Sunstone Hotel Investors, Inc 10-Q for FY2022 Q1

Sunstone Hotel Investors, Inc. (SHO)

10-Q 2022-05-04 For: 2022-03-31

Added on April 05, 2026

About this 10-Q

Sunstone Hotel Investors, Inc filed this 10-Q on May 4, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $172.32M; up 240.3% from $50.63M a year earlier
Net income: $15.12M; compared with a net loss of $55.29M a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →


Maryland		20-1296886
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

200 Spectrum Center Drive, 21st Floor Irvine, California		92618
(Address of Principal Executive Offices)		(Zip Code)


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


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021	2

	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	3

	Unaudited Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021	4

	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	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	40

Item 4.	Controls and Procedures	40

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

SIGNATURES		44



	March 31,		December 31,
	2022		2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	214,905	$	120,483
Restricted cash		39,484		42,234
Accounts receivable, net		35,346		28,733
Prepaid expenses and other current assets		18,137		14,338
Assets held for sale, net		—		76,308
Total current assets		307,872		282,096
Investment in hotel properties, net		2,613,428		2,720,016
Operating lease right-of-use assets, net		19,879		23,161
Deferred financing costs, net		2,080		2,580
Other assets, net		9,609		13,196
Total assets	$	2,952,868	$	3,041,049
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	55,902	$	47,701
Accrued payroll and employee benefits		14,800		19,753
Dividends payable		3,773		3,513
Other current liabilities		65,671		58,884
Current portion of notes payable, net		109,741		20,694
Liabilities of assets held for sale		—		25,213
Total current liabilities		249,887		175,758
Notes payable, less current portion, net		464,601		588,741
Operating lease obligations, less current portion		21,228		25,120
Other liabilities		9,143		11,656
Total liabilities		744,859		801,275
Commitments and contingencies (Note 12)
Equity:
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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, stated at liquidation preference of $25.00 per share		100,000		100,000
Common stock, $0.01 par value, 500,000,000 shares authorized, 215,667,937 shares issued and outstanding at March 31, 2022 and 219,333,783 shares issued and outstanding at December 31, 2021		2,157		2,193
Additional paid in capital		2,588,405		2,631,484
Retained earnings		962,053		948,064
Cumulative dividends and distributions		(1,667,797)		(1,664,024)
Total stockholders’ equity		2,166,068		2,198,967
Noncontrolling interest in consolidated joint venture		41,941		40,807
Total equity		2,208,009		2,239,774
Total liabilities and equity	$	2,952,868	$	3,041,049



	Three Months Ended March 31,
	2022		2021
REVENUES
Room	$	108,772	$	34,219
Food and beverage		39,583		4,971
Other operating		23,960		11,443
Total revenues		172,315		50,633
OPERATING EXPENSES
Room		30,461		11,640
Food and beverage		32,319		5,979
Other operating		5,436		1,805
Advertising and promotion		10,474		4,875
Repairs and maintenance		9,714		5,545
Utilities		5,705		4,151
Franchise costs		3,004		991
Property tax, ground lease and insurance		15,991		14,661
Other property-level expenses		23,910		10,477
Corporate overhead		10,714		7,177
Depreciation and amortization		31,360		30,770
Total operating expenses		179,088		98,071
Interest and other income (loss)		4,380		(379)
Interest expense		(5,081)		(7,649)
Gain on sale of assets		22,946		—
(Loss) gain on extinguishment of debt		(213)		222
Income (loss) before income taxes		15,259		(55,244)
Income tax provision		(136)		(43)
NET INCOME (LOSS)		15,123		(55,287)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		(1,134)		1,975
Preferred stock dividends		(3,773)		(3,207)
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	10,216	$	(56,519)

Basic and diluted per share amounts:
Basic and diluted income (loss) attributable to common stockholders per common share	$	0.05	$	(0.26)
Basic and diluted weighted average common shares outstanding		217,271		214,438


													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 Equity
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



		Number of Hotels
Subsidiaries of Marriott International, Inc. or Marriott Hotel Services, Inc. (collectively, “Marriott”)		6
Interstate Hotels & Resorts, Inc.		2
Four Seasons Hotels Limited		1
Highgate Hotels L.P. and an affiliate		1
Hilton Worldwide		1
Hyatt Hotels Corporation		1
Montage North America, LLC		1
Singh Hospitality, LLC		1

Total hotels owned as of March 31, 2022		14


Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2	Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3	Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.


			Fair Value Measurements at Reporting Date
	Total		Level 1		Level 2		Level 3
March 31, 2022 (unaudited):
Interest rate cap derivative	$	11	$	—	$	11	$	—
Total assets measured at fair value at March 31, 2022	$	11	$	—	$	11	$	—

December 31, 2021:
Interest rate cap derivative	$	3	$	—	$	3	$	—
Total assets measured at fair value at December 31, 2021	$	3	$	—	$	3	$	—


									Estimated Fair Value of Assets (Liabilities) (1)
		Strike / Capped			Effective	Maturity	Notional		March 31,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2022		2021
Hilton San Diego Bayfront	Cap	6.000	%	1-Month LIBOR	December 9, 2021	December 15, 2022	$	220,000	$	11	$	3
Term Loan 1	Swap	1.591	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000		(201)		(744)
Term Loan 2	Swap	1.853	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000		(193)		(1,484)
									$	(383)	$	(2,225)


	March 31, 2022				December 31, 2021
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	575,934	$	558,428	$	611,437	$	590,359


				Trailing 12-Month
		Percentage of		Total Consolidated
	Number of Hotels	Total Rooms		Revenue
California	5	35	%	37	%
Florida	2	13	%	14	%
Hawaii	1	7	%	24	%
Massachusetts	2	20	%	14	%


	January		February		March
2022	37.9	%	53.6	%	67.9	%
2021	14.0	%	24.5	%	31.7	%


	Payment due by period
			Less Than		1 to 3		3 to 5		More than
	Total		1 year		years		years		5 years
Notes payable (1)	$	575,934	$	110,321	$	295,613	$	65,000	$	105,000
Interest obligations on notes payable (2)		65,198		22,567		24,494		13,107		5,030
Operating lease obligations, including imputed interest (3)		30,763		6,711		13,450		7,100		3,502
Construction commitments		75,216		75,216		—		—		—
Total	$	747,111	$	214,815	$	333,557	$	85,207	$	113,532



	March 31,		December 31,
	2022		2021
	(unaudited)
Land	$	584,740	$	604,692
Buildings and improvements		2,579,854		2,729,461
Furniture, fixtures and equipment		401,559		431,780
Intangible assets		41,884		43,117
Construction in progress		76,707		41,260
Investment in hotel properties, gross		3,684,744		3,850,310
Accumulated depreciation and amortization		(1,071,316)		(1,130,294)
Investment in hotel properties, net	$	2,613,428	$	2,720,016


	March 31,		December 31,
	2022		2021
	(unaudited)
Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points, resulting in effective interest rates of 1.174% and 1.140% at March 31, 2022 and December 31, 2021, respectively; matures on December 9, 2022 with one remaining one-year option to extend, which the Company intends to exercise. The note is collateralized by a first deed of trust on one hotel property.	$	220,000	$	220,000
Note payable requiring payments of interest and principal, with a fixed rate of 4.15%; matures on December 11, 2024. The note is collateralized by a first deed of trust on one hotel property.		77,634		78,137
Unsecured Term Loan 1 requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points. LIBOR has been swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 3.941%. Matures on September 3, 2022.		19,400		19,400
Unsecured Term Loan 2 requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points. LIBOR has been swapped to a fixed rate of 1.853%, resulting in an effective interest rate of 4.203%. Matures on January 31, 2023.		88,900		88,900
Unsecured Series A Senior Notes requiring semi-annual payments of interest only, bearing interest at 5.94%. Matures on January 10, 2026.		65,000		90,000
Unsecured Series B Senior Notes requiring semi-annual payments of interest only, bearing interest at 6.04%. Matures on January 10, 2028.		105,000		115,000
Total notes payable	$	575,934	$	611,437

Current portion of notes payable	$	110,321	$	21,401
Less: current portion of deferred financing costs		(580)		(707)
Carrying value of current portion of notes payable	$	109,741	$	20,694

Notes payable, less current portion	$	465,613	$	590,036
Less: long-term portion of deferred financing costs		(1,012)		(1,295)
Carrying value of notes payable, less current portion	$	464,601	$	588,741


					Maximum Number (or
				Total Number of	Appropriate Dollar
				Shares Purchased	Value) of Shares that
	Total Number			as Part of Publicly	May Yet Be Purchased
	of Shares	Average Price Paid		Announced Plans	Under the Plans or
Period	Purchased	per Share		or Programs	Programs
January 1, 2022 - January 31, 2022	—	$	—	—	$	500,000,000
February 1, 2022 - February 28, 2022	219,823	$	11.69	—	$	500,000,000
March 1, 2022 - March 31, 2022	3,947,908	$	11.19	3,879,025	$	456,612,271
Total	4,167,731	$	11.21	3,879,025	$	456,612,271


Exhibit Number			Description
3.1			Articles of Amendment and Restatement of Sunstone Hotel Investors, Inc. (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company).

3.2			Second Amended and Restated Bylaws of Sunstone Hotel Investors, Inc. effective as of November 15, 2018 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on November 15, 2018).

3.3			Articles Supplementary Prohibiting the Company From Electing to be Subject to Section 3-803 of the Maryland General Corporation Law Absent Shareholder Approval (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 29, 2013).

3.4			Articles Supplementary for Series E preferred stock (incorporated by reference to Exhibit 3.5 to the registration statement on Form 8-A, filed by the Company on March 10, 2016).

3.5			Articles Supplementary for Series F preferred stock (incorporated by reference to Exhibit 3.5 to the registration statement on Form 8-A, filed by the Company on May 16, 2016).

3.6			Articles Supplementary for Series G preferred stock (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 28, 2021.

3.7			Articles Supplementary for Series H preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on May 20, 2021.

3.8			Articles Supplementary for Series I preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the company on July 15, 2021).

3.9			Eighth Amended and Restated Limited Liability Agreement of Sunstone Hotel Partnership LLC (incorporated by reference to Exhibit 3.2 to Form 8-K, filed by the Company on July 16, 2021).

10.1			Third Amendment to Amended and Restated Credit Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on July 8, 2021).

10.2			Third Amendment to Note and Guarantee Agreement (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on July 8, 2021).

10.3			Sunstone Hotel Investors, Inc. Incentive Bonus Plan (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on August 10, 2021). #

10.4			Form of Retention Letter with Named Executive Officers (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on September 13, 2021). #

10.5			Form of Employment Agreement by and between Sunstone Hotel Investors, Inc. and Douglas M. Pasquale (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on September 13, 2021). #

10.6			Form of Letter Agreement with Named Executive Officers (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on October 1, 2021). #

10.7			Form of Performance-Vesting Restricted Stock Unit Award Agreement (2022) (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on February 11, 2022). #

10.8			Form of Performance-Vesting Restricted Stock Unit Award Agreement (Transition 2022) (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on February 11, 2022). #

10.9			Form of Performance-Vesting Restricted Stock Unit Award Agreement (Promotion) (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on March 7, 2022). #

10.10			Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan (incorporated by reference to Exhibit 10-1 to Form 8-K, filed by the Company on April 28, 2022). #

31.1			Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2			Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1			Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS			XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.*

101.SCH			Inline XBRL Taxonomy Extension Schema Document. *

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document. *

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document. *

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document. *

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document. *

104			Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline XBRL (included in Exhibit 101).


*		Filed herewith.
#		Management contract or compensatory plan or arrangement.


	Sunstone Hotel Investors, Inc.

Date: May 4, 2022	By:	/s/ Aaron R. Reyes
		Aaron R. Reyes (Chief Financial Officer and Duly Authorized Officer)

7
Date: May 4, 2022	/s/ Bryan A. Giglia
	Bryan A. Giglia
	Chief Executive Officer

7
Date: May 4, 2022	/s/ Aaron R. Reyes
	Aaron R. Reyes
	Chief Financial Officer