Sunstone Hotel Investors, Inc. [SHO] Filings

10-Q 1 sho-20230930x10q.htm 10-Q

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 September 30, 2023

☐

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 Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

15 Enterprise, Suite 200 Aliso Viejo, California		92656
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 330-4000


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SHO	New York Stock Exchange
Series H Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRH	New York Stock Exchange
Series I Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 1, 2023, there were 205,444,026 shares of Sunstone Hotel Investors, Inc.’s common stock, $0.01 par value per share, outstanding.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

QUARTERLY REPORT ON

FORM 10-Q

For the Quarterly Period Ended September 30, 2023

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	2

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	3

	Unaudited Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022	4

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	6

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	41

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

SIGNATURES		44

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

SUNSTONE HOTEL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	September 30,		December 31,
	2023		2022
	(unaudited)
ASSETS
Investment in hotel properties, net	$	2,580,421	$	2,840,928
Operating lease right-of-use assets, net		13,884		15,025
Cash and cash equivalents		113,768		101,223
Restricted cash		71,228		55,983
Accounts receivable, net		28,646		42,092
Prepaid expenses and other assets, net		33,106		27,566
Assets held for sale		247,776		—
Total assets	$	3,088,829	$	3,082,817

LIABILITIES AND STOCKHOLDERS' EQUITY
Debt, net of unamortized deferred financing costs	$	814,702	$	812,681
Operating lease obligations		17,884		19,012
Accounts payable and accrued expenses		60,854		73,735
Dividends and distributions payable		17,765		13,995
Other liabilities		74,542		78,433
Liabilities of assets held for sale		15,397		—
Total liabilities		1,001,144		997,856
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized:
Series G Cumulative Redeemable Preferred Stock, 2,650,000 shares issued and outstanding at both September 30, 2023 and December 31, 2022, stated at liquidation preference of $25.00 per share		66,250		66,250
6.125% Series H Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at both September 30, 2023 and December 31, 2022, stated at liquidation preference of $25.00 per share		115,000		115,000
5.70% Series I Cumulative Redeemable Preferred Stock, 4,000,000 shares issued and outstanding at both September 30, 2023 and December 31, 2022, stated at liquidation preference of $25.00 per share		100,000		100,000
Common stock, $0.01 par value, 500,000,000 shares authorized, 205,623,316 shares issued and outstanding at September 30, 2023 and 209,320,447 shares issued and outstanding at December 31, 2022		2,056		2,093
Additional paid in capital		2,434,649		2,465,595
Distributions in excess of retained earnings		(630,270)		(663,977)
Total stockholders’ equity		2,087,685		2,084,961

Total liabilities and stockholders' equity	$	3,088,829	$	3,082,817

See accompanying notes to consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
REVENUES
Room	$	158,467	$	158,400	$	484,304	$	428,893
Food and beverage		64,007		63,476		213,634		174,717
Other operating		25,226		22,438		69,317		64,299
Total revenues		247,700		244,314		767,255		667,909
OPERATING EXPENSES
Room		41,034		38,791		122,756		106,594
Food and beverage		47,777		47,181		148,309		125,959
Other operating		6,129		6,440		18,031		17,965
Advertising and promotion		12,767		12,325		39,686		34,420
Repairs and maintenance		10,060		9,382		29,112		27,369
Utilities		7,784		7,708		21,644		19,652
Franchise costs		4,278		4,145		12,756		11,429
Property tax, ground lease and insurance		21,709		19,714		60,320		53,160
Other property-level expenses		29,020		29,032		92,654		83,333
Corporate overhead		7,127		7,879		23,991		27,310
Depreciation and amortization		33,188		31,750		97,927		94,003
Total operating expenses		220,873		214,347		667,186		601,194
Interest and other income		1,218		270		6,398		4,766
Interest expense		(11,894)		(9,269)		(34,911)		(20,288)
Gain on sale of assets		—		—		—		22,946
Gain (loss) on extinguishment of debt, net		9		(770)		9,930		(962)
Income before income taxes		16,160		20,198		81,486		73,177
Income tax (provision) benefit, net		(602)		290		(1,763)		126
NET INCOME		15,558		20,488		79,723		73,303
Income from consolidated joint venture attributable to noncontrolling interest		—		—		—		(3,477)
Preferred stock dividends		(3,226)		(3,351)		(10,762)		(10,897)
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	12,332	$	17,137	$	68,961	$	58,929

Basic and diluted per share amounts:
Basic income attributable to common stockholders per common share	$	0.06	$	0.08	$	0.33	$	0.27
Diluted income attributable to common stockholders per common share	$	0.06	$	0.08	$	0.33	$	0.27

Basic weighted average common shares outstanding		205,570		211,010		206,257		213,799
Diluted weighted average common shares outstanding		205,782		211,289		206,553		213,869

See accompanying notes to consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and per share data)


									Distributions
	Preferred Stock			Common Stock					in Excess of
	Number of			Number of			Additional		Retained
	Shares	Amount		Shares	Amount		Paid in Capital		Earnings		Total
Balance at December 31, 2022 (audited)	11,250,000	$	281,250	209,320,447	$	2,093	$	2,465,595	$	(663,977)	$	2,084,961
Amortization of deferred stock compensation	—		—	—		—		2,545		—		2,545
Issuance of restricted common stock, net	—		—	55,970		1		(3,349)		—		(3,348)
Forfeiture of restricted common stock	—		—	(1,435)		—		—		—		—
Common stock distributions and distributions payable at $0.05 per share	—		—	—		—		—		(10,449)		(10,449)
Series G preferred stock dividends and dividends payable at $0.219536 per share	—		—	—		—		—		(582)		(582)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchase of outstanding common stock	—		—	(1,964,923)		(20)		(18,606)		—		(18,626)
Net income	—		—	—		—		—		21,087		21,087
Balance at March 31, 2023	11,250,000	$	281,250	207,410,059	$	2,074	$	2,446,185	$	(657,107)	$	2,072,402
Amortization of deferred stock compensation	—		—	—		—		3,442		—		3,442
Issuance of restricted common stock	—		—	82,552		1		(429)		—		(428)
Forfeiture of restricted common stock	—		—	(6,459)		—		—		—		—
Common stock distributions and distributions payable at $0.05 per share	—		—	—		—		—		(10,448)		(10,448)
Series G preferred stock dividends and dividends payable at $0.219536 per share	—		—	—		—		—		(582)		(582)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchase of outstanding common stock	—		—	(301,461)		(3)		(2,852)		—		(2,855)
Acquisition of noncontrolling interest, net	—		—	—		—		(299)		—		(299)
Net income	—		—	—		—		—		43,078		43,078
Balance at June 30, 2023	11,250,000	$	281,250	207,184,691	$	2,072	$	2,446,047	$	(628,245)	$	2,101,124
Amortization of deferred stock compensation	—		—	—		—		2,628		—		2,628
Common stock distributions and distributions payable at $0.07 per share	—		—	—		—		—		(14,357)		(14,357)
Series G preferred stock dividends and dividends payable at $0.015182 per share	—		—	—		—		—		(40)		(40)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchase of outstanding common stock	—		—	(1,561,375)		(16)		(14,026)		—		(14,042)
Net income	—		—	—		—		—		15,558		15,558
Balance at September 30, 2023	11,250,000	$	281,250	205,623,316	$	2,056	$	2,434,649	$	(630,270)	$	2,087,685

See accompanying notes to consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and per share data)


									Distributions		Noncontrolling
	Preferred Stock			Common Stock					in Excess of		Interest in
	Number of			Number of			Additional		Retained		Consolidated
	Shares	Amount		Shares	Amount		Paid in Capital		Earnings		Joint Venture		Total
Balance at December 31, 2021 (audited)	11,250,000	$	281,250	219,333,783	$	2,193	$	2,631,484	$	(715,960)	$	40,807	$	2,239,774
Amortization of deferred stock compensation	—		—	—		—		3,701		—		—		3,701
Issuance of restricted common stock, net	—		—	213,179		2		(3,353)		—		—		(3,351)
Series G preferred stock dividends and dividends payable at $0.221475 per share	—		—	—		—		—		(587)		—		(587)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		(1,425)		—		(1,425)
Repurchase of outstanding common stock	—		—	(3,879,025)		(38)		(43,427)		—		—		(43,465)
Net income	—		—	—		—		—		13,989		1,134		15,123
Balance at March 31, 2022	11,250,000	$	281,250	215,667,937	$	2,157	$	2,588,405	$	(705,744)	$	41,941	$	2,208,009
Amortization of deferred stock compensation	—		—	—		—		2,971		—		—		2,971
Issuance of restricted common stock	—		—	53,616		1		(92)		—		—		(91)
Forfeiture of restricted common stock	—		—	(34,807)		—		—		—		—		—
Series G preferred stock dividends and dividends payable at $0.221475 per share	—		—	—		—		—		(587)		—		(587)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		(1,425)		—		(1,425)
Repurchase of outstanding common stock	—		—	(3,235,958)		(33)		(34,482)		—		—		(34,515)
Distribution to noncontrolling interest	—		—	—		—		—		—		(5,500)		(5,500)
Acquisition of noncontrolling interest, net	—		—	—		—		(62,564)		—		(38,784)		(101,348)
Net income	—		—	—		—		—		35,349		2,343		37,692
Balance at June 30, 2022	11,250,000	$	281,250	212,450,788	$	2,125	$	2,494,238	$	(674,168)	$	—	$	2,103,445
Amortization of deferred stock compensation	—		—	—		—		2,350		—		—		2,350
Common stock distributions and distributions payable at $0.05 per share	—		—	—		—		—		(10,610)		—		(10,610)
Series G preferred stock dividends and dividends payable at $0.062081 per share	—		—	—		—		—		(165)		—		(165)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		(1,425)		—		(1,425)
Repurchase of outstanding common stock	—		—	(880,577)		(9)		(8,657)		—		—		(8,666)
Net income	—		—	—		—		—		20,488		—		20,488
Balance at September 30, 2022	11,250,000	$	281,250	211,570,211	$	2,116	$	2,487,931	$	(667,641)	$	—	$	2,103,656

See accompanying notes to consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	79,723	$	73,303
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		184		846
Gain on sale of assets		—		(22,946)
(Gain) loss on extinguishment of debt, net		(9,930)		962
Noncash interest on derivatives, net		(3,348)		(2,904)
Depreciation		97,540		93,573
Amortization of franchise fees and other intangibles		332		387
Amortization of deferred financing costs		1,960		1,940
Amortization of deferred stock compensation		8,263		8,661
Gain on hurricane-related damage		(3,722)		(4,369)
Changes in operating assets and liabilities:
Accounts receivable, net		7,477		(16,279)
Prepaid expenses and other assets		(5,804)		5,465
Accounts payable and other liabilities		(3,851)		12,109
Operating lease right-of-use assets and obligations		(82)		(1,050)
Net cash provided by operating activities		168,742		149,698
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets		—		191,291
Disposition deposit		10,000		—
Proceeds from property insurance		3,722		4,369
Acquisitions of hotel properties and other assets		—		(232,506)
Renovations and additions to hotel properties and other assets		(73,944)		(97,539)
Net cash used in investing activities		(60,222)		(134,385)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of noncontrolling interest, including transaction costs		(299)		(101,348)
Payment of common stock offering costs

Sunstone Hotel Investors, Inc. [SHO] Filings
Sunstone Hotel Investors, Inc. [SHO-PH] Filings
Sunstone Hotel Investors, Inc. [SHO-PI] Filings
10-Q	[2023-11-07]
10-Q	[2023-08-04]
10-Q	[2023-05-05]
10-K	[2023-02-23]
10-Q	[2022-11-08]
10-Q	[2022-08-03]
10-Q	[2022-05-04]
10-K	[2022-02-23]
10-Q	[2021-11-04]
10-Q	[2021-08-04]
10-Q	[2021-05-05]
10-K	[2021-02-12]
10-Q	[2020-11-06]
10-Q	[2020-08-05]
10-Q	[2020-05-11]
10-K	[2020-02-19]
10-Q	[2019-11-05]
10-Q	[2019-08-05]
10-Q	[2019-05-08]
10-K	[2019-02-14]
10-Q	[2018-11-06]
10-Q	[2018-08-01]
10-Q	[2018-05-08]
10-K	[2018-02-14]
10-Q	[2017-11-01]
10-Q	[2017-08-03]
10-Q	[2017-05-04]
10-K	[2017-02-23]
10-Q	[2016-11-02]
10-Q	[2016-08-08]
10-Q	[2016-05-03]
10-K	[2016-02-23]
10-Q	[2015-11-03]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-02-19]
10-Q	[2014-11-04]
10-Q	[2014-08-08]
10-Q	[2014-05-07]
10-K	[2014-02-25]
10-Q	[2013-11-12]
10-Q	[2013-08-07]
10-Q	[2013-05-08]
10-K	[2013-02-25]
10-Q	[2012-11-06]
10-Q	[2012-08-07]
10-Q	[2012-05-03]
10-K	[2012-02-28]

Sunstone Hotel Investors, Inc. [SHO] Filings

Sunstone Hotel Investors, Inc. [SHO-PH] Filings

Sunstone Hotel Investors, Inc. [SHO-PI] Filings