Sunstone Hotel Investors, Inc. today announced results for the fourth quarter and year ended December 31, 2018.
Fourth Quarter 2018 Operational Results (as compared to Fourth Quarter 2017):
- Net income increased 276.0% to $77.8 million. Excluding the effect of the gain on the three hotels sold during the fourth quarter of 2018, net income would have increased 43.0%.
- Income attributable to common stockholders per diluted common share increased 357.1% to $0.32. Excluding the effect of the gain on the three hotels sold during the fourth quarter of 2018, income attributable to common stockholders per diluted common share would have increased 57.1%.
- 22 Hotel Total Portfolio RevPAR increased 5.9% to $186.34.
- 21 Hotel Comparable Portfolio RevPAR increased 5.6% to $188.02.
- 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net and hurricane-related business interruption insurance proceeds increased 30 basis points to 30.4%.
- Adjusted EBITDAre, excluding noncontrolling interest increased 5.6% to $83.6 million.
- Adjusted FFO attributable to common stockholders per diluted share increased 3.6% to $0.29.
Full Year 2018 Operational Results (as compared to Full Year 2017):
- Net income increased 69.3% to $259.1 million.
- Income attributable to common stockholders per diluted common share increased 78.0% to $1.05.
- 22 Hotel Total Portfolio RevPAR increased 2.9% to $189.60.
- 21 Hotel Comparable Portfolio RevPAR increased 2.8% to $191.74.
- 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net and hurricane-related business interruption insurance proceeds decreased 50 basis points to 30.9%.
- Adjusted EBITDAre, excluding noncontrolling interest decreased 2.0% to $331.8 million. The decline in Adjusted EBITDAre, excluding noncontrolling interest is primarily attributable to asset sales that occurred in 2018.
- Adjusted FFO attributable to common stockholders per diluted share decreased 4.1% to $1.17.
John Arabia, President and Chief Executive Officer, stated, "2018 marked a successful year for Sunstone as we increased our ownership of Long-Term Relevant Real Estate® through the selective disposition of six non-core hotels, the acquisition of both the land underlying the JW Marriott New Orleans and the perpetual rights to leased spaces at the Renaissance Washington DC, and through $150 million of capital investment throughout our portfolio. These capital investments, which are expected to drive growth in 2019 and beyond, include full renovations of the Marriott Boston Long Wharf and JW Marriott New Orleans and the completed development of a brand new, 46,000 square foot meeting facility at the Renaissance Orlando at SeaWorld®. Additionally, our portfolio of Long-Term Relevant Real Estate® outperformed our expectations, resulting in RevPAR and profitability significantly above the high-end of our prior guidance range. This better-than-expected operating performance benefited from strong fourth quarter room rate growth, combined with solid growth in food and beverage and other revenues."
Mr. Arabia continued, "In the past several years we have not only improved our portfolio but also built up significant financial optionality and capacity that represents meaningful earnings accretion once our excess capital is deployed. Over time, we expect to gradually divest of our few remaining non-core assets while recycling sales proceeds and our significant existing financial capacity into Long-Term Relevant Real Estate® as attractive opportunities arise."
| UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA | |||||||||||||||||||||||||||||
| ($ in millions, except RevPAR, ADR and per share amounts) | |||||||||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
| 2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||||||||||||||
| Net Income | $ | 77.8 | $ | 20.7 | 276.0 | % | $ | 259.1 | $ | 153.0 | 69.3 | % | |||||||||||||||||
| Income Attributable to Common Stockholders per Diluted Share | $ | 0.32 | $ | 0.07 | 357.1 | % | $ | 1.05 | $ | 0.59 | 78.0 | % | |||||||||||||||||
| 22 Hotel Total Portfolio RevPAR (1) | $ | 186.34 | $ | 176.03 | 5.9 | % | $ | 189.60 | $ | 184.33 | 2.9 | % | |||||||||||||||||
| 21 Hotel Comparable Portfolio RevPAR (1) | $ | 188.02 | $ | 178.04 | 5.6 | % | $ | 191.74 | $ | 186.59 | 2.8 | % | |||||||||||||||||
| 21 Hotel Comparable Portfolio Occupancy (1) | 82.2 | % | 81.0 | % | 120 | bps | 83.8 | % | 84.1 | % | (30) | bps | |||||||||||||||||
| 21 Hotel Comparable Portfolio ADR (1) | $ | 228.74 | $ | 219.80 | 4.1 | % | $ | 228.81 | $ | 221.87 | 3.1 | % | |||||||||||||||||
| 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1) (2) | 30.4 | % | 30.1 | % | 30 | bps | 30.9 | % | 31.4 | % | (50) | bps | |||||||||||||||||
| Adjusted EBITDAre, excluding noncontrolling interest | $ | 83.6 | $ | 79.2 | 5.6 | % | $ | 331.8 | $ | 338.6 | (2.0) | % | |||||||||||||||||
| Adjusted FFO Attributable to Common Stockholders | $ | 66.8 | $ | 62.5 | 6.8 | % | $ | 264.2 | $ | 271.0 | (2.5) | % | |||||||||||||||||
| Adjusted FFO Attributable to Common Stockholders per Diluted Share | $ | 0.29 | $ | 0.28 | 3.6 | % | $ | 1.17 | $ | 1.22 | (4.1) | % | |||||||||||||||||
| (1) | The 22 Hotel Total Portfolio is comprised of all hotels owned by the Company as of December 31, 2018, plus the Marriott Tysons Corner, sold in December 2018. The 21 Hotel Comparable Portfolio is comprised of all hotels owned by the Company as of December 31, 2018. For the year ended December 31, 2017, both the 22 Hotel Total Portfolio and the 21 Hotel Comparable Portfolio include prior ownership results for the Oceans Edge Resort & Marina acquired in July 2017. | |||||||
| (2) | The 21 Hotel Comparable Portfolio Adjusted EBITDAre Margins exclude any prior year property tax adjustments, net and hurricane-related business interruption proceeds. | |||||||
The Company's actual results for the quarter and year ended December 31, 2018 compare to its guidance originally provided as follows:
| Metric | Quarter EndedDecember 31, 2018Guidance (1) | Quarter EndedDecember 31, 2018Actual Results (unaudited) | Performance Relative to Prior Guidance Midpoint | |||
| Net Income ($ millions) (2) | $29 to $33 | $78 | + $47 | |||
| 22 Hotel Total Portfolio RevPAR Growth (3) | + 3.0% to + 5.0% | 5.9% | + 1.9% | |||
| Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $78 to $81 | $84 | + $4 | |||
| Adjusted FFO Attributable to Common Stockholders ($ millions) | $60 to $63 | $67 | + $5 | |||
| Adjusted FFO Attributable to Common Stockholders per Diluted Share | $0.26 to $0.28 | $0.29 | + $0.02 | |||
| Diluted Weighted Average Shares Outstanding | 227,700,000 | 227,500,000 | - 200,000 | |||
| Metric | Full Year 2018Guidance (1) | Full Year 2018 Actual Results (unaudited except Net Income) | Performance Relative to Prior Guidance Midpoint | |||
| Net Income ($ millions) (2) | $211 to $214 | $259 | + $47 | |||
| 22 Hotel Total Portfolio RevPAR Growth (3) | + 2.0% to + 3.0% | 2.9% | + 0.4% | |||
| Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $326 to $329 | $332 | + $4 | |||
| Adjusted FFO Attributable to Common Stockholders ($ millions) | $257 to $260 | $264 | + $6 | |||
| Adjusted FFO Attributable to Common Stockholders per Diluted Share | $1.13 to $1.15 | $1.17 | + $0.03 | |||
| Diluted Weighted Average Shares Outstanding | 226,500,000 | 226,300,000 | - 200,000 |
| (1) | Reflects guidance presented on November 5, 2018. | ||||||
| (2) | Net income includes a $48.2 million gain on the sales of the Marriott Tysons Corner, the Hilton North Houston and the Marriott Houston (the "Houston hotels"). Excluding this gain, pro forma net income performance relative to prior guidance midpoint would be $(2) for both the fourth quarter and year ended December 31, 2018. | ||||||
| (3) | The 22 Hotel Total Portfolio RevPAR Growth is comprised of all hotels owned by the Company as of December 31, 2018, plus the Marriott Tysons Corner sold in December 2018. | ||||||
2018 Highlights
- Enhanced the overall quality of the portfolio and increased the concentration of Long-Term Relevant Real Estate® through the disposition of six hotels with prior year RevPAR that was 44% below the 2018 21 Hotel Comparable Portfolio RevPAR of $191.74.
- Acquired the land underlying the JW Marriott New Orleans.
- Acquired the exclusive perpetual rights to portions of the Renaissance Washington DC that were previously leased.
- Completed over $150 million of capital improvements throughout the portfolio, including:
- January 2019 opening of 46,000 square feet of new state-of-the-art meeting space, including a new 16,400 square foot ballroom on vacant land adjacent to the Renaissance Orlando at SeaWorld®.
- April 2018 conversion of vacant retail space into 8,000 square feet of new meeting space at the Boston Park Plaza.
- Full guestroom renovation of the Marriott Boston Long Wharf, including a complete redesign of all guestrooms and bathrooms, the creation of an M Club and the addition of three new guestrooms.
- Full guestroom renovation of the JW Marriott New Orleans, including a complete redesign of all guestrooms, enlarging many of the bathrooms and converting a majority of the bathtubs to showers.
- $4 million of investment into environmental and sustainability projects, including LED lighting retrofits to increase efficiency and reduce energy consumption, conversion of certain hotel engineering components to more sustainable energy sources and the installation of variable frequency mechanical equipment and smart sensors to reduce overall energy consumption.
- Returned $157 million of cash in the form of dividends to the Company's stockholders.
- Further enhanced the Company's already strong liquidity position, ending 2018 with over $809 million of total unrestricted cash on hand. After adjusting for the January 2019 payment of common and preferred dividends, the Company has over $682 million of total pro forma unrestricted cash available for future investment.
Balance Sheet/Liquidity Update
As of December 31, 2018, the Company had $862.4 million of cash and cash equivalents, including restricted cash of $53.1 million, total assets of $4.0 billion, including $3.0 billion of net investments in hotel properties, total consolidated debt of $982.8 million and stockholders' equity of $2.7 billion.
Capital Improvements
The Company invested $33.1 million and $150.8 million into capital improvements of its portfolio during the quarter and year ended December 31, 2018, respectively. In 2019, the Company expects to invest approximately $125 million to $145 million into its portfolio. Based on the expected timing and scope of the 2019 projects, the Company expects $4.0 million to $5.0 million of total revenue displacement related to its major capital improvement projects in 2019, which represents a $5.5 million reduction from the levels witnessed in 2018. A selection of the Company's planned 2019 capital improvement projects include:
- Hilton San Diego Bayfront: The Company expects to invest approximately $22 million to $24 million, with a portion spent in 2018, to renovate all 1,190 guestrooms and suites. The work will include the replacement of guestroom soft goods and renovation of corridors. The renovation began during the fourth quarter of 2018, and is expected to be completed during the third quarter of 2019. 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. The Company expects $2.5 million to $3.0 million of revenue displacement during the first three quarters of 2019 in connection with the guestroom soft goods replacement and corridor renovation.
- Renaissance Harborplace: The Company expects to invest approximately $21 million to $23 million, with a portion spent in 2018, to renovate all 622 guestrooms and suites. The renovation includes 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 is expected to be completed during the second quarter of 2019. The Company expects approximately $1.0 million to $1.5 million of revenue displacement in the first half of 2019.
- Hyatt Regency San Francisco: The Company expects to invest approximately $6 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 is expected to begin during the fourth quarter of 2019 and be completed in the second quarter of 2020. The Company does not anticipate any revenue displacement related to the construction.
- Environmental and Sustainability Projects: The Company expects to invest approximately $4 million to $10 million into additional environmental and sustainability projects in 2019, including the installation of solar panels at certain hotels in the portfolio, additional LED lighting retrofits and the modernization of other mechanical equipment intended to reduce its overall energy consumption.
2019 Outlook
The Company's achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission. The Company's guidance does not take into account the impact of any unanticipated developments in its business, changes in its operating environment, or any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, noncash impairment expense, changes in deferred tax assets or valuation allowances, severance costs associated with restructuring hotel services, uninsured property losses, early lease termination costs, prior year property tax assessments or credits, debt repurchases/repayments, or unannounced financings during 2019.
The Company's 2019 guidance does not include any residual impact from the recent government shutdown or any additional impact from any future government shutdowns, which could likely have a prolonged negative impact on its business.
For the first quarter of 2019, the Company expects:
| Metric | Quarter EndedMarch 31, 2019Guidance (1) | |
| Net Income ($ millions) | $10 to $14 | |
| 21 Hotel Comparable Portfolio RevPAR Growth | + 2.5% to + 4.5% | |
| Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $59 to $62 | |
| Adjusted FFO Attributable to Common Stockholders ($ millions) | $42 to $45 | |
| Adjusted FFO Attributable to Common Stockholders per Diluted Share | $0.18 to $0.20 | |
| Diluted Weighted Average Shares Outstanding | 227,700,000 |
For the full year of 2019, the Company expects:
| Metric | Full Year 2019Guidance (1) | |
| Net Income ($ millions) | $109 to $134 | |
| 21 Hotel Comparable Portfolio RevPAR Growth | 0.0% to + 3.0% | |
| Adjusted EBITDAre, excluding noncontrolling interest ($ millions) | $300 to $324 | |
| Adjusted FFO Attributable to Common Stockholders ($ millions) | $229 to $254 | |
| Adjusted FFO Attributable to Common Stockholders per Diluted Share | $1.01 to $1.11 | |
| Diluted Weighted Average Shares Outstanding | 228,000,000 |
| (1) | See page 13 for detailed reconciliations of Net Income to non-GAAP financial measures. | ||||||
First quarter and full year 2019 guidance are based in part on the following assumptions:
- Full year revenue displacement of $4.0 million to $5.0 million, related to planned 2019 capital investment projects.
- Full year Adjusted EBITDAre, excluding noncontrolling interest displacement of approximately $3.0 million to $4.0 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 $23 million.
- Full year amortization of deferred stock compensation expense of approximately $9 million.
- Full year interest expense of approximately $51 million, including approximately $3 million in amortization of deferred financing costs and approximately $3 million of capital lease obligation interest. Full year interest expense does not include any noncash gain or 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
On February 11, 2019, 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 April 15, 2019 to stockholders of record as of March 29, 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.
About Sunstone Hotel Investors, Inc.
Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of February 12, 2019 has interests in 21 hotels comprised of 10,780 rooms. Sunstone's primary business is to acquire, own, asset manage and renovate 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.
| Sunstone Hotel Investors, Inc. | ||||||
| Consolidated Balance Sheets | ||||||
| (In thousands, except share data) | ||||||
| December 31, | December 31, | |||||
| 2018 | 2017 | |||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 809,316 | $ | 488,002 | ||
| Restricted cash | 53,053 | 71,309 | ||||
| Accounts receivable, net | 33,844 | 34,219 | ||||
| Inventories | 1,078 | 1,323 | ||||
| Prepaid expenses | 11,183 | 10,464 | ||||
| Assets held for sale, net | — | 122,807 | ||||
| Total current assets | 908,474 | 728,124 | ||||
| Investment in hotel properties, net | 3,030,998 | 3,106,066 | ||||
| Deferred financing costs, net | 3,544 | 1,305 | ||||
| Other assets, net | 29,817 | 22,317 | ||||
| Total assets | $ | 3,972,833 | $ | 3,857,812 | ||
| Liabilities and Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable and accrued expenses | $ | 30,425 | $ | 31,810 | ||
| Accrued payroll and employee benefits | 25,039 | 26,687 | ||||
| Dividends and distributions payable | 126,461 | 133,894 | ||||
| Other current liabilities | 44,962 | 44,502 | ||||
| Current portion of notes payable, net | 5,838 | 5,477 | ||||
| Liabilities of assets held for sale | — | 189 | ||||
| Total current liabilities | 232,725 | 242,559 | ||||
| Notes payable, less current portion, net | 971,225 | 977,282 | ||||
| Capital lease obligations, less current portion | 27,009 | 26,804 | ||||
| Other liabilities | 30,703 | 28,989 | ||||
| Total liabilities | 1,261,662 | 1,275,634 | ||||
| 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 December 31, 2018 and 2017, 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 December 31, 2018 and 2017, stated at liquidation preference of $25.00 per share | 75,000 | 75,000 | ||||
| Common stock, $0.01 par value, 500,000,000 shares authorized, 228,246,247 shares issued and outstanding at December 31, 2018 and 225,321,660 shares issued and outstanding at December 31, 2017 | 2,282 | 2,253 | ||||
| Additional paid in capital | 2,728,684 | 2,679,221 | ||||
| Retained earnings | 1,182,722 | 932,277 | ||||
| Cumulative dividends and distributions | (1,440,202) | (1,270,013) | ||||
| Total stockholders' equity | 2,663,486 | 2,533,738 | ||||
| Noncontrolling interest in consolidated joint venture | 47,685 | 48,440 | ||||
| Total equity | 2,711,171 | 2,582,178 | ||||
| Total liabilities and equity | $ | 3,972,833 | $ | 3,857,812 | ||
| Sunstone Hotel Investors, Inc. | ||||||||||||
| Consolidated Statements of Operations | ||||||||||||
| (In thousands, except per share data) | ||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||
| (unaudited) | ||||||||||||
| Revenues | ||||||||||||
| Room | $ | 191,132 | $ | 199,532 | $ | 799,369 | $ | 829,320 | ||||
| Food and beverage | 67,199 | 73,990 | 284,668 | 296,933 | ||||||||
| Other operating | 22,521 | 16,668 | 75,016 | 67,385 | ||||||||
| Total revenues | 280,852 | 290,190 | 1,159,053 | 1,193,638 | ||||||||
| Operating expenses | ||||||||||||
| Room | 50,281 | 53,019 | 210,204 | 213,301 | ||||||||
| Food and beverage | 46,187 | 50,457 | 193,486 | 201,225 | ||||||||
| Other operating | 4,681 | 4,272 | 17,169 | 16,392 | ||||||||
| Advertising and promotion | 13,708 | 13,762 | 55,523 | 58,572 | ||||||||
| Repairs and maintenance | 10,627 | 11,653 | 43,111 | 46,298 | ||||||||
| Utilities | 6,791 | 7,575 | 29,324 | 30,419 | ||||||||
| Franchise costs | 8,442 | 9,314 | 35,423 | 36,681 | ||||||||
| Property tax, ground lease and insurance | 18,756 | 20,239 | 82,414 | 83,716 | ||||||||
| Other property-level expenses | 31,414 | 33,510 | 132,419 | 138,525 | ||||||||
| Corporate overhead | 8,191 | 7,232 | 30,247 | 28,817 | ||||||||
| Depreciation and amortization | 36,268 | 38,583 | 146,449 | 158,634 | ||||||||
| Impairment loss | — | 5,626 | 1,394 | 40,053 | ||||||||
| Total operating expenses | 235,346 | 255,242 | 977,163 | 1,052,633 | ||||||||
| Gain on sale of assets | 48,174 | — | 116,961 | 45,474 | ||||||||
| Operating income | 93,680 | 34,948 | 298,851 | 186,479 | ||||||||
| Interest and other income | 3,451 | 1,743 | 10,500 | 4,340 | ||||||||
| Interest expense | (16,081) | (10,425) | (47,690) | (51,766) | ||||||||
| Loss on extinguishment of debt | (835) | (820) | (835) | (824) | ||||||||
| Income before income taxes and discontinued operations | 80,215 | 25,446 | 260,826 | 138,229 | ||||||||
| Income tax (provision) benefit, net | (2,459) | (4,766) | (1,767) | 7,775 | ||||||||
| Income from continuing operations | 77,756 | 20,680 | 259,059 | 146,004 | ||||||||
| Income from discontinued operations | — | — | — | 7,000 | ||||||||
| Net income | 77,756 | 20,680 | 259,059 | 153,004 | ||||||||
| Income from consolidated joint venture attributable to noncontrolling interest | (1,425) | (1,284) | (8,614) | (7,628) | ||||||||
| Preferred stock dividends | (3,208) | (3,208) | (12,830) | (12,830) | ||||||||
| Income attributable to common stockholders | $ | 73,123 | $ | 16,188 | $ | 237,615 | $ | 132,546 | ||||
| Basic and diluted per share amounts: | ||||||||||||
| Income from continuing operations attributable to common stockholders | $ | 0.32 | $ | 0.07 | $ | 1.05 | $ | 0.56 | ||||
| Income from discontinued operations | — | — | — | 0.03 | ||||||||
| Basic and diluted income attributable to common stockholders per common share | $ | 0.32 | $ | 0.07 | $ | 1.05 | $ | 0.59 | ||||
| Basic and diluted weighted average common shares outstanding | 227,068 | 224,147 | 225,924 | 221,898 | ||||||||
| Distributions declared per common share | $ | 0.54 | $ | 0.58 | $ | 0.69 | $ | 0.73 | ||||
| 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 December 31, | Year Ended December 31, | |||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||
| Net income | $ | 77,756 | $ | 20,680 | $ | 259,059 | $ | 153,004 | ||||
| Operations held for investment: | ||||||||||||
| Depreciation and amortization | 36,268 | 38,583 | 146,449 | 158,634 | ||||||||
| Amortization of lease intangibles | 65 | 62 | 93 | 251 | ||||||||
| Interest expense | 16,081 | 10,425 | 47,690 | 51,766 | ||||||||
| Income tax provision (benefit), net | 2,459 | 4,766 | 1,767 | (7,775) | ||||||||
| Gain on sale of assets, net | (48,176) | (11) | (116,916) | (45,747) | ||||||||
| Impairment loss | — | 5,626 | 1,394 | 40,053 | ||||||||
| EBITDAre | 84,453 | 80,131 | 339,536 | 350,186 | ||||||||
| Operations held for investment: | ||||||||||||
| Amortization of deferred stock compensation | 2,069 | 1,854 | 9,007 | 8,042 | ||||||||
| Amortization of favorable and unfavorable contracts, net | (5) | 3 | (2) | 218 | ||||||||
| Noncash ground rent | (287) | (281) | (1,147) | (1,122) | ||||||||
| Capital lease obligation interest - cash ground rent | (593) | (590) | (2,361) | (1,867) | ||||||||
| Loss on extinguishment of debt | 835 | 820 | 835 | 824 | ||||||||
| Hurricane-related uninsured losses (insurance proceeds), net | — | 41 | (990) | 1,690 | ||||||||
| Closing costs - completed acquisition | — | — | — | 729 | ||||||||
| Prior year property tax adjustments, net | (320) | (251) | (203) | (800) | ||||||||
| Property-level restructuring, severance and management transition costs | 29 | — | 29 | — | ||||||||
| Noncontrolling interest: | ||||||||||||
| Income from consolidated joint venture attributable to noncontrolling interest | (1,425) | (1,284) | (8,614) | (7,628) | ||||||||
| Depreciation and amortization | (641) | (620) | (2,556) | (2,767) | ||||||||
| Interest expense | (545) | (482) | (1,982) | (1,950) | ||||||||
| Noncash ground rent | 73 | 73 | 290 | 290 | ||||||||
| Loss on extinguishment of debt | — | (205) | — | (205) | ||||||||
| Discontinued operations: | ||||||||||||
| Gain on sale of assets | — | — | — | (7,000) | ||||||||
| (810) | (922) | (7,694) | (11,546) | |||||||||
| Adjusted EBITDAre, excluding noncontrolling interest | $ | 83,643 | $ | 79,209 | $ | 331,842 | $ | 338,640 | ||||
| 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 December 31, | Year Ended December 31, | |||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||
| Net income | $ | 77,756 | $ | 20,680 | $ | 259,059 | $ | 153,004 | ||||
| Preferred stock dividends | (3,208) | (3,208) | (12,830) | (12,830) | ||||||||
| Operations held for investment: | ||||||||||||
| Real estate depreciation and amortization | 36,020 | 38,486 | 145,827 | 158,177 | ||||||||
| Amortization of lease intangibles | 65 | 62 | 93 | 251 | ||||||||
| Gain on sale of assets, net | (48,176) | (11) | (116,916) | (45,747) | ||||||||
| Impairment loss | — | 5,626 | 1,394 | 40,053 | ||||||||
| Noncontrolling interest: | ||||||||||||
| Income from consolidated joint venture attributable to noncontrolling interest | (1,425) | (1,284) | (8,614) | (7,628) | ||||||||
| Real estate depreciation and amortization | (641) | (620) | (2,556) | (2,767) | ||||||||
| Discontinued operations: | ||||||||||||
| Gain on sale of assets | — | — | — | (7,000) | ||||||||
| FFO attributable to common stockholders | 60,391 | 59,731 | 265,457 | 275,513 | ||||||||
| Operations held for investment: | ||||||||||||
| Amortization of favorable and unfavorable contracts, net | (5) | 3 | (2) | 218 | ||||||||
| Noncash ground rent | (287) | (281) | (1,147) | (1,122) | ||||||||
| Noncash interest on derivatives and capital lease obligations, net | 3,805 | (1,777) | (1,190) | 3,106 | ||||||||
| Loss on extinguishment of debt | 835 | 820 | 835 | 824 | ||||||||
| Hurricane-related uninsured losses (insurance proceeds), net | — | 41 | (990) | 1,690 | ||||||||
| Closing costs - completed acquisition | — | — | — | 729 | ||||||||
| Prior year property tax adjustments, net | (320) | (251) | (203) | (800) | ||||||||
| Property-level restructuring, severance and management transition costs | 29 | — | 29 | — | ||||||||
| Noncash income tax provision (benefit), net | 2,232 | 4,393 | 1,132 | (9,235) | ||||||||
| Noncontrolling interest: | ||||||||||||
| Noncash ground rent | 73 | 73 | 290 | 290 | ||||||||
| Noncash interest on derivative, net | — | (25) | (1) | (30) | ||||||||
| Loss on extinguishment of debt | — | (205) | — | (205) | ||||||||
| 6,362 | 2,791 | (1,247) | (4,535) | |||||||||
| Adjusted FFO attributable to common stockholders | $ | 66,753 | $ | 62,522 | $ | 264,210 | $ | 270,978 | ||||
| FFO attributable to common stockholders per diluted share | $ | 0.27 | $ | 0.27 | $ | 1.17 | $ | 1.24 | ||||
| Adjusted FFO attributable to common stockholders per diluted share | $ | 0.29 | $ | 0.28 | $ | 1.17 | $ | 1.22 | ||||
| Basic weighted average shares outstanding | 227,068 | 224,147 | 225,924 | 221,898 | ||||||||
| Shares associated with unvested restricted stock awards | 474 | 566 | 377 | 391 | ||||||||
| Diluted weighted average shares outstanding | 227,542 | 224,713 | 226,301 | 222,289 | ||||||||
| Sunstone Hotel Investors, Inc. | ||||||||||||
| Reconciliation of Net Income to Non-GAAP Financial Measures | ||||||||||||
| Guidance for First 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 | |||||||||||
| March 31, 2019 | December 31, 2019 | |||||||||||
| Low | High | Low | High | |||||||||
| Net income | $ | 10,200 | $ | 13,800 | $ | 109,000 | $ | 134,200 | ||||
| Depreciation and amortization | 36,200 | 36,000 | 144,800 | 144,200 | ||||||||
| Amortization of lease intangibles | 100 | 100 | 300 | 300 | ||||||||
| Interest expense | 12,900 | 12,700 | 51,200 | 50,800 | ||||||||
| Income tax provision | 300 | 300 | 1,300 | 1,300 | ||||||||
| Noncontrolling interest | (1,900) | (2,100) | (12,300) | (12,500) | ||||||||
| Amortization of deferred stock compensation | 2,100 | 2,100 | 9,300 | 9,300 | ||||||||
| Noncash ground rent | (300) | (300) | (1,200) | (1,200) | ||||||||
| Capital lease obligation interest - cash ground rent | (600) | (600) | (2,400) | (2,400) | ||||||||
| Adjusted EBITDAre, excluding noncontrolling interest | $ | 59,000 | $ | 62,000 | $ | 300,000 | $ | 324,000 | ||||
| Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders | ||||||||||||
| Net income | $ | 10,200 | $ | 13,800 | $ | 109,000 | $ | 134,200 | ||||
| Preferred stock dividends | (3,200) | (3,200) | (12,800) | (12,800) | ||||||||
| Real estate depreciation and amortization | 36,000 | 35,800 | 143,800 | 143,200 | ||||||||
| Amortization of lease intangibles | 100 | 100 | 300 | 300 | ||||||||
| Noncontrolling interest | (1,300) | (1,500) | (10,100) | (10,300) | ||||||||
| Noncash ground rent | (300) | (300) | (1,200) | (1,200) | ||||||||
| Noncash interest on capital lease obligations | 100 | 100 | 200 | 200 | ||||||||
| Adjusted FFO attributable to common stockholders | $ | 41,600 | $ | 44,800 | $ | 229,200 | $ | 253,600 | ||||
| Adjusted FFO attributable to common stockholders per diluted share | $ | 0.18 | $ | 0.20 | $ | 1.01 | $ | 1.11 | ||||
| Diluted weighted average shares outstanding | 227,700 | 227,700 | 228,000 | 228,000 | ||||||||
| Sunstone Hotel Investors, Inc. | |||||||||||||
| Non-GAAP Financial Measures | |||||||||||||
| 21 Hotel Comparable Portfolio Adjusted EBITDAre and Margins | |||||||||||||
| (Unaudited and in thousands) | |||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||
| 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1) | 30.5% | 30.2% | 30.9% | 31.5% | |||||||||
| 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net (2) | 30.4% | 30.1% | 30.9% | 31.4% | |||||||||
| Total revenues | $ | 280,852 | $ | 290,190 | $ | 1,159,053 | $ | 1,193,638 | |||||
| Non-hotel revenues (3) | (28) | (20) | (94) | (82) | |||||||||
| Hurricane-related business interruption insurance proceeds (4) | (4,959) | — | (5,771) | — | |||||||||
| Total Actual Hotel Revenues | 275,865 | 290,170 | 1,153,188 | 1,193,556 | |||||||||
| Prior ownership hotel revenues (5) | — | — | — | 9,249 | |||||||||
| Sold hotel revenues (6) | (6,501) | (35,151) | (67,065) | (154,963) | |||||||||
| Total 21 Hotel Comparable Portfolio Revenues | $ | 269,364 | $ | 255,019 | $ | 1,086,123 | $ | 1,047,842 | |||||
| Net income | $ | 77,756 | $ | 20,680 | $ | 259,059 | $ | 153,004 | |||||
| Non-hotel revenues (3) | (28) | (20) | (94) | (82) | |||||||||
| Non-hotel operating expenses, net (7) | (784) | (775) | (3,282) | (2,396) | |||||||||
| Property-level restructuring, severance and management transition costs (8) | 29 | — | 29 | — | |||||||||
| Hurricane-related business interruption insurance proceeds (4) | (4,959) | — | (5,771) | — | |||||||||
| Hurricane-related uninsured losses (9) | — | 41 | 110 | 1,690 | |||||||||
| Hospitality procurement supply rebate (10) | — | — | (1,088) | — | |||||||||
| Corporate overhead | 8,191 | 7,232 | 30,247 | 28,817 | |||||||||
| Depreciation and amortization | 36,268 | 38,583 | 146,449 | 158,634 | |||||||||
| Impairment loss | — | 5,626 | 1,394 | 40,053 | |||||||||
| Gain on sale of assets | (48,174) | — | (116,961) | (45,474) | |||||||||
| Interest and other income | (3,451) | (1,743) | (10,500) | (4,340) | |||||||||
| Interest expense | 16,081 | 10,425 | 47,690 | 51,766 | |||||||||
| Loss on extinguishment of debt | 835 | 820 | 835 | 824 | |||||||||
| Income tax provision (benefit), net | 2,459 | 4,766 | 1,767 | (7,775) | |||||||||
| Income from discontinued operations | — | — | — | (7,000) | |||||||||
| Actual Hotel Adjusted EBITDAre | 84,223 | 85,635 | 349,884 | 367,721 | |||||||||
| Prior ownership hotel Adjusted EBITDAre (5) | — | — | — | 2,856 | |||||||||
| Sold hotel Adjusted EBITDAre (6) | (1,975) | (8,634) | (14,394) | (40,873) | |||||||||
| 21 Hotel Comparable Portfolio Adjusted EBITDAre | 82,248 | 77,001 | 335,490 | 329,704 | |||||||||
| Prior year property tax adjustments, net (11) | (320) | (251) | (203) | (800) | |||||||||
| 21 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net | $ | 81,928 | $ | 76,750 | $ | 335,287 | $ | 328,904 | |||||
| * Footnotes on page 15 | |
| (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 Hilton New Orleans St. Charles, the Hyatt Regency San Francisco and the Wailea Beach Resort. |
| (4) | Hurricane-related business interruption insurance proceeds include $0.8 million and $5.0 million received in the first quarter of 2018 and fourth quarter of 2018, respectively, at the Oceans Edge Resort & Marina related to Hurricane Irma disruption in 2017 and 2018. |
| (5) | Prior ownership includes hotel revenues and Adjusted EBITDAre generated during the prior ownership period for the Oceans Edge Resort & Marina, acquired in July 2017. |
| (6) | Sold hotel includes hotel revenues and Adjusted EBITDAre generated during the Company's ownership periods for Marriott Tysons Corner, sold in December 2018, the Houston hotels, sold in October 2018, the Hyatt Regency Newport Beach, sold in July 2018, the Marriott Philadelphia and the Marriott Quincy, both of which were sold in January 2018, along with the Marriott Park City and the Fairmont Newport Beach, sold in June 2017 and February 2017, respectively. |
| (7) | Non-hotel operating expenses, net include the following: the amortization of lease intangibles; the amortization of a favorable management agreement; noncash ground rent; and capital lease obligation interest - cash ground rent. |
| (8) | Property-level restructuring, severance and management transition costs include $29,000 in management transitions costs incurred in the fourth quarter of 2018 at the Hilton New Orleans St. Charles. |
| (9) | Hurricane-related uninsured losses for 2018 include $0.1 million at the Oceans Edge Resort & Marina and a total of $5,000 at the Houston hotels. Hurricane-related uninsured losses for the fourth quarter of 2017 include an adjustment totaling $(0.1) million at the Houston hotels, and additional cost of $0.1 million at the Oceans Edge Resort & Marina. Hurricane-related uninsured losses for 2017 include the following costs: a total of $0.8 million at the Houston hotels; $0.8 million at the Oceans Edge Resort & Marina; and $0.1 million at the Renaissance Orlando at SeaWorld®. |
| (10) | Hospitality procurement supply rebate includes a one-time $1.1 million rebate received from one of the Company's third-party management companies during 2018. |
| (11) | Prior year property tax adjustments, net for both the fourth quarters of 2018 and 2017 exclude the additional net benefit of $0.3 million. Prior year property tax adjustments, net for years 2018 and 2017 exclude the additional net benefit of $0.2 million and $0.8 million, respectively. |
SOURCE Sunstone Hotel Investors, Inc.
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