ALISO VIEJO, Calif., Nov. 1, 2016 — Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced results for the third quarter ended September 30, 2016.
Third Quarter 2016 Operational Results (as compared to Third Quarter 2015):
- Net income decreased 37.5% to $39.4 million.
- Income attributable to common stockholders per diluted share decreased 42.9% to $0.16.
- Comparable Hotel RevPAR increased 2.2% to $174.44.
- Comparable Hotel Adjusted EBITDA Margin, excluding prior year property tax adjustments, net increased 120 basis points to 32.6%. Excluding the impact related to the end of the ground rent abatement at the Hilton San Diego Bayfront, Comparable Hotel Adjusted EBITDA Margin, excluding prior year property tax adjustments, net would have increased by 170 basis points.
- Adjusted EBITDA decreased 6.6% to $87.9 million.
- Adjusted FFO attributable to common stockholders per diluted share decreased 8.3% to $0.33.
John Arabia, President and Chief Executive Officer, stated, "Our portfolio performed in line with our expectations in the third quarter, and our profitability was higher than expected due to lower-than-anticipated costs at both the property and corporate level. In continuation of the trends witnessed in the first half of the year, corporate transient rate growth remains challenging, despite high occupancy levels, resulting in modest overall revenue growth. Furthermore, while long-term group bookings remain healthy, near-term group bookings, particularly from corporate clients, have moderated." Mr. Arabia continued, "Despite current headwinds, our strong balance sheet, significant liquidity and embedded growth from our recent redevelopment investments provide Sunstone with ample strength and flexibility to take advantage of the current operating environment."
UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA
($ in millions, except RevPAR, ADR and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
Change
2016
2015
Change
Net Income
$
39.4
$
63.1
(37.5)
%
$
106.4
$
117.9
(9.8)
%
Income Attributable to Common Stockholders per Diluted Share
$
0.16
$
0.28
(42.9)
%
$
0.41
$
0.50
(18.0)
%
Total Portfolio Hotel RevPAR
$
173.34
$
171.72
0.9
%
$
167.25
$
166.30
0.6
%
Comparable Hotel RevPAR
$
174.44
$
170.65
2.2
%
$
165.95
$
163.33
1.6
%
Comparable Hotel Occupancy
86.9
%
85.9
%
100
bps
83.7
%
83.5
%
20
bps
Comparable Hotel ADR
$
200.74
$
198.66
1.0
%
$
198.27
$
195.61
1.4
%
Comparable Hotel Adjusted EBITDA Margin
32.6
%
31.4
%
120
bps
30.8
%
31.0
%
(20)
bps
Adjusted EBITDA
$
87.9
$
94.2
(6.6)
%
$
250.9
$
270.3
(7.2)
%
Adjusted FFO Attributable to Common Stockholders
$
71.1
$
74.8
(4.8)
%
$
198.6
$
209.4
(5.2)
%
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$
0.33
$
0.36
(8.3)
%
$
0.92
$
1.01
(8.9)
%
Disclosures regarding the non-GAAP financial measures in this release are included on pages 5 through 7. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 10 through 14 of this release. Comparable Hotel Adjusted EBITDA Margin excludes prior year property tax adjustments, net.
The Company's actual results for the quarter ended September 30, 2016 compare to its guidance originally provided as follows:
Metric
Quarter Ended September 30, 2016 Guidance (1)
Quarter Ended September 30, 2016 Actual Results (unaudited)
Performance Relative to Prior Guidance Midpoint
Net Income ($ millions)
$32 to $35
$39
+$5
Total Portfolio Hotel RevPAR Growth
0.0% to + 2.0%
0.9%
-0.1%
Comparable Hotel RevPAR Growth (2)
+ 1.5% to + 3.5%
2.2%
-0.3%
Adjusted EBITDA ($ millions)
$83 to $86
$88
+$3
Adjusted FFO Attributable to Common Stockholders ($ millions)
$66 to $69
$71
+$3
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$0.31 to $0.32
$0.33
+$0.015
Diluted Weighted Average Shares Outstanding
215,700,000
215,700,000
̶
(1) Represents guidance presented on August 8, 2016. (2) Comparable Hotel RevPAR Growth excludes the Wailea Beach Marriott Resort & Spa due to the hotel's repositioning during 2016.
Balance Sheet/Liquidity Update
As of September 30, 2016, the Company had $434.4 million of cash and cash equivalents, including restricted cash of $67.2 million.
As of September 30, 2016, the Company had total assets of $3.7 billion, including $3.2 billion of net investments in hotel properties, total consolidated debt of $1.0 billion and stockholders' equity of $2.5 billion.
Capital Improvements
The Company invested $39.8 million into capital improvements of its portfolio during the three months ended September 30, 2016. During the third quarter 2016, the Company incurred total revenue displacement of approximately $6.2 million at the Wailea Beach Marriott Resort & Spa. In 2016, the Company expects to invest approximately $180.0 million into its portfolio, with the majority of that investment going to complete its two repositionings at the Boston Park Plaza and the Wailea Beach Marriott Resort & Spa. The Company expects $11.0 million to $13.0 million of revenue displacement, and $9.5 million to $11.5 million of EBITDA displacement in 2016, resulting from the completion of the Wailea Beach Marriott Resort & Spa repositioning. In addition to displacement at the Wailea Beach Marriott Resort & Spa, the Company expects $2.5 million to $3.5 million of revenue displacement resulting from the completion of the Boston Park Plaza repositioning.
2016 Outlook
The Company's achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission. The Company's guidance does not take into account the impact of any unanticipated developments in its business or changes in its operating environment, nor does it take into account any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, severance costs associated with restructuring hotel services, early lease termination costs, prior year property tax assessments or credits, debt repurchases/repayments, perpetual preferred redemptions or unannounced financings during 2016.
For the fourth quarter of 2016, the Company expects:
Metric
Quarter Ended December 31, 2016 Guidance (1)
Net Income ($ millions)
$16 to $20
Total Portfolio Hotel RevPAR Growth
– 2.0% to 0.0%
Comparable Hotel RevPAR Growth (2)
– 2.5% to – 0.5%
Adjusted EBITDA ($ millions)
$69 to $73
Adjusted FFO Attributable to Common Stockholders ($ millions)
$52 to $56
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$0.24 to $0.26
Diluted Weighted Average Shares Outstanding
215,800,000
For the full year of 2016, the Company expects:
Metric
Prior Full Year 2016 Guidance (3)
Current Full Year 2016 Guidance (1)
Change in Full Year 2016 Guidance Midpoint
Net Income ($ millions)
$119 to $133
$123 to $127
– $1
Total Portfolio Hotel RevPAR Growth
0.0% to + 2.0%
– 0.5% to + 0.5%
– 1.0%
Comparable Hotel RevPAR Growth (2)
+ 0.5% to + 2.5%
+ 0.5% to + 1.5%
– 0.5%
Adjusted EBITDA ($ millions)
$318 to $332
$320 to $324
– $3
Adjusted FFO Attributable to Common Stockholders ($ millions)
$249 to $262
$250 to $254
– $4
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$1.16 to $1.22
$1.16 to $1.18
– $0.02
Diluted Weighted Average Shares Outstanding
215,000,000
215,000,000
̶
(1) See pages 12 and 13 for detailed reconciliations of Net Income to non-GAAP financial measures. (2) Comparable Hotel RevPAR Growth excludes the Wailea Beach Marriott Resort & Spa due to the hotel's repositioning during 2016. (3) Represents guidance presented on August 8, 2016.
Fourth quarter and full year 2016 guidance are based in part on the following assumptions:
- Full year revenue displacement of $11.0 million to $13.0 million, related to the repositioning at the Wailea Beach Marriott Resort & Spa, which is expected to negatively impact full year Total Portfolio Hotel RevPAR by 75 to 100 basis points.
- Guarantee payment of $5.0 million related to the Wailea Beach Marriott Resort & Spa recorded in the fourth quarter.
- Full year Comparable Hotel Adjusted EBITDA Margin reduction of approximately 75 to 25 basis points, which excludes the Wailea Beach Marriott Resort & Spa and any guarantee payments, but does reflect the impact related to the end of the ground rent abatement at the Hilton San Diego Bayfront.
- Full year consolidated EBITDA includes approximately $6.0 million of expense related to the end of the ground rent abatement at the Hilton San Diego Bayfront.
- Full year corporate overhead expense (excluding deferred stock amortization and one-time expenses related to acquisition closing costs) of approximately $19.0 million to $20.0 million.
- Full year amortization of deferred stock compensation expense of approximately $7.1 million.
- Full year interest expense of approximately $59.7 million to $59.8 million, including approximately $2.2 million in amortization of deferred financing fees and $7.8 million of noncash interest related to loss on derivatives, and excluding approximately $1.5 million of capital lease obligation interest.
- Full year expense of approximately $2.6 million in one-time costs related to property-level restructuring, severance, management transition and lease termination costs, the majority of which occurred during the first and second quarters. These expenses have been excluded from both Adjusted EBITDA and Adjusted FFO attributable to common stockholders.
- Full year total preferred dividends of $11.9 million, which includes the Series D, Series E and Series F cumulative redeemable preferred stock, but excludes the $4.1 million redemption charge on the Series D.
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