Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $167 million, a 43% increase from Q2 2021, driven by a nearly 10-point sequential increase in occupancy and a 13% increase in average daily rate (ADR) compared to Q2 2021 [16][43] - Adjusted EBITDAre for Q3 2021 was $35 million, marking a return to positive quarterly FFO for the first time since 2019, with FFO at $0.10 per diluted share [43] - Year-to-date, the company has eliminated nearly $11 million in costs from its hotels, which are expected to be lasting savings [21] Business Line Data and Key Metrics Changes - Comparable portfolio ADR was just over $248 in Q3 2021, higher than 2019 levels, with significant rate growth in markets like Key West, Orlando, New Orleans, and Wailea [17][29] - Hotel EBITDA margins for comparable hotels were 24.3%, below historical levels but a significant accomplishment given the occupancy rate of just below 55% [22] - Non-room revenue increased significantly, with food and beverage revenues up 79% compared to Q2 2021, contributing to a quarterly comparable RevPAR of $207, a 41% increase from Q2 2021 [20] Market Data and Key Metrics Changes - The company experienced strong leisure demand, particularly in July, with occupancy peaking at 84% during Labor Day weekend [23] - Group room nights increased marginally to 82,000 nights, with corporate group activity growing nearly 30% and association business more than five times higher than the previous quarter [24][25] - Transient demand accounted for roughly 75% of total room nights in Q3 2021, with special corporate room nights increasing by 103% from Q2 2021 [27] Company Strategy and Development Direction - The company plans to actively recycle capital and utilize leverage and tax attributes more effectively while maintaining a solid balance sheet [12] - Recent hotel transactions reflect a commitment to value creation through the sale of non-core assets and acquisition of long-term relevant real estate [11][39] - The company aims to enhance its portfolio quality and strengthen its balance sheet through strategic transactions [36][38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued growth in Q4 2021 and into 2022, despite challenges posed by the Delta variant [15][40] - The company expects strong demand for leisure travel to persist, with positive trends in group and business transient demand anticipated to accelerate [23][40] - Management is confident in the company's ability to achieve higher stabilized margins as demand normalizes [22] Other Important Information - The company has approximately $222 million in total cash and cash equivalents, with full availability on a $500 million revolving credit facility, equating to over $700 million in total liquidity [42] - The CEO search process is underway, with a commitment to finding a leader who can advance the company's strategy [13] Q&A Session Summary Question: Can you elaborate on the decision to terminate the previous CEO and what attributes the new CEO should have? - Management indicated that the board determined new leadership attributes were necessary to create more value, focusing on candidates with real estate and transaction backgrounds [55] Question: Is the company being marketed for sale during this leadership transition? - Management clarified that the board is focused on maximizing shareholder value and is actively searching for a new CEO to continue executing on growth plans [62] Question: How does the company underwrite pricing and ADR for leisure resorts? - Management noted that while current rates are high, they expect some stabilization in rates as occupancy grows, with a focus on long-term performance [64] Question: What is the current leisure versus corporate mix and future strategy? - The current mix is approximately 28% leisure and 36% business transient, with plans to increase the leisure component over time [72] Question: How has the company's view on NAV changed since recent transactions? - Management indicated that recent transactions have added value to NAV, and the overall growth of the portfolio is expected to continue to enhance NAV [76]

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended September 30, 2021 OR ☐ 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 001-32319 Sunstone Hotel Investors, Inc. (Exact Name of Registrant as Specified in Its Charter) Maryland 20-1296886 (Stat ...

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q2 2021 Earnings Conference Call August 4, 2021 12:00 PM ET Company Participants Aaron Reyes - Senior Vice President and Treasurer John Arabia - President, CEO & Director Bryan Giglia - Executive VP & CFO Christopher Ostapovicz - Senior VP & COO Conference Call Participants Rich Hightower - Evercore Anthony Powell - Barclays Lukas Hartwich - Green Street Bill Crow - Raymond James Michael Bellisario - Baird Floris van Dijkum - Compass Point Operator Good day. Good mo ...

Company Overview - Sunstone Hotel Investors, Inc had interests in 18 hotels comprised of 9,147 rooms as of August 3, 2021[14] - The company's strategy is to maximize stockholder value through focused asset management and disciplined capital recycling[15] Financial Performance Q2 2021 - Total revenues were $117210 thousand for the three months ended June 30, 2021[56] - Net loss was $(27918) thousand for the three months ended June 30, 2021[56] - Loss attributable to common stockholders was $(35117) thousand for the three months ended June 30, 2021[56] Balance Sheet Q2 2021 - Total assets were $3015362 thousand as of June 30, 2021[49] - Total liabilities were $912057 thousand as of June 30, 2021[53] - Total stockholders' equity was $2063766 thousand as of June 30, 2021[53] Capitalization - Market value of common equity was $2720515 thousand as of June 30, 2021[114] - Consolidated debt was $746303 thousand as of June 30, 2021[114] - Total preferred stock was $256250 thousand as of June 30, 2021[115]

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents Sunstone Hotel Investors, Inc.'s unaudited consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Outlines the company's financial position, showing decreased current assets, increased hotel property investments, and growth in total liabilities and equity | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :--------------------------------------- | :----------------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $162,898 | $368,406 | | Total current assets | $242,845 | $435,145 | | Investment in hotel properties, net | $2,687,395 | $2,461,498 | | Total assets | $3,015,362 | $2,985,717 | | **LIABILITIES AND EQUITY** | | | | Total current liabilities | $113,724 | $90,793 | | Total liabilities | $912,057 | $896,338 | | Total equity | $2,103,305 | $2,089,379 | [Unaudited Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Presents revenue recovery for Q2 2021, driven by room and F&B, resulting in a reduced net loss and loss per common share Unaudited Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenues | $117,210 | $10,424 | $167,843 | $201,636 | | Total operating expenses | $137,149 | $115,292 | $235,220 | $447,152 | | Net loss | $(27,918) | $(117,500) | $(83,205) | $(280,019) | | Loss attributable to common stockholders | $(35,117) | $(118,545) | $(91,636) | $(283,813) | | Basic and diluted loss per common share | $(0.16) | $(0.55) | $(0.43) | $(1.30) | - Total revenues for the three months ended June 30, 2021, increased by **$106,786 thousand (1,024.4%)** compared to the same period in 2020, primarily due to a significant increase in room and food and beverage revenues[12](index=12&type=chunk)[141](index=141&type=chunk) - Net loss for the three months ended June 30, 2021, decreased by **$89,582 thousand (76.2%)** compared to the same period in 2020, indicating improved financial performance[12](index=12&type=chunk)[141](index=141&type=chunk) [Unaudited Consolidated Statements of Equity](index=7&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Equity) Presents changes in preferred and common stock, additional paid-in capital, retained earnings, and noncontrolling interest, highlighting preferred stock activities Unaudited Consolidated Statements of Equity (in thousands) | Metric | Balance at Dec 31, 2020 (in thousands) | Balance at June 30, 2021 (in thousands) | | :----------------------------------- | :------------------------------------- | :------------------------------------ | | Preferred Stock Amount | $190,000 | $256,250 | | Common Stock Amount | $2,156 | $2,190 | | Additional Paid in Capital | $2,586,108 | $2,626,582 | | Retained Earnings | $913,766 | $833,132 | | Cumulative Dividends and Distributions | $(1,643,386) | $(1,654,388) | | Total Equity | $2,089,379 | $2,103,305 | - The company redeemed **4,600,000 shares of 6.95% Series E Cumulative Redeemable Preferred Stock** in June 2021, incurring a **$4.0 million** redemption charge[83](index=83&type=chunk) - Issued **2,650,000 shares of Series G preferred stock ($66.3 million liquidation preference)** in April 2021 as partial payment for the Montage Healdsburg acquisition[86](index=86&type=chunk) - Issued **4,600,000 shares of 6.125% Series H preferred stock ($115.0 million gross proceeds)** in May 2021, with proceeds used to redeem Series E preferred stock[87](index=87&type=chunk)[126](index=126&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=11&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Presents a shift in financing activities from cash used to cash provided by stock offerings, and increased cash used in investing for hotel acquisitions Unaudited Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(13,923) | $(34,929) | | Net cash used in investing activities | $(212,431) | $(30,806) | | Net cash provided by (used in) financing activities | $20,603 | $(212,858) | | Net decrease in cash and cash equivalents and restricted cash | $(205,751) | $(278,593) | | Cash and cash equivalents and restricted cash, end of period | $210,388 | $586,380 | - Acquisition of hotel properties and other assets increased significantly from **$1,346 thousand** in H1 2020 to **$195,646 thousand** in H1 2021[21](index=21&type=chunk)[191](index=191&type=chunk) - Proceeds from preferred stock offerings were **$115,000 thousand** in H1 2021, compared to none in H1 2020[21](index=21&type=chunk)[193](index=193&type=chunk) - Repurchases of outstanding common stock decreased from **$103,894 thousand** in H1 2020 to **zero** in H1 2021[21](index=21&type=chunk)[194](index=194&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes detail the company's operations, accounting policies, financial instruments, REIT structure, COVID-19 impact, and capital market activities [1. Organization and Description of Business](index=14&type=section&id=1.%20Organization%20and%20Description%20of%20Business) Sunstone Hotel Investors, Inc. operates as a REIT, owning 18 hotels, with 14 temporarily impacted by COVID-19, 13 now resumed - The Company operates as a REIT, owning and managing **18 hotels** as of June 30, 2021[25](index=25&type=chunk)[27](index=27&type=chunk) - **14 hotels** temporarily suspended operations due to COVID-19 in March-April 2020; **13** have since resumed operations[27](index=27&type=chunk) [2. Summary of Significant Accounting Policies](index=16&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the company's accounting principles, including EPS calculation, policies for restricted cash, hotel investments, leases, noncontrolling interest, revenue recognition, and ASU 2020-04 adoption - The company applies the **two-class method** for earnings per share calculation, excluding unvested restricted shares if anti-dilutive[34](index=34&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) - Restricted cash includes reserve accounts for debt service, capital replacements, and employee-related obligations, totaling **$47.49 million** as of June 30, 2021[10](index=10&type=chunk)[39](index=39&type=chunk) - The company adopted ASU No. 2020-04 for reference rate reform, which is not expected to materially impact financial statements[61](index=61&type=chunk) [3. Investment in Hotel Properties](index=23&type=section&id=3.%20Investment%20in%20Hotel%20Properties) Net investment in hotel properties increased to **$2.69 billion** due to the **$265.0 million** Montage Healdsburg acquisition, including **$13.7 million** for intangible assets Investment in Hotel Properties (in thousands) | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :--------------------------------------- | :----------------------------------- | | Investment in hotel properties, net | $2,687,395 | $2,461,498 | | Land | $611,538 | $571,212 | | Buildings and improvements | $2,725,893 | $2,523,750 | | Intangible assets | $34,891 | $21,192 | | Construction in progress | $27,082 | $15,831 | - Acquired Montage Healdsburg for **$265.0 million** in April 2021, funded by Series G preferred stock (**$66.3 million**) and cash[62](index=62&type=chunk) - **$13.7 million** was allocated to intangible assets for residential rental and social membership programs at Montage Healdsburg[63](index=63&type=chunk)[64](index=64&type=chunk) [4. Fair Value Measurements and Interest Rate Derivatives](index=25&type=section&id=4.%20Fair%20Value%20Measurements%20and%20Interest%20Rate%20Derivatives) Measures financial instruments at fair value, primarily interest rate derivatives using Level 2 inputs, with a **$4.13 million** liability as of June 30, 2021, and uses Level 3 for debt fair value Fair Value Measurements (in thousands) | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :-------------------------- | :--------------------------------------- | :----------------------------------- | | Interest rate swap derivatives | $4,132 (liability) | $5,710 (liability) | | Fair Value of Debt | $720,551 | $715,042 | - Noncash changes in fair values of interest rate derivatives resulted in a decrease to interest expense of **$709 thousand** for the three months and **$1,578 thousand** for the six months ended June 30, 2021[70](index=70&type=chunk) - **70.5%** of outstanding debt had fixed interest rates as of June 30, 2021, including effects of interest rate swap agreements[71](index=71&type=chunk) [5. Other Assets](index=27&type=section&id=5.%20Other%20Assets) Other assets, net, decreased to **$11.33 million** due to reductions in property and equipment, deferred rent, and other receivables Other Assets, Net (in thousands) | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :----------------------------------- | | Property and equipment, net | $6,256 | $6,767 | | Deferred rent on straight-lined third-party tenant leases | $2,567 | $2,819 | | Other receivables | $2,077 | $2,633 | | Total other assets, net | $11,333 | $12,445 | [6. Notes Payable](index=29&type=section&id=6.%20Notes%20Payable) Total notes payable remained stable at **$746.30 million**, with cash trap provisions triggered on three loans due to declining hotel performance Notes Payable (in thousands) | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :----------------------------------- | | Total notes payable | $746,303 | $747,945 | | Current portion of notes payable | $3,375 | $3,305 | | Carrying value of notes payable, less current portion | $741,337 | $742,528 | - Cash trap provisions were triggered for loans secured by Embassy Suites La Jolla, JW Marriott New Orleans (January 2021), and Hilton San Diego Bayfront (May 2021)[74](index=74&type=chunk) - The company had **$500.0 million** capacity available under its revolving credit facility with no outstanding amount as of June 30, 2021[75](index=75&type=chunk) - Unsecured Debt Amendments waived financial covenants through Q1 2022, with testing resuming March 31, 2022[76](index=76&type=chunk) Interest Expense (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense on debt and finance lease obligation | $8,037 | $12,037 | $15,820 | $22,765 | | Noncash interest on derivatives | $(709) | $216 | $(1,578) | $6,296 | | Amortization of deferred financing costs | $737 | $697 | $1,472 | $1,396 | | Total interest expense | $8,065 | $12,950 | $15,714 | $30,457 | [7. Other Current Liabilities and Other Liabilities](index=31&type=section&id=7.%20Other%20Current%20Liabilities%20and%20Other%20Liabilities) Other current liabilities increased to **$50.69 million** due to higher taxes and advance deposits, while other liabilities decreased to **$13.61 million** from reduced deferred revenue and derivatives Other Current Liabilities and Other Liabilities (in thousands) | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :--------------------------------------- | :----------------------------------- | | **Other Current Liabilities:** | | | | Property, sales and use taxes payable | $14,676 | $10,134 | | Advance deposits | $26,167 | $13,341 | | Total other current liabilities | $50,693 | $32,606 | | **Other Liabilities:** | | | | Deferred revenue | $6,385 | $7,911 | | Interest rate swap derivatives | $4,132 | $5,710 | | Total other liabilities | $13,612 | $17,494 | [8. Leases](index=32&type=section&id=8.%20Leases) The company holds finance and operating leases, with finance lease ROU assets at **$45.45 million** and operating lease ROU assets at **$24.94 million**, and total lease cost of **$2.10 million** for Q2 2021 Lease Assets and Obligations (in thousands) | Metric | June 30, 2021 (unaudited) (in thousands) | December 31, 2020 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :----------------------------------- | | Finance Lease Right-of-use asset, net | $45,447 | $46,182 | | Finance Lease Total lease obligation | $15,570 | $15,570 | | Operating Leases Right-of-use assets, net | $24,939 | $26,093 | | Operating Leases Total lease obligations | $33,160 | $34,982 | Total Lease Cost (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total lease cost | $2,097 | $2,370 | $4,136 | $5,531 | [9. Stockholders' Equity](index=32&type=section&id=9.%20Stockholders%27%20Equity) Actively managed capital structure by redeeming Series E preferred stock, issuing Series G and H preferred stock, issuing common stock under ATM, and reauthorizing a **$500 million** stock repurchase program - Redeemed all **4,600,000 shares of 6.95% Series E Cumulative Redeemable Preferred Stock** in June 2021 at **$25.00 per share**, plus accrued dividends[83](index=83&type=chunk) - Issued **2,650,000 shares of Series G preferred stock** as partial payment for the Montage Healdsburg acquisition in April 2021[86](index=86&type=chunk) - Issued **4,600,000 shares of 6.125% Series H Cumulative Redeemable Preferred Stock** in May 2021 for **$115.0 million** gross proceeds[87](index=87&type=chunk) - Issued **2,913,682 shares of common stock** under ATM Agreements for **$38.4 million** gross proceeds in June 2021, with **$137.0 million** remaining available[89](index=89&type=chunk) - Reauthorized a **$500.0 million** stock repurchase program in February 2021, with no repurchases under this program as of June 30, 2021[88](index=88&type=chunk) [10. Long-Term Incentive Plan](index=34&type=section&id=10.%20Long-Term%20Incentive%20Plan) Details the Long-Term Incentive Plan (LTIP), granting restricted shares vesting over three years, with amortization expense of **$4.66 million** for Q2 2021 and **$7.41 million** for H1 2021 Amortization Expense and Forfeitures (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization expense, including forfeitures | $4,659 | $3,064 | $7,411 | $5,271 | | Capitalized compensation cost | $125 | $129 | $242 | $246 | - Restricted shares granted under the LTIP generally vest over **three years**[90](index=90&type=chunk) [11. Commitments and Contingencies](index=36&type=section&id=11.%20Commitments%20and%20Contingencies) Details various commitments, including **$36.5 million** in renovation and construction, and regional concentration of its hotel portfolio, exposing it to specific risks, with **$10.9 million** in restricted cash for employee obligations Total Basic and Incentive Management Fees (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total basic and incentive management fees | $3,073 | $164 | $4,376 | $5,555 | Total Franchise Costs (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total franchise costs | $2,296 | $338 | $3,287 | $5,674 | - Renovation and construction commitments totaled **$36.5 million** at June 30, 2021[98](index=98&type=chunk) - **13 of 18 hotels** are concentrated in California (**31%** of rooms, **34%** of revenue), Florida (**10%** of rooms, **16%** of revenue), Hawaii (**6%** of rooms, **21%** of revenue), Illinois (**13%** of rooms, **5%** of revenue), and Massachusetts (**16%** of rooms, **11%** of revenue)[100](index=100&type=chunk) - **$10.9 million** remains in restricted cash for potential employee-related obligations related to the Hilton Times Square assignment[101](index=101&type=chunk) [12. Subsequent Events](index=38&type=section&id=12.%20Subsequent%20Events) Subsequent to June 30, 2021, the company amended its Unsecured Debt Agreements, issued **4,000,000 shares of Series I preferred stock** for **$100.0 million**, plans to redeem Series F preferred stock, and is under contract to acquire a West Coast hotel for less than **$200 million** - Amended Unsecured Debt Agreements on July 2, 2021, removing restrictions on unencumbered hotel acquisitions and debt prepayment requirements from asset sales/equity issuances during the covenant waiver period[105](index=105&type=chunk) - Issued **4,000,000 shares of 5.70% Series I Cumulative Redeemable Preferred Stock** for **$100.0 million** on July 16, 2021[106](index=106&type=chunk) - Plans to redeem all **3,000,000 shares of Series F preferred stock** in August 2021 using **$75.0 million** from Series I preferred stock proceeds[108](index=108&type=chunk) - Under contract to acquire a West Coast hotel for less than **$200 million**, expected to be financed with cash on hand and credit facility borrowings[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial performance, condition, and outlook, detailing COVID-19 impact, hotel demand recovery, strategic capital activities, operating results, liquidity, capital resources, and critical accounting policies, emphasizing non-GAAP measures [Overview](index=43&type=section&id=Overview) Sunstone Hotel Investors, Inc., a self-managed REIT, focuses on urban and resort hotels, experienced COVID-19 impact, but saw H1 2021 occupancy improvements, strategic acquisitions, stock issuances, and a reauthorized repurchase program - The company owns **18 hotels**, averaging **508 rooms**, primarily branded, in urban and resort destination locations[116](index=116&type=chunk) - Occupancy at **17 hotels** increased from **1.6%** in April 2020 to **48.8%** in June 2021, driven by leisure demand and vaccine distribution[121](index=121&type=chunk) - Acquired Montage Healdsburg for **$265.0 million** in April 2021, funded by Series G preferred stock and cash[123](index=123&type=chunk) - Issued Series H preferred stock (**$115.0 million**) to redeem Series E preferred stock and issued common stock (**$38.4 million**) under ATM program[126](index=126&type=chunk)[127](index=127&type=chunk) - Temporarily suspended common stock quarterly dividend and reauthorized a **$500.0 million** stock repurchase program[128](index=128&type=chunk) [Operating Activities](index=47&type=section&id=Operating%20Activities) Operating activities show significant Q2 2021 revenue rebound, driven by room and F&B, reflecting COVID-19 recovery, though H1 revenues remain below 2020, with performance assessed using non-GAAP measures like EBITDAre and FFO Total Revenues and Operating Expenses (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $117,210 | $10,424 | $167,843 | $201,636 | | Total operating expenses | $137,149 | $115,292 | $235,220 | $447,152 | | Net loss | $(27,918) | $(117,500) | $(83,205) | $(280,019) | | Loss attributable to common stockholders | $(35,117) | $(118,545) | $(91,636) | $(283,813) | - Room revenue increased by **2,086.5%** for the three months ended June 30, 2021, compared to the same period in 2020, with occupancy up **4,090 basis points** and ADR up **103.0%**[145](index=145&type=chunk) - Adjusted EBITDAre, excluding noncontrolling interest, increased by **$62.3 million (132.6%)** for the three months and **$33.5 million (102.0%)** for the six months ended June 30, 2021, compared to the same periods in 2020, driven by recovery at the **17 hotels** and the Montage Healdsburg acquisition[182](index=182&type=chunk) - Adjusted FFO attributable to common stockholders increased by **$64.0 million (97.5%)** for the three months and **$36.5 million (54.5%)** for the six months ended June 30, 2021, compared to the same periods in 2020[187](index=187&type=chunk) [Liquidity and Capital Resources](index=69&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved in H1 2021 with decreased cash used in operations and positive cash from financing, driven by stock offerings and hotel acquisitions. The company maintains **$162.9 million** unrestricted cash and **$500.0 million** credit facility availability, with **$746.3 million** total debt - Net cash used in operating activities decreased to **$13.9 million** for H1 2021 from **$34.9 million** for H1 2020, due to resumed hotel operations and increased travel demand[189](index=189&type=chunk) - Net cash provided by financing activities was **$20.6 million** for H1 2021, a significant improvement from **$212.9 million** used in H1 2020, driven by preferred and common stock issuances[193](index=193&type=chunk) - Unrestricted cash balance was **$162.9 million** as of June 30, 2021, with **$500.0 million** available under the unsecured revolving credit facility[204](index=204&type=chunk) - Total consolidated debt was **$746.3 million** as of June 30, 2021, with **70.5%** having fixed interest rates[206](index=206&type=chunk)[209](index=209&type=chunk) Contractual Obligations and Commitments (in thousands) | Obligation Type | Total | Less Than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | | :------------------------------------ | :---------- | :--------------- | :----------- | :----------- | :---------------- | | Notes payable | $746,303 | $3,375 | $412,173 | $215,755 | $115,000 | | Interest obligations on notes payable | $103,446 | $29,425 | $40,732 | $22,272 | $11,017 | | Finance lease obligation | $107,311 | $1,403 | $2,806 | $2,806 | $100,296 | | Operating lease obligations | $39,204 | $6,882 | $13,926 | $11,483 | $6,913 | | Construction commitments | $36,495 | $36,495 | — | — | — | | Employment obligations | $2,277 | $2,277 | — | — | — | | **Total** | **$1,035,036** | **$79,857** | **$469,637** | **$252,316** | **$233,226** | [Capital Expenditures and Reserve Funds](index=77&type=section&id=Capital%20Expenditures%20and%20Reserve%20Funds) The company invested **$16.8 million** in capital expenditures in H1 2021, with **$36.5 million** in remaining commitments, and holds **$31.9 million** in FF&E reserve accounts, with some funding requirements temporarily suspended - Invested **$16.8 million** in capital expenditures during H1 2021[214](index=214&type=chunk) - Contractual construction commitments totaled **$36.5 million** as of June 30, 2021[214](index=214&type=chunk) - **$31.9 million** held in FF&E reserve accounts as restricted cash for future capital expenditures[215](index=215&type=chunk) - Some third-party managers have suspended FF&E reserve funding requirements through 2021 due to COVID-19[215](index=215&type=chunk) [Seasonality and Volatility](index=77&type=section&id=Seasonality%20and%20Volatility) The lodging industry and the company's business experience seasonality, with revenue fluctuations based on geography and time, and are subject to volatility from economic conditions, pandemics, natural disasters, and competition - The company's business experiences seasonality, with revenue patterns varying by quarter and geographic location (e.g., Q1 strong in Hawaii, Key West, New Orleans, Orlando; Q2 strong for Mid-Atlantic business hotels; Q4 strong for Hawaii and Key West)[216](index=216&type=chunk) - Operating results are affected by economic conditions, pandemics (COVID-19), natural disasters, competition, and changes in travel[216](index=216&type=chunk) [Inflation](index=77&type=section&id=Inflation) Inflation can increase operating expenses such as labor, benefits, food, commodities, taxes, insurance, and utilities, which may not always be offset by increased room rates - Inflation may increase costs for labor, employee benefits, food, commodities, taxes, property and liability insurance, and utilities[217](index=217&type=chunk) [Critical Accounting Policies](index=77&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve significant judgments and estimates for impairment of long-lived assets, acquisition-related assets and liabilities, depreciation and amortization, and income taxes, materially affecting reported financial results - Impairment losses on long-lived assets are recorded when future undiscounted net cash flows are less than the carrying amount, requiring judgment in estimating fair value through discounted cash flow analyses[219](index=219&type=chunk)[220](index=220&type=chunk)[44](index=44&type=chunk) - Acquisition accounting involves allocating purchase price to assets and liabilities at fair value, distinguishing between business and asset acquisitions, which impacts expense recognition[221](index=221&type=chunk) - Depreciation and amortization expense relies on estimated useful lives of assets (**5-40 years** for buildings, **3-12 years** for FF&E), with changes potentially affecting net income[221](index=221&type=chunk)[41](index=41&type=chunk) - Income tax accounting involves qualifying as a REIT, recognizing deferred tax assets/liabilities, and assessing uncertain tax positions, with a full valuation allowance recorded on deferred tax assets in H1 2020 due to COVID-19 uncertainties[221](index=221&type=chunk)[222](index=222&type=chunk)[171](index=171&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=81&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risk from variable interest rates on debt, managed with derivatives. As of June 30, 2021, **70.5%** of debt had fixed rates, and a **100 basis point** change in variable rates would impact consolidated earnings and cash flows by approximately **$2.2 million** - **70.5%** of the company's debt obligations had fixed interest rates as of June 30, 2021[226](index=226&type=chunk) - A **100 basis point** change in variable interest rates would increase/decrease consolidated earnings and cash flows by approximately **$2.2 million**, or **$1.7 million** after adjusting for noncontrolling interest[226](index=226&type=chunk) - The company uses derivative financial instruments to manage interest rate risks on floating rate debt[225](index=225&type=chunk) [Item 4. Controls and Procedures](index=81&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021[228](index=228&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter[229](index=229&type=chunk) [PART II—OTHER INFORMATION](index=82&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=82&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings - No legal proceedings were reported[231](index=231&type=chunk) [Item 1A. Risk Factors](index=82&type=section&id=Item%201A.%20Risk%20Factors) The company reported no new risk factors for the period - No new risk factors were reported[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=82&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reauthorized its **$500.0 million** stock repurchase program and withheld **108,905 shares** of restricted common stock for employee tax obligations - Reauthorized a **$500.0 million** stock repurchase program in February 2021[233](index=233&type=chunk) - Withheld **108,905 shares** of restricted common stock at an average price of **$12.49 per share** in May 2021 to satisfy employee tax obligations[234](index=234&type=chunk)[235](index=235&type=chunk) [Item 3. Defaults Upon Senior Securities](index=82&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[236](index=236&type=chunk) [Item 4. Mine Safety Disclosures](index=82&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures - No mine safety disclosures were reported[237](index=237&type=chunk) [Item 5. Other Information](index=82&type=section&id=Item%205.%20Other%20Information) The company reported no other information - No other information was reported[238](index=238&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed, including Articles of Amendment, Bylaws, Articles Supplementary for preferred stock, and required certifications - Includes Articles of Amendment and Restatement, Bylaws, and Articles Supplementary for Series E, F, G, H, and I preferred stock[239](index=239&type=chunk) - Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[239](index=239&type=chunk) [SIGNATURES](index=84&type=section&id=SIGNATURES) The report was signed by Bryan A. Giglia, Chief Financial Officer and Duly Authorized Officer, on August 4, 2021 - The report was signed by Bryan A. Giglia, Chief Financial Officer, on August 4, 2021[243](index=243&type=chunk)

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q1 2021 Results Earnings Conference Call May 4, 2021 12:00 PM ET Company Participants Aaron Reyes - Senior Vice President & Treasurer John Arabia - President & Chief Executive Officer Bryan Giglia - Chief Financial Officer Marc Hoffman - Chief Operating Officer Chris Ostapovicz - Senior Vice President and Co-Chief Operating Officer Conference Call Participants Rich Hightower - Evercore Danny Asad - Bank of America David Katz - Jefferies Smedes Rose - Citi Anthony Po ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ 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 001-32319 Sunstone Hotel Investors, Inc. (Exact Name of Registrant as Specified in Its Charter) Maryland 20-1296886 (State or ...

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q4 2020 Earnings Conference Call February 12, 2021 12:00 PM ET Company Participants Aaron Reyes - Senior Vice President & Treasurer John Arabia - President & Chief Executive Officer Bryan Giglia - Chief Financial Officer Marc Hoffman - Chief Operating Officer Conference Call Participants Michael Bellisario - Baird Lukas Hartwich - Green Street David Katz - Jefferies Danny Asad - Bank of America Rich Hightower - Evercore Anthony Powell - Barclays Smedes Rose - Citi A ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ 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 001-32319 Sunstone Hotel Investors, Inc. (Exact Name of Registrant as Specified in Its Charter) Indicate by check mark whether the ...

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q3 2020 Earnings Conference Call November 6, 2020 12:00 PM ET Company Participants Aaron Reyes – Vice President-Corporate Finance and Treasurer John Arabia – President and Chief Executive Officer Bryan Giglia – Chief Financial Officer Conference Call Participants Lukas Hartwich – Green Street Smedes Rose – Citi Dori Kesten – Wells Fargo Michael Bellisario – Baird Anthony Powell – Barclays Rich Hightower – Evercore David Katz – Jefferies Chris Woronka – Deutsche Bank ...