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

10-Q 1 sho-20230630x10q.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 June 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 August 1, 2023, there were 207,184,691 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 June 30, 2023

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

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

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

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

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 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	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

SIGNATURES		42

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)



	June 30,		December 31,
	2023		2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	107,846	$	101,223
Restricted cash		55,668		55,983
Accounts receivable, net		48,043		42,092
Prepaid expenses and other current assets		15,268		14,668
Total current assets		226,825		213,966
Investment in hotel properties, net		2,830,739		2,840,928
Operating lease right-of-use assets, net		14,999		15,025
Deferred financing costs, net		4,329		5,031
Other assets, net		9,319		7,867
Total assets	$	3,086,211	$	3,082,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	44,972	$	56,849
Accrued payroll and employee benefits		18,501		22,801
Dividends and distributions payable		14,891		13,995
Other current liabilities		66,481		65,213
Current portion of notes payable, net		2,065		222,030
Total current liabilities		146,910		380,888
Notes payable, less current portion, net		812,766		590,651
Operating lease obligations, less current portion		14,267		14,360
Other liabilities		11,144		11,957
Total liabilities		985,087		997,856
Commitments and contingencies (Note 11)
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 June 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 June 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 June 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, 207,184,691 shares issued and outstanding at June 30, 2023 and 209,320,447 shares issued and outstanding at December 31, 2022		2,072		2,093
Additional paid in capital		2,446,047		2,465,595
Retained earnings		1,099,518		1,035,353
Cumulative dividends and distributions		(1,727,763)		(1,699,330)
Total stockholders’ equity		2,101,124		2,084,961

Total liabilities and stockholders' equity	$	3,086,211	$	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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
REVENUES
Room	$	173,399	$	161,721	$	325,837	$	270,493
Food and beverage		78,815		71,658		149,627		111,241
Other operating		23,898		17,901		44,091		41,861
Total revenues		276,112		251,280		519,555		423,595
OPERATING EXPENSES
Room		42,658		37,342		81,722		67,803
Food and beverage		51,997		46,459		100,532		78,778
Other operating		6,145		6,089		11,902		11,525
Advertising and promotion		13,897		11,621		26,919		22,095
Repairs and maintenance		9,606		8,273		19,052		17,987
Utilities		6,768		6,239		13,860		11,944
Franchise costs		4,560		4,280		8,478		7,284
Property tax, ground lease and insurance		19,378		17,455		38,611		33,446
Other property-level expenses		31,857		30,391		63,634		54,301
Corporate overhead		8,396		8,717		16,864		19,431
Depreciation and amortization		32,397		30,893		64,739		62,253
Total operating expenses		227,659		207,759		446,313		386,847
Interest and other income		4,639		116		5,180		4,496
Interest expense		(9,223)		(5,938)		(23,017)		(11,019)
Gain on sale of assets		—		—		—		22,946
Gain (loss) on extinguishment of debt, net		12		21		9,921		(192)
Income before income taxes		43,881		37,720		65,326		52,979
Income tax provision, net		(803)		(28)		(1,161)		(164)
NET INCOME		43,078		37,692		64,165		52,815
Income from consolidated joint venture attributable to noncontrolling interest		—		(2,343)		—		(3,477)
Preferred stock dividends		(3,768)		(3,773)		(7,536)		(7,546)
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	39,310	$	31,576	$	56,629	$	41,792

Basic and diluted per share amounts:
Basic income attributable to common stockholders per common share	$	0.19	$	0.15	$	0.27	$	0.19
Diluted income attributable to common stockholders per common share	$	0.19	$	0.15	$	0.27	$	0.19

Basic weighted average common shares outstanding		206,181		213,183		206,606		215,216
Diluted weighted average common shares outstanding		206,828		213,183		207,095		215,216

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)



	Preferred Stock			Common Stock							Cumulative
	Number of			Number of			Additional		Retained		Dividends and
	Shares	Amount		Shares	Amount		Paid in Capital		Earnings		Distributions		Total
Balance at December 31, 2022 (audited)	11,250,000	$	281,250	209,320,447	$	2,093	$	2,465,595	$	1,035,353	$	(1,699,330)	$	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	$	1,056,440	$	(1,713,547)	$	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	$	1,099,518	$	(1,727,763)	$	2,101,124

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)


													Noncontrolling
	Preferred Stock			Common Stock							Cumulative		Interest in
	Number of			Number of			Additional		Retained		Dividends and		Consolidated
	Shares	Amount		Shares	Amount		Paid in Capital		Earnings		Distributions		Joint Venture		Total
Balance at December 31, 2021 (audited)	11,250,000	$	281,250	219,333,783	$	2,193	$	2,631,484	$	948,064	$	(1,664,024)	$	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	$	962,053	$	(1,667,797)	$	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	$	997,402	$	(1,671,570)	$	—	$	2,103,445

See accompanying notes to consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	64,165	$	52,815
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		71		313
Gain on sale of assets		—		(22,946)
(Gain) loss on extinguishment of debt, net		(9,921)		192
Noncash interest on derivatives, net		(1,879)		(2,865)
Depreciation		64,480		62,011
Amortization of franchise fees and other intangibles		223		218
Amortization of deferred financing costs		1,220		1,351
Amortization of deferred stock compensation		5,752		6,431
Gain on hurricane-related damage		(3,722)		(4,369)
Changes in operating assets and liabilities:
Accounts receivable		(2,205)		(12,147)
Prepaid expenses and other assets		(243)		5,705
Accounts payable and other liabilities		(6,584)		7,063
Accrued payroll and employee benefits		(4,300)		(2,419)
Operating lease right-of-use assets and obligations		(69)		(700)
Net cash provided by operating activities		106,988		90,653
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets		—		191,291
Proceeds from property insurance		—		4,369
Acquisitions of hotel properties and other assets		—		(232,506)
Renovations and additions to hotel properties and other assets		(49,219)		(62,621)
Net cash used in investing activities		(49,219)		(99,467)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of noncontrolling interest, including transaction costs		(299)		(101,348)
Payment of common stock offering costs		(428)		(91)
Repurchases of outstanding common stock		(21,481)		(77,980)
Repurchases of common stock for employee tax obligations		(3,348)		(3,351)
Proceeds from credit facility		—		230,000
Proceeds from note payable		225,000		—
Payments on notes payable		(221,036)		(35,994)
Payments of deferred financing costs		(2,332)		—
Dividends and distributions paid		(27,537)		(6,699)
Distribution to noncontrolling interest		—		(5,500)
Net cash used in financing activities		(51,461)		(963)
Net increase (decrease) in cash and cash equivalents and restricted cash		6,308		(9,777)
Cash and cash equivalents and restricted cash, beginning of period		157,206		162,717
Cash and cash equivalents and restricted cash, end of period	$	163,514	$	152,940

See accompanying notes to consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Supplemental Disclosure of Cash Flow Information


	June 30,
	2023		2022
Cash and cash equivalents	$	107,846	$	107,329
Restricted cash		55,668		45,611
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows	$	163,514	$	152,940

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

Sunstone Hotel Investors, Inc. [SHO] Filings

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