Sunstone Hotel Investors, Inc 10-Q for FY2024 Q3

Sunstone Hotel Investors, Inc. (SHO)

10-Q 2024-11-12 For: 2024-09-30

Added on April 05, 2026

About this 10-Q

Sunstone Hotel Investors, Inc filed this 10-Q on November 12, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).

Headline figures

Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $226.39M; down 8.6% from $247.7M a year earlier
Net income: $3.25M; down 79.1% from net income of $15.56M a year earlier
Diluted EPS: $0.00; compared with $0.06 a year earlier

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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)


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 September 30, 2024 (unaudited) and December 31, 2023	2

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023	3

	Unaudited Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2024 and 2023	4

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023	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	39

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



	September 30,		December 31,
	2024		2023
	(unaudited)
ASSETS
Investment in hotel properties, net	$	2,849,875	$	2,585,279
Operating lease right-of-use assets, net		9,330		12,755
Cash and cash equivalents		115,542		426,403
Restricted cash		77,018		67,295
Accounts receivable, net		34,110		31,206
Prepaid expenses and other assets, net		30,666		26,383
Total assets	$	3,116,541	$	3,149,321

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt, net of unamortized deferred financing costs	$	814,112	$	814,559
Operating lease obligations		13,039		16,735
Accounts payable and accrued expenses		63,644		48,410
Dividends and distributions payable		22,619		29,965
Other liabilities		78,332		73,014
Total liabilities		991,746		982,683
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 September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, stated at liquidation preference of $25.00 per share		100,000		100,000
Common stock, $0.01 par value, 500,000,000 shares authorized, 200,919,457 shares issued and outstanding at September 30, 2024 and 203,479,585 shares issued and outstanding at December 31, 2023		2,009		2,035
Additional paid in capital		2,394,525		2,416,417
Distributions in excess of retained earnings		(552,989)		(533,064)
Total stockholders’ equity		2,124,795		2,166,638

Total liabilities and stockholders' equity	$	3,116,541	$	3,149,321



	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
REVENUES
Room	$	138,759	$	158,467	$	425,870	$	484,304
Food and beverage		63,866		64,007		196,572		213,634
Other operating		23,767		25,226		68,597		69,317
Total revenues		226,392		247,700		691,039		767,255
OPERATING EXPENSES
Room		37,453		41,034		110,349		122,756
Food and beverage		46,286		47,777		138,343		148,309
Other operating		5,815		6,129		18,153		18,031
Advertising and promotion		13,220		12,767		38,326		39,686
Repairs and maintenance		9,094		10,060		26,783		29,112
Utilities		7,670		7,784		19,909		21,644
Franchise costs		4,711		4,278		13,735		12,756
Property tax, ground lease and insurance		19,777		21,709		58,686		60,320
Other property-level expenses		26,702		29,020		82,445		92,654
Corporate overhead		7,577		7,127		23,263		23,991
Depreciation and amortization		31,689		33,188		91,841		97,927
Total operating expenses		209,994		220,873		621,833		667,186
Interest and other income		2,350		1,218		11,306		6,398
Interest expense		(15,982)		(11,894)		(39,685)		(34,911)
Gain on sale of assets, net		—		—		457		—
Gain on extinguishment of debt		—		9		59		9,930
Income before income taxes		2,766		16,160		41,343		81,486
Income tax benefit (provision), net		483		(602)		1,083		(1,763)
NET INCOME		3,249		15,558		42,426		79,723
Preferred stock dividends		(3,931)		(3,226)		(11,297)		(10,762)
(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(682)	$	12,332	$	31,129	$	68,961

Basic and diluted per share amounts:
Basic (loss) income attributable to common stockholders per common share	$	0.00	$	0.06	$	0.15	$	0.33
Diluted (loss) income attributable to common stockholders per common share	$	0.00	$	0.06	$	0.15	$	0.33

Basic weighted average common shares outstanding		201,402		205,570		202,261		206,257
Diluted weighted average common shares outstanding		201,402		205,782		202,857		206,553


									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, 2023 (audited)	11,250,000	$	281,250	203,479,585	$	2,035	$	2,416,417	$	(533,064)	$	2,166,638
Amortization of deferred stock compensation	—		—	—		—		2,887		—		2,887
Issuance of restricted common stock, net	—		—	194,813		2		(3,219)		—		(3,217)
Common stock distributions declared at $0.07 per share	—		—	—		—		—		(14,364)		(14,364)
Series G preferred stock dividends declared at $0.187500 per share	—		—	—		—		—		(497)		(497)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Net income	—		—	—		—		—		13,035		13,035
Balance at March 31, 2024	11,250,000		281,250	203,674,398		2,037		2,416,085		(538,076)		2,161,296
Amortization of deferred stock compensation	—		—	—		—		3,298		—		3,298
Issuance of restricted common stock	—		—	75,002		—		—		—		—
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(18,504)		(18,504)
Series G preferred stock dividends declared at $0.187500 per share	—		—	—		—		—		(497)		(497)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(359,008)		(3)		(3,619)		—		(3,622)
Net income	—		—	—		—		—		26,142		26,142
Balance at June 30, 2024	11,250,000	$	281,250	203,390,392	$	2,034	$	2,415,764	$	(534,121)	$	2,164,927
Amortization of deferred stock compensation	—		—	—		—		2,351		—		2,351
Repurchases of common stock for employee tax obligations	—		—	(91,439)		(1)		(942)		—		(943)
Forfeiture of restricted common stock	—		—	(68,131)		(1)		1		—		—
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(18,186)		(18,186)
Series G preferred stock dividends declared at $0.281250 per share	—		—	—		—		—		(745)		(745)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(2,311,365)		(23)		(22,649)		—		(22,672)
Net income	—		—	—		—		—		3,249		3,249
Balance at September 30, 2024	11,250,000	$	281,250	200,919,457	$	2,009	$	2,394,525	$	(552,989)	$	2,124,795


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.


	September 30, 2024				December 31, 2023
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	817,437	$	817,252	$	819,050	$	805,212


									Estimated Fair Value of Assets (Liabilities) (1)
		Strike / Capped			Effective	Maturity	Notional		September 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2024		2023
Term Loan 1	Swap	3.675	%	CME Term SOFR	March 17, 2023	March 17, 2026	$	75,000	$	(966)	$	417
Term Loan 1	Swap	3.931	%	CME Term SOFR	September 14, 2023	September 14, 2026	$	100,000		(113)		(401)
									$	(1,079)	$	16


						Balance Outstanding as of
	September 30, 2024					September 30,		December 31,
	Rate Type		Interest Rate		Maturity Date	2024		2023
						(unaudited)
Mortgage Loans
JW Marriott New Orleans	Fixed		4.15	%	December 11, 2024	$	72,437	$	74,050

Unsecured Corporate Credit Facilities
Term Loan 1	Fixed	(1)	5.27	%	July 25, 2027	$	175,000	$	175,000
Term Loan 2	Variable	(2)	6.70	%	January 25, 2028		175,000		175,000
Term Loan 3	Variable	(3)	6.55	%	May 1, 2025		225,000		225,000
Total unsecured corporate credit facilities						$	575,000	$	575,000

Unsecured Senior Notes
Series A	Fixed		4.69	%	January 10, 2026	$	65,000	$	65,000
Series B	Fixed		4.79	%	January 10, 2028		105,000		105,000
Total unsecured senior notes						$	170,000	$	170,000

Total debt							817,437		819,050
Unamortized deferred financing costs							(3,325)		(4,491)
Debt, net of unamortized deferred financing costs						$	814,112	$	814,559


		Weighted-Average
		Grant Date
	Number of Shares	Fair Value
Unvested at January 1, 2024	1,032,266	$	11.11
Granted	444,077	$	10.66
Vested	(719,924)	$	11.25
Forfeited	(68,131)	$	10.89
Unvested at September 30, 2024	688,288	$	10.70


		Weighted-Average
	Target Number	Grant Date
	of Shares	Fair Value
Unvested at January 1, 2024	1,076,160	$	10.69
Granted	475,746	$	11.50
Vested	(119,732)	$	11.21
Forfeited	(50,100)	$	11.21
Unvested at September 30, 2024	1,382,074	$	10.90


Expected volatility	31.0	%
Dividend yield (1)	—
Risk-free rate	4.34	%
Expected term	3 years


				Trailing 12-Month
		Percentage of		Total Consolidated
	Number of Hotels	Total Rooms		Revenue
Northern California	3	14	%	21	%
Southern California	2	22	%	22	%
Florida	3	17	%	13	%
Hawaii	1	8	%	16	%
Washington DC	1	11	%	10	%



	September 30,		December 31,
	2024		2023
	(unaudited)
Land	$	645,884	$	614,112
Buildings and improvements		2,818,307		2,587,278
Furniture, fixtures and equipment		442,872		407,861
Intangible assets		44,063		42,187
Construction in progress		117,513		61,247
Investment in hotel properties, gross		4,068,639		3,712,685
Accumulated depreciation and amortization		(1,218,764)		(1,127,406)
Investment in hotel properties, net	$	2,849,875	$	2,585,279


	September 30,		December 31,
	2024		2023
	(unaudited)
Prepaid expenses	$	13,300	$	8,123
Inventory		10,474		9,185
Deferred financing costs		2,574		3,627
Property and equipment, net		2,515		3,120
Interest rate derivatives		—		417
Deferred rent on straight-lined third-party tenant leases		437		552
Liquor licenses		930		930
Other		436		429
Total prepaid expenses and other assets, net	$	30,666	$	26,383


	September 30,		December 31,
	2024		2023
	(unaudited)
Advance deposits	$	50,562	$	45,432
Property, sales and use taxes payable		15,254		6,903
Accrued interest		2,984		6,346
Deferred rent		1,752		2,711
Income taxes payable		—		2,860
Interest rate derivative		1,079		401
Management fees payable		184		1,321
Other		6,517		7,040
Total other liabilities	$	78,332	$	73,014


	Payment due by period
			Less Than		1 to 3		3 to 5		More than
	Total		1 year		years		years		5 years
Notes payable (1)	$	817,437	$	72,437	$	465,000	$	280,000	$	—
Interest obligations on notes payable (1) (2)		118,560		44,365		66,927		7,268		—
Operating lease obligations, including imputed interest (3)		11,687		5,881		3,057		1,765		984
Construction commitments		79,339		79,339		—		—		—
Total	$	1,027,023	$	202,022	$	534,984	$	289,033	$	984


					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
July 1, 2024 - July 31, 2024	—			—	$	451,078,555
August 1, 2024 - August 31, 2024	1,694,337	$	9.75	1,694,337	$	434,559,637
September 1, 2024 - September 30, 2024	708,467	$	9.95	617,028	$	428,452,987
Total	2,402,804	$	9.81	2,311,365	$	428,452,987


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			Third Amended and Restated Bylaws of Sunstone Hotel Investors, Inc. effective as of February 9, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on February 10, 2023).

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 G preferred stock (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 28, 2021).

3.5			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).

3.6			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).

3.7			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).

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. *

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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 September 30, 2024 formatted in Inline XBRL (included in Exhibit 101).


	Sunstone Hotel Investors, Inc.

Date: November 12, 2024	By:	/s/ Aaron R. Reyes
		Aaron R. Reyes (Chief Financial Officer and Duly Authorized Officer)

7
Date: November 12, 2024	/s/ Bryan A. Giglia
	Bryan A. Giglia
	Chief Executive Officer

7
Date: November 12, 2024	/s/ Aaron R. Reyes
	Aaron R. Reyes
	Chief Financial Officer