SUNSTONE HOTEL INVESTORS, INC. IRVINE, Calif., Aug. 1, 2019 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO), the owner of Long-Term Relevant Real Estate® in the hospitality sector, today announced results for the second quarter ended June 30, 2019.
Second Quarter 2019 Operational Results (as compared to Second Quarter 2018):
- Net income decreased 10.4% to $45.9 million. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, net income would have decreased 5.2%.
- Income attributable to common stockholders per diluted common share decreased 10.0% to $0.18. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, income attributable to common stockholders per diluted common share would have decreased 5.3%.
- 21 Hotel Comparable Portfolio RevPAR increased 2.1% to $212.76.
- 21 Hotel Comparable Portfolio Adjusted EBITDAre increased 2.6% to $103.7 million.
- 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net decreased 30 basis points to 34.3%.
- Adjusted EBITDAre, excluding noncontrolling interest decreased 2.1% to $99.1 million. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, Adjusted EBITDAre, excluding noncontrolling interest would have increased 4.4%.
- Adjusted FFO attributable to common stockholders per diluted share decreased 2.7% to $0.36. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, Adjusted FFO attributable to common stockholders per diluted share would have increased 5.9%.
John Arabia, President and Chief Executive Officer, stated, "Second quarter Comparable Portfolio RevPAR increased by 2.1%, driven by strong transient demand, exceeding the high-end of our previously provided guidance range. Comparable property-level Adjusted EBITDA increased 2.6%, benefiting from a 4.9% increase in food and beverage revenue and an 11.9% increase in other operating income. Better-than-expected revenue growth resulted in quarterly earnings materially above the high-end of our previously provided guidance range."
Mr. Arabia added, "Our pristine balance sheet and significant liquidity provide us with substantial flexibility and the ability to create long-term shareholder value through the acquisition of additional Long-Term Relevant Real Estate or the repurchase of our common stock at a discount to net asset value. We remain opportunistic as we expect to continue to recycle capital and redeploy those proceeds into value-creating opportunities."
UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA ($ in millions, except RevPAR, ADR and per share amounts) | |||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||
Net Income | $ | 45.9 | $ | 51.3 | (10.4) | % | $ | 63.8 | $ | 89.7 | (28.8) | % | |||||
Income Attributable to Common Stockholders per Diluted Share | $ | 0.18 | $ | 0.20 | (10.0) | % | $ | 0.24 | $ | 0.35 | (31.4) | % | |||||
21 Hotel Comparable Portfolio RevPAR (1) | $ | 212.76 | $ | 208.39 | 2.1 | % | $ | 195.05 | $ | 189.13 | 3.1 | % | |||||
21 Hotel Comparable Portfolio Occupancy (1) | 87.4 | % | 87.1 | % | 30 | bps | 83.3 | % | 83.1 | % | 20 | bps | |||||
21 Hotel Comparable Portfolio ADR (1) | $ | 243.43 | $ | 239.25 | 1.7 | % | $ | 234.15 | $ | 227.59 | 2.9 | % | |||||
21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1) (2) | 34.3 | % | 34.6 | % | (30) | bps | 30.6 | % | 30.6 | % | — | bps | |||||
Adjusted EBITDAre, excluding noncontrolling interest | $ | 99.1 | $ | 101.2 | (2.1) | % | $ | 163.6 | $ | 163.6 | — | % | |||||
Adjusted FFO Attributable to Common Stockholders | $ | 81.7 | $ | 83.7 | (2.3) | % | $ | 129.2 | $ | 129.6 | (0.3) | % | |||||
Adjusted FFO Attributable to Common Stockholders per Diluted Share | $ | 0.36 | $ | 0.37 | (2.7) | % | $ | 0.57 | $ | 0.58 | (1.7) | % | |||||
____________________ | |
(1) | The 21 Hotel Comparable Portfolio is comprised of all hotels owned by the Company as of June 30, 2019. |
(2) | The 21 Hotel Comparable Portfolio Adjusted EBITDAre Margins exclude any prior year property tax adjustments, net. |
Information regarding the non-GAAP financial measures disclosed in this release is provided below in "Non-GAAP Financial Measures." Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included later in this release.
The Company's actual results for the quarter ended June 30, 2019 compare to its guidance originally provided as follows:
Metric | Quarter Ended June 30, 2019 Guidance (1) | Quarter Ended June 30, 2019 Actual Results | Performance | |||
Net Income ($ millions) | $44 to $48 | $46 | — | |||
21 Hotel Comparable Portfolio RevPAR Growth | 0.0% to + 2.0% | 2.1% | + 1.1% | |||
Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $93 to $96 | $99 | + $5 | |||
Adjusted FFO Attributable to Common Stockholders ($ millions) | $74 to $77 | $82 | + $6 | |||
Adjusted FFO Attributable to Common Stockholders per Diluted Share | $0.32 to $0.34 | $0.36 | + $0.03 | |||
Diluted Weighted Average Shares Outstanding | 227,700,000 | 227,500,000 | - 200,000 |
____________________ |
(1) Reflects guidance presented on May 6, 2019. |
Recent Developments
During the second quarter of 2019, the Company repurchased 432,464 shares of its common stock at an average price of $13.24 per share for a total purchase price of $5.7 million. Year-to-date through July 31, 2019, including shares repurchased subsequent to the end of the second quarter, the Company has repurchased 3,777,309 shares of its common stock at an average price of $13.22 per share for a total purchase price of approximately $50 million, leaving approximately $250 million of remaining authorized capacity under its $300.0 million stock repurchase program.
Balance Sheet/Liquidity Update
As of June 30, 2019, the Company had $787.7 million of cash and cash equivalents, including restricted cash of $46.2 million, total assets of $3.9 billion, including $2.9 billion of net investments in hotel properties, total consolidated debt of $979.0 million and stockholders' equity of $2.7 billion.
Capital Improvements
The Company invested $28.2 million into capital improvements of its portfolio during the quarter ended June 30, 2019. In 2019, the Company expects to invest approximately $115 million to $135 million into its portfolio. Based on the expected timing and scope of the 2019 projects, the Company expects $5 million of total revenue displacement related to its major capital improvement projects in 2019, of which approximately $2.6 million of total revenue displacement was incurred in the second quarter of 2019. A selection of the Company's planned 2019 capital improvement projects include:
- Hilton San Diego Bayfront: The Company invested approximately $23 million, with a portion spent in 2018, to renovate all 1,190 guestrooms and suites. The work included the replacement of guestroom soft goods and renovation of corridors. The renovation began during the fourth quarter of 2018, and was completed during the third quarter of 2019. The Company incurred approximately $3 million of total revenue displacement in connection with the renovation work. In addition, the Company expects to reposition the food and beverage offerings at the hotel, which will allow for the conversion of certain existing restaurant space into additional meeting space. The food and beverage repositioning work is currently anticipated to occur in 2020.
- Renaissance Harborplace: The Company invested approximately $21 million, with a portion spent in 2018, to renovate all 622 guestrooms and suites. The renovation included the complete redesign of all guestrooms and bathrooms, including the conversion of 445 bathtubs to showers. The renovation began during the fourth quarter of 2018, and was completed during the second quarter of 2019. The Company incurred approximately $2 million of total revenue displacement in connection with the renovation work.
- Hyatt Regency San Francisco: The Company expects to invest approximately $5.5 million to convert currently under-utilized corridor space into 17 new guestrooms. The conversion includes the addition of 15 rooms that will offer striking views of the San Francisco bay and surrounding area. Construction of the new guestrooms began during the second quarter of 2019, and is expected to be completed in the fourth quarter of 2019. The Company does not anticipate any material revenue displacement related to the construction.
- Environmental and Sustainability Projects: The Company expects to invest approximately $3 million to $6 million into additional environmental and sustainability projects in 2019, including the installation of solar panels at certain hotels in the portfolio, additional LED lighting retrofits and the modernization of other mechanical equipment intended to reduce its overall energy consumption.
2019 Outlook
The Company's achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission. The Company's guidance does not take into account the impact of any unanticipated developments in its business, changes in its operating environment, or any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, noncash impairment expense, changes in deferred tax assets or valuation allowances, severance costs associated with restructuring hotel services, uninsured property losses, early lease termination costs, prior year property tax assessments or credits, debt repurchases/repayments, stock repurchases or unannounced financings during 2019.
For the third quarter of 2019, the Company expects:
Metric | Quarter Ended September 30, 2019 Guidance (1) | |
Net Income ($ millions) | $32 to $36 | |
21 Hotel Comparable Portfolio RevPAR Growth | - 0.5% to + 1.5% | |
Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $79 to $82 | |
Adjusted FFO Attributable to Common Stockholders ($ millions) | $62 to $65 | |
Adjusted FFO Attributable to Common Stockholders per Diluted Share | $0.27 to $0.29 | |
Diluted Weighted Average Shares Outstanding | 225,000,000 |
For the full year of 2019, the Company expects:
Metric | Full Year 2019 Guidance (2) | Current Full Year 2019 Guidance (1) | Change in Full Year 2019 Guidance Midpoint | |||
Net Income ($ millions) | $118 to $135 | $117 to $130 | - $3 | |||
21 Hotel Comparable Portfolio RevPAR Growth | 0.5% to + 3.0% | + 0.75% to + 2.75% | ― | |||
Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $308 to $324 | $312 to $324 | + $2 | |||
Adjusted FFO Attributable to Common Stockholders ($ millions) | $238 to $254 | $243 to $255 | + $3 | |||
Adjusted FFO Attributable to Common Stockholders per Diluted Share | $1.04 to $1.11 | $1.07 to $1.13 | + $0.02 | |||
Diluted Weighted Average Shares Outstanding | 228,000,000 | 226,200,000 | - 1,800,000 |
____________________ |
(1) Detailed reconciliations of Net Income to non-GAAP financial measures are provided later in this release. |
(2) Reflects guidance presented on May 6, 2019. |
Third quarter and full year 2019 guidance are based in part on the following assumptions:
- Full year total revenue displacement of approximately $5 million, related to planned 2019 capital investment projects.
- Full year Adjusted EBITDAre, excluding noncontrolling interest displacement of approximately $4 million related to planned 2019 capital investment projects.
- Full year 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin is expected to decline 25 basis points to 75 basis points.
- Full year corporate overhead expense (excluding deferred stock amortization) of approximately $22 million.
- Full year amortization of deferred stock compensation expense of approximately $9 million.
- Full year interest expense of approximately $56 million, including approximately $3 million in amortization of deferred financing costs, approximately $3 million of finance lease obligation interest and approximately $6 million of noncash loss on derivatives.
- Full year total preferred dividends of $13 million, which includes the Series E and Series F cumulative redeemable preferred stock.
Dividend Update
The Company's board of directors declared a cash dividend of $0.05 per share of common stock, as well as cash dividends of $0.434375 per share payable to its Series E cumulative redeemable preferred stockholders and $0.403125 per share payable to its Series F cumulative redeemable preferred stockholders. The dividends will be paid on October 15, 2019 to stockholders of record as of September 30, 2019.
The Company expects to continue to pay a quarterly cash dividend of $0.05 per share of common stock throughout 2019. Consistent with the Company's past practice and to the extent that the expected regular quarterly dividends for 2019 do not satisfy the annual distribution requirements, the Company expects to satisfy the annual distribution requirement by paying a "catch-up" dividend in January 2020. 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.
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 the information in this release and other filings with the SEC. The Company has no obligation to update any of the guidance or other information provided to conform to actual results or changes in the Company's portfolio, capital structure or future expectations.
Earnings Call
The Company will host a conference call to discuss second quarter 2019 financial results on August 2, 2019, at 12:00 p.m. Eastern Time (9:00 a.m. Pacific Time). A live web cast of the call will be available via the Investor Relations section of the Company's website. Alternatively, investors may dial 1-786-789-4783 and reference confirmation code 8370438 to listen to the live call. 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 August 1, 2019 has interests in 21 hotels comprised of 10,780 rooms. Sunstone's business is to acquire, own, asset manage and renovate or reposition hotels considered to be Long-Term Relevant Real Estate®, the majority of which are operated under nationally recognized brands, such as Marriott, Hilton and Hyatt. For further information, please visit Sunstone's website at www.sunstonehotels.com.
Sunstone's mission is to create meaningful value for our stockholders by producing superior long-term returns through the ownership of Long-Term Relevant Real Estate® in the hospitality sector. Our values include transparency, trust, ethical conduct, honest communication and discipline. As demand for lodging generally fluctuates with the overall economy, we seek to own a portfolio of hotels that will maintain a high appeal with travelers over long periods of time and will generate economic earnings materially in excess of recurring capital requirements.
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 opinions, 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; international, national and local economic and business conditions, including the likelihood of a U.S. recession, government shutdown, changes in the European Union or global economic slowdown, as well as any type of flu, disease-related pandemic or the adverse effects of climate change, affecting the lodging and travel industry; the ability to maintain sufficient liquidity and our access to capital markets; terrorist attacks or civil unrest, 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; severe weather events or other natural disasters; risks impacting our ability to pay anticipated future dividends; 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 provided herein is as of the date of this release, 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.
This release should be read together with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q. Copies of these reports are available on our website at www.sunstonehotels.com and through the SEC's Electronic Data Gathering Analysis and Retrieval System ("EDGAR") at www.sec.gov.
Non-GAAP Financial Measures
We present the following non-GAAP financial measures that we believe are useful to investors as key supplemental measures of our operating performance: earnings before interest expense, taxes, depreciation and amortization for real estate, or EBITDAre; Adjusted EBITDAre, excluding noncontrolling interest (as defined below); funds from operations attributable to common stockholders, or FFO attributable to common stockholders; Adjusted FFO attributable to common stockholders (as defined below); hotel Adjusted EBITDAre; and hotel Adjusted EBITDAre margin. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. In addition, our calculation of these measures may not be comparable to other companies that do not define such terms exactly the same as the Company. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to net income, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.
We present EBITDAre in accordance with guidelines established by the National Association of Real Estate Investment Trusts ("NAREIT"), as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." We believe EBITDAre is a useful performance measure to help investors evaluate and compare the results of our operations from period to period in comparison to our peers. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) plus interest expense, income tax expense, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change in control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.
We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful information to investors regarding our operating performance, and that the presentation of Adjusted EBITDAre, excluding noncontrolling interest, when combined with the primary GAAP presentation of net income, is beneficial to an investor's complete understanding of our operating performance. In addition, we use both EBITDAre and Adjusted EBITDAre, excluding noncontrolling interest as measures in determining the value of hotel acquisitions and dispositions.
We believe that the presentation of FFO attributable to common stockholders provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified noncash items such as real estate depreciation and amortization, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance. Our presentation of FFO attributable to common stockholders conforms to NAREIT's definition of "FFO applicable to common shares." Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do.
We also present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, and may facilitate comparisons of operating performance between periods and our peer companies.
We adjust EBITDAre and FFO attributable to common stockholders for the following items, which may occur in any period, and refer to these measures as either Adjusted EBITDAre, excluding noncontrolling interest or Adjusted FFO attributable to common stockholders:
- Amortization of favorable and unfavorable contracts: we exclude the noncash amortization of the favorable management contract asset recorded in conjunction with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent Mile, along with the favorable and unfavorable tenant lease contracts, as applicable, recorded in conjunction with our acquisitions of the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, the Hyatt Regency San Francisco and the Wailea Beach Resort. We exclude the noncash amortization of favorable and unfavorable contracts because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.
- Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired because, like interest expense, their removal helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure.
- Acquisition costs: under GAAP, costs associated with completed acquisitions that meet the definition of a business are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company or our hotels.
- Cumulative effect of a change in accounting principle: from time to time, the FASB promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.
- Other adjustments: we exclude other adjustments that we believe are outside the ordinary course of business because we do not believe these costs reflect our actual performance for the period and/or the ongoing operations of our hotels. Such items may include: lawsuit settlement costs; prior year property tax assessments or credits; the write-off of development costs associated with abandoned projects; property-level restructuring, severance and management transition costs; lease terminations; and property insurance proceeds or uninsured losses.
In addition, to derive Adjusted EBITDAre, excluding noncontrolling interest we exclude the noncontrolling partner's pro rata share of the net income (loss) allocated to the Hilton San Diego Bayfront partnership, as well as the noncontrolling partner's pro rata share of any EBITDAre and Adjusted EBITDAre components. We also exclude the noncash expense incurred with the amortization of deferred stock compensation as this expense is based on historical stock prices at the date of grant to our corporate employees and does not reflect the underlying performance of our hotels. In addition, we exclude the amortization of our right-of-use assets, which includes the amortization of our operating lease intangible, as well as the noncash expense incurred from straight-lining our lease obligations, as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels. Additionally, we include an adjustment for the cash finance lease expenses recorded on the ground lease at the Courtyard by Marriott Los Angeles and the building lease at the Hyatt Centric Chicago Magnificent Mile. We determined that both of these leases are finance leases, and, therefore, we include a portion of the lease payments each month in interest expense. We adjust EBITDAre for these two finance leases in order to more accurately reflect the actual rent due to both hotels' lessors in the current period, as well as the operating performance of both hotels. We also exclude the effect of gains and losses on the disposition of undepreciated assets because we believe that including them in Adjusted EBITDAre, excluding noncontrolling interest is not consistent with reflecting the ongoing performance of our assets.
To derive Adjusted FFO attributable to common stockholders, we also exclude the noncash interest on our derivatives and finance lease obligations as we believe that these items are not reflective of our ongoing finance costs. Additionally, we exclude the noncontrolling partner's pro rata share of any FFO adjustments related to our consolidated Hilton San Diego Bayfront partnership. We also exclude the real estate amortization of our right-of-use assets, which includes the amortization of both our finance and operating lease intangibles, as well as the noncash expense incurred from straight-lining our lease obligations (with the exception of our corporate operating lease), as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels. In addition, we exclude changes to deferred tax assets, liabilities or valuation allowances, and income tax benefits or provisions associated with the application of net operating loss carryforwards, uncertain tax positions or with the sale of assets other than real estate investments.
In presenting hotel Adjusted EBITDAre and hotel Adjusted EBITDAre margins, miscellaneous non-hotel items have been excluded. We believe the calculation of hotel Adjusted EBITDAre results in a more accurate presentation of the hotel Adjusted EBITDAre margins for our hotels, and that these non-GAAP financial measures are useful to investors in evaluating our property-level operating performance.
Our 21 Hotel Actual/Comparable Portfolio is comprised of all hotels owned by the Company as of June 30, 2019. We believe that providing comparable hotel data is useful to us and to investors in evaluating our operating performance because this measure helps us and investors evaluate and compare the results of our operations from period to period by removing the fluctuations caused by any acquisitions or dispositions, as well as by those hotels that we classify as held for sale, those hotels that are undergoing a material renovation or repositioning and those hotels whose room counts have materially changed during either the current or prior year. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.
Reconciliations of net income to EBITDAre, Adjusted EBITDAre, excluding noncontrolling interest, FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders, as well as reconciliations and the components of hotel Adjusted EBITDAre and hotel Adjusted EBITDAre margin are set forth in the following pages of this release.
For Additional Information:
Bryan Giglia
Sunstone Hotel Investors, Inc.
(949) 382-3036
Aaron Reyes
Sunstone Hotel Investors, Inc.
(949) 382-3018
Sunstone Hotel Investors, Inc. Consolidated Balance Sheets (In thousands, except share data) | ||||||
June 30, | December 31, | |||||
2019 | 2018 | |||||
(unaudited) | ||||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 741,503 | $ | 809,316 | ||
Restricted cash | 46,199 | 53,053 | ||||
Accounts receivable, net | 48,240 | 33,844 | ||||
Prepaid expenses and other current assets | 8,720 | 12,261 | ||||
Total current assets | 844,662 | 908,474 | ||||
Investment in hotel properties, net | 2,936,678 | 3,030,998 | ||||
Finance lease right-of-use assets, net | 54,991 | — | ||||
Operating lease right-of-use assets, net | 62,380 | — | ||||
Deferred financing costs, net | 3,131 | 3,544 | ||||
Other assets, net | 23,898 | 29,817 | ||||
Total assets | $ | 3,925,740 | $ | 3,972,833 | ||
Liabilities and Equity | ||||||
Current liabilities: | ||||||
Accounts payable and accrued expenses | $ | 32,092 | $ | 30,425 | ||
Accrued payroll and employee benefits | 20,407 | 25,039 | ||||
Dividends and distributions payable | 14,618 | 126,461 | ||||
Other current liabilities | 47,907 | 44,962 | ||||
Current portion of notes payable, net | 6,167 | 5,838 | ||||
Total current liabilities | 121,191 | 232,725 | ||||
Notes payable, less current portion, net | 968,090 | 971,225 | ||||
Finance lease obligations, less current portion | 27,120 | 27,009 | ||||
Operating lease obligations, less current portion | 52,097 | — | ||||
Other liabilities | 19,176 | 30,703 | ||||
Total liabilities | 1,187,674 | 1,261,662 | ||||
Commitments and contingencies | ||||||
Equity: | ||||||
Stockholders' equity: | ||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized: | ||||||
6.95% Series E Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at June 30, 2019 and December 31, 2018, stated at liquidation preference of $25.00 per share | 115,000 | 115,000 | ||||
6.45% Series F Cumulative Redeemable Preferred Stock, 3,000,000 shares issued and outstanding at June 30, 2019 and December 31, 2018, stated at liquidation preference of $25.00 per share | 75,000 | 75,000 | ||||
Common stock, $0.01 par value, 500,000,000 shares authorized, 228,206,823 shares issued and outstanding at June 30, 2019 and 228,246,247 shares issued and outstanding at December 31, 2018 | 2,282 | 2,282 | ||||
Additional paid in capital | 2,723,737 | 2,728,684 | ||||
Retained earnings | 1,243,002 | 1,182,722 | ||||
Cumulative dividends and distributions | (1,469,456) | (1,440,202) | ||||
Total stockholders' equity | 2,689,565 | 2,663,486 | ||||
Noncontrolling interest in consolidated joint venture | 48,501 | 47,685 | ||||
Total equity | 2,738,066 | 2,711,171 | ||||
Total liabilities and equity | $ | 3,925,740 | $ | 3,972,833 | ||
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, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Revenues | ||||||||||||
Room | $ | 208,735 | $ | 220,304 | $ | 380,593 | $ | 400,580 | ||||
Food and beverage | 75,704 | 79,292 | 144,817 | 153,558 | ||||||||
Other operating | 18,457 | 17,851 | 35,166 | 34,755 | ||||||||
Total revenues | 302,896 | 317,447 | 560,576 | 588,893 | ||||||||
Operating expenses | ||||||||||||
Room | 51,846 | 54,900 | 100,092 | 105,995 | ||||||||
Food and beverage | 48,399 | 50,885 | 95,221 | 101,039 | ||||||||
Other operating | 4,367 | 4,357 | 8,332 | 8,298 | ||||||||
Advertising and promotion | 14,149 | 14,316 | 27,713 | 28,222 | ||||||||
Repairs and maintenance | 10,193 | 10,851 | 20,475 | 21,954 | ||||||||
Utilities | 6,533 | 6,974 | 13,198 | 14,449 | ||||||||
Franchise costs | 8,579 | 9,961 | 15,418 | 17,814 | ||||||||
Property tax, ground lease and insurance | 20,614 | 21,508 | 40,962 | 43,289 | ||||||||
Other property-level expenses | 34,015 | 35,518 | 66,855 | 69,425 | ||||||||
Corporate overhead | 8,078 | 7,594 | 15,594 | 14,696 | ||||||||
Depreciation and amortization | 36,524 | 37,334 | 72,911 | 74,022 | ||||||||
Impairment loss | — | 1,394 | — | 1,394 | ||||||||
Total operating expenses | 243,297 | 255,592 | 476,771 | 500,597 | ||||||||
Interest and other income | 4,811 | 2,966 | 9,735 | 4,457 | ||||||||
Interest expense | (15,816) | (11,184) | (30,142) | (20,060) | ||||||||
Gain on sale of assets | — | — | — | 15,659 | ||||||||
Income before income taxes | 48,594 | 53,637 | 63,398 | 88,352 | ||||||||
Income tax (provision) benefit, net | (2,676) | (2,375) | 436 | 1,365 | ||||||||
Net income | 45,918 | 51,262 | 63,834 | 89,717 | ||||||||
Income from consolidated joint venture attributable to noncontrolling interest | (1,955) | (2,374) | (3,554) | (4,813) | ||||||||
Preferred stock dividends | (3,207) | (3,207) | (6,414) | (6,414) | ||||||||
Income attributable to common stockholders | $ | 40,756 | $ | 45,681 | $ | 53,866 | $ | 78,490 | ||||
Basic and diluted per share amounts: | ||||||||||||
Basic and diluted income attributable to common stockholders per common share | $ | 0.18 | $ | 0.20 | $ | 0.24 | $ | 0.35 | ||||
Basic and diluted weighted average common shares outstanding | 227,389 | 225,232 | 227,305 | 224,760 | ||||||||
Distributions 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) | ||||||||||||
Reconciliation of Net Income to EBITDAre and Adjusted EBITDAre, Excluding Noncontrolling Interest | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Net income | $ | 45,918 | $ | 51,262 | $ | 63,834 | $ | 89,717 | ||||
Operations held for investment: | ||||||||||||
Depreciation and amortization | 36,524 | 37,334 | 72,911 | 74,022 | ||||||||
Interest expense | 15,816 | 11,184 | 30,142 | 20,060 | ||||||||
Income tax provision (benefit), net | 2,676 | 2,375 | (436) | (1,365) | ||||||||
Loss (gain) on sale of assets | — | 6 | — | (15,663) | ||||||||
Impairment loss | — | 1,394 | — | 1,394 | ||||||||
EBITDAre | 100,934 | 103,555 | 166,451 | 168,165 | ||||||||
Operations held for investment: | ||||||||||||
Amortization of deferred stock compensation | 2,900 | 2,865 | 5,022 | 4,865 | ||||||||
Amortization of favorable and unfavorable contracts, net | — | 2 | — | 5 | ||||||||
Amortization of right-of-use assets (1) | (251) | (229) | (270) | (447) | ||||||||
Finance lease obligation interest - cash ground rent | (590) | (589) | (1,179) | (1,178) | ||||||||
Hurricane-related insurance proceeds net of uninsured losses | — | (1,084) | — | (1,015) | ||||||||
Prior year property tax adjustments, net | 109 | 136 | 298 | 117 | ||||||||
Prior owner contingency funding | (900) | — | (900) | — | ||||||||
Noncontrolling interest: | ||||||||||||
Income from consolidated joint venture attributable to noncontrolling interest | (1,955) | (2,374) | (3,554) | (4,813) | ||||||||
Depreciation and amortization | (640) | (640) | (1,279) | (1,278) | ||||||||
Interest expense | (558) | (489) | (1,118) | (924) | ||||||||
Amortization of right-of-use asset (1) | 73 | 73 | 145 | 145 | ||||||||
(1,812) | (2,329) | (2,835) | (4,523) | |||||||||
Adjusted EBITDAre, excluding noncontrolling interest | $ | 99,122 | $ | 101,226 | $ | 163,616 | $ | 163,642 | ||||
(1) | Amounts originally reported for the three and six months ended June 30, 2018 for amortization of lease intangibles and noncash ground rent have been reclassified to amortization of right-of-use assets to conform to the current year's reporting. |
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, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Net income | $ | 45,918 | $ | 51,262 | $ | 63,834 | $ | 89,717 | ||||
Preferred stock dividends | (3,207) | (3,207) | (6,414) | (6,414) | ||||||||
Operations held for investment: | ||||||||||||
Real estate depreciation and amortization (1) | 35,900 | 36,876 | 71,670 | 73,104 | ||||||||
Loss (gain) on sale of assets | — | 6 | — | (15,663) | ||||||||
Impairment loss | — | 1,394 | — | 1,394 | ||||||||
Noncontrolling interest: | ||||||||||||
Income from consolidated joint venture attributable to noncontrolling interest | (1,955) | (2,374) | (3,554) | (4,813) | ||||||||
Real estate depreciation and amortization | (640) | (640) | (1,279) | (1,278) | ||||||||
FFO attributable to common stockholders | 76,016 | 83,317 | 124,257 | 136,047 | ||||||||
Operations held for investment: | ||||||||||||
Amortization of favorable and unfavorable contracts, net | — | 2 | — | 5 | ||||||||
Real estate amortization of right-of-use assets (1) | 146 | 138 | 297 | 286 | ||||||||
Noncash interest on derivatives and finance lease obligations, net | 3,634 | (1,040) | 5,753 | (4,177) | ||||||||
Hurricane-related insurance proceeds net of uninsured losses | — | (1,084) | — | (1,015) | ||||||||
Prior year property tax adjustments, net | 109 | 136 | 298 | 117 | ||||||||
Prior owner contingency funding | (900) | — | (900) | — | ||||||||
Noncash income tax provision (benefit), net | 2,648 | 2,147 | (636) | (1,819) | ||||||||
Noncontrolling interest: | ||||||||||||
Real estate amortization of right-of-use asset (1) | 73 | 73 | 145 | 145 | ||||||||
Noncash interest on derivative, net | — | (4) | — | (1) | ||||||||
5,710 | 368 | 4,957 | (6,459) | |||||||||
Adjusted FFO attributable to common stockholders | $ | 81,726 | $ | 83,685 | $ | 129,214 | $ | 129,588 | ||||
FFO attributable to common stockholders per diluted share | $ | 0.33 | $ | 0.37 | $ | 0.55 | $ | 0.60 | ||||
Adjusted FFO attributable to common stockholders per diluted share | $ | 0.36 | $ | 0.37 | $ | 0.57 | $ | 0.58 | ||||
Basic weighted average shares outstanding | 227,389 | 225,232 | 227,305 | 224,760 | ||||||||
Shares associated with unvested restricted stock awards | 145 | 277 | 202 | 310 | ||||||||
Diluted weighted average shares outstanding | 227,534 | 225,509 | 227,507 | 225,070 | ||||||||
(1) | Amounts originally reported for the three and six months ended June 30, 2018 for real estate depreciation and amortization related to finance leases, amortization of lease intangibles and noncash ground rent have been reclassified to real estate amortization of right-of-use assets to conform to the current year's reporting. |
Sunstone Hotel Investors, Inc. Reconciliation of Net Income to Non-GAAP Financial Measures Guidance for Third Quarter and Full Year 2019 (Unaudited and in thousands, except per share amounts) | ||||||||||||
Reconciliation of Net Income to Adjusted EBITDAre, Excluding Noncontrolling Interest | ||||||||||||
Quarter Ended | Year Ended | |||||||||||
September 30, 2019 | December 31, 2019 | |||||||||||
Low | High | Low | High | |||||||||
Net income | $ | 31,900 | $ | 35,500 | $ | 117,200 | $ | 130,200 | ||||
Depreciation and amortization | 36,400 | 36,200 | 145,600 | 145,200 | ||||||||
Interest expense | 13,200 | 13,000 | 56,200 | 55,800 | ||||||||
Income tax provision (benefit), net | 100 | 100 | (200) | (200) | ||||||||
Amortization of deferred stock compensation | 2,100 | 2,100 | 9,300 | 9,300 | ||||||||
Amortization of right-of-use assets | (300) | (300) | (800) | (800) | ||||||||
Finance lease obligation interest - cash ground rent | (600) | (600) | (2,400) | (2,400) | ||||||||
Prior year property tax adjustments, net | — | — | 300 | 300 | ||||||||
Prior owner contingency funding | — | — | (900) | (900) | ||||||||
Noncontrolling interest | (3,800) | (4,000) | (12,300) | (12,500) | ||||||||
Adjusted EBITDAre, excluding noncontrolling interest | $ | 79,000 | $ | 82,000 | $ | 312,000 | $ | 324,000 | ||||
Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders | ||||||||||||
Net income | $ | 31,900 | $ | 35,500 | $ | 117,200 | $ | 130,200 | ||||
Preferred stock dividends | (3,200) | (3,200) | (12,800) | (12,800) | ||||||||
Real estate depreciation and amortization | 35,700 | 35,500 | 143,100 | 142,700 | ||||||||
Real estate amortization of right-of-use assets | 200 | 200 | 600 | 600 | ||||||||
Noncash interest on derivatives and finance lease obligations, net | 100 | 100 | 5,900 | 5,900 | ||||||||
Prior year property tax adjustments, net | — | — | 300 | 300 | ||||||||
Noncash income tax benefit, net | — | — | (600) | (600) | ||||||||
Prior owner contingency funding | — | — | (900) | (900) | ||||||||
Noncontrolling interest | (3,200) | (3,400) | (10,000) | (10,200) | ||||||||
Adjusted FFO attributable to common stockholders | $ | 61,500 | $ | 64,700 | $ | 242,800 | $ | 255,200 | ||||
Adjusted FFO attributable to common stockholders per diluted share | $ | 0.27 | $ | 0.29 | $ | 1.07 | $ | 1.13 | ||||
Diluted weighted average shares outstanding | 225,000 | 225,000 | 226,200 | 226,200 | ||||||||
Sunstone Hotel Investors, Inc. Non-GAAP Financial Measures 21 Hotel Comparable Portfolio Adjusted EBITDAre and Margins (Unaudited and in thousands) | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1) | 34.3% | 34.5% | 30.6% | 30.6% | |||||||||
21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net (2) | 34.3% | 34.6% | 30.6% | 30.6% | |||||||||
Total revenues | $ | 302,896 | $ | 317,447 | $ | 560,576 | $ | 588,893 | |||||
Non-hotel revenues (3) | (25) | (21) | (48) | (41) | |||||||||
Hurricane-related business interruption insurance proceeds (4) | — | — | — | (812) | |||||||||
Total Actual Hotel Revenues | 302,871 | 317,426 | 560,528 | 588,040 | |||||||||
Sold hotel revenues (5) | — | (24,514) | — | (48,124) | |||||||||
Total 21 Hotel Comparable Portfolio Revenues | $ | 302,871 | $ | 292,912 | $ | 560,528 | $ | 539,916 | |||||
Net income | $ | 45,918 | $ | 51,262 | $ | 63,834 | $ | 89,717 | |||||
Non-hotel revenues (3) | (25) | (21) | (48) | (41) | |||||||||
Non-hotel operating expenses, net (6) | (778) | (785) | (1,545) | (1,558) | |||||||||
Hurricane-related business interruption insurance proceeds (4) | — | — | — | (812) | |||||||||
Hurricane-related uninsured losses (7) | — | 16 | — | 85 | |||||||||
Taxes assessed on commercial rents (8) | 348 | — | 708 | — | |||||||||
Corporate overhead | 8,078 | 7,594 | 15,594 | 14,696 | |||||||||
Depreciation and amortization | 36,524 | 37,334 | 72,911 | 74,022 | |||||||||
Impairment loss | — | 1,394 | — | 1,394 | |||||||||
Interest and other income | (4,811) | (2,966) | (9,735) | (4,457) | |||||||||
Interest expense | 15,816 | 11,184 | 30,142 | 20,060 | |||||||||
Gain on sale of assets | — | — | — | (15,659) | |||||||||
Income tax provision (benefit), net | 2,676 | 2,375 | (436) | (1,365) | |||||||||
Actual Hotel Adjusted EBITDAre | 103,746 | 107,387 | 171,425 | 176,082 | |||||||||
Sold hotel Adjusted EBITDAre (5) | — | (6,308) | — | (10,977) | |||||||||
21 Hotel Comparable Portfolio Adjusted EBITDAre | 103,746 | 101,079 | 171,425 | 165,105 | |||||||||
Prior year property tax adjustments, net (9) | 109 | 136 | 298 | 122 | |||||||||
21 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net | $ | 103,855 | $ | 101,215 | $ | 171,723 | $ | 165,227 | |||||
* Footnotes on following page. | |
(1) | 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin is calculated as 21 Hotel Comparable Portfolio Adjusted EBITDAre divided by Total 21 Hotel Comparable Portfolio Revenues. |
(2) | 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net is calculated as 21 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net divided by Total 21 Hotel Comparable Portfolio Revenues. |
(3) | Non-hotel revenues include 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 Hyatt Regency San Francisco and the Wailea Beach Resort. |
(4) | Hurricane-related business interruption insurance proceeds include $0.8 million received in the first quarter of 2018 at the Oceans Edge Resort & Marina related to Hurricane Irma disruption in 2017 and 2018. |
(5) | Sold hotel includes hotel revenues and Adjusted EBITDAre generated during the Company's ownership periods for the Marriott Philadelphia and the Marriott Quincy, both of which were sold in January 2018, the Hyatt Regency Newport Beach sold in July 2018, two Houston hotels sold in October 2018, and the Marriott Tysons Corner sold in December 2018. |
(6) | Non-hotel operating expenses, net include the following: the amortization of real estate-related right-of-use assets; the amortization of a favorable management agreement; and finance lease obligation interest - cash ground rent. |
(7) | Hurricane-related uninsured losses for the second quarter of 2018 include $16,000 at the Oceans Edge Resort & Marina. Hurricane-related uninsured losses for the first six months of 2018 include $0.1 million at the Oceans Edge Resort & Marina and a total of $5,000 at two Houston hotels, which the Company sold in October 2018. |
(8) | Taxes assessed on commercial rents for the second quarter and first six months of 2019 include $0.3 million and $0.7 million, respectively, at the Hyatt Regency San Francisco. |
(9) | Prior year property tax adjustments, net for both the second quarters of 2019 and 2018 exclude the additional net expense of $0.1 million. Prior year property tax adjustments, net for the first six months of 2019 and 2018 exclude the additional net expense of $0.3 million and $0.1 million, respectively. |
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SOURCE Sunstone Hotel Investors, Inc.
