Sunstone Hotel Investors Reports Results For First Quarter 2021

Sunstone Hotel Investors, Inc. yesterday announced results for the first quarter ended March 31, 2021.

First Quarter 2021 Operational Results (as compared to First Quarter 2020):

  • Resumption of Hotel Operations: 15 of the Company’s 17 hotels were in operation for the entirety of the first quarter 2021.
  • Net Loss: Net loss was $55.3 million as compared to $162.5 million.
  • 17 Hotel Portfolio RevPAR: 17 Hotel Portfolio RevPAR decreased 69.5% to $42.19.
  • Adjusted EBITDAre: Adjusted EBITDAre, excluding noncontrolling interest decreased 203.7% to $(14.7) million.
  • Adjusted FFO: Adjusted FFO attributable to common stockholders per diluted share decreased 1,200.0% to $(0.13).

John Arabia, President and Chief Executive Officer, stated, “In the first quarter, our portfolio achieved sequential monthly growth in occupancy, ADR and RevPAR, and our March portfolio results materially exceeded our expectations and achieved breakeven EBITDA. Leisure demand is exceptionally strong and is expected to remain above pre-pandemic levels at many of our hotels for the foreseeable future. Furthermore, the nascent recovery in both commercial transient demand and traditional group business that started in the fourth quarter of 2020 is gaining steam and is expected to accelerate meaningfully in the second half of 2021 as vaccination distribution expands and state restrictions continue to ease. Several group functions have already transpired, and meeting planners remain confident that additional events will be held in the coming months at several of our hotels. The steady and robust increase in transient reservations and the material rebound in group production give us greater confidence that our portfolio is likely to experience rapid growth in revenues and profits as the year progresses.”

Mr. Arabia continued, “Consistent with our stated tactics, we have deployed a portion of our excess liquidity to fund the early-cycle acquisition of Montage Healdsburg, which is a spectacular resort, ideally located in one of the most sought-after and highest-rated leisure destinations in the U.S. The resort, which took over 15 years to develop, is a perfect example of Long-Term Relevant Real Estate, and its addition elevates the overall quality and growth prospects of our portfolio. Leveraging our industry relationships, we acquired the resort on an off-market basis and at a discount to what it would cost to develop today. Additionally, we funded 25% of the transaction with attractively structured perpetual preferred equity issued directly to the seller that aligns our interests and gives us additional optionality. With a strong balance sheet and a growing deal pipeline, we would expect Montage Healdsburg to be the first of several acquisitions of LTRR to be completed over the early stages of this new operating cycle.”

Unaudited Selected Statistical and Financial Data ($ in millions, except RevPAR, ADR and per share amounts)

Quarter Ended March 31,

2021

2020

Change

Net Loss

$

(55.3)

$

(162.5)

66.0

%

Loss Attributable to Common Stockholders per Diluted Share

$

(0.26)

$

(0.75)

65.3

%

17 Hotel Portfolio RevPAR (1)

$

42.19

$

138.54

(69.5)

%

17 Hotel Portfolio Occupancy (1)

21.6

%

59.6

%

(3,800)

bps

17 Hotel Portfolio ADR (1)

$

195.32

$

232.45

(16.0)

%

17 Hotel Portfolio Adjusted EBITDAre Margin (1) (2)

(32.5)

%

13.1

%

(4,560)

bps

Adjusted EBITDAre, excluding noncontrolling interest

$

(14.7)

$

14.1

(203.7)

%

Adjusted FFO Attributable to Common Stockholders

$

(28.9)

$

(1.4)

(1,961.2)

%

Adjusted FFO Attributable to Common Stockholders per Diluted Share

$

(0.13)

$

(0.01)

(1,200.0)

%

(1)

The 17 Hotel Portfolio (the “17 Hotels”) includes all hotels owned by the Company as of March 31, 2021.

(2)

The 17 Hotel Portfolio Adjusted EBITDAre Margins exclude prior year property tax adjustments, net.

Recent Developments

COVID-19: On April 1, 2021, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, whose operations were temporarily suspended in March 2020 due to the COVID-19 pandemic, resumed operations. As of the date of this release, operations remain temporarily suspended at only the Renaissance Westchester (see table below).

Since the Company’s COVID-19-related occupancy low point of 1.6% in April 2020, the Company has experienced slow but steady improvements in hotel demand. During January, February and March 2021, as the number of COVID-19 cases decreased and the vaccine distribution program increased, occupancy at the 17 Hotels accelerated to 13.3%, 22.4% and 29.1%, respectively. In March 2021, the Embassy Suites La Jolla, the Oceans Edge Resort & Marina, the Renaissance Washington DC and the Wailea Beach Resort all achieved occupancies greater than 50.0%. The Company also experienced demand increases, most significantly in leisure travel over the President’s Day weekend and during Spring Break, at its hotels in Long Beach, New Orleans, Orlando and San Diego.

Leisure demand continues to accelerate and business transient and group demand, which have been slower to return, are both demonstrating positive growth. While the preponderance of recent group business has been composed primarily of government, emergency management and medical-related groups, several of our hotels have begun to host traditional group business, including corporate groups. In March 2021, both the Renaissance Orlando at SeaWorld® and the Wailea Beach Resort hosted traditional group events attracting attendance above their contracted levels. The Company is beginning to see events with more guests and events that take place over longer periods of time. A significant portion of the group business on-the-books for the second half of 2021 continues to hold to their contractual program dates, anticipating a continued improvement in conditions allowing for groups to meet. The Company believes that the return of traditional business transient and group business will ultimately depend on the speed and efficacy of the vaccine distribution and the degree to which that allows the Company to return to normal. The Company expects the demand recovery to extend past 2021, and it is encouraged by the recent pace of future group bookings, which leads the Company to believe that its portfolio will perform materially better in the second half of 2021 and specifically in the fourth quarter of 2021.

Acquisition: On April 22, 2021, the Company acquired the fee-simple interest in the 130-room Montage Healdsburg (the “Resort”).  The newly constructed luxury Resort, which was completed in December 2020, was acquired for a gross purchase price of $265.0 million. The acquisition was funded with cash on hand and through the direct issuance of $66.25 million of Series G Cumulative Redeemable Preferred Stock (the “Series G preferred stock”) to the seller of the Resort. The Series G preferred stock, which is callable at the liquidation preference plus accrued and unpaid dividends by the Company at any time, will accrue dividends at an initial rate equal to the Resort’s annual net operating income yield on the Company’s investment in the Resort. The Series G preferred stock is not convertible into any other security. The Resort will continue to be managed by Montage Hotels & Resorts.

Montage Healdsburg sits adjacent to the separately owned Montage Residences Healdsburg, which, together with the Resort, comprise a 258-acre destination. Montage Residences Healdsburg will feature 40 to-be-built luxury homes that will be eligible to participate in the optional turn-key resort rental program. The seller of the Resort will continue to own and be responsible for the development and sales of Montage Residences Healdsburg.

Capital Investments:  The Company invested $6.5 million into its portfolio during the first quarter ended March 31, 2021. In 2021, the Company expects to invest approximately $70 million to $80 million.

Balance Sheet/Liquidity Update

As of March 31, 2021, the Company had $365.3 million of cash and cash equivalents, including restricted cash of $45.0 million, total assets of $2.9 billion, including $2.4 billion of net investments in hotel properties, total consolidated debt of $747.1 million and stockholders’ equity of $2.0 billion. Adjusting for the cash used to fund the acquisition of Montage Healdsburg, pro forma cash and cash equivalents, including restricted cash, would have been $166.5 million as of March 31, 2021.

Operations Update

As of March 31, 2021 and through the date of this release, the status of the Company’s 17 Hotels owned at the end of the first quarter is as follows:

Hotel

Number of Rooms

% of Total Rooms

Suspension Date

Resumption Date

Boston Park Plaza (1)

1,060

11.8%

N/A

N/A

Embassy Suites La Jolla (1)

340

3.8%

N/A

N/A

Renaissance Long Beach (1)

374

4.1%

N/A

N/A

Oceans Edge Resort & Marina

175

1.9%

March 22, 2020

June 4, 2020

Embassy Suites Chicago

368

4.1%

April 1, 2020

July 1, 2020

Marriott Boston Long Wharf

415

4.6%

March 12, 2020

July 7, 2020

Hilton New Orleans St. Charles

252

2.8%

March 28, 2020

July 13, 2020

Hyatt Centric Chicago Magnificent Mile

419

4.6%

April 6, 2020

July 13, 2020

JW Marriott New Orleans

501

5.6%

March 28, 2020

July 14, 2020

Hilton San Diego Bayfront

1,190

13.2%

March 23, 2020

August 11, 2020

Renaissance Washington DC

807

8.9%

March 26, 2020

August 24, 2020

Hyatt Regency San Francisco

821

9.1%

March 22, 2020

October 1, 2020

Renaissance Orlando at SeaWorld®

781

8.7%

March 20, 2020

October 1, 2020

The Bidwell Marriott Portland

258

2.9%

March 27, 2020

October 5, 2020

Wailea Beach Resort

547

6.1%

March 25, 2020

November 1, 2020

Total of 15 Open Hotels

8,308

92.1%

Hilton Garden Inn Chicago Downtown/Magnificent Mile

361

4.0%

March 27, 2020

April 1, 2021

Renaissance Westchester

348

3.9%

April 4, 2020

Total of 2 Hotels with Suspended Operations

709

7.9%

(1)

The Boston Park Plaza, Embassy Suites La Jolla and Renaissance Long Beach remained in operation throughout 2020.

Operating statistics for the 15 hotels that were open during all of the first quarter of 2021 are as follows:

January

February

March

First Quarter

2021

2021

2021

2021

15 Hotels Open the Entire First Quarter of 2021

Number of Hotels

15

15

15

15

Number of Rooms

8,308

8,308

8,308

8,308

RevPAR

$

26.83

$

45.78

$

64.71

$

45.70

Occupancy

14.4

%

24.4

%

31.6

%

23.4

%

Average Daily Rate

$

186.33

$

187.61

$

204.78

$

195.32

Preliminary April 2021 results for the first 28 days of the month for the 16 hotels open during the entire period and the Montage Healdsburg include the following ($ in millions, except RevPAR and ADR):

April

2021 (1)

2020

Change

16 Open Hotels Room Revenue

$

19.4

$

0.5

4,039.9

%

16 Open Hotels RevPAR

$

79.90

$

1.75

4,465.7

%

16 Open Hotels Occupancy

39.1

%

1.6

%

3,750

bps

16 Open Hotels ADR

$

204.35

$

109.20

87.1

%

Montage Healdsburg Room Revenue (2)

$

1.8

N/A

N/A

Montage Healdsburg RevPAR (2)

$

502.91

N/A

N/A

Montage Healdsburg Occupancy (2)

54.7

%

N/A

N/A

Montage Healdsburg ADR (2)

$

919.39

N/A

N/A

(1)

April 2021 results are preliminary and may be adjusted during the Company’s month-end close process.

(2)

Montage Healdsburg was acquired by the Company on April 22, 2021. Includes prior ownership results obtained by the Company from the prior owner of Montage Healdsburg during the due diligence period before acquiring the hotel. The Company performed a limited review of the information as part of its analysis of the acquisition. The newly developed hotel opened in December 2020; therefore, there is no prior year information.

Due to continued uncertainty regarding the duration and extent of the COVID-19 pandemic, the Company cannot provide further assurances regarding the pandemic’s effect on the Company’s results, and the Company does not intend to provide further updates unless deemed appropriate.

Dividend Update

On April 30, 2021, the Company’s Board of Directors declared cash dividends of $0.434375 per share payable to its Series E cumulative redeemable preferred stockholders and $0.403125 per share payable to its Series F cumulative redeemable preferred stockholders. The dividends will be paid on July 15, 2021 to stockholders of record as of June 30, 2021. On April 30, 2021, the Company’s Board of Directors also declared a cash dividend of $0.110259 per share payable to its Series G preferred stockholder. The dividends will be paid on July 15, 2021 to the stockholder of record as of June 30, 2021, and reflect a pro-rated amount for the days outstanding in the applicable dividend period.

The Company has suspended its quarterly common stock cash dividends. The resumption in quarterly common dividends will be determined by the Company’s Board of Directors after considering the Company’s obligations under its various financing agreements, projected taxable income, compliance with its debt covenants, long-term operating projections, expected capital requirements and risks affecting the Company’s business.

Supplemental Disclosures

Contemporaneous with this release, the Company has furnished a Form 8-K with unaudited financial information. This additional information is being provided as a supplement to the information in this release and other filings with the SEC. The Company has no obligation to update any of the information provided to conform to actual results or changes in the Company’s portfolio, capital structure or future expectations.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust (“REIT”) that as of the date of this release has interests in 18 hotels comprised of 9,147 rooms, the majority of which are operated under nationally recognized brands. Sunstone’s business is to acquire, own, asset manage and renovate or reposition hotels considered to be Long-Term Relevant Real Estate.

Sunstone Hotel Investors, Inc.
Consolidated Balance Sheets
(In thousands, except share data)

March 31,

December 31,

2021

2020

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

320,275

$

368,406

Restricted cash

44,982

47,733

Accounts receivable, net

13,163

8,566

Prepaid expenses and other current assets

11,434

10,440

Total current assets

389,854

435,145

Investment in hotel properties, net

2,439,963

2,461,498

Finance lease right-of-use asset, net

45,814

46,182

Operating lease right-of-use assets, net

25,196

26,093

Deferred financing costs, net

3,879

4,354

Other assets, net

11,968

12,445

Total assets

$

2,916,674

$

2,985,717

Liabilities and Equity

Current liabilities:

Accounts payable and accrued expenses

$

34,292

$

37,326

Accrued payroll and employee benefits

13,435

15,392

Dividends and distributions payable

3,207

3,208

Other current liabilities

31,013

32,606

Current portion of notes payable, net

2,295

2,261

Total current liabilities

84,242

90,793

Notes payable, less current portion, net

741,922

742,528

Finance lease obligation, less current portion

15,569

15,569

Operating lease obligations, less current portion

28,649

29,954

Other liabilities

14,679

17,494

Total liabilities

885,061

896,338

Commitments and contingencies

Equity:

Stockholders’ equity:

Preferred stock, $0.01 par value, 100,000,000 shares authorized:

6.95% Series E Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, stated at liquidation preference of $25.00 per share

115,000

115,000

6.45% Series F Cumulative Redeemable Preferred Stock, 3,000,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, stated at liquidation preference of $25.00 per share

75,000

75,000

Common stock, $0.01 par value, 500,000,000 shares authorized, 216,175,084 shares issued and outstanding at March 31, 2021 and 215,593,401 shares issued and outstanding at December 31, 2020

2,162

2,156

Additional paid in capital

2,585,455

2,586,108

Retained earnings

860,454

913,766

Cumulative dividends and distributions

(1,646,593)

(1,643,386)

Total stockholders’ equity

1,991,478

2,048,644

Noncontrolling interest in consolidated joint venture

40,135

40,735

Total equity

2,031,613

2,089,379

Total liabilities and equity

$

2,916,674

$

2,985,717

Sunstone Hotel Investors, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)

Quarter Ended March 31,

2021

2020

Revenues

Room

$

34,219

$

127,400

Food and beverage

4,971

47,990

Other operating

11,443

15,822

Total revenues

50,633

191,212

Operating expenses

Room

11,640

44,245

Food and beverage

5,979

41,760

Other operating

1,805

3,764

Advertising and promotion

4,875

12,462

Repairs and maintenance

5,545

10,049

Utilities

4,151

5,842

Franchise costs

991

5,336

Property tax, ground lease and insurance

14,661

20,051

Other property-level expenses

10,477

28,845

Corporate overhead

7,177

7,394

Depreciation and amortization

30,770

36,746

Impairment losses

115,366

Total operating expenses

98,071

331,860

Interest and other income (loss)

(379)

2,306

Interest expense

(7,649)

(17,507)

Gain on extinguishment of debt

222

Loss before income taxes

(55,244)

(155,849)

Income tax provision, net

(43)

(6,670)

Net loss

(55,287)

(162,519)

Loss from consolidated joint venture attributable to noncontrolling interest

1,975

458

Preferred stock dividends

(3,207)

(3,207)

Loss attributable to common stockholders

$

(56,519)

$

(165,268)

Basic and diluted per share amounts:

Basic and diluted loss attributable to common stockholders per common share

$

(0.26)

$

(0.75)

Basic and diluted weighted average common shares outstanding

214,438

221,036

Distributions declared per common share

$

$

0.05

Sunstone Hotel Investors, Inc.
Reconciliation of Net Loss to Non-GAAP Financial Measures
(Unaudited and in thousands)

Reconciliation of Net Loss to EBITDAre and Adjusted EBITDAre, Excluding Noncontrolling Interest

Quarter Ended March 31,

2021

2020

Net loss

$

(55,287)

$

(162,519)

Operations held for investment:

Depreciation and amortization

30,770

36,746

Interest expense

7,649

17,507

Income tax provision, net

43

6,670

Loss on sale of assets

70

Impairment losses – hotel properties

113,064

EBITDAre

(16,755)

11,468

Operations held for investment:

Amortization of deferred stock compensation

2,752

2,207

Amortization of right-of-use assets and liabilities

(331)

(261)

Finance lease obligation interest – cash ground rent

(351)

(351)

Gain on extinguishment of debt

(222)

Prior year property tax adjustments, net

(827)

(81)

Impairment loss – abandoned development costs

2,302

Noncontrolling interest:

Loss from consolidated joint venture attributable to noncontrolling interest

1,975

458

Depreciation and amortization

(810)

(804)

Interest expense

(161)

(420)

Amortization of right-of-use asset and liability

72

72

Impairment loss – abandoned development costs

(449)

Adjustments to EBITDAre, net

2,097

2,673

Adjusted EBITDAre, excluding noncontrolling interest

$

(14,658)

$

14,141

Sunstone Hotel Investors, Inc.
Reconciliation of Net Loss to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Loss to FFO Attributable to Common Stockholders and Adjusted FFO Attributable to Common Stockholders

Quarter Ended March 31,

2021

2020

Net loss

$

(55,287)

$

(162,519)

Preferred stock dividends

(3,207)

(3,207)

Operations held for investment:

Real estate depreciation and amortization

30,143

36,122

Loss on sale of assets

70

Impairment losses – hotel properties

113,064

Noncontrolling interest:

Loss from consolidated joint venture attributable to noncontrolling interest

1,975

458

Real estate depreciation and amortization

(810)

(804)

FFO attributable to common stockholders

(27,116)

(16,886)

Operations held for investment:

Real estate amortization of right-of-use assets and liabilities

85

146

Noncash interest on derivatives

(869)

6,080

Gain on extinguishment of debt

(222)

Prior year property tax adjustments, net

(827)

(81)

Impairment loss – abandoned development costs

2,302

Noncash income tax provision, net

7,415

Noncontrolling interest:

Real estate amortization of right-of-use asset and liability

72

72

Impairment loss – abandoned development costs

(449)

Adjustments to FFO attributable to common stockholders, net

(1,761)

15,485

Adjusted FFO attributable to common stockholders

$

(28,877)

$

(1,401)

FFO attributable to common stockholders per diluted share

$

(0.13)

$

(0.08)

Adjusted FFO attributable to common stockholders per diluted share

$

(0.13)

$

(0.01)

Basic weighted average shares outstanding

214,438

221,036

Shares associated with unvested restricted stock awards

210

Diluted weighted average shares outstanding

214,648

221,036

Sunstone Hotel Investors, Inc.
Non-GAAP Financial Measures
Hotel Adjusted EBITDAre and Margins
(Unaudited and in thousands)

Quarter Ended March 31,

2021

2020

17 Hotel Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net  (1)

(32.5)%

13.1%

Total revenues

$

50,633

$

191,212

Non-hotel revenues (2)

(22)

(22)

Reimbursements to offset net losses (3)

(4,041)

Total Actual Hotel Revenues

46,570

191,190

Sold/Disposed hotel revenues (4)

(19,170)

Total 17 Hotel Portfolio Revenues

$

46,570

$

172,020

Net loss

$

(55,287)

$

(162,519)

Non-hotel revenues (2)

(22)

(22)

Reimbursements to offset net losses (3)

(4,041)

Non-hotel operating expenses, net (5)

(1,564)

(533)

Property-level legal fees (6)

58

Property-level prior year property tax adjustments, net (7)

(72)

(81)

Taxes assessed on commercial rents (8)

136

Corporate overhead

7,177

7,394

Depreciation and amortization

30,770

36,746

Impairment losses

115,366

Interest and other (income) loss

379

(2,306)

Interest expense

7,649

17,507

Gain on extinguishment of debt

(222)

Income tax provision, net

43

6,670

Actual Hotel Adjusted EBITDAre

(15,132)

18,358

Sold/Disposed hotel Adjusted EBITDAre (4)

4,163

17 Hotel Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net

$

(15,132)

$

22,521

*Footnotes on following page

(1)

17 Hotel Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net is calculated as 17 Hotel Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net divided by Total 17 Hotel Portfolio Revenues.

(2)

Non-hotel revenues include the amortization of unfavorable tenant lease contracts recorded in conjunction with the Company’s acquisitions of the Boston Park Plaza and the Hilton Garden Inn Chicago Downtown/Magnificent Mile.

(3)

Reimbursements to offset net losses for the first quarters of 2021 and 2020 include $4.0 million and zero, respectively, at the Hyatt Regency San Francisco as stipulated by the hotel’s operating lease agreement.

(4)

Sold/Disposed hotel includes hotel revenues and Adjusted EBITDAre generated during the Company’s ownership period for the Renaissance Harborplace and the Renaissance Los Angeles Airport, sold in July 2020 and December 2020, respectively, along with the Hilton Times Square, which was assigned to the hotel’s mortgage holder in December 2020.

(5)

Non-hotel operating expenses, net include the following: the amortization of hotel real estate-related right-of-use assets and liabilities; the amortization of a favorable management agreement; finance lease obligation interest – cash ground rent; and prior year property tax credits, net received in the first quarter of 2021 for the Renaissance Los Angeles Airport.

(6)

Property-level legal fees include $0.1 million at the Renaissance Westchester.

(7)

Property-level prior year property tax adjustments, net for the first quarter of 2021 include a credit of $0.1 million received by the Renaissance Washington DC. Property-level prior year property tax adjustments, net for the first quarter of 2020 include total net credits of $0.1 million received by the Embassy Suites Chicago and the Renaissance Harborplace.

(8)

Taxes assessed on commercial rents for the first quarters of 2021 and 2020 include zero and $0.1 million, respectively, at the Hyatt Regency San Francisco.

SOURCE Sunstone Hotel Investors, Inc.