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Sunstone Hotel Investors Announces The Sale Of The 444-Room Fairmont Newport Beach For $125.0 Million

ALISO VIEJO, Calif., Feb. 13, 2017 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced the sale of the 444-room Fairmont Newport Beach (the "Hotel") for a contractual gross sale price of $125.0 million, or approximately $281,500 per key (the "Sale"). The sale price of $125.0 million represents a 16.0x multiple on 2016 Hotel Adjusted EBITDA of $7.8 million and a 5.2% capitalization rate on the Hotel's 2016 net operating income.  The Sale resulted in an estimated net book gain of approximately $44 million and is estimated to increase 2017 taxable income by approximately $37 million.

Robert Springer, Chief Investment Officer, stated, "We are pleased to announce the sale of the Fairmont Newport Beach which in 2016 produced RevPAR nearly 25% below our portfolio average.  The Sale, which is consistent with our capital allocation strategy, monetizes an asset at an attractive valuation, increases our portfolio quality, RevPAR and near-term growth prospects and reduces near-term capital needs."

Eastdil Secured acted as exclusive advisor to Sunstone on the Sale.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of the date herein has interests in 27 hotels comprised of 13,225 rooms. Sunstone's hotels are primarily in the urban and resort, upper upscale segment and are operated under nationally recognized brands, such as Marriott, Hilton and Hyatt. For further information, please visit Sunstone's website at www.sunstonehotels.com.

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: volatility in the debt or equity markets affecting our ability to acquire or sell hotel assets; international, national and local economic and business conditions, including the likelihood of a U.S. recession or global economic slowdown, as well as any type of flu or disease-related pandemic, affecting the lodging and travel industry; the ability to maintain sufficient liquidity and our access to capital markets; potential terrorist attacks or civil unrest, 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 February 13, 2017 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 in conjunction 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: adjusted earnings before interest expense, taxes, depreciation and amortization, or Adjusted EBITDA (as defined below); adjusted funds from operations attributable to common stockholders, or Adjusted FFO attributable to common stockholders (as defined below); hotel adjusted EBITDA; and hotel adjusted EBITDA margin;. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. Adjusted EBITDA, Adjusted FFO attributable to common stockholders, hotel adjusted EBITDA and hotel adjusted EBITDA margin as calculated by us, may not be comparable to other companies that do not define such terms exactly the same as the Company does. 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 operating profit, 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.

EBITDA is a commonly used measure of performance in many industries. Historically, we have adjusted EBITDA 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 EBITDA, when combined with the primary GAAP presentation of net income, is beneficial to an investor's complete understanding of our operating performance, and facilitates comparisons between us and other lodging REITS, hotel owners who are not REITS and other capital-intensive companies.

We present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, and may facilitate comparisons of operating performance between periods and our peer companies. Before adjustment, our presentation of FFO attributable to common stockholders conforms to the National Association of Real Estate Investment Trusts' ("NAREIT") definition of "FFO applicable to common shares." This may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do. We believe that the presentation of Adjusted FFO attributable to common stockholders provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified noncash items such as real estate depreciation and amortization, amortization of lease intangibles, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance.

We adjust EBITDA and FFO attributable to common stockholders for the following items, which may occur in any period, and refer to these measures as either Adjusted EBITDA or Adjusted FFO attributable to common stockholders because we believe these items do not reflect the underlying performance of our hotels:

  • Amortization of favorable and unfavorable contracts
  • Noncash ground rent adjustments
  • Gains or losses from debt transactions
  • Acquisition costs
  • Pro rata share of any EBITDA or FFO adjustments related to noncontrolling interests
  • Cumulative effect of a change in accounting principle
  • Impairment losses.
  • Other adjustment such as executive severance costs, lawsuit settlement costs, prior year property tax adjustments and fees, property-level restructuring, severance and management transition costs, lease buyouts and any gains or losses we have recognized on sales or redemptions of assets other than real estate investments

In addition, to derive Adjusted EBITDA we exclude the noncash expense incurred with the amortization of deferred stock compensation as this expense does not reflect the underlying performance of our hotels. We also include an adjustment for the cash ground lease expense recorded on the Hyatt Chicago Magnificent Mile's building capital lease, as well as an adjustment to exclude the effect of gains and losses on the disposition of depreciable assets because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, material gains or losses from the depreciated value of the disposed assets could be less important to investors given that the depreciated asset value often does not reflect its market value.

To derive Adjusted FFO attributable to common stockholders, we also exclude the noncash gains or losses on our derivatives, as well as any federal and state taxes associated with the application of net operating loss carryforwards or with the sale of assets other than real estate investments. We believe that these items are not reflective of our ongoing finance costs.

In presenting hotel adjusted EBITDA and hotel adjusted EBITDA margins, the revenue and expense items associated with miscellaneous non-hotel items have been excluded. We believe the calculation of hotel adjusted EBITDA results in a more accurate presentation of the hotel adjusted EBITDA margins for our hotels, and that these non-GAAP financial measures are useful to investors in evaluating our property-level operating performance.

Property-Level Adjusted EBITDA Reconciliation

Fairmont Newport Beach
















Equals:

Hotel Adjusted

Less:

Equals:




Total

Net 

Plus:

Hotel Adjusted

EBITDA

FF&E

Hotel Net

FFO 



Revenues

Income

Depreciation

EBITDA

Margin

Reserve

Operating Income

Contribution











Full Year 2016

$ 32,296

$ 3,579

$ 4,249

$ 7,828

24.2%

$ (1,292)

$ 6,536

$ 7,828

2016 EBITDA Multiple / Cap Rate (1)




16.0x



5.2%














(1)

EBITDA Multiple calculated as the contractual gross sale price divided by Hotel Adjusted EBITDA.  Cap Rate calculated as Hotel Net Operating Income divided by the contractual gross sale price.

For Additional Information:
Bryan Giglia
Sunstone Hotel Investors, Inc.
(949) 382-3036

 

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SOURCE Sunstone Hotel Investors, Inc.