Sunstone Hotel Investors Inc

Previous wording

The following table presents our unaudited operating results for the six months ended June 30, 2024 and 2023, including the amount and percentage change in the results between the two periods.

Current wording

The following table presents our unaudited operating results for the nine months ended September 30, 2024 and 2023, including the amount and percentage change in the results between the two periods.

Previous wording

Room revenue. Room revenue decreased $22.1 million, or 12.7%, in the second quarter of 2024 as compared to the second quarter of 2023 as follows:

Current wording

Room revenue. Room revenue decreased $19.7 million, or 12.4%, in the third quarter of 2024 as compared to the third quarter of 2023 as follows:

Previous wording

For the six months ended June 30, 2024, room revenue decreased $38.7 million, or 11.9%, as compared to the six months ended June 30, 2023 as follows:

Current wording

For the nine months ended September 30, 2024, room revenue decreased $58.4 million, or 12.1%, as compared to the nine months ended September 30, 2023 as follows:

Previous wording

Food and beverage revenue*.* Food and beverage revenue decreased $7.4 million, or 9.4%, in the second quarter of 2024 as compared to the second quarter of 2023, as follows:

Current wording

Food and beverage revenue*.* Food and beverage revenue decreased $0.1 million, or 0.2%, in the third quarter of 2024 as compared to the third quarter of 2023, as follows:

Previous wording

For the first six months of 2024, food and beverage revenue decreased $16.9 million, or 11.3%, as compared to the first six months of 2023, as follows:

Current wording

For the first nine months of 2024, food and beverage revenue decreased $17.1 million, or 8.0%, as compared to the first nine months of 2023, as follows:

Previous wording

Other operating revenue. Other operating revenue increased $0.9 million, or 3.8%, in the second quarter of 2024 as compared to the second quarter of 2023 as follows:

Current wording

Other operating revenue. Other operating revenue decreased $1.5 million, or 5.8%, in the third quarter of 2024 as compared to the third quarter of 2023 as follows:

Previous wording

For the first six months of 2024, other operating revenue increased $0.7 million, or 1.7%, as compared to the first six months of 2023 as follows:

Current wording

For the first nine months of 2024, other operating revenue decreased $0.7 million, or 1.0%, as compared to the first nine months of 2023 as follows:

Previous wording

Hotel operating expenses*.*Hotel operating expenses, which are comprised of room, food and beverage, advertising and promotion, repairs and maintenance, utilities, franchise costs, property tax, ground lease and insurance, and other hotel operating expenses decreased $10.5 million, or 6.8%, in the second quarter of 2024 as compared to the second quarter of 2023 as follows:

Current wording

Hotel operating expenses*.*Hotel operating expenses, which are comprised of room, food and beverage, advertising and promotion, repairs and maintenance, utilities, franchise costs, property tax, ground lease and insurance, and other hotel operating expenses decreased $7.5 million, or 5.0%, in the third quarter of 2024 as compared to the third quarter of 2023 as follows:

Previous wording

For the first six months of 2024, hotel operating expenses decreased $20.8 million, or 6.9%, as compared to the first six months of 2023 as follows:

Current wording

For the first nine months of 2024, hotel operating expenses decreased $28.3 million, or 6.3%, as compared to the first nine months of 2023 as follows:

Previous wording

Other property-level expenses*.*Other property-level expenses decreased $3.7 million, or 11.7%, in the second quarter of 2024 as compared to the second quarter of 2023 as follows:

Current wording

Other property-level expenses*.*Other property-level expenses decreased $2.3 million, or 8.0%, in the third quarter of 2024 as compared to the third quarter of 2023 as follows:

Previous wording

For the first six months of 2024, other property-level expenses decreased $7.9 million, or 12.4%, as compared to the first six months of 2023 as follows:

Current wording

For the first nine months of 2024, other property-level expenses decreased $10.2 million, or 11.0%, as compared to the first nine months of 2023 as follows:

Previous wording

Corporate overhead expense*.*Corporate overhead expense decreased $0.2 million, or 2.7%, in the second quarter of 2024 as compared to the second quarter of 2023, primarily due to decreased payroll and related expenses, due diligence expenses, and deferred stock amortization expense. These decreased expenses were partially offset by increased professional fees.

Current wording

Corporate overhead expense*.*Corporate overhead expense increased $0.5 million, or 6.3%, in the third quarter of 2024 as compared to the third quarter of 2023, primarily due to increased due diligence fees, professional fees, and entity-level state franchise and minimum taxes. These increased expenses were partially offset by decreased payroll and related expenses and deferred stock amortization expense.

Previous wording

For the first six months of 2024, corporate overhead expense decreased $1.2 million, or 7.0%, as compared to the first six months of 2023, primarily due to decreased entity-level state franchise and minimum taxes, payroll and related expenses, and due diligence expenses. These decreased expenses were partially offset by increased professional fees and deferred stock amortization expense.

Current wording

For the first nine months of 2024, corporate overhead expense decreased $0.7 million, or 3.0%, as compared to the first nine months of 2023, primarily due to decreased entity-level state franchise and minimum taxes, payroll and related expenses, and board of director expenses. These decreased expenses were partially offset by increased professional fees, deferred stock amortization expense, and due diligence expenses.

Previous wording

Depreciation and amortization expense*.*Depreciation and amortization expense decreased $1.3 million, or 4.0%, in the second quarter of 2024 as compared to the second quarter of 2023 as follows:

Current wording

Depreciation and amortization expense*.*Depreciation and amortization expense decreased $1.5 million, or 4.5%, in the third quarter of 2024 as compared to the third quarter of 2023 as follows:

Previous wording

For the first six months of 2024, depreciation and amortization expense decreased $4.6 million, or 7.1%, as compared to the first six months of 2023 as follows:

Current wording

For the first nine months of 2024, depreciation and amortization expense decreased $6.1 million, or 6.2%, as compared to the first nine months of 2023 as follows:

Previous wording

Interest and other income*.*Interest and other income totaled $3.5 million and $4.6 million in the second quarters of 2024 and 2023, respectively, and $9.0 million and $5.2 million in the first six months of 2024 and 2023, respectively.

Current wording

Interest and other income*.*Interest and other income totaled $2.4 million and $1.2 million in the third quarters of 2024 and 2023, respectively, and $11.3 million and $6.4 million in the first nine months of 2024 and 2023, respectively.

Previous wording

During the second quarters of 2024 and 2023, we recognized interest income of $3.2 million and $0.9 million, respectively. Interest income increased in the second quarter of 2024 as compared to the second quarter of 2023 due to increases in our cash balances as well as increased interest rates. In addition, during the second quarters of 2024 and 2023, we recognized property insurance recoveries of $0.3 million and $3.7 million related to fire damage at the Hilton San Diego Bayfront and Hurricane Ida-related property damage at the Hilton New Orleans St. Charles, respectively.

Current wording

During the third quarters of 2024 and 2023, we recognized interest income of $2.3 million and $1.2 million, respectively. Interest income increased in the third quarter of 2024 as compared to the third quarter of 2023 due to increases in our cash balances as well as increased interest rates. In addition, during the third quarter of 2024, we recognized other miscellaneous income of $0.1 million.

Previous wording

During the first six months of 2024 and 2023, we recognized interest income of $8.6 and $1.5 million, respectively. Interest income increased in the first six months of 2024 as compared to the first six months of 2023 due to increases in our cash balances as well as increased interest rates. In addition, during the first six months of 2024 and 2023, we recognized property insurance recoveries of $0.3 million and $3.7 million related to fire damage at the Hilton San Diego Bayfront and Hurricane Ida-related property damage at the Hilton New Orleans St. Charles, respectively.

Current wording

During the first nine months of 2024 and 2023, we recognized interest income of $10.9 and $2.7 million, respectively. Interest income increased in the first nine months of 2024 as compared to the first nine months of 2023 due to increases in our cash balances as well as increased interest rates. In addition, during the first nine months of 2024 and 2023, we recognized property insurance recoveries of $0.3 million and $3.7 million related to fire damage at the Hilton San Diego Bayfront and Hurricane Ida-related property damage at the Hilton New Orleans St. Charles, respectively. During the first nine months of 2024, we also recognized other miscellaneous income of $0.1 million.

Previous wording

Interest expense increased $3.5 million, or 37.6%, and $0.7 million, or 3.0%, in the second quarter and first six months of 2024, respectively, as compared to the same periods in 2023 as follows:

Current wording

Interest expense increased $4.1 million, or 34.4%, and $4.8 million, or 13.7%, in the third quarter and first nine months of 2024, respectively, as compared to the same periods in 2023.

Previous wording

Capitalized interest caused interest expense to decrease $0.2 million for both the second quarter and first six months of 2024 as compared to the same periods in 2023. During the second quarter of 2024, we capitalized $0.2 million of interest expense related to the extensive renovation work at The Confidante Miami Beach as it transitions to Andaz Miami Beach.

Current wording

The increase in interest expense during the third quarter of 2024 was primarily due to a $4.8 million noncash change in the fair market value of our derivatives. This increase to expense was partially offset by $0.5 million in capitalized interest and a $0.2 million decrease in interest expense on our debt. During the third quarter of 2024, we capitalized $0.5 million of interest expense related to the extensive renovation work at The Confidante Miami Beach as it transitions to Andaz Miami Beach. Interest expense on our debt decreased $0.2 million primarily due to decreased interest on our variable rate debt.

Previous wording

Interest expense on our debt increased nominally and $0.9 million in the second quarter and first six months of 2024 as compared to the same periods in 2023, respectively, primarily due to increased interest on our variable rate debt and our draw of the $225.0 million available under our third term loan in May 2023, which was partially offset due to our repayment of the $220.0 million loan secured by the Hilton San Diego Bayfront in May 2023.

Current wording

The increase in interest expense during the first nine months of 2024 was primarily due to a $4.4 million noncash change in the fair market value of our derivatives. In addition, interest expense on our debt increased $0.7 million primarily due to increased interest on our variable rate debt and our draw of the $225.0 million available under our third term loan in May 2023, which was partially offset due to our repayment of the $220.0 million loan secured by the Hilton San Diego Bayfront in May 2023. The amortization of deferred financing costs caused interest expense to increase $0.3 million in the first nine months of 2024 as compared to the same period in 2023 due to costs incurred on our third term loan. These increases were partially offset by $0.6 million of interest capitalized related to the extensive renovation work at The Confidante Miami Beach as it transitions to Andaz Miami Beach.

Previous wording

Our weighted average interest rate per annum, including our variable rate debt obligations and excluding capitalized interest, was approximately 5.8% and 5.9% at June 30, 2024 and 2023, respectively. Approximately 51.1% and 51.2% of our outstanding notes payable had fixed interest rates or had been swapped to fixed interest rates at June 30, 2024 and 2023, respectively.

Current wording

Our weighted average interest rate per annum, including our variable rate debt obligations and excluding capitalized interest, was approximately 5.7% and 5.8% at September 30, 2024 and 2023, respectively. Approximately 51.1% and 51.2% of our outstanding notes payable had fixed interest rates or had been swapped to fixed interest rates at September 30, 2024 and 2023, respectively.

Previous wording

Gain on sale of assets, net. Gain on sale of assets, net totaled zero and $0.5 million for the second quarter and first six months of 2024, respectively, and zero for both the second quarter and first six months of 2023. In the first quarter of 2024, we recognized an additional $0.5 million net gain related to a contingency resolution at a hotel sold in a prior year.

Current wording

Gain on sale of assets, net. Gain on sale of assets, net totaled zero and $0.5 million for the third quarter and first nine months of 2024, respectively, and zero for both the third quarter and first nine months of 2023. In the first quarter of 2024, we recognized an additional $0.5 million net gain related to a contingency resolution at a hotel sold in a prior year.

Previous wording

Gain on extinguishment of debt. Gain on extinguishment of debt totaled $38,000 and $12,000 for the second quarters of 2024 and 2023, respectively, both of which were related to potential employee-related obligations held in escrow associated with our assignment of a hotel to the hotel’s mortgage holder in 2020. In the second quarter of 2024, the escrow agreement was terminated and we recorded a gain of $38,000 due to the release of the remaining potential employee-related obligations in conjunction with the termination. In the second quarter of 2023, we recorded a gain of $12,000 associated with reassessments of the remaining potential employee-related obligations held in escrow.

Current wording

Gain on extinguishment of debt. Gain on extinguishment of debt totaled zero and a nominal amount for the third quarters of 2024 and 2023, respectively. In the third quarter of 2023, we recorded a nominal gain associated with reassessments of the remaining potential employee-related obligations held in escrow associated with our assignment of a hotel to the hotel’s mortgage holder in 2020.

Previous wording

For the first six months of 2024 and 2023, gain on extinguishment of debt totaled $0.1 million and $9.9 million, respectively. During the first six months of 2024, we recognized $21,000 due to reassessments of the remaining potential employee-related obligations held in escrow, and $38,000 due to the termination of the escrow agreement as noted above in the discussion regarding the second quarter of 2024. During the first six months of 2023 we recognized a gain of $9.9 million, comprised of $9.8 million from the relief of the majority of the potential employee-related obligations, with the funds released to us from escrow, and $0.1 million due to reassessments of the remaining potential employee-related obligations held in escrow.

Current wording

For the first nine months of 2024 and 2023, gain on extinguishment of debt totaled $0.1 million and $9.9 million, respectively, both of which were related to the remaining potential employee-related obligations noted above in the discussion regarding the third quarter of 2023. During the first nine months of 2024, we recognized $21,000 due to reassessments of the remaining potential employee-related obligations held in escrow, and $38,000 due to the release of the remaining potential employee-related obligations in conjunction with the termination of the escrow agreement during the second quarter of 2024. During the first nine months of 2023 we recognized a gain of $9.9 million, comprised of $9.8 million from the relief of the majority of the potential employee-related obligations, with the funds released to us from escrow, and $0.1 million due to reassessments of the remaining potential employee-related obligations held in escrow.

Previous wording

Income tax (provision) benefit, net*.* We lease our hotels to the TRS Lessee and its subsidiaries, which are subject to federal and state income taxes. In addition, we and the Operating Partnership may also be subject to various state and local income taxes.

Current wording

Income tax benefit (provision), net*.* We lease our hotels to the TRS Lessee and its subsidiaries, which are subject to federal and state income taxes. In addition, we and the Operating Partnership may also be subject to various state and local income taxes.

Previous wording

In the second quarter and first six months of 2024, we recognized a current income tax provision of $0.3 million and a net current income tax benefit of $0.6 million, respectively, resulting from current state and federal income tax expenses, net of any refunds.

Current wording

In the third quarter and first nine months of 2024, we recognized net current income tax benefits of $0.5 million and $1.1 million, respectively, resulting from current state and federal income tax expenses, net of any refunds.

Previous wording

In the second quarter and first six months of 2023, we recognized current income tax provisions of $0.8 million and $1.2 million, respectively, resulting from current state and federal income tax expenses.

Current wording

In the third quarter and first nine months of 2023, we recognized current income tax provisions of $0.6 million and $1.8 million, respectively, resulting from current state and federal income tax expenses.

Previous wording

The Series G preferred stock initially accrued dividends at a rate equal to the Montage Healdsburg’s annual net operating income yield on our total investment in the resort. In January 2024, the annual dividend rate increased to the greater of 3.0% or the rate equal to the Montage Healdsburg’s annual net operating income yield on our total investment in the resort. Beginning with the third quarter of 2024, the annual dividend rate will increase to the greater of 4.5% or the rate equal to the Montage Healdsburg’s annual net operating income yield on our total investment in the resort.

Current wording

The Series G preferred stock initially accrued dividends at a rate equal to the Montage Healdsburg’s annual net operating income yield on our total investment in the resort. In the first and third quarters of 2024, the annual dividend rate increased to the

Previous wording

as the Company. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to net income (loss), cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

Current wording

Non-GAAP Financial Measures. We use the following “non-GAAP financial measures” that we believe are useful to investors as key supplemental measures of our operating performance: EBITDAre; Adjusted EBITDAre; FFO attributable to common stockholders; and Adjusted FFO attributable to common stockholders. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with accounting principles generally accepted in the United States (“GAAP”). In addition, our calculation of these measures may not be comparable to other companies that do not define such terms exactly the same as the Company. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to net income (loss), cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

Previous wording

The following table reconciles our unaudited net income to EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table reconciles our unaudited net income to EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Adjusted EBITDAre decreased $11.5 million, or 13.6%, in the second quarter of 2024 as compared to the second quarter of 2023, and $17.1 million, or 11.8%, in the first six months of 2024 as compared to the first six months of 2023 primarily due to the following:

Current wording

Adjusted EBITDAre decreased $10.1 million, or 15.9%, in the third quarter of 2024 as compared to the third quarter of 2023, and $27.2 million, or 13.0%, in the first nine months of 2024 as compared to the first nine months of 2023 primarily due to the following:

Previous wording

The following table reconciles our unaudited net income to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table reconciles our unaudited net income to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Adjusted FFO attributable to common stockholders decreased $10.8 million, or 16.0%, and $17.1 million, or 15.3%, in the second quarter and first six months of 2024, respectively, as compared to the same periods in 2023 primarily due to the same reasons noted in the discussion above regarding Adjusted EBITDAre.

Current wording

Adjusted FFO attributable to common stockholders decreased $9.5 million, or 20.5%, and $26.6 million, or 16.9%, in the third quarter and first nine months of 2024, respectively, as compared to the same periods in 2023 primarily due to the same reasons noted in the discussion above regarding Adjusted EBITDAre.

Previous wording

During the periods presented, our sources of cash included our operating activities and working capital, as well as proceeds from our term loan and property insurance. Our primary uses of cash were for capital expenditures for hotels and other assets, an acquisition of a hotel, operating expenses, repurchases of our common stock, repayments of notes payable and dividends and distributions on our preferred and common stock. We cannot be certain that traditional sources of funds will be available in the future.

Current wording

During the periods presented, our sources of cash included our operating activities and working capital, as well as proceeds from our term loan, property insurance, and a hotel disposition deposit. Our primary uses of cash were for capital expenditures for hotels and other assets, an acquisition of a hotel, operating expenses, repurchases of our common stock, repayments of notes payable and dividends and distributions on our preferred and common stock. We cannot be certain that traditional sources of funds will be available in the future.

Previous wording

activities may also be affected by changes in our portfolio resulting from hotel acquisitions, dispositions or renovations. Net cash provided by operating activities was $93.3 million in the first six months of 2024 as compared to $107.0 million in the first six months of 2023. The net decrease in cash provided by operating activities during the first six months of 2024 as compared to the same period in 2023 was primarily due to decreases in operating cash at the Two Renovation Hotels, as well as decreases caused by our sale of the Boston Park Plaza and higher interest payments on our variable rate debt, partially offset by the acquisition of the Hyatt Regency San Antonio Riverwalk as well as additional operating cash provided by the increase in travel demand benefiting our hotels.

Current wording

Operating activities*.* Our net cash provided by or used in operating activities fluctuates primarily as a result of changes in the net cash generated by our hotels, offset by the cash paid for corporate expenses. Our net cash provided by or used in operating activities may also be affected by changes in our portfolio resulting from hotel acquisitions, dispositions or renovations. Net cash provided by operating activities was $139.9 million in the first nine months of 2024 as compared to $168.7 million in the first nine months of 2023. The net decrease in cash provided by operating activities during the first nine months of 2024 as compared to the same period in 2023 was primarily due to decreases in operating cash at the Two Renovation Hotels, as well as decreases caused by our sale of the Boston Park Plaza and higher interest payments on our variable rate debt, partially offset by the acquisition of the Hyatt Regency San Antonio Riverwalk as well as additional operating cash provided by the increase in travel demand benefiting our hotels.

Previous wording

Investing activities. Our net cash provided by or used in investing activities fluctuates primarily as a result of acquisitions, dispositions and renovations of hotels and other assets. Net cash used in investing activities during the first six months of 2024 as compared to the first six months of 2023 was as follows (in thousands):

Current wording

Investing activities. Our net cash provided by or used in investing activities fluctuates primarily as a result of acquisitions, dispositions and renovations of hotels and other assets. Net cash used in investing activities during the first nine months of 2024 as compared to the first nine months of 2023 was as follows (in thousands):

Previous wording

During the first six months of 2024, we paid $229.3 million to acquire the Hyatt Regency San Antonio Riverwalk, including closing costs and prorations and we invested $68.7 million for renovations and additions to our portfolio and other assets. These cash outflows were slightly offset by $0.2 million in property insurance proceeds received related to fire damage at the Hilton San Diego Bayfront.

Current wording

During the first nine months of 2024, we paid $229.3 million to acquire the Hyatt Regency San Antonio Riverwalk, including closing costs and prorations and we invested $110.2 million for renovations and additions to our portfolio and other assets. These cash outflows were slightly offset by $0.3 million in property insurance proceeds received related to fire damage at the Hilton San Diego Bayfront.

Previous wording

Financing activities. Our net cash provided by or used in financing activities fluctuates primarily as a result of our dividends and distributions paid, issuance and repurchase of common stock, issuance and repayment of notes payable and our credit facility, and issuance and redemption of other forms of capital, including preferred equity. Net cash used in financing activities during the first six months of 2024 as compared to the first six months of 2023 was as follows (in thousands):

Current wording

Financing activities. Our net cash provided by or used in financing activities fluctuates primarily as a result of our dividends and distributions paid, issuance and repurchase of common stock, issuance and repayment of notes payable and our credit facility, and issuance and redemption of other forms of capital, including preferred equity. Net cash used in financing activities during the first nine months of 2024 as compared to the first nine months of 2023 was as follows (in thousands):

Previous wording

During the first six months of 2024, we paid $3.6 million to repurchase 359,008 shares of our outstanding common stock, $3.2 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $1.1 million in scheduled principal payments on our loan secured by the JW Marriott New Orleans and $47.2 million in dividends and distributions to our preferred and common stockholders.

Current wording

During the first nine months of 2024, we paid $26.3 million to repurchase 2,670,373 shares of our outstanding common stock, $4.2 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $1.6 million in scheduled principal payments on our loan secured by the JW Marriott New Orleans and $69.7 million in dividends and distributions to our preferred and common stockholders.