Sunstone Hotel Investors : First Quarter 2024 Financial Information

Supplemental Financial Information

For the quarter ended March 31, 2024

May 6, 2024

Supplemental Financial Information

May 6, 2024

Table of Contents

Corporate Profile And Disclosures Regarding Non-GAAP Financial Measures	2
Comparable Corporate Financial Information	6
Capitalization	12
Property-Level Data And Operating Statistics	15
Property-Level Revenues, Adjusted EBITDAre & Adjusted EBITDAre Margins	19

Supplemental Financial Information

May 6, 2024

CORPORATE PROFILE AND DISCLOSURES

REGARDING NON-GAAP FINANCIAL MEASURES

CORPORATE PROFILE AND DISCLOSURES REGARDING NON-GAAP FINANCIAL MEASURES

Page 2

Supplemental Financial Information

May 6, 2024

About Sunstone

Sunstone Hotel Investors, Inc. (the "Company," "we," and "our") (NYSE: SHO) is a lodging real estate investment trust ("REIT") that as of May 6, 2024 owns 15 hotels comprised of 7,307 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 well-located hotel and resort real estate.

This presentation contains unaudited information and 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.

Corporate Headquarters

15 Enterprise, Suite 200

Aliso Viejo, CA 92656

[phone]

Company Contacts

Bryan Giglia

Chief Executive Officer

[phone]

Aaron Reyes

Chief Financial Officer

[phone]

CORPORATE PROFILE AND DISCLOSURES REGARDING NON-GAAP FINANCIAL MEASURES

Page 3

Supplemental Financial Information

May 6, 2024

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 (as defined below); funds from operations attributable to common stockholders, or FFO attributable to common stockholders; Adjusted FFO attributable to common stockholders (as defined below); hotel Adjusted EBITDAre; and hotel Adjusted EBITDAre margins. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with 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.

We present EBITDAre in accordance with guidelines established by the National Association of Real Estate Investment Trusts ("Nareit"), as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." We believe EBITDAre is a useful performance measure to help investors evaluate and compare the results of our operations from period to period in comparison to our peers. Nareit defines EBITDAre as net income (calculated in accordance with GAAP) plus interest expense, income tax expense, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change in control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful information to investors regarding our operating performance, and that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor's complete understanding of our operating performance. In addition, we use both EBITDAre and Adjusted EBITDAre as measures in determining the value of hotel acquisitions and dispositions.

We believe that the presentation of FFO attributable to common stockholders provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified noncash items such as real estate depreciation and amortization, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance. Our presentation of FFO attributable to common stockholders conforms to the Nareit definition of "FFO applicable to common shares." Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current Nareit definition, or that interpret the current Nareit definition differently than we do.

We also present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and may facilitate comparisons of operating performance between periods and our peer companies.

CORPORATE PROFILE AND DISCLOSURES REGARDING NON-GAAP FINANCIAL MEASURES

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Supplemental Financial Information

May 6, 2024

We adjust EBITDAre and FFO attributable to common stockholders for the following items, which may occur in any period, and refer to these measures as either Adjusted EBITDAre or Adjusted FFO attributable to common stockholders:

• Amortization of deferred stock compensation: we exclude the noncash expense incurred with the amortization of deferred stock compensation as this expense is based on historical stock prices at the date of grant to our corporate employees and does not reflect the underlying performance of our hotels.
• Amortization of contract intangibles: we exclude the noncash amortization of any favorable or unfavorable contract intangibles recorded in conjunction with our hotel acquisitions. We exclude the noncash amortization of contract intangibles because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.
• Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired because, like interest expense, their removal helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure.
• Cumulative effect of a change in accounting principle: from time to time, the FASB promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.
• Other adjustments: we exclude other adjustments that we believe are outside the ordinary course of business because we do not believe these costs reflect our actual
  performance for the period and/or the ongoing operations of our hotels. Such items may include: lawsuit settlement costs; the write-off of development costs associated with abandoned projects; property-level restructuring, severance, pre-opening, and management transition costs; debt resolution costs; lease terminations; property insurance restoration proceeds or uninsured losses; and other nonrecurring identified adjustments.

In addition, to derive Adjusted EBITDAre, we exclude the amortization of our right-of-use assets and related lease obligations as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels. We also exclude the effect of gains and losses on the disposition of undepreciated assets because we believe that including them in Adjusted EBITDAre is not consistent with reflecting the ongoing performance of our assets.

To derive Adjusted FFO attributable to common stockholders, we also exclude the noncash interest on our derivatives as we believe that these items are not reflective of our ongoing finance costs. Additionally, we exclude the real estate amortization of our right-of-use assets and related lease obligations, which includes the amortization of our operating lease intangibles (with the exception of our corporate operating lease), as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels. We also exclude preferred stock redemption charges, changes to deferred tax assets, liabilities or valuation allowances, and income tax benefits or provisions associated with the application of net operating loss carryforwards, uncertain tax positions or with the sale of assets.

In presenting hotel Adjusted EBITDAre and hotel Adjusted EBITDAre margins, miscellaneous non-hotel items have been excluded. We believe the calculation of hotel Adjusted EBITDAre results in a more accurate presentation of the hotel Adjusted EBITDAre margins for our hotels, and that these non-GAAP financial measures are useful to investors in evaluating our property-level operating performance.

Reconciliations of net income to EBITDAre, Adjusted EBITDAre, FFO attributable to common stockholders, Adjusted FFO attributable to common stockholders, hotel Adjusted EBITDAre and hotel Adjusted EBITDAre margins are set forth in the following pages of this supplemental package.

CORPORATE PROFILE AND DISCLOSURES REGARDING NON-GAAP FINANCIAL MEASURES

Page 5

Supplemental Financial Information

May 6, 2024

COMPARABLE CORPORATE FINANCIAL INFORMATION

COMPARABLE CORPORATE FINANCIAL INFORMATION

Page 6

Supplemental Financial Information

May 6, 2024

Comparable Consolidated Statements of Operations

Q1 2024 - Q2 2023, Trailing 12 Months

(Unaudited and in thousands, except per share data)
Revenues
Room	$
Food and beverage
Other operating
Total revenues
Operating Expenses
Room
Food and beverage
Other expenses
Corporate overhead
Depreciation and amortization
Total operating expenses
Interest and other income
Interest expense
Income before income taxes
Income tax (provision) benefit, net
Net income	$
Comparable Hotel Adjusted EBITDAre (2)	$
Comparable Adjusted EBITDAre (3)	$
Comparable Adjusted FFO attributable to common stockholders (4)	$
Comparable Adjusted FFO attributable to common stockholders per diluted share (4)	$

		Quarter Ended (1)					Trailing 12 Months (1)
March 31,		December 31,			September 30,			June 30,		Ended
2024		2023			2023			2023			March 31, 2024
135,815	$	127,038	$	134,428	$	149,923		$	547,204
61,339		61,284			56,835			70,921			250,379
20,012		19,772			22,398			21,728			83,910
217,166		208,094			213,661			242,572			881,493
35,551		33,388			33,844			35,566			138,349
44,315		43,907			42,725			46,897			177,844
83,483		81,076			82,895			83,556			331,010
7,518		7,421			7,127			8,396			30,462
29,040		29,135			29,134			28,038			115,347
199,907		194,927			195,725			202,453			793,012
5,453		4,137			1,218			4,639			15,447
(11,010)		(16,768)			(11,894)			(9,223)			(48,895)
11,702		536			7,260			35,535			55,033
(93)		863			(602)			(803)			(635)
11,609	$	1,399	$	6,658	$	34,732		$	54,398
52,295	$	49,855	$	54,009	$	76,458		$	232,617
54,511	$	49,228	$	50,786	$	72,382		$	226,907
37,518	$	33,532	$	33,424	$	54,712		$	159,186
0.18	$	0.17	$	0.16	$	0.27		$	0.78

*Footnotes on page 8

COMPARABLE CORPORATE FINANCIAL INFORMATION

Page 7

Supplemental Financial Information

May 6, 2024

Comparable Consolidated Statements of Operations

Footnotes

1. Excludes results for the Boston Park Plaza sold in October 2023. Also excludes the gain on sale of assets, net, extinguishment of debt, and income tax related to hotels either sold or disposed of in prior years.
2. Comparable Hotel Adjusted EBITDAre reconciliation for the first quarter of 2024 can be found later in this presentation. Additional details can be found in our earnings release, furnished in Exhibit 99.1 to our 8-K filed on May 6, 2024. Comparable Hotel Adjusted EBITDAre presented for the trailing 12 months ended March 31, 2024 includes all hotels owned by the Company as of March 31, 2024.
3. Comparable Adjusted EBITDAre reconciliation for the first quarter of 2024 can be found in the following pages and reflect the adjustments noted in Footnote 1 above.
4. Comparable Adjusted FFO attributable to common stockholders and Comparable Adjusted FFO attributable to common stockholders per diluted share reconciliations for the first quarter of 2024 can be found in the following pages and reflect the adjustments noted in Footnote 1 above, along with repurchases of the Company's common stock totaling 0.3 million, 1.6 million and 2.1 million shares in the second, third and fourth quarters of 2023, respectively.

COMPARABLE CORPORATE FINANCIAL INFORMATION

Page 8

Supplemental Financial Information

May 6, 2024

Comparable Reconciliation of Net Income to EBITDAre and Adjusted EBITDAre

Q1 2024 - Q2 2023, Trailing 12 Months

					Quarter Ended						Trailing 12 Months
		March 31,			December 31,			September 30,			June 30,			Ended
(In thousands)		2024			2023			2023			2023			March 31, 2024
Net income	$	13,035	$	126,985	$	15,558	$	43,078	$	198,656
Depreciation and amortization		29,040			29,135			33,188			32,397			123,760
Interest expense		11,010			16,768			11,894			9,223			48,895
Income tax (benefit) provision, net		(855)			2,799			602			803			3,349
Gain on sale of assets, net		(457)			(123,820)			-			-			(124,277)
EBITDAre		51,773			51,867			61,242			85,501			250,383
Amortization of deferred stock compensation		2,770			2,512			2,511			3,325			11,118
Amortization of right-of-use assets and obligations		(11)			(20)			(13)			(17)			(61)
Amortization of contract intangibles, net		-			-			(19)			(18)			(37)
Gain on extinguishment of debt		(21)			(8)			(9)			(12)			(50)
Hurricane-related insurance restoration proceeds		-			-			-			(3,722)			(3,722)
Property-level severance		-			297			-			-			297
Adjustments to EBITDAre, net		2,738			2,781			2,470			(444)			7,545
Adjusted EBITDAre		54,511			54,648			63,712			85,057			257,928
Sold hotel Adjusted EBITDAre (1)		-			(5,420)			(12,926)			(12,675)			(31,021)
Comparable Adjusted EBITDAre	$	54,511	$	49,228	$	50,786	$	72,382	$	226,907
*Footnotes on page 11

COMPARABLE CORPORATE FINANCIAL INFORMATION

Page 9