Sunstone Hotel Investors, Inc 10-Q for FY2021 Q2

Sunstone Hotel Investors, Inc. (SHO)

10-Q 2021-08-04 For: 2021-06-30

Added on April 05, 2026

About this 10-Q

Sunstone Hotel Investors, Inc filed this 10-Q on August 4, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $117.21M; up 1024.4% from $10.42M a year earlier
Net loss: $27.92M; compared with a net loss of $117.5M a year earlier

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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 F Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRF	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 June 30, 2021 (unaudited) and December 31, 2020	2

	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020	3

	Unaudited Consolidated Statements of Equity for the Two Quarters and Six Months Ended June 30, 2021 and 2020	4

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	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	45

Item 4.	Controls and Procedures	45

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

SIGNATURES		48



	June 30,		December 31,
	2021		2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	162,898	$	368,406
Restricted cash		47,490		47,733
Accounts receivable, net		25,044		8,566
Prepaid expenses and other current assets		7,413		10,440
Total current assets		242,845		435,145
Investment in hotel properties, net		2,687,395		2,461,498
Finance lease right-of-use asset, net		45,447		46,182
Operating lease right-of-use assets, net		24,939		26,093
Deferred financing costs, net		3,403		4,354
Other assets, net		11,333		12,445
Total assets	$	3,015,362	$	2,985,717
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	41,046	$	37,326
Accrued payroll and employee benefits		17,429		15,392
Dividends and distributions payable		2,225		3,208
Other current liabilities		50,693		32,606
Current portion of notes payable, net		2,331		2,261
Total current liabilities		113,724		90,793
Notes payable, less current portion, net		741,337		742,528
Finance lease obligation, less current portion		15,568		15,569
Operating lease obligations, less current portion		27,816		29,954
Other liabilities		13,612		17,494
Total liabilities		912,057		896,338
Commitments and contingencies (Note 11)
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized:
6.95% Series E Cumulative Redeemable Preferred Stock, zero shares and 4,600,000 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively, stated at liquidation preference of $25.00 per share		—		115,000
6.45% Series F Cumulative Redeemable Preferred Stock, 3,000,000 shares issued and outstanding at June 30, 2021 and December 31, 2020, stated at liquidation preference of $25.00 per share		75,000		75,000
Series G Cumulative Redeemable Preferred Stock, 2,650,000 shares and zero shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively, stated at liquidation preference of $25.00 per share		66,250		—
6.125% Series H Cumulative Redeemable Preferred Stock, 4,600,000 shares and zero shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively, stated at liquidation preference of $25.00 per share		115,000		—
Common stock, $0.01 par value, 500,000,000 shares authorized, 219,043,105 shares issued and outstanding at June 30, 2021 and 215,593,401 shares issued and outstanding at December 31, 2020		2,190		2,156
Additional paid in capital		2,626,582		2,586,108
Retained earnings		833,132		913,766
Cumulative dividends and distributions		(1,654,388)		(1,643,386)
Total stockholders’ equity		2,063,766		2,048,644
Noncontrolling interest in consolidated joint venture		39,539		40,735
Total equity		2,103,305		2,089,379
Total liabilities and equity	$	3,015,362	$	2,985,717



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
REVENUES
Room	$	84,597	$	3,869	$	118,816	$	131,269
Food and beverage		15,238		213		20,209		48,203
Other operating		17,375		6,342		28,818		22,164
Total revenues		117,210		10,424		167,843		201,636
OPERATING EXPENSES
Room		22,946		7,077		34,586		51,322
Food and beverage		15,669		5,025		21,648		46,785
Other operating		3,486		1,224		5,291		4,988
Advertising and promotion		7,042		4,090		11,917		16,552
Repairs and maintenance		7,132		5,375		12,677		15,424
Utilities		4,683		3,226		8,834		9,068
Franchise costs		2,296		338		3,287		5,674
Property tax, ground lease and insurance		15,632		19,124		30,293		39,175
Other property-level expenses		16,067		8,736		26,544		37,581
Corporate overhead		9,467		8,438		16,644		15,832
Depreciation and amortization		32,729		34,539		63,499		71,285
Impairment losses		—		18,100		—		133,466
Total operating expenses		137,149		115,292		235,220		447,152
Interest and other income (loss)		21		306		(358)		2,612
Interest expense		(8,065)		(12,950)		(15,714)		(30,457)
Gain on extinguishment of debt		88		—		310		—
Loss before income taxes		(27,895)		(117,512)		(83,139)		(273,361)
Income tax (provision) benefit, net		(23)		12		(66)		(6,658)
NET LOSS		(27,918)		(117,500)		(83,205)		(280,019)
Loss from consolidated joint venture attributable to noncontrolling interest		596		2,162		2,571		2,620
Preferred stock dividends and redemption charge		(7,795)		(3,207)		(11,002)		(6,414)
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(35,117)	$	(118,545)	$	(91,636)	$	(283,813)

Basic and diluted per share amounts:
Basic and diluted loss attributable to common stockholders per common share	$	(0.16)	$	(0.55)	$	(0.43)	$	(1.30)
Basic and diluted weighted average common shares outstanding		215,113		214,225		214,778		217,631


													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, 2020 (audited)	7,600,000	$	190,000	215,593,401	$	2,156	$	2,586,108	$	913,766	$	(1,643,386)	$	40,735	$	2,089,379
Amortization of deferred stock compensation	—		—	—		—		2,869		—		—		—		2,869
Issuance of restricted common stock, net	—		—	581,683		6		(3,522)		—		—		—		(3,516)
Series E preferred stock dividends and dividends payable at $0.434375 per share	—		—	—		—		—		—		(1,998)		—		(1,998)
Series F preferred stock dividends and dividends payable at $0.403125 per share	—		—	—		—		—		—		(1,209)		—		(1,209)
Contribution from noncontrolling interest	—		—	—		—		—		—		—		1,375		1,375
Net loss	—		—	—		—		—		(53,312)		—		(1,975)		(55,287)
Balance at March 31, 2021	7,600,000		190,000	216,175,084		2,162		2,585,455		860,454		(1,646,593)		40,135		2,031,613
Amortization of deferred stock compensation	—		—	—		—		4,784		—		—		—		4,784
Repurchase of common stock for employee tax obligations net of restricted common stock issued	—		—	(45,661)		(1)		(1,360)		—		—		—		(1,361)
Net proceeds from issuance of common stock	—		—	2,913,682		29		37,630		—		—		—		37,659
Net issuance of Series G preferred stock in connection with hotel acquisition	2,650,000		66,250	—		—		(142)		—		—		—		66,108
Net proceeds from issuance of Series H preferred stock	4,600,000		115,000	—		—		(3,801)		—		—		—		111,199
Redemption of Series E preferred stock	(4,600,000)		(115,000)	—		—		4,016		—		(4,016)		—		(115,000)
Series E preferred stock dividends at $0.337847 per share through redemption date	—		—	—		—		—		—		(1,554)		—		(1,554)
Series F preferred stock dividends and dividends payable at $0.403125 per share	—		—	—		—		—		—		(1,209)		—		(1,209)
Series G preferred stock dividends and dividends payable at $0.110259 per share	—		—	—		—		—		—		(292)		—		(292)
Series H preferred stock dividends and dividends payable at $0.157378 per share	—		—	—		—		—		—		(724)		—		(724)
Net loss	—		—	—		—		—		(27,322)		—		(596)		(27,918)
Balance at June 30, 2021	10,250,000	$	256,250	219,043,105	$	2,190	$	2,626,582	$	833,132	$	(1,654,388)	$	39,539	$	2,103,305



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

Total hotels owned as of June 30, 2021		18


Hotel	Suspension Date	Resumption Date
Oceans Edge Resort & Marina	March 22, 2020	June 4, 2020
Embassy Suites Chicago	April 1, 2020	July 1, 2020
Marriott Boston Long Wharf	March 12, 2020	July 7, 2020
Hilton New Orleans St. Charles	March 28, 2020	July 13, 2020
Hyatt Centric Chicago Magnificent Mile	April 6, 2020	July 13, 2020
JW Marriott New Orleans	March 28, 2020	July 14, 2020
Hilton San Diego Bayfront	March 23, 2020	August 11, 2020
Renaissance Washington DC	March 26, 2020	August 24, 2020
Hyatt Regency San Francisco	March 22, 2020	October 1, 2020
Renaissance Orlando at SeaWorld®	March 20, 2020	October 1, 2020
The Bidwell Marriott Portland	March 27, 2020	October 5, 2020
Wailea Beach Resort	March 25, 2020	November 1, 2020
Hilton Garden Inn Chicago Downtown/Magnificent Mile	March 27, 2020	April 1, 2021
Renaissance Westchester	April 4, 2020


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
June 30, 2021 (unaudited):
Interest rate cap derivative	$	—	$	—	$	—	$	—
Total assets measured at fair value at June 30, 2021	$	—	$	—	$	—	$	—

December 31, 2020:
Renaissance Westchester (1)	$	14,125	$	—	$	14,125	$	—
Interest rate cap derivative		—		—		—		—
Total assets measured at fair value at December 31, 2020	$	14,125	$	—	$	14,125	$	—


									Estimated Fair Value of Assets (Liabilities) (1)
		Strike / Capped			Effective	Maturity	Notional		June 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2021		2020
Hilton San Diego Bayfront	Cap	6.000	%	1-Month LIBOR	December 9, 2020	December 15, 2021	$	220,000	$	—	$	—
$85.0 million term loan	Swap	1.591	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000		(1,468)		(2,100)
$100.0 million term loan	Swap	1.853	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000		(2,664)		(3,610)
									$	(4,132)	$	(5,710)


	June 30, 2021				December 31, 2020
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	746,303	$	720,551	$	747,945	$	715,042


				Trailing 12-Month
		Percentage of		Total
	Number of Hotels	Total Rooms		Consolidated Revenue
California	5	31	%	34	%
Florida	2	10	%	16	%
Hawaii	1	6	%	21	%
Illinois	3	13	%	5	%
Massachusetts	2	16	%	11	%


	As of March 31,		As of June 30,
	2021	2020 (1)	2021 (2)	2020 (1)
Number of hotels open	15	9	17	6
Number of rooms in open hotels	8,308	4,511	8,799	3,073
Number of hotels with temporarily suspended operations	2	11	1	14
Number of rooms in hotels with temporarily suspended operations	709	6,099	348	7,537
Total number of hotels	17	20	18	20
Total number of rooms	9,017	10,610	9,147	10,610



	June 30,		December 31,
	2021		2020
	(unaudited)
Land	$	611,538	$	571,212
Buildings and improvements		2,725,893		2,523,750
Furniture, fixtures and equipment		452,610		431,918
Intangible assets		34,891		21,192
Franchise fees		743		743
Construction in progress		27,082		15,831
Investment in hotel properties, gross		3,852,757		3,564,646
Accumulated depreciation and amortization		(1,165,362)		(1,103,148)
Investment in hotel properties, net	$	2,687,395	$	2,461,498


	June 30,		December 31,
	2021		2020
	(unaudited)
Notes payable requiring payments of interest and principal, with fixed rates ranging from 4.12% to 4.15%; maturing at dates ranging from December 11, 2024 through January 6, 2025. The notes are collateralized by first deeds of trust on two hotel properties at both June 30, 2021 and December 31, 2020.	$	136,303	$	137,945
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 1.144% and 1.192% at June 30, 2021 and December 31, 2020, respectively; matures on December 9, 2021 with two one-year options 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
Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 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.		85,000		85,000
Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 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.		100,000		100,000
Unsecured Series A Senior Notes requiring semi-annual payments of interest only, bearing interest at 5.94%. Matures on January 10, 2026.		90,000		90,000
Unsecured Series B Senior Notes requiring semi-annual payments of interest only, bearing interest at 6.04%. Matures on January 10, 2028.		115,000		115,000
Total notes payable	$	746,303	$	747,945

Current portion of notes payable	$	3,375	$	3,305
Less: current portion of deferred financing costs		(1,044)		(1,044)
Carrying value of current portion of notes payable	$	2,331	$	2,261

Notes payable, less current portion	$	742,928	$	744,640
Less: long-term portion of deferred financing costs		(1,591)		(2,112)
Carrying value of notes payable, less current portion	$	741,337	$	742,528


	January		February		March		April		May		June
2021	13.3	%	22.4	%	29.1	%	37.8	%	44.2	%	48.8	%
2020	72.2	%	78.6	%	29.1	%	1.6	%	2.6	%	3.9	%


	Payment due by period
			Less Than		1 to 3		3 to 5		More than
	Total		1 year		years		years		5 years
Notes payable (1)	$	746,303	$	3,375	$	412,173	$	215,755	$	115,000
Interest obligations on notes payable (2)		103,446		29,425		40,732		22,272		11,017
Finance lease obligation, including imputed interest		107,311		1,403		2,806		2,806		100,296
Operating lease obligations, including imputed interest (3)		39,204		6,882		13,926		11,483		6,913
Construction commitments		36,495		36,495		—		—		—
Employment obligations		2,277		2,277		—		—		—
Total	$	1,035,036	$	79,857	$	469,637	$	252,316	$	233,226


					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
April 1, 2021 - April 30, 2021	—	$	—	—	$	500,000,000
May 1, 2021 - May 31, 2021	108,905	$	12.49	—	$	500,000,000
June 1, 2021 - June 30, 2021	—	$	—	—	$	500,000,000
Total	108,905	$	12.49	—	$	500,000,000


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).

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 June 30, 2021 formatted in Inline XBRL (included in Exhibit 101).


	Sunstone Hotel Investors, Inc.

Date: August 4, 2021	By:	/s/ Bryan A. Giglia
		Bryan A. Giglia (Chief Financial Officer and Duly Authorized Officer)

7
Date: August 4, 2021	/s/ John V. Arabia
	John V. Arabia
	President and Chief Executive Officer

7
Date: August 4, 2021	/s/ Bryan A. Giglia
	Bryan A. Giglia
	Chief Financial Officer