<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26304
SUNSTONE HOTEL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
--------------------
MARYLAND 52-1891908
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
115 CALLE DE INDUSTRIAS, SUITE 201, SAN CLEMENTE, CA 92672
(Address of Principal Executive Offices) (Zip Code)
(714) 361-3900
(Registrant's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of November 14, 1996, there were 10,932,250 shares of Common Stock
outstanding.
- -------------------------------------------------------------------------------
<PAGE> 2
SUNSTONE HOTEL INVESTORS, INC.
SEPTEMBER 30, 1996 QUARTERLY REPORT
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Introduction to the Financial Statements..................................................................... 3
Sunstone Hotel Investors, Inc.
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995................................... 4
Consolidated Statements of Income for the Three Months and Nine Months
Ended September 30, 1996 and September 30, 1995.......................................................... 5
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1996,...................................................................................... 6
Notes to Consolidated Financial Statements................................................................... 7
Sunstone Hotel Properties, Inc. (the Lessee)
Balance Sheets as of September 30, 1996 and December 31, 1995................................................ 9
Statement of Operations for the Three Months and Nine Months ended September 30, 1996........................ 10
Statement of Cash Flows for the Nine Months ended September 30, 1996......................................... 11
Notes to Financial Statements................................................................................ 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................................................. 13
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................... 19
</TABLE>
2
<PAGE> 3
SUNSTONE HOTEL INVESTORS, INC.
INTRODUCTION TO THE FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by Sunstone Hotel Investors, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Disclosures normally included in the notes to the financial statements prepared
in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with the financial statements included in the Company's
Annual Report on Form 10-K for the period August 16 (inception) to December 31,
1995.
The financial information presented herein reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
3
<PAGE> 4
SUNSTONE HOTEL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS:
Investment in hotel properties, net $104,301,000 $49,926,000
Mortgage notes receivable 2,850,000
Cash 2,022,000 5,222,000
Rent receivable-- Lessee 2,908,000 646,000
Prepaid expenses and other assets, net 1,266,000 1,442,000
------------ -----------
$113,347,000 $57,236,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving line of credit $ 17,780,000 $ 8,400,000
Mortgage notes payable 3,003,000
Accounts payable and other accrued expenses 1,930,000 1,346,000
Dividends and distributions payable 1,764,000
------------ -----------
22,713,000 11,510,000
------------ -----------
Minority interest 10,840,000 8,231,000
------------ -----------
Stockholders' equity:
Common stock, $.01 par value, 50,000,000
authorized; 10,923,500 and 6,322,000 issued
and outstanding as of September 30, 1996 and
December 31, 1995, respectively 109,000 63,000
Preferred stock, $.01 par value, 10,000,000
authorized, no shares issued or outstanding
Additional paid-in capital 79,079,000 37,432,000
Retained earnings 606,000
------------ -----------
79,794,000 37,495,000
------------ -----------
$113,347,000 $57,236,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SUNSTONE HOTEL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Actual Pro Forma Actual Pro Forma
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Lease revenue $4,252,000 $2,726,000 $10,407,000 $7,432,000
Interest income 81,000 13,000 141,000 13,000
---------- ---------- ----------- ----------
Total revenues 4,333,000 2,739,000 10,548,000 7,445,000
---------- ---------- ----------- ----------
EXPENSES:
Real estate related depreciation
and amortization 1,211,000 528,000 3,057,000 1,561,000
Interest expense and amortization
of financing costs 218,000 1,029,000
Real estate, personal property taxes
and insurance 191,000 255,000 757,000 637,000
General and administrative 426,000 104,000 707,000 312,000
---------- ---------- ----------- ----------
Total expenses 2,046,000 887,000 5,550,000 2,510,000
---------- ---------- ----------- ----------
Income before minority interest 2,287,000 1,852,000 4,998,000 4,935,000
Minority interest 332,000 323,000 829,000 861,000
---------- ---------- ----------- ----------
NET INCOME $1,955,000 $1,529,000 $ 4,169,000 $4,074,000
========== ========== =========== ==========
NET INCOME PER SHARE $ 0.23 $ 0.24 $ 0.59 $ 0.64
Weighted average number of shares 8,590,190 6,322,000 7,078,063 6,322,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SUNSTONE HOTEL INVESTORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,169,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest 829,000
Depreciation 3,057,000
Amortization of financing costs 170,000
Changes in assets and liabilities:
Rent receivable-Lessee (2,262,000)
Prepaids and other assets, net 6,000
Accounts payable and accrued expenses 584,000
------------
Net cash provided by operating activities 6,553,000
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, improvements and additions
to hotel properties (61,382,000)
Proceeds from sale of hotel properties 1,100,000
------------
Net cash used in investing activities (60,282,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock offering 42,747,000
Borrowings on revolving line of credit 30,580,000
Principal repayments on revolving line of credit (21,200,000)
Borrowings on mortgage notes payable 3,025,000
Principal repayments on mortgage notes (22,000)
Dividends and distributions paid (5,327,000)
Issuance of partnership units 816,000
Redemption of partnership units (90,000)
------------
Net cash provided by financing activities 50,529,000
------------
Net change in cash (3,200,000)
Cash, beginning of period 5,222,000
------------
Cash, end of period $ 2,022,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
SUNSTONE HOTEL INVESTORS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
Sunstone Hotel Investors, Inc. (the "Company"), a Maryland corporation,
was formed on September 21, 1994, as a real estate investment trust ("REIT").
The Company completed an initial public offering (the "Offering") of 5,910,000
shares of its common stock on August 16, 1995. An additional 404,500 shares of
common stock were issued by the Company on September 3, 1995 upon a partial
exercise of the underwriters' over-allotment option. The offering price of all
shares sold in the Offering was $9.50 per share, resulting in gross proceeds of
approximately $60.0 million and net proceeds (less the underwriters' discount
and offering expenses) of approximately $53.0 million.
The Company contributed all of the net proceeds of the Offering to
Sunstone Hotel Investors, L.P. (the "Partnership") in exchange for an
approximately 82.5% aggregate equity interest in the Partnership. The Company
conducts all its business through and is the sole general partner of the
Partnership (hereafter referred to as the "Company").
In connection with the Offering, the Company acquired seven hotels (the
"Sunstone Hotels") from seven entities controlled by officers and a director of
the Company and acquired the three additional hotels (the "Acquisition Hotels"
and together, the "Initial Hotels") from unrelated third parties in exchange for
(I) 1,288,500 units ("Units") in the Partnership (representing the remaining
17.5% of equity interest in the Partnership) which are exchangeable for a like
number of shares of the common stock of the Company and (ii) the payment of
mortgage indebtedness for the Sunstone Hotels of approximately $23.5 million and
other obligations relating to the Sunstone Hotels and (iii) payment of
approximately $25.8 million to purchase the Acquisition Hotels.
The Company owns, as of September 30, 1996, 20 hotels (the "Hotels") and
leases them to Sunstone Hotel Properties, Inc. (the "Lessee") under operating
leases (the "Percentage Leases") providing for the payment of base and
percentage rent. The Lessee is owned by Robert A. Alter, Chairman and President
of the Company (80%), and Charles L. Biederman, Director and Executive Vice
President of the Company (20%). The Lessee has entered into a management
agreement pursuant to which all of the Hotels are managed by Sunstone Hotel
Management, Inc. (the "Management Company"), of which Mr. Alter is the sole
shareholder.
Basis Of Presentation:
For accounting purposes, the Company exercises unilateral control over
the Partnership; hence, the financial statements of the Company and the
Partnership are consolidated. All significant intercompany transactions and
balances have been eliminated.
2. NET INCOME PER SHARE AND PARTNERSHIP UNITS
Net income per share is based on the weighted average number of common
and equivalent shares outstanding during the period. Outstanding options are
included as common equivalent shares using the treasury stock method when the
effect is dilutive. The weighted average number of shares used in determining
net income per share were 8,590,190 and 6,322,000 for the three months ended
September 30, 1996 and 1995, respectively. At September 30, 1996, a total of
12,382,300 partnership units were issued and outstanding. The weighted average
number of units outstanding for the three months ended September 30, 1996 was
10,048,990.
7
<PAGE> 8
3. RECENTLY ISSUED ACCOUNTING STANDARDS:
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No 121, "Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to be Disposed Of." This statement shall
be effective for financial statements for fiscal years beginning after December
15, 1995. Management has elected early adoption of this statement, which should
not have a material impact on the financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" which shall be effective for financial statements for fiscal years
beginning after December 15, 1995. Management intends to adopt the disclosure
method and, accordingly, there will be no impact on the Company's financial
position or results of operations.
4. SUBSEQUENT EVENTS AND SIGNIFICANT ACQUISITIONS
On October 29, 1996, the Company acquired the 246-room Holiday Inn in
Mesa, Arizona, the 156-room Holiday Inn in Flagstaff, Arizona and the 125-room
Hampton Inn in Tucson, Arizona, for $27.8 million, for consideration consisting
of $3.6 million in cash, the assumption of $16.8 million in debt and the
issuance of $7.4 million in partnership units at $10.52 per unit. Upon
completion of the acquisition, the Company's total assets, market capitalization
and debt were $138.7 million, $183.6 million, and $39.6 million, respectively.
On August 13, 1996, the Company issued 4,000,000 shares of its common
stock at a price of $10.00 per share. The net proceeds of $36.8 million were
used as follows: (i) approximately $20.8 million to repay outstanding borrowings
under the line of credit, $8.2 million of which was borrowed to acquire the
188-room Holiday Inn in Renton, Washington on June 28, 1996; and (ii)
approximately $16.0 million to purchase the 155-room Comfort Suites in South San
Francisco, California and a 151-room nationally franchised hotel in Price, Utah.
On September 10, 1996, the underwriters exercised a 30-day option and purchased
an additional 600,000 shares of common stock at a price of $10.00 per share
generating an additional $5.6 million net proceeds for the Company.
8
<PAGE> 9
SUNSTONE HOTEL PROPERTIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 1,025,000 $ 800,000
Receivables, net 1,147,000 466,000
Inventories 80,000 125,000
Prepaid expenses and other assets 2,046,000 70,000
----------- -----------
$4,298,000 $ 1,461,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Rent payable - REIT $ 2,908,000 $ 645,000
Accounts payable, trade 692,000 294,000
Advanced deposits 69,000 199,000
Sales taxes payable 312,000 225,000
Accrued payroll 306,000 242,000
Accrued vacation 100,000 82,000
Management and accounting fees payable 118,000 104,000
Other accrued expenses 560,000 416,000
----------- -----------
5,065,000 2,207,000
----------- -----------
Shareholders' Deficit:
Common stock, no par value, 100,000 shares authorized;
125 shares issued and outstanding
Shareholders' deficit (767,000) (746,000)
----------- -----------
$ 4,298,000 $ 1,461,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
SUNSTONE HOTEL PROPERTIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
REVENUES:
Room $ 9,961,000 $ 23,717,000
Food and beverage 845,000 1,503,000
Other 526,000 1,242,000
------------ ------------
Total revenues 11,332,000 26,462,000
------------ ------------
EXPENSES:
Room 2,291,000 5,741,000
Food and beverage 619,000 1,297,000
Other 434,000 773,000
Property and administrative 841,000 1,590,000
Franchise costs 407,000 863,000
Advertising and promotion 1,036,000 2,436,000
Repairs and maintenance 455,000 1,151,000
Utilities 641,000 1,279,000
Management fees 256,000 529,000
------------ ------------
Net operating income 4,352,000 10,803,000
Corporate general and administrative 75,000 393,000
Rent - REIT 4,252,000 10,407,000
------------ ------------
Net income $ 25,000 $ 3,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
SUNSTONE HOTEL PROPERTIES, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 3,000
Adjustments to reconcile net loss to net cash provided by operating
activities:
Changes in assets and liabilities:
Receivables, net (681,000)
Inventories 45,000
Prepaid expenses and other assets (758,000)
Rent payable - REIT 2,262,000
Accounts payable, trade 398,000
Advanced deposits (130,000)
Sales taxes payable 87,000
Accrued payroll 64,000
Accrued vacation 18,000
Management and accounting fees payable 14,000
Other accrued expenses 145,000
-----------
Cash provided by operating activities 1,467,000
-----------
Cash flows from investing activities:
Capitalized construction costs (1,242,000)
-----------
Cash used in investing activities (1,242,000)
-----------
Net change in cash 225,000
Cash, beginning of period 800,000
-----------
Cash, end of period $ 1,025,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
SUNSTONE HOTEL PROPERTIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION:
Sunstone Hotel Properties, Inc. (the "Lessee") was incorporated in Colorado
in August 1995 and commenced operations effective with the completion of an
initial public stock offering (the "Offering") by Sunstone Hotel Investors, Inc.
(the "REIT") on August 16, 1995. The Lessee leases hotel properties primarily
located in the western United States from the REIT pursuant to long term leases.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SUMMARY OVERVIEW
On August 16, 1995, the Company completed a $60 million initial
public offering ("IPO") and contributed all of the net proceeds of the IPO to
the Partnership in exchange for an approximately 82.5% aggregate equity interest
in the Partnership. The Company used the proceeds of the IPO to fund the
purchase of three of its hotels and repay indebtedness incurred in connection
with the acquisition of the Sunstone Initial Hotels. On August 13, 1996, the
Company contributed an additional $36.8 million of net proceeds to the
Partnership from the proceeds of a secondary offering. On September 10, 1996,
the Company sold an additional 600,000 shares of its common stock at a price of
$10.00 per share to cover over-allotments in connection with the August 1996
secondary offering. The company contributed net proceeds of $5.6 million to the
Partnership, increasing its interest in the Partnership to approximately 88.2%.
The Company owns as of November 14, 1996, 23 hotels with an aggregate of 3,139
rooms in seven states, including Arizona (4), California (5), Colorado (6), New
Mexico (1), Utah (2), Oregon (2), and Washington (3), has more than doubled the
number of hotels in its portfolio in the 13 months since the IPO and has
increased the number of rooms by 136.4% since the IPO.
Since the IPO, the Company has implemented its growth strategy
by (i) acquiring under performing hotels and redeveloping and repositioning
seven of such hotels into nationally franchised upscale and mid-price hotels and
(ii) enhancing the operating performance of its hotels through selective
renovation and improved management and marketing by the Lessee. Additionally,
the Company has significantly increased its franchise and geographic
diversification within the western United States and expanded its ability to
finance future growth, through increased borrowing capacity on its line of
credit.
The Company has implemented its external growth strategy by (i)
acquiring twelve hotels for purchase prices aggregating $71.7 million, and
thereby increasing the number of rooms in its portfolio by 136.4% since the IPO,
(ii) constructing a Residence Inn for approximately $5.4 million, which opened
during the third quarter of 1996 ,and (iii) entering into a letter of intent to
acquire a 166-room full-service convention hotel for $8.4 million upon
completion of construction by an unaffiliated developer, which is expected to
occur in 1997. As of November 14, 1996, the date of this report, the company's
total assets and market capitalization were $138.7 million and $183.6 million,
respectively.
The Company has implemented its internal growth strategy by (i)
completing an aggregate of $11.6 million in redevelopment and significant
renovations to seven of its hotels, representing an additional investment in
those hotels of 36.5% of the aggregate acquisition price; (ii) commencing
budgeted redevelopment of approximately $8.0 million to six recently acquired
hotels; (iii) increasing revenue per available room (REVPAR) for the seven
hotels that were owned by the Company or its predecessors for the entire nine
months ended September 30, 1995 and 1996 (and which were not undergoing
redevelopment or significant renovation) by 6.5%, from $39.17 to $41.70.
Management believes that the increases in REVPAR for these hotels resulted
primarily from the success of the Company's renovation and redevelopment
program, from improvements in management and marketing by the Lessee and from
increases in demand for upscale and mid-price hotel rooms throughout the United
States.
Additionally, the Company has increased availability under its
line of credit from $30 million to $50 million, reduced its borrowing rate from
LIBOR plus 2.75% to LIBOR plus 1.90%, with additional reductions to LIBOR plus
1.75% upon meeting certain other financial conditions, and has applied for a
$9.9 million 10-year fixed-rate term loan which will be secured by two of its
hotels.
13
<PAGE> 14
The following tables summarize average occupancy, average daily
rate ("ADR") and REVPAR on a same-unit-sales (2,612 rooms) basis for the hotels.
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Actual Pro Forma Actual Pro Forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
ALL HOTELS:
Occupancy 71.4% 75.9% 66.5% 69.9%
ADR $63.52 $58.59 $62.40 $58.74
REVPAR $45.38 $44.48 $41.51 $41.08
REVPAR Growth 2.0% (1.0)%
NON-RENOVATION HOTELS:
Occupancy 76.3% 77.0% 72.2% 73.1%
ADR $63.02 $57.38 $63.20 $58.39
REVPAR $48.08 $44.19 $45.62 $42.68
REVPAR Growth 8.8% 6.9%
RENOVATION HOTELS:
Occupancy 60.7% 73.5% 57.3% 64.8%
ADR $64.91 $61.38 $60.77 $59.39
REVPAR $39.37 $45.13 $34.83 $38.49
REVPAR Growth (12.8)% (9.5)%
</TABLE>
RESULTS OF OPERATIONS OF THE COMPANY
Comparison of the three months ended September 30, 1996 to September 30, 1995 --
Actual versus Pro Forma Operations
The Company's three most recently acquired hotels in South San Francisco,
California, Renton, Washington, and Price, Utah led the Company's strong third
quarter performance with better than expected results. These three hotels
provided an 18.2% increase in REVPAR in the third quarter of 1996 when compared
with the corresponding period in 1995. The increase, which is representative of
the Company's results for newly acquired hotels in their first few months of
operations, continues to indicate the Company's ability to identify
significantly under performing hotels with turn-around potential. On average,
for the ten hotels acquired since the IPO through September 30, 1996, the
Company has been able, through the efforts of its Lessee's sales and marketing
program, to achieve 18.9% REVPAR growth in the first two months of operations
immediately following acquisition and before any redevelopment or renovation
activity has commenced.
Revenues were also improved in the third quarter of 1996 when compared to
the corresponding quarter of 1995 by the results of operations from recently
redeveloped and renovated hotels. Results of operations has been positive for
those hotels in which redevelopment has been completed when the hotel has
resumed normalized operations. For the Holiday Inn in Steamboat Springs,
Colorado, in its first month of normalized operations since redevelopment,
REVPAR growth was 31.8%, and, for the Hampton Inn in Oakland, California, REVPAR
growth was 10.6% during that same period.
During the entire third quarter of 1996, all of the remaining Cypress Inn
hotels purchased in February of 1996 were undergoing significant redevelopment.
The 114-room hotel in Clackamas, Oregon, one of six Cypress Inn hotels acquired
by the Company in February of 1996 for $15 million, was renovated and re-flagged
as a Hampton Inn in September 1996. Two additional Cypress Inn hotels also
reopened with new flags in September: the 122-room hotel in Kent, Washington as
a Holiday Inn and Suites and a 63-room hotel in Poulsbo, Washington as a Holiday
Inn Express. The final Cypress Inn hotel located in Portland, Oregon reopened as
a Holiday Inn Express in October 1996.
14
<PAGE> 15
(The Company disposed of the remaining two Cypress Inn hotels in May
1996, without any gain at a sale price of $4 million.) The four retained
properties were redeveloped with capital improvements costing $5.5 million for a
total net cost of $16.5 million, or $43,000 per room, significantly below
replacement costs. In October 1996, the first month of normalized operations for
the three hotels reopening in September, REVPAR gains were 13.6%. The overall
16.5% average REVPAR growth for the Company's portfolio of six redeveloped
hotels in the first month of normalized operations indicates the potential for
REVPAR gains for the Company in future periods.
The Company also opened in September of 1996 the newly-developed, 78-room
Residence Inn in Highlands Ranch, Colorado at a cost of $5.4 million. In its
first month of normalized operations (October 1996), 70.1% occupancy was
achieved with an ADR of $90.23.
REVPAR for the seven hotels that were owned by the Company or its
predecessor for the entire third quarter of 1995 and 1996 (and which were not
undergoing redevelopment or significant renovation) increased 6.0%, from $42.73
to $45.31 during such periods. With respect to the Company's fourteen hotels not
undergoing redevelopment or renovation during this period, (i.e., all hotels
except the Doubletree-Santa Fe, New Mexico hotel, the Hampton Inn-Oakland,
California hotel, and the four Cypress Inn hotels located in Washington and
Oregon), REVPAR rose 8.8% from the third quarter of 1996, as compared to the
corresponding period in 1995, from $44.19 to $48.08.
REVPAR for the six hotels undergoing redevelopment or renovation
(including the Holiday Inn in Steamboat Springs, Colorado; the Doubletree Hotel
in Santa Fe, New Mexico and the Cypress Inn hotels as discussed above but, not
including the Residence Inn in Highlands Ranch, Colorado which was under
construction) decreased 12.8% from $45.13 to $39.37, for the third quarter of
1996 as compared to the corresponding period in 1995. The Company's strong
portfolio performance was also impacted by less than satisfactory results from
the Company's Doubletree hotel in Santa Fe, New Mexico. The Santa Fe market has
experienced a recent down turn which resulted in a 17.1% decrease in REVPAR for
this property for the third quarter of 1996 in comparison to the same period of
1995. However, such renovations are expected to generate increased revenue at
these hotels beginning in the fourth quarter of 1996; and indeed, REVPAR gains
for the Santa Fe property were 8.8% in October of 1996 due to the increased
marketing efforts of the Lessee.
Overall, comparing actual results for the third quarter of 1996 to pro
forma results for the third quarter of 1995, revenues increased 59.3% from $2.7
million to $4.3 million and net income increased 33.3%, from $1.5 million to
$2.0 million as a result of the Company's internal and external growth
strategies, despite the fact that six hotels were undergoing redevelopment or
renovation during the third quarter of 1996. Actual results for the third
quarter of 1996 include the results of the ten hotels acquired by the Company in
connection with its IPO in August 1995, plus the ten hotels subsequently
acquired through September 30, 1996. Pro forma results for 1995 include the
results of the ten hotels acquired by the Company in connection with the IPO.
SEASONALITY AND DIVERSIFICATION
Demand is affected by normally recurring seasonal patterns. Historically,
the Company's portfolio of hotels as a whole has performed better in the first
and third quarters due to the positive and negative effects of the winter
season. Future acquisitions may further affect the seasonality of the Company's
current portfolio.
The Company has implemented a business strategy of franchise and
geographic diversification. The following tables summarize certain information
for the Company's hotels with respect to franchise affiliations and distribution
of hotels throughout the western United States for the nine months ended
September 30, 1996.
15
<PAGE> 16
FRANCHISE AFFILIATIONS
(As of September 30, 1996)
<TABLE>
<CAPTION>
Percentage Percentage of
Franchise System Rooms Of Rooms Gross Revenues Gross Revenues
- --------------------- ----- ----- ----------- -------------
<S> <C> <C> <C> <C>
Courtyard by Marriott 279 10.7% $ 2,679,000 10.2%
Comfort Suites 165 6.3 602,000 2.3
Hampton Inns 939 31.6 12,193,000 46.0
Holiday Inns 938 25.6 8,862,000 33.5
Residence Inns 78 3.0 28,000 .1
Doubletree Hotels 213 8.1 2,098,000 7.9
----- ----- ----------- -----
2,612 100.0% $26,462,000 100.0%
===== ===== =========== =====
<CAPTION>
GEOGRAPHIC DIVERSIFICATION
(As of September 30, 1996)
Percentage Percentage of
State Rooms Of Rooms Gross Revenues Revenues
- ---------- ----- ----- ----------- -------------
<S> <C> <C> <C> <C>
Arizona 118 4.5% $ 1,791,000 6.8%
California 727 27.8 6,647,000 25.1
Colorado 753 28.8 9,510,000 35.9
New Mexico 213 8.2 2,097,000 7.9
Oregon 199 7.6 1,583,000 6.0
Utah 229 8.8 1,456,000 5.5
Washington 373 14.3 3,378,000 12.8
----- ----- ----------- -----
Total 2,612 100.0% $26,462,000 100.0%
===== ===== =========== =====
<CAPTION>
GEOGRAPHIC DIVERSIFICATION
(As of October 31, 1996)
Percentage
State Rooms Of Rooms
- ---------- ----- -----
<S> <C> <C>
Arizona 645 20.5%
California 727 23.2
Colorado 753 24.0
New Mexico 213 6.8
Oregon 199 6.3
Utah 229 7.3
Washington 373 11.9
----- -----
Total 3,139 100.0%
===== =====
</TABLE>
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows Provided by Operating Activities. The Company's operating
activities provide the principal source of cash to fund the Company's operating
expenses, interest expense, recurring capital expenditures and dividend
payments. The Company anticipates that its cash flow provided by leasing the
hotels to the Lessee will provide the necessary funds on a short and long term
basis to meet its operating cash requirements. The Company is required under the
Percentage Leases to make available to the Lessee for the repair, replacement
and refurbishment of furniture, fixtures and equipment an amount equal to 4% of
the room revenue per quarter on a cumulative basis, provided that such amount
may be used for capital expenditures made by the Company with respect to the
hotels. The Company expects that this amount will be adequate to fund such
periodic repairs, replacements and refurbishments.
For the nine months ended September 30, 1996, capital redevelopment and
renovation expenditures made by the Company amounted to $8.4 million, or 35.4%
of room revenues totaling $23.7 million for the same period. Management
estimates that recurring capital expenditures for its continuously owned and
acquired hotels that have been recently redeveloped will be significantly less
than 4% of room revenues in the next 12 months. Since inception, the Company has
paid dividends and distributions totaling $6.1 million representing $0.23 per
share on a quarterly basis. On October 18, 1996, the Company increased its
regular quarterly dividend to $0.25 per share, an 8.7% increase. The dividend
was declared payable on November 15, 1996 to shareholders of record on November
1, 1996.
Cash flows from Investing and Financing Activities. Additionally, the
Company intends to finance the acquisition of additional hotels, hotel
renovations and non-recurring capital improvements principally through the line
of credit with Bank One of Arizona, N.A. (the "Line of Credit") and, when market
conditions warrant, to issue additional equity or debt securities. As of
November 14, 1996, the Company had $25.7 million available on its $50 million
line of credit. Interest accrues on advances under the Line of Credit at a rate
equal to LIBOR plus 1.90%, and reduced to LIBOR plus 1.75% if the Company
satisfies certain financial requirements. The Line of Credit provides for a $5
million working capital subfacility and a $5 million construction subfacility.
The Company has the option each year to extend the two-year revolving term
period by an additional year upon the payment of a 0.375% extension fee and
certain other conditions. Upon termination of the revolving term period, the
Company may under certain conditions, including payment of a 1% fee, convert the
outstanding balance into a three-year term loan.
The Line of Credit is guaranteed by Mr. Alter, Mr. Biederman and certain
other individuals and is secured by first mortgages on 18 of its 23 hotels and
may be secured by currently unencumbered or additional hotels acquired by the
Company in the future. However, the Company has the option of owning hotels not
subject to the lien securing the Line of Credit so long as no proceeds under the
Line of Credit are used with respect to such hotels and any other lender loaning
against such hotels limit its liens to only those hotels. This feature of the
Line of Credit gives the Company the ability to separately finance on a
long-term basis certain of its hotels. The Company has applied for a $9.9
million, 10-year fixed rate loan to be secured by the Hampton Inns in Denver,
Colorado, and Mesa, Arizona. The Line of Credit may be retired in whole or in
part from the proceeds of public or private issuances of equity or debt
securities by the Company and may be refinanced in whole or in part with
fixed-rate financing. However, because Messrs. Alter and Biederman and certain
affiliates would suffer adverse tax consequences if the Company's mortgage
indebtedness were reduced below $8.4 million, the Company does not anticipate
reducing its mortgage indebtedness below this amount.
The Company continues to pursue its strategy of redeveloping, renovating
and repositioning under performing hotels. During the first three quarters of
1996, redevelopment and renovation work has substantially been completed at
seven hotels at a cost of $11.6 million. The Company expects that redevelopment
of six recently acquired hotels will be completed in 1997 for an amount up to
approximately $8.0 million. The redevelopment and renovation program is expected
to be funded entirely by excess operating cash flows and borrowings under the
Line of Credit.
Since the IPO, the Company has expended over $71.7 million in acquiring
hotel assets. As part of its investment strategy, the Company plans to acquire
additional hotels. Future acquisitions are expected to be funded through the use
of the Line of Credit or other borrowing and the issuance of additional equity
or debt securities. The Company's Articles of Incorporation limits consolidated
indebtedness to 50% of the Company's investment in hotel properties, at cost on
a consolidated basis, after giving effect to the Company's use of proceeds from
any indebtedness. Management believes that it will have access to capital
resources sufficient to satisfy the Company's cash requirements and to expand
and develop its business in accordance with its strategy for future growth.
17
<PAGE> 18
Inflation. Operators of hotels in general possess the ability to adjust
room rates quickly. However, competitive pressures may limit the Lessee's
ability to raise room rates in the face of inflation.
FUNDS FROM OPERATIONS (FFO).
Management believes that FFO is one measure of financial performance of an
equity REIT such as the Company. On a pro forma basis, FFO (as defined by the
National Association of Real Estate Investment Trusts) (1) for the third quarter
of 1996 grew by 47.0% from $2.4 million to $3.5 million, as indicated in the
following table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Actual Pro Forma Actual Pro Forma
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income before minority interest $ 2,287,000 $1,852,000 $4,998,000 $4,935,000
Real estate related depreciation 1,211,000 528,000 3,057,000 1,561,000
----------- ---------- ---------- ----------
Funds from operations $ 3,498,000 $2,380,000 $8,055,000 $6,496,000
=========== ========== ========== ==========
Weighted average number of units 10,048,990 7,659,500 8,513,217 7,659,500
Dividends (2) $ 2,512,248 $6,075,099
FFO Payout Ratio 71.8% 75.4%
FAD Payout Ratio 81.1% 85.5%
</TABLE>
- --------------------------------------------------------------------------------
(1) With respect to the presentation of FFO, management elected early
adoption of the "new definition" as recommended in the March 1995 NAREIT
White Paper on Funds From Operations beginning January 1, 1995.
Management and industry analysts generally consider funds from operations
to be one measure of the financial performance of an equity REIT that
provides a relevant basis for comparison among REITS and it is presented
to assist investors in analyzing the performance of the Company. Funds
From Operations is defined as income before minority interest (computed
in accordance with generally accepted accounting principles), excluding
gains (losses) from debt restructuring and sales of property and real
estate related depreciation and amortization (excluding amortization of
financing costs). Funds From Operations does not represent cash generated
from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available
to fund cash needs. Funds From Operating should not be considered an
alternative to net income as an indication of the Company's financial
performance or as an alternative to cash flows from operating activities
as a measure of liquidity.
(2) Based on weighted average units outstanding. During the third quarter of
1996, the Company issued 4.6 million shares of common stock at $10.00 per
share in a secondary public offering. The actual cash dividends and
distributions to be paid on November 15, 1996, is $3,097,013 based on
12,388,050 million shares and units outstanding immediately after the
secondary offering.
The Lessee
For a discussion of the Lessee's operations and a comparison of the
quarter ended September 30, 1996 and September 30, 1995, see "Results of
Operations of the Company." For the third quarter of 1996, the Lessee reported
income of $25,000. For the nine months ended September 30, 1996, the total
amount paid to the Lessee by the REIT in terms of net income earned by the
Lessee, including the 2% management fee paid to the Management Company, was
$526,000 which represented 2.0% of total revenues of $26.5 million for the
period. Offsetting the $526,000, the Lessee expended $1.2 million for
capitalized costs incurred by the Lessee during redevelopment of certain hotels
during this nine month period.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended Articles of Incorporation of the Company, as further amended by the Articles of
Amendment of the Company, as filed with the State Department of Assessments and
Taxation of Maryland on November 9, 1994, filed as Exhibit 3.1 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
3.2 Bylaws of the Company, as currently in effect, filed as Exhibit 3.2 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
3.3 Articles of Amendment of the Company, as filed with the State Department of Assessments
and Taxation of Maryland on June 19, 1995, filed as Exhibit 3.3 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.1 Form of First Amended and Restated Agreement of Limited Partnership of the Partnership,
filed as Exhibit 10.1 to the Company's Registration Statement No. 33-84346 and
incorporated herein by this reference.
10.1.1 First Amendment to First Amended and Restated Agreement of Limited Partnership dated as
of December 12, 1995, filed as Exhibit 10.36 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1995 (the "1995 10-K") and incorporated herein by
this reference.
10.1.2 Second Amendment to First Amended and Restated Agreement of Limited Partnership dated
as of December 28, 1995, filed as Exhibit 10.1.2 to the Company's 1995 10-K and
incorporated herein by this reference.
10.1.3 Third Amendment to First Amended and Restated Agreement of Limited Partnership dated as
of March 17, 1996, filed as Exhibit 10.1.3 to the Company's Registration Statement No.
333-07685 and incorporated herein by this reference.
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.1.4 Fourth Amendment to First Amended and Restated Agreement of Limited Partnership dated
as of March 28, 1996, filed as Exhibit 10.1.4 to the Company's Registration Statement
No. 333-07685 and incorporated herein by this reference.
10.1.5 Fifth Amendment to First Amended and Restated Agreement of Limited Partnership dated as
of July 31, 1996, filed as Exhibit 10.1.5 to the Company's Registration Statement No.
333-07685 and incorporated herein by this reference.
10.1.6* Sixth Amendment to First Amended and Restated Agreement of Limited Partnership dated as
of August 10, 1996.
10.1.7* Seventh Amendment to First Amended and Restated Agreement of Limited Partnership dated
as of September 10, 1996.
10.2 Form of Percentage Lease, filed as Exhibit 10.2 to the Company's Registration Statement
No. 33-84346 and incorporated herein by this reference.
10.2.1 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Hampton Inn
Hotel located in Denver S.E., Colorado, filed as Exhibit 10.2.1 to the Company's 1995
10-K and incorporated herein by this reference.
10.2.2 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Hampton Inn
Hotel located in Pueblo, Colorado, filed as Exhibit 10.2.2 to the Company's 1995 10-K
and incorporated herein by this reference.
10.2.3 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Courtyard By
Marriott Hotel located in Fresno, California, filed as Exhibit 10.2.3 to the Company's
1995 10-K and incorporated herein by this reference.
10.2.4 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Hampton Inn
Hotel located in Mesa, Arizona, filed As Exhibit 10.2.4 to the Company's 1995 10-K and
incorporated herein by this reference.
</TABLE>
3
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.2.5 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Holiday Inn
Hotel located in Steamboat Springs, Colorado, filed as Exhibit 10.2.5 to the Company's
1995 10-K and incorporated herein by this reference.
10.2.6 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Holiday Inn
Hotel located in Craig, Colorado, filed as Exhibit 10.2.6 to the Company's 1995 10-K
and incorporated herein by this reference.
10.2.7 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Holiday Inn
Hotel located in Provo, Utah, filed as Exhibit 10.2.7 to the Company's 1995 10-K and
incorporated herein by this reference.
10.2.8 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P. as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Hampton Inn
Hotel located in Silverthorne, Colorado, filed as Exhibit 10.2.7 to the Company's 1995
10-K and incorporated herein by this reference.
10.2.9 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Doubletree
Hotel located in Santa Fe, New Mexico, filed as Exhibit 10.2.9 to the Company's 1995
10-K and incorporated herein by this reference.
10.2.10 Lease Agreement dated as of August 16, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Hampton Inn
Hotel located in Arcadia, California, filed as Exhibit 10.2.10 to the Company's 1995
10-K and incorporated herein by this reference.
10.2.11 Lease Agreement dated as of December 13, 1995 by and between Sunstone Hotel Investors,
L.P., as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Hampton Inn
Hotel located in Oakland, California, filed as Exhibit 10.2.11 to the Company's 1995
10-K and incorporated herein by this reference.
</TABLE>
4
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.2.12 Lease Agreement dated February 2, 1996 by and between Sunstone Hotel Investors, L.P.,
as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Cypress Inn hotel
located in Clackamas, Oregon, filed as Exhibit 10.2.12 to the Company's First Quarter
1996 10-Q/A and incorporated herein by this reference.
10.2.13 Lease Agreement dated February 2, 1996 by and between Sunstone Hotel Investors, L.P.,
as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Cypress Inn hotel
located in Kent, Washington, filed as Exhibit 10.2.13 to the Company's First Quarter
1996 10-Q/A and incorporated herein by this reference.
10.2.14 Lease Agreement dated February 2, 1996 by and between Sunstone Hotel Investors, L.P.,
as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Cypress Inn hotel
located in Poulsbo, Washington, filed as Exhibit 10.2.14 to the Company's First Quarter
1996 10-Q/A and incorporated herein by this reference.
10.2.15 Lease Agreement dated February 2, 1996 by and between Sunstone Hotel Investors, L.P.,
as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Cypress Inn hotel
located in Portland, Oregon, filed as Exhibit 10.2.15 to the Company's First Quarter
1996 10-Q/A and incorporated herein by this reference.
10.2.16 Lease Agreement dated March 28, 1996 by and between Sunstone Hotel Investors, L.P., as
lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Courtyard By Marriott
Hotel located in Riverside, California, filed as Exhibit 10.2.16 to the Company's
Registration Statement No. 333-07685 and incorporated herein by this reference.
10.2.17 Lease Agreement dated June 28, 1996 by and between Sunstone Hotel Investors, L.P., as
lessor, and Sunstone Hotel Properties, Inc., as lessee for the Holiday Inn Hotel
located in Renton, Washington, filed as Exhibit 10.2.17 to the Company's Registration
Statement No. 333-07685 and incorporated herein by this reference.
10.2.18** Lease Agreement dated August 13, 1996 by and between Sunstone Hotel Investors, L.P., as
lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Days Inn Hotel located
in Price, Utah.
</TABLE>
5
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.2.19** Lease Agreement dated September 20, 1996 by and between Sunstone Hotel Investors, L.P.,
as lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Residence Inn Hotel
located in Highlands Ranch, Colorado.
10.2.20** Lease Agreement dated August 13, 1996 by and between Sunstone Hotel Investors, L.P., as
lessor, and Sunstone Hotel Properties, Inc., as lessee, for the Comfort Suites Hotel
located in South San Francisco, California.
10.3 Form of Right of First Refusal and Option to Purchase, filed as Exhibit 10.3 to the
Company's Registration Statement No. 33-84346 and incorporated herein by this
reference.
10.4 Form of Alter Employment Agreement, filed as Exhibit 10.4 to the Company's Registration
Statement No. 33-84346 and incorporated herein by this reference.
10.5 Form of Biederman Employment Agreement, filed as Exhibit 10.5 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.6 Form of Indemnification Agreement to be entered into with officers and directors of the
Company, filed as Exhibit 10.6 to the Company's Registration Statement No. 33-84346 and
incorporated herein by this reference.
10.7 1994 Stock Incentive Plan, filed as Exhibit 10.7 to the Company's Registration
Statement No. 33-84346 and incorporated herein by this reference.
10.8 Form of Notice of Grant of Stock Option and Form of Stock Option Agreement (and
Addendum thereto) to be generally used in connection with the Discretionary Option
Grant Program of the 1994 Stock Incentive Plan, filed as Exhibit 10.8 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.9 Form of Stock Purchase Agreement to be generally used in connection with the
Discretionary Option Grant Program of the 1994 Stock Incentive Plan, filed as Exhibit
10.9 to the Company's Registration Statement No. 33-84346 and incorporated herein by
this reference.
</TABLE>
6
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.10 1994 Directors Plan, filed as Exhibit 10.10 to the Company's Registration Statement No.
33-84346 and incorporated herein by this reference.
10.11 Form of Notice of Grant of Automatic Stock Option, Automatic Stock Option Agreement,
Stock Purchase Agreement and Automatic Direct Stock Issuance Agreement to be generally
used in connection with the 1994 Directors Plan, filed as Exhibit 10.11 to the
Company's Registration Statement No. 33-84346 and incorporated herein by this
reference.
10.12 Agreement of Purchase and Sale between the Partnership and FBA Hotel Venture dated as
of September 23, 1994, filed as Exhibit 10.12 to the Company's Registration Statement
No. 33-84346 and incorporated herein by this reference.
10.13 Agreement of Purchase and Sale between the Partnership and M R C Hotel Partners, Ltd.
dated as of September 23, 1994, filed as Exhibit 10.13 to the Company's Registration
Statement No. 33-84346 and incorporated herein by this reference.
10.14 Agreement of Purchase and Sale between the Partnership and Arapahoe South Hotel
Partnership dated as of September 23, 1994, filed as Exhibit 10.14 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.15 Agreement of Purchase and Sale between the Partnership and C and R Hotel Venture dated
as of September 23, 1994, filed as Exhibit 10.15 to the Company's Registration
Statement No. 33-84346 and incorporated herein by this reference.
10.16 Agreement of Purchase and Sale between the Partnership and Craig Hotel Partners Limited
Liability Co. dated as of September 23, 1994, filed as Exhibit 10.16 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.17 Agreement of Purchase and Sale between the Partnership and Provo Hotel Partners Limited
Liability Co. dated as of September 23, 1994, filed as Exhibit 10.17 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
</TABLE>
7
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.18 Agreement of Purchase and Sale between the Partnership and Steamboat Hotel Partners,
Ltd. dated as of September 23, 1994, filed as Exhibit 10.18 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.19 Hotel Sale Agreement between the Management Company and Western Hospitality Group, LLC
dated as of June 14, 1995, filed as Exhibit 10.19 to the Company's Registration
Statement No. 33-84346 and incorporated herein by this reference.
10.20 Real Property Purchase and Sale Agreement and Joint Escrow Instructions between the
Management Company and Hampton Inns, Inc., dated as of June 19, 1995, filed as Exhibit
10.20 to the Company's Registration Statement No. 33-84346 and incorporated herein by
this reference.
10.21 Hotel Sale Agreement between the Management Company and Sunworld Properties dated as of
June 19, 1995, filed as Exhibit 10.21 to the Company's Registration Statement No. 33-
84346 and incorporated herein by this reference.
10.22 First Amendment to Agreement of Purchase and Sale between the Partnership and FBA Hotel
Venture dated as of June 19, 1995, filed as Exhibit 10.22 to the Company's Registration
Statement No. 33-84346 and incorporated herein by this reference.
10.23 First Amendment to Agreement of Purchase and Sale between the Partnership and M R C
Hotel Partners, Ltd. dated as of June 19, 1995, filed as Exhibit 10.23 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.24 First Amendment to Agreement of Purchase and Sale between the Partnership and Arapahoe
South Hotel Partnership dated as of June 19, 1995, filed as Exhibit 10.24 to the
Company's Registration Statement No. 33-84346 and incorporated herein by this
reference.
10.25 First Amendment to Agreement of Purchase and Sale between the Partnership and C and R
Hotel Venture dated as of June 19, 1995, filed as Exhibit 10.25 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
</TABLE>
8
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.26 First Amendment to Agreement of Purchase and Sale between the Partnership and Craig
Hotel Partners Limited Liability Co. dated as of June 19, 1995, filed as Exhibit 10.26
to the Company's Registration Statement No. 33-84346 and incorporated herein by this
reference.
10.27 First Amendment to Agreement of Purchase and Sale between the Partnership and Provo
Hotel Partners Limited Liability Co. dated as of June 19, 1995, filed as Exhibit 10.27
to the Company's Registration Statement No. 33-84346 and incorporated herein by this
reference.
10.28 First Amendment to Agreement of Purchase and Sale between the Partnership and Steamboat
Hotel Partners, Ltd. dated as of June 19, 1995, filed as Exhibit 10.28 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.29 Form of Agreement Respecting Lessee Unit Purchase between the Company, the Partnership,
the Lessee, Robert A. Alter and Charles Biederman, filed as Exhibit 10.29 to the
Company's Registration Statement No. 33-84346 and incorporated herein by this
reference.
10.30 Form of Third Party Pledge Agreement among the Partnership, Robert A. Alter and Charles
Biederman, filed as Exhibit 10.30 to the Company's Registration Statement No. 33-84346
and incorporated herein by this reference.
10.30.1 Amendment Number One to Third Party Pledge Agreement effective as of December 13, 1995,
filed as Exhibit 10.34 to the Company's 1995 10-K and incorporated herein by this
reference.
10.30.2 Amendment Number Two to Third Party Pledge Agreement effective as of February 2, 1996,
filed as Exhibit 10.30.2 to the Company's Registration Statement No. 333-07685 and
incorporated herein by this reference.
10.30.3 Amendment Number Three to Third Party Pledge Agreement effective as of May 30, 1996,
filed as Exhibit 10.30.3 to the Company's Registration Statement No. 333-07685 and
incorporated herein by this reference.
</TABLE>
9
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.30.4 Amendment Number Four to Third Party Pledge Agreement effective as of June 28, 1996,
filed as Exhibit 10.30.4 to the Company's Registration Statement No. 333-07685 and
incorporated herein by this reference.
10.30.5* Amendment Number Five to Third Party Pledge Agreement effective as of August 13, 1996.
10.31 First Amendment to Hotel Sale Agreement between the Management Company and Sunworld
Properties, filed as Exhibit 10.31 to the Company's Registration Statement No. 33-84346
and incorporated herein by this reference.
10.32 First Amendment to Hotel Sale Agreement between the Management Company and Western
Hospitality Group, LLC, filed as Exhibit 10.32 to the Company's Registration Statement
No. 33-84346 and incorporated herein by this reference.
10.33 Commitment Letter for Revolving Line of Credit issued by Bank One, Arizona, NA in favor
of the Company dated as of July 20, 1995, filed as Exhibit 10.33 to the Company's
Registration Statement No. 33-84346 and incorporated herein by this reference.
10.34 Hampton Inn Oakland Contribution Agreement dated as of December 13, 1995, filed as
Exhibit 10.35 to the Company's 1995 10-K and incorporated herein by this reference.
10.35 Loan Agreement by and between the Company and Bank One, Arizona, N.A. dated as of
October 25, 1995, filed as Exhibit 10.38 to the Company's 1995 10-K and incorporated
herein by this reference.
10.35.1 Amended and Restated Loan Agreement by and between the Partnership and Bank One,
Arizona, N.A. dated as of June 21, 1996, filed as Exhibit 10.35.1 to the Company's
Registration Statement No. 333-07685 and incorporated herein by this reference.
10.36 Purchase and Sale Agreement and Joint Escrow Instructions dated December 20, 1995
between the Partnership and HL Project I Limited Liability Company, a Delaware limited
liability company, filed as Exhibit 10.36 to the Company's First Quarter 1996 10-Q/A
and incorporated herein by this reference.
</TABLE>
10
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------------------------------------------------------------------------------------------------------------
<S> <C>
10.37 Purchase and Sale Agreement dated May 28, 1996 between the Partnership and Renton Joint
Venture, a Washington joint venture, filed as Exhibit 10.37 to the Company's
Registration Statement No. 333-07685 and incorporated herein by this reference.
10.38 Capital Contribution Agreement dated March 28, 1996 between the Partnership and
Riverside Hotel Partners, Inc., filed as Exhibit 10.38 to the Company's Registration
Statement No. 333-07685 and incorporated herein by this reference.
10.39 Purchase and Sale Agreement dated July 11, 1996 between the Partnership and Bay City
Hospitality, Inc., a California corporation, filed as Exhibit 10.39 to the Company's
Registration Statement No. 333-07685 and incorporated herein by this reference.
10.40 Purchase and Sale Agreement dated July 11, 1996 between the Partnership and Price
Hospitality, Inc., a Utah corporation, filed as Exhibit 10.40 to the Company's
Registration Statement No. 333-07685 and incorporated herein by this reference.
- --------------------
</TABLE>
* Filed herewith; All other exhibits previously filed.
** Substantially identical to Exhibit 10.2; full text omitted pursuant to
Instruction 2 to Item 601 of Regulation S-K. The material differences
between this Exhibit and Exhibit 10.2 are set forth in the schedule filed
under this Exhibit.
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
A Current Report on Form 8-K (the "8-K") dated August 13, 1996, was
filed in the quarter ended September 30, 1996, with disclosure under Item 2.
11
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of San
Clemente, State of California, on November 14, 1996.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ Robert A. Alter
----------------------------------
Robert A. Alter
President, Chief Financial Officer, Secretary and
Chairman of the Board of Directors
20
<PAGE> 1
EXHIBIT 10.1.6
SIXTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
This Sixth Amendment ("Amendment") dated as of August 10,
1996, to the First Amended and Restated Agreement of Limited Partnership dated
as of August 16, 1995, as amended, is entered into by and among Sunstone Hotel
Investors, Inc., a Maryland corporation, in its individual capacity (the
"Company") and in its capacity as the General Partner of the Partnership (the
"General Partner"). All defined terms not otherwise defined herein shall have
the meaning set forth in the Agreement (as defined below).
RECITALS
A. WHEREAS, the General Partner and the current Limited Partners
executed that certain First Amended and Restated Agreement of Limited
Partnership dated as of August 16, 1995, amending and restating that certain
Agreement of Limited Partnership dated as of September 22, 1994 (as amended,
the "Agreement"), and the General Partner caused Sunstone Hotel Investors,
L.P., a Delaware limited partnership (the "Partnership"), to file a Certificate
of Limited Partnership with the Delaware Secretary of State on September 23,
1994, thereby causing the Partnership to be formed for the purposes set forth
in the Agreement.
B. WHEREAS, the Agreement was amended by the First Amendment to
First Amended and Restated Agreement of Limited Partnership dated as of
December 12, 1995 to reflect the contribution by Inns Properties of an
additional hotel in exchange for Partnership Units.
C. WHEREAS, the Agreement was amended by the Second Amendment to
the Agreement (the "Second Amendment") to reflect the distribution of
Partnership Units in connection with the dissolution of certain Limited
Partners and thereby admitting additional Substitute Limited Partners (as
defined in the Second Amendment).
D. WHEREAS, the Agreement was amended by the Third Amendment to
the Agreement to reflect the transfer of limited partnership interest from
Peter C. Enever, deceased, to C. Robert Enever and Audrey W. Enever.
E. WHEREAS, the Agreement was amended by the Fourth Amendment
dated as of July 16, 1996, in order to reflect the issuance of 80,000
Partnership Units to Riverside Hotel Partners, Inc. in accordance with the
Capital Contribution Agreement dated as of March 28, 1996;
F. WHEREAS, the Agreement was amended by the Fifth Amendment
dated as of July 31, 1996, in order to modify the Target Effective Date to a
date no later that December 31, 1996, for the filing of a Shelf Registration
covering the Partnership Units;
<PAGE> 2
G. WHEREAS, the General Partner has filed a registration
statement with the Securities and Exchange Commission to register 4,800,000
shares of Common Stock (together with 720,000 shares of Common Stock issuable
upon exercise of an over-allotment option granted to the Underwriters) and has
executed an underwriting agreement providing for the issuance and sale of such
shares of Common Stock. Pursuant to Section 4.2(a)(ii) of the Agreement, the
Partnership is required to issue Partnership Units corresponding to the number
of shares of Common Stock being issued by the General Partner pursuant to the
underwriting agreement in consideration for the contribution of all proceeds to
the Partnership of the issuance of such securities by the General Partner;
H. WHEREAS, in order to evidence the issuance of the Partnership
Units, the parties hereto desire to enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Issuance of Additional Partnership Units. Pursuant
to Section 4.2(a)(ii) of the Agreement, the General Partner hereby issues a
Partnership Interest in the form of the number of Partnership Units listed on
Exhibit "A" hereto to the General Partner in consideration for the contribution
of the proceeds of the offering of the New Securities pursuant to the terms of
Section 4.2(a)(ii) of the Agreement. Such issuance shall be deemed effective
automatically upon the closing of the offering of the New Securities. The
Partnership Interest issued in the foregoing sentence shall have all of the
same rights, powers and duties and shall be equal in all respects to the
existing Partnership Interests issued to the existing Partners. Attached
hereto as Exhibit "A" is a revised version of the Exhibit "A" to the Agreement
reflecting the issuance of the Partnership Units.
2. Effect of Amendment. Except as amended hereby, the
Agreement is hereby confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the 10th day of August 1996.
GENERAL PARTNER
SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation and the sole
General Partner, Executing this
Amendment without the need for any
consent by any Limited Partner pursuant
to the terms of Article XI of the
Agreement
By: /s/ Robert A. Alter
----------------------------------
Robert A. Alter
Its: President
<PAGE> 1
EXHIBIT 10.1.7
SEVENTH AMENDMENT TO
FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
This Seventh Amendment ("Amendment") dated as of September 10,
1996, to the First Amended and Restated Agreement of Limited Partnership dated
as of August 16, 1995, as amended, is entered into by and among Sunstone Hotel
Investors, Inc., a Maryland corporation, in its individual capacity (the
"Company") and in its capacity as the General Partner of the Partnership (the
"General Partner"). All defined terms not otherwise defined herein shall have
the meaning set forth in the Agreement (as defined below).
RECITALS
A. WHEREAS, the General Partner and the current Limited Partners
executed that certain First Amended and Restated Agreement of Limited
Partnership dated as of August 16, 1995, amending and restating that certain
Agreement of Limited Partnership dated as of September 22, 1994 (as amended,
the "Agreement"), and the General Partner caused Sunstone Hotel Investors,
L.P., a Delaware limited partnership (the "Partnership"), to file a Certificate
of Limited Partnership with the Delaware Secretary of State on September 23,
1994, thereby causing the Partnership to be formed for the purposes set forth
in the Agreement.
B. WHEREAS, the Agreement was amended by the First Amendment to
the Agreement to reflect the contribution by Inns Properties of an additional
hotel in exchange for Partnership Units.
C. WHEREAS, the Agreement was amended by the Second Amendment to
the Agreement to reflect the distribution of Partnership Units in connection
with the dissolution of certain Limited Partners and thereby admitting
additional Substitute Limited Partners (as defined in such Second Amendment).
D. WHEREAS, the Agreement was amended by the Third Amendment to
the Agreement to reflect the transfer of limited partnership interest from
Peter C. Enever, deceased, to C. Robert Enever and Audrey W. Enever.
E. WHEREAS, the Agreement was amended by the Fourth Amendment to
the Agreement to reflect the issuance of 80,000 Partnership Units to Riverside
Hotel Partners, Inc. in accordance with the Capital Contribution Agreement
dated as of March 28, 1996.
F. WHEREAS, the Agreement was amended by the Fifth Amendment to
the Agreement to modify the Target Effective Date to a date no later that
December 31, 1996, for the filing of a Shelf Registration covering the
Partnership Units.
<PAGE> 2
G. WHEREAS, the Agreement was amended by the Sixth Amendment to
the Agreement to reflect the issuance of 4,000,000 Partnership Units to the
Company in accordance with the underwriting agreement dated as of August 7,
1996 by and among the General Partner, the Partnership, Robert A. Alter and
Charles L. Biederman, and the Representatives of the Underwriters named therein
(the "Underwriting Agreement") providing for the issuance and sale of such
shares of Common Stock. Pursuant to Section 4.2(a)(ii) of the Agreement, the
Partnership is required to issue Partnership Units corresponding to the number
of shares of Common Stock being issued by the General Partner pursuant to the
Underwriting Agreement in consideration for the contribution of all proceeds to
the Partnership of the issuance of such securities by the General Partner.
H. WHEREAS, the Underwriters have notified the General Partner
that they intend to exercise the Underwriters' over-allotment option to
purchase 600,000 shares of Common Stock of the General Partner (the "New
Securities"). Pursuant to Section 4.2(a)(ii) of the Agreement, the Partnership
is required to issue Partnership Units corresponding to the number of shares of
Common Stock being issued by the General Partner pursuant to the Underwriting
Agreement in consideration for the contribution of all proceeds to the
Partnership of the issuance of such securities by the General Partner.
I. WHEREAS, in order to evidence the issuance of the Partnership
Units, the parties hereto desire to enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Issuance of Additional Partnership Units. Pursuant
to Section 4.2(a)(ii) of the Agreement, the General Partner hereby issues a
Partnership Interest in the form of the number of Partnership Units listed on
Exhibit "A" hereto to the General Partner in consideration for the contribution
of the proceeds of the offering of the New Securities pursuant to the terms of
Section 4.2(a)(ii) of the Agreement. Such issuance shall be deemed effective
automatically upon the closing of the offering of the New Securities. The
Partnership Interest issued in the foregoing sentence shall have all of the
same rights, powers and duties and shall be equal in all respects to the
existing Partnership Interests issued to the existing Partners. Attached
hereto as Exhibit "A" is a revised version of the Exhibit "A" to the Agreement
reflecting the issuance of the Partnership Units.
2. Effect of Amendment. Except as amended hereby, the
Agreement is hereby confirmed in all respects.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the 10th day of September 1996.
GENERAL PARTNER
SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation and the sole
General Partner, Executing this Amendment
without the need for any consent by any
Limited Partner pursuant to the
terms of Article XI of the Agreement
By: /s/ Robert A. Alter
---------------------------------
Robert A. Alter
Its: President
<PAGE> 1
EXHIBIT 10.2.18
The following lists the material differences between the Percentage Lease
filed as Exhibit 10.2.1 and Exhibit 10.2.18 and is being filed pursuant to
Instruction 2 to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Annual
Exhibit Percentage Lease Base Percentage Rent
Number Description Rent Formula
------- ---------------- ------ -------------------------
<S> <C> <C> <C>
10.2.18 Lease Agreement dated as of August 13, 1996 by and between $270,000 24% of room revenue up to
Sunstone Hotel Investors, L.P., as lessor, and Sunstone $1,125,000, plus 60% of room revenue
Hotel Properties, Inc., as lessee, for the Days Inn Hotel in excess of $1,125,000, plus 5% of
located in Price, Utah Food and Beverage Revenue, if any,
plus 100% of sublease and concession
revenue and other net revenues
</TABLE>
<PAGE> 1
EXHIBIT 10.2.19
The following lists the material differences between the Percentage Lease
filed as Exhibit 10.2.1 and Exhibit 10.2.19 and is being filed pursuant to
Instruction 2 to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Annual
Exhibit Percentage Lease Base Percentage Rent
Number Description Rent Formula
------- ---------------- ------ ----------------------------
<S> <C> <C> <C>
10.2.19 Lease Agreement dated as of August 13, 1996 by and between $300,000 30% of room revenue up to
Sunstone Hotel Investors, L.P., as lessor, and Sunstone $1,000,000, plus 63% of room revenue
Hotel Properties, Inc., as lessee, for the Residence Inn in excess of $1,000,000, plus 5% of
Hotel located in Highlands Ranch, Colorado Food and Beverage Revenue, if any,
plus 100% of sublease and concession
revenue and other net revenues
</TABLE>
<PAGE> 1
EXHIBIT 10.2.20
The following lists the material differences between the Percentage Lease
filed as Exhibit 10.2.1 and Exhibit 10.2.20 and is being filed pursuant to
Instruction 2 to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Annual
Exhibit Percentage Lease Base Percentage Rent
Number Description Rent Formula
------- ---------------- ------ -------------------------
<S> <C> <C> <C>
10.2.20 Lease Agreement dated as of August 13, 1996 by and between $720,000 30% of room revenue up to
Sunstone Hotel Investors, L.P., as lessor, and Sunstone $2,400,000, plus 60% of room revenue
Hotel Properties, Inc., as lessee, for the Comfort Suites in excess of $2,400,000, plus 5% of
Hotel located in South San Francisco, California Food and Beverage Revenue, if any,
plus 100% of sublease and concession
revenue and other net revenues
</TABLE>
<PAGE> 1
EXHIBIT 10.30.5
AMENDMENT NUMBER FIVE
TO
THIRD PARTY PLEDGE AGREEMENT
----------------------------
THIS AMENDMENT NUMBER FIVE TO THIRD PARTY PLEDGE AGREEMENT
(the "Amendment") is made and entered into as of the 13th day of August 1996,
by and between SUNSTONE HOTEL INVESTORS, L.P., a Delaware limited partnership
("Secured Party"); and ROBERT A. ALTER ("Alter") and CHARLES L. BIEDERMAN
("Biederman; and together with Alter, "Pledgor").
WHEREAS, the undersigned are parties to that certain Third
Party Pledge Agreement entered into as of August 16, 1995, as amended (the
"Agreement"); and
WHEREAS, the undersigned desire to amend the Agreement in
order to reflect the purchase of the Comfort Suites Hotel in South San
Francisco, California and the Days Inn Hotel in Price, Utah (the "Hotels") and
the execution of the Lease Agreements for such Hotels.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants contained herein and in the Agreement, and for other good
and valuable consideration, the sufficiency of which is hereby acknowledged,
the parties hereto hereby agree as follows:
1. DEFINED TERMS. For purposes of this Amendment, all
capitalized terms used and not otherwise defined herein, shall have the
meanings assigned to them in the Agreement.
2. UNITS PLEDGED. In order to secure the lien of the
pledge in favor of Secured Party in the Units pledged to secure the Lease
Agreements for the Hotels, Exhibit A to the Agreement is hereby amended and
restated in its entirety to read in full as attached hereto as Exhibit A.
3. FORCE AND EFFECT. Except to the extent modified by
this Amendment, all of the terms and provisions of the Agreement shall be
unaffected and shall remain in full force and effect. This Amendment shall be
deemed part of, and construed in accordance with the Agreement.
4. COUNTERPARTS. This Amendment may be executed in
counterparts, each of which shall be deemed to be an original and all of which
shall be deemed to constitute the same instrument.
1
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the date first written above.
PLEDGOR
/s/ Robert A. Alter
------------------------------
Robert A. Alter
/s/ Charles L. Biederman
------------------------------
Charles L. Biederman
SECURED PARTY
SUNSTONE HOTEL INVESTORS, L.P.
a Delaware limited partnership
By: Sunstone Hotel Investors, Inc.
a Maryland corporation,
Its General Partner
By: /s/ Robert A. Alter
----------------------
Robert A. Alter
Its: President
2
<PAGE> 3
EXHIBIT A
---------
Percentage Leases & Pledge of Units
<TABLE>
<CAPTION>
NUMBER OF THIRD
PERCENTAGE FOUR MONTHS UNITS ANNIVERSARY INITIALS
LEASE BASE RENT PLEDGED DATE OF PLEDGOR
----- --------- ------- ---- ----------
<S> <C> <C> <C>
Hampton Inn - $188,750 19,868 August 16, 1998
Denver S.E., CO
Hampton Inn - 150,000 15,790 August 16, 1998
Pueblo, CO
Courtyard by Marriott - 135,000 14,211 August 16, 1998
Fresno, CA
Hampton Inn - 158,667 16,702 August 16, 1998
Mesa, AZ
Holiday Inn - 125,000 13,158 August 16, 1998
Steamboat Springs, CO
Holiday Inn - 142,000 14,947 August 16, 1998
Craig, CO
Holiday Inn - 53,333 5,614 August 16, 1998
Provo, UT
Hampton Inn - 161,000 16,947 August 16, 1998
Silverthorne, CO
Best Western - 220,000 23,158 August 16, 1998
Santa Fe, NM
Hampton Inn - 132,000 13,895 August 16, 1998
Arcadia, CA
Hampton Inn - 139,333 13,933 December 13, 1998
Oakland, CA
Cypress Inn - 189,000 17,182 February 2, 1999
Kent, WA
Cypress Inn - 107,917 9,811 February 2, 1999
Poulsbo, WA
Cypress Inn - 145,667 13,242 February 2, 1999
Clackamas, WA
</TABLE>
3
A-3
<PAGE> 4
<TABLE>
<CAPTION>
NUMBER OF THIRD
PERCENTAGE FOUR MONTHS UNITS ANNIVERSARY INITIALS
LEASE BASE RENT PLEDGED DATE OF PLEDGOR
----- --------- ------- ---- ----------
<S> <C> <C> <C>
Cypress Inn - 121,000 11,000 February 2, 1999
Portland, OR
Courtyard By Marriott - 142,000 14,025 April 1, 1999
Riverside, CA
Holiday Inn Select - 270,000 24,828 June 28, 1999
Renton, WA
Comfort Suites - 240,000 24,615 August 13, 1999
So. San Francisco, CA
Days Inn - 90,000 9,231 August 13, 1999
Price, UT
Residence Inn - 100,000 9,524 September 20, 1999
Highlands Ranch, CO
COMBINED TOTALS: $3,010,667 301,681
========= =======
</TABLE>
4
A-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
<CIK> 0000930600
<NAME> SUNSTONE HOTEL INVESTORS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,022,000
<SECURITIES> 0
<RECEIVABLES> 5,758,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 119,762,000
<DEPRECIATION> (15,461,000)
<TOTAL-ASSETS> 113,347,000
<CURRENT-LIABILITIES> 0
<BONDS> 20,783,000
0
0
<COMMON> 109,000
<OTHER-SE> 79,685,000
<TOTAL-LIABILITY-AND-EQUITY> 113,347,000
<SALES> 0
<TOTAL-REVENUES> 10,548,000
<CGS> 0
<TOTAL-COSTS> 5,350,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,029,000
<INCOME-PRETAX> 4,169,000
<INCOME-TAX> 4,169,000
<INCOME-CONTINUING> 4,169,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,169,000
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0
</TABLE>
