Company Presentation November 2021 - Sunstone Hotel Investors
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Company Presentation
November 2021
Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are
identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,”
“should,” “will” and other similar terms and phrases, including opinions, references to assumptions and forecasts of future results. Forward-looking statements
are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ
materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: the impact the COVID-19
pandemic has on the Company’s business and the economy, as well as the response of governments and the Company to the pandemic, and how quickly and
successfully effective vaccines and therapies are distributed and administered; increased risks related to employee matters, including increased employment
litigation and claims for severance or other benefits tied to termination or furloughs as a result of temporary hotel suspensions or reduced hotel operations due to
COVID-19; general economic and business conditions, including a U.S. recession, trade conflicts and tariffs, regional or global economic slowdowns and any
type of flu or disease-related pandemic that impacts travel or the ability to travel, including COVID-19; the need for business-related travel, including the
increased use of business-related technology; rising hotel operating costs due to labor costs, workers’ compensation and health-care related costs, utility costs,
property and liability insurance costs, unanticipated costs such as acts of nature and their consequences and other costs that may not be offset by increased
room rates; the ground, building or airspace leases for three of the hotels the Company has interests in as of the date of this presentation; the need for
renovations, repositionings and other capital expenditures for the Company’s hotels; the impact, including any delays, of renovations and repositionings on hotel
operations; new hotel supply, or alternative lodging options such as timeshare, vacation rentals or sharing services such as Airbnb, in the Company’s markets,
which could harm its occupancy levels and revenue at its hotels; competition from hotels not owned by the Company; relationships with, and the requirements,
performance and reputation of, the managers of the Company’s hotels; relationships with, and the requirements and reputation of, the Company’s franchisors
and hotel brands; the Company’s hotels may become impaired, or its hotels which have previously become impaired may become further impaired in the future,
which may adversely affect its financial condition and results of operations; competition for the acquisition of hotels, and the Company’s ability to complete
acquisitions and dispositions; performance of hotels after they are acquired; changes in the Company’s business strategy or acquisition or disposition plans; the
Company’s level of debt, including secured, unsecured, fixed and variable rate debt; financial and other covenants in the Company’s debt and preferred stock;
the impact on the Company’s business of potential defaults by the Company on its debt agreements or leases; volatility in the capital markets and the effect on
lodging demand or the Company’s ability to obtain capital on favorable terms or at all; the Company’s need to operate as a REIT and comply with other
applicable laws and regulations, including new laws, interpretations or court decisions that may change the federal or state tax laws or the federal or state
income tax consequences of the Company’s qualification as a REIT; potential adverse tax consequences in the event that the Company’s operating leases with
its taxable REIT subsidiaries are not held to have been made on an arm’s-length basis; system security risks, data protection breaches, cyber-attacks, including
those impacting the Company’s hotel managers or other third parties, and systems integration issues; other events beyond the Company’s control, including
climate change, natural disasters, terrorist attacks or civil unrest; and other risks and uncertainties associated with the Company’s business described in its
filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All forward-looking
information provided herein is as of the date of this presentation, and the Company undertakes no obligation to update any forward-looking statement to conform
the statement to actual results or changes in the Company’s expectations.
This presentation should be read together with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and
Form 10-Q. Copies of these reports are available on our website at www.sunstonehotels.com and through the SEC’s Electronic Data Gathering Analysis and
Retrieval System (“EDGAR”) at www.sec.gov.
2
Sunstone Operations Update
Investment Highlights
a High quality portfolio of Long-Term Relevant Real Estate®
a Ability to take a long-term and balanced approach to the business
with a view towards the ongoing recovery
a Sector-leading, low-levered balance sheet and significant liquidity
provide protection and opportunity for growth
a Superior track record of accretive and well-timed capital allocation
a Best-in-class corporate governance
3
Sunstone Operations Update
Our Portfolio of Long-Term Relevant Real Estate®
Montage Healdsburg Hilton San Diego Bayfront
Oceans Edge
JW Marriott New Orleans Resort & Marina
Hyatt Regency Marriott Boston
San Francisco Long Wharf
Boston Park Plaza
Renaissance Washington DC Wailea Beach Resort
4
Sunstone Operations Update
Despite Ongoing Pandemic Headwinds, the Industry Continues to Recover
Occupancy is stabilizing after headwinds from the Delta variant led to a drop off in demand in late
summer. While leisure travel continues to be robust, particularly around holidays, we are seeing
increased contribution from business and group demand.
Portfolio Trailing 7-Day Occupancy Since January 2021
75%
Leisure demand has remained
very strong over recent
holiday weekends
50%
25%
0%
Jan-21 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21
Note: Data excludes one hotel with suspended operations and includes Montage Healdsburg from date of purchase. 5
Sunstone Operations Update
Monthly Hotel Operating Statistics
2021 % Change 2021 % Change 2021 % Change
Month
Occupancy to 2019 ADR to 2019 RevPAR to 2019
January 13.8% -81.1% $186.33 -16.9% $25.71 -84.3%
February 23.3% -71.1% $187.61 -21.2% $43.71 -77.2%
March 30.3% -65.3% $204.78 -16.3% $62.05 -71.0%
April 39.3% -55.5% $203.96 -18.0% $80.16 -63.5%
May 46.0% -46.4% $214.20 -15.9% $98.53 -55.0%
June 50.8% -43.4% $237.36 -8.4% $120.58 -48.1%
July 62.8% -29.1% $251.25 0.9% $157.79 -28.5%
August 51.0% -41.6% $252.77 9.3% $128.91 -36.2%
September 50.4% -39.4% $240.15 -5.4% $121.04 -42.6%
October 56.7% -36.2% $243.90 -8.2% $138.29 -41.5%
Note: Comparable metrics do not include Montage Healdsburg. Results for October are preliminary and subject to change. 6
Sunstone Operations Update
Transient Demand is Accelerating and Transitioning Away from Leisure
Transient booking trends are reaccelerating after moderating as a result of the Delta variant and summertime
travel winding down. While we are now entering the seasonal slower travel months, we expect business travel
to become more widespread as we move into 2022.
Weekly Transient Pickup For Next 6 Months Special Corporate Nights Indexed to 2019
30,000 75%
59%
20,000
50%
42%
37% 37%
10,000
25%
0
(10,000) 0%
May-20 Jul-20 Oct-20 Dec-20 Mar-21 May-21 Jul-21 Oct-21 July August September October
Note: Data is as of October 27, 2021 and does not include Montage Healdsburg.
7
Sunstone Operations Update
Acquisition of Long-Term Relevant Real Estate® - Four Seasons Resort Napa Valley
• Investment: Sunstone is under contract to acquire the fee-simple interest in the newly constructed Four Seasons
Resort Napa Valley, an 85-room luxury resort located in Northern California’s world-renowned wine region for $177.5
million. The transaction is expected to close by the end of the fourth quarter 2021.
• Property: The hotel is situated on the famed Silverado Trail and is adjacent to 20 premium Four Seasons
Residences(1). The resort’s abundant amenities include a full-service spa and health club, two swimming pools,
multiple culinary experiences, distinctive event space, and a unique grapes-to-glass experience with an on-property
vineyard, winery and tasting rooms.
• Compelling Valuation: Sunstone is acquiring Four Seasons Napa Valley at a discount to development cost. The
resort is expected to generate a 6% to 7% net operating income yield upon stabilization of the hotel and inclusive of
the expected earnings contribution from the residential rental program.
• Funding: The acquisition will be funded from existing cash and borrowings under our currently undrawn $500
million revolving credit facility.
1. Four Seasons Residences Napa Valley are not included as part of the resort acquisition but are eligible for participation in the resort’s residential rental program. 8
Sunstone Operations Update
Four Seasons Resort Napa Valley Overview
Four Seasons Resort Napa Valley Overview
Resort 400 SilveradoTrail
Address Calistoga, CA 94515
Date
October 2021
Opened
Property 22.5 Acres
Size (Fee Simple)
Total Rooms 85
& Suites (67 guest rooms / 18 suites)
Meeting and
16,000 square feet
Event Space
12,000 square-foot premium spa and health
Resort club with eight treatment rooms and
Amenities indoor/outdoor fitness facility, two swimming
pools with private cabanas
4.5 acres of vineyards, on-site winery with tank
On-Site room, barrel caverns, and two tasting rooms.
Winery Proprietary wine labels including inventory of
prior wine vintages.
Food & Truss Restaurant + Bar, Campo Poolside,
Beverage winery & tasting rooms, and in-room dining
20 privately owned Four Seasons branded
Four Seasons
homes that will be eligible for participation in
Residences (1)
the resort’s rental program
1. Four Seasons Residences Napa Valley are not included as part of the resort acquisition but are eligible for participation in the resort’s residential rental program. 9
Sunstone Operations Update
Incremental Exposure to Highly Desirable Market
Wine Country Luxury Hotel Average Daily Rates
$1,225
$1,025
$825
$625 Premium luxury hotels in wine country command
average daily rates far in excess of the national
average for luxury hotels. Our underwriting
assumes room rates already achieved in the
market.
$425
$225
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
US Luxury Average Wine Country Premium Luxury
Source: STR. Data for 2021 reflects year-to-date information through September. 10Sunstone Operations Update
Significant Wine Country Ownership Yields Leverage Opportunities
• Including our recent purchase of Montage Healdsburg, the Four Seasons Resort Napa Valley
acquisition of Four Seasons Napa Valley will result in
approximately 10% of our asset value being in wine country
and will provide Sunstone with a dominant position in a
highly desirable, high-rated market that benefits from both
transient and group demand.
• Our two market-leading assets not only have the newest
amenities but offer state-of-the-art purpose-built meeting &
event venues with a level of quality that previously did not
exist in the region.
• With unique luxury offerings at each of our assets and
significant visibility into market demand from two leading
luxury operators, we expect to be able to create and
maximize yield opportunities and generate asset
management synergies.
Sunstone Ownership of the Wine Country Luxury Market
24% of 32% of
Total Event
Rooms Space
Montage Healdsburg
11Operations Update
Accretive Hotel Dispositions
Accelerating capital recycling initiatives to fund future value creation
Embassy Suites La Jolla Disposition
Gross / Net Proceeds $227MM / $165M
Price per Key $667,000
2019 EBITDA Multiple / Cap Rate 22.3x / 4.0%
Closing Date Early December 2021
Accretive disposition at a very attractive sale price. Removes one of the few remaining
mortgages in the portfolio.
Renaissance Westchester Disposition
Gross / Net Proceeds $19MM / $11M
Price per Key $54,000
2019 EBITDA Multiple / Cap Rate 15.0x / 2.3%
Closing Date October 15, 2021
Sale of a non-core hotel in a challenged market. Disposition improves liquidity position
and growth profile of remaining portfolio.
12Sunstone Operations Update
Continuing to Invest in Our Portfolio to Drive Organic Growth
Took advantage of the pandemic-induced low demand period to accelerate several capital projects that
would have otherwise been highly disruptive to hotel operations. Continue to meaningfully invest in the
portfolio in 2021 and 2022 to drive long-term growth and value creation.
Recently Completed and Active Projects
• Completed the addition of The Square, a new 7,000 square foot state-of-the-art meeting space.
• New meeting space will give hotel incremental capacity to host in-house group business and
reduce reliance on citywide events.
• Solar panel installation on the main roof and tower roof. Allows the hotel to offset energy usage and
benefits the environment.
• Reinventing the ground floor food & beverage offerings including the addition of a market concept
that will provide a better guest experience at a higher profit margin.
• Converted unused space into 6,800 square feet of new waterfront meeting space.
• Conducting a significant renovation of the asset and will repositioning the hotel as a Westin upon
substantial completion of the work.
• Renovation of the meeting space is nearing completion and work will soon begin to renovate all
guestrooms and enhance the lobby layout and design.
• The in-process conversion is being well received from meeting & event planners and we expect the
hotel to deliver outsized growth as it captures higher rates and incremental share.
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