IRVINE, Calif., March 17, 2022 /PRNewswire/ -- Sunstone
Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO),
the owner of Long-Term Relevant Real Estate® in the lodging
industry, today announced that it has completed the sale of the
368-room Embassy Suites Chicago and the 361-room Hilton Garden Inn
Chicago Downtown/Magnificent Mile (the "Chicago Hotels"). The
Chicago Hotels were sold for a combined gross sale price of
$129.5 million, or $178,000 per key, which represents a 9.8x
multiple on 2019 Hotel Adjusted EBITDAre and an 8.8% cap
rate on 2019 Hotel Net Operating Income. The Chicago Hotels
generated an IRR of approximately 9% for the Company over the life
of the investment. The Company anticipates that the Chicago Hotels
will generate a combined first quarter 2022 net loss before any
gain on sale of $3.1 million to
$3.6 million and Hotel Adjusted
EBITDAre loss of approximately $2.0
million to $2.5 million
through the date of sale.
Bryan Giglia, Chief Executive
Officer, stated, "We are pleased to announce the sale of these two
hotels as it marks our exit from the Chicago market, which has been hindered by
excess supply and an inability to drive meaningful rate and
profitability growth. We expect to recycle the proceeds into higher
growth and greater per-share NAV enhancing investments. With these
sales, we have now largely completed our non-core disposition
program and we are actively looking to grow the portfolio through
the addition of Long-Term Relevant Real Estate."
Operations Update
The Company's operations for January and early February 2022 were impacted by group
cancellations and lower business volumes as a result of a surge in
Covid case counts associated with the Omicron variant.
Beginning in February, as case counts declined, the Company began
to see an increase in portfolio occupancy and an acceleration of
forward booking activity. Total portfolio occupancy as of
mid-March 2022 is at the highest
level since the onset of the pandemic.
- RevPAR at the comparable 12 hotels the Company owned during
both 2022 and 2019 (the "12 Hotel Comparable Portfolio") increased
from 54% of 2019 levels in January
2022 to 80% of 2019 levels for the first 14 days of
March 2022.
- First quarter 2022 RevPAR for the Company's 12 Hotel Comparable
Portfolio through March 14, 2022 was
$134.14 which is 67% of the same time
period in 2019.
- As of February 28, 2022, group
revenue pace for the 12 Hotel Comparable Portfolio for Q2 through
Q4 2022 was down only 17% as compared to the same time in 2019,
with average rates approximately 5% higher than in 2019.
- Weekly transient booking activity for the next six months has
continued to accelerate in March and is nearing pre-pandemic run
rates.
- In the second quarter 2019, the 12 Hotel Comparable Portfolio
generated RevPAR of $229.50. The
Company currently anticipates that RevPAR at the 12 Hotel
Comparable Portfolio for the second quarter 2022 will increase to
approximately 80% of 2019 levels.
Operating Statistics
for the 12 Hotel Comparable Portfolio were as follows:
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
ADR
|
|
RevPAR
|
Month
|
|
2022
|
|
Change vs.
2019
|
|
2022
|
|
Change vs.
2019
|
|
2022
|
|
Change vs.
2019
|
January
|
|
37.9
|
%
|
|
(49.3)
|
%
|
|
$
|
259.92
|
|
7.3
|
%
|
|
$
|
98.51
|
|
(45.5)
|
%
|
February (1)
|
|
53.6
|
%
|
|
(34.5)
|
%
|
|
$
|
278.64
|
|
7.9
|
%
|
|
$
|
149.35
|
|
(29.3)
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%
|
March (1)
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|
64.3
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%
|
|
(24.5)
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%
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$
|
283.66
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5.9
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%
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|
$
|
182.39
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|
(20.1)
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%
|
Q1 2022 (1)
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|
49.0
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%
|
|
(38.3)
|
%
|
|
$
|
273.75
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|
7.9
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%
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|
$
|
134.14
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|
(33.4)
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%
|
Operating Statistics
for all 14 hotels currently owned by the Company were as
follows:
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Metric
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January
2022
|
|
February 2022
(1)
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|
March 2022
(1)
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|
Q1 2022
(1)
|
Occupancy
|
|
|
37.9
|
%
|
|
|
53.4
|
%
|
|
|
64.1
|
%
|
|
|
48.9
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%
|
ADR
|
|
$
|
282.32
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|
|
$
|
299.25
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|
$
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305.00
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|
$
|
295.12
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|
RevPAR
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$
|
107.00
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|
$
|
159.80
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|
|
$
|
195.51
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|
|
$
|
144.31
|
|
(1)
|
Results for February
and March 2022 are preliminary and may be adjusted during the month
end closing process. Preliminary March and first quarter 2022
results reflect the first 14 days of March 2022.
|
Share Repurchase Update
On March 7, 2022, the Company
announced that it had elected to terminate the covenant relief
period associated with the amended debt agreements governing its
credit and term loan facilities and senior unsecured notes. Prior
to the termination of the covenant relief period, the Company was
restricted from repurchasing its own stock. From March 8 through March 16, 2022, the Company
repurchased 3.2 million shares of its common stock at an average
price of $11.08 per share for a total
repurchase price of $35.1 million.
The Company has $464.9 million
remaining under its existing share repurchase authorization. The
authorization has no stated expiration date and future repurchases
will depend on various factors, including the Company's capital
availability and the price of the Company's common stock. The
Company will provide the details of future stock repurchase
activity, if any, as part of its quarterly financial
reporting.
About Sunstone Hotel Investors
Sunstone Hotel Investors, Inc. is a lodging real estate
investment trust ("REIT"). Sunstone's strategy is to create
long-term stakeholder value through the acquisition, active
ownership, and disposition of hotels considered to be Long-Term
Relevant Real Estate®. For further information, please visit
Sunstone's website at www.sunstonehotels.com. The Company's website
is provided as a reference only and any information on the website
is not incorporated by reference in this release.
For Additional Information
Aaron Reyes
Chief Financial Officer
Sunstone Hotel Investors, Inc.
(949) 382-3018
Forward Looking Statements
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 opinions, 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: the impact the COVID-19 pandemic has on the
Company's business and the economy, as well as the response of
governments and the Company to the pandemic, and how quickly and
successfully effective vaccines and therapies are distributed and
administered; increased risks related to employee matters,
including increased employment litigation and claims for severance
or other benefits tied to termination or furloughs as a result of
temporary hotel suspensions or reduced hotel operations due to
COVID-19; general economic and business conditions, including a
U.S. recession or increased inflation, trade conflicts and tariffs,
regional or global economic slowdowns and any type of flu or
disease-related pandemic that impacts travel or the ability to
travel, including COVID-19; the need for business-related travel,
including the increased use of business-related technology; rising
hotel operating costs due to labor costs, workers' compensation and
health-care related costs, utility costs, property and liability
insurance costs, unanticipated costs such as acts of nature and
their consequences and other costs that may not be offset by
increased room rates; the ground or airspace leases for two of the
hotels the Company has interests in as of the date of this release;
the need for renovations, repositionings and other capital
expenditures for the Company's hotels; the impact, including any
delays, of renovations and repositionings on hotel operations; new
hotel supply, or alternative lodging options such as timeshare,
vacation rentals or sharing services such as Airbnb, in the
Company's markets, which could harm its occupancy levels and
revenue at its hotels; competition from hotels not owned by the
Company; relationships with, and the requirements, performance and
reputation of, the managers of the Company's hotels; relationships
with, and the requirements and reputation of, the Company's
franchisors and hotel brands; the Company's hotels may become
impaired, or its hotels which have previously become impaired may
become further impaired in the future, which may adversely affect
its financial condition and results of operations; competition for
the acquisition of hotels, and the Company's ability to complete
acquisitions and dispositions; performance of hotels after they are
acquired; changes in the Company's business strategy or acquisition
or disposition plans; the Company's level of debt, including
secured, unsecured, fixed and variable rate debt; financial and
other covenants in the Company's debt and preferred stock; the
impact on the Company's business of potential defaults by the
Company on its debt agreements or leases; volatility in the capital
markets and the effect on lodging demand or the Company's ability
to obtain capital on favorable terms or at all; the Company's need
to operate as a REIT and comply with other applicable laws and
regulations, including new laws, interpretations or court decisions
that may change the federal or state tax laws or the federal or
state income tax consequences of the Company's qualification as a
REIT; potential adverse tax consequences in the event that the
Company's operating leases with its taxable REIT subsidiaries are
not held to have been made on an arm's-length basis; system
security risks, data protection breaches, cyber-attacks and systems
integration issues, including those impacting the Company's
suppliers, hotel managers or franchisors; other events beyond the
Company's control, including climate change, natural disasters,
terrorist attacks or civil unrest; and other risks and
uncertainties associated with the Company's business described in
its 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 provided herein is as of the date of this release, 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.
This release should be read together with the consolidated
financial statements and notes thereto included in our most recent
reports on Form 10-K and Form 10-Q. Copies of these reports are
available on our website at www.sunstonehotels.com and through the
SEC's Electronic Data Gathering Analysis and Retrieval System
("EDGAR") at www.sec.gov.
Non-GAAP Financial Measures
We present the following non-GAAP financial measures that we
believe are useful to investors as key supplemental measures of our
operating performance: earnings before interest expense, taxes,
depreciation and amortization for real estate, or EBITDAre;
Adjusted EBITDAre, excluding noncontrolling interest (as
defined below); hotel Adjusted EBITDAre; and hotel Adjusted
EBITDAre margin. These measures should not be considered in
isolation or as a substitute for measures of performance in
accordance with GAAP. In addition, our calculation of these
measures may not be comparable to other companies that do not
define such terms exactly the same as the Company. These non-GAAP
measures are used in addition to and in conjunction with results
presented in accordance with GAAP. They should not be considered as
alternatives to net income (loss), cash flow from operations, or
any other operating performance measure prescribed by GAAP. These
non-GAAP financial measures reflect additional ways of viewing our
operations that we believe, when viewed with our GAAP results and
the reconciliations to the corresponding GAAP financial measures,
provide a more complete understanding of factors and trends
affecting our business than could be obtained absent this
disclosure. We strongly encourage investors to review our financial
information in its entirety and not to rely on a single financial
measure.
We present EBITDAre in accordance with guidelines
established by the National Association of Real Estate Investment
Trusts ("NAREIT"), as defined in its September 2017 white paper "Earnings Before
Interest, Taxes, Depreciation and Amortization for Real Estate." We
believe EBITDAre is a useful performance measure to help
investors evaluate and compare the results of our operations from
period to period in comparison to our peers. NAREIT defines
EBITDAre as net income (calculated in accordance with GAAP)
plus interest expense, income tax expense, depreciation and
amortization, gains or losses on the disposition of depreciated
property (including gains or losses on change in control),
impairment write-downs of depreciated property and of investments
in unconsolidated affiliates caused by a decrease in the value of
depreciated property in the affiliate, and adjustments to reflect
the entity's share of EBITDAre of unconsolidated
affiliates.
We make additional adjustments to EBITDAre when
evaluating our performance because we believe that the exclusion of
certain additional items described below provides useful
information to investors regarding our operating performance, and
that the presentation of Adjusted EBITDAre, excluding
noncontrolling interest, when combined with the primary GAAP
presentation of net income, is beneficial to an investor's complete
understanding of our operating performance. In addition, we use
both EBITDAre and Adjusted EBITDAre, excluding
noncontrolling interest as measures in determining the value of
hotel acquisitions and dispositions.
We adjust EBITDAre for the following items, which may
occur in any period, and refer to this measure as Adjusted
EBITDAre, excluding noncontrolling interest:
- Amortization of contract intangibles: we exclude the
noncash amortization of the favorable management contract asset
recorded in conjunction with our acquisition of the Hilton Garden
Inn Chicago Downtown/Magnificent Mile, along with the unfavorable
tenant lease contracts recorded in conjunction with our
acquisitions of the Boston Park Plaza and the Hilton Garden Inn
Chicago Downtown/Magnificent Mile. We exclude the noncash
amortization of contract intangibles because it is based on
historical cost accounting and is of lesser significance in
evaluating our actual performance for the current period.
- Gains or losses from debt transactions: we exclude the
effect of finance charges and premiums associated with the
extinguishment of debt, including the acceleration of deferred
financing costs from the original issuance of the debt being
redeemed or retired because, like interest expense, their removal
helps investors evaluate and compare the results of our operations
from period to period by removing the impact of our capital
structure.
- Acquisition costs: under GAAP, costs associated with
acquisitions that meet the definition of a business are expensed in
the year incurred. We exclude the effect of these costs because we
believe they are not reflective of the ongoing performance of the
Company or our hotels.
- Cumulative effect of a change in accounting principle:
from time to time, the FASB promulgates new accounting standards
that require the consolidated statement of operations to reflect
the cumulative effect of a change in accounting principle. We
exclude these one-time adjustments, which include the accounting
impact from prior periods, because they do not reflect our actual
performance for that period.
- Other adjustments: we exclude other adjustments that we
believe are outside the ordinary course of business because we do
not believe these costs reflect our actual performance for the
period and/or the ongoing operations of our hotels. Such items may
include: lawsuit settlement costs; prior year property tax
assessments or credits; the write-off of development costs
associated with abandoned projects; property-level restructuring,
severance and management transition costs; debt resolution costs;
lease terminations; property insurance proceeds or uninsured
losses; and other nonrecurring identified adjustments.
In addition, to derive Adjusted EBITDAre, excluding
noncontrolling interest we exclude the noncontrolling partner's pro
rata share of the net (income) loss allocated to the Hilton San
Diego Bayfront partnership, as well as the noncontrolling partner's
pro rata share of any EBITDAre and Adjusted EBITDAre
components. We also exclude the noncash expense incurred with the
amortization of deferred stock compensation as this expense is
based on historical stock prices at the date of grant to our
corporate employees and does not reflect the underlying performance
of our hotels. In addition, we exclude the amortization of our
right-of-use assets and liabilities as these expenses are based on
historical cost accounting and do not reflect the actual rent
amounts due to the respective lessors or the underlying performance
of our hotels. We also exclude the effect of gains and losses on
the disposition of undepreciated assets because we believe that
including them in Adjusted EBITDAre, excluding
noncontrolling interest is not consistent with reflecting the
ongoing performance of our assets.
In presenting hotel Adjusted EBITDAre and hotel Adjusted
EBITDAre margins, miscellaneous non-hotel items have been
excluded. We believe the calculation of hotel Adjusted
EBITDAre results in a more accurate presentation of the
hotel Adjusted EBITDAre margins for our hotels, and that
these non-GAAP financial measures are useful to investors in
evaluating our property-level operating performance.
Hotel Adjusted
EBITDAre Reconciliation
|
Embassy Suites
Chicago and Hilton Garden Inn Chicago Downtown/Magnificent
Mile
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
|
Equals:
|
Hotel
Adjusted
|
Less:
|
Equals:
|
|
|
Total
|
Net
|
Depreciation
&
|
Hotel
Adjusted
|
EBITDAre
|
FF&E
|
Hotel
Net
|
|
|
Revenues
|
Income
|
Other
Adjustments
|
EBITDAre
|
Margin
|
Reserve
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
Full Year
2019
|
$
47,053
|
$
7,228
|
$
5,995
|
$
13,223
|
28.1%
|
$
(1,882)
|
$
11,341
|
EBITDAre
Multiple / Cap Rate (1)
|
|
|
|
9.8x
|
|
|
8.8%
|
|
|
|
|
|
|
|
|
|
(1)
|
EBITDAre
Multiple calculated as gross sale price divided by Hotel Adjusted
EBITDAre. Cap Rate calculated as Hotel Net Operating
Income divided by gross sale price.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2022
(1)
|
|
|
|
|
|
|
|
Low
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
(3,613)
|
$
(3,113)
|
|
|
|
|
|
Depreciation and Other
Adjustments
|
$
1,113
|
$
1,113
|
|
|
|
|
|
Hotel Adjusted
EBITDAre
|
$
(2,500)
|
$
(2,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects estimated
financial metrics during the Company's period of ownership through
March 15, 2022. Net Loss is shown before any anticipated gain on
sale.
|
|
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SOURCE Sunstone Hotel Investors, Inc.