UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): December 21, 2020

Sunstone Hotel Investors, Inc.

(Exact Name of Registrant as Specified in Its Charter)

(949) 330-4000

(Registrant’s telephone number including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(1) of the Exchange Act.  ☐

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ITEM 1.01ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

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On December 21, 2020, Sunstone Hotel Investors, Inc. (the “Company”), as parent guarantor, Sunstone Hotel Partnership, LLC, as borrower and issuer (the “Operating Partnership”) and certain subsidiaries of the Operating Partnership as guarantors, amended the Operating Partnership’s term and revolving credit agreement and note purchase and guarantee agreement. The amendments and their changes to material terms of the agreements are described below.

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Second Amendment to the Credit Agreement

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On December 21, 2020, the Company, as parent guarantor, the Operating Partnership, as borrower, and certain subsidiaries of the Operating Partnership as guarantors, entered into a Second Amendment to Amended and Restated Credit Agreement (as so amended, the “Amended Credit Agreement”) with Wells Fargo Bank, National Association, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, U.S. Bank National Association and certain other lenders named therein. Wells Fargo Securities, LLC, BofA Securities, Inc., JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and U.S. Bank National Association are joint lead arrangers, Wells Fargo Securities, LLC, BofA Securities, Inc. and JPMorgan Chase Bank, N.A. are joint bookrunners, Bank of America, N.A. and JPMorgan Chase Bank, N.A. are syndications agents and Citibank, N.A., PNC Bank, National Association and U.S. Bank National Association are documentation agents of the Amended Credit Agreement.

As previously disclosed, the Amended Credit Agreement provides for a $500 million unsecured revolving credit facility, which matures on April 14, 2023, an $85 million unsecured term loan, which matures on September 3, 2022 and a $100 million unsecured term loan that matures January 31, 2023 (collectively the “Amended Term Loans”). The Company may extend the maturity date of the unsecured revolving credit facility, exercisable two times, by six (6) months for each extension, to April 2024, upon the payment of applicable fees and satisfaction of certain customary conditions.

The Amended Credit Agreement extends the suspension of all original financial covenants, including those applicable to the Amended Term Loans, from June 30, 2021 through the required financial covenant test for the period ended March 31, 2022 (“Covenant Relief Period”). Following the Covenant Relief Period, original financial covenants will be phased-in over the following four quarters (“Ratio Adjustment Period”). The Covenant Relief Period may be terminated, at the option of the Operating Partnership, subject to meeting the original financial covenants at the end of any quarterly measurement period.

Most of the covenants under the Amended Credit Agreement remained unchanged from the first amendment to the Amended Credit Agreement completed last July 15, 2020 and during the Covenant Relief Period and, so long as the Notes (defined below) remain outstanding, the Ratio Adjustment Period, (i) the Amended Credit Agreement requires that the net cash proceeds from certain incurrences of indebtedness, equity issuances and asset dispositions will, subject to various exceptions, be applied as a mandatory prepayment of the amounts outstanding under the Amended Credit Agreement, (ii) the Amended Credit Agreement imposes an additional covenant that the Company and its subsidiaries maintain minimum liquidity of at least $180 million, (iii) the Amended Credit Agreement requires the Operating Partnership to pledge equity interests in certain unencumbered entities provided availability under the credit facility is less than $350 million or the Company retains less than $200 million of unrestricted cash, and (iv) the Amended Credit Agreement imposes additional negative covenants that will limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends on common stock (except to the extent required to maintain REIT status), repurchase shares, make voluntary prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, in each case subject to various exceptions.

During the Covenant Relief Period and, so long as the Notes (defined below) remain outstanding, the Ratio Adjustment Period, the Company may, subject to certain conditions being met: (i) continue to pay all dividends on outstanding series of cumulative redeemable preferred stock, (ii) issue up to $200 million of additional preferred stock, (iii) fund future acquisitions with an unlimited amount of proceeds from the issuance of common equity and fund acquisitions through the sale of unencumbered assets, (iv) invest up to $250 million into acquisitions (in addition to equity funded acquisitions in (iii) above), (v) invest up to $60 million in capital improvements for the year end 2020 and $100 million for the year ended 2021 (excluding repairs related to emergencies and life safety).

Certain Covenant Relief Period conditions including, but not limited to, minimum liquidity, pledging equity interest and use of net proceeds from asset sales will remain in effect until the Company meets is original financial covenants.

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Following the end of the Covenant Relief Period, the Amended Credit Agreement modifies certain financial covenants until January 1, 2023, unless the Company, subject to meeting the original financial covenants, elects to terminate the period on an earlier date, as follows:

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In addition, the Amended Credit Agreement specifies that during the Ratio Adjustment Period, the various income metrics used to calculate the financial covenants, including Adjusted NOI, Adjusted EBITDA and Fixed Charges (each as defined in the Amended Credit Agreement) will be calculated by annualizing such metrics as more fully set forth in the Amended Credit Agreement for the testing periods commencing January 1, 2022 (or the first testing period if the Covenant Relief Period is terminated early) through December 31, 2022 (or earlier if the Covenant Relief Period is terminated early). During the Covenant Relief Period and until the Company is in compliance with its original financial covenants, the Amended Credit Agreement also sets the applicable interest rate to the highest leverage-based margin applicable under the credit agreement prior to the amendment plus 0.15%, as follows: (i) for all revolving loans outstanding, LIBOR plus a margin of 2.40% per annum, (ii) for the $85 million term loan outstanding, LIBOR plus a margin of 2.35% per annum, and (iii) for the $100 million term loan outstanding, LIBOR plus a margin of 2.35%. The Amended Credit Agreement also adds a LIBOR floor of 25 basis points to the variable interest rate calculation.

As of December 21, 2020, there were no amounts outstanding under the revolving credit facility and $185 million of term loans were outstanding under the Amended Credit Agreement.

The foregoing description of the Amended Credit Agreement and Amended Term Loans is qualified in its entirety by the full terms and conditions of the Second Amendment to Amended and Restated Credit Agreement which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.

Second Amendment to the Note and Guarantee Agreement

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On December 21, 2020, the Company, as parent guarantor, the Operating Partnership, as issuer, and certain subsidiaries of the Operating Partnership as guarantors, entered into the Second Amendment of the Note and Guarantee Agreement (as so amended, the “Amended Note Agreement”) with the various purchasers named therein (the “Purchasers”) which provided for the private placement of $205 million of senior unsecured notes of the Operating Partnership, of which (i) $90 million are designated as 4.69% Series A Guaranteed Senior Notes due January 10, 2026 (the “Series A Notes”) and (ii) $115 million are designated as 4.79% Series B Guaranteed Senior Notes due January 10, 2028 (the “Series B Notes” and, together with the Series A Notes, the “Notes”).

The Amended Note Agreement conformed the existing Note and Guarantee Agreement in substantially the same manner as the Amended Credit Agreement, as set forth above, except with respect to certain covenants, interest rate and prepayments.

The Amended Note Agreement provides that, among other things:

The foregoing description of the Amended Note Agreement is qualified in its entirety by the full terms and conditions of the Second Amendment to Note and Guarantee Agreement which is filed as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.

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The information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.03.

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ITEM 7.01REGULATION FD DISCLOSURE.

On December 23, 2020, the Company issued a press release announcing the entry into the Second Amendment to Amended and Restated Credit Agreement and the Second Amendment to Note and Guarantee Agreement and the forgiveness of the loan on the Hilton Times Square in exchange for certain payments by the Company and the assignment of the Company’s interest in that hotel to the lenders. A copy of that press release is furnished as Exhibit 99.1 to this report.

The information contained in the press release attached as Exhibit 99.1 to this report shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Furthermore, the information contained in the press release attached as Exhibit 99.1 to this report shall not be deemed to be incorporated by reference in the filings of the registrant under the Securities Act of 1933, as amended.

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ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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