ALISO VIEJO, Calif., Feb. 21, 2017 — Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced results for the fourth quarter and year ended December 31, 2016.
Fourth Quarter 2016 Operational Results (as compared to Fourth Quarter 2015):
- Net income decreased 85.6% to $34.3 million.
- Income attributable to common stockholders per diluted share decreased 87.5% to $0.14.
- Comparable Portfolio Hotel RevPAR increased 0.4% to $153.33.
- Total Portfolio Hotel RevPAR increased 1.6% to $155.34.
- Comparable Hotel Adjusted EBITDA Margin, excluding prior year property tax adjustments, net decreased 80 basis points to 28.8%. 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 decreased by 30 basis points.
- Adjusted EBITDA decreased 2.4% to $79.1 million.
- Adjusted FFO attributable to common stockholders per diluted share decreased 3.3% to $0.29.
Full Year 2016 Operational Results (as compared to Full Year 2015):
- Net income decreased 60.4% to $140.7 million.
- Income attributable to common stockholders per diluted share decreased 66.0% to $0.55.
- Comparable Portfolio Hotel RevPAR increased 1.3% to $163.75.
- Total Portfolio Hotel RevPAR increased 0.7% to $164.22.
- Comparable Hotel Adjusted EBITDA Margin, excluding prior year property tax adjustments, net decreased 30 basis points to 30.5%. 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 20 basis points.
- Adjusted EBITDA decreased 6.1% to $330.0 million.
- Adjusted FFO attributable to common stockholders per diluted share decreased 7.6% to $1.21.
John Arabia, President and Chief Executive Officer, stated, "During the quarter, transient demand and rates increased relative to the prior year, group attendance was healthy relative to its historic norms, and group spend on banquets and audio visual demonstrated strength. These better-than-anticipated top line results, coupled with energy, overhead and property tax savings, resulted in portfolio and company profits well ahead of our expectations." Mr. Arabia continued, "Following the recent sale of the Fairmont Newport Beach, as well as other recent capital transactions, we have significant liquidity and are pursuing the acquisition of quality hotels that satisfy our long-term return requirements. At the same time, we expect to continue to capital recycle various assets within our portfolio, including legacy assets that no longer meet our investment criteria or hotels in which we believe we can harvest at a material premium to our internal valuation."
UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA ($ in millions, except RevPAR, ADR and per share amounts)
Three Months Ended December 31,
Year Ended December 31,
2016
2015
Change
2016
2015
Change
Net Income
$
34.3
$
237.6
(85.6)
%
$
140.7
$
355.5
(60.4)
%
Income Attributable to Common Stockholders per Diluted Share
$
0.14
$
1.12
(87.5)
%
$
0.55
$
1.62
(66.0)
%
Total Portfolio Hotel RevPAR
$
155.34
$
152.85
1.6
%
$
164.22
$
163.03
0.7
%
Total Portfolio Hotel RevPAR, excluding the Wailea Beach Resort
$
151.77
$
150.88
0.6
%
$
162.50
$
160.22
1.4
%
Comparable Portfolio Hotel RevPAR
$
153.33
$
152.69
0.4
%
$
163.75
$
161.59
1.3
%
Comparable Portfolio Hotel Occupancy
78.1
%
78.3
%
(20)
bps
82.4
%
82.3
%
10
bps
Comparable Portfolio Hotel ADR
$
196.32
$
195.01
0.7
%
$
198.73
$
196.34
1.2
%
Comparable Portfolio Hotel Adjusted EBITDA Margin
28.8
%
29.6
%
(80)
bps
30.5
%
30.8
%
(30)
bps
Adjusted EBITDA
$
79.1
$
81.1
(2.4)
%
$
330.0
$
351.3
(6.1)
%
Adjusted FFO Attributable to Common Stockholders
$
62.2
$
62.3
(0.2)
%
$
260.8
$
271.7
(4.0)
%
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$
0.29
$
0.30
(3.3)
%
$
1.21
$
1.31
(7.6)
%
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 and year ended December 31, 2016 compare to its guidance originally provided as follows:
Metric
Quarter Ended December 31, 2016 Guidance (1)
Quarter Ended December 31, 2016 Actual Results (unaudited)
Performance Relative to Prior Guidance Midpoint
Net Income ($ millions)
$16 to $20
$34
+ $16
Total Portfolio Hotel RevPAR Growth
– 2.0% to 0.0%
1.6%
+ 2.6%
Total Portfolio Hotel RevPAR Growth, excluding Wailea Beach Resort (2)
– 2.5% to – 0.5%
0.6%
+ 2.1%
Adjusted EBITDA ($ millions)
$69 to $73
$79
+ $8
Adjusted FFO Attributable to Common Stockholders ($ millions)
$52 to $56
$62
+ $8
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$0.24 to $0.26
$0.29
+ $0.04
Diluted Weighted Average Shares Outstanding
215,800,000
216,600,000
+ 800,000
Metric
Full Year 2016 Guidance (1)
Full Year 2016 Actual Results (unaudited except Net Income)
Performance Relative to Adjusted Prior Guidance Midpoint
Net Income ($ millions)
$123 to $127
$141
+ $16
Total Portfolio Hotel RevPAR Growth
– 0.5% to + 0.5%
0.7%
+ 0.7%
Total Portfolio Hotel RevPAR Growth, excluding Wailea Beach Resort (2)
+ 0.5% to + 1.5%
1.4%
+ 0.4%
Adjusted EBITDA ($ millions)
$320 to $324
$330
+ $8
Adjusted FFO Attributable to Common Stockholders ($ millions)
$250 to $254
$261
+ $9
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$1.16 to $1.18
$1.21
+ $0.04
Diluted Weighted Average Shares Outstanding
215,000,000
215,200,000
+ 200,000
(1) Represents guidance presented on November 1, 2016.
(2) Excludes the Wailea Beach Resort due to the hotel's repositioning during 2016.
Recent Developments
On January 10, 2017, the Company received proceeds of $240.0 million from the private placement of senior unsecured notes. The private placement consisted of $120.0 million of notes bearing interest at a fixed rate of 4.69%, maturing in January 2026, and $120.0 million of notes bearing interest at a fixed rate of 4.79%, maturing in January 2028.
On January 11, 2017, the Company used proceeds received from its private placement of senior unsecured notes to repay the loan secured by the Marriott Boston Long Wharf, which had a balance of $176.0 million and a fixed rate of 5.58%. The Marriott Boston Long Wharf loan was scheduled to mature in April 2017, and was available to be repaid without penalty in January 2017. Following the repayment of the loan secured by the Marriott Boston Long Wharf in January 2017, the Company currently has 22 unencumbered hotels.
On February 10, 2017, the Company sold the 444-room Fairmont Newport Beach, California for a gross sales price of $125.0 million. The hotel was classified as held for sale as of December 31, 2016, but did not qualify as a discontinued operation as the sale did not represent a strategic shift that had a major impact on the Company's business plan or its primary markets.
On February 17, 2017, the Company's Board of Directors authorized an increase to the current share repurchase program to acquire up to $300.0 million of the Company's common and preferred stock. Future purchases will depend on various factors, including the Company's capital needs as well as the price of the Company's common and preferred stock.
Balance Sheet/Liquidity Update
As of December 31, 2016, the Company had $437.5 million of cash and cash equivalents, including restricted cash of $67.9 million. Adjusting for the significant cash transactions that occurred in January 2017, including the $119.8 million payment of the Company's common and preferred dividends, the funding of $240.0 million in unsecured senior notes and the $176.0 million repayment of the mortgage secured by the Marriott Boston Long Wharf, total pro forma cash including restricted cash as of December 31, 2016 would be $381.7 million.
As of December 31, 2016, the Company had total assets of $3.7 billion, including $3.2 billion of net investments in hotel properties, total consolidated debt of $0.9 billion and stockholders' equity of $2.5 billion.
In December 2016, the Company issued 3,564,047 shares of its common stock for gross proceeds of $55.1 million. The shares were issued in connection with an "At the Market" program pursuant to Equity Distribution Agreements ("ATM Agreements"), which the Company entered into during 2014 with Wells Fargo Securities, LLC and Merrill Lynch Pierce, Fenner & Smith Incorporated. Under the ATM Agreements, the Company is authorized to issue common stock having an aggregate offering amount of up to $150.0 million. As of December 31, 2016, the Company had $73.3 million available for sale under the ATM Agreements.
The Company intends to enter into new ATM Agreements during the first quarter of 2017, increasing its authorization to issue common stock to an aggregate offering amount of up to $300.0 million.
Bryan Giglia, Chief Financial Officer, stated "Our Board recently increased the Company's share repurchase authorization and ATM authorization in order to provide the Company with the incremental tools to manage the business and to increase our optionality in a volatile environment. Given our significant cash position and investment capacity, we are well positioned to take advantage of various opportunities."
Capital Improvements
The Company invested $42.3 million and $182.2 million into capital improvements of its portfolio during the three months and year ended December 31, 2016, respectively. During the fourth quarter 2016, the Company incurred total revenue displacement of approximately $1.5 million at the Wailea Beach Resort. In 2017, the Company expects to invest approximately $125 million to $140 million into its portfolio, which includes the final payments for the Wailea Beach Resort repositioning completed at the end of 2016.
2017 Outlook
The Company's achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission. The Company's guidance does not take into account the impact of any unanticipated developments in its business or changes in its operating environment, nor does it take into account any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, severance costs associated with restructuring hotel services, early lease termination costs, prior year property tax assessments or credits, debt repurchases/repayments, perpetual preferred redemptions or unannounced financings during 2017.
For the first quarter of 2017, the Company expects:
Metric
Quarter Ended March 31, 2017 Guidance (1)
Net Income ($ millions)
$54 to $57
Total Portfolio Hotel RevPAR Growth
+ 2.5% to + 4.5%
Adjusted EBITDA ($ millions)
$61 to $64
Adjusted FFO Attributable to Common Stockholders ($ millions)
$43 to $46
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$0.19 to $0.21
Diluted Weighted Average Shares Outstanding
219,600,000
For the full year of 2017, the Company expects:
Metric
Full Year 2017 Guidance (1)
Net Income ($ millions)
$150 to $174
Total Portfolio Hotel RevPAR Growth
+ 0.5% to + 3.5%
Adjusted EBITDA ($ millions)
$306 to $330
Adjusted FFO Attributable to Common Stockholders ($ millions)
$239 to $263
Adjusted FFO Attributable to Common Stockholders per Diluted Share
$1.09 to $1.19
Diluted Weighted Average Shares Outstanding
219,800,000
(1)
See pages 12 and 13 for detailed reconciliations of Net Income to non-GAAP financial measures.
First quarter and full year 2017 guidance are based in part on the following assumptions:
- Full year Total Portfolio Hotel RevPAR guidance is benefiting 150 to 200 basis points from the completed repositioning at the Wailea Beach Resort.
- Full year Hotel Adjusted EBITDA Margin change of approximately – 25 to + 50 basis points.
- Full year corporate overhead expense (excluding deferred stock amortization and one-time expenses related to any acquisition closing costs) of approximately $19.5 million to $20.5 million.
- Full year amortization of deferred stock compensation expense of approximately $8.3 million.
- Full year interest expense of approximately $48.0 million to $48.3 million, including approximately $2.3 million in amortization of deferred financing fees and excluding approximately $1.4 million of capital lease obligation interest.
- Full year total preferred dividends of $12.8 million, which includes the Series E and Series F cumulative redeemable preferred stock.
To view full financial release and corresponding tables please click the PDF icon or visit: http://phx.corporate-ir.net/phoenix.zhtml?c=181566&p=irol-news&nyo=0
