Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...

Page created by Ronnie Stanley
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Sunstone Hotel Investors
Company Presentation
March 2021
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
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: volatility in the debt or equity markets affecting our ability to acquire or sell hotel assets;
international, national and local economic and business conditions, including the likelihood of a U.S. recession, government
shutdown, changes in the European Union or global economic slowdown, as well as any type of flu, disease-related
pandemic or the adverse effects of climate change, affecting the lodging and travel industry; the ability to maintain sufficient
liquidity and our access to capital markets; terrorist attacks or civil unrest, which would affect occupancy rates at our hotels
and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with
the level of our indebtedness and our ability to meet covenants in our debt and equity agreements; relationships with
property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting capital
expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations
and room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine
wages, prices, construction procedures and costs; our ability to identify, successfully compete for and complete
acquisitions; the performance of hotels after they are acquired; necessary capital expenditures and our ability to fund them
and complete them with minimum disruption; our ability to continue to satisfy complex rules in order for us to qualify as a
REIT for federal income tax purposes; severe weather events or other natural disasters; risks impacting our ability to pay
anticipated future dividends; and other risks and uncertainties associated with our business described in the Company’s
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 and through the SEC’s Electronic Data Gathering Analysis and Retrieval System (“EDGAR”) at
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Why Sunstone. . .
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
            and well positioned to capitalize on the recovery

a           Sector-leading, low-levered balance sheet and significant liquidity
            provide protection and opportunity for growth

a           Management team with superior track record of accretive and well-
            timed capital allocation

a           Best-in-class corporate governance with executive compensation
            structure that creates strong alignment with shareholders

            Opportunity to invest at cyclically-low valuation with the security
a           offered by the lowest levered balance sheet in the sector with the
            liquidity to grow
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Long-Term Relevant Real Estate® Is . . .

                                                                       Marriott                     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

Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
What’s Going On . . .
    Substantially Entire Portfolio Has Resumed Operations, Cash Burn Improving, Positive Trends Emerging

•     After suspending operations across most of the portfolio in early 2020, substantially all hotels –
      representing 98% of 2019 hotel EBITDA – have since resumed operations.
•     Recent forward bookings are encouraging and have gained momentum as vaccine distribution is
      becoming more widespread.
•     The reopening of hotels, rising occupancy levels and significant cost reductions have allowed us to
      improve our monthly cash burn rate.
•     Opportunistically completed several disruptive capital projects in 2020 and are now shifting focus to
      several value enhancing projects in 2021.
•     Best-in-class balance sheet and significant liquidity position Sunstone to capitalize on investment
      opportunities as the industry recovers.

                    In Operations at                                        April                              July                             October                          December
                     End of Month                                           2020                               2020                              2020                              2020

                        Number of
                                                                              3                                  9                                  14                               15

                           % of
                                                                            20%                                43%                                86%                                92%
                       Total Rooms

                       % of 2019
                                                                            17%                                37%                                82%                                98%
                      Hotel EBITDA

Note: Portfolio data in above table based on current 17-hotel portfolio comprised of 9,017 consolidated total rooms and $310 million of consolidated comparable 2019 hotel EBITDA.          5
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
What’s Going On . . .
   Demand Has Troughed and is Steadily Returning

                                                                            Trailing 7-Day Occupancy

75%                                                                                                                                                      75%

60%                          After record setting declines in late March and April, occupancy has been                                                   60%
                              slowly increasing in recent months. There has been particular strength
                            around the weekends and holidays from robust leisure demand that should
                           translate into meaningfully higher occupancies in the coming months as the
                                         weather improves and business travel accelerates.
45%                                                                                                                                                      45%

30%                                                                                                                                                      30%

15%                                                                                                                                                      15%

                                                                                                All Hotels                Hotels in Operation

0%                                                                                                                                                       0%
 Mar-20              Apr-20            May-20             Jun-20   Jul-20     Aug-20   Sep-20   Oct-20       Nov-20   Dec-20     Jan-21     Feb-21

Note: Reflects data from March 7, 2020 to February 28, 2021.                                                                                         6
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Group Trends are Stabilizing . . .
 Pace of Cancellations Has Slowed with Increased Likelihood of Groups Attending in Later Quarters

   Group cancelation volumes have continued to moderate in recent months with the second half of 2021
 maintaining encouraging group bookings. We continue to rebook cancelled events and groups are becoming
                       increasingly intent on conducting their events later in the year.

Group Room Nights Canceled by Week                                                    2021 Group Rooms On the Books
90,000                                                                                150,000

                                                                                                %    Percent of 2019 actual group rooms


60,000                                                                                100,000

30,000                                                                                 50,000

    0                                                                                      0
     Feb-20   Mar-20   May-20   Jun-20   Aug-20   Sep-20   Nov-20   Dec-20   Feb-21                 2Q 2021      3Q 2021       4Q 2021
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Transient Bookings Accelerating . . .
 Forward Bookings Reflect Pent Up Demand for Travel

   Transient booking trends have increased sharply and point to higher levels of demand in the latter portion
   of 2021. Strong demand over weekends and recent holidays would suggest there is significant desire for
                        leisure travel. Business transient demand is starting to return.

Weekly Transient Pickup For Next 6 Months                                                                 Transient Pace vs. Same Time 2019




  5,000                                                                                                                     48%


                                            After falling off late in 2020, the volume of
                                            weekly net transient bookings has again                       20%
 (5,000)                                          resumed an upward trajectory.

(10,000)                                                                                                  0%
       Apr-20   May-20   Jun-20   Jul-20   Aug-20   Sep-20   Oct-20   Nov-20   Dec-20   Jan-21   Feb-21         2Q 2021    3Q 2021   4Q 2021
Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Cash Balance Provides Significant Runway . . .
    Cash Burn Rate Has Improved. Portfolio Should Resume Profitability by the Latter Half of 2021

•    As more hotels have resumed operations and occupancy levels have continued to gradually rise, we
     have been able to further reduce our cash burn rate.

•    If the pace of recovery continues, we would expect to return to hotel profitability late in the second
     quarter or early in the third quarter.

•    Our best-in-class balance sheet has allowed us to avoid costly capital raises since the onset of the
     pandemic and we expect to retain significant excess cash that we can deploy into value enhancing
     internal and external growth opportunities.

                                          Monthly Cash Burn Projections ($ millions)

           Monthly Recurring                         Prior                       Current            Percent
              Cash Uses                             Estimate                     Estimate           Change

               Hotel Cash
                                                    $10 - $13                    $8 - $11           -17%

             Corporate Cash
                                                     $6 - $7                        $6               -8%

             Total Before
          Capital Expenditures
                                                    $16 - $20                    $14 - $17          -14%

Sunstone Hotel Investors Company Presentation - March 2021 - Sunstone Hotel ...
Taking a Long-Term and Balanced Approach . . .
Opportunistically Using This Time to Complete What Would Otherwise be Highly Disruptive Capital Work

Took advantage of low demand period in 2020 and accelerated several capital projects that would have
otherwise been highly disruptive to hotel operations and guest satisfaction and would have resulted in
                         significant displacement under normal operations.

                                                                                    • Demolished existing lobby floor and
                                                                                     replaced with 50,000 square feet of new tile.
                                                                                    • Removed numerous large planters from
                                                                                     lobby to better accommodate traffic flow.
                                                                                    • Repainted lobby and 10-story atrium.

                                                                                    • Added new extended lanai decks to 32
                                                                                     oceanfront rooms.

                                                                                    • Drained and replastered the serenity pool.
                                                                                    • Completed various other maintenance
                                                                                     projects that would be have been highly
                                                                                     disruptive to guests and hotel operations.

                                                                                    • Installation of four new escalators to serve
                                                                                     subterranean meeting room and ballroom
                                                                                    • Implemented a new sense of arrival through
                                                                                     a full refreshment of the porte cochere,
                                                                                     including a new ceiling, lighting and
                                                                                     driveway surface.
How We Approach the Balance Sheet . . .
   Sector Leading Balance Sheet Going Into the Pandemic with Significant Tangible Liquidity

                                                                  2019 Year-End Net Debt & Preferred to TTM EBITDA

            We have long believed that a lowly levered balance sheet is the most appropriate capital
                  structure for a highly cyclical industry that is subject to operating leverage.







                      SHO                        HST                        RLJ                        DRH   XHR   RHP   PK   PEB

Note: Per company public filings as December 31, 2019. Debt balances calculated on a pro rata basis.                                11
Substantial Acquisition Capacity . . .
   We Retain Significant Capacity Given the Strength of Our Balance Sheet at the Onset of the Pandemic

               Illustrative Net Debt & Preferred / EBITDA at Various Assumed Recovery Levels and Acquisition Volumes

        Given the strength of our balance sheet, once we emerge from the waiver period, our debt covenants would still
         allow for substantial acquisition capacity even if EBITDA does not immediately return to pre-pandemic levels.


                  Acquisition Capacity Assuming                                                  Acquisition Capacity Assuming                                Acquisition Capacity Assuming
                     EBITDA at 100% of 2019                                                         EBITDA at 75% of 2019                                        EBITDA at 50% of 2019
                       Comparable Levels                                                              Comparable Levels                                            Comparable Levels

                      Over $1.5                                                                   $700 million to                                             $250 million to
                      billion of                                                                   $1.0 billion of                                            $400 million of
                     acquisitions                                                                  acquisitions                                                acquisitions


                   2019 at 100%               2019 at 100%                                         2019 at 75%                2019 at 75%                      2019 at 50%        2019 at 50%
                  No Acquisitions           With Acquisitions                                     No Acquisitions           With Acquisitions                 No Acquisitions   With Acquisitions

Note: Based on $292 million of 2019 comparable adjusted corporate EBITDA for the current 17-hotel portfolio. Acquisitions assumed at 16x stabilized EBITDA.                                 12
Superior Capital Allocation Track Record . . .
   Acquiring and Disposing of Hotels at Right Points in Cycle While Increasing Our Ownership of LTRR®

                                                                              Acquisition and Disposition Summary

                    We acquired nearly $2.0 billion of
                    higher quality hotels, in the early
160%                     phase of the cycle . . .

                                                                                                                                                                                   Los Angeles



                                        Chicago Downtown / Mag Mile

                                                                                    Rochester 4-Hotel



                         Dispositions                                                                                          . . . and sold 22 lower quality and
                                                                                          Minneapolis                      generally commodity hotels for $1.7 billion
                          Indexed Top-25 Market RevPAR                                                                                 as the cycle matured.
               2009              2010                 2011            2012             2013              2014              2015              2016              2017         2018   2019          2020 (F)
Note: Excludes Royal Palm which was owned for less than one year. 2020(F) reflects the pre-pandemic 2020 RevPAR growth forecast for urban hotels per CBRE Hotel Horizons.
Superior Capital Allocation Track Record . . .
   Accretive Capital Allocation

   Track record of patient and disciplined accessing of the equity capital markets, and
                         opportunistically repurchasing shares.
          Issued $22 million at                            SHO Price                                         Issued $45
         $15.96 in November &                                                                             million at $17.42
             December 2014                                                                                 in June 2018



                                                                     Issued $79 million at $16.28 in
                                                                      May & June 2017. Acquired
                     Issued $263 million at $14.60                   Oceans Edge Resort & Marina.
$12.50              in June 2014. Acquired Wailea
                            Beach Resort.
                                                                                                          Repurchased $50
                                                                                                          million at $13.22
                                                         Issued $55 million                                 in mid 2019
         Issued $271 million at $13.56 in
$10.50   November 2013. Acquired Hyatt                      at $15.47 in
             Regency Embarcadero.                          December 2016

                                                                                                                Repurchased $104
 $8.50                                                                                                          million at $10.61 in
                                                                                                                      1Q 2020

     Nov-13               Nov-14                Nov-15   Nov-16               Nov-17                   Nov-18                 Nov-19   Nov-20
How We View Corporate Governance . . .
Sector Leading Corporate Governance Profile

  Our priority is to maximize shareholder value. Our board structure, corporate charter
     and culture of transparency place us at the top of the REIT space in terms of
                                 corporate governance.

   a             Ranked among highest in corporate governance by Green Street Advisors
                 Culture of transparency with best-in-class disclosure and quarterly supplemental

                 Opted-out of MUTA, limitations on rights plans, adopted proxy access and
   a             stockholder’s right to amend bylaws, do not allow hedging or pledging of shares held
                 by executives

   a             Non-classified board with annual election of all directors

   a             Directors have open access to senior management and all employees and regularly
                 review ESG practices and initiatives

   a             Executive compensation program creates strong shareholder alignment. Adopted
                 compensation clawback policy and double trigger provision upon change of control.

You can also read