ALISO VIEJO, Calif., June 6, 2012 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) announced today that it has entered into a purchase and sale agreement to sell the 284-room Marriott Del Mar for a contractual purchase price of $66 million ($232,000/key). The contractual sale price represents a 13.7x multiple on 2012 forecasted hotel EBITDA of $4.8 million and a 5.9% capitalization rate on 2012 forecasted hotel net operating income. The transaction, subject to customary closing conditions, including the assumption of the existing $47.2 million mortgage, is expected to close on or around June 30, 2012. During the Company's anticipated 2012 ownership period, the Marriott Del Mar is expected to generate approximately $2.1 million of hotel EBITDA. Upon completion of the sale and assumption of the mortgage debt by the buyer, the Company expects to receive net proceeds, before customary transaction costs and credits, of approximately $19 million.
On June 4, 2012, the Company completed the previously announced acquisition of the 417-room Wyndham Chicago and has rebranded the hotel the Hyatt Chicago Magnificent Mile. Concurrent with the closing of the $88.4 million acquisition, the Company issued 5,454,164 shares of common stock to the seller, The Blackstone Group, valued at $58.4 million ($10.71/share) at the time the transaction was announced. The Company registered the 5,454,164 shares issued to The Blackstone Group through an automatic shelf registration statement filed with the Securities and Exchange Commission on June 4, 2012. The balance of the acquisition was funded with cash on hand.
Ken Cruse, President and Chief Executive Officer, stated, "We are pleased to announce the pending sale of the Marriott Del Mar and the closing of our previously announced purchase of the Hyatt Chicago Magnificent Mile. Consistent with our stated business plan, by divesting of a highly-levered, sub-market hotel and acquiring an unencumbered, high-quality central business district hotel, we have improved our portfolio quality and growth profile while deleveraging our balance sheet. We may look to opportunistically sell additional non-core assets in transactions that help advance our portfolio quality and balance sheet objectives. In accordance with our corporate practice, we will announce any future dispositions after receiving a non-refundable deposit from the buyer and when we believe the probability of closing is high."
The pending sale of the Marriott Del Mar, assuming a June 30, 2012 closing date, is expected to reduce full-year 2012 Adjusted EBITDA by approximately $2.7 million, Adjusted FFO by approximately $1.4 million and net income by approximately $0.3 million, in each case as provided on May 2, 2012. The sale of the Marriott Del Mar reduces the Company's total debt by $47.2 million, resulting in total debt reduction, in addition to contractual amortization, of $185.4 million since 2011. Full-year Adjusted EBITDA, Adjusted FFO and net income impact excludes one-time closing costs resulting from the transaction.
The acquisition of the Hyatt Chicago Magnificent Mile is expected to increase second-quarter 2012 Adjusted EBITDA by $0.9 million, Adjusted FFO by $0.9 million and net income by $0.6 million, in each case as provided on May 2, 2012. The acquisition of the Hyatt Chicago Magnificent Mile is expected to increase full-year 2012 Adjusted EBITDA by $4.1 million, Adjusted FFO by $4.1 million and net income by $2.2 million, in each case as provided on May 2, 2012. Second-quarter and full-year Adjusted EBITDA, Adjusted FFO, and net income impact excludes one-time closing and brand/manager transition costs resulting from the transaction.
The Company has updated its forecasted weighted average share count to reflect the issuance of 5,454,164 shares of common stock on June 4, 2012.
Weighted Average Share Count (in millions) ----------------------------------------- Q2 2012 Q3 2012 Q4 2012 FY 2012 119.4 123.4 123.5 121.0
About Sunstone Hotel Investors:
Sunstone Hotel Investors, Inc. ("Sunstone") is a lodging real estate investment trust ("REIT") that, as of herein, has interests in 32 hotels comprised of 13,341 rooms. Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Fairmont, Hyatt and Sheraton. For further information, please visit Sunstone's website at www.sunstonehotels.com.
Sunstone's mission is to create meaningful value for our stockholders by becoming the premier hotel owner. Our values include transparency, trust, ethical conduct, communication and discipline. We seek to employ a balanced, cycle-appropriate corporate strategy that encompasses the following:
-- Proactive portfolio management; -- Intensive asset management; -- Disciplined external growth; and -- Measured balance sheet improvement.
This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will" and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: volatility in the debt or equity markets affecting our ability to acquire or sell hotel assets; national and local economic and business conditions, including the likelihood of a prolonged U.S. recession; the ability to maintain sufficient liquidity and our access to capital markets; potential terrorist attacks, which would affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt and equity agreements; relationships with property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine wages, prices, construction procedures and costs; our ability to identify, successfully compete for and complete acquisitions; the performance of hotels after they are acquired; necessary capital expenditures and our ability to fund them and complete them with minimum disruption; our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes; and other risks and uncertainties associated with our business described in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All forward-looking information in this release is as of June 6, 2012, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
Non-GAAP Financial Measures:
We present the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; Adjusted EBITDA (as defined below); Funds From Operations, or FFO; Adjusted FFO (as defined below); and comparable hotel EBITDA and comparable hotel EBITDA margin.
EBITDA represents net income (loss) excluding: non-controlling interests; interest expense; provision for income taxes, including income taxes applicable to sale of assets; and depreciation and amortization. In addition, we have presented Adjusted EBITDA, which excludes: amortization of deferred stock compensation; the impact of any gain or loss from asset sales; impairment charges; and any other adjustments we have identified in this release. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because these measures help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and 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 believe comparable hotel EBITDA and comparable hotel EBITDA margin are also useful to investors in evaluating our property-level operating performance.
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 non-controlling interests, gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs) and real estate-related impairment losses, and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes penalties, written-off deferred financing costs, non-real estate-related impairment losses and any other adjustments we have identified in this release. We believe that the presentation of FFO and Adjusted FFO provide useful information to investors regarding our operating performance because they are measures of our operations without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of assets and certain other items which we believe are not indicative of the performance of our underlying hotel properties. We believe that these items are more representative of our asset base and our acquisition and disposition activities than our ongoing operations. We also use FFO as one measure in determining our results after taking into account the impact of our capital structure.
We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the same manner. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin should not be considered as an alternative measure of our net income (loss), operating performance, cash flow or liquidity. EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and comparable hotel EBITDA margin can enhance an investor's understanding of our results of operations, these non-GAAP financial measures, when viewed individually, are not necessarily a better indicator of any trend as compared to GAAP measures such as net income (loss) or cash flow from operations. In addition, you should be aware that adverse economic and market conditions may harm our cash flow.
Property-Level EBITDA Reconciliation 2011 - 2012 Marriott Del Mar ---------------- Plus: Plus: Plus: Equals: Hotel Less: Equals: (In thousands) Total Net Income / Other Hotel EBITDA Hotel Net FFO Revenues (Loss) Adjustments (1) Depreciation Interest Expense EBITDA Margin FF&E Reserve Operating Income Contribution (3) -------- ----- -------------- ------------ ---------------- ------ ------ ------------ ---------------- --------------- FY 2011 $16,896 $(867) $30 $1,477 $2,768 $3,408 20.2% $(845) $2,563 $640 2011 EBITDA Multiple / Cap Rate 19.4x 3.9% Six Months Ended June 30, 2012 (2) $8,339 $(286) $14 $962 $1,376 $2,066 24.8% $(417) $1,649 $690 FY 2012 (2) $18,751 $64 $28 $1,978 $2,744 $4,814 25.7% $(938) $3,876 $2,070 2012 EBITDA Multiple / Cap Rate 13.7x 5.9% (1) Other Adjustments include the expense recognized related to the amortization of lease intangibles. (2) Six Months Ended June 30, 2012 and FY 2012 include actual amounts thru April 2012 plus forecast amounts for the remainder of the year. (3) FFO Contribution calculated as Hotel EBITDA less Interest Expense.
Property-Level EBITDA Reconciliation Hyatt Chicago Magnificent Mile ------------------------------ Plus: Plus: Plus: Equals: Hotel Less: Equals: (In thousands) Total Other Hotel EBITDA Hotel Net FFO Revenues Net Income Adjustments Depreciation (1) Interest Expense EBITDA Margin FF&E Reserve Operating Income Contribution (2) -------- ---------- ----------- --------------- ---------------- ------ ------ ------------ ---------------- --------------- June 4, 2012 - June 30, 2012 (3) $2,551 $641 $ - $239 $ - $880 34.5% $(26) $854 $880 July 2012 - December 2012 (3) $14,511 $1,586 $ - $1,675 $ - $3,261 22.5% $(145) $3,116 $3,261 FY 2012 (3) $25,600 $1,200 $ - $3,300 $ - $4,200 16.4% $(256) $3,944 $4,200 Post Renovation (4) $35,000 $5,200 $ - $4,000 $ - $9,200 26.3% $(350) $8,850 $9,200 (1) Depreciation calculated using an estimated purchase price of $88.4 million allocated based on the hotel's 2011 property tax assessment. Post renovation depreciation is increased to reflect capital invested. (2) FFO Contribution calculated as Hotel EBITDA less Interest Expense. (3) 2012 forecast reflects prior ownership period of January - June 3, 2012 when the hotel operated as the Wyndham Chicago, and June 4 - December 2012 when the hotel will be re-branded the Hyatt Chicago Magnificent Mile. (4) Reflects anticipated earnings for the subsequent twelve months following the completion of the hotel's renovation program.
For Additional Information:
Senior Vice President - Corporate Finance
Sunstone Hotel Investors
SOURCE Sunstone Hotel Investors