Financial Data and Key Metrics Changes - Adjusted EBITDAre for Q1 was $55 million, and adjusted FFO was $0.18 per diluted share, with an estimated $3 million of earnings displacement at the Marriott Long Beach Downtown due to its conversion [26][27] - Full year adjusted EBITDAre is expected to range from $242 million to $263 million, with adjusted FFO per diluted share projected between $0.84 and $0.94 [48][49] - The company anticipates total portfolio full year RevPAR growth to range from 2.25% to 5.25% compared to 2023, with a range of 4.75% to 7.75% when excluding the Confidante Miami Beach [39] Business Line Data and Key Metrics Changes - Convention hotels led the portfolio with over 7% RevPAR growth in Q1, driven by the newly converted Westin Washington DC Downtown, which saw rooms RevPAR grow by 52% and total RevPAR by more than 77% [15] - Group room revenue pace for the remainder of the year is up approximately 9%, with strong performance expected across Boston, DC, Orlando, Long Beach, and Wailea [20] - The company experienced a decline in leisure demand, but comparable resorts still generated profitability well ahead of pre-pandemic levels [14] Market Data and Key Metrics Changes - The acquisition of the Hyatt Regency San Antonio Riverwalk for $230 million is expected to yield 8% in the current year, which is higher than the previous returns from Boston Park Plaza [32] - The San Antonio market is expected to benefit from a $500 million redevelopment of the Alamo and a multi-billion dollar airport expansion, which should drive additional visitation [71][77] - The convention center in San Antonio has recently undergone a multi-million dollar upgrade, with positive citywide pace expected for 2025 and 2026 [73] Company Strategy and Development Direction - The company continues to execute on three strategic objectives: recycling capital, investing in the portfolio, and returning capital to shareholders, which is expected to drive incremental earnings and value over the next several years [23] - The company is focused on internal investments, including the transformation of Andaz Miami Beach, which remains on schedule for completion by the end of the year [13] - The strategy includes evaluating additional acquisition opportunities and maintaining significant investment capacity for future growth [22][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the outlook for 2024, expecting the headwinds faced in Q1 to shift into tailwinds, particularly in the second half of the year [8][20] - The company noted that improved labor productivity helped offset lower group mix and decline in average rates during Q1 [18] - Management highlighted that the recent investments and acquisitions are paving the way for significant earnings growth into 2025 [24] Other Important Information - The board of directors declared a 29% increase in the quarterly dividend to $0.09 per share, reflecting the incremental income generated by the acquisition of the Hyatt Regency San Antonio [30] - The company maintains a strong balance sheet with over $240 million in total cash and cash equivalents, and nearly $740 million in total liquidity [40][41] Q&A Session Summary Question: April RevPAR trends and prospects for acceleration in Q2 - Management indicated that April was expected to be a transition quarter, with slightly down RevPAR but anticipated growth in May and June as comparisons ease [54][55] Question: Insights on the transactions market and competitive landscape - Management noted that while the near-term deal flow has slowed, being a cash buyer positions the company favorably in the current market [66][67] Question: Supply-demand dynamics in San Antonio and historical performance - Management highlighted the strong demand drivers in San Antonio, including leisure and convention business, and expressed confidence in the investment's growth potential [70][74] Question: Capital deployment strategy and focus segments - Management emphasized a balanced approach to capital deployment, targeting hotels with significant group components and immediate growth potential [82][84]

Exhibit 99.2 Supplemental Financial Information For the quarter ended March 31, 2024 May 6, 2024 Supplemental Financial Information May 6, 2024 Table of Contents | Corporate Profile And Disclosures Regarding Non-GAAP Financial Measures | 2 | | --- | --- | | Comparable Corporate Financial Information | 6 | | Capitalization | 12 | | Property-Level Data And Operating Statistics | 15 | | Property-Level Revenues, Adjusted EBITDAre & Adjusted EBITDAre Margins | 19 | Supplemental Financial Information May 6, 2024 ...

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q4 2023 Earnings Conference Call February 23, 2024 1:00 PM ET Company Participants Aaron Reyes - CFO Bryan Giglia - CEO Robert Springer - President and Chief Investment Officer Conference Call Participants Chris Darling - Green Street Duane Pfennigwerth - Evercore ISI Smedes Rose - Citi Chris Woronka - Deutsche Bank Floris Van Dijkum - Compass Point Operator Good morning, ladies and gentlemen, thanks for standing by. Welcome to the Sunstone Hotel Investors Fourth Qu ...

PART I [Business](index=3&type=section&id=Item%201.%20Business) As a REIT, the company owns 14 upper upscale hotels, focusing on a value-add lifecycle investment approach with third-party management **Portfolio Overview as of December 31, 2023** | Metric | Value | | :--- | :--- | | Number of Hotels | 14 | | Number of Rooms | 6,675 | | Locations | 6 states and Washington, DC | - The company's mission is to provide superior stockholder returns by investing in hotels where value can be added through capital investment, repositioning, and asset management, while actively recycling capital into new growth opportunities[16](index=16&type=chunk) - As of year-end 2023, hotels are managed by various third parties, including **Marriott (6 hotels)**, **Hyatt (2 hotels)**, and others like Four Seasons, Hilton, and Montage managing one hotel each[17](index=17&type=chunk) - As of February 23, 2024, the company had 40 employees; the workforce as of December 31, 2023, was approximately **40% female** and **35% ethnic, racial minorities**, and other underrepresented communities[48](index=48&type=chunk)[52](index=52&type=chunk) **Executive Officers as of February 23, 2024** | Name | Age | Position | | :--- | :--- | :--- | | Bryan A. Giglia | 47 | Chief Executive Officer | | Robert C. Springer | 46 | President and Chief Investment Officer | | David M. Klein | 54 | Executive Vice President and General Counsel | | Christopher G. Ostapovicz | 54 | Executive Vice President and Chief Operating Officer | | Aaron R. Reyes | 45 | Executive Vice President and Chief Financial Officer | [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks from industry competition, economic conditions, cybersecurity threats, and its REIT qualification requirements - The lodging industry is highly competitive, with competition based on location, price, service levels, and brand reputation; the company's upper upscale and luxury hotels are particularly susceptible to revenue decreases during economic downturns[75](index=75&type=chunk)[78](index=78&type=chunk) - Cybersecurity breaches pose a significant risk, as the company and its third-party managers rely on IT systems that store sensitive guest data; past incidents at third-party managers have impacted company hotels[83](index=83&type=chunk)[84](index=84&type=chunk) **Geographic Concentration as of December 31, 2023** | State | Number of Hotels | Percentage of Total Rooms | Percentage of Total Consolidated Revenue | | :--- | :--- | :--- | :--- | | California | 5 | 39% | 44% | | Florida | 3 | 19% | 17% | | Hawaii | 1 | 8% | 17% | - The company faces risks from climate change, including physical risks like severe storms and transitional risks like increased regulation and shifts in consumer preferences[90](index=90&type=chunk)[92](index=92&type=chunk) - As of December 31, 2023, the company had approximately **$819.1 million of outstanding debt**, which may restrict financial flexibility and requires a substantial portion of cash flow for debt service[148](index=148&type=chunk) - Failure to qualify as a REIT would result in federal and state corporate income tax on the company's income, substantially reducing cash available for distributions to stockholders[158](index=158&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments[194](index=194&type=chunk) [Cybersecurity](index=36&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity program relies on third-party hotel managers for property-level security while overseeing corporate systems internally - Due to its REIT structure, the company does not operate or manage its hotels and relies on third-party managers' programs to protect property-level systems from cybersecurity threats[195](index=195&type=chunk) - The company has implemented a corporate cybersecurity risk management program guided by frameworks such as ISO 27000 and NIST CSF[197](index=197&type=chunk) - The Board of Directors has delegated oversight of cybersecurity risk to the Audit Committee, which receives quarterly reports from management[200](index=200&type=chunk)[201](index=201&type=chunk) [Properties](index=37&type=section&id=Item%202.%20Properties) The company's portfolio consists of 14 Luxury and Upper Upscale hotels with 6,675 rooms across key US markets **Hotel Portfolio Summary as of December 31, 2023** | Hotel | City | State | Chain Scale Segment | Rooms | Manager | | :--- | :--- | :--- | :--- | :--- | :--- | | Four Seasons Resort Napa Valley | Calistoga | California | Luxury | 85 | Four Seasons | | Hilton New Orleans St. Charles | New Orleans | Louisiana | Upper Upscale | 252 | IHR | | Hilton San Diego Bayfront | San Diego | California | Upper Upscale | 1,190 | Hilton | | Hyatt Regency San Francisco | San Francisco | California | Upper Upscale | 821 | Hyatt | | JW Marriott New Orleans | New Orleans | Louisiana | Luxury | 501 | Marriott | | Marriott Boston Long Wharf | Boston | Massachusetts | Upper Upscale | 415 | Marriott | | Montage Healdsburg | Healdsburg | California | Luxury | 130 | Montage | | Oceans Edge Resort & Marina | Key West | Florida | Upper Upscale | 175 | Singh | | Renaissance Long Beach | Long Beach | California | Upper Upscale | 374 | Marriott | | Renaissance Orlando at SeaWorld® | Orlando | Florida | Upper Upscale | 781 | Marriott | | The Bidwell Marriott Portland | Portland | Oregon | Upper Upscale | 258 | Sage | | The Confidante Miami Beach | Miami Beach | Florida | Upper Upscale | 339 | Hyatt | | The Westin Washington, DC Downtown | Washington DC | D.C. | Upper Upscale | 807 | Marriott | | Wailea Beach Resort | Wailea | Hawaii | Upper Upscale | 547 | Marriott | | **Total** | | | | **6,675** | | [Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) The company is not involved in any legal proceedings expected to have a material adverse effect on its financial condition - The company does not believe that any pending legal matters will have a material adverse effect on its financial position or results of operations[206](index=206&type=chunk) [Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[207](index=207&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE, and it maintains a stock repurchase program to return value to shareholders - The company's common stock is traded on the New York Stock Exchange under the symbol 'SHO'[209](index=209&type=chunk) - In February 2023, the board reauthorized the stock repurchase program, restoring the **$500.0 million** amount; from February 1 through December 31, 2023, the company repurchased 4,821,387 shares for **$45.4 million**, leaving **$454.7 million** remaining under the program[214](index=214&type=chunk) **Common Stock Repurchases for Q4 2023** | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Oct 1 - Oct 31, 2023 | 163,449 | $9.18 | $474,031,549 | | Nov 1 - Nov 30, 2023 | 1,553,308 | $9.73 | $458,913,642 | | Dec 1 - Dec 31, 2023 | 426,676 | $9.89 | $454,693,415 | | **Total** | **2,143,433** | **$9.72** | **$454,693,415** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Financial performance improved in 2023, driven by stronger urban travel demand, asset sales, and active capital management **Portfolio Changes (2022-2023)** | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Hotels at start of year | 15 | 17 | | Acquisitions | 0 | 1 | | Dispositions | (1) | (3) | | **Hotels at end of year** | **14** | **15** | | Rooms at start of year | 7,735 | 8,544 | | Rooms from acquisitions | 0 | 339 | | Rooms from dispositions | (1,060) | (1,148) | | **Rooms at end of year** | **6,675** | **7,735** | - In October 2023, the company sold the Boston Park Plaza for gross proceeds of **$370.0 million**, recording a gain of **$123.8 million**[222](index=222&type=chunk) **Consolidated Operating Results (in thousands)** | | 2023 | 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | **$986,480** | **$912,053** | **$74,427** | **8.2%** | | Total operating expenses | $867,824 | $816,175 | $51,649 | 6.3% | | Gain on sale of assets | $123,820 | $22,946 | $100,874 | 439.6% | | **NET INCOME** | **$206,708** | **$90,766** | **$115,942** | **127.7%** | | **INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS** | **$192,720** | **$73,042** | **$119,678** | **163.8%** | **Reconciliation of Net Income to Adjusted EBITDAre (in thousands)** | | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $206,708 | $90,766 | | EBITDAre | $266,191 | $227,959 | | **Adjusted EBITDAre, excluding noncontrolling interest** | **$263,446** | **$233,782** | **Reconciliation of Net Income to Adjusted FFO (in thousands)** | | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $206,708 | $90,766 | | FFO attributable to common stockholders | $195,335 | $173,459 | | **Adjusted FFO attributable to common stockholders** | **$196,513** | **$184,628** | - As of December 31, 2023, the company had an unrestricted cash balance of **$426.4 million** and **$500.0 million** available for borrowing under its unsecured revolving credit facility[273](index=273&type=chunk) - Total debt as of December 31, 2023, was **$819.1 million**; approximately **51.2%** of this debt had fixed interest rates or had been swapped to fixed rates[274](index=274&type=chunk)[277](index=277&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure from its variable-rate debt, which is partially mitigated by derivatives - The company uses derivative financial instruments, such as interest rate caps and swaps, to manage interest rate risk on its floating rate debt[292](index=292&type=chunk) - As of December 31, 2023, **51.2%** of the company's debt obligations were fixed or subject to interest rate swaps; a 50 basis point change in market interest rates on its variable rate debt would change annualized interest expense by approximately **$2.0 million**[293](index=293&type=chunk) [Financial Statements and Supplementary Data](index=56&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates by reference the company's audited consolidated financial statements and supplementary data - This item refers to the consolidated financial statements and the report of the independent registered public accounting firm, which are included later in the filing[294](index=294&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=56&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None reported[295](index=295&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period[296](index=296&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[299](index=299&type=chunk) - Ernst & Young LLP, the independent registered public accounting firm, issued an unqualified audit report on the effectiveness of the company's internal control over financial reporting[300](index=300&type=chunk) [Other Information](index=58&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - None[313](index=313&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=58&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) The company reports no information under this item - None[314](index=314&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=58&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors and corporate governance is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement to be filed with the SEC[316](index=316&type=chunk) [Executive Compensation](index=58&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement to be filed with the SEC[317](index=317&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=58&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's definitive Proxy Statement - Most of the required information is incorporated by reference from the definitive Proxy Statement[318](index=318&type=chunk) - As of December 31, 2023, **2,581,199 securities** were available for future issuance under the 2022 Incentive Award Plan[320](index=320&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=58&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement to be filed with the SEC[321](index=321&type=chunk) [Principal Accountant Fees and Services](index=59&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement to be filed with the SEC[322](index=322&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=59&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report - This item provides an index of all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K[324](index=324&type=chunk) [Form 10-K Summary](index=64&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no information for the Form 10-K Summary - None[330](index=330&type=chunk) Financial Statements and Notes [Report of Independent Registered Public Accounting Firm](index=67&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued unqualified opinions on the company's financial statements and internal controls over financial reporting - Ernst & Young LLP issued an unqualified opinion, stating the financial statements are fairly presented in conformity with U.S. GAAP[343](index=343&type=chunk) - The audit firm also provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[344](index=344&type=chunk) - The impairment assessment of hotel properties was identified as a **Critical Audit Matter** due to the significant management judgment required to identify impairment indicators[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk) [Consolidated Financial Statements](index=69&type=section&id=Consolidated%20Financial%20Statements) The financial statements show significant net income growth in 2023, driven by higher revenues and gains on asset sales **Consolidated Balance Sheet Highlights (in thousands)** | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Investment in hotel properties, net | $2,585,279 | $2,840,928 | | Cash and cash equivalents | $426,403 | $101,223 | | **Total assets** | **$3,149,321** | **$3,082,817** | | Debt, net | $814,559 | $812,681 | | **Total liabilities** | **$982,683** | **$997,856** | | **Total stockholders' equity** | **$2,166,638** | **$2,084,961** | **Consolidated Statement of Operations Highlights (in thousands)** | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Total revenues | $986,480 | $912,053 | | Total operating expenses | $867,824 | $816,175 | | Gain on sale of assets | $123,820 | $22,946 | | **Net Income** | **$206,708** | **$90,766** | | **Income attributable to common stockholders** | **$192,720** | **$73,042** | | **Diluted EPS** | **$0.93** | **$0.34** | **Consolidated Cash Flow Highlights (in thousands)** | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $198,131 | $209,384 | | Net cash provided by (used in) investing activities | $258,082 | $(165,721) | | Net cash used in financing activities | $(119,721) | $(49,174) | | **Net increase (decrease) in cash** | **$336,492** | **$(5,511)** | [Notes to Consolidated Financial Statements](index=74&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key financial activities, including asset sales, debt management, equity repurchases, and capital expenditure commitments - In June 2022, the company acquired The Confidante Miami Beach for **$232.0 million** and the remaining 25% interest in the Hilton San Diego Bayfront for a total of **$104.5 million**[422](index=422&type=chunk)[423](index=423&type=chunk) - In October 2023, the company sold the Boston Park Plaza for net proceeds of **$364.5 million**, recognizing a gain of **$123.8 million**[427](index=427&type=chunk) **Notes Payable Summary as of Dec 31, 2023 (in thousands)** | Debt Type | Balance Outstanding | | :--- | :--- | | Mortgage Loans | $74,050 | | Unsecured Corporate Credit Facilities | $575,000 | | Unsecured Senior Notes | $170,000 | | **Total debt** | **$819,050** | - In May 2023, the company entered into a new **$225.0 million term loan** (Term Loan 3) and used the proceeds to repay the **$220.0 million mortgage** on the Hilton San Diego Bayfront[449](index=449&type=chunk)[450](index=450&type=chunk) - As of December 31, 2023, the company had outstanding construction commitments totaling **$64.3 million** for ongoing hotel renovations[507](index=507&type=chunk)

Company Overview - As of February 23, 2024, Sunstone Hotel Investors, Inc owned 14 hotels with 6,675 rooms, primarily under nationally recognized brands[21] - The company focuses on long-term stakeholder value through acquisition, active ownership, and disposition of hotel and resort real estate[21] Financial Performance (2023) - Total revenues for the year ended December 31, 2023 were $889.712 million[31] - Comparable Hotel Adjusted EBITDAre for the year ended December 31, 2023 was $244.732 million[31] - Comparable Adjusted FFO attributable to common stockholders for the year ended December 31, 2023 was $164.489 million, or $0.81 per diluted share[31] Debt and Capitalization (December 31, 2023) - Total debt was $819.050 million[83] - Fixed-rate debt accounted for 51.2% of the total debt, while floating-rate debt was 48.8%[85] - Total capitalization was $3.283636 billion, with debt representing 24.9% of the total[110] Property-Level Operating Statistics (2023) - The 11-hotel portfolio (excluding Montage Healdsburg, Four Seasons Resort Napa Valley and The Confidante Miami Beach) achieved an average ADR of $303.48 and RevPAR of $215.47[95] - The comparable portfolio (all hotels owned as of December 31, 2023) achieved an average ADR of $324.58 and RevPAR of $226.56[95] - Total RevPAR for the comparable portfolio was $364.64[124]

Financial Performance - Total revenues for Q4 2023 were $208.094 million, a decrease from $213.661 million in Q3 2023, and total revenues for FY 2023 reached $889.712 million[26] - Comparable Hotel Adjusted EBITDAre for Q4 2023 was $49.855 million, down from $54.009 million in Q3 2023, while FY 2023 total was $244.732 million[26] - Net income for Q4 2023 was $1.399 million, compared to $6.658 million in Q3 2023, with FY 2023 net income totaling $57.326 million[26] - Comparable Adjusted FFO attributable to common stockholders for Q4 2023 was $33.532 million, consistent with $33.424 million in Q3 2023, and FY 2023 total was $164.489 million[26] - Room revenues for Q4 2023 were $127.038 million, a decline from $134.428 million in Q3 2023, while total room revenues for FY 2023 were $552.646 million[26] - Food and beverage revenues for Q4 2023 increased to $61.284 million from $56.835 million in Q3 2023, contributing to a total of $254.250 million for FY 2023[26] - Total operating expenses for Q4 2023 were $194.927 million, slightly down from $195.725 million in Q3 2023, with FY 2023 total operating expenses at $790.342 million[26] - Interest expense for Q4 2023 was $16.768 million, up from $11.894 million in Q3 2023, with total interest expense for FY 2023 amounting to $51.679 million[26] Year-over-Year Comparisons - Total revenues for the year ended December 31, 2022, were $836,700,000, with a quarterly revenue of $217,329,000 for Q4 2022[28] - Net income for Q4 2022 was $14,045,000, a decrease from $15,786,000 in Q3 2022, while the annual net income was $70,933,000[28] - Comparable Adjusted EBITDAre for Q4 2022 was $60,995,000, compared to $54,762,000 in Q3 2022, indicating a 23% increase[28] - Comparable Adjusted FFO attributable to common stockholders for Q4 2022 was $45,951,000, up from $42,178,000 in Q3 2022[28] - The company reported a total operating expense of $191,558,000 for Q4 2022, slightly higher than $190,027,000 in Q3 2022[28] - Interest expense for Q4 2022 was $11,717,000, increasing from $9,269,000 in Q3 2022[28] - The company reported a gain on the sale of assets of $123,820 thousand for FY 2023[34] - The total operating expenses for the year ended December 31, 2022, were $737,748,000, reflecting a significant operational scale[28] Shareholder Returns and Equity - Total equity transactions in 2023 included repurchases totaling 2.0 million shares in Q1, 0.3 million in Q2, 1.6 million in Q3, and 2.1 million in Q4[35] - The common share price at the end of Q4 2023 was $10.73, up from $9.35 in Q3 2023, representing a 14.8% increase[47] - The market value of common equity increased to $2,183,336 thousand in Q4 2023 from $1,922,578 thousand in Q3 2023, a growth of 13.6%[47] - The company declared a common dividend of $0.13 per share in Q4 2023, an increase from $0.07 in Q3 2023[47] Debt and Capitalization - Total debt remained relatively stable at $819,050 thousand in Q4 2023 compared to $819,582 thousand in Q3 2023, showing a slight decrease of 0.1%[50] - The total debt to total capitalization ratio improved to 24.9% in Q4 2023 from 27.1% in Q3 2023, indicating a stronger capital structure[47] - The average interest rate on total debt was 5.80% as of December 31, 2023, with 51.2% of the debt being fixed rate[50] - The company achieved a weighted average maturity of debt of 3.0 years, up from 2.8 years due to the extension of certain loans[50] Operational Highlights - The company owns 14 hotels with a total of 6,675 rooms as of February 23, 2024, focusing on long-term stakeholder value through strategic acquisitions and active ownership[7] - Future outlook includes continued focus on market expansion and potential acquisitions to enhance portfolio performance and stakeholder value[7] - The company plans to continue expanding its market presence and investing in new technologies to enhance operational efficiency[32] - Future guidance indicates a focus on increasing comparable hotel adjusted EBITDAre through strategic acquisitions and operational improvements[32] Hotel Performance Metrics - For the year ended December 31, 2023, the Average Daily Rate (ADR) for Hilton San Diego Bayfront increased by 1.9% to $275.56 compared to $270.47 in 2022[64] - The occupancy rate for Hyatt Regency San Francisco improved to 69.6% in 2023, up from 58.5% in 2022, representing an increase of 1,110 basis points[64] - The Revenue Per Available Room (RevPAR) for the Comparable Portfolio, excluding Renovation Hotels, decreased by 1.0% to $324.58 in 2023 compared to $327.97 in 2022[64] - The ADR for the Four Seasons Resort Napa Valley decreased by 14.9% to $1,512.81 in 2023 from $1,778.25 in 2022[64] - The total RevPAR (TRevPAR) for the 11 Hotel Portfolio increased by 0.8% to $303.48 in 2023 compared to $301.18 in 2022[65] - The occupancy rate for Wailea Beach Resort decreased to 75.6% in 2023, down from 79.2% in 2022, a decline of 360 basis points[64] - The ADR for JW Marriott New Orleans increased by 0.8% to $240.59 in 2023 compared to $238.68 in 2022[64] - The RevPAR for Marriott Boston Long Wharf increased by 11.8% to $280.33 in 2023 from $250.67 in 2022[64] - The occupancy rate for Oceans Edge Resort & Marina was 76.6% in 2023, an increase of 270 basis points from 73.9% in 2022[64] - The ADR for Montage Healdsburg decreased by 3.5% to $1,065.10 in 2023 compared to $1,103.21 in 2022[64] Specific Hotel Performance - For Q4 2023, Hilton San Diego Bayfront reported total revenues of $41.36 million, with an Adjusted EBITDA of $11.48 million and a margin of 27.8%, down 170 bps from 2022[71] - The Westin Washington, DC Downtown experienced a significant revenue increase of 52.6% year-over-year, reaching $20.04 million in Q4 2023, with an Adjusted EBITDA margin of 18.1%[71] - The Comparable Portfolio, Excluding Renovation Hotel generated revenues of $203.35 million in Q4 2023, with an Adjusted EBITDA of $50.08 million, reflecting a margin of 24.6%[71] - The Confidante Miami Beach reported a revenue decline of 52.7% in Q4 2023, with total revenues of $4.75 million and an Adjusted EBITDA margin of -4.6%[71] - The total revenues for the Actual Portfolio in Q4 2023 were $219.23 million, with an Adjusted EBITDA of $55.28 million, resulting in a margin of 25.2%[71] - Hyatt Regency San Francisco saw a revenue increase of 9.6% year-over-year, totaling $23.12 million in Q4 2023, with an Adjusted EBITDA margin of 12.1%[71] - The Bidwell Marriott Portland achieved a revenue increase of 12.4% year-over-year, reaching $2.66 million in Q4 2023, with an Adjusted EBITDA margin of 10.7%[71] - Four Seasons Resort Napa Valley reported a revenue decrease of 15.6% in Q4 2023, totaling $9.50 million, with an Adjusted EBITDA margin of -5.0%[71] - The total revenue for the Comparable Portfolio in Q4 2023 was $208.09 million, with an Adjusted EBITDA of $49.86 million, reflecting a margin of 24.0%[71] - The overall Adjusted EBITDA margin for the Actual Portfolio decreased by 120 bps compared to the previous year, indicating a slight decline in profitability[71] Renovation and Asset Management - Hotel Adjusted EBITDAre for Q4 2023 is affected by renovation activities at The Confidante Miami Beach, impacting overall performance[1] - The Confidante Miami Beach is undergoing a transformational renovation in preparation for its conversion to Andaz Miami Beach[1] - The Comparable Portfolio excludes The Confidante Miami Beach due to its renovation activity during Q4 2023[1] - Sold Hotels include the Boston Park Plaza, which was sold in October 2023, affecting year-over-year comparisons[1] - The Actual Portfolio includes results for 15 hotels owned during Q4 and full year 2023, compared to 15 and 18 hotels in 2022[1] - The 11 Hotel Portfolio excludes Montage Healdsburg and Four Seasons Resort Napa Valley, which were newly developed and not open in 2019[1] - Prior Ownership results for The Confidante Miami Beach are included for analysis prior to its acquisition in June 2022[1]

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q3 2023 Earnings Call Transcript November 7, 2023 12:00 PM ET Company Participants Aaron Reyes - Chief Financial Officer Bryan Giglia - Chief Executive Officer Robert Springer - President and Chief Investment Officer Conference Call Participants Dori Kesten - Wells Fargo Smedes Rose - Citi Duane Pfennigwerth - Evercore ISI Michael Bellisario - Baird Chris Woronka - Deutsche Bank Anthony Powell - Barclays Floris Van Dijkum - Compass Point Operator Good morning, ladie ...

[PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section provides unaudited consolidated financial statements and detailed notes for periods ending September 30, 2023, and December 31, 2022 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section details the unaudited consolidated financial statements and accompanying notes for the specified reporting periods [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and equity, as of September 30, 2023, and December 31, 2022 Consolidated Balance Sheets (in thousands of dollars) | Metric | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Investment in hotel properties, net | $2,580,421 | $2,840,928 | | Cash and cash equivalents | $113,768 | $101,223 | | Restricted cash | $71,228 | $55,983 | | Assets held for sale | $247,776 | — | | Total assets | $3,088,829 | $3,082,817 | | Debt, net | $814,702 | $812,681 | | Total liabilities | $1,001,144 | $997,856 | | Total stockholders' equity | $2,087,685 | $2,084,961 | [Unaudited Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net income for the three and nine months ended September 30, 2023 and 2022 Unaudited Consolidated Statements of Operations for Three Months Ended Sep 30 (in thousands of dollars, except EPS) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Total revenues | $247,700 | $244,314 | $3,386 | 1.4% | | Total operating expenses | $220,873 | $214,347 | $6,526 | 3.0% | | Interest expense | $(11,894) | $(9,269) | $(2,625) | (28.3)% | | Net income | $15,558 | $20,488 | $(4,930) | (24.1)% | | Income attributable to common stockholders | $12,332 | $17,137 | $(4,805) | (28.0)% | | Basic EPS | $0.06 | $0.08 | $(0.02) | (25.0)% | Unaudited Consolidated Statements of Operations for Nine Months Ended Sep 30 (in thousands of dollars, except EPS) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total revenues | $767,255 | $667,909 | $99,346 | 14.9% | | Total operating expenses | $667,186 | $601,194 | $65,992 | 11.0% | | Interest expense | $(34,911) | $(20,288) | $(14,623) | (72.1)% | | Net income | $79,723 | $73,303 | $6,420 | 8.8% | | Income attributable to common stockholders | $68,961 | $58,929 | $10,032 | 17.0% | | Basic EPS | $0.33 | $0.27 | $0.06 | 22.2% | [Unaudited Consolidated Statements of Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Equity) Outlines changes in stockholders' equity, reflecting net income, repurchases, and distributions, for the reporting periods - Total stockholders' equity increased from **$2.08 billion** at December 31, 2022, to **$2.09 billion** at September 30, 2023, driven by net income partially offset by common stock repurchases and distributions[14](index=14&type=chunk)[16](index=16&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 Unaudited Consolidated Statements of Cash Flows for Nine Months Ended Sep 30 (in thousands of dollars) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by operating activities | $168,742 | $149,698 | +$19,044 | | Net cash used in investing activities | $(60,222) | $(134,385) | +$74,163 | | Net cash used in financing activities | $(80,730) | $(10,189) | $(70,541) | | Net increase in cash and cash equivalents and restricted cash | $27,790 | $5,124 | +$22,666 | | Cash and cash equivalents and restricted cash, end of period | $184,996 | $167,841 | +$17,155 | Supplemental Cash Flow Information for Nine Months Ended Sep 30 (in thousands of dollars) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------- | :----------------------------- | :----------------------------- | | Cash paid for interest | $39,013 | $24,279 | | Cash paid for income taxes, net | $1,272 | $218 | [Notes to Unaudited Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Provides detailed explanations of the company's accounting policies, financial accounts, and significant transactions [1. Organization and Description of Business](index=13&type=section&id=1.%20Organization%20and%20Description%20of%20Business) Describes the company's structure as a REIT, its investment strategy, and hotel portfolio management - Sunstone Hotel Investors, Inc. operates as a self-managed and self-administered REIT, investing in hotels to add value through capital investment, repositioning, and asset management[24](index=24&type=chunk) - As of September 30, 2023, the Company owned **15 hotels**, with **14 held for investment** and one (Boston Park Plaza) classified as held for sale[26](index=26&type=chunk) - The Company's hotels are managed by third parties, including subsidiaries of Marriott International, Hyatt Hotels Corporation, Four Seasons Hotels Limited, and Hilton Worldwide[26](index=26&type=chunk) [2. Summary of Significant Accounting Policies](index=13&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines key accounting principles, including balance sheet presentation, impairment, and segment reporting - The Company changed its balance sheet presentation from classified to unclassified as of the third quarter of 2023 to conform with REIT peers in the lodging sector[31](index=31&type=chunk) - No hotels were impaired during either the three or nine months ended September 30, 2023, and 2022[47](index=47&type=chunk) - All of the Company's hotels are aggregated into one single reportable segment, hotel ownership, due to similar economic characteristics, facilities, and services[60](index=60&type=chunk) [3. Investment in Hotel Properties](index=22&type=section&id=3.%20Investment%20in%20Hotel%20Properties) Details the composition and net value of the company's hotel property investments Investment in Hotel Properties (in thousands of dollars) | Category | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Land | $614,112 | $672,531 | | Buildings and improvements | $2,556,852 | $2,793,771 | | Furniture, fixtures and equipment | $403,362 | $426,189 | | Intangible assets | $42,187 | $42,187 | | Construction in progress | $62,358 | $71,689 | | Investment in hotel properties, gross | $3,678,871 | $4,006,367 | | Accumulated depreciation and amortization | $(1,098,450) | $(1,165,439) | | Investment in hotel properties, net | $2,580,421 | $2,840,928 | [4. Disposal](index=22&type=section&id=4.%20Disposal) Discusses the classification and subsequent sale of the Boston Park Plaza hotel - The Boston Park Plaza was classified as held for sale at September 30, 2023, and subsequently sold in October 2023[64](index=64&type=chunk) - The sale did not represent a strategic shift and therefore did not qualify as a discontinued operation[64](index=64&type=chunk) Assets and Liabilities Held for Sale (in thousands of dollars) | Category | Sep 30, 2023 (in thousands) | | :--------------------------------- | :-------------------------- | | Investment in hotel properties, net | $239,560 | | Accounts receivable, net | $5,880 | | Prepaid expenses and other assets, net | $2,336 | | **Assets held for sale** | **$247,776** | | Accounts payable and accrued expenses | $8,843 | | Other liabilities | $6,554 | | **Liabilities of assets held for sale** | **$15,397** | [5. Fair Value Measurements and Interest Rate Derivatives](index=24&type=section&id=5.%20Fair%20Value%20Measurements%20and%20Interest%20Rate%20Derivatives) Explains the valuation of derivatives and the company's strategy for managing interest rate risk - The Company measures its interest rate derivatives at fair value using Level 2 inputs, based on quotes from counterparties[68](index=68&type=chunk) - As of September 30, 2023, **51.2%** of the Company's outstanding debt had fixed interest rates, including the effects of interest rate swap derivatives, an increase from **42.4%** at December 31, 2022[69](index=69&type=chunk) Fair Value of Debt (in thousands of dollars) | Debt | Carrying Amount (Sep 30, 2023) | Fair Value (Sep 30, 2023) | Carrying Amount (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :--- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | Debt | $819,582 | $793,280 | $816,136 | $809,141 | [6. Prepaid Expenses and Other Assets](index=26&type=section&id=6.%20Prepaid%20Expenses%20and%20Other%20Assets) Itemizes various prepaid expenses and other non-hotel related assets Prepaid Expenses and Other Assets (in thousands of dollars) | Category | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Prepaid expenses | $11,751 | $6,478 | | Inventory | $8,426 | $7,922 | | Deferred financing costs | $3,978 | $5,031 | | Property and equipment, net | $3,311 | $3,685 | | Interest rate derivatives | $3,616 | $268 | | Deferred rent on straight-lined third-party tenant leases | $648 | $2,413 | | Liquor licenses | $930 | $933 | | Other | $446 | $836 | | **Total** | **$33,106** | **$27,566** | [7. Notes Payable](index=27&type=section&id=7.%20Notes%20Payable) Details the company's debt structure, including mortgage loans, credit facilities, and senior notes Notes Payable (in thousands of dollars) | Debt Category | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Mortgage Loans | $74,582 | $296,136 | | Unsecured Corporate Credit Facilities | $575,000 | $350,000 | | Unsecured Senior Notes | $170,000 | $170,000 | | Unamortized deferred financing costs | $(4,880) | $(3,455) | | **Debt, net** | **$814,702** | **$812,681** | - The **$220.0 million** mortgage loan secured by the Hilton San Diego Bayfront was repaid on May 9, 2023, using proceeds from the Company's new **$225.0 million** Term Loan 3[79](index=79&type=chunk) - Total interest expense increased by **28.3%** for the three months and **72.1%** for the nine months ended September 30, 2023, primarily due to increased interest on variable rate debt and new borrowings[80](index=80&type=chunk)[156](index=156&type=chunk) [8. Other Liabilities](index=28&type=section&id=8.%20Other%20Liabilities) Lists various accrued and deferred liabilities not classified as debt Other Liabilities (in thousands of dollars) | Category | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Advance deposits | $47,977 | $50,219 | | Property, sales and use taxes payable | $12,976 | $7,500 | | Accrued interest | $4,202 | $6,915 | | Deferred rent | $3,029 | $3,981 | | Management fees payable | $566 | $1,584 | | Other | $5,792 | $8,234 | | **Total** | **$74,542** | **$78,433** | [9. Leases](index=28&type=section&id=9.%20Leases) Presents information on right-of-use assets, lease obligations, and lease costs Lease Information (in thousands of dollars, except for terms and rates) | Metric | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Right-of-use assets, net | $13,884 | $15,025 | | Lease obligations | $17,884 | $19,012 | | Weighted average remaining lease term | 32 years | N/A | | Weighted average discount rate | 5.3% | N/A | - In January 2023, the Company relocated its corporate headquarters and recognized a **$2.2 million** operating lease right-of-use asset and related lease obligation[83](index=83&type=chunk) - Total lease cost for the nine months ended September 30, 2023, was **$9.942 million**, an increase from **$9.258 million** in the prior year[84](index=84&type=chunk) [10. Stockholders' Equity](index=29&type=section&id=10.%20Stockholders%27%20Equity) Covers changes in equity, including stock repurchase programs and share repurchases - The Company's board of directors reauthorized its existing stock repurchase program in February 2023, restoring the aggregate amount to **$500.0 million**[88](index=88&type=chunk)[89](index=89&type=chunk) - As of September 30, 2023, **$475.5 million** remained available for repurchase under the stock repurchase program[90](index=90&type=chunk) - During the three months ended September 30, 2023, the Company repurchased **1,561,375 shares** of common stock for **$14.0 million**[90](index=90&type=chunk) [11. Incentive Award Plan](index=31&type=section&id=11.%20Incentive%20Award%20Plan) Details compensation expenses and outstanding equity awards under the incentive plan Incentive Award Plan Expenses (in thousands of dollars) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Amortization expense, including forfeitures | $2,511 | $8,263 | | Capitalized compensation cost | $117 | $352 | - As of September 30, 2023, there were **1,032,564 unvested time-based restricted stock awards** with a weighted-average grant date fair value of **$11.11**[97](index=97&type=chunk) - As of September 30, 2023, there were **1,076,160 unvested performance-based restricted stock units** (at target performance) with a weighted-average grant date fair value of **$10.69**[98](index=98&type=chunk) [12. Commitments and Contingencies](index=32&type=section&id=12.%20Commitments%20and%20Contingencies) Outlines contractual obligations, management fees, franchise costs, and renovation commitments Management Fees (in thousands of dollars) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Basic management fees | $6,774 | $21,101 | | Incentive management fees | $604 | $6,546 | | **Total** | **$7,378** | **$27,647** | Franchise Costs (in thousands of dollars) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Franchise assessments | $4,025 | $11,842 | | Franchise royalties | $253 | $914 | | **Total** | **$4,278** | **$12,756** | - Remaining commitments for ongoing renovations totaled **$40.4 million** at September 30, 2023[104](index=104&type=chunk) - The Company recognized a **$9.8 million gain** on extinguishment of debt in February 2023 from the release of Hilton Times Square employee-related obligations from escrow[108](index=108&type=chunk) [13. Subsequent Events](index=36&type=section&id=13.%20Subsequent%20Events) Reports significant events occurring after the reporting period, including asset sales and stock repurchases - On October 26, 2023, the Company sold the Boston Park Plaza for a gross sale price of **$370.0 million**[114](index=114&type=chunk) - Subsequent to September 30, 2023, the Company repurchased an additional **233,692 shares** of common stock for **$2.1 million**, leaving **$473.4 million** remaining under the stock repurchase program[114](index=114&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, and outlook, analyzing revenues, expenses, liquidity, and critical accounting estimates [Overview](index=39&type=section&id=Overview) Introduces the company's business as a REIT, its hotel portfolio, and strategic focus - Sunstone Hotel Investors, Inc. operates as a self-managed and self-administered REIT, owning 100% of Sunstone Hotel Partnership, LLC and Sunstone Hotel TRS Lessee, Inc[121](index=121&type=chunk) - The Company owns hotels in urban and resort destinations that benefit from significant barriers to entry and diverse economic drivers[122](index=122&type=chunk) - As of September 30, 2023, the Company owned **15 hotels**, with the Boston Park Plaza classified as held for sale[122](index=122&type=chunk) [Operating Activities](index=39&type=section&id=Operating%20Activities) Describes the sources of revenue, types of operating expenses, and key performance indicators for hotel operations - Substantially all revenues are derived from hotel operations, including room, food and beverage, and other operating revenues (e.g., ancillary fees, attrition/cancellation fees)[123](index=123&type=chunk) - Operating expenses include room, food and beverage, advertising, repairs, utilities, franchise costs, property tax, ground lease and insurance, and other property-level expenses, along with corporate overhead and depreciation/amortization[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - Key performance indicators include Occupancy, ADR, RevPAR, RevPAR index, and non-GAAP measures such as EBITDAre, Adjusted EBITDAre, FFO, and Adjusted FFO[126](index=126&type=chunk)[127](index=127&type=chunk)[130](index=130&type=chunk) - Operating results are affected by demand for lodging (linked to the general economy), new hotel supply (influenced by construction costs and financing), and the effectiveness of operators in managing revenues and expenses amidst inflationary pressures[130](index=130&type=chunk)[131](index=131&type=chunk) [Operating Results](index=45&type=section&id=Operating%20Results) Analyzes the company's financial performance, including revenue, net income, and non-GAAP measures, for recent periods - For the three months ended September 30, 2023, total revenues increased by **1.4%** to **$247.7 million**, but net income decreased by **24.1%** to **$15.6 million**, and income attributable to common stockholders decreased by **28.0%** to **$12.3 million**[133](index=133&type=chunk) - For the nine months ended September 30, 2023, total revenues increased by **14.9%** to **$767.3 million**, net income increased by **8.8%** to **$79.7 million**, and income attributable to common stockholders increased by **17.0%** to **$69.0 million**[135](index=135&type=chunk) - Adjusted EBITDAre, excluding noncontrolling interest, decreased by **0.2%** for the three months ended September 30, 2023, but increased by **26.5%** for the nine months ended September 30, 2023[174](index=174&type=chunk)[175](index=175&type=chunk) - Adjusted FFO attributable to common stockholders decreased by **9.6%** for the three months ended September 30, 2023, but increased by **20.4%** for the nine months ended September 30, 2023[180](index=180&type=chunk)[182](index=182&type=chunk) [Liquidity and Capital Resources](index=60&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's cash flows, available capital, and future contractual obligations - Net cash provided by operating activities increased to **$168.7 million** for the nine months ended September 30, 2023, from **$149.7 million** in the prior year, driven by increased travel demand[184](index=184&type=chunk) - Net cash used in investing activities decreased to **$60.2 million** for the nine months ended September 30, 2023, from **$134.4 million** in the prior year, primarily due to no hotel acquisitions in 2023 and lower renovation spending[185](index=185&type=chunk) - Net cash used in financing activities increased significantly to **$80.7 million** for the nine months ended September 30, 2023, from **$10.2 million** in the prior year, mainly due to higher dividends paid and net debt payments[188](index=188&type=chunk) - As of September 30, 2023, the Company had an unrestricted cash balance of **$113.8 million** and **$500.0 million** available under its unsecured revolving credit facility[194](index=194&type=chunk) Contractual Obligations (in thousands of dollars) | Obligation | Total (in thousands) | Less Than 1 year (in thousands) | 1 to 3 years (in thousands) | 3 to 5 years (in thousands) | More than 5 years (in thousands) | | :--------------------------------- | :------------------- | :------------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | | Notes payable | $819,582 | $2,145 | $362,437 | $455,000 | $0 | | Interest obligations on notes payable | $170,638 | $48,544 | $86,981 | $35,113 | $0 | | Operating lease obligations | $17,352 | $5,665 | $8,382 | $1,942 | $1,363 | | Construction commitments | $40,424 | $40,424 | $0 | $0 | $0 | | **Total** | **$1,047,996** | **$96,778** | **$457,800** | **$492,055** | **$1,363** | [Critical Accounting Estimates](index=64&type=section&id=Critical%20Accounting%20Estimates) Identifies key accounting judgments, such as impairment, acquisitions, depreciation, and income taxes - Critical accounting estimates include impairment of investments in hotel properties, acquisition-related assets and liabilities, depreciation and amortization expense, and income taxes[206](index=206&type=chunk)[209](index=209&type=chunk) - Impairment losses are recorded when future undiscounted net cash flows of hotel properties are less than their carrying amount; no impairments were recorded in the current periods[206](index=206&type=chunk)[207](index=207&type=chunk)[47](index=47&type=chunk) - The Company accounts for income taxes using the asset and liability method, recognizing deferred tax assets and liabilities and providing valuation allowances when realization is not more likely than not[209](index=209&type=chunk)[210](index=210&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Company is exposed to market interest rate risk on its variable rate debt and uses derivative financial instruments to manage this risk. As of September 30, 2023, 51.2% of its debt obligations were fixed or swapped to fixed rates - The Company is exposed to market interest rate risk on its floating rate debt and uses derivative financial instruments to manage this risk[213](index=213&type=chunk) - As of September 30, 2023, **51.2%** of the Company's debt obligations were fixed in nature or subject to interest rate swap derivatives[214](index=214&type=chunk) - A **50 basis point increase or decrease** in the market rate of interest on variable rate debt would increase or decrease annual interest expense by approximately **$2.0 million**[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[216](index=216&type=chunk) - No change in internal control over financial reporting occurred during the fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting[217](index=217&type=chunk) [PART II—OTHER INFORMATION](index=68&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, other information, and exhibits [Item 1. Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) The Company reported no legal proceedings for the period - None[219](index=219&type=chunk) [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) The Company reported no new risk factors in this quarterly report, referring readers to the comprehensive list in its Annual Report on Form 10-K - None[220](index=220&type=chunk) - The Company refers to the risks outlined in detail in its Annual Report on Form 10-K, filed on February 23, 2023[117](index=117&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's board reauthorized its $500.0 million stock repurchase program in February 2023. During the third quarter of 2023, the Company repurchased 1,561,375 shares of common stock for $14.0 million, with $475.5 million remaining available under the program - The Company's board of directors reauthorized the existing stock repurchase program in February 2023, restoring the **$500.0 million** aggregate amount allowed to be repurchased[221](index=221&type=chunk) Issuer Purchases of Equity Securities (in thousands of dollars, except shares and price) | Period | Number of Shares Purchased | Average Price Paid per Share | Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | | :--------------------------------- | :------------------------- | :--------------------------- | :-------------------------------------------------------------------------------------------------------------------------------- | | July 1, 2023 - July 31, 2023 | — | — | $489,542 | | August 1, 2023 - August 31, 2023 | 1,079,762 | $8.96 | $479,869 | | September 1, 2023 - September 30, 2023 | 481,613 | $9.01 | $475,531 | | **Total** | **1,561,375** | **$8.97** | **$475,531** | [Item 3. Defaults Upon Senior Securities](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities for the period - None[223](index=223&type=chunk) [Item 4. Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The Company reported no mine safety disclosures for the period - None[224](index=224&type=chunk) [Item 5. Other Information](index=69&type=section&id=Item%205.%20Other%20Information) The Company reported no other material information, specifically noting that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended September 30, 2023[226](index=226&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, preferred stock articles, various certifications (e.g., CEO, CFO), and XBRL documents - Exhibits include Articles of Amendment and Restatement, Bylaws, Articles Supplementary for Series G, H, and I preferred stock, and the Eighth Amended and Restated Limited Liability Agreement of Sunstone Hotel Partnership LLC[227](index=227&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Securities Exchange Act Rules and Sarbanes-Oxley Act are filed[227](index=227&type=chunk) - XBRL Instance Document and Taxonomy Extension documents are included[227](index=227&type=chunk) [SIGNATURES](index=71&type=section&id=SIGNATURES) The report is signed on behalf of Sunstone Hotel Investors, Inc. by Aaron R. Reyes, Chief Financial Officer, on November 7, 2023 - The report was signed by Aaron R. Reyes, Chief Financial Officer and Duly Authorized Officer, on November 7, 2023[233](index=233&type=chunk)

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q2 2023 Earnings Call Transcript August 4, 2023 12:00 PM ET Company Participants Aaron Reyes - Chief Financial Officer Bryan Giglia - Chief Executive Officer Robert Springer - President and Chief Investment Officer Chris Ostapovicz - Chief Operating Officer Conference Call Participants Duane Pfennigwerth - Evercore ISI Chris Sterling - Green Street Smedes Rose - Citi Chris Woronka - Deutsche Bank Michael Bellisario - Baird Dori Kesten - Wells Fargo Bill Crow - Raymo ...

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 June 30, 2023 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 ...