Company Presentation March 2013
Forward-Looking Statements This presentation contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as anticipate, believe, continue, could, estimate, expect, intend, may, plan, predict, project, should, will or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those expressed or implied by these forward-looking statements. In evaluating these statements, you should specifically consider the risks outlined in detail under the heading Risk Factors in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ( SEC ) on February 25, 2013, including, but not limited to, the following factors: general economic and business conditions affecting the lodging and travel industry, both nationally and locally, including a prolonged U.S. recession; the need to operate as a REIT and comply with other applicable laws and regulations; rising operating expenses; relationships with and requirements of franchisors and hotel brands; relationships with and the performance of the managers of our hotels; the ground, operating or air leases for 10 of the 26 hotels; our ability to complete acquisitions and dispositions; and competition for the acquisition of hotels. These factors may cause our actual events to differ materially from the expectations expressed or implied by any forward-looking statement. We do not undertake to update any forward-looking statement. This presentation includes non-gaap financial information that the issuer considers useful to investors as a key measure of operating performance. A reconciliation to U.S. GAAP can be found in the Investor Relations section of the company s website at www.sunstonehotels.com. C O M P A N Y P R E S E N T A T I O N P A G E 2
Company Profile Sunstone is a leading hotel investment company with an enterprise value of approximately $3 billion. Pro Forma Capital Structure / Valuation Metrics Shares 162.1 M Recent Stock Price $11.29 Equity Market Cap $1,830 M Total Mortgage Debt (1)(2) $1,247 M Total Corporate Debt (3) $-- Total Preferred Equity $215 M Pro Forma Cash (4) ($383 M) Total Enterprise Value $2,909 M 2012 Pro Forma EBITDA Multiple (6) 13.3x Implied 2013 Pro Forma EBITDA Multiple (5) 12.3x 13.0x 2012 Pro Forma Cap Rate (6)(7) 6.3% Implied 2013 Pro Forma Cap Rate (5)(7) 7.1% - 7.5% Implied Value Per Key $257,000 Sunstone Portfolio Metrics Hotels 26 Rooms 11,632 2012 Pro Forma RevPAR (6) $139.22 2013 Pro Forma RevPAR (5)(6) +3.5% - 5.5% 2012 Pro Forma EBITDA (6) $219.4 M 2013 EBITDA Guidance (5)(6) $224 M - $236 M Valuation Sensitivity A change of: Would result in a share price change of: $10,000 / key $0.70 1.0x in EBITDA multiple $1.35 25 bps in capitalization rate $0.74 (1) Total mortgage debt is as of 12/31/2012 less $27.1 million for the Rochester Portfolio disposition. (2) Reflects pro rata 75% of the Hilton San Diego Bayfront ownership. (3) Reflects redemption of the Exchangeable Senior Notes in January 2013. (4) Reflects unrestricted cash as of 12/31/2012 less $58 million for the redemption of the Exchangeable Senior Notes plus proceeds of $165 million from the sale of the Rochester Portfolio plus $295 million from the common equity re-offer in January 2013 less $176.25 million for the redemption of the Exchangeable Senior Notes in January 2013. (5) 2012 figures reflect full-year 2013 guidance provided by the Company in its Q4 2012 earnings release dated February 19, 2013. (6) Reflects the 26-hotel pro forma comparable portfolio. (7) Reflects 4.5% FF&E reserve. C O M P A N Y P R E S E N T A T I O N P A G E 3
High-Quality Portfolio of 26 institutional-quality, upper upscale hotels located in the top U.S. markets. New Team comprised of top industry professionals. New Strategy aimed at creating significant shareholder value while improving the quality and scale of our portfolio and gradually deleveraging our balance sheet. Our cycle-appropriate strategy is predicated on the following: 1. Proactive Portfolio Management Improving our portfolio quality and growth potential through market complexing, non-strategic asset dispositions and portfolio-wide efficiency initiatives. 2. Intensive Asset Management Positioning portfolio for growth through ongoing renovations, F&B and staffing streamlining, and energy retro-commissioning. 3. Disciplined External Growth Executing high-quality acquisitions using our appropriately valued shares as currency during the recovery phase of the lodging cycle. 4. Measured Balance Sheet Improvement Reducing our corporate leverage and increasing fixed charge coverage in a shareholder-friendly way in order to achieve minimal leverage at the peak of the lodging cycle. Sunstone Investment Thesis New team. New strategy. Superior returns. Sunstone delivered total shareholder returns in excess of 31% in 2012. C O M P A N Y P R E S E N T A T I O N P A G E 4
West (10) 34% San Diego 20% (2) Los Angeles 6% (4) Orange County 4% (2) S U N S T O N E H O T E L I N V E S T O R S, I N C High-Quality Portfolio We own a geographically diverse portfolio located primarily in coastal urban markets. 2012 Pro Forma Total EBITDA by Region (number of hotels in parenthesis) Mid-West (3) 9% Chicago 9% (3) Northeast (9) 43% DC/Baltimore 14% (3) NYC 17% (3) Boston 10% (2) South (4) 14% C O M P A N Y P R E S E N T A T I O N P A G E 5 Houston 3% (2) New Orleans 4% (1) Orlando 6% (1)
Proactive Portfolio Management We have executed on our plan to improve portfolio quality and scale while methodically deleveraging our balance sheet. 2012 Acquired two high quality, unlevered hotels Sold four low RevPAR, highly-levered hotels Invested $109 million in our existing portfolio Reduced Net Debt and Preferred to EBITDA by 1.4x 2013 Sold four low RevPAR, non-core hotels Repaid $58 million of corporate debt 2012 Dispositions 2012 Acquisitions Hotels 4 2 Rooms 1,120 774 Average Rooms / Hotel 280 387 RevPAR $92 $137 EBITDA / key $13,700 $16,300 Sale / Acquisition EBITDA Multiple 11.3x 14.3x Sale / Acquisition Price $173.1 million $180.2 million Debt $122.7 million -- Debt / EBITDA 8.0x -- C O M P A N Y P R E S E N T A T I O N P A G E 6
Intensive Asset Management - Delivering Results Continuous focus on maximizing the value of our real estate. Asset management initiatives are driving operations growth 2012 RevPAR growth of 5.2%-5.4% Year-to-date (as of Q3 2012) comparable margin expansion of 120 bps FFO / Share has exceeded our guidance in each of the past seven quarters Portfolio-wide energy audit to reduce costs and emissions Complete audit from windows to HVAC systems Using tax credits when applicable to help fund investments Implementing projects with 10-20% returns C O M P A N Y P R E S E N T A T I O N P A G E 7
Intensive Asset Management - Delivering Results We invested over $100 million into the portfolio in 2012 and are targeting approximately $100 million of capital investment in 2013. RevPAR growth at renovated hotels has been strong. Doubletree Times Square Renaissance Westchester Hilton San Diego Bayfront Hyatt Chicago Magnificent Mile C O M P A N Y P R E S E N T A T I O N P A G E 8
Disciplined External Growth During 2012 we built a concentration of high-quality hotels in Chicago s Magnificent Mile District Hilton Garden Inn 357 keys $91.75 million turn-key acquisition funded with public stock offering and cash on hand Value creation through the consolidation of management with Sunstone s Embassy Suites Chicago, located across the street Combined Transactions Hyatt Chicago 417 keys Acquisition funded by issuing The Blackstone Group $58.4 million of common stock at $10.71 and with $30 million of cash on hand Undercapitalized hotel in a top U.S. market: value creation opportunities through complete renovation and rebranding Exceptional location one block off of Michigan Avenue, surrounded by high-rated demand generators Estimated net post-renovation investment of approximately $250k /key Hyatt is providing material economic enhancements. Hyatt is the right brand for this asset given their underrepresentation in the Chicago market Meaningfully improved our credit metrics and added two unencumbered hotels to our portfolio (increases number of unencumbered hotels to 14) Improved the quality and scale of Sunstone s portfolio Sunstone now owns three high-quality hotels in Chicago s strong Magnificent Mile district C O M P A N Y P R E S E N T A T I O N P A G E 9
Embassy Suites Chicago S U N S T O N E H O T E L I N V E S T O R S, I N C Disciplined External Growth During 2012 we built a concentration of high-quality hotels in Chicago s Magnificent Mile District Hyatt Chicago Magnificent Mile Hilton Garden Inn Magnificent Mile C O M P A N Y P R E S E N T A T I O N P A G E 10
2013 Dispositions - Rochester Portfolio In January 2013, we completed the sale of a four-hotel, 1,222-room portfolio and commercial laundry facility in Rochester, Minnesota for a gross sale price of $230 million. Four-hotel portfolio (based on allocated price) sold for 12.8x multiple on 2012 EBITDA and a capitalization rate of 6.9% on 2012 net operating income. Retired $27.1 million of mortgage debt. Generated approximately $165 million of net proceeds, which are earmarked for incremental acquisitions through a 1031-exchange. Increased portfolio quality, RevPAR, and EBITDA / Key. 2012 Statistics 30-Hotel Portfolio Rochester Portfolio 26-Hotel Portfolio Hotels 30 4 26 Rooms 12,854 1,222 11,632 Average Rooms / Hotel 428 306 447 RevPAR $134 $80 $139 Property-Level EBITDA / Key $19,400 $13,400 $20,000 C O M P A N Y P R E S E N T A T I O N P A G E 11
Capital Improvements During 2012 we invested more than $100 million into our existing portfolio Realizing strong returns from targeted capital investments Renaissance Long Beach Courtyard LAX Hyatt Newport Beach Renaissance Orlando Marriott Philadelphia West Renaissance Baltimore C O M P A N Y P R E S E N T A T I O N P A G E 12
$ in Millions S U N S T O N E H O T E L I N V E S T O R S, I N C Measured Balance Sheet Improvement We have a well staggered debt maturity profile consisting of low-rated, single-asset secured mortgage debt. In 2012 and January 2013, we reduced our debt balance by approximately $213 million. No debt maturities through April 2015. Unrestricted cash totals approximately $157 million as of 12/31/2012. Average interest rate: 4.97%. $410.7 $136.9 $241.6 $167.5 $244.7 2012 2013 2014 2015 2016 2017 2018 2019 & Beyond C O M P A N Y P R E S E N T A T I O N P A G E 13
High-Quality Portfolio of 26 institutional-quality, upper upscale hotels located in the top U.S. markets. New Team comprised of top industry professionals. New Strategy aimed at creating significant shareholder value while improving the quality and scale of our portfolio and gradually deleveraging our balance sheet. Our cycle-appropriate strategy is predicated on the following: 1. Proactive Portfolio Management Improving our portfolio quality and growth potential through market complexing, non-strategic asset dispositions and portfolio-wide efficiency initiatives. 2. Intensive Asset Management Positioning portfolio for growth through ongoing renovations, F&B and staffing streamlining, and energy retro-commissioning. 3. Disciplined External Growth Executing high-quality acquisitions using our appropriately valued shares as currency during the recovery phase of the lodging cycle. 4. Measured Balance Sheet Improvement Reducing our corporate leverage and increasing fixed charge coverage in a shareholder-friendly way in order to achieve minimal leverage at the peak of the lodging cycle. Sunstone Investment Thesis New team. New strategy. Superior returns. Sunstone delivered total shareholder returns in excess of 31% in 2012. C O M P A N Y P R E S E N T A T I O N P A G E 14
Company Presentation March 2013