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 ...

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q1 2023 Earnings Conference Call May 5, 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 Anthony Powell - Barclays Capital Smedes Rose - Citi Chris Darling - Green Street Patrick Scholes - Truist Securities Michael Bellisario - Baird Operato ...

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, 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 ...

Financial Position - The company had total cash of $157.2 million, including $56.0 million of restricted cash, and access to an undrawn $500.0 million credit facility as of December 31, 2022[25]. - As of December 31, 2022, the company had approximately $816.1 million in outstanding debt, with $532.1 million maturing over the next five years[147]. - The weighted average interest rate on the company's total debt was 5.04% as of December 31, 2022, with 42.4% of outstanding debt at fixed rates[25]. - Total operating expenses for 2022 were $816.2 million, up from $597.3 million in 2021, primarily driven by increased operational activity[204]. - Interest expense for 2022 was $32.0 million, slightly higher than $30.9 million in 2021, reflecting ongoing debt obligations[204]. - The company may incur additional debt for future real estate acquisitions, which could restrict financial flexibility and increase vulnerability to economic downturns[148]. - The company is subject to various financial covenants on its unsecured and secured debt, and failure to meet these covenants could adversely affect financial conditions and operations[149]. Hotel Operations - As of December 31, 2022, the company owned 15 hotels with a total of 7,735 rooms located in 6 states and Washington, DC[15]. - The company owned 15 hotels at the end of 2022, down from 17 at the beginning of the year, with 1 acquisition and 3 dispositions during the year[210]. - The total number of rooms decreased to 7,735 in 2022 from 8,544 in 2021, with a net loss of 1,148 rooms due to dispositions[210]. - Average rooms per hotel increased to 516 in 2022 from 503 in 2021, indicating a more efficient portfolio[210]. - The company operates most of its hotels under brands owned by Marriott, Hilton, Hyatt, Four Seasons, and Montage, with only two hotels not under these brands[126]. - The company entered into a new management agreement with Sage for The Bidwell Marriott Portland, which began in October 2022 and expires in 2027[35]. - The company has engaged eligible independent contractors to manage its hotels, ensuring compliance with IRS regulations[45]. Market and Demand - Corporate transient and group demand accelerated during 2022, reducing reliance on leisure demand, with expectations for continued growth in business travel[20]. - The company expects continued growth in corporate business and transient demand, with a positive outlook for business travel recovery[214]. - The company relies on group and transient business generated by large corporate customers, and the loss of such customers could harm operating results[72]. - The COVID-19 pandemic significantly decreased business-related travel, leading to a sustained reduction in hotel room demand, with business transient demand in 2022 remaining below pre-pandemic levels[101]. ESG and Sustainability - The company is committed to ESG initiatives, focusing on reducing energy, water, and waste impacts, and enhancing the well-being of guests and employees[53]. - The company has invested in initiatives to reduce greenhouse gas emissions, including LED lighting retrofits and solar power installations[54]. - The company has conducted environmental reviews on all its hotels to assess potential contamination risks[55]. - The company has provided customary unsecured indemnities to lenders and buyers, including environmental indemnities, to mitigate risks[58]. - The company emphasizes maintaining a diverse workforce, with approximately 38% female employees and 30% from ethnic and racial minorities[51]. Risks and Challenges - Economic downturns, pandemics, and natural disasters may adversely affect the operating performance of the hotel industry and the company's hotels[79]. - Inflation has impacted the company's expenses, including increased costs for wages, food, and utilities, which may outpace hotel revenue growth[60]. - Cybersecurity risks have increased, with potential disruptions to operations and financial results due to data breaches or cyber-attacks[84]. - Climate change poses risks, including severe weather events that could materially affect hotel operations and cash flows[91]. - The company faces challenges in obtaining adequate property and casualty insurance, which may affect financial stability if significant losses occur[97]. - The company may incur liabilities from claims related to hotel properties, which could harm the reputation of its hotels and result in additional expenses[129]. Financial Performance - Total revenues for 2022 were $912.1 million, a 78.9% increase from $509.2 million in 2021[204]. - Net income attributable to common stockholders for 2022 was $73.0 million, compared to $13.7 million in 2021, reflecting a significant recovery from a loss of $417.5 million in 2020[204]. - The company reported a gain on the sale of assets of $22.9 million in 2022, compared to a gain of $152.5 million in 2021[204]. - The investment in hotel properties, net, increased to $2.84 billion in 2022 from $2.72 billion in 2021, indicating continued investment in the portfolio[204]. Corporate Governance and Shareholder Matters - The board of directors has reauthorized a stock repurchase program allowing the company to acquire up to $500 million of common and preferred stock, with $391.8 million remaining under the program as of December 31, 2022[199]. - The company has reserved 3.75 million shares for issuance under its 2022 Incentive Award Plan, with 3,731,191 shares available for future issuance as of December 31, 2022[179]. - The company suspended its common stock quarterly dividend in Q2 2020 due to COVID-19, reinstating it in Q3 2022 with a dividend of $0.05 per share[175]. - The common stock dividends paid over the past three years were $0.59 in January 2020, $0.05 in April 2020, and $0.05 in October 2022[176]. - The company must distribute at least 90% of its REIT taxable income to qualify as a REIT, and failure to do so could result in significant tax liabilities[157].

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q4 2022 Earnings Conference Call February 22, 2023 11:00 AM ET Company Participants Aaron Reyes - CFO & SVP Bryan Giglia - CEO Robert Springer - President & CIO Conference Call Participants Smedes Rose - Citigroup Michael Bellisario - Robert W. Baird & Co. Duane Pfennigwerth - Evercore ISI David Katz - Jefferies Gregory Miller - Truist Securities Anthony Powell - Barclays Bank Floris Van Dijkum - Compass Point Research & Trading Operator Good morning, ladies and gen ...