SEC Company Response from Sunstone Hotel Investors, Inc. (SHO, SHO-PH, SHO-PI) (CIK 0001295810) (SHO) — Jul 27, 2015
Sunstone Hotel Investors, Inc. (SHO, SHO-PH, SHO-PI) (CIK 0001295810)
Date: July 27, 2015 · CIK: 0001295810 · Accession: 0001104659-15-053408
AI Filing Summary & Sentiment
Reasoning
Referenced dates: July 15, 2015
Letter
VIA EDGAR AND FEDERAL EXPRESS Securities and Exchange Commission Division of Corporation Finance Sunstone Hotel Investors, Inc. Form 8-K Filed February 17, 2015 File No. 1-32319
Dear Ms. John and Mr. Demarest,
On behalf of Sunstone Hotel Investors, Inc. (the “Company”), this letter sets forth the Company’s response to the comments of the Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated July 15, 2015, with respect to the Company’s Annual Report on Form 10-K and Current Report on Form 8-K for the year ended December 31, 2014. For your convenience, the Staff’s comments are set forth below in italics, followed by the Company’s responses.
Comments
Form 8-K: Exhibit 99.1 Comparable Hotel EBITDA and Margins, page 18
1. We note your response to prior comment 2. Please address the following as it relates to your proposed revised presentation.
· Disclose additional details regarding the composition of the $7.4 million Acquisition net income including whether the amount includes depreciation, interest and other corporate overhead costs incurred by the previous owner. Further, confirm whether any adjustments were made to the amounts provided by the previous owner.
· Tell us how you determined that each of the amounts presented in the Comparable column are meaningful. Alternatively, tell us the consideration you gave to revising your presentation to include a single column beginning with the Actual Hotel EBITDA reconciliation as presented in your May 20, 2015 response to comment 3; followed by an adjustment for Acquisition Hotel EBITDA and adjustments for pro forma depreciation and other pro forma items as necessary.
· To the extent that you include pro forma adjustments for depreciation and other pro forma items, provide additional disclosure regarding the basis for the amounts included.
Provide an example of your proposed disclosure within your response.
Response
The Company informs the Staff that the $7.4 million Acquisition pro forma net operating income is comprised of the Marriott Wailea’s net operating income as reported by the hotel’s previous owner ($11.6 million), reduced by the Company’s pro forma depreciation expense for the hotel ($4.3 million). The hotel’s net operating income generated during the prior ownership period does not include either interest or other corporate overhead costs incurred by the previous owner, and no adjustments were made by the Company to the amounts provided by the previous owner.
The Company informs the Staff that it will revise its presentation of Comparable Hotel Adjusted EBITDA and Margins to include a single column presentation, and that it will provide additional disclosure regarding the basis of all pro forma adjustments, such as depreciation and interest. The Company believes that a single column presentation more concisely informs investors about its property-level operating performance, as well as the impact that acquisitions and other adjustments have on the Company’s margins. The Company’s revised presentation for the years ended December 31, 2014 and 2013 is as follows:
Sunstone Hotel Investors, Inc.
Non-GAAP Financial Measures
Comparable Hotel Adjusted EBITDA and Margins
(Unaudited and in thousands)
Year Ended December 31, 2014
Year Ended December 31, 2013
Comparable Hotel Adjusted EBITDA Margin (1)
30.5
%
28.6
%
Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net (2)
30.2
%
28.7
%
Total revenues
$
1,141,998
$
923,824
Non-hotel revenues (3)
(7,174
)
(6,620
)
Total Actual Hotel Revenues
1,134,824
917,204
Prior ownership hotel revenues (4)
33,369
176,530
Total Comparable Hotel Revenues
$
1,168,193
$
1,093,734
Net income
$
87,939
$
70,001
Non-hotel revenues (3)
(7,174
)
(6,620
)
Non-hotel operating expenses and adjustments (5)
10,371
9,830
Corporate overhead
28,739
26,671
Depreciation and amortization
155,845
137,476
Interest and other income
(3,479
)
(2,821
)
Interest expense
72,315
72,239
Loss on extinguishment of debt
4,638
Income tax provision
8,145
Income from discontinued operations
(4,849
)
(48,410
)
Actual Hotel Adjusted EBITDA
344,524
266,555
Prior ownership pro forma net operating income (4)
7,350
21,169
Pro forma depreciation expense (4)
4,260
22,964
Pro forma interest expense (4)
—
2,647
Comparable Hotel Adjusted EBITDA
356,134
313,335
Non-current year property tax related adjustments, net
(3,301
)
Comparable Hotel Adjusted EBITDA, excluding non-current year property taxes, net
$
352,833
$
313,734
(1)
Comparable Hotel Adjusted EBITDA Margin is calculated as Comparable Hotel Adjusted EBITDA divided by Total Comparable Hotel Revenues.
(2)
Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net for the year ended December 31, 2014 excludes the additional net benefit of $3.3 million related to prior year property tax related adjustments. Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net for the year ended December 31, 2013 includes the additional net expense of $0.1 million in prior year property tax related assessments and the additional expense of $0.3 million related to fees incurred for a successful real estate tax appeal at the Hilton New Orleans, the benefit of which was not recorded until 2014.
(3)
Non-hotel revenues represent revenue earned by BuyEfficient, as well as the amortization of favorable and unfavorable tenant lease contracts recorded in conjunction with the Company’s acquisitions of the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, the Hilton New Orleans St. Charles, the Hyatt Regency San Francisco and the Marriott Wailea.
(4)
Includes hotel revenues and net operating income generated during the prior ownership periods for the Hilton New Orleans St. Charles acquired May 1, 2013, the Boston Park Plaza acquired July 2, 2013, the Hyatt Regency San Francisco acquired December 2, 2013, and the Marriott Wailea acquired July 17, 2014, along with the Company’s pro forma adjustments for depreciation and interest expense. The Company obtained prior ownership information from each of the hotels’ previous owners during the due diligence periods before acquiring the hotels. The Company performed limited reviews of the information as part of its analyses of the acquisitions. The Company determined the amount to include as pro forma depreciation expense by allocating the Company’s purchase price of each hotel between the various components of each property (i.e. land, building, furniture, fixtures and equipment) based on the values included in existing tax records for the years ended December 31, 2013 and 2012, as applicable. Depreciable assets were then given lives ranging from 7 to 40 years. The Company determined the amount to include as pro forma interest expense based on the debt assumed upon its acquisition of the Boston Park Plaza, with a balance of $120.0 million at January 1, 2013 and an interest rate of 4.4%.
(5)
Non-hotel operating expenses and adjustments represent expenses generated by BuyEfficient, as well as the following: the amortization of lease intangibles; the amortization of the favorable management agreement recorded in conjunction with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent Mile; non-cash straightline lease expense; capital lease obligation interest - cash ground rent; and $0.7 million of property-level restructuring costs incurred during 2014 at the Boston Park Plaza.
* * * * *
If you have any questions or comments with regard to these responses or other matters, or would like any additional information, please call the undersigned at (213) 891-7421.
Sincerely,
/s/ Steven B. Stokdyk
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CORRESP 1 filename1.htm 355 South Grand Avenue Los Angeles, California 90071-1560 Tel: +1.213.485.1234 Fax: +1.213.891.8763 www.lw.com FIRM / AFFILIATE OFFICES Abu Dhabi Moscow Barcelona Munich Beijing New Jersey Boston New York Brussels Orange County July 27, 2015 Chicago Paris Doha Riyadh Dubai Rome Frankfurt San Diego VIA EDGAR AND FEDERAL EXPRESS Hamburg San Francisco Hong Kong Shanghai Jamie G. John, Branch Chief Houston Silicon Valley William Demarest, Accountant London Singapore Securities and Exchange Commission Los Angeles Tokyo Division of Corporation Finance Madrid Washington, D.C. 100 F Street, N.E. Milan Washington, D.C. 20549-3628 Re: Sunstone Hotel Investors, Inc. Form 10-K for the Fiscal Year Ended December 31, 2014 Filed February 19, 2015 File No. 1-32319 Sunstone Hotel Investors, Inc. Form 8-K Filed February 17, 2015 File No. 1-32319 Dear Ms. John and Mr. Demarest, On behalf of Sunstone Hotel Investors, Inc. (the “Company”), this letter sets forth the Company’s response to the comments of the Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated July 15, 2015, with respect to the Company’s Annual Report on Form 10-K and Current Report on Form 8-K for the year ended December 31, 2014. For your convenience, the Staff’s comments are set forth below in italics, followed by the Company’s responses. Comments Form 8-K: Exhibit 99.1 Comparable Hotel EBITDA and Margins, page 18 1. We note your response to prior comment 2. Please address the following as it relates to your proposed revised presentation. · Disclose additional details regarding the composition of the $7.4 million Acquisition net income including whether the amount includes depreciation, interest and other corporate overhead costs incurred by the previous owner. Further, confirm whether any adjustments were made to the amounts provided by the previous owner. · Tell us how you determined that each of the amounts presented in the Comparable column are meaningful. Alternatively, tell us the consideration you gave to revising your presentation to include a single column beginning with the Actual Hotel EBITDA reconciliation as presented in your May 20, 2015 response to comment 3; followed by an adjustment for Acquisition Hotel EBITDA and adjustments for pro forma depreciation and other pro forma items as necessary. · To the extent that you include pro forma adjustments for depreciation and other pro forma items, provide additional disclosure regarding the basis for the amounts included. Provide an example of your proposed disclosure within your response. Response The Company informs the Staff that the $7.4 million Acquisition pro forma net operating income is comprised of the Marriott Wailea’s net operating income as reported by the hotel’s previous owner ($11.6 million), reduced by the Company’s pro forma depreciation expense for the hotel ($4.3 million). The hotel’s net operating income generated during the prior ownership period does not include either interest or other corporate overhead costs incurred by the previous owner, and no adjustments were made by the Company to the amounts provided by the previous owner. The Company informs the Staff that it will revise its presentation of Comparable Hotel Adjusted EBITDA and Margins to include a single column presentation, and that it will provide additional disclosure regarding the basis of all pro forma adjustments, such as depreciation and interest. The Company believes that a single column presentation more concisely informs investors about its property-level operating performance, as well as the impact that acquisitions and other adjustments have on the Company’s margins. The Company’s revised presentation for the years ended December 31, 2014 and 2013 is as follows: 2 Sunstone Hotel Investors, Inc. Non-GAAP Financial Measures Comparable Hotel Adjusted EBITDA and Margins (Unaudited and in thousands) Year Ended December 31, 2014 Year Ended December 31, 2013 Comparable Hotel Adjusted EBITDA Margin (1) 30.5 % 28.6 % Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net (2) 30.2 % 28.7 % Total revenues $ 1,141,998 $ 923,824 Non-hotel revenues (3) (7,174 ) (6,620 ) Total Actual Hotel Revenues 1,134,824 917,204 Prior ownership hotel revenues (4) 33,369 176,530 Total Comparable Hotel Revenues $ 1,168,193 $ 1,093,734 Net income $ 87,939 $ 70,001 Non-hotel revenues (3) (7,174 ) (6,620 ) Non-hotel operating expenses and adjustments (5) 10,371 9,830 Corporate overhead 28,739 26,671 Depreciation and amortization 155,845 137,476 Interest and other income (3,479 ) (2,821 ) Interest expense 72,315 72,239 Loss on extinguishment of debt 4,638 44 Income tax provision 179 8,145 Income from discontinued operations (4,849 ) (48,410 ) Actual Hotel Adjusted EBITDA 344,524 266,555 Prior ownership pro forma net operating income (4) 7,350 21,169 Pro forma depreciation expense (4) 4,260 22,964 Pro forma interest expense (4) — 2,647 Comparable Hotel Adjusted EBITDA 356,134 313,335 Non-current year property tax related adjustments, net (3,301 ) 399 Comparable Hotel Adjusted EBITDA, excluding non-current year property taxes, net $ 352,833 $ 313,734 (1) Comparable Hotel Adjusted EBITDA Margin is calculated as Comparable Hotel Adjusted EBITDA divided by Total Comparable Hotel Revenues. (2) Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net for the year ended December 31, 2014 excludes the additional net benefit of $3.3 million related to prior year property tax related adjustments. Comparable Hotel Adjusted EBITDA Margin, excluding non-current year property taxes, net for the year ended December 31, 2013 includes the additional net expense of $0.1 million in prior year property tax related assessments and the additional expense of $0.3 million related to fees incurred for a successful real estate tax appeal at the Hilton New Orleans, the benefit of which was not recorded until 2014. (3) Non-hotel revenues represent revenue earned by BuyEfficient, as well as the amortization of favorable and unfavorable tenant lease contracts recorded in conjunction with the Company’s acquisitions of the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, the Hilton New Orleans St. Charles, the Hyatt Regency San Francisco and the Marriott Wailea. (4) Includes hotel revenues and net operating income generated during the prior ownership periods for the Hilton New Orleans St. Charles acquired May 1, 2013, the Boston Park Plaza acquired July 2, 2013, the Hyatt Regency San Francisco acquired December 2, 2013, and the Marriott Wailea acquired July 17, 2014, along with the Company’s pro forma adjustments for depreciation and interest expense. The Company obtained prior ownership information from each of the hotels’ previous owners during the due diligence periods before acquiring the hotels. The Company performed limited reviews of the information as part of its analyses of the acquisitions. The Company determined the amount to include as pro forma depreciation expense by allocating the Company’s purchase price of each hotel between the various components of each property (i.e. land, building, furniture, fixtures and equipment) based on the values included in existing tax records for the years ended December 31, 2013 and 2012, as applicable. Depreciable assets were then given lives ranging from 7 to 40 years. The Company determined the amount to include as pro forma interest expense based on the debt assumed upon its acquisition of the Boston Park Plaza, with a balance of $120.0 million at January 1, 2013 and an interest rate of 4.4%. (5) Non-hotel operating expenses and adjustments represent expenses generated by BuyEfficient, as well as the following: the amortization of lease intangibles; the amortization of the favorable management agreement recorded in conjunction with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent Mile; non-cash straightline lease expense; capital lease obligation interest - cash ground rent; and $0.7 million of property-level restructuring costs incurred during 2014 at the Boston Park Plaza. * * * * * 3 If you have any questions or comments with regard to these responses or other matters, or would like any additional information, please call the undersigned at (213) 891-7421. Sincerely, /s/ Steven B. Stokdyk Steven B. Stokdyk of LATHAM & WATKINS LLP cc: Bryan Giglia, Senior Vice President & Chief Financial Officer, Sunstone Hotel Investors, Inc. David Sloan, Senior Vice President & General Counsel, Sunstone Hotel Investors, Inc. 4