Sunstone Hotel Investors(SHO) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements The company's financials reflect a significant turnaround, marked by asset growth, a return to profitability, and positive operating cash flow Consolidated Balance Sheet Summary (Unaudited) | Balance Sheet Item | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | 107,329 | 120,483 | | Investment in hotel properties, net | 2,847,800 | 2,720,016 | | Total assets | 3,086,623 | 3,041,049 | | Notes payable, net (current & long-term) | 804,022 | 609,435 | | Total liabilities | 983,178 | 801,275 | | Total equity | 2,103,445 | 2,239,774 | Consolidated Statements of Operations Summary (Unaudited) | Income Statement Item | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Total revenues | 423,595 | 167,843 | | Total operating expenses | 386,847 | 235,220 | | Net Income (Loss) | 52,815 | (83,205) | | Income (Loss) Attributable to Common Stockholders | 41,792 | (91,636) | | Basic and diluted EPS | $0.19 | $(0.43) | Consolidated Statements of Cash Flows Summary (Unaudited) | Cash Flow Item | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 90,653 | (13,923) | | Net cash used in investing activities | (99,467) | (212,431) | | Net cash (used in) provided by financing activities | (963) | 20,603 | Notes to Unaudited Consolidated Financial Statements The notes detail the hotel portfolio, a strong operational recovery, significant acquisitions and dispositions, and a major credit agreement amendment - As of June 30, 2022, the Company owned 15 hotels, managed by various third parties including Marriott, Hyatt, and Four Seasons[27] - In June 2022, the company acquired The Confidante Miami Beach for a purchase price of $232.0 million and the remaining 25.0% noncontrolling interest in the Hilton San Diego Bayfront for $102.0 million[69][70] - In Q1 2022, the company sold three Chicago hotels for combined net proceeds of approximately $195.3 million, recording a total gain of $22.9 million[71] - During the first six months of 2022, the company repurchased over 7.1 million shares of its common stock for a total of $78.0 million[101] - Subsequent to the quarter end, in July 2022, the company amended its credit agreement, increasing its term loans to $350.0 million and used the proceeds to fully repay the $230.0 million outstanding on its revolving credit facility[124][126] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the operational turnaround driven by recovering demand, significant revenue growth, active portfolio management, and strong liquidity - Demand recovery accelerated in the first half of 2022, with Existing Portfolio occupancy reaching 75.1% in June 2022, up from 50.7% in June 2021[134][135] - For the Existing Portfolio, RevPAR for the six months ended June 30, 2022, increased by 136.4% year-over-year, driven by a 2,890 basis point increase in occupancy and a 29.7% increase in ADR[158] - As of June 30, 2022, the company had $107.3 million in unrestricted cash and $270.0 million of available capacity on its revolving credit facility, with total debt at $805.4 million[141][212][214] Operating Results Comparison (Six Months Ended June 30) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change % | | :--- | :--- | :--- | :--- | | Total Revenues | 423,595 | 167,843 | 152.4% | | Net Income (Loss) | 52,815 | (83,205) | 163.5% | | Adjusted EBITDAre, excluding noncontrolling interest | 101,157 | 665 | 15,111.6% | | Adjusted FFO attributable to common stockholders | 79,631 | (23,078) | 445.1% | Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on its variable-rate debt using derivative financial instruments - A 100 basis point (1.0%) change in the market interest rate on the company's variable rate debt would impact future earnings and cash flows by approximately $4.1 million annually[236] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls during the quarter - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be effective as of June 30, 2022[238] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[239] PART II—OTHER INFORMATION Legal Proceedings The company reported no material legal proceedings - There are no material legal proceedings to report for the period[241] Risk Factors No material changes were made to previously disclosed risk factors - There are no material updates to the company's risk factors for the period[241] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3.2 million shares for $34.5 million in Q2 2022, with $422.2 million remaining available under its repurchase program - As of June 30, 2022, approximately $422.2 million remained available for repurchase under the company's stock repurchase program[243] Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost ($ millions) | | :--- | :--- | :--- | :--- | | April 2022 | 457,634 | $10.95 | 5.0 | | May 2022 | 1,471,634 | $11.03 | 16.2 | | June 2022 | 1,306,690 | $10.10 | 13.2 | | Total Q2 | 3,235,958 | $10.65 | 34.5 | Exhibits The report includes required officer certifications and incorporates the amended credit agreement by reference - Key exhibits filed include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and XBRL data files[249]