May 4, 2010
David Loeb
Managing Director, Senior Real Estate
and Hotel Research Analyst
Robert W. Baird & Co.
dloeb@rwbaird.com
414.765.7063
•Conclusions
•Questions
350
300
250
200
Non-US CMBS Issuance
150 US CMBS Issuance
100
50
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bloomberg
120,000
100,000 Retail
Residential
80,000
Other
60,000 Office
N/A
40,000 Industrial
Hotel
20,000
0
2010 2011 2012 2013 2014 2015 2016 2017
Source: Bloomberg
$20
$18
$16
$14
n
ilo
s b
($
$12
)
$10
Current
$8 Delinquent
$6
$4
$2
b
id
lctp
anC
u
re
$0
1
0
2
1
0
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
d
n
yo
e
b
2
d
n
a
9
1
0
Source: Realpoint
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Source: Realpoint
2,000
1,800
1,600
1,400
1,200
1,000
Super Senior AAA
800 AAA mezz
600
Y
u
T
to
y
s
0
1d
aS
p
re
400
200
Source: Bloomberg
•Bet has been that cycle will turn up, increasing debt service
coverage and collateral value
•Still WAY too much debt coming due relative to available new
debt
50.0 35
46.0
30
45.0 31
30 30 31 30
40.0 28
24 29
35.0 25 25
24 24 31.0
23 23
30.0 21 21
19 20
19
25.0
16 21.5
16 15 15
20.0
15.0
15.0 9.8 10
10.1
10.0 8.0 8.0
5.1 5.1 5.0 5.1 6.0
4.0 5
3.5
m
2.0
($
)e c
s
ra
0
)d
($p
g
ic
y
kA
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v
0.0 0
1
0
9
9
1
2
9
1
3
9
1
4
9
1
5
9
1
6
9
1
7
9
1
8
9
1
9
1
0
2
1
0
2
0
2
3
0
2
4
0
2
5
0
2
6
0
2
7
0
2
8
0
2
9
0
2
F
1
0
2
Transaction volume Per key
Price
Date Hotel Room s Per key Com m ents
($000s)
McSam to Hersha Hospitality. Reported 8.2% cap on
Feb 2010 Holiday Inn Express - Times Square 210 $56,500 $269
2010
McSam to Hersha Hospitality. Reported 8.2% cap on
Feb 2010 Candlew ood Suites-Times Square 188 $51,000 $271
2010
McSam to Hersha Hospitality. Reported 8.2% cap on
Feb 2010 Hampton Inn-Times Square 184 $56,000 $304
2010
Whitehall/GEM sold to LHO for 15.7x '09 EBITDA (ex-
Feb 2010 Sofitel Washington DC 237 $95,000 $401
inauguration)
Starw ood sold - w ill lose W flag- convert to St. Giles
March 2010 W New York - The Court/Tuscany 328 $78,000 $238
Hotels
March 2010 Ambassador East Hotel, Chicago 285 $25,000 $88 Ian Shrager bought from Peter Dumon and David Bossy
March 2010 Marriott - Houston Energy Corridor 206 $50,750 $246 Apple 9, bought from MWE Houston Property LP
March 2010 Raffles L'Ermitage - Berverly Hills 119 $44,800 $376 Viceroy bought from Colony
March 2010 Four Seasons San Francisco 277 $107,500 $388 Westbrook bought 67% interest from Millennium Partners
March 2010 Four Seasons Miami 221 $60,000 $271 Westbrook bought 67% interest from Millennium Partners
March 2010 Ritz-Carlton Boston 193 $37,500 $194 Westbrook bought 67% interest from Millennium Partners
Source: Baird Research. Highlighted transactions involved public company purchasing the hotels
Price
Date Hotel Room s Per key Com m ents
($000s)
March 2010 Hyatt Boston 498 $112,000 $225 Hyatt sold to Chesapeake, reported to be 7% cap TTM
March 2010 Sheraton, Pleasanton, CA 170 $12,300 $72 Mesa West Capital sold
March 2010 Tow nePlace Suites, Panama City, FL 103 $10,600 $103 Apple 9 acquired
Marriott and Independent in Rochester, 9.6x 2009 EBITDA. Sunstone bought these hotels from
April 2010 653 $83,000 $127
MN, Courtyard LAX their lender after tried to w alk aw ay
Source: Baird Research. Highlighted transactions involved public company purchasing the hotels
Public
4%
Private
Public
40% Private 47%
Public 53%
60%
Private
96%
Approximately 4.8 million U.S. hotel rooms
Deal Financing:
• Funded primarily with newly issued equity
• Completed TWO equity offerings totaling $272 million
• Deals announced, but not closed, prior to first equity raise
• Both equity offerings were well over-subscribed
• Hotels owned with no property debt today
Deal Financing:
• Funded with newly sold equity AFTER the deal was announced and closed
• Today hotel is owned without property debt
Deal Financing:
• “Acquired” by paying release fee as part of returning large portfolio from
lender; Sunstone just kept ownership, while handing keys on remaining asset
to lender
• Funded with excess cash on hand as Sunstone has no credit facility
• Today hotels owned without property debt
45
39.5 39.5
40 37.3
35
31.6 31.8
29.8
30
25 23
19.8
20
16.7
15
10.3
n
o
bitlR
d
($
e
s C
p
a
10
)
5 2.5
0
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Source: Preqin
Real Estate Private Equity Fund Raising: Final Closing as a Percentage of Target
40%
5% 4% 4% 4%
3%
2%
0%
0%
Below 49% 50% - 70% 80% - 90% 100% 101% - 120% 121%- 150% Above 150%
Source: Preqin
4,000
3,500 2,000
3,000
1,500
2,500
2,000
1,000
1,500
1,000
500
500
0
0
J -0 0
n -0 1
n -0 2
n -0 3
n -0 4
n -0 5
n -0 6
n -0 7
n -0 8
n -0 9
n -1 0
l -0 0
l -0 1
l -0 2
l -0 3
l -0 4
l -0 5
l -0 6
l -0 7
l -08
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9
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
O
n
a
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ju
A
p
Ja
Ja
Hospitality Index S&P 500 RMZ Hospitality Index S&P 500 RMZ
20.0
18.0
16.9
LHO
16.0
HST
14.0 DRH
AHT
12.0 11.6 11.3 HT
10.4
AVERAGE
M
D
A
ltip
urw
B
Y
d
E
IT
e
ao
F
10.0
8.0
2007 2008 2009 2010
Total $4,459,005
Note: Hyatt IPO raised an additional $1.1 billion from public hotel investors, but was not new equity
Historical Hotel REIT Leverage: Debt /EBITDA for Select Com panies
8.0
7.0 6.6
6.0 LHO
5.3
HST
5.0 4.5
4.3 DRH
4.0 HT
M
A
lip
uB D
b
AVERAGE
t/E
IT e
3.0
2.0
2007 2008 2009 2010
Public Hote l Equity Blind Pools, Near Blind Pools , Atte m pted Blind Pools, and Blind Pool Wanna Be
Com pleted
Pebblebrook Hotel Trust PEB 12/08/09 $405
Chesapeake Lodging Trust CHSP 01/21/10 $180
Chatham Lodging Trust CLDT 04/15/10 $182
$767
In registration
Pyramid Hotels and Resorts PYR 12/08/09 $275
Reunion Hotel Trust RBSC 01/21/10 $250
•By this time next year, expect 3-6 more public hotel
companies
David Loeb
dloeb@rwbaird.com
414-765-7063
•Hospitality Monthly
•Industry and company research
•This presentation
Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity
market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12
months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market
over the next 12 months.
Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis
on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of
revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety.
Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and
earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of
risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of
earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high
degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth
strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges.
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