Sunstone Hotel Investors, Inc. - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-117141

Sunstone Hotel Investors, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		20-1296886
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

903 Calle Amanecer, Suite 100 San Clemente, California		92673
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 369-4000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 30, 2005, 34,533,321 shares, $0.01 par value per share, of the registrant’s common stock were outstanding.

SUNSTONE HOTEL INVESTORS, INC.

QUARTERLY REPORT ON

FORM 10-Q

For the Quarterly Period Ended March 31, 2005

TABLE OF CONTENTS


		Page
	PART I—FINANCIAL INFORMATION

Item 1	Financial Statements:	1

	Sunstone Hotel Investors, Inc. and the Sunstone Predecessor Companies:

	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004	1

	Unaudited Consolidated and Combined Statements of Operations for the Three Months Ended March 31, 2005 and 2004	2

	Consolidated Statements of Stockholders’ Equity as of March 31, 2005 (unaudited) and December 31, 2004	3

	Unaudited Consolidated and Combined Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004	4

	Notes to Unaudited Consolidated and Combined Financial Statements	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4	Disclosure Controls and Procedures	29

	PART II—OTHER INFORMATION

Item 1	Legal Proceedings	30

Item 2	Changes in Securities and Use of Proceeds	30

Item 3	Defaults Upon Senior Securities	30

Item 4	Submission of Matters to a Vote of Security Holders	30

Item 5	Other Information	30

Item 6	Exhibits and Reports on Form 8-K	31

SIGNATURES		32

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

SUNSTONE HOTEL INVESTORS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	March 31, 2005			December 31, 2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	69,898		$	5,966
Restricted cash		24,365			28,910
Accounts receivable, net		26,039			28,273
Due from related parties		121			147
Inventories		2,394			2,522
Prepaid expenses		3,299			2,297
Current assets of discontinued operations		659			—

Total current assets		126,775			68,115
Investment in hotel properties, net		1,104,034			1,127,272
Investment in hotel properties held for sale, net		22,988			—
Other real estate, net		7,414			7,519
Deferred financing costs, net		6,721			7,638
Goodwill		28,493			28,493
Other assets, net		15,484			14,708
Other assets, net, of discontinued operations		140			—

Total assets	$	1,312,049		$	1,253,745

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	17,363		$	25,021
Accrued payroll and employee benefits		3,606			5,814
Due to Management Company		16,755			15,401
Dividends payable		10,358			9,962
Distributions payable		1,054			1,054
Other current liabilities		20,169			18,902
Current portion of notes payable		215,073			45,009
Current liabilities of discontinued operations		1,441			—

Total current liabilities		285,819			121,163
Notes payable, less current portion		437,954			667,452
Other liabilities		2,929			2,968
Notes payable of discontinued operations		14,666			—

Total liabilities		741,368			791,583
Commitments and contingencies (Note 11)
Minority interest		43,927			44,830
Stockholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; Series A and Series B 4,850,000 shares issued and outstanding at March 31, 2005 and none at December 31, 2004, stated at liquidation preference of $25.00 per share		121,250			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 34,533,321 shares issued and outstanding		345			345
Additional paid in capital		448,648			452,124
Unearned and accrued stock compensation		(7,070	)		(7,278	)
Accumulated deficit		(16,100	)		(17,897	)
Cumulative dividends		(20,319	)		(9,962	)

Total stockholders’ equity		526,754			417,332

Total liabilities and stockholders’ equity	$	1,312,049		$	1,253,745

See accompanying notes to consolidated and combined financial statements.

SUNSTONE HOTEL INVESTORS, INC. AND SUBSIDIARIES AND

SUNSTONE PREDECESSOR COMPANIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share data)


	The Company			The Predecessor
	Three Months Ended March 31, 2005			Three Months Ended March 31, 2004
REVENUES
Room	$	79,624		$	75,982
Food and beverage		25,775			25,538
Other operating		11,158			11,074
Management and other fees from affiliates		—			377

Total revenues		116,557			112,971

OPERATING EXPENSES
Room		17,784			17,380
Food and beverage		18,291			17,669
Other operating		7,179			7,021
Advertising and promotion		7,588			6,928
Repairs and maintenance		5,202			5,053
Utilities		5,038			4,989
Franchise costs		6,082			5,780
Property tax, ground lease, and insurance		6,392			6,622
Property general and administrative		12,452			9,920
Corporate general and administrative		3,519			4,622
Depreciation and amortization		14,063			13,839
Impairment loss		—			7,439

Total operating expenses		103,590			107,262

Operating income		12,967			5,709
Interest and other income		306			102
Interest expense		(12,168	)		(13,342	)

Income (loss) before minority interest, income taxes and discontinued operations		1,105			(7,531	)
Minority interest		(151	)		8
Income tax provision		—			(1,303	)

Income (loss) from continuing operations before discontinued operations		954			(8,826	)
Income (loss) from discontinued operations		843			(16,519	)

NET INCOME (LOSS)		1,797		$	(25,345	)

Preferred stock dividends		(388	)

INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	1,409

Basic and diluted per share amounts:
Income from continuing operations available to common stockholders	$	0.02
Income from discontinued operations		0.02

Income available to common stockholders per common share	$	0.04

Weighted average common shares outstanding:
Basic		34,519

Diluted		34,817

Dividends paid per common share	$	0.285

See accompanying notes to consolidated and combined financial statements.

SUNSTONE HOTEL INVESTORS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)


	Preferred Stock				Common Stock
	Number of Shares	Amount			Number of Shares	Amount		Additional Paid in Capital			Unearned and Accrued Stock Compensation			Accumulated Deficit			Cumulative Dividends			Total
Balance at December 31, 2004, audited					34,518,616	$	345	$	452,124		$	(7,278	)	$	(17,897	)	$	(9,962	)	$	417,332
Net proceeds from sale of preferred stock	4,850,000	$	121,250						(3,799	)											117,451
Issuance of unvested restricted common stock					14,705				350			(350	)								—
Vesting of restricted common stock									(27	)		558									531
Common dividends declared and payable at $0.285 per share																		(9,969	)		(9,969	)
Preferred dividends declared and payable at $0.50 per share																		(388	)		(388	)
Net income															1,797						1,797

Balance at March 31, 2005, unaudited	4,850,000	$	121,250		34,533,321	$	345	$	448,648		$	(7,070	)	$	(16,100	)	$	(20,319	)	$	526,754
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