UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 


 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported):  January 25, 2013

 


 

Sunstone Hotel Investors, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 


 

Maryland

 

001-32319

 

20-1296886

(State or Other Jurisdiction of

 

(Commission File Number)

 

(I.R.S. Employer

Incorporation or Organization)

 

 

 

Identification Number)

 

120 Vantis, Suite 350

 

 

 

 

Aliso Viejo, California

 

 

 

92656

(Address of Principal Executive Offices)

 

 

 

(Zip Code)

 

(949) 330-4000

(Registrant’s telephone number including area code)

 

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.01                                           Completion of Acquisition or Disposition of Assets

 

On January 25, 2013, Sunstone Hotel Investors, Inc. (the “Company”) completed the sale of a four-hotel 1,222-room portfolio and a commercial laundry facility (collectively, the “Portfolio”), in Rochester, Minnesota, to an unaffiliated third party (the “Buyer”), for a gross price of $230.0 million. The four hotels include the 660-room Kahler Grand, the 271-room Kahler Inn & Suites, the 202-room Marriott Rochester and the 89-room Residence Inn by Marriott Rochester. The Company has retained a $25.0 million preferred equity investment in the four-hotel Portfolio that yields an 11% dividend. In addition, the Company has retained a $14.0 million liability related to the Portfolio’s pension plan, which could be triggered in certain circumstances, including termination of the pension plan. The Company has also provided a $3.7 million working cash advance to the Buyer that will be repaid to the Company from the Portfolio’s available cash flow. Concurrent with the Portfolio sale, the Company has defeased the outstanding $26.7 million mortgage secured by the Kahler Grand for a total cost of approximately $30.0 million, prepaid the $0.4 million loan secured by the commercial laundry facility, and has written off $51,000 in related deferred financing fees.

 

There are no material relationships between the Buyer and the Company or any of its affiliates, or any director or officer of the Company, or any associate of any such director or officer, other than in respect of the Portfolio sale.

 

Item 2.02             Results of Operations and Financial Condition.

 

On January 25, 2013, the Company issued a press release reporting its preliminary financial results for the three months and year ended December 31, 2012.  A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

 

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.

 

Item 7.01                                           Regulation FD Disclosure

 

On January 25, 2013, the Company issued a press release reporting the Portfolio sale and its preliminary earnings results for the three months and year ended December 31, 2012. A copy of that press release is attached to this Current Report on Form 8-K as Exhibit 99.1, and is incorporated by reference herein. The press release has also been posted in the investor relations/press releases section of the Company’s website at www.sunstonehotels.com.

 

The information furnished pursuant to this Item 7.01, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.

 

Item 9.01                                           Financial Statements and Exhibits

 

(b)

The following pro forma financial statements are furnished herewith:

 

 

 

Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2012

 

Notes to Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2012

 

Unaudited Pro Forma Consolidated Statements of Operations for the Nine Months Ended September 30, 2012 and 2011

 

Notes to Unaudited Pro Forma Consolidated Statements of Operations for the Nine Months Ended September 30, 2012 and 2011

 

Unaudited Pro Forma Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009

 

Notes to Unaudited Pro Forma Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009

 

 

(d)

The following exhibits are furnished herewith:

 

Exhibit No.

 

Description

99.1

 

Press release dated January 25, 2013

 



 

Unaudited Pro Forma Financial Information

 

The Company’s historical financial information as of and for the nine months ended September 30, 2012 and 2011 was derived from historical information originally reported in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on November 6, 2012. The Company’s historical information for the years ended December 31, 2011, 2010 and 2009 was derived from its audited historical information originally reported in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2012.

 

The following unaudited pro forma financial information gives effect to the following transactions:

 

·                  The January 2013 sale of the Kahler Grand, the Kahler Inn & Suites, the Marriott Rochester, the Residence Inn by Marriott Rochester and a commercial laundry facility (the “Portfolio” sale), all located in Rochester, Minnesota for a gross sale price of $230.0 million;

·                  The January 2013 defeasance of debt secured by the Kahler Grand, and prepayment of debt secured by the commercial laundry facility, along with the related write-off of $51,000 in deferred financing fees; and

·                  The September 2012 sale of the Doubletree Guest Suites Minneapolis, the Hilton Del Mar, the Marriott Troy and an office building next to the Marriott Troy, along with the August 2012 sale of the Marriott Del Mar (collectively, the “2012 Dispositions”).

 

The unaudited pro forma consolidated balance sheet as of September 30, 2012 is presented as if the Portfolio sale and related repayment of debt in January 2013 had occurred on September 30, 2012. The unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2012 and 2011 are presented as if the Portfolio sale and related repayment of debt in January 2013 had occurred on January 1, 2011. The unaudited pro forma consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 are presented as if the Portfolio sale and related repayment of debt in January 2013 along with the 2012 Dispositions had occurred on January 1, 2009. In the opinion of the Company’s management, all significant adjustments necessary to reflect the effects of the Portfolio sale and related repayment of debt along with the 2012 Dispositions transactions that can be factually supported within the SEC regulations covering the preparation of pro forma financial statements have been made.

 

The unaudited pro forma consolidated financial statements and related notes are presented for informational purposes only and do not purport to represent the Company’s financial position or results of operations as if the transactions had occurred on the dates discussed above. They also do not project or forecast the Company’s consolidated financial position or results of operations for any future date or period.

 

The unaudited pro forma financial statements should be read together with the Company’s historical consolidated financial statements and related notes included in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012 filed with the SEC on November 6, 2012, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 28, 2012. The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable; however, the Company cannot assure you that actual results would not differ from the pro forma information and perhaps in material and adverse ways.  No attempt has been made to update matters in the unaudited pro forma financials except to the extent expressly provided above.

 

1



 

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2012

(In thousands, except share data)

 

 

 

Sunstone Hotels
Investors, Inc.
Historical

 

Portfolio Sale (A)

 

Repayment of
Debt (B)

 

Sunstone Hotel Investors,
Inc.
Pro Forma

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

164,469

 

$

195,255

 

$

(29,907

)

$

329,817

 

Restricted cash

 

76,790

 

 

(730

)

76,060

 

Accounts receivable, net

 

28,534

 

(2,756

)

 

25,778

 

Inventories

 

2,664

 

(1,430

)

 

1,234

 

Prepaid expenses

 

9,554

 

(461

)

 

9,093

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

282,011

 

190,608

 

(30,637

)

441,982

 

Investment in hotel properties, net

 

2,800,682

 

(115,326

)

 

2,685,356

 

Other real estate, net

 

9,855

 

(9,667

)

 

188

 

Deferred financing fees, net

 

12,865

 

 

(60

)

12,805

 

Goodwill

 

13,088

 

(3,683

)

 

9,405

 

Other assets, net

 

26,441

 

3,596

 

 

30,037

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

3,144,942

 

$

65,528

 

$

(30,697

)

$

3,179,773

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

25,267

 

$

(2,006

)

$

 

$

23,261

 

Accrued payroll and employee benefits

 

22,326

 

 

 

22,326

 

Due to Third-Party Managers

 

9,050

 

(5,386

)

 

3,664

 

Dividends payable

 

7,437

 

 

 

7,437

 

Other current liabilities

 

37,829

 

(996

)

 

36,833

 

Current portion of notes payable

 

77,579

 

 

(1,520

)

76,059

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

179,488

 

(8,388

)

(1,520

)

169,580

 

Notes payable, less current portion

 

1,318,102

 

 

(26,209

)

1,291,893

 

Capital lease obligations, less current portion

 

15,630

 

 

 

15,630

 

Other liabilities

 

14,789

 

14,000

 

 

28,789

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

1,528,009

 

5,612

 

(27,729

)

1,505,892

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Preferred stock, Series C Cumulative Convertible Redeemable Preferred Stock, $0.01 par value, 4,102,564 shares authorized, issued and outstanding at September 30, 2012, liquidation preference of $24.375 per share

 

100,000

 

 

 

100,000

 

Equity:

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

8.0% Series A Cumulative Redeemable Preferred Stock, 7,050,000 shares issued and outstanding at September 30, 2012, stated at liquidation preference of $25.00 per share

 

176,250

 

 

 

176,250

 

8.0% Series D Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at September 30, 2012, stated at liquidation preference of $25.00 per share

 

115,000

 

 

 

115,000

 

Common stock, $0.01 par value, 500,000,000 shares authorized, 135,237,438 shares issued and outstanding at September 30, 2012

 

1,352

 

 

 

1,352

 

Additional paid in capital

 

1,492,528

 

 

 

1,492,528

 

Retained earnings

 

147,329

 

55,176

 

(2,968

)

199,537

 

Cumulative dividends

 

(467,707

)

 

 

(467,707

)

Accumulated other comprehensive loss

 

(4,740

)

4,740

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

1,460,012

 

59,916

 

(2,968

)

1,516,960

 

Non-controlling interest in consolidated joint ventures

 

56,921

 

 

 

56,921

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

1,516,933

 

59,916

 

(2,968

)

1,573,881

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

3,144,942

 

$

65,528

 

$

(30,697

)

$

3,179,773

 

 

See accompanying notes to unaudited pro forma consolidated balance sheet.

 

2



 

SUNSTONE HOTEL INVESTORS, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2012

 

The accompanying unaudited pro forma consolidated balance sheet as of September 30, 2012 is based on the Company’s historical unaudited consolidated balance sheet as of September 30, 2012, as adjusted to assume that the following transactions which occurred in January 2013, had occurred on September 30, 2012:

 

·                  The sale of the Kahler Grand, the Kahler Inn & Suites, the Marriott Rochester, the Residence Inn by Marriott Rochester and a commercial laundry facility (the “Portfolio” sale), all located in Rochester, Minnesota for a gross sale price of $230.0 million; and

·                  The defeasance of debt on the Kahler Grand and the prepayment of debt on the commercial laundry facility, whose debt totaled $27.7 million as of September 30, 2012.

 

In management’s opinion, all material adjustments to reflect the effects of the preceding transactions have been made. The accompanying unaudited pro forma consolidated balance sheet as of September 30, 2012 is presented for illustrative purposes only, and is not necessarily indicative of what the Company’s actual financial position would have been had the transactions described above occurred on September 30, 2012, nor does it purport to represent the Company’s future financial position.

 

Notes and Management Assumptions:

 

A.            Reflects the Portfolio sale as follows (in thousands):

 

Gross sale price

 

$

230,000

 

Preferred equity investment (1)

 

(25,000

)

Estimated closing costs

 

(6,092

)

Working capital advances (2)

 

(3,653

)

Net sale price

 

$

195,255

 

 


(1)         The Company entered into a joint venture agreement with the Buyer and retains a $25.0 million perpetual preferred investment (“Preferred Equity Investment”) with an eleven percent (11%) dividend rate, resulting in a deferred gain on the sale of $25.0 million. The gain will be deferred until the Preferred Equity Investment is repaid.  The Preferred Equity Investment is recorded at cost on the balance sheet, net of the deferred gain, resulting in a net book value of zero on the accompanying pro forma consolidated balance sheet as of September 30, 2012.

 

(2)         Includes a working cash advance to the buyer of the Portfolio that will be repaid to the Company from the Portfolio’s available cash flow.

 

Other balance sheet adjustments for the Portfolio sale reflect the disposal of the net book value of the investment in hotel properties and related capital accounts and associated increase to retained earnings for the net estimated gain on sale using values in existence as the September 30, 2012 pro forma consolidated balance sheet date.

 

B.            Reflects the Repayment of Debt as follows:

 

·                  Defeasance of debt on the Kahler Grand and the prepayment of debt on the commercial laundry facility, whose debt totaled $27.7 million as of September 30, 2012;

·                  Total defeasance and prepayment costs of $2.9 million, which will be included in discontinued operations in the Company’s first quarter 2013 statement of operations;

·                  Write-off of related deferred financing fees which totaled approximately $60,000 as of September 30, 2012. This write-off will be included in discontinued operations in the Company’s first quarter 2013 statement of operations; and

·                  Release of $0.7 million of restricted cash from the lender escrow reserves.

 

3



 

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(In thousands, except per share data)

 

 

 

Sunstone Hotel
Investors, Inc.
Historical

 

Portfolio Sale (A)

 

Repayment of Debt
(B)

 

Sunstone Hotel
Investors, Inc.
Pro Forma

 

REVENUES

 

 

 

 

 

 

 

 

 

Room

 

$

443,022

 

$

(27,693

)

$

 

$

415,329

 

Food and beverage

 

148,574

 

(5,564

)

 

143,010

 

Other operating

 

51,243

 

(13,465

)

 

37,778

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

642,839

 

(46,722

)

 

596,117

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Room

 

112,566

 

(5,546

)

 

107,020

 

Food and beverage

 

104,426

 

(4,656

)

 

99,770

 

Other operating

 

20,074

 

(8,300

)

 

11,774

 

Advertising and promotion

 

31,760

 

(1,386

)

 

30,374

 

Repairs and maintenance

 

24,561

 

(1,765

)

 

22,796

 

Utilities

 

21,039

 

(2,200

)

 

18,839

 

Franchise costs

 

22,443

 

(1,022

)

 

21,421

 

Property tax, ground lease and insurance

 

52,237

 

(1,994

)

 

50,243

 

Property general and administrative

 

73,202

 

(4,790

)

 

68,412

 

Corporate overhead

 

18,975

 

(88

)

 

18,887

 

Depreciation and amortization

 

102,899

 

(6,331

)

 

96,568

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

584,182

 

(38,078

)

 

546,104

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

58,657

 

(8,644

)

 

50,013

 

Interest and other income

 

155

 

 

 

155

 

Interest expense

 

(59,309

)

 

1,209

 

(58,100

)

Loss on extinguishment of debt

 

(191

)

 

 

(191

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

$

(688

)

$

(8,644

)

$

1,209

 

$

(8,123

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss attributable to continuing operations per common share

 

$

(0.01

)

 

 

 

 

$

(0.07

)

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted common shares outstanding

 

124,271

 

 

 

 

 

124,271

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2012 and 2011.

 

4



 

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(In thousands, except per share data)

 

 

 

Sunstone Hotel
Investors, Inc.
Historical

 

Portfolio Sale (A)

 

Repayment of Debt
(B)

 

Sunstone Hotel
Investors, Inc.
Pro Forma

 

REVENUES

 

 

 

 

 

 

 

 

 

Room

 

$

380,826

 

$

(26,716

)

$

 

$

354,110

 

Food and beverage

 

124,838

 

(5,370

)

 

119,468

 

Other operating

 

45,454

 

(12,884

)

 

32,570

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

551,118

 

(44,970

)

 

506,148

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Room

 

96,160

 

(5,273

)

 

90,887

 

Food and beverage

 

93,165

 

(4,728

)

 

88,437

 

Other operating

 

18,112

 

(8,115

)

 

9,997

 

Advertising and promotion

 

27,250

 

(1,392

)

 

25,858

 

Repairs and maintenance

 

22,094

 

(1,685

)

 

20,409

 

Utilities

 

20,914

 

(2,530

)

 

18,384

 

Franchise costs

 

19,046

 

(944

)

 

18,102

 

Property tax, ground lease and insurance

 

43,641

 

(2,048

)

 

41,593

 

Property general and administrative

 

64,595

 

(4,351

)

 

60,244

 

Corporate overhead

 

20,771

 

(84

)

 

20,687

 

Depreciation and amortization

 

88,241

 

(5,659

)

 

82,582

 

Impairment loss

 

10,862

 

 

 

10,862

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

524,851

 

(36,809

)

 

488,042

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

26,267

 

(8,161

)

 

18,106

 

Equity in earnings of unconsolidated joint venture

 

21

 

 

 

21

 

Interest and other income

 

2,970

 

 

 

2,970

 

Interest expense

 

(55,449

)

 

1,305

 

(54,144

)

Gain on remeasurement of equity interests

 

69,230

 

 

 

69,230

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

43,039

 

$

(8,161

)

$

1,305

 

$

36,183

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income available to continuing operations per common share

 

$

0.37

 

 

 

 

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted common shares outstanding

 

117,186

 

 

 

 

 

117,186

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2012 and 2011.

 

5



 

SUNSTONE HOTEL INVESTORS, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 

The accompanying unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2012 and 2011 are based on the Company’s historical unaudited consolidated statements of operations for the nine months ended September 30, 2012 and 2011, as adjusted to assume that the following transactions which occurred in January 2013, had occurred on January 1, 2011:

 

·                  The sale of the Kahler Grand, the Kahler Inn & Suites, the Marriott Rochester, the Residence Inn by Marriott Rochester and a commercial laundry facility (the “Portfolio” sale), all located in Rochester, Minnesota for a gross sale price of $230.0 million; and

·                  The defeasance of debt on the Kahler Grand and prepayment of debt on the commercial laundry facility.

 

The historical unaudited consolidated statements of operations for the nine months ended September 30, 2012 and 2011 have not been adjusted for either the August 2012 sale of the Marriott Del Mar or the September 2012 sale of the Doubletree Guest Suites Minneapolis, the Hilton Del Mar, the Marriott Troy and an office building next to the Marriott Troy as the operating results for these four hotels and the office building were previously reported in discontinued operations in the historical financial statements.

 

In management’s opinion, all material adjustments to reflect the effects of the preceding transactions have been made. The accompanying unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2012 and 2011 are presented for illustrative purposes only, and are not necessarily indicative of what the Company’s actual results of operations would have been had the transactions described above occurred on January 1, 2011, nor does it purport to represent the Company’s future financial position or results of operations.

 

Notes and Management Assumptions:

 

A.            Reflects the results of operations for the Portfolio for the nine months ended September 30, 2012 and 2011.

 

B.            Reflects interest expense of $1.2 million and $1.3 million that was recognized during the nine months ended September 30, 2012 and 2011, respectively, on the debt secured by the Kahler Grand, which was defeased in January 2013, as well as the debt secured by the commercial laundry facility, which was prepaid in January 2013.

 

6



 

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

(In thousands, except per share data)

 

 

 

Sunstone Hotel
Investors, Inc.
Historical

 

Portfolio Sale (A)

 

Repayment of Debt
(B)

 

2012 Dispositions
(C)

 

Sunstone Hotel
Investors, Inc.
Pro Forma

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Room

 

$

572,289

 

$

(35,127

)

$

 

$

(35,979

)

$

501,183

 

Food and beverage

 

196,524

 

(7,044

)

 

(14,377

)

175,103

 

Other operating

 

65,916

 

(17,280

)

 

(3,128

)

45,508

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

834,729

 

(59,451

)

 

(53,484

)

721,794

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Room

 

144,334

 

(7,025

)

 

(9,084

)

128,225

 

Food and beverage

 

143,120

 

(6,183

)

 

(10,798

)

126,139

 

Other operating

 

26,092

 

(10,770

)

 

(1,318

)

14,004

 

Advertising and promotion

 

41,952

 

(1,822

)

 

(2,904

)

37,226

 

Repairs and maintenance

 

33,766

 

(2,247

)

 

(2,452

)

29,067

 

Utilities

 

31,014

 

(3,288

)

 

(2,189

)

25,537

 

Franchise costs

 

29,115

 

(1,271

)

 

(2,249

)

25,595

 

Property tax, ground lease and insurance

 

63,423

 

(2,613

)

 

(2,800

)

58,010

 

Property general and administrative

 

98,642

 

(5,814

)

 

(7,535

)

85,293

 

Corporate overhead

 

25,746

 

(118

)

 

(175

)

25,453

 

Depreciation and amortization

 

127,945

 

(7,713

)

 

(6,524

)

113,708

 

Impairment loss

 

10,862

 

 

 

 

10,862

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

776,011

 

(48,864

)

 

(48,028

)

679,119

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

58,718

 

(10,587

)

 

(5,456

)

42,675

 

Equity in earnings of unconsolidated joint ventures

 

21

 

 

 

 

21

 

Interest and other income

 

3,118

 

 

 

(3

)

3,115

 

Interest expense

 

(82,965

)

 

1,729

 

7,041

 

(74,195

)

Gain on remeasurement of equity interests

 

69,230

 

 

 

 

69,230

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

48,122

 

$

(10,587

)

$

1,729

 

$

1,582

 

$

40,846

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income available to continuing operations per common share

 

$

0.41

 

 

 

 

 

 

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted common shares outstanding

 

117,206

 

 

 

 

 

 

 

117,206

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.

 

7



 

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

(In thousands, except per share data)

 

 

 

Sunstone Hotel
Investors, Inc.
Historical

 

Portfolio Sale (A)

 

Repayment of Debt
(B)

 

2012 Dispositions
(C)

 

Sunstone Hotel
Investors, Inc.
Pro Forma

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Room

 

$

418,943

 

$

(34,385

)

$

 

$

(33,519

)

$

351,039

 

Food and beverage

 

159,365

 

(7,174

)

 

(14,003

)

138,188

 

Other operating

 

46,236

 

(16,746

)

 

(3,117

)

26,373

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

624,544

 

(58,305

)

 

(50,639

)

515,600

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Room

 

107,788

 

(7,136

)

 

(8,551

)

92,101

 

Food and beverage

 

116,856

 

(6,965

)

 

(11,002

)

98,889

 

Other operating

 

23,265

 

(10,365

)

 

(1,365

)

11,535

 

Advertising and promotion

 

32,225

 

(1,880

)

 

(3,019

)

27,326

 

Repairs and maintenance

 

27,161

 

(2,104

)

 

(2,449

)

22,608

 

Utilities

 

24,527

 

(3,138

)

 

(2,272

)

19,117

 

Franchise costs

 

21,474

 

(1,270

)

 

(2,172

)

18,032

 

Property tax, ground lease and insurance

 

40,980

 

(2,724

)

 

(2,976

)

35,280

 

Property general and administrative

 

74,535

 

(5,730

)

 

(7,052

)

61,753

 

Corporate overhead

 

21,971

 

(130

)

 

(90

)

21,751

 

Depreciation and amortization

 

92,374

 

(6,547

)

 

(6,194

)

79,633

 

Impairment loss

 

1,943

 

 

 

(1,943

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

585,099

 

(47,989

)

 

(49,085

)

488,025

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

39,445

 

(10,316

)

 

(1,554

)

27,575

 

Equity in earnings of unconsolidated joint ventures

 

555

 

 

 

 

555

 

Interest and other income

 

111

 

6

 

 

(5

)

112

 

Interest expense

 

(70,174

)

2,228

 

1,856

 

7,159

 

(58,931

)

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

$

(30,063

)

$

(8,082

)

$

1,856

 

$

5,600

 

$

(30,689

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss attributable to continuing operations per common share

 

$

(0.30

)

 

 

 

 

 

 

$

(0.31

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted common shares outstanding

 

99,709

 

 

 

 

 

 

 

99,709

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.

 

8



 

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2009

(In thousands, except per share data)

 

 

 

Sunstone Hotel

Investors, Inc.
Historical

 

Portfolio Sale (A)

 

Repayment of Debt
(B)

 

2012 Dispositions
(C)

 

Sunstone Hotel
Investors, Inc.
Pro Forma

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Room

 

$

401,920

 

$

(33,540

)

$

 

$

(31,399

)

$

336,981

 

Food and beverage

 

157,219

 

(7,529

)

 

(15,371

)

134,319

 

Other operating

 

50,173

 

(16,601

)

 

(3,331

)

30,241

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

609,312

 

(57,670

)

 

(50,101

)

501,541

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Room

 

100,578

 

(7,100

)

 

(7,599

)

85,879

 

Food and beverage

 

115,246

 

(6,645

)

 

(11,846

)

96,755

 

Other operating

 

23,579

 

(10,323

)

 

(1,470

)

11,786

 

Advertising and promotion

 

31,545

 

(2,065

)

 

(3,076

)

26,404

 

Repairs and maintenance

 

26,819

 

(2,001

)

 

(2,381

)

22,437

 

Utilities

 

24,429

 

(3,206

)

 

(2,344

)

18,879

 

Franchise costs

 

20,658

 

(1,193

)

 

(2,030

)

17,435

 

Property tax, ground lease and insurance

 

42,820

 

(2,631

)

 

(3,131

)

37,058

 

Property general and administrative

 

71,019

 

(5,605

)

 

(6,739

)

58,675

 

Corporate overhead

 

25,227

 

(30

)

 

(125

)

25,072

 

Depreciation and amortization

 

92,457

 

(6,564

)

 

(7,103

)

78,790

 

Impairment loss

 

30,852

 

(2,658

)

 

(25,371

)

2,823

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

605,229

 

(50,021

)

 

(73,215

)

481,993

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

4,083

 

(7,649

)

 

23,114

 

19,548

 

Equity in net losses of unconsolidated joint ventures

 

(27,801

)

 

 

 

(27,801

)

Interest and other income

 

1,388

 

 

 

(10

)

1,378

 

Interest expense

 

(75,869

)

4,504

 

1,971

 

7,257

 

(62,137

)

Gain on extinguishment of debt

 

54,506

 

 

 

 

54,506

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

$

(43,693

)

$

(3,145

)

$

1,971

 

$

30,361

 

$

(14,506

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss attributable to continuing operations per common share

 

$

(0.63

)

 

 

 

 

 

 

$

(0.21

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted common shares outstanding

 

69,820

 

 

 

 

 

 

 

69,820

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.

 

9



 

SUNSTONE HOTEL INVESTORS, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 and 2009

 

The accompanying unaudited pro forma consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 are based on the Company’s historical audited consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009, as adjusted to assume that the following transactions that occurred after 2011 had occurred on January 1, 2009:

 

·                  The January 2013 sale of the Kahler Grand, the Kahler Inn & Suites, the Marriott Rochester, the Residence Inn by Marriott Rochester and a commercial laundry facility (the “Portfolio” sale), all located in Rochester, Minnesota for a gross sale price of $230.0 million;

·                  The January 2013 defeasance of debt on the Kahler Grand and prepayment of debt on the commercial laundry facility; and

·                  The September 2012 sale of the Doubletree Guest Suites Minneapolis, the Hilton Del Mar, the Marriott Troy and an office building next to the Marriott Troy, along with the August 2012 sale of the Marriott Del Mar (collectively the “2012 Dispositions”).

 

In management’s opinion, all material adjustments to reflect the effects of the preceding transactions have been made. The accompanying unaudited pro forma consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 are presented for illustrative purposes only, and are not necessarily indicative of what the Company’s actual results of operations would have been had the transactions described above occurred on January 1, 2009, nor do they purport to represent the Company’s future financial position or results of operations.

 

Notes and Management Assumptions:

 

A.            Reflects the results of operations for the Portfolio for the years ended December 31, 2011, 2010 and 2009.

 

B.            Reflects interest expense of $1.7 million, $1.9 million and $2.0 million that was recognized during the years ended December 31, 2011, 2010 and 2009, respectively, on the debt secured by the Kahler Grand which was defeased in January 2013, as well as the debt secured by the commercial laundry facility, which was prepaid in January 2013.

 

C.            Reflects the results of operations for the hotels included in the 2012 Dispositions for the years ended December 31, 2011, 2010 and 2009.

 

10



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Sunstone Hotel Investors, Inc.

 

 

 

 

Date: January 25, 2013

 

By:

/s/   John V. Arabia

 

 

 

John V. Arabia

Chief Financial Officer

 

11



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

99.1

 

Press Release dated January 25, 2013

 

12