Item 3.03Material Modification to Rights of Security Holders.
On April 22, 2021 (the "Closing Date"), Sunstone Hotel Investors, Inc. (the
"Company") completed its acquisition of the 130-room Montage Healdsburg Hotel
located in Sonoma County, California (the "Hotel") from an affiliate of Ohana
Real Estate Investors. The Hotel is part of a master plan project that includes
plans for future residences and related amenities. The Montage Residences
Healdsburg will feature 40 to-be-built luxury homes that will be eligible to
participate in the optional turn-key resort rental program. Affiliates of Ohana
Real Estate Investors will continue to own and be responsible for the
development and sales of the Montage Residences Healdsburg. The acquisition does
not include any of the residences or related amenities, which will be retained
by the seller. As partial compensation for the acquisition, on the Closing Date,
the Company issued 2,650,000 shares of Series G Cumulative Redeemable Preferred
Stock, par value $0.01 per share ("Series G Preferred Stock"), to the seller.
The Articles Supplementary (the "Articles Supplementary") to the Company's
Articles of Amendment and Restatement, as amended and supplemented, established
the rights and preferences of the Series G Preferred Stock filed with the State
Department of Assessments and Taxation of the State of Maryland on the Closing
Date. The Series G Preferred Stock ranks senior to the Company's common stock,
par value $0.01 per share ("Common Stock"), and on parity with the Company's
6.950% Series E Cumulative Redeemable Preferred Stock, 6.450% Series F
Cumulative Redeemable Preferred Stock and future capital stock that the Company
may later authorize or issue and that by their terms are on a parity with the
Series G Preferred Stock. The shares of Preferred Stock were issued and sold
without being registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the
exemption under Section 4(a)(2) of the Securities Act, and will not be traded or
listed on any securities exchange.
Shares of the Series G Preferred Stock will initially accrue dividends at a rate
per annum of the $25.00 per share liquidation preference equal to the net
operating income yield of the Hotel, until such time as the first ten Montage
Residences on the property, which are not owned by the Company, have been
completed (the "Initial Completion Date"). Beginning with the semi-annual
dividend period following the Initial Completion Date, the dividend rate will be
increased to the greater of the net operating income yield of the Hotel and
3.0%. Beginning with the semi-annual dividend period following the completion of
an additional twelve residences on the property (the "Second Completion Date"),
which are not owned by the Company, the dividend rate will be increased to the
greater of the net operating income yield of the Hotel and 4.5%. One year
following the Second Completion Date, the dividend rate will be increased to the
greater of net operating income of the Hotel and 6.5% (the "minimum rate"), with
the minimum rate increasing by 1.0% each year thereafter.
Dividends are payable semi-annual in arrears on January 15 and July 15 of each
year, commencing July 15, 2021. In addition to other preferential rights, the
holders of Series G Preferred Stock are entitled to receive the liquidation
preference, which is $25.00 per share, before the holders of Common Stock in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company's affairs, subject to adjustment as provided in the Articles
Supplementary.
The Series G Preferred Stock are redeemable by the Company, in whole or in part,
at any time. Upon the occurrence of a "Change of Control" (as defined below),
the owner of the majority of the outstanding shares of Series G Preferred Stock
will have the option to cause the Company to redeem all outstanding shares of
Series G Preferred Stock for cash at the liquidation preference plus accrued and
unpaid dividends, if any, to, but not including, the redemption date, subject to
adjustment as provided in the Articles Supplementary.
A "Change of Control" is when, after the original issuance of the Series G
Preferred Stock, the following have occurred and are continuing:
the acquisition by any person, including any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act") of beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of purchases,
mergers or other acquisition transactions of shares of the Company entitling
? that person to exercise more than 50% of the total voting power of all shares
of the Company entitled to vote generally in elections of directors (except
that such person will be deemed to have beneficial ownership of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition); and
following the closing of any transaction referred to in the bullet above,
neither the Company nor the acquiring or surviving entity has a class of common
securities (or American Depositary Receipts representing such securities)
? listed on the New York Stock Exchange (the "NYSE"), the NYSE American, LLC
("NYSE American") or the Nasdaq Stock Market ("Nasdaq") or listed or quoted on
an exchange or quotation system that is a successor to the NYSE, the NYSE
American or Nasdaq.
A complete description of the Series G Preferred Stock is contained in the
Articles Supplementary attached as Exhibit 3.1 to this Current Report on Form
8-K.
On the Closing Date, the Company, as the sole managing member of Sunstone Hotel
Partnership, LLC, its wholly owned subsidiary (the "Operating Partnership"),
executed the Sixth Amended and Restated Limited Liability Company Agreement of
the Operating Partnership (the "LLC Agreement"), among other things, creating a
series of preferred units (the "Series G Preferred Units") that mirrors the
rights and preferences of the Series G Preferred Stock described above. At the
closing of the offering, the proceeds were contributed by the Company to the
Operating Partnership in exchange for 2,650,000 Series G Preferred Units.
Item 5.03Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
Information about the Articles Supplementary under Item 3.03 of this Current
Report on Form 8-K is incorporated by reference into this Item 5.03.
Item 7.01Regulation FD Disclosure.
On April 28, 2021, the Company issued a press release and an investor
presentation related to the acquisition of the Hotel and an update regarding the
Company's operations. A copy of each of the press release and the investor
presentation are furnished as Exhibits 99.1 and 99.2, respectively, to this
report.
The information contained in this Item 7.01, including Exhibits 99.1 and 99.2,
is being furnished and shall not be deemed to be "filed" for purposes of Section
18 of the Exchange Act or otherwise subject to the liability of that section.
Furthermore, the information contained in this Item 7.01, including Exhibits
99.1 and 99.2, shall not be deemed to be incorporated by reference in the
filings of the Company under the Securities Act.
Item 9.01Financial Statements and Exhibits
(d) Exhibits
Exhibit No. Description
3.1 Articles Supplementary designating the Series G Preferred Stock of
Sunstone Hotel Investors, Inc.
3.2 Sixth Amended and Restated Limited Liability Company Agreement of
Sunstone Hotel Partnership, LLC.
99.1 Press Release, dated April 28, 2021.
99.2 Investor presentation related to the acquisition of Montage
Healdsburg Hotel.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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