Sunstone Braces for Challenging 2009

The Sunstone CEO pointed out that the company was already bracing for a difficult economic climate in 2008, working throughout the year "to right-size the cost model of each of our hotels" and also to control corporate overhead. He noted that, among other measures, the REIT continues to maintain higher than traditional cash reserves in the face of uncertain economic conditions. With a solid balance sheet, no near-term debt maturities and more than $220 million of cash,"Our near-term focus is to preserve liquidity and prepare to capitalize on opportunities that may arise out of distress," Buser said.

San Clemente-based Sunstone has interests in 44 hotels totaling 15,029 rooms, primarily in the upper-upscale segment operated under national brands, such as Marriott, Hyatt, Fairmont, Hilton and Starwood. In its annual report filed along with its fourth-quarter results, the REIT said that although the upper and upscale segments may be subject to more volatility than other segments of the hotel industry at some times, "We believe the upper upscale and upscale segments, which represented approximately 92% of the hotel revenue generated by our 43 hotels during 2008, tend to outperform the lodging industry generally."

For the full year 2008, Sunstone's total portfolio RevPAR decreased 2.2% to $107.16 as compared to the full year 2007. Those results reflected a 2.5% decrease in occupancy that was partially offset by a 1.1% increase in average daily room rate.

The REIT reported FFO of $39.4 million and 70 cents per share for 2008, compared with $54.6 million and 86 cents a share for 2007. Revenue edged up to $969 million from $962 million year-to-year. The full-year loss of $11.5 million and 24 cents per share compared with a profit of $24 million and 41 cents a share in 2007. Considering the current economic uncertainty, the REIT has elected not to provide 2009 outlook.

Sunstone also has elected not to pay a common stock dividend for the first quarter of this year, although it has declared a dividend of 50 cents per share for its Series A preferred stock and 39 cents per share for its Series C convertible redeemable preferred stockholders. "While we believe we have sufficient cash reserves, the decision not to pay a first quarter common dividend was made after considering the highly uncertain economic environment, and after balancing our liquidity and capital preservation goals with our goal of distributing out 100% of our taxable income to our investors," Buser explained.