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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): January 29, 1998
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COMMISSION FILE NUMBER 0-26304
SUNSTONE HOTEL INVESTORS, INC.
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(Exact Name of Registrant as Specified in its Charter)
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MARYLAND
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(State or Other Jurisdiction of
Incorporation or Organization)
0-26304 52-1891908
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(Commission File No.) (I.R.S. Employer
Identification No.)
115 CALLE DE INDUSTRIAS, SUITE 201, SAN CLEMENTE, CA 92672
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(Address of Principal Executive Offices) (Zip Code)
(714) 361-3900
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name or Former Address, if Changed since Last Report)
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ITEM 5. OTHER EVENTS
On January 27, 1998, Sunstone Hotel Investors, Inc. announced its
unaudited fourth quarter and year end financial results. Certain changes have
been made to this Form 8-K from the press release as originally issued to
clarify the restatements being made to FFO and FFO per share to conform to the
disclosure requirements of SFAS No. 128.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Exhibits
99.1 Press Release dated January 27, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: January 29, 1998 SUNSTONE HOTEL INVESTORS, INC.
By: /s/ ROBERT A. ALTER
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Robert A. Alter, President
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EXHIBIT 99.1
[SUNSTONE LETTERHEAD]
NEWS BULLETIN
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FOR IMMEDIATE RELEASE
January 27, 1998
SUNSTONE ANNOUNCES FOURTH QUARTER AND YEAR END RESULTS
Fourth Quarter Highlights:
* 28.0% Increase in Per Share Funds From Operation (FFO) at $0.32 Per Share
* 7.7% Increase in Revenue per Available Room (REVPAR) for All Hotels
* 15.4% Increase in REVPAR for Non-renovated Hotels
* 284% Increase in Revenue
1997 Highlights:
* 15.1% Increase in Per Share FFO at $1.37 Per Share
* 10% Increase in Dividends
* $491.3 Million of Hotel Acquisitions
* $48.8 Million Invested in Renovations to 19 Hotels
* Rebrandings and Upgrades Include Marriott, Hilton and Sheraton
* 8.6% Increase in REVPAR for All Hotels
* 18.0% Increase in REVPAR for Non-renovated Hotels
* 199% Increase in Revenues
* Line of Credit Increased to $300 Million; Interest Rate Reduced to 140 Basis
Points over LIBOR
* Management Team Strengthened; Ready for Continued Growth
SAN CLEMENTE, Calif., January 27, 1998 -- Sunstone Hotel Investors, Inc.
(NYSE: SSI), a real estate investment trust (REIT), today announced
financial and operating results for the quarter and year ended December 31,
1997. As a result of the success of the Company's growth strategy and the
continuing strength of the U.S. economy, FFO per share for the Company increased
28.0% for the
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quarter and 15.1% for the year. Total revenues increased 284% for the quarter
and 199% for the year.
For the fourth quarter ended December 31, 1997, Sunstone reported FFO of $10.5
million, or on a per share basis, $.32 per share, an increase of 28.0% from FFO
of $3.2 million, or $.25 per share. Reported total revenues in the fourth
quarter of 1997 were $17.3 million over the $4.5 million in the corresponding
quarter of 1996, an increase of 284%.
For the year ended December 31, 1997, Sunstone reported FFO of $31.8 million, or
on a per share basis, $1.37 per share, an increase of 15.1% from FFO of $11.2
million, or $1.19 per share in 1996. Reported total revenues for 1997 were $45.1
million over the $15.1 million in 1996, an increase of 199%.
Commenting on the successful year, Robert A. Alter, President and Chief
Executive Officer of Sunstone Hotel Investors, Inc., said, "1997 was a
successful year for the Company. We have posted significant gains in all major
areas. In addition to the strong financial results, we successfully tapped the
capital markets several times, conducted a large, successful renovation program,
strengthened our relationships with leading franchisors, outpaced the lodging
industry in same-unit-sales revenue increases and also added key leaders to the
management team."
"We believe 1998 will be a very positive year for our shareholders. We have a
strong team in place; our pipeline of acquisitions continues to look full; and
our strategy of driving internal growth is on track to produce increased
revenues and earnings into the future. We will continue our strategy to maximize
shareholder value by acquiring underperforming hotels that are in attractive
locations with significant barriers to entry and improving those hotels'
financial performance by renovating, redeveloping, rebranding and repositioning
those hotels and through the implementation of focused sales and marketing
programs. To this end, we have already announced $58.5 million of additions to
our portfolio in the first month of 1998."
Beginning in 1998, the Company will report per share FFO giving affect to the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 128 ("FAS 128") directive to all public companies regarding the
calculation of weighted average shares outstanding. The additional disclosure
includes the impact of potentially dilutive securities such as options,
convertible preferred stock and Operating Partnership Units ("OP Units")
convertible into common stock ("diluted FFO"). As restated for the change and
as reflected on the attached Statement of Operations, Sunstone's diluted FFO per
share increased 15.5% to $1.34 in 1997 from $1.16 in 1996, and diluted FFO
increased 187.0% to $32.2 million in 1997 from $11.2 million in 1996. In
addition, diluted FFO per share increased 28.0% to $0.32 for the quarter ended
December 31, 1997, from $0.25 for the corresponding period in 1996, and diluted
FFO increased 241.0% to $10.9 million for the quarter ended December 31, 1997,
from $3.2 million for the corresponding period in 1996.
DIVIDEND DECLARATION
Consistent with the Company's policy to pay dividends 45 days after the end of
each quarter, Sunstone also announced its tenth consecutive quarterly dividend
declared payable on February 16, 1998 to shareholders of record on January 31,
1998.
Joe Biehl, Vice President and Chief Financial Officer, added, "Without the
support of the investment and banking communities, we could not have delivered
the results you see today. With a market
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capitalization over $967 million, we feel confident that we can continue to seek
the support of investors to deliver on our growth objectives. In return, we have
declared ten consecutive quarterly cash dividends. And in September 1997,
Sunstone declared a 10% increase in the dividend on the Company's Common Stock
from $0.25 per share to $0.275."
1997 ACQUISITIONS
Acquisitions fueled Sunstone's growth in 1997. During the year, the Company
acquired a total of 27 hotels, for purchase prices aggregating $491.3 million,
including the 17 hotels acquired as part of the Kahler acquisition. The
Company's portfolio now contains a total of 54 hotels primarily in strategic
Western U.S. locations. Through these acquisitions, as well as continued
selective development, the Company has increased the number of rooms in its
portfolio six and one half times, to 9,978, since its IPO in August 1995.
The Kahler acquisition represented a milestone in Sunstone's history. The $372.3
million acquisition of 17 hotels with a total of 4,255 rooms almost doubled the
Company's portfolio. As a result of the transaction, Sunstone has established an
ongoing relationship with Westbrook Partners, a source of potential new
acquisitions in the future.
The following table sets forth certain information related to the Company's
hotel acquisition activity for the year ending December 31, 1997.
<TABLE>
<CAPTION>
Number Acquisition
Date Acquired Brand Location of Rooms Cost
------------- ----- -------- -------- -----------
(in Millions)
<S> <C> <C> <C> <C>
January 1997 Holiday Inn San Diego, 218 $9.0
California
January 1997 Courtyard by Cypress, 180 12.0
Marriott California
March 1997 Hawthorn Suites Kent, Washington 152 13.6
March 1997 Holiday Inn La Mirada, 289 18.0
Select California
May 1997 Hawthorn Suites Sacramento, 301 16.8
California
June 1997 Holiday Inn San Diego, 151 11.8
Hotel & Suites California
July 1997 Holiday Inn* Lynnwood, 103 7.4
Washington
August 1997 Holiday Inn San Diego, 174 9.1
Mission Valley California
August 1997 Hawthorn Suites Anaheim, 130 8.7
California
August 1997 Regency Plaza Los Angeles, 178 12.6
Hotel California
October 1997 Kahler Hotels Midwest and 4,255 372.3
Mountain Regions ----- ------
of the U.S.
Total 6,131 $491.3
===== ======
</TABLE>
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* Franchise Applied For
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RENOVATIONS AND DEVELOPMENT
During 1997, Sunstone continued to successfully implement its strategy of
renovating, rebranding and repositioning its acquired hotels. In 1997, the
Company expended $48.8 million redeveloping and renovating 19 of the 51 hotels
owned during the year as compared to completing $9.6 million in renovations to
eight of its 24 hotels owned in 1996. Sunstone is currently, or will shortly
begin, redeveloping or renovating another 26 hotels for an additional estimated
aggregate cost of $62.2 million, all of which are expected to be completed in
1998.
In addition to the $48.8 million amount invested in redevelopment, Sunstone
completed a 39-room, $2.2 million addition to its newly built Residence Inn in
Highlands Ranch (Denver), Colorado for a total of $7.6 million. The Company is
currently, or will shortly begin, developing through third party merchant
developers, another five hotels for an additional estimated aggregate cost of
$55.4 million. Sunstone expects to complete the full service Marriott Hotel in
Pueblo, Colorado and the Hawthorn Suites in Denver, Colorado by the fourth
quarter of 1998 and complete the Courtyard by Marriott in Lynnwood, Washington,
the Hilton Garden Suites in Sacramento, California and the Residence Inn by
Marriott in San Diego, California by the second quarter of 1999.
FRANCHISE REBRANDING AND UPGRADES
During 1997, upon completion of each renovation resulting in a high quality
property, Sunstone rebranded and upgraded seven hotels with new and existing
franchises and also added or will shortly add, full service Marriotts, Hiltons
and Sheratons to its portfolio. Also during 1997, Marriott International, Inc.,
performed a review of the Company's and the Lessee's management and operation
and, based on the operating culture of the two Companies, management track
record and hotel-level operations, approved the Companies as qualified
full-service franchisees. Sunstone expects to brand four of the Kahler hotels as
full-service Marriott hotels and up to three of the other Kahler hotels as
Courtyard by Marriott hotels after completion of product improvement plans. When
these four hotels are branded with the Marriott flag, approximately 27.0% of the
Company's hotels will be branded with Marriott franchises. Sunstone management
will consider the Marriott brands when repositioning future acquired hotels and
believes that the preferred business relationship with Marriott will enhance its
opportunities for future franchises.
Commenting on the Company's relationships with leading franchises, Alter said,
"To be selected by some of the worlds' leading hotel franchises is a testament
to the quality of management and service we have developed here at Sunstone.
Access to this range of new flags is critical to the success of our rebranding
and repositioning strategies and I am confident that we will be able to add more
hotels to our preferred franchise portfolio in the future"
REPOSITIONING -- STRONG OPERATING RESULTS COMPLETES THE PROCESS
Complimenting each renovation and rebranding with the implementation of focused
sales and marketing programs of it's Lessee, Sunstone has achieved significant
success in repositioning its acquired assets by increasing revenues and REVPAR.
Sunstone announced strong revenue growth of its hotels for the fourth quarter of
1997. Fourth quarter total room revenue from the Company's
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hotels increased 238%, from $10.4 million to $35.1 million over the fourth
quarter of 1996, primarily due to the completion of $491.3 million of hotel
acquisitions during the preceding twelve months. On a same-unit-sales basis for
the entire portfolio, the Company achieved a 7.7% increase in REVPAR for the
fourth quarter of 1997 over the corresponding quarter of 1996.
Alter commented, "We are very pleased with the top-line performance of our
hotels for the fourth quarter, particularly considering the amount of renovation
work we accomplished. During the quarter, we invested $14.0 million redeveloping
eight hotels and positioning them for future, long-term growth."
Sunstone announced that REVPAR for the non-renovation hotels significantly
increased by 15.4%, from $37.42 to $43.17, over the fourth quarter of 1996.
Non-renovation hotels consist of 43 of the Company's 51 hotels owned by Sunstone
that were not undergoing significant renovation either in the fourth quarter of
1996 or 1997. The 15.4% increase in REVPAR was driven by a 14.2% increase in
average daily rate, from $63.40 to $72.43, while occupancy remained constant.
Strong revenue performance was achieved not only with Sunstone's renovated
properties, but also with many of the recently acquired Kahler Hotels as
indicated in the following tables:
LEADING REVPAR PERFORMERS FOR FOURTH QUARTER OF 1997 -- STABILIZED HOTELS
<TABLE>
<CAPTION>
REVPAR
-----------------------------
Kahler Hotels Rooms 1996 1997 % Change
------------- ----- ---- ------ --------
<S> <C> <C> <C> <C>
Kahler Inn & Suites -
Rochester, Minnesota 266 $38.66 $51.01 32.0%
Kahler Plaza -
Rochester, Minnesota 194 $76.52 $95.52 24.8%
Kahler Hotel -
Rochester, Minnesota 699 $38.19 $47.03 23.1%
Holiday Inn -
Rochester, Minnesota 170 $37.25 $44.99 20.8%
<CAPTION>
REVPAR
-----------------------------
Other Hotels Rooms 1996 1997 % Change
------------ ----- ------ ------ --------
<S> <C> <C> <C> <C>
Holiday Inn Express -
Portland, Oregon 84 $29.05 $39.94 37.5%
Hampton Inn -
Clackamas, Oregon 114 $24.08 $32.72 35.9%
Holiday Inn Hotel & Suites -
Kent, Washington 152 $32.42 $43.75 34.8%
Holiday Inn Mission Valley -
San Diego, Calif. 174 $35.74 $47.82 33.8%
Courtyard by Marriott -
Cypress, California 180 $46.27 $58.63 26.7%
</TABLE>
REVPAR for the fourth quarter of 1997 for the eight 1997-renovation hotels
(which were undergoing renovation during the fourth quarter of 1997) decreased
15.6% over the corresponding quarter of 1996, a period during which these hotels
were not undergoing renovation. (There were no hotels undergoing renovation in
the fourth quarter of 1996.)
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FINANCING
Behind the Company's considerable growth in 1997 has been the support of the
investment and banking communities. In total, the Company raised $288.1 million
in secondary and spot offerings. Sunstone also announced today that on January
26, 1998 the Company increased its unsecured revolving line of credit facility
from $200 to $300 million and further reduced it's borrowing rate to accrue
interest beginning at as low as LIBOR plus 1.40% per annum, based upon the debt
leverage of the Company.
STRENGTHENED MANAGEMENT TEAM
In 1997, Sunstone continued to add industry veterans to the team. Appointments
this year included Charles Biederman as Vice Chairman of the Board of Directors,
Sam Marshall as Vice President of Design/Construction, Gary Stougaard as Vice
President-Development as well as other mid-management positions in construction
and finance. Earlier this year, Sunstone also appointed R. Terrence Crowley as
General Counsel. Sunstone Hotel Properties, Inc., the Company's sole lessee,
appointed Randy Hulce as President and Chief Executive Officer, Michael George
as Chief Operating Officer, George Schweitzer as Vice President of Operations
and has appointed other regional operational and marketing professionals during
the year.
Commenting on the new team, Alter said, "The pace of growth we sustain in 1997
is truly a credit to the management team and to all of the employees. As we have
grown, we have been able to attract the best talent in the lodging industry to
Sunstone. I am confident that with this team in place, we will be able to
deliver superior growth and enhanced value to our shareholders."
Sunstone Hotel Investors, Inc. is a leading self-administered equity real estate
investment trust that owns full service, upscale and mid-price hotels located in
the western United States. The Company's growth strategy is to maximize
shareholder value by (i) acquiring underperforming hotels within the western
United States that are in attractive locations with significant barriers to
entry and (ii) improving such hotels' financial performance by renovating,
redeveloping, rebranding and repositioning the hotels together with the
implementation of focused sales and marketing programs. Sunstone Hotel
Investors, Inc., the only hotel REIT that currently focuses its acquisition
strategy in the western United States, owns, through Sunstone Hotel Investors,
L.P., 54 hotels comprising 9,978 rooms. Sunstone's business strategy is to own
full-service, upscale and mid-price hotels with revenue growth opportunities in
strong western U.S. markets.
Statements in this press release which are not strictly historical are
"forward-looking" and are subject to the many risks and uncertainties which
affect Sunstone's business, and could cause actual results to differ materially
from those projected and forecasted. These uncertainties, which include
competition within the lodging industry, the balance between supply and demand
for hotel rooms, the Company's continued ability to execute acquisitions and
renovations, the effect of economic conditions, and the availability of capital
to finance planned growth, are described, but are not limited to those
disclosed, in the Company's annual report on Form 10-K for the year ended
December 31, 1996, and the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1997, each as filed with the Securities and Exchange
Commission.
For information on Sunstone Hotel Investors' Dividend Reinvestment Program,
please call 1-888-261-6776. For investor information on Sunstone Hotel Investors
via facsimile at no cost, simply call 1-800-PRO-INFO and dial client code SSI.
(FINANCIAL TABLES FOLLOW)
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SUNSTONE HOTEL INVESTORS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Quarter Ended For the Twelve Months Ended
December 31, December 31,
------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Lease revenue $17,204,000 $ 4,441,000 $44,680,000 $14,848,000
Interest and other income 108,000 95,000 471,000 236,000
----------- ----------- ----------- -----------
17,312,000 4,536,000 45,151,000 15,084,000
----------- ----------- ----------- -----------
EXPENSES
Real estate-related
depreciation and
amortization 7,219,000 1,457,000 14,749,000 4,514,000
Interest expense and
amortization of
financing costs 3,590,000 526,000 6,365,000 1,558,000
Real estate and personal
property taxes and
insurance 2,239,000 519,000 4,670,000 1,273,000
General and administrative 539,000 308,000 1,890,000 1,015,000
----------- ----------- ----------- -----------
13,587,000 2,810,000 27,674,000 8,360,000
----------- ----------- ----------- -----------
Income before minority
interest 3,725,000 1,726,000 17,477,000 6,724,000
Minority interest 274,000 261,000 1,886,000 1,090,000
----------- ----------- ----------- -----------
NET INCOME $ 3,451,000 $ 1,465,000 $15,591,000 $ 5,634,000
Distributions to preferred
shareholders 422,000 -- 422,000 --
----------- ----------- ----------- -----------
Net income available to
common shareholders $ 3,029,000 $ 1,465,000 $15,169,000 $ 5,634,000
=========== =========== =========== ===========
DILUTED NET INCOME PER SHARE $0.10 $0.13 $0.71 $0.69
Weighted average number
of shares outstanding
assuming dilution 30,492,542 11,015,163 21,248,131 8,123,938
DILUTED FUNDS FROM OPERATIONS $10,944,000 $ 3,183,000 $32,226,000 $11,238,000
DILUTED FFO PER SHARE/UNIT $0.32 $0.25 $1.34 $1.16
Weighted average number
of shares/units outstanding
assuming dilution 34,682,525 12,962,432 24,083,756 9,687,121
</TABLE>
SUMMARY OPERATING DATA*
<TABLE>
<S> <C> <C> <C> <C>
SAME-UNIT-SALES ANALYSIS
ALL HOTELS:
Occupancy 58.5% 61.2% 65.4% 65.9%
ADR $73.32 $65.02 $70.75 $64.65
REVPAR $42.87 $39.82 $46.24 $42.57
REVPAR growth 7.7% 8.6%
NON-RENOVATION HOTELS:
Occupancy 59.6% 59.0% 67.9% 63.9%
ADR $72.43 $63.40 $71.46 $64.35
REVPAR $43.17 $37.42 $48.51 $41.10
REVPAR growth 15.4% -- 18.0% --
RENOVATION HOTELS(1):
Occupancy 54.1% 74.5% 61.1% 68.4%
ADR $77.14 $66.37 $67.90 $63.11
REVPAR $41.70 $49.43 $41.50 $43.19
REVPAR growth (15.6)% -- (3.9)% --
</TABLE>
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(*) Includes the eight hotels undergoing renovation in the fourth quarter of
1997 and no hotels undergoing renovation in the fourth quarter of 1996.
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