EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

LOGO

 

FOR IMMEDIATE RELEASE

 

For Additional Information:

 

Investor Relations    Amy Cozamanis    Laurie Berman
Sunstone Hotel Investors, Inc.    Investor/Analyst Information    General Information
(949) 369-4204    Financial Relations Board    Financial Relations Board
     (310) 854-8314    (310) 854-8315

 

SUNSTONE HOTEL INVESTORS REPORTS RESULTS OF OPERATIONS FOR

SECOND QUARTER 2005

 

Second Quarter RevPAR Increases 11.0% led by 15.1% from California Region

 

SAN CLEMENTE, CA; August 8, 2005 – Sunstone Hotel Investors, Inc. (the “Company”) (NYSE: SHO) today announced results of operations for the second quarter and six months ended June 30, 2005.

 

HIGHLIGHTS

 

Q2 2005:

 

  •   Same-store revenue per available room (“RevPAR”) growth of 11.0% over Q2 2004.

 

  •   Total revenue of $132.2 million.

 

  •   Adjusted EBITDA of $39.7 million.

 

  •   Income available to common stockholders (including OP unit holders) of $6.8 million.

 

  •   Adjusted FFO to common stockholders (including OP unit holders) of $24.8 million.

 

  •   Adjusted FFO per diluted share (including OP units) of $0.63.

 

  •   Total capital expenditures of $9.8 million.

 

Adjusted EBITDA and Adjusted FFO exclude a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and write-off of deferred financing costs associated with the early retirement of debt and a $2.1 million reserve taken due to a pending contract issue. Please refer to the definitions of Adjusted EBITDA and Adjusted FFO on page 11 and to the reconciliation schedule on page 13 for a tabular presentation of our results.

 

Robert A. Alter, Chief Executive Officer, stated, “We are very pleased with the 11.0% year over year same-store RevPAR increase, led by our California hotels which realized a 15.1% RevPAR increase over the prior year period. In June and July, we closed approximately $660.0 million of acquisitions and are

 

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pleased to add high quality assets like the Renaissance Washington D.C., Renaissance Orlando at Sea World, Renaissance Baltimore Harborplace Hotel and the Fairmont Newport Beach to our existing portfolio. These acquisitions further migrate our portfolio upscale which I continue to believe will disproportionately benefit from the industry recovery.”

 

The Company has filed contemporaneously with this press release the Form 10-Q with the SEC for the quarterly period ended June 30, 2005. In addition to the required financial information included in the Form 10-Q, the Company has included for the comparable periods (quarter and six months ended June 30, 2004) unaudited pro forma income statements that include the impact of the initial public offering and related formation and structuring transactions (as defined in the Company’s prospectus dated October 20, 2004). The Company believes that these unaudited pro forma income statements are useful to enhance the comparability of the quarter and six months ended June 30, 2005 with prior periods. The Company has also included an unaudited pro forma balance sheet as of June 30, 2005 and pro forma income statements for the quarter and six months ended June 30, 2005 that include the impact of the recent acquisitions as well as the related financings of the six Renaissance Hotels, the Sheraton Cerritos and the Fairmont Newport Beach as if they incurred as of the beginning of the respective periods.

 

Disclosure regarding the non-GAAP financial measures included in this release is included as an attachment to this release, along with a reconciliation to the most comparable GAAP measure during each of the periods presented.

 

The Company has taken a $2.1 million reserve due to a contract interpretation issue with a customer relating to applicable contract rates during the period from early 2003 through May 2005. We have a continuing relationship with this customer and expect a resolution by year end.

 

Second Quarter Highlights:

 

Listed below are certain highlights from the Company’s unaudited historical and pro forma financial statements. Please refer to the reconciliation schedule on page 13 for a tabular presentation of our results.

 

  •   Total revenue was $132.2 million for the quarter ended June 30, 2005, compared to total pro forma revenue of $120.7 million and total historical revenue of $123.6 for the quarter ended June 30, 2004.

 

  •  

Income available to common stockholders (including OP unit holders) was $6.8 million for the quarter ended June 30, 2005, compared to pro forma income from continuing operations of $6.4 million and historical net income of $3.7 million for the quarter ended June 30, 2004. Income

 

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available to common stockholders for the quarter ended June 30, 2005 includes a $2.1 million reserve related to a pending contract issue.

 

  •   Income available to common stockholders per diluted share (including OP units) was $0.17 for the quarter ended June 30, 2005, compared to pro forma income from continuing operations per diluted share of $0.16 for the quarter ended June 30, 2004.

 

  •   Adjusted EBITDA (as defined on page 11), was $39.7 million for the quarter ended June 30, 2005, compared to pro forma Adjusted EBITDA of $31.0 million and historical Adjusted EBITDA of $31.3 million for the quarter ended June 30, 2004. Adjusted EBITDA for the quarter ended June 30, 2005 excludes a $2.4 million gain on sale of assets and $2.1 million reserve taken due to a pending contract issue. Historical Adjusted EBITDA excludes a ($0.3) million loss on the sale of assets for the quarter ended June 30, 2004.

 

  •   Adjusted Funds from Operations available to common stockholders (including OP unit holders) (as defined on page 11), was $24.8 million for the quarter ended June 30, 2005, compared to pro forma Adjusted FFO of $19.4 million and historical Adjusted FFO of $18.4 million for the quarter ended June 30, 2004. Adjusted FFO for the quarter ended June 30, 2005 excludes a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $2.1 million reserve taken due to a pending contract issue. Historical Adjusted FFO excludes a ($0.3) million loss on the sale of assets for the quarter ended June 30, 2004.

 

  •   Adjusted FFO available to common stockholders per diluted share (including OP units) was $0.63 for the quarter ended June 30, 2005. Adjusted FFO for the quarter ended June 30, 2005 excludes a $0.06 gain on sale of assets, $0.09 of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $0.05 reserve taken due to a pending contract issue.

 

Second quarter results were negatively impacted by the delayed closing of the Fairmont Newport Beach acquisition (closed July 11, 2005) and by timing issues related to the issuance of 7.3 million common shares and $250.0 million debt financing (closed June 22, 2005) that were completed during the period ending June 30, 2005 but did not have any corresponding EBITDA in the period due to the timing of the acquisitions.

 

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Comparable pro forma hotel RevPAR for the 51 hotels (excluding Residence Inn by Marriott located in Rochester, Minnesota which opened June 2004) owned during the entire second quarter increased 11.0% as compared to the second quarter of 2004, driven by an increase in occupancy of 1.5 percentage points and a 8.8% increase in average room rate. Comparable pro forma hotel adjusted operating profit margins for the second quarter increased 300 basis points (from 28.2% to 31.2%).

 

First Six Months Highlights:

 

Listed below are certain highlights from the Company’s historical and unaudited pro forma financial statements. Please refer to the reconciliation schedule on page 13 for a tabular presentation of our results.

 

  •   Total revenue was $248.8 million for the six months ended June 30, 2005, compared to total pro forma revenue of $231.0 million and total historical revenue of $236.6 million for the six months ended June 30, 2004.

 

  •   Income available to common stockholders (including OP unit holders) was $8.3 million for the six months ended June 30, 2005, compared to pro forma loss from continuing operations of ($1.8) million and historical net loss of ($21.7) million for the six months ended June 30, 2004. Income available to common stockholders for the six months ended June 30, 2005 includes a $2.1 million charge for a reserve taken due to a pending contract issue.

 

  •   Income available to common stockholders per diluted share (including OP units) was $0.21 for the six months ended June 30, 2005, compared to pro forma loss from continuing operations per diluted share of ($0.05) for the six months ended June 30, 2004. Income available to common stockholders per diluted share for the six months ended June 30, 2005 includes a $2.1 million charge for a reserve taken due to a pending contract issue.

 

  •   Adjusted EBITDA, was $68.9 million for the six months ended June 30, 2005, compared to pro forma Adjusted EBITDA of $55.0 and historical Adjusted EBITDA of $60.6 million for the six months ended June 30, 2004. Adjusted EBITDA for the quarter ended June 30, 2005 excludes a $2.4 million gain on sale of assets and a $2.1 million reserve taken due to a pending contract issue. Pro forma Adjusted EBITDA for the six months ended June 30, 2004 excludes $7.4 million of impairment losses from continuing operations and historical Adjusted EBITDA excludes a ($0.4) million loss on the sale of assets, $7.4 million of impairment losses from continuing operations and $17.0 million of impairment losses on discontinued operations.

 

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  •   Adjusted Funds from Operations available to common stockholders (including OP unit holders) was $40.4 million for the six months ended June 30, 2005, compared to pro forma Adjusted FFO of $31.8 million and historical Adjusted FFO of $32.2 million for the six months ended June, 2004. Adjusted FFO for the six months ended June 30, 2005 excludes a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $2.1 million reserve taken due to a pending contract issue. Pro forma Adjusted FFO for the six months ended June 30, 2004, excludes $7.4 million of impairment losses from continuing operations and historical Adjusted FFO for the six months ended June 30, 2004 excludes a ($0.4) million loss on the sale of assets, $7.4 million of impairment losses from continuing operations and $17.0 million of impairment losses on discontinued operations.

 

  •   Adjusted FFO available to common stockholders per diluted share (including OP units) was $1.03 for the six months ended June 30, 2005. Adjusted FFO for the six months ended June 30, 2005 excludes a $0.06 gain on sale of assets, $0.09 of prepayment penalties and written-off deferred financing costs attributed to the debt refinancing completed in April 2005 and a $0.05 reserve taken due to a pending contract issue.

 

The period was negatively impacted by the delayed closing of the Fairmont Newport Beach acquisition (closed July 11, 2005) and by timing issues related to the issuance of 7.3 million common shares and $250.0 million debt financing (closed June 22, 2005) that were completed during the period ending June 30, 2005 but did not have any corresponding EBITDA in the period due to the timing of the acquisitions.

 

Comparable pro forma hotel RevPAR for the 51 hotels (excluding Residence Inn by Marriott located in Rochester, Minnesota which opened June 2004) owned during the entire first six months increased 9.8% as compared to the first six months of 2004, driven by an increase in occupancy of 1.8 percentage points and a 7.0% increase in average room rate. Comparable pro forma hotel adjusted operating profit margins for the second quarter increased 220 basis points (from 26.7% to 28.9%).

 

Outlook

 

The Company is providing guidance at this time but does not undertake to update it for any developments in its business. Achievement of the anticipated results is subject to the risks disclosed in the Company’s filings with the Securities and Exchange Commission. The Company has provided guidance for both the third quarter and full year 2005 as well as guidance for a pro forma full year 2005 which reflects all 2005 acquisition and financing transactions as if they occurred on January 1, 2005.

 

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Third Quarter 2005 Outlook

 

The Company expects comparable hotel RevPAR for the third quarter of 2005 to increase approximately 7.0% to 9.0% over the third quarter of 2004. Based upon this guidance, the Company estimates that for the third quarter 2005 its:

 

  •   Income available to common stockholders (including OP unit holders) should be approximately $5.2 million to $8.2 million;

 

  •   Income available to common stockholders per diluted share (including OP units) should be approximately $0.10 to $0.16;

 

  •   Adjusted EBITDA should be approximately $42.0 million to $45.0 million;

 

  •   Adjusted FFO available to common stockholders (including OP unit holders) should be approximately $23.0 million to $26.0 million;

 

  •   Adjusted FFO available to common stockholders per diluted share (including OP units) should be approximately $0.46 to $0.52;

 

  •   Hotel operating margins should increase approximately 150-200 basis points over the second quarter of 2004; and

 

  •   Total capital expenditures for the portfolio should be $15.0 million to $18.0 million, including $4.0 million of work at the Fairmont Newport Beach.

 

Full Year 2005 Outlook

 

The Company expects comparable hotel RevPAR for the full year 2005 to increase approximately 7.0% to 9.0% (which is an increase from 6.0% to 8.0% provided at the first quarter earnings call in May) over the full year 2004. Based upon this guidance, the Company estimates that for the full year 2005 its:

 

  •   Income available to common stockholders (including OP unit holders) should be approximately $25.9 million to $29.9 million;

 

  •   Income available to common stockholders per diluted share (including OP units) should be approximately $0.58 to $0.67;

 

  •   Adjusted EBITDA should be approximately $159.6 million to $163.6 million;

 

  •   Adjusted FFO available to common stockholders (including OP unit holders) should be approximately $93.2 million to $97.2 million;

 

  •   Adjusted FFO available to common stockholders per diluted share (including OP units) should be approximately $2.09 to $2.18;

 

  •   Hotel operating margins should increase approximately 150-200 basis points over 2004; and

 

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  •   Total capital expenditures for the portfolio should be $65.0 million to $75.0 million, including expenditures on the Fairmont Newport Beach and the acquired Renaissance Hotels.

 

Full year Adjusted EBITDA and Adjusted FFO guidance exclude a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties, and write-off of deferred financing costs associated with the early retirement of debt and a $2.1 million reserve taken due to a pending contract issue.

 

The management agreement with Interstate Hotels and Resorts, which relates to 48 of the Company’s hotels, has been amended to keep the management fee at 1.75% for the balance of 2005. In addition, the amended agreement provides that the management fee in 2006 will be 2.0%. Prior to the amendment, the management agreement had provided for the fee to increase to 1.85% on July 1, 2005 and 2.1% on January 1, 2006.

 

Pro forma Full Year 2005 Outlook

 

Due to the materiality of the recent acquisitions and financings, the Company has provided pro forma full year guidance that reflects all 2005 acquisition and financing transactions as if they occurred on January 1, 2005. Full year pro forma Adjusted EBITDA and Adjusted FFO guidance exclude a $2.4 million gain on sale of assets, $3.6 million of prepayment penalties and write-off of deferred financing fees associated with the early retirement of debt and a $2.1 million reserve taken due to a pending contract issue. Based upon this guidance, the Company estimates that for the pro forma full year 2005 its:

 

  •   Pro forma income available to common stockholders (including OP unit holders) should be approximately $34.4 million to $38.4 million;

 

  •   Pro forma Adjusted EBITDA should be approximately $186.6 million to $190.6 million;

 

  •   Pro forma Adjusted FFO available to common stockholders (including OP unit holders) should be approximately $110.7 million to $114.7 million;

 

  •   Pro forma Adjusted FFO available to common stockholders per diluted share (including OP units) should be approximately $2.21 to $2.29;

 

Disclosure regarding the non-GAAP financial measures included in this press release is included as an attachment to this release, along with reconciliation to the most comparable GAAP measure.

 

Recent Developments - Acquisitions

 

In July 2005, the Company completed the previously announced acquisition of the 444-room Sutton Place Hotel in Newport Beach, California for $72.3 million. The company has commenced on the complete

 

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renovation of the hotel’s guestrooms and public areas. The hotel has been re-branded the Fairmont Newport Beach.

 

In July 2005, the Company also completed the previously announced acquisition of the remaining 75% interest in the Renaissance Washington, D.C. The Company had previously acquired 25% of the hotel as part of the Renaissance Portfolio acquisitions completed in June 2005.

 

Balance Sheet / Liquidity Update

 

As of June 30, 2005, the Company had $96.3 million of cash and cash equivalents (including restricted cash). Total assets were $1.8 billion, including $1.6 billion of net investments in hotel properties and unconsolidated joint ventures (25% interest in the Renaissance Washington, D.C.), total debt of $967.2 million, and stockholders’ equity of $671.9 million.

 

In June 2005, the Company and selling stockholders closed its public offering of 12.2 million shares of common stock for gross proceeds of $285.0 million. In addition to the 3.0 million primary shares sold by the company, 9.2 million secondary shares were sold by affiliates of Westbrook Real Estate Partners, L.L.C., reducing their fully-diluted ownership interest in the Company to approximately 9.0%.

 

In June 2005, the Company also sold 4.0 million shares of common stock to an affiliate of GIC Real Estate, an investment arm of the Government of Singapore as well as 0.3 million shares of common stock to Security Capital Preferred Growth Incorporated, an investment vehicle advised by Security Capital Research & Management Incorporated. In July 2005, the Company also sold $100.0 million of Series C Convertible Redeemable Preferred Stock to Security Capital Preferred Growth Incorporated. The convertible preferred stock pays a base dividend of 6.45%, has a conversion price of $24.375 and is callable at par after five years.

 

In June 2005, concurrent with the closing of the six Renaissance Hotel portfolio, the Company closed on the financings of four individual fixed rate loans totaling $250.0 million. Two of the mortgages, totaling $65.0 million, mature in 2012 with a weighted average rate of 4.98%, and the remaining two mortgages, totaling $185.0 million, mature in 2016 with a weighted average rate of 5.20%.

 

Capital Expenditures

 

In the second quarter of 2005, the Company invested $9.8 million in capital expenditures across its portfolio of which $2.0 million was spent on the Fairmont Newport Beach.

 

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Dividend Update

 

During the second quarter, the Company declared a dividend of $0.285 per share payable to its common stockholders (including OP unit holders) and a dividend of $0.5778 per share payable to its Series A cumulative redeemable preferred stockholders of record as of June 30, 2005. The dividend was paid on July 15, 2005. The level of future dividends will be determined by the Company’s quarterly operating results and expected capital requirements.

 

Earnings Call

 

The Company will host a conference call to discuss second quarter results on Tuesday, August 9, 2005, at 11:00 a.m. EDT. To participate in the live call, investors are invited to dial 1-800-218-4007 (for domestic callers) or 303-262-2141 (for international callers). A live webcast of the call will be available via the Investor Relations section of the Sunstone Hotel Investors’ website at www.sunstonehotels.com. A replay of the webcast will also be archived on the website.

 

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust (“REIT”) that, as of the date hereof, owns 60 hotels with an aggregate of 16,683 rooms primarily in the upper-upscale segment operated under brands owned by nationally-recognized companies, such as Marriott, Hilton, InterContinental, Hyatt and Fairmont. For further information, please visit the Company’s website at 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,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “continue” 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 which 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: national and local economic and business conditions, including the potential for additional terrorist attacks, that will 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 agreements; relationships with property managers; 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 complete acquisitions; the performance of acquired properties after they are acquired; necessary capital expenditures on the acquired properties; and our ability to continue to satisfy complex rules in order for us to qualify as a

 

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REIT for federal income tax purposes; and other risks and uncertainties associated with our business described in the Company’s filings with the SEC. 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 information in this release is as of August 8, 2005, 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.

 

***Tables to Follow***

 

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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; and (2) Funds From Operations, or FFO.

 

EBITDA represents income (loss) available to common stockholders before minority interest excluding: (1) preferred stock dividends; (2) interest expense (including prepayment penalties, if any); (3) provision for income taxes, including income taxes applicable to sale of assets; and (4) 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 expenses we have identified in this release. We believe EBITDA and Adjusted EBITDA are useful to an investor in evaluating our operating performance because they 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.

 

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 believe that the presentation of FFO provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified non-cash items, such as real estate depreciation and amortization and gain or loss on sale of assets. 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. Our presentation of Adjusted FFO excludes prepayment penalties, written-off deferred financing costs, impairment losses and other expenses we have identified in this release.

 

We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO and Adjusted FFO may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP measures in the same manner. EBITDA, Adjusted EBITDA, FFO and Adjusted FFO should not be considered as an alternative measure of our net income (loss), operating performance, cash flow or liquidity. EBITDA, Adjusted EBITDA, FFO and Adjusted FFO may include funds that may not be available for our discretionary use due to functional

 

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requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that EBITDA, Adjusted EBITDA, FFO and Adjusted FFO can enhance your 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.

 

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SUNSTONE HOTEL INVESTORS, INC.

Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures

(Unaudited)

 

Reconciliation of Net Income (Loss) to EBITDA and EBITDA as adjusted

 

     Three Months Ended June 30,
     Six Months Ended June 30,
  
     2005
     Pro Forma
2004
    2004
     2005
     Pro Forma
2004
     2004
  

Income (loss) available to common stockholders

    $ 6,118     $ 5,852    $ 3,855     $ 7,527     $ (1,638 )   $ (21,490 )

Preferred stock dividends

      2,414       —        —         2,802       —         —    

Minority interest (OP unit holders)

      643       516      (158 )     794       (144 )     (166 )

Depreciation and amortization - continuing operations

      14,942       13,320      13,893       29,005       26,839       27,732  

Depreciation and amortization - discontinued operations

      —         —        831       291       —         2,057  

Amortization of deferred stock compensation

      483       —        —         1,014       —         —    

Interest expense - continuing operations

      11,155       11,263      11,743       22,205       22,525       24,083  

Interest expense - discontinued operations

      68       —        557       281       —         1,272  

Depreciation and amortization - deferred financing fees

      560       —        1,387       1,682       —         2,509  

Prepayment penalties

      2,834       —        —         2,834       —         —    

Write-off of deferred financing costs

      761       —        —         761       —         —    

Income taxes - continuing operations

      —         —        (1,502 )     —         —         (199 )

Income taxes - discontinued operations

      —         —        380       —         —         60  
    
 
  
 
 
 

EBITDA

      39,978       30,951      30,986       69,196       47,582       35,858  
    
 
  
 
 
 

(Gain)/loss on sale of assets

      (2,384 )     —        280       (2,384 )     —         381  

Impairment loss - continuing operations

      —         —        —         —         7,439       7,439  

Impairment loss - discontinued operations

      —         —        —         —         —         16,954  

Reserve for contract interpretation issue

      2,136       —        —         2,136       —         —    
    
 
  
 
 
 
       (248 )     —        280       (248 )     7,439       24,774  
    
 
  
 
 
 

Adjusted EBITDA

    $ 39,730     $ 30,951    $ 31,266     $ 68,948     $ 55,021     $ 60,632  
    
 
  
 
 
 

Reconciliation of Net Income (Loss) to FFO and FFO as adjusted

 

 

Income (loss) available to common stockholders

    $ 6,118     $ 5,852    $ 3,855     $ 7,527     $ (1,638 )   $ (21,490 )

Minority interest (OP unit holders)

      643       516      (158 )     794       (144 )     (166 )

Real estate depreciation and amortization - continuing operations

      14,657       13,000      13,573       28,426       26,099       26,992  

Real estate depreciation and amortization - discontinued operations

      —         —        831       291       —         2,057  

(Gain)/loss on sale of assets

      (2,384 )     —        280       (2,384 )     —         381  
    
 
  
 
 
 

FFO available to common stockholders
(including OP unit holders)

      19,034       19,368      18,381       34,654       24,317       7,774  
    
 
  
 
 
 

Prepayment penalties

      2,834       —        —         2,834       —         —    

Write-off of deferred financing costs

      761       —        —         761       —         —    

Impairment loss - continuing operations

      —         —        —         —         7,439       7,439  

Impairment loss - discontinued operations

      —         —        —         —         —         16,954  

Reserve for contract interpretation issue

      2,136       —        —         2,136       —         —    
    
 
  
 
 
 
       5,731       —        —         5,731       7,439       24,393  
    
 
  
 
 
 

Adjusted FFO available to common stockholders
(including OP unit holders)

    $ 24,765     $ 19,368    $ 18,381     $ 40,385     $ 31,756     $ 32,167  
    
 
  
 
 
 

Adjusted FFO available to common stockholders per share

    $ 0.63     $ 0.49            $ 1.03     $ 0.81          
    
 
          
 
       

Diluted weighted average shares outstanding, including OP units

      39,603       39,603              39,060       39,060          
    
 
          
 
       

 

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SUNSTONE HOTEL INVESTORS, INC.

Reconciliation of Net Income to Non-GAAP Financial Measures

Quarter Ended September 30, 2005 and Year Ended 2005 (Unaudited)

 

Reconciliation of Net Income to EBITDA and EBITDA as adjusted

 

     Quarter Ended September 30,
    Year Ended December 31,
    

Pro Forma 2005 (1)

Year Ended December 31,

  
     Low End
of Range
    High End
of Range
    Low End
of Range
     High End
of Range
     Low End
of Range
     High End
of Range
  

Income available to common stockholders

    $ 4,700    $ 7,400    $ 23,400     $ 27,000     $ 31,300     $ 34,900  

Preferred stock dividends

      2,400      2,400      7,700       7,700       9,600       9,600  

Minority interest

      500      800      2,500       2,900       3,100       3,500  

Depreciation and amortization - continuing operations

      18,000      18,000      65,000       65,000       74,000       74,000  

Depreciation and amortization - deferred financing fees

      700      700      2,900       2,900       2,800       2,800  

Amortization of deferred stock compensation

      300      300      1,400       1,400       1,400       1,400  

Interest expense - continuing operations

      15,400      15,400      53,400       53,400       61,100       61,100  

Prepayment penalties, write-off of deferred financing costs associated with the early retirement of debt

      —        —        3,600       3,600       3,600       3,600  
    
  
  
 
 
 

EBITDA

    $ 42,000    $ 45,000    $ 159,900     $ 163,900     $ 186,900     $ 190,900  
    
  
  
 
 
 

(Gain)/loss on sale of assets

    $ —      $ —      $ (2,400 )   $ (2,400 )   $ (2,400 )   $ (2,400 )

Reserve for contract interpretation issue

      —        —        2,100       2,100       2,100       2,100  
    
  
  
 
 
 

Adjusted EBITDA

    $ 42,000    $ 45,000    $ 159,600     $ 163,600     $ 186,600     $ 190,600  
    
  
  
 
 
 

Reconciliation of Net Income to FFO and FFO as adjusted

 

 

Income available to common stockholders

    $ 4,700    $ 7,400    $ 23,400     $ 27,000     $ 31,300     $ 34,900  

Minority interest

      500      800      2,500       2,900       3,100       3,500  

Real estate depreciation and amortization - continuing operations

      17,800      17,800      64,000       64,000       73,000       73,000  

(Gain)/loss on sale of assets

      —        —        (2,400 )     (2,400 )     (2,400 )     (2,400 )
    
  
  
 
 
 

FFO available to common stockholders (including OP unit holders)

      23,000      26,000      87,500       91,500       105,000       109,000  
    
  
  
 
 
 

Prepayment penalties, write-off of deferred financing costs associated with the early retirement of debt

      —        —        3,600       3,600       3,600       3,600  

Reserve for contract interpretation issue

      —        —        2,100       2,100       2,100       2,100  
    
  
  
 
 
 

Adjusted FFO available to common stockholders (including OP unit holders)

    $ 23,000    $ 26,000    $ 93,200     $ 97,200     $ 110,700     $ 114,700  
    
  
  
 
 
 

Diluted weighted average shares outstanding, including OP units (2)

      49,999      49,999      44,496       44,496       49,999       49,999  
    
  
  
 
 
 

Adjusted FFO available to common stockholders (including OP unit holders) per share and unit (2)

    $ 0.46    $ 0.52    $ 2.09     $ 2.18     $ 2.21     $ 2.29  
    
  
  
 
 
 

 

(1) Pro forma EBITDA & FFO include the acquisition hotels, including those closed in July 2005, as if they were acquired, and the related financings were completed, on January 1, 2005.

 

(2) Diluted weighted average shares outstanding includes Series C Convertible Preferred on an as-converted basis.

 

14

SUNSTONE HOTEL INVESTORS, INC.

Hotel Operating Results

(unaudited)

 

     Quarter Ended
     Six Months Ended
  
     June 30, 2005
     Pro Forma
June 30, 2004
     June 30, 2005
     Pro Forma
June 30, 2004
  

Number of Hotels (1)

    51     51     51     51  

Number of Rooms (1)

    12,630     12,630     12,630     12,630  

% change in hotel RevPAR (1)

    11.3 %         9.8 %      
    
 
 
 

Hotel operating profit margin (2) (3)

    31.2 %   28.2 %   28.9 %   26.7 %
    
 
 
 

Hotel Revenues

                         

Room revenue

    92,593     83,199     172,217     157,343  

Food and beverage revenue

    28,986     27,388     54,761     52,635  

Other operating revenue

    10,615     10,080     21,773     21,004  
    
 
 
 

Total Hotel Revenues

    132,194     120,667     248,751     230,982  

Hotel Expenses

                         

Room expense

    19,449     18,047     37,233     35,106  

Food and beverage expense

    19,579     18,771     37,870     36,242  

Other hotel expense

    37,497     36,387     74,978     71,690  

General and administrative expense

    14,413     13,380     26,865     26,374  
    
 
 
 

Total Hotel Expenses

    90,938     86,585     176,946     169,412  
    
 
 
 

Hotel Operating Income

    41,256     34,082     71,805     61,570  
    
 
 
 

General and administrative - corporate

    2,763     2,763     5,751     5,751  

Depreciation and amortization

    15,425     13,803     30,019     27,853  

Impairment loss

    —       0     —       7,439  
    
 
 
 

Operating Income

    23,068     17,516     36,035     20,527  

Interest and other income

    1,398     114     1,704     216  

Interest expense

    (15,247 )   (11,263 )   (27,415 )   (22,525 )

Minority interest

    (643 )   (516 )   (794 )   144  

Benefit from (provision for) income tax

          —       —       —    

Gain from discontinued operations

    2,092     —       2,935     —    

Reserve for contract dispute (4)

    (2,136 )   —       (2,136 )   —    
    
 
 
 

NET INCOME (LOSS)

    8,532     5,851 (5)   10,329     (1,638 )(5)
(1) Includes 51 hotels. Excludes Rochester Residence Inn (opened June 2004) which was not open for the entire period in 2004 and hotels acquired during, or subsequent to, Q2 2005.

 

(2) Quarter and six months ended June 30, 2005 hotel operating profit margin is calculated as the hotel adjusted operating income divided by the hotel revenues per the schedule above. We use hotel operating income for the same reasons as EBITDA, which are more fully set forth on page 11 of this release.

 

(3) Quarter and six months ended June 30, 2004 Pro forma hotel operating profit margin is calculated as the pro forma hotel adjusted operating income divided by the pro forma hotel revenues per the schedule above. We use hotel operating income for the same reasons as EBITDA, which are more fully set forth on page 11 of this release.

 

(4) Total reserve of $2.1 million for 2003 - 2005 disputes have been excluded from 2005 quarter and six month ended results.

 

(5) Pro forma income from continuing operations.

 

15

SUNSTONE HOTEL INVESTORS, INC.

Debt Summary

(unaudited)

 

Debt

   

Collateral

    Interest Rate
/ Spread
   Maturity
Date
    Q2 2005
Ending Balance
     Recent
Events (2)
    31-Jul-05 Ending
Balance
  

Fixed Rate Debt

                                    

Secured Mortgage Debt

    1 hotel    8.51%   2007      13,884,318            13,884,318  

Secured Mortgage Debt

    1 hotel    8.25%   2008      37,415,926            37,415,926  

Secured Mortgage Debt

    1 hotel    8.25%   2008      36,356,501            36,356,501  

Secured Mortgage Debt (3)

    26 hotels    5.95%   2011      250,000,000            250,000,000  

Secured Mortgage Debt

    Rochester laundry facility    9.88%   2013      6,296,916            6,296,916  

Secured Mortgage Debt

    10 hotels -individual, non cross-collateralized loans    5.34%   2015      276,000,000            276,000,000  

Secured Mortgage Debt

    2 hotels -individual, non cross-collateralized loans    4.98%   2012      65,000,000            65,000,000  

Secured Mortgage Debt

    2 hotels - individual, non cross-collateralized loans    5.20%   2016      185,000,000            185,000,000  

Secured Mortgage Debt

    1 hotel    8.78%   2009      9,157,265            9,157,265  

Secured Mortgage Debt

    1 hotel    7.50%   2008      —       53,970,216      53,970,216  
                  
 
  

Total Fixed Rate Debt

                    879,110,926            933,081,142  

Floating Rate Debt

                                    

Secured Mortgage Debt (3)

    26 hotels    L + 2.35%   2007      13,085,440     —        13,085,440  

Unsecured Term Loan Facility

    No mortgages    L + 2.25%   2008    $ 75,000,000          $ 75,000,000  
                  
      

Total Floating Rate Debt

                    88,085,440            88,085,440  

TOTAL MORTGAGE DEBT

                  $ 967,196,366          $ 1,021,166,582  

Secured Revolving Credit Facility

    8 hotels    L + 1.50% - 2.00%   2007      —              —    
                  
      

TOTAL DEBT

                  $ 967,196,366          $ 1,021,166,582  
                  
      

Preferred / Convertible Stock

                                    

Series A & B

         8.00%   perpetual    $ 121,250,000          $ 121,250,000  

Series C

         6.45%   perpetual    $ 100,000,000          $ 100,000,000  

% Fixed

                    90.9 %          91.4 %

% Floating

                    9.1 %          8.6 %

Average Interest Rate (1)

                    5.80 %          5.89 %

Weighted Average Maturity of Debt

                    7.59 years            7.19 years  

 

(1) Assumes LIBOR of 3.35%

 

(2) Reflects debt assumed from 75% interest in Renaissance Washington, D.C. acquisition

 

(3) Cross-collateralized loan with life insurance company

 

16

SUNSTONE HOTEL INVESTORS, INC.

Pro Forma Hotel Operating Statistics by Region

(unaudited)

 

               Quarter ended June 30, 2005
    Quarter ended June 30, 2004
       

REGION

    Number of Hotels
    Number of Rooms
    Occupancy
Percentages
     Average
Daily Rate
    RevPar
    Occupancy
Percentages
     Average
Daily Rate
    RevPar
    Percent
Change in RevPAR
  

California

    18    3,824    83.8 %   $ 111.90    $ 93.74    79.7 %   $ 102.17    $ 81.47    15.1 %

Other West (1)

    16    3,440    69.9 %   $ 82.16    $ 57.42    68.1 %   $ 77.03    $ 52.43    9.5 %

Midwest (2)

    8    2,614    66.6 %   $ 122.81    $ 81.81    65.8 %   $ 113.21    $ 74.46    9.9 %

Middle Atlantic (3)

    3    782    77.0 %   $ 140.65    $ 108.30    79.0 %   $ 126.95    $ 100.30    8.0 %

South (4)

    3    895    77.0 %   $ 123.14    $ 94.77    75.4 %   $ 117.03    $ 88.26    7.4 %

Southwest (5)

    3    1,075    79.3 %   $ 91.33    $ 72.43    84.0 %   $ 80.15    $ 67.33    7.6 %
    
  
  
 
  
  
 
  
  

Total Portfolio

    51    12,630    75.2 %   $ 107.04    $ 80.45    73.7 %   $ 98.34    $ 72.46    11.0 %
    
  
  
 
  
  
 
  
  
               Six months ended June 30, 2005
    Six months ended June 30, 2004
       

REGION

    Number of Hotels
    Number of Rooms
    Occupancy
Percentages
     Average
Daily Rate
    RevPar
    Occupancy
Percentages
     Average
Daily Rate
    RevPar
    Percent
Change in RevPAR
  

California

    18    3,824    81.6 %   $ 107.56    $ 87.82    76.7 %   $ 100.02    $ 76.70    14.5 %

Other West (1)

    16    3,440    68.7 %   $ 84.69    $ 58.14    65.8 %   $ 80.52    $ 52.96    9.8 %

Midwest (2)

    8    2,614    61.6 %   $ 117.62    $ 72.39    61.8 %   $ 108.57    $ 67.06    7.9 %

Middle Atlantic (3)

    3    782    68.2 %   $ 137.44    $ 93.75    75.1 %   $ 124.35    $ 93.41    0.4 %

South (4)

    3    895    68.0 %   $ 123.73    $ 84.13    64.2 %   $ 116.02    $ 74.45    13.0 %

Southwest (5)

    3    1,075    79.5 %   $ 90.19    $ 71.66    82.5 %   $ 85.30    $ 70.40    1.8 %
    
  
  
 
  
  
 
  
  

Total Portfolio

    51    12,630    72.0 %   $ 104.49    $ 75.23    70.2 %   $ 97.66    $ 68.52    9.8 %
    
  
  
 
  
  
 
  
  

 

(1) Includes Colorado, Idaho, Oregon, Utah and Washington.

 

(2) Includes Illinois, Michigan and Minnesota. Does not include Residence Inn by Marriott located in Rochester, Minnesota (opened June 2004) which does not have a comparable period in 2004.

 

(3) Includes New Jersey, New York and Pennsylvania.

 

(4) Includes Georgia and Virginia

 

(5) Includes New Mexico and Texas

 

17

SUNSTONE HOTEL INVESTORS, INC.

Pro Forma Hotel Operating Statistics by Brand

(unaudited)

 

               Quarter ended June 30, 2005
    Quarter ended June 30, 2004
       

Brand

    Number of Hotels
    Number of Rooms
    Occupancy
Percentages
     Average
Daily Rate
    RevPar
    Occupancy
Percentages
     Average
Daily
Rate
    RevPar
    Percent
Change in RevPAR
  

Marriott (1)

    24    5,660    76.8 %   $ 114.23    $ 87.73    75.2 %   $ 105.62    $ 79.47    10.4 %

Hilton

    5    1,333    77.8 %   $ 144.21    $ 112.13    76.2 %   $ 131.45    $ 100.22    11.9 %

InterContinental

    13    2,539    72.7 %   $ 84.44    $ 61.41    72.5 %   $ 77.47    $ 56.19    9.3 %

Hyatt

    4    1,029    76.5 %   $ 112.48    $ 86.09    71.4 %   $ 101.20    $ 72.24    19.2 %

Other Franchise Affiliations (2)

    2    834    79.8 %   $ 85.20    $ 67.99    82.6 %   $ 78.69    $ 64.99    4.6 %

Independent

    3    1,235    65.7 %   $ 85.61    $ 56.26    62.2 %   $ 79.78    $ 49.59    13.5 %
    
  
  
 
  
  
 
  
  

Total Portfolio

    51    12,630    75.2 %   $ 107.04    $ 80.45    73.7 %   $ 98.34    $ 72.46    11.0 %
    
  
  
 
  
  
 
  
  
               Six months ended June 30, 2005
    Six months ended June 30, 2004
       

Brand

    Number of Hotels
    Number of Rooms
    Occupancy
Percentages
     Average
Daily Rate
    RevPar
    Occupancy
Percentages
     Average
Daily
Rate
    RevPar
   

Percent

Change in RevPAR

  

Marriott (1)

    24    5,660    74.5 %   $ 113.66    $ 84.73    72.0 %   $ 106.52    $ 76.69    10.5 %

Hilton

    5    1,333    71.8 %   $ 132.36    $ 95.10    68.7 %   $ 124.55    $ 85.60    11.1 %

InterContinental

    13    2,539    68.4 %   $ 80.93    $ 55.38    68.5 %   $ 75.72    $ 51.86    6.8 %

Hyatt

    4    1,029    74.1 %   $ 109.83    $ 81.36    68.8 %   $ 99.74    $ 68.58    18.6 %

Other Franchise Affiliations (2)

    2    834    82.5 %   $ 85.29    $ 70.36    82.3 %   $ 84.31    $ 69.37    1.4 %

Independent

    3    1,235    59.2 %   $ 84.18    $ 49.80    59.9 %   $ 78.33    $ 46.90    6.2 %
    
  
  
 
  
  
 
  
  

Total Portfolio

    51    12,630    72.0 %   $ 104.49    $ 75.23    70.2 %   $ 97.66    $ 68.52    9.8 %
    
  
  
 
  
  
 
  
  

 

(1) Does not include Residence Inn by Marriott located in Rochester, Minnesota (opened June 2004) which does not have a comparable period in 2004.

 

(2) Includes Sheraton and Wyndham

 

# # #

 

18