Sunstone Hotel Investors to Sell Four Rochester Hotels for $230M; Reports Prelim. Q4 Adj-FFO $0.30, Had Seen $0.23-0.27
Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) announced today that it has entered into agreements to sell a four-hotel, 1,222-room portfolio and commercial laundry facility (collectively, the "Rochester Portfolio") in Rochester, Minnesota for a gross price of $230 million. The four hotels include the 660-room Kahler Grand, the 271-room Kahler Inn & Suites, the 202-room Marriott Rochester and the 89-room Residence Inn by Marriott Rochester. Concurrent with the Rochester Portfolio sale, the Company will defease the outstanding $26.7 million mortgage secured by the 660-room Kahler Grand hotel for a total cost of approximately $30 million, and has prepaid the $0.4 million loan secured by the laundry facility. The Company expects to retain a $25 million, 11% dividend yield preferred equity investment in the four hotels.
The anticipated gross sale price represents an 11.9x multiple on 2012 EBITDA of $19.4 million and a 7.3% capitalization rate on 2012 net operating income. Net of $20 million allocated to the commercial laundry facility, the $210 million gross sale price allocated to the four hotels equates to $172,000 per key, a 12.8x multiple on 2012 EBITDA and a capitalization rate of 6.9% on 2012 net operating income.
The Company expects to receive initial net proceeds of approximately $165 million, subject to final closing costs, from the sale of the Rochester Portfolio. The Company intends to use the net proceeds from the sale of the Rochester Portfolio for general corporate purposes, which may include hotel acquisitions, renovations of our existing hotels, reduction of our debt or preferred securities or other corporate purposes.
Sale of the Rochester Portfolio is expected to close in January 2013, subject to customary closing conditions. As such, the Company can offer no assurances that the sale will close on the terms described herein, or at all.
The Company has provided preliminary fourth-quarter and year-ended 2012 results. The results provided are subject to adjustments that may result from the completion of the Company's annual audit process. The Company's results include the Company's ownership period for all 2012 acquisitions and dispositions, and reflect the application of net operating loss carryforwards to reduce taxable income in 2012. The Company treats any state and federal taxes associated with the application of net operating loss carryforwards as a one-time expense and adds them back to Adjusted EBITDA and Adjusted FFO.
For the fourth quarter of 2012, the Company expects:
Metric (unaudited) Prior Q4 2012 Guidance (1) Preliminary Q4 2012 Results Change to Prior Guidance Midpoint Comparable Hotel RevPAR +1.5% - 3.0% +3.2 - 3.4% 1.05% Net Income (Loss) ($ millions)(2) $(1) - $4 $10 - $11 $9 Adjusted EBITDA ($ millions) $58 - $63 $67 - $68 $7 Adjusted FFO ($ millions) $31 - $36 $40 - $41 $7 Adjusted FFO per diluted share $0.23 - $0.27 $0.30 $0.05 Diluted Weighted Average Shares Outstanding 135,700,000 135,600,000 (100,000)
(1) Reflects guidance presented on November 2, 2012. (2) Reflects net income (loss) adjusted for the impact of income tax expense associated with the application of net operating loss carryforwards.
For the full year 2012, the Company expects:
Metric (unaudited) Prior 2012 FY Guidance (1) Preliminary 2012 FY Results Change to Prior Guidance Midpoint Comparable Hotel RevPAR +4.5% - 5.0% +5.2 - 5.4% 0.55% Net Income ($ millions) (2) $45 - $50 $49 - $50 $2 Adjusted EBITDA ($ millions) $232 - $237 $242 - $243 $7 Adjusted FFO ($ millions) $118 - $123 $128 - $129 $7 Adjusted FFO per diluted share $0.93 - $0.97 $1.00 - $1.01 $0.05 Diluted Weighted Average Shares Outstanding 127,500,000 127,300,000 (200,000)
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