29.4 million loan secured by its Renaissance
Westchester hotel. The Company also is currently in amendment
negotiations with the administrative agent for the $246.3 million
mortgage loan secured by 11 of its hotels. The Company expects to
conclude amendment negotiations with respect to both of these
financings in the fourth quarter; however, no assurance as to the
final outcome is available at this time. Goodwill and Other
Impairment Losses The Company determined that an intra-year
impairment analysis should be performed for the quarter ended
September 30, 2009. Based on the preliminary results of this
analysis, the Company expects to write off approximately $2.2
million of goodwill associated with its Marriott Rochester hotel.
These preliminary estimates are subject to customary adjustments
that may arise during the financial statement closing process,
which could result in changes to the analysis. Third Quarter
Earnings Call The Company will release final third quarter results
at the close of market on November 5, 2009 and host a conference
call to discuss third quarter results on Thursday, November 5,
2009, at 2:00 p.m. PST. A live web cast of the call will be
available via the Investor Relations section of the Company's
website at http://www.sunstonehotels.com/. Alternatively, investors
may dial 1-877-941-2927 (for domestic callers) or 1-480-629-9725
(for international callers) with passcode #4173224. A replay of the
web cast will also be archived on the website. About Sunstone Hotel
Investors, Inc. Sunstone Hotel Investors, Inc. is a lodging real
estate investment trust ("REIT") that, as of the date hereof, has
interests in 40 hotels comprised of 14,006 rooms primarily in the
upper-upscale segment operated under nationally recognized brands,
such as Marriott, Hyatt, Fairmont, Hilton, and Starwood. For
further information, please visit the Company's website at
http://www.sunstonehotels.com/. This press release contains
forward-looking statements within the meaning of federal securities
laws and regulations. These forward-looking statements are
identified by their use of terms and phrases such as "anticipate,"
"believe," "continue," "could," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "should," "will" and other
similar terms and phrases, including references to assumptions and
forecasts of future results. Forward-looking statements are not
guarantees of future performance and involve known and unknown
risks, uncertainties and other factors that may cause the actual
results to differ materially from those anticipated at the time the
forward-looking statements are made. These risks include, but are
not limited to: volatility in the debt or equity markets affecting
our ability to acquire or sell hotel assets; national and local
economic and business conditions, including the likelihood of a
prolonged U.S. recession; the ability to maintain sufficient
liquidity and our access to capital markets; potential terrorist
attacks, which would affect occupancy rates at our hotels and the
demand for hotel products and services; operating risks associated
with the hotel business; risks associated with the level of our
indebtedness and our ability to meet covenants in our debt and
equity agreements; relationships with property managers and
franchisors; our ability to maintain our properties in a
first-class manner, including meeting capital expenditure
requirements; our ability to compete effectively in areas such as
access, location, quality of accommodations and room rate
structures; changes in travel patterns, taxes and government
regulations, which influence or determine wages, prices,
construction procedures and costs; our ability to identify,
successfully compete for and complete acquisitions; the performance
of hotels after they are acquired; necessary capital expenditures
and our ability to fund them and complete them with minimum
disruption; our ability to continue to satisfy complex rules in
order for us to qualify as a REIT for federal income tax purposes;
and other risks and uncertainties associated with our business
described in the Company's filings with the Securities and Exchange
Commission. Although the Company believes the expectations
reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that the
expectations will be attained or that any deviation will not be
material. All forward-looking information in this release is as of
October 14, 2009, and the Company undertakes no obligation to
update any forward-looking statement to conform the statement to
actual results or changes in the Company's expectations. 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: (1) Earnings Before Interest Expense,
Taxes, Depreciation and Amortization, or EBITDA; (2) Adjusted
EBITDA (as defined below); (3) Funds From Operations, or FFO; and
(4) Adjusted FFO (as defined below). EBITDA represents income
available to common stockholders excluding: (1) preferred stock
dividends; (2) amortization of deferred stock compensation; (3)
interest expense (including prepayment penalties, if any); (4)
provision for income taxes, including income taxes applicable to
sale of assets; and (5) depreciation and amortization. In addition,
we have presented Adjusted EBITDA, which excludes: (1) the impact
of any gain or loss from asset sales; (2) impairment charges; and
(3) 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 preferred stock dividends) 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 income available to common
stockholders to EBITDA and Adjusted EBITDA is set forth on page 4.
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 and April
2002) defines FFO to mean net income (loss) (computed in accordance
with GAAP), excluding gains and losses from sales of property, plus
real estate-related depreciation and amortization (excluding
amortization of deferred financing costs), and after adjustment for
unconsolidated partnerships and joint ventures. We also present
Adjusted FFO, which excludes prepayment penalties, written-off
deferred financing costs, impairment losses and 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 income available to common
stockholders to FFO and Adjusted FFO is set forth on page 4. We
caution investors that amounts presented in accordance with our
definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, hotel
operating income and hotel operating profit 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, hotel
operating income and hotel operating profit 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, hotel operating income and hotel
operating profit 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, hotel operating income
and hotel operating profit margin can enhance an investor's
understanding of our results of operations, these non-GAAP
financial measures, when viewed individually, are not necessarily a
better indicator 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 Vice
President - Corporate Finance Sunstone Hotel Investors, Inc. (949)
369-4236 ***Tables to Follow*** Sunstone Hotel Investors, Inc.
Preliminary Reconciliation of Income Available (Loss Attributable)
to Common Stockholders to Non-GAAP Financial Measures (Preliminary,
Unaudited and in thousands except per share amounts)
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Preliminary Reconciliation of Income Available (Loss Attributable)
to Common Stockholders to EBITDA and Adjusted EBITDA
---------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30,
------------------ ------------------ 2009 2008 2009 2008
------------------ ------------------ Income available (loss
attributable) to common stockholders $(23,135) $4,408 $(157,652)
$61,605 Dividends paid on unvested restricted stock compensation -
278 447 741 Series A and C preferred stock dividends 5,187 5,233
15,562 15,697 Undistributed income allocated to unvested restricted
stock compensation - - - 69 Undistributed income allocated to
Series C preferred stock - - - 355 Amortization of deferred stock
compensation 938 1,117 3,286 3,255 Continuing operations:
Depreciation and amortization 26,511 26,399 80,391 79,726 Interest
expense 20,492 22,895 64,010 68,387 Amortization of deferred
financing fees 718 431 1,626 1,257 Write-off of deferred financing
fees - - 284 - Loan penalties/fees 3,020 - 3,020 - Non-cash
interest related to discount on Senior Notes 237 890 1,576 2,615
Unconsolidated joint ventures: Depreciation and amortization 1,306
1,271 3,860 3,808 Interest expense 638 1,214 1,986 3,971
Amortization of deferred financing fees 45 328 137 1,053
Amortization of deferred stock compensation 12 13 28 77 Operations
held for non-sale disposition: Depreciation and amortization 202
301 814 906 Interest expense 349 356 1,041 1,067 Amortization of
deferred financing fees 4 5 11 12 Loan penalties/fees 22 - 22 -
Discontinued operations: Depreciation and amortization 314 2,344
4,298 9,559 Interest expense 1,021 1,021 3,028 3,040 Amortization
of deferred financing fees 2 2 7 7 Loan penalties/fees 51 - 51 -
---------------- ------------------ EBITDA 37,934 68,506 27,833
257,207 ---------------- ------------------ (Gain) loss on sale of
assets (18) - 12,698 (42,108) (Gain) loss on extinguishment of debt
20 - (54,559) - Impairment loss - continuing operations 2,209 -
64,045 - Impairment loss - operations held for non-sale disposition
- - 8,857 - Impairment loss - discontinued operations - - 64,964 -
---------------- ------------------ 2,211 - 96,005 (42,108)
---------------- ------------------ Adjusted EBITDA $40,145 $68,506
$123,838 $215,099 ================ ==================
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Preliminary Reconciliation of Income Available (Loss Attributable)
to Common Stockholders to FFO and Adjusted FFO
---------------------------------------------------------------------
Income available (loss attributable) to common stockholders
$(23,135) $4,408 $(157,652) $61,605 Dividends paid on unvested
restricted stock compensation - 278 447 741 Series C preferred
stock dividends - 1,708 - 5,122 Undistributed income allocated to
unvested restricted stock compensation - - - 69 Undistributed
income allocated to Series C preferred stock - - - 355 Real estate
depreciation and amortization - continuing operations 26,367 26,211
79,930 79,090 Real estate depreciation and amortization -
operations held for non-sale disposition 202 301 814 906 Real
estate depreciation and amortization - unconsolidated joint
ventures 1,288 1,259 3,806 3,784 Real estate depreciation and
amortization - discontinued operations 314 2,344 4,298 9,559 (Gain)
loss on sale of assets (18) - 12,698 (42,108) ----------------
------------------ FFO available to common stockholders 5,018
36,509 (55,659) 119,123 ---------------- ------------------
Continuing operations: Write-off of deferred financing fees - - 284
- Loan penalties/fees 3,020 - 3,020 - Operations held for non-sale
disposition: Loan penalties/fees 22 - 22 - Discontinued operations:
Loan penalties/fees 51 - 51 - Gain on extinguishment of debt 20 -
(54,559) - Impairment loss - continuing operations 2,209 - 64,045 -
Impairment loss - operations held for non-sale disposition - -
8,857 - Impairment loss - discontinued operations - - 64,964 -
---------------- ------------------ 5,322 - 86,684 -
---------------- ------------------ Adjusted FFO available to
common stockholders $10,340 $36,509 $31,025 $119,123
================ ================== FFO available to common
stockholders per diluted share $0.07 $0.68 $(0.89) $1.99
================ ================== Adjusted FFO available to
common stockholders per diluted share $0.14 $0.68 $0.50 $1.99
================ ================== Diluted weighted average shares
outstanding before adjustments for Series C 73,929 49,950 62,382
55,652 Shares associated with Series C preferred stock - 4,103 -
4,103 Diluted weighted average shares outstanding (1) 73,929 54,053
62,382 59,755 ================ ================== 2008 restated due
to stock dividend (2): FFO available to common stockholders per
diluted share $0.61 $1.83 ====== ====== Adjusted FFO available to
common stockholders per diluted share $0.61 $1.83 ====== ======
Diluted weighted average shares outstanding 59,497 64,941 ======
====== (1) Diluted weighted average shares outstanding includes the
Series C convertible preferred stock on an "as-converted" basis if
such treatment is dilutive. (2) Diluted weighted average common
shares and per share FFO and Adjusted FFO for the three and nine
months ended September 30, 2008 have been retroactively adjusted
for the effect of shares of common stock issued pursuant to the
stock dividend paid in January 2009 on an "as-converted" basis for
the Series C convertible preferred stock. DATASOURCE: Sunstone
Hotel Investors, Inc. CONTACT: Bryan Giglia, Vice President -
Corporate Finance of Sunstone Hotel Investors, Inc.,
+1-949-369-4236 Web Site: http://www.sunstonehotels.com/
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