SUNSTONE HOTEL INVESTORS REPORTS RESULTS FOR SECOND QUARTER 2023

Increases Quarterly Dividend

ALISO VIEJO, Calif., Aug. 4, 2023 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced results for the second quarter ended June 30, 2023.

Second Quarter 2023 Operational Results (as compared to Second Quarter 2022):

• Net Income: Net income was $43.1 million as compared to $37.7 million.
• Comparable RevPAR: Comparable RevPAR increased 3.6% to $245.91. The average daily rate was $319.36 and occupancy was 77.0%. RevPAR at the Company's urban and group hotels increased 10.7%.
• Adjusted EBITDAre: Adjusted EBITDAre, excluding noncontrolling interest increased 15.0% to $85.1 million.
• Adjusted FFO: Adjusted FFO attributable to common stockholders per diluted share increased 10.0% to $0.33.

Information regarding the non-GAAP financial measures disclosed in this release is provided below in "Non-GAAP Financial Measures." Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included later in this release.

Bryan A. Giglia, Chief Executive Officer, stated, "During the quarter, our portfolio generated profitability that was above the high-end of our guidance ranges despite a moderation in leisure travel, which contributed to softer revenue growth. Our group hotels continue to benefit from steady demand trends and healthy ancillary spend. We remain encouraged by the ongoing recovery in our urban markets, particularly San Francisco, which was once again our highest RevPAR growth market and continues to demonstrate steady growth as the market recovers. Working with our operators, we are focused on preserving operational efficiencies and identifying additional cost reductions to best position the portfolio to maximize earnings as the demand environment evolves. Overall, we are pleased with our portfolio's ability to manage profitability in the quarter and believe there are additional opportunities to make meaningful improvements at our resorts."

Mr. Giglia continued, "Consistent with our strategy of returning additional capital to shareholders, our Board of Directors has increased our quarterly common dividend to $0.07 per share. On an annualized basis, our increased quarterly dividend better reflects the normalized taxable income we believe our portfolio will produce over various cyclical periods. Together with our focus on capital recycling and portfolio investment, the increased dividend is further demonstration of our commitment to returning capital and delivering value for our owners."

Unaudited Selected Statistical and Financial Data ($ in millions, except RevPAR, ADR and per share amounts)

The Company's actual results for the quarter ended June 30, 2023 compare to its guidance previously provided as follows:

Balance Sheet and Liquidity Update

As of June 30, 2023, the Company had $163.5 million of cash and cash equivalents, including restricted cash of $55.7 million, total assets of $3.1 billion, including $2.8 billion of net investments in hotel properties, total debt of $820.1 million and stockholders' equity of $2.1 billion.

Operations Update

July 2023, 2022 and 2019 results included the following ($ in millions, except RevPAR and ADR):

Capital Investments Update

The Company invested $26.7 million and $49.2 million into its portfolio during the second quarter and first six months of 2023, respectively, and $32.3 million and $62.6 million during the same periods in 2022. In 2023, the Company expects to invest approximately $120 million to $140 million into its portfolio with the majority of the investment consisting of the completion of the renovation and conversion of the Renaissance Washington DC to the Westin brand, the beginning of the transformational conversion of The Confidante Miami Beach to Andaz Miami Beach and the renovation and conversion of the Renaissance Long Beach to the Marriott brand. The Company currently anticipates that it will incur approximately $11 million to $13 million of EBITDAre displacement in 2023 in connection with its planned capital investments.

2023 Outlook

For the third quarter of 2023, the Company expects:

Third quarter 2023 guidance is based in part on the following full year assumptions:

• Full year total Adjusted EBITDAre displacement of approximately $11 million to $13 million in connection with planned capital investments, a decrease of $2 million as compared to our prior forecast.
• Full year corporate overhead expense (excluding deferred stock amortization) of approximately $21.5 million to $22.5 million, a decrease of $0.5 million as compared to our prior forecast.
• Full year interest expense of approximately $50 million to $51 million, including approximately $3 million in amortization of deferred financing costs and approximately $2 million of noncash benefit from interest on derivatives.
• Full year preferred stock dividends of approximately $15 million, which includes the Series G, H and I cumulative redeemable preferred stock.

Recent Developments

Stock Repurchase Program. During the second quarter of 2023, the Company repurchased 301,461 shares of its common stock at an average purchase price of $9.45 per share. Year to date through August 3, 2023, the Company has repurchased a total of 2,266,384 shares of its common stock at an average price of $9.46 per share for a total repurchase amount before expenses of $21.4 million, leaving $489.5 million of authorized capacity remaining under the Company's stock repurchase program.

Dividend Update

On August 3, 2023, the Company's Board of Directors declared a cash dividend of $0.07 per share of common stock, an increase of $0.02 per share, or 40%, as compared to the Company's prior quarterly dividend. The Company's Board of Directors also declared cash dividends of $0.382813 per share payable to its Series H cumulative redeemable preferred stockholders and $0.356250 per share payable to its Series I cumulative redeemable preferred stockholders. The dividends will be paid on October 16, 2023 to stockholders of record as of September 29, 2023.

The Company expects to continue to pay a quarterly cash common dividend throughout 2023. Consistent with the Company's past practice, and to the extent that the expected regular quarterly dividends for 2023 do not satisfy its annual distribution requirements, the Company may satisfy its annual distribution requirement by paying a "catch-up" dividend in January 2024. The level of any future quarterly dividends will be determined by the Company's Board of Directors after considering the Company's obligations under its various financing agreements, projected taxable income, compliance with its debt covenants, long-term operating projections, expected capital requirements and risks affecting the Company's business.

Supplemental Disclosures

Contemporaneous with this release, the Company has furnished a Form 8-K with unaudited financial information. This additional information is being provided as a supplement to the information in this release and other filings with the SEC. The Company has no obligation to update any of the information provided to conform to actual results or changes in the Company's portfolio, capital structure or future expectations.

Earnings Call

The Company will host a conference call to discuss second quarter financial results on August 4, 2023, at 12:00 p.m. Eastern Time (9:00 a.m. Pacific Time). A live webcast of the call will be available via the Investor Relations section of the Company's website at www.sunstonehotels.com. Alternatively, interested parties may dial 1-888-330-3573 and reference conference ID 4831656 to listen to the live call. A replay of the webcast will also be archived on the website.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of the date of this release owns 15 hotels comprised of 7,735 rooms, the majority of which are operated under nationally recognized brands. Sunstone's strategy is to create long-term stakeholder value through the acquisition, active ownership and disposition of hotels considered to be Long-Term Relevant Real Estate®. For further information, please visit Sunstone's website at www.sunstonehotels.com. The Company's website is provided as a reference only and any information on the website is not incorporated by reference in this release.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will" and other similar terms and phrases, including opinions, references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: we own upper upscale and luxury hotels in an industry that is highly competitive; events beyond our control, including economic slowdowns or recessions, pandemics such as those caused by COVID-19 and its variants, natural disasters, civil unrest and terrorism; rising hotel operating costs, including wages, employee-related benefits, food costs, commodity costs, including those used to renovate or reposition our hotels, property taxes, property and liability insurance and utilities may not be offset by increased room rates; system security risks, data protection breaches, cyber-attacks and systems integration issues, including those impacting the Company's suppliers, hotel managers or franchisors; a significant portion of our hotels are geographically concentrated so we may be harmed by economic downturns or natural disasters in these areas of the country; we face possible risks associated with the physical and transitional effects of climate change; uninsured or underinsured losses could harm our financial condition; the operating results of some of our hotels are significantly reliant upon group and transient business generated by large corporate customers, and the loss of such customers for any reason could harm our operating results; the increased use of virtual meetings and other similar technologies could lessen the need for business-related travel, and, therefore, demand for rooms in our hotels may be adversely affected; our hotels have an ongoing need for capital investment and we may incur significant capital expenditures in connection with acquisitions, repositionings and other improvements, some of which are mandated by applicable laws or regulations or agreements with third parties, and the costs of such renovations, repositionings or improvements may exceed our expectations or cause other problems; delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders; accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods; volatility in the debt and equity markets may adversely affect our ability to acquire, renovate, refinance or sell our hotels; we may pursue joint venture investments that could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer's financial condition and disputes between us and our co-venturer; we may be subject to unknown or contingent liabilities related to recently sold or acquired hotels, as well as hotels we may sell or acquire in the future; we may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel; the sale of a hotel or portfolio of hotels is typically subject to contingencies, risks and uncertainties, any of which may cause us to be unsuccessful in completing the disposition; the illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our hotels; we may issue or invest in hotel loans, including subordinated or mezzanine loans, which could involve greater risks of loss than senior loans secured by income-producing real properties; if we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor's willingness to forfeit the property in lieu of the debt; one of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations; because we are a REIT, we depend on third-parties to operate our hotels; we are subject to risks associated with our operators' employment of hotel personnel; most of our hotels operate under a brand owned by Marriott, Hilton, Hyatt, Four Seasons or Montage. Should any of these brands experience a negative event, or receive negative publicity, our operating results may be harmed; our franchisors and brand managers may adopt new policies or change existing policies which could result in increased costs that could negatively impact our hotels; future adverse litigation judgments or settlements resulting from legal proceedings could have an adverse effect on our financial condition; claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses; the hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue; changes in the debt and equity markets may adversely affect the value of our hotels; certain of our hotels have in the past become impaired and additional hotels may become impaired in the future; laws and governmental regulations may restrict the ways in which we use our hotel properties and increase the cost of compliance with such regulations. Noncompliance with such regulations could subject us to penalties, loss of value of our properties or civil damages; corporate responsibility, specifically related to ESG factors and commitments, may impose additional costs and expose us to new risks that could adversely affect our results of operations, financial condition and cash flows; our franchisors and brand managers may require us to make capital expenditures pursuant to property improvement plans or to comply with brand standards; termination of any of our franchise, management or operating lease agreements could cause us to lose business or lead to a default or acceleration of our obligations under certain of our debt instruments; the growth of alternative reservation channels could adversely affect our business and profitability; the failure of tenants in our hotels to make rent payments under our retail and restaurant leases may adversely affect our results of operations; we rely on our corporate and hotel senior management teams, the loss of whom may cause us to incur costs and harm our business; if we fail to maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results; we have outstanding debt which may restrict our financial flexibility; certain of our debt is subject to variable interest rates, which can create uncertainty in forecasting our interest expense and may negatively impact our operating results; and other risks and uncertainties associated with the Company's business described in its filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All forward-looking information provided herein is as of the date of this release, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

This release should be read together with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q. Copies of these reports are available on our website at www.sunstonehotels.com and through the SEC's Electronic Data Gathering Analysis and Retrieval System ("EDGAR") at www.sec.gov.

Non-GAAP Financial Measures

We present the following non-GAAP financial measures that we believe are useful to investors as key supplemental measures of our operating performance: earnings before interest expense, taxes, depreciation and amortization for real estate, or EBITDAre; Adjusted EBITDAre, excluding noncontrolling interest (as defined below);