Reports Moderation in RevPAR Decline Continues to Pursue
Acquisitions Explores Independent Hotel Management Alternatives
Concludes Secured Debt Restructuring Program SAN CLEMENTE, Calif.,
Jan. 7 /PRNewswire-FirstCall/ -- Sunstone Hotel Investors, Inc.
(the "Company") (NYSE:SHO) today provided an update on its recent
operating performance, acquisitions process, independent hotel
management request for proposals and finance transactions. The
preliminary financial information for the fiscal quarter and year
ended December 31, 2009 reflects selected 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 close process. Arthur Buser, President and
Chief Executive Officer, stated, "On the operations front, we are
seeing a moderation in the decline of RevPAR, and we continue to
drive operational efficiencies throughout our portfolio. With
respect to acquisitions, we believe now is the beginning of an
optimal phase in the cycle for offense. Accordingly, we continue to
evaluate numerous potential opportunities to acquire quality hotels
at discount valuations. At the same time, we continue to execute on
various finance initiatives designed to reduce corporate risk and
provide capacity to capitalize on investment opportunities. We are
steadfast in our resolve to consistently do what's best for our
stockholders. Our objective is to outperform, and we believe that
by being nimble, well-capitalized and decisive we will continue to
create significant long-term stockholder value." Operations Update
RevPAR information presented reflects the 26 hotel portfolio on a
pro forma basis. The 26 hotel portfolio excludes 13 hotels which,
as described more fully below, were, or are in the process of
being, conveyed to receivers pursuant to deed-back transactions.
Preliminary Operations Update Through December 31, 2009 (26 Hotel
Portfolio): -- Fourth quarter total portfolio RevPAR was $97.85,
down 14.1% to prior year. -- Full year total portfolio RevPAR was
$102.71, down 18.5% to prior year. Three Months Ended December 31,
2009 (estimated) ------------------------------------------------
Marriott Mass Pro Total Renaissance Ontario Mutual Forma Portfolio
(1) Westchester Airport Portfolio Portfolio (2) -------------
------------ --------- --------- ------------- Number of Hotels 39
1 1 11 26 Number of Keys 13,546 347 299 2,587 10,313 Avg keys/
Hotel 347 347 299 235 397 Occ% 65.9% 60.3% 62.4% 65.2% 66.3% ADR
$140.27 $142.99 $93.02 $112.98 $147.59 RevPAR $92.44 $86.22 $58.04
$73.66 $97.85 Three Months Ended December 31, 2008
------------------------------------ Marriott Mass Pro Total
Renaissance Ontario Mutual Forma Portfolio (1) Westchester Airport
Portfolio Portfolio (2) ------------- ------------ ---------
--------- ------------- Number of Hotels 39 1 1 11 26 Number of
Keys 13,546 347 299 2,587 10,313 Avg keys/ Hotel 347 347 299 235
397 Occ% 67.5% 62.9% 63.8% 69.1% 67.5% ADR $159.99 $168.56 $104.01
$126.96 $168.72 RevPAR $107.99 $106.02 $66.36 $87.73 $113.89 Year
Ended December 31, 2009 (estimated)
---------------------------------------- Marriott Mass Pro Total
Renaissance Ontario Mutual Forma Portfolio (1) Westchester Airport
Portfolio Portfolio (2) ------------- ------------ ---------
--------- ------------- Number of Hotels 39 1 1 11 26 Number of
Keys 13,546 347 299 2,587 10,313 Avg keys/ Hotel 347 347 299 235
397 Occ% 69.2% 60.3% 64.4% 71.0% 69.2% ADR $141.32 $142.21 $94.92
$118.55 $148.42 RevPAR $97.79 $85.75 $61.13 $84.17 $102.71 Year
Ended December 31, 2008 ---------------------------- Marriott Mass
Pro Total Renaissance Ontario Mutual Forma Portfolio (1)
Westchester Airport Portfolio Portfolio (2) -------------
------------ --------- --------- ------------- Number of Hotels 39
1 1 11 26 Number of Keys 13,546 347 299 2,587 10,313 Avg keys/
Hotel 347 347 299 235 397 Occ% 74.4% 66.3% 73.5% 75.2% 74.5% ADR
$161.22 $171.09 $114.05 $134.16 $169.09 RevPAR $119.95 $113.43
$83.83 $100.89 $125.97 (1) Includes the hotels owned by the Company
as of December 31, 2009, excluding the W San Diego which has been
deconsolidated and included in discontinued operations due to the
transfer of possession and control of the hotel to a receiver on
September 30, 2009. (2) Includes the hotels owned by the Company as
of December 31, 2009, excluding the W San Diego and the Renaissance
Westchester which have been deconsolidated and included in
discontinued operations due to the transfer of possession and
control of the hotels to receivers on September 30, 2009 and
December 28, 2009, respectively, as well as the Marriott Ontario
Airport and the 11 hotels included in the Mass Mutual portfolio,
which have been reclassified to "operations held for non- sale
disposition." Acquisitions Process The Company believes that the
recent declines in demand for lodging and continuing capital
constraints may lead to opportunities to acquire hotels at discount
valuations. The Company is actively analyzing various potential
hotel acquisition opportunities, with prioritization based on the
following criteria: -- Discount Valuation: The Company is analyzing
acquisition targets that are expected to trade at a discount
relative to the Company's current enterprise value per key and/or
EBITDA multiple. -- Asset Quality: The Company is analyzing
opportunities to acquire upper upscale, institutional quality
assets which generate RevPAR in excess of the Company's current
RevPAR. -- Value-Add Opportunity: As the costs of construction,
renovations, labor and materials have declined from peak levels,
the Company is evaluating acquisitions where selective
renovation/repositioning work may add value. -- Market
Concentration: Economies of scale, ownership efficiencies, improved
pricing power and staff sharing may be realized by owning multiple
hotels within the same market. -- Outperforming Markets: The
Company seeks to invest in strong locations within markets that are
expected to outperform the U.S. average in terms of growth in
lodging demand. -- Pipeline: The Company is exploring preferred
relationships with current owners of hotel real estate who may look
to divest of such real estate in the future. While discount
acquisition opportunities appear to be increasing in number, there
can be no assurances that the Company will be successful in
executing on its plan to acquire quality hotel assets at discount
valuations. Independent Hotel Management RFP During December, the
Company issued a request for proposal ("RFP") from 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 Sunstone has the most highly qualified management
companies operating its hotels in order to consistently deliver
best in class results. As changing management companies may be
disruptive to hotel operations, a change in managers will be made
only if the Company expects to achieve sustainable advantages as a
result. The Company expects to conclude the RFP process in the
first quarter of 2010. Secured Debt Restructuring Program During
2009 the Company initiated a secured debt restructuring program
aimed at addressing cash flow and value deficits among certain of
its hotels securing non-recourse mortgage debt. The primary goal of
the program is to amend the terms of mortgage debt to eliminate
cash flow and / or value deficits. In cases where acceptable
restructuring terms cannot be reached, rather than employing
corporate resources to subsidize debt service, the Company may
elect to deed-back the collateral hotels in satisfaction of the
associated debt. During the fourth quarter, the Company concluded
negotiations with respect to three loans totaling approximately
$300.7 million and secured by 13 of the Company's hotels comprised
of 3,233 rooms. In each case, the Company did not reach acceptable
amendment terms with the respective lenders and the Company now
expects to deed-back the 13 hotels. The combined deed-backs are
expected to be meaningfully beneficial to the Company's credit
profile, debt maturity schedule, portfolio quality and growth
profile. Each of these three loans is discussed further below.
Renaissance Westchester. In August 2009, the Company elected to
cease the subsidization of debt service on the $29.2 million 4.98%
non-recourse mortgage secured by the 347-room Renaissance
Westchester and commenced restructuring negotiations with the
loan's special servicer. In November 2009 the Company determined in
good faith that further negotiations would not be productive.
Effective December 28, 2009, possession and control of the
Renaissance Westchester was transferred to a court-appointed
receiver. In conjunction with this transfer, the Company will
deconsolidate this hotel and reclassify the assets and liabilities,
including the hotel's net book value of approximately $25.0 million
and the hotel's $29.2 million mortgage indebtedness, to
discontinued operations as of December 31, 2009. Once title to the
hotel is transferred, the Company will record a gain on
extinguishment of debt, and the net assets and liabilities will be
removed from the Company's balance sheets. Marriott Ontario
Airport. In September 2009, the Company elected to cease the
subsidization of debt service on the $25.5 million 5.34%
non-recourse mortgage secured by the 299-room Marriott Ontario
Airport and commenced restructuring negotiations with the loan's
special servicer. In November 2009 the Company determined in good
faith that further negotiations would not be productive. The
Company is currently working with the special servicer to transfer
possession and control of the hotel to a court-appointed receiver,
and to ultimately convey the hotel to the lender in lieu of
repayment of the debt. Pending the appointment of a receiver, the
Company has reclassified the assets, liabilities and results of
operations of the Marriott Ontario Airport to "operations held for
non-sale disposition" on its balance sheets, statements of
operations and statements of cash flows. Upon the appointment of a
receiver, the assets and liabilities associated with the Marriott
Ontario Airport will be deconsolidated. As of December 31, 2009 the
Marriott Ontario Airport had a net book value of approximately
$16.4 million. Mass Mutual Portfolio. In July 2009, the Company
commenced restructuring negotiations with Massachusetts Mutual Life
Insurance Company, or Mass Mutual, the lender's representative for
a $246.0 million 5.95% non-recourse mortgage secured by 11 of the
Company's hotels comprised of 2,587 rooms. In November, the Company
elected to cease the subsidization of debt service on the loan, and
in December 2009 the Company determined in good faith that further
negotiations would not be productive. The 11 hotels securing the
Mass Mutual loan include the following: Renaissance Atlanta
Concourse; Hilton Huntington; Courtyard by Marriott Los Angeles;
Residence Inn by Marriott Manhattan Beach; Marriott Provo; Kahler
Inn & Suites Rochester; Marriott Rochester; Courtyard by
Marriott San Diego (Old Town); Holiday Inn Downtown, San Diego;
Holiday Inn Express San Diego (Old Town); and Marriott Salt Lake
City (University Park). The Company is currently working to
transfer possession and control of the hotels to a court-appointed
receiver, and to ultimately convey the hotels to the lender in lieu
of repayment of the debt. Pending the appointment of a receiver,
the Company has reclassified the assets, liabilities and results of
operations of the Mass Mutual portfolio to "operations held for
non-sale disposition" on its balance sheets, statements of
operations and statements of cash flows. Upon the appointment of a
receiver, the assets and liabilities associated with the Mass
Mutual portfolio will be deconsolidated. In connection with its
year end closing process, the Company intends to record an
impairment loss of approximately $83 million in the fourth quarter
to reduce the net book value of the Mass Mutual portfolio to its
estimated fair market value of approximately $173.0 million. Ken
Cruse, Chief Financial Officer, stated, "During the fourth quarter
we concluded restructuring negotiations on approximately $300.7
million of non-recourse mortgage debt associated with 13 of our
hotels, which generated EBITDA of approximately $27.8 million in
2009. As we did not reach acceptable amendment terms we intend to
deed-back the hotels in satisfaction of the debt, rather than
commit additional corporate resources to support these loans. We
project cash flow from the deed-back portfolio to be roughly
equivalent to interest expense on the associated debt in 2010, with
necessary capital investment and amortization which would have
resulted in more than $40 million of additional cash outflows.
Moreover these combined deed-backs will be beneficial to Sunstone's
credit profile, debt maturity schedule, overall portfolio quality
and will improve our platform for growth. Pro forma for the
combined deed-backs, the weighted average term to maturity of our
debt is now 7 years and our total maturities through 2014 are now
just $180.8 million, or less than half of our current cash balance.
With these three deed-backs, our secured debt restructuring program
will be substantially complete." Business Update Call The Company
will host a conference call to discuss its operations update on
January 7, 2010, at 2 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 1-800-762-8779 (for domestic callers) or 480-629-9771 (for
international callers) with conference id #4197871. A replay of the
web cast will also be archived on the website. About Sunstone Hotel
Investors, Inc. Sunstone Hotel Investors, Inc. ("Sunstone") is a
lodging real estate investment trust ("REIT") that, as of the date
hereof, owns 38 hotels comprised of 13,199 rooms primarily in the
upper-upscale segment. Sunstone's hotels are generally operated
under nationally recognized brands, such as Marriott, Hilton,
Hyatt, Fairmont and Starwood. Upon completion of the appointment of
a receiver for the Marriott Ontario Airport and Mass Mutual
portfolio, the Company will own 26 hotels comprised of 10,313
rooms. For further information, please visit Sunstone's website at
http://www.sunstonehotels.com/. Forward-Looking Statements 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 current U.S. recession which may
be prolonged; 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. Unless otherwise noted, all
forward-looking information in this release is as of January 7,
2010, 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. For Additional
Information: --------------------------- Bryan Giglia Vice
President - Corporate Finance Sunstone Hotel Investors, Inc. (949)
369-4236 Renaissance Westchester (in thousands) Year Ended December
31, 2009 (unaudited & estimated) ------------ Total Revenue
$17,048 ======= Net Loss $(1,611) Plus: Depreciation 1,630 Plus:
Interest Expense (1) 1,484 ----- Adjusted Hotel EBITDA 1,503 Less:
Interest Expense (1) (1,484) Less: Amortization (1) (616) Less:
FF&E Reserves (852) ---- Portfolio Cash Flow $(1,449) =======
(1) Pro forma for full year interest and amortization payments.
Marriott Ontario Airport (in thousands) Year Ended December 31,
2009 (unaudited & estimated) ------------ Total Revenue $10,202
======= Net Loss $(1,177) Plus: Depreciation 1,018 Plus: Interest
Expense (1) 1,388 ----- Adjusted Hotel EBITDA 1,229 Less: Interest
Expense (1) (1,388) Less: Amortization (1) (552) Less: FF&E
Reserves (511) ---- Portfolio Cash Flow $(1,222) ======= (1) Pro
forma for full year interest and amortization payments. Mass Mutual
11 Asset Crossed Portfolio (in thousands) Year Ended December 31,
2009 (unaudited & estimated) ------------ Total Revenue
$110,926 ======== Net Loss $(4,819) Plus: Depreciation 14,431 Plus:
Interest Expense (1) 14,501 Plus: Penalties (2) 987 --- Adjusted
Hotel EBITDA 25,100 Less: Interest Expense (1) (14,501) Less:
Penalties (2) (987) Less: Amortization (1) (23,512) Less: FF&E
Reserves (5,187) ------ Portfolio Cash Flow $(19,087) ======== (1)
Pro forma for full year interest and amortization payments. (2)
Assumes full year of yield maintenance payments on excess
amortization. Comparable 26 Hotel Portfolio (excludes W San Diego,
Marriott Ontario Airport, Renaissance Westchester and Mass Mutual
portfolio) Operating Statistics: Occupancy % ADR RevPAR -----------
--- ------ Q1 2008 71.5% $166.69 $119.18 Q2 2008 80.2% $174.75
$140.15 Q3 2008 80.1% $165.93 $132.91 Q4 2008 67.5% $168.72 $113.89
FY 2008 74.5% $169.09 $125.97 Q1 2009 65.5% $155.79 $102.04 Q2 2009
70.6% $150.01 $105.91 Q3 2009 74.8% $141.41 $105.77 Q4 2009
(estimated) 66.3% $147.59 $97.85 FY 2009 (estimated) 69.2% $148.42
$102.71 Comparable 26 Hotel Portfolio (excludes W San Diego,
Marriott Ontario Airport, Renaissance Westchester and Mass Mutual
portfolio) Available Rooms: Available Rooms --------------- Q1 2008
900,848 Q2 2008 901,558 Q3 2008 906,320 Q4 2008 1,090,945 FY 2008
3,799,671 Q1 2009 896,250 Q2 2009 901,509 Q3 2009 906,572 Q4 2009
1,054,356 FY 2009 3,758,687 Comparable 26 Hotel Portfolio (excludes
W San Diego, Marriott Ontario Airport, Renaissance Westchester and
Mass Mutual portfolio) Total Revenue Seasonality: Total Revenue
Seasonality: -------------------------- 2008 (unaudited): Q1
$161,847,908 22.7% Q2 186,738,866 26.1% Q3 173,766,850 24.3% Q4
192,311,814 26.9% ----------- ---- FY 2008 $714,665,438 100.0%
=========== ===== 2009 (unaudited): Q1 $139,547,450 24.4% Q2
143,558,807 25.1% Q3 138,035,942 24.1% Q4 (estimated) 150,891,873
26.4% ----------- ---- FY 2009 (estimated) $572,034,072 100.0%
=========== ===== 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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