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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. _____)
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Filed by the Registrant ⌧ |
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Filed by a Party other than the Registrant ◻ |
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Check the appropriate box: |
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◻ |
Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): |
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No fee required.
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Fee paid previously with preliminary materials.
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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11 |
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Dear Stockholder:
It is a pleasure to invite you to the 2024 annual meeting of stockholders (the “Annual Meeting”) of Sunstone Hotel Investors, Inc. (“Sunstone”), a Maryland corporation, to be held at the Hilton San Diego Bayfront hotel, located at 1 Park Boulevard, San Diego, CA 92101, on Friday, May 3, 2024 at 8:00 a.m. local time, for the following purposes:
| 1. | Election of eight directors to serve until the next annual meeting and until their successors are elected and qualified; |
| 2. | Ratification of the Audit Committee’s appointment of Ernst Young LLP to act as the independent registered public accounting firm for the fiscal year ending December 31, 2024; |
| 3. | Advisory vote to approve the compensation of Sunstone’s Named Executive Officers, as set forth in the proxy statement for Sunstone’s Annual Meeting (“Say-on-Pay Vote”); and |
| 4. | Transaction of other business as may properly come before the Annual Meeting, including any motion to adjourn to a later date to permit further solicitation of proxies, if necessary, or before any adjournment or postponement thereof. |
Only stockholders of record of shares of Sunstone common stock, par value $0.01 per share, at the close of business on March 6, 2024 are entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement of the meeting.
Whether you own a few or many shares and whether or not you plan to attend the Annual Meeting, it is important that your shares be voted on matters that come before the meeting. You can ensure that your shares are voted at the meeting by completing, signing, dating and returning the enclosed proxy card in the envelope provided or, if you own shares through a bank or broker that provides for voting by telephone or over the Internet, by submitting your authorization to vote by telephone or over the Internet in accordance with your bank’s or broker’s instructions. If your proxy card is signed and returned without specifying your choices, your shares will be voted on each proposal in accordance with our Board of Directors’ recommendations.
We would like to take this opportunity to thank you for your support of Sunstone. We believe that our continued refinement of our compensation and corporate governance practices, coupled with our commitment to building long-term value for our stockholders, positions Sunstone for a promising future. We continue to focus on improvements to our compensation and corporate governance practices, as reflected by the following previously implemented initiatives: Proxy Access; Director Holdover Resignation Guidelines; Limitations on Stockholder Rights Plans; Right of Stockholders to Amend Company Bylaws; Restrictions on Classifying Directors; Anti-Hedging and Pledging policies; Clawback Policy; comprehensive Insider Trading Policy; Double-Trigger accelerated vesting; a Pay-For-Performance structure that is aligned with both our stockholders and the expansion of Environmental, Social and Governance initiatives; and on-going Director refreshment and commitment to diversity.
Again, we thank you for your continued support and look forward to a promising future.
By Order of the Board of Directors
David M. Klein
Executive Vice President—General Counsel
and Secretary
March 20, 2024
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WHEN:
May 3, 2024,
WHERE:
Hilton San Diego Bayfront
AGENDA: 1. Election of eight directors to serve until the next annual meeting and until their successors are elected and qualified; 2. Ratify the appointment of Ernst Young LLP to act as the independent registered public accounting firm for the fiscal year ending December 31, 2024; and 3. Advisory Say-on-Pay Vote
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NOTICE OF ANNUAL MEETING
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March 20, 2024 You are invited to Sunstone’s 2024 annual meeting of stockholders, or the Annual Meeting. Only stockholders of record at the close of business on March 6, 2024 are entitled to notice of and to vote at the Annual Meeting. Stockholders can vote online, by telephone, by completing and returning the proxy card, or by attending the Annual Meeting. This Notice and the proxy card itself have detailed instructions for voting, including voting deadlines. |
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Stockholders may revoke a proxy (change or withdraw their votes) at any time prior to the Annual Meeting by following the instructions in the Proxy Statement. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), we are primarily furnishing proxy materials to our stockholders via the Internet rather than mailing paper copies of the materials. This Proxy Statement and Sunstone’s annual report on Form 10 – - K for the fiscal year ended December 31, 2023 (“Annual Report”) are available on the Internet at www.proxyvote.com . Internet distribution of the proxy materials is designed to expedite receipt by stockholders, lower costs and reduce the environmental impact of the Annual Meeting. The Notice of Internet Availability of Proxy Materials (“Notice Card”), has instructions on how to access and review our proxy materials online, as well as instructions for online or telephone voting. We sent the Notice Card to our stockholders on or about March 20, 2024. Stockholders who previously indicated a preference for paper copies of our proxy materials received paper copies. If you received a Notice Card but would like to request paper copies of our proxy materials, you may do so by following the instructions described in the Notice Card . |
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TABLE OF CONTENTS
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Political Contributions Policy and Trade Association Memberships |
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Corporate Responsibility: Environmental, Social, and Governance Practices |
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Security Ownership by Directors, Named Executive Officers, and Five Percent Stockholders |
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TABLE OF CONTENTS (continued)
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Employment Agreements (Giglia, Springer, Reyes, Ostapovicz, and Klein) |
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Employment Agreements (Giglia, Springer, Reyes, Ostapovicz, and Klein) |
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Equity Award Agreements (Giglia, Springer, Reyes, Ostapovicz, and Klein) |
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Compensation Measure and Annual Total Compensation of Median Employee |
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 3, 2024
This proxy statement and our Annual Report are available at our Investor Relations website at www.sunstonehotels.com .
PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that you should consider, so please read the entire proxy statement before voting. In addition, for more complete information about our 2023 financial performance, please see our Annual Report on Form 10 – - K for the fiscal year ended December 31, 2023 available at www.sunstonehotels.com .
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VOTING INSTRUCTIONS |
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Your vote is very important. For this reason, our Board of Directors (the “Board”), is soliciting the enclosed proxy to allow your shares of common stock, par value $0.01 per share, to be represented and voted, as you direct, by the proxy holders named in the enclosed proxy card at the 2024 annual meeting of stockholders (“Annual Meeting”) of Sunstone Hotel Investors, Inc. “We,” “our,” the “Company” and “Sunstone” refer to Sunstone Hotel Investors, Inc. |
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INVITATION TO THE
Stockholders are invited to attend the Annual Meeting on May 3, 2024, beginning at 8:00 a.m. local time. The Annual Meeting will be held at: Hilton San Diego Bayfront 1 Park Boulevard San Diego, CA 92101
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Record Date: |
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March 6, 2024 |
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Number of Common Shares Eligible to Vote at the Meeting as of the Record Date: |
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203,694,178 |
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Company Principal Executive Offices: |
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15 Enterprise, Suite 200 Aliso Viejo, California 92656 |
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Date of First Mailing of Proxy Statement and Accompanying Materials to Stockholders: |
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March 20, 2024 |
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VOTING MATTERS
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Proposal |
Matter |
Board
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Page
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1 |
Election of Eight Directors Identified in this Proxy Statement |
FOR each nominee |
13 |
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2 |
Ratification of Independent Registered Public Accounting Firm for 2024 |
FOR |
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Advisory Say-on-Pay Vote |
FOR |
24 |
PROXY SUMMARY
DIRECTOR NOMINEES 1
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2024 Committee Membership and |
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Director |
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Other Roles (2) |
Other Public |
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Name, Age |
Since |
Primary Occupation |
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A |
C |
NCG |
Company Boards |
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W. Blake Baird, 63 |
2016 |
Co-Founder, Chairman of the Board and Chief Executive Officer, Terreno Realty Corporation |
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(Chair) |
Terreno Realty Corporation |
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Andrew Batinovich, 65 |
2011 |
President and Chief Executive Officer, Glenborough, L.P. |
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Monica S. Digilio, 60 |
2020 |
Founder and Chief Executive Officer, Compass Advisors, LLC |
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(Chair) |
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Bryan A. Giglia, 47 |
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Chief Executive Officer, Sunstone Hotel Investors, Inc. |
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Kristina M. Leslie, 59 |
2021 |
Former Chief Financial Officer, DreamWorks Animation |
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(Chair) |
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Murray J. McCabe, 56 |
2016 |
Founder and Managing Partner, Montgomery Street Partners, L.P. |
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Verett Mims, 61 |
2021 |
Chief Financial Officer, Blum Capital Partners, L.P. |
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Sila Realty Trust, Inc. |
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Douglas M. Pasquale, 69
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2011 |
Founder and Chief Executive Officer, Capstone Enterprises Corporation |
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Alexander and Baldwin, Inc.
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A – Audit Committee C – Compensation Committee NCG – Nominating and Corporate Governance Committee
| (1) | Director Nominee information presented is as of March 1, 2024. |
| (2) | Committee assignments reflect appointments that are expected to be made following the Annual Meeting. |
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PROXY SUMMARY
Director Nominees' Diversity and Skills
Our Director nominees exhibit a comprehensive mix of knowledge, skills, and experience, along with diversity of thoughts, backgrounds and perspectives. Three new independent directors joined the Board since 2020. The Nominating and Corporate Governance Committee and the Board seek a balanced mix of new and experienced directors.
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W. Blake |
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Andrew |
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Monica S. |
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Bryan A. |
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Kristina M. |
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Murray J. |
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Verett |
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Douglas M. |
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Baird |
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Batinovich |
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Digilio |
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Giglia |
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Leslie |
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McCabe |
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Mims |
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Pasquale |
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Knowledge, Skills and Experience |
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Accounting / Financial Expert |
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Board Experience |
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Capital Markets |
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Corporate Governance / Investor Relations |
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Cyber Security |
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ESG / Corporate Responsibility |
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Executive Leadership |
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Hotel / Real Estate Investments |
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Hotels / Operations |
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Human Resources / Compensation |
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Public Company REIT Experience |
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Risk Management |
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Gender |
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Female |
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Male |
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African American |
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White / Caucasian |
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Hispanic / Latino |
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Native American |
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PROXY SUMMARY
CORPORATE GOVERNANCE HIGHLIGHTS
The Company is committed to the values of transparency, stockholder-friendly corporate governance and the highest ethical standards. Our Board believes that these values provide the framework to support the Company in creating long-term stockholder value. Our detailed governance framework can be found in the Corporate Governance section of our website. The following highlights selections of this framework and adopted governance policies that we believe are in the best interests of our stockholders:
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Board Independence |
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All current directors are independent. Assuming that the nominees listed in Proposal 1 are elected as directors at the Annual Meeting, all current directors, other than our Chief Executive Officer (“CEO”), will be independent. |
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All of our directors who served on the Board during 2023 attended 100% of the committee meetings on which they served. In 2023, the Board met four times, with all directors attending each meeting. |
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Our directors participate in ongoing director education. |
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Board Composition |
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All directors are elected annually at the annual meeting of stockholders. |
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We maintain a majority vote standard in uncontested elections. |
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We conduct annual Board and committee self-evaluations. |
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Commitment to include women and individuals from underrepresented communities in the qualified pool from which new director candidates are selected. |
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38% of our directors identify as women and 12% identify as ethnically diverse. |
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Commitment to Board refreshment with three new independent directors in the last four years. |
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Leadership Structure |
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Our Chair of the Board is independent of the CEO. |
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Board Committees |
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Three standing Board committees (the “Committees”) – Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. |
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All Committees are comprised solely of independent directors. |
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All of our current Audit Committee members are “financial experts.” |
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Two of our Committees, Audit Committee and Compensation Committee, are chaired by women. |
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Executive sessions of independent directors are held at each regularly scheduled Board meeting. |
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Risk Oversight |
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Our Board is responsible for risk oversight and delegates the oversight of key risks to specific committees; the Board and its Committees oversee management in its duty to assess and mitigate enterprise-level risks. |
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Our Audit Committee oversees risk management as it relates to the integrity of the Company’s financial statements, fraud prevention and detection measures, and the adequacy of the Company’s cybersecurity protocols. Additionally, a review of management’s assessment of enterprise-level risks is conducted quarterly by the Audit Committee and annually by the full Board. |
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Our Nominating and Corporate Governance Committee oversees risk management as it relates to our Corporate Responsibility program, including climate change, resource scarcity, public disclosure strategy, Diversity, Equity, Inclusion and Belonging (“DEIB”), board refreshment, and human rights. |
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Our Compensation Committee oversees risk management as it relates to our compensation plans, policies and procedures, human capital, and talent management plans and practices. |
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Communication |
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We encourage a strong working relationship between the Chair of the Board, other directors, the CEO, and the President. |
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Directors have open access to senior management and all employees. |
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Directors have access to communicate with our stockholders. |
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4 |
Sunstone Hotel Investors |
PROXY SUMMARY
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Stock Ownership Governance |
✔ |
Each independent director is required to own and retain shares of the Company’s common stock having a value equal to at least five times his or her annual cash retainer no later than January 1 of the year following the fifth anniversary of his or her election as a director. |
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✔ |
The CEO and the President are required to own and retain shares of the Company’s common stock having a value equal to at least six times his or her annual base salary no later than January 1 of the year following the fourth anniversary of his or her appointment to CEO or President. |
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✔ |
Each Executive Vice President is required to own and retain shares of the Company’s common stock having a value equal to at least three times his or her annual base salary, and each Senior Vice President who is considered an executive officer is required to own and retain shares of the Company’s common stock having a value equal to at least two times his or her annual base salary no later than January 1 of the year following the fourth anniversary of his or her appointment to such position. |
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We maintain a prohibition on any hedging or pledging of shares of Company stock. |
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✔ |
We maintain a Compensation Recovery Policy (“Clawback Policy”). |
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We maintain a comprehensive Insider Trading Policy. |
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Accountability to Stockholders |
✔ |
We maintain a non-classified Board with annual election of all directors. |
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The Company is prohibited from classifying the Board without stockholder approval. |
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We maintain majority voting in uncontested director elections. |
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Common stock is the only class of voting securities outstanding. |
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We maintain proxy access. |
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✔ |
We opted out of the Maryland Business Combination and Control Share Acquisitions Act (eliminating certain takeover defenses). |
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We maintain a policy prohibiting the adoption of a stockholder rights plan or “poison pill” without prior stockholder approval, unless the plan provides that it will expire within 12 months of adoption absent ratification by the Company’s stockholders. |
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We maintain a policy requiring the Board to accept a resignation tendered by a nominee who is already serving as a director if such nominee received more votes “against” or “withheld” than “for” on his or her election at each of two consecutive annual meetings of stockholders. |
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We provide stockholders access to our Board through on-going interactions and communication with our directors. |
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We maintain a stockholder’s right to amend our bylaws. |
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Environmental, Social and Governance |
✔ |
Our Nominating and Corporate Governance Committee monitors our programs and initiatives on our Corporate Responsibility Program, including environmental sustainability and social responsibility. |
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2024 Proxy Statement |
5 |
PROXY SUMMARY
OUR COMPENSATION PRACTICES
Objectives . We seek to attract, motivate, and retain our Named Executive Officers (“NEOs”) through competitive compensation arrangements that we believe, within appropriate risk parameters, provide strong financial incentives for the NEOs to maximize stockholder value. Our 2023 NEOs were Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein. In order to achieve our objectives and mitigate compensation-related risks to our stockholders, we utilize the following practices:
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WHAT WE DO |
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WHAT WE DO NOT DO |
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✔ WE PAY FOR PERFORMANCE Our executive compensation program is weighted towards performance-based at-risk compensation, rather than fixed compensation. Specifically, the at-risk portion of our executive compensation program is designed to reward performance relative to financial, stockholder return and other metrics that we believe best align management with stockholder interests. ✔ WE TIE OBJECTIVES TO CORPORATE STRATEGY A portion of our NEOs’ individual objectives are tied to advancing the Company’s strategy of actively recycling capital, investing in our portfolio, and returning capital to stockholders, as well as advancing our Environmental, Social and Governance (“ESG”) initiatives. ✔ WE HAVE A CLAWBACK POLICY Consistent with SEC and NYSE rules, our NEOs and Vice Presidents are subject to a compensation recovery policy that provides for the recovery of portions of the employee’s incentive compensation following an accounting restatement. ✔ WE REQUIRE OUR CEO AND OTHER NEOS TO HAVE A MEANINGFUL OWNERSHIP INTEREST IN THE COMPANY Our executive officer stock ownership policy requires that on or before January 1 of the year following the fourth anniversary of the appointment to such position, the CEO or President and Executive Vice Presidents will own and retain shares of the Company’s common stock having a value equal to at least six times and three times his or her annual base salary, respectively. ✔ WE HOLD AN ANNUAL SAY-ON-PAY VOTE We conduct an annual Say-On-Pay advisory vote to solicit our stockholders’ view on our compensation program. ✔ WE DESIGN COMPENSATION TO MITIGATE EXCESSIVE RISK TAKING Our Compensation Committee regularly reviews the Company’s compensation plans and program to ensure they are designed to create stockholder value and avoid excessive risk-taking. ✔ WE SOLICIT INDEPENDENT COMPENSATION ADVICE Our Compensation Committee retains Ferguson Partners Consulting (“FPC”), an independent compensation consultant, for purposes of rendering advisory services related to the compensation of our NEOs. |
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✘ WE DO NOT PROVIDE GUARANTEED INCENTIVE COMPENSATION There are no minimum payout levels on either our annual incentive bonus plan or our equity incentive award plan. A material portion of our equity incentive award plan is tied to achievement of Relative Total Stockholder Return (“RSR”) objectives. ✘ WE DO NOT PAY “GROSS UPS” FOR CHANGE IN CONTROL OR SEVERANCE PAYMENTS We do not provide excise or other tax “gross up” payments in connection with any change in control or severance payment made to an NEO. ✘ WE DO NOT PROVIDE “SINGLE TRIGGER” BENEFITS UPON A CHANGE IN CONTROL The Employment Agreements (as defined below) with our NEOs require a “double trigger” (requiring both a change in control and qualifying termination of employment) to receive cash or equity payments or vesting in connection with a change in control. ✘ WE DO NOT PAY DIVIDEND EQUIVALENTS ON PERFORMANCE-BASED RESTRICTED STOCK UNITS UNLESS THE AWARDS ACTUALLY VEST Our NEOs only receive dividend equivalent payments on performance-based restricted stock unit awards to the extent the award vests. ✘ WE DO NOT ALLOW HEDGING OR PLEDGING OF COMPANY STOCK BY EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors are prohibited from engaging in pledging our stock or in hedging transactions designed to offset decreases in the market value of our stock. |
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Sunstone Hotel Investors |
PROXY SUMMARY
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Say-on-Pay Proposal Approval
96.8% of votes cast on our 2023 Say-on-Pay proposal approved,
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2023 COMPANY HIGHLIGHTS
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Capital Recycling |
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Portfolio Investment |
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Capital Return |
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$370 Million |
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$110 Million |
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$120 Million |
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Sold the Boston Park Plaza at an attractive valuation following a successful repositioning of the hotel. The disposition is consistent with Sunstone's strategy to actively harvest value and recycle proceeds into new opportunities that will provide superior risk-adjusted returns. The sale allows the Company to avoid significant upcoming maintenance capital expenditures and is further evidence of the Company's ability to create value from renovations. The Company is currently evaluating opportunities to reinvest the sale proceeds into assets that will provide incremental earnings, superior returns, and greater per share net asset value (“NAV”) growth. |
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Executed on substantial capital investment activity that will further enhance the quality and earnings potential of our portfolio. During 2023, we completed the renovation and conversion of The Westin Washington, DC Downtown making the hotel a premier convention destination that is expected to drive incremental earnings. We also began work on the conversion of the Renaissance Long Beach to the Marriott Long Beach Downtown and commenced the transformative renovation of The Confidante Miami Beach to Andaz Miami Beach which is expected to be completed in the fourth quarter of 2024. |
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Returned nearly $120 million of capital to our common stockholders through a combination of dividends and accretive share repurchases. Increased our quarterly base dividend by 40% in the third quarter of 2023 and paid an additional year-end dividend to more fully distribute taxable income. Repurchased $56 million of stock at a substantial discount to consensus estimates of NAV and at an implied highly attractive valuation multiple on the Company's stabilized cash flow. |
In 2023, we built a foundation for sustained growth by executing on our three strategic objectives of capital recycling, investing in our portfolio, and returning capital to our stockholders.
| ● | We sold the Boston Park Plaza for $370 million. The Company acquired the hotel in 2013 and successfully executed a business plan to reinvigorate the well-located historic hotel. Over the course of our ownership, the hotel’s annual earnings nearly doubled, and the hotel generated cumulative hotel adjusted EBITDA re of approximately $210 million. Based on the timing of the prior renovation, the Company anticipated that the hotel would require significant additional investment to maintain its competitive position and sustain its current level of earnings which would ultimately result in a declining return on invested capital. Hence, consistent with our strategy to actively recycle capital based on our investment lifecycle approach, we sold the hotel at a compelling valuation and are currently evaluating opportunities to reinvest the sale proceeds into assets that will provide our investors with incremental earnings, superior returns, and greater per share NAV growth. |
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2024 Proxy Statement |
7 |
PROXY SUMMARY
| ● | We invested approximately $110 million in capital improvements to further enhance the quality and earnings potential of our portfolio. Primary areas of investment include d the completion of the renovation and repositioning of the Renaissance Washington DC to The Westin Washington, DC Downtown, the addition of the Olakino pool at Wailea Beach Resort, and the substantial completion of the new Bella Grove Provisions market at the Renaissance Orlando at SeaWorld®. Additionally, we have initiated work on the renovation and repositioning of The Confidante Miami Beach to the Andaz Miami Beach and the Renaissance Long Beach to the Marriott Long Beach Downtown, both of which are anticipated to be completed in 2024 and to contribute meaningful earnings growth. |
| ● | We returned nearly $120 million of capital to stockholders through a combination of dividends and share repurchases. We increased our quarterly base dividend by 40% to better reflect the earnings potential of the portfolio and to accelerate our return of capital. We also repurchased $56 million of stock at an average repurchase price per share of $9.43 which represents a substantial discount to the then-current consensus estimates of NAV and implied a highly attractive valuation multiple on the Company's stabilized cash flow. Since the start of 2022, the Company has repurchased nearly 7.5% of its outstanding common stock. |
Extended our debt maturities and made more prudent use of our leverage capacity while maintaining a strong and flexible balance sheet.
| ● | We made more prudent use of our balance sheet by entering into a new term loan and utilizing the proceeds to repay the mortgage on the Hilton San Diego Bayfront. As part of the refinancing, we extended our debt maturities while unencumbering one of our largest assets. |
| ● | Ended 2023 with a total debt and preferred equity to total capitalization ratio of approximately 34% and with nearly 93% of our portfolio unencumbered by debt. |
| ● | Maintained significant liquidity with a year-end total cash balance of $494 million and full availability on our $500 million revolving credit facility, which together equates to nearly $1 billion dollars of total liquidity. |
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Sunstone Hotel Investors |
QUESTIONS AND ANSWERS ABOUT HOW TO VOTE YOUR SHARES
What matters will be voted on at the Annual Meeting?
The Annual Meeting will be held for the following purposes:
| 1. | Election of eight directors to serve until the next annual meeting and until their successors are elected and qualified; |
| 2. | Ratification of the Audit Committee’s appointment of Ernst Young LLP to act as the independent registered public accounting firm for the fiscal year ending December 31, 2024; |
| 3. | Advisory Say-on-Pay Vote; and |
| 4. | Transaction of other business as may properly come before the Annual Meeting, including any motion to adjourn to a later date to permit further solicitation of proxies, if necessary, or before any adjournment or postponement thereof. |
With respect to any other matter that properly comes before the meeting or any adjournment or postponement thereof, the representatives holding proxies will vote as recommended by the Board, or if no recommendation is given, in their own discretion.
Who is entitled to vote?
Stockholders of record of our common stock as of the close of business on March 6, 2024 (“Record Date”) are entitled to vote on matters that properly come before the meeting. Shares of common stock can be voted only if the stockholder is present at the Annual Meeting or is represented by proxy. At the close of business on the Record Date, there were 203,694,178 shares of common stock outstanding and entitled to vote. The holders of common stock will vote together as a single class on all matters that properly come before the meeting.
How many votes do I have?
Each share of common stock has one vote.
How do I vote?
You can ensure that your shares are voted at the meeting by completing, signing, dating, and returning the enclosed proxy form in the envelope provided.
If you own your shares through a bank or broker, you may be eligible to authorize a proxy to vote your shares electronically over the Internet or by telephone. A large number of banks and brokerage firms are participating in the ADP Investor Communication Services (“ADP”) online program. This program provides eligible stockholders who receive a paper copy of the Annual Report and proxy statement the opportunity to authorize a proxy to vote via the Internet or by telephone. If your bank or brokerage firm is participating in ADP’s online program, your voting form will provide instructions. Stockholders who authorize a proxy to vote through the Internet or telephone should be aware that they may incur costs to access the Internet, such as usage charges from telephone companies or Internet service providers, and that these costs must be borne by the stockholder. Stockholders who authorize a proxy to vote by Internet or telephone need not return a proxy card by mail. If your voting form does not reference Internet or telephone information, please complete and return the paper proxy card provided by your bank or broker.
If you attend the Annual Meeting in person, you may request a ballot when you arrive. If a bank, broker or other nominee is the record holder of your stock on the record date, prior to attending the meeting you must obtain a legal proxy from your bank, broker or other nominee as the record holder and a letter from your bank, broker or other nominee showing that you were the beneficial owner of your shares on the record date in order to vote at the Annual Meeting. The legal proxy must be presented to vote these shares in person at the Annual Meeting. If you have previously authorized a proxy, you may still vote in person at the Annual Meeting, which will serve as a revocation of your previous proxy.
QUESTIONS AND ANSWERS ABOUT HOW TO VOTE YOUR SHARES
Does Sunstone have a policy for confidential voting?
Sunstone has a confidential voting policy. All proxies and other materials, including telephone and Internet proxy authorization, are kept confidential and are not disclosed to third parties. Such voting documents are available for examination by the inspector of election and certain personnel associated with processing proxy cards and tabulating the vote. We plan to appoint one inspector of election who will review and confirm the tabulation of votes at the Annual Meeting.
How can I obtain copies of documents referenced in this proxy statement?
Copies of the Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, Clawback Policy, Committee Charters and other documents referenced in this proxy statement can be accessed on the Company’s website at www.sunstonehotels.com. Copies of these documents are also available in print to stockholders upon request by writing to:
Sunstone Hotel Investors, Inc.
15 Enterprise, Suite 200
Aliso Viejo, California 92656
Attention: Secretary
What if I return my proxy but do not mark it to show how I am voting?
If your proxy card is signed and returned without specifying your choices, your shares will be voted as recommended by the Board.
What are the Board’s recommendations?
The Board recommends that you vote FOR each of the nominees for director in Proposal 1; FOR Proposal 2 to ratify the Audit Committee’s appointment of Ernst Young LLP to act as the independent registered public accounting firm for the fiscal year ending December 31, 2024; and FOR Proposal 3 to approve, on a non – binding, advisory basis, the compensation of our NEOs as set forth in this proxy statement.
What vote is required to approve each proposal?
Election of Directors: There is no cumulative voting in the election of directors. In an uncontested election, a director shall be elected by an affirmative vote of a majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present; that is, a nominee will be elected as a director only if the number of votes cast “for” such nominee exceeds the number of votes “against” or “withheld” with respect to that nominee. Any shares not voted, whether by abstention or “broker non – vote” (i.e., shares held by a broker or nominee which are represented at the meeting, but with respect to which such broker or nominee is not instructed to vote and has not voted on a particular proposal, or otherwise), have no effect on the vote.
Ratification of Appointment of Independent Registered Public Accounting Firm: This proposal requires the affirmative vote of a majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present. Any shares not voted (whether by abstention, “broker non – vote” or otherwise) have no effect on the vote.
Advisory Say-on-Pay Vote: This proposal requires the affirmative vote of a majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present. Any shares not voted (whether by abstention, “broker non-vote” or otherwise) have no effect on the vote.
What constitutes a quorum?
The presence of the owners of at least a majority (greater than 50%) of the aggregate number of shares of common stock entitled to vote at the Annual Meeting constitutes a quorum. Presence may be in person or by proxy. You will be considered part of the quorum if you return a signed and dated proxy card, if you authorize a proxy to vote by telephone or the Internet, or if you attend the Annual Meeting.
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Sunstone Hotel Investors |
QUESTIONS AND ANSWERS ABOUT HOW TO VOTE YOUR SHARES
Abstentions and “broker non – votes” are counted as present and entitled to vote for purposes of determining a quorum. A “broker non – vote” occurs when the broker or other entity is unable to vote on a proposal because the proposal is non – routine and the owner does not provide instructions. Rules of the New York Stock Exchange (“NYSE”) determine whether proposals presented at stockholder meetings are “routine” or “non – routine.” If a proposal is routine, a broker or other entity holding shares for an owner in street or beneficial name may vote on the proposal without voting instructions from the owner. If a proposal is non -routine, the broker or other entity may vote on the proposal only if the owner has provided voting instructions. The ratification of independent public accountants is the only routine matter to be voted on at the Annual Meeting. There are no rights of appraisal or similar dissenters’ rights with respect to any matter to be acted upon pursuant to this proxy statement.
What if other items come up at the Annual Meeting and I am not there to vote?
We are not now aware of any matters to be presented at the Annual Meeting other than those described in this proxy statement. When you return a signed and dated proxy card or provide your voting instructions by telephone or the Internet, you give the proxy holders (the names of whom are listed on your proxy card) the discretionary authority to vote on your behalf on any other matter that is properly brought before the Annual Meeting.
Can I change my vote?
You can change your vote by revoking your proxy at any time before it is exercised in one of four ways:
| ● | Notify Sunstone’s Secretary (David M. Klein, c/o Sunstone Hotel Investors, Inc., 15 Enterprise, Suite 200, Aliso Viejo, California 92656) in writing before the Annual Meeting that you are revoking your proxy; |
| ● | Submit another proxy with a later date; |
| ● | If you own shares through a bank or broker that provides for voting by telephone or the Internet, submit your voting instructions again by telephone or the Internet; or |
| ● | Vote in person at the Annual Meeting. |
What does it mean if I receive more than one proxy card?
Some of your shares are likely registered differently or are in more than one account. You should vote each of your accounts by mail, or if such service is provided by a bank or broker that holds your shares, by telephone or the Internet. If you mail proxy cards, please sign, date and return each proxy card to ensure that all of your shares are voted.
If you hold your shares in registered form and wish to combine your stockholder accounts in the future, you should contact our transfer agent, Equiniti Trust Company, LLC, at 1 -800- 937-5449. Combining accounts reduces excess printing and mailing costs, resulting in savings for Sunstone, that benefit you as a stockholder.
What if I receive only one set of proxy materials although there are multiple stockholders at my address?
If you and other residents at your mailing address own shares in “street name” (that is, through a broker or other nominee), your broker or bank may have sent you a notice that your household will receive only one Annual Report and proxy statement, or Notice Regarding the Availability of Proxy Materials, for each company in which you hold shares through that broker or bank. This practice of sending only one copy of proxy materials is known as “householding.” If you did not respond that you did not want to participate in householding, you were deemed to have consented to the process. If the foregoing procedures apply to you, your broker has sent one copy of our Annual Report and proxy statement, or Notice Regarding the Availability of Proxy Materials, to your address. You may revoke your consent to householding at any time by contacting your broker or bank. The revocation of your consent to householding will be effective 30 days following its receipt. If you did not receive an individual copy of this proxy statement or our Annual Report, we will send a copy to you without charge if you address your written request to Sunstone Hotel investors, Inc., 15 Enterprise, Suite 200, Aliso Viejo, California 92656, Attention: Secretary. If you currently receive multiple copies of the Annual Report and proxy statement, or
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2024 Proxy Statement |
11 |
QUESTIONS AND ANSWERS ABOUT HOW TO VOTE YOUR SHARES
Notice Regarding the Availability of Proxy Materials, at your address and you would like to request householding of your communications, you should contact your broker or bank.
How do I submit a stockholder proposal for inclusion in the proxy statement for next year’s annual meeting?
Stockholder proposals may be submitted for inclusion in the proxy statement for our 2025 annual meeting of stockholders (“2025 Annual Meeting”), after the Annual Meeting, but must be received no later than 5:00 p.m. Pacific Time on November 20, 2024. Proposals should be sent via registered, certified, or express mail to Sunstone Hotel Investors, Inc., 15 Enterprise, Suite 200, Aliso Viejo, California 92656, Attention: Secretary. See also “Stockholder Proposals for the 2025 Annual Meeting” later in this proxy statement.
What do I need to do to attend the Annual Meeting?
If you are a holder of record, you should indicate on your proxy card that you plan to attend the Annual Meeting by marking the box on the proxy card provided for that purpose.
For the safety and comfort of our stockholders, admission to the Annual Meeting will be restricted to:
| ● | Stockholders of record as of the close of business on March 6, 2024 or their authorized proxies; |
| ● | Beneficial stockholders whose shares are held by a bank, broker or other nominee, and who present proof of beneficial ownership as of the close of business on March 6, 2024; |
| ● | Representatives of the press or other news media with proper credentials; |
| ● | Financial analysts with proper credentials; and |
| ● | Employees and representatives of Sunstone whose job responsibilities require their presence at the meeting. |
Please note that space limitations may make it necessary to limit attendance. Admission to the meeting will be on a first come, first-served basis. No more than two representatives of any corporate or institutional stockholder will be admitted to the Annual Meeting. If you attend the meeting, you may be asked to present valid government-issued photo identification, such as a driver’s license or passport, before being admitted. Cameras, recording devices and other electronic devices will not be permitted, and attendees may be subject to security inspections or other security precautions.
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Sunstone Hotel Investors |
PROPOSALS
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PROPOSAL 1 |
ELECTION OF DIRECTORS |
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The Board recommends that our stockholders vote FOR each of the nominees. |
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Board . The business and affairs of Sunstone are managed under the direction of our Board. Our Board has responsibility for establishing broad corporate policies and for the overall performance of Sunstone, rather than for day -to- day operating details. Our Board currently consists of seven directors. Assuming each of the nominees listed below are elected at the 2024 annual meeting of stockholders, our Board of Directors will consist of eight directors and the size of the board will be increased.
The proxy holders named on the proxy card intend to vote for the election of the eight nominees listed below. The Nominating and Corporate Governance Committee selected these nominees, which selection was ratified by the Board. If you do not wish your shares to be voted for particular nominees, you can so indicate on the proxy card or, if your shares are held through a bank or broker and you are authorizing a proxy to vote by telephone or the Internet, by following the instructions provided when you access the telephone or Internet proxy facilities.
If at the time of the meeting one or more of the nominees have become unable to serve, shares represented by proxies will be voted for the remaining nominees and for any substitute nominee or nominees designated by the Nominating and Corporate Governance Committee. If one or more nominees have become unable to serve, the Board may, in accordance with our bylaws, reduce the size of the Board or may leave a vacancy until a nominee is identified. Each of the nominees has consented to act as a director if duly elected and qualified and the Nominating and Corporate Governance Committee knows of no reason why any of the nominees will be unable to serve.
Directors elected at the Annual Meeting will hold office until the 2025 Annual Meeting and until their successors have been elected and qualified. For each nominee, there follows a brief listing of principal occupation for at least the past five years, other major affiliations and age as of March 1, 2024. Each of the nominees except Mr. Giglia is currently a director of the Company.
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2024 Proxy Statement |
13 |
PROPOSALS REQUIRING YOUR VOTE
Nominees for Election as Directors
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W. Blake Baird Age: 63 Director |
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Mr. Baird has served as a director since April 28, 2016. Mr. Baird co – founded Terreno Realty Corporation (NYSE: TRNO), and has served as chairman of its board of directors and its CEO since February 2010. Terreno Realty Corporation acquires, owns and operates industrial real estate in six major coastal U.S. markets. Mr. Baird was managing partner and co – founder of Terreno Capital Partners LLC, a private real estate investment firm, from September 2007 to February 2010. Mr. Baird served as President of AMB Property Corporation (NYSE: AMB) from January 2000 to December 2006. AMB, now Prologis, Inc. (NYSE: PLD), is a leading global developer, owner and operator of industrial real estate. Mr. Baird also served as a director of AMB from 2001 to 2006 and chairman of its investment committee. Mr. Baird joined AMB as its Chief Investment Officer in 1999. Prior to that, Mr. Baird was a managing director of Morgan Stanley Co., most recently as head of Real Estate Investment Banking for the Western United States. Mr. Baird spent 15 years at Morgan Stanley and Dean Witter, the last 11 focusing on real estate. Mr. Baird previously served as a director of Matson, Inc. (NYSE: MATX), a Honolulu-headquartered ocean transportation and logistics company, from June 2012 until April 2020. Mr. Baird is a former member of the Young Presidents’ Organization and a former member of the board of governors of the National Association of Real Estate Investment Trusts. Mr. Baird holds a B.S. degree in Economics from the Wharton School (magna cum laude) and a B.A. degree in History from the College of Arts and Sciences (magna cum laude) at the University of Pennsylvania. He also holds an M.B.A. degree from New York University. The following experience, qualifications, attributes and/or skills led our Board to conclude that Mr. Baird should serve as a director: his professional background and experience, education, previously held and current senior-executive level positions, other public company board experience, his extensive background and experience with REITs and his background and experience in real estate and finance transactions. |
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Committees: Compensation Committee; Nominating and Corporate Governance Committee (Chair) |
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Sunstone Hotel Investors |
PROPOSALS REQUIRING YOUR VOTE
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Andrew Batinovich Age: 65 Director |
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Mr. Batinovich has served as a director since November 7, 2011. Mr. Batinovich currently serves as President and CEO of Glenborough, L.P., a privately held real estate investment company. In 2010, Mr. Batinovich led a private investor group in acquiring Glenborough, LLC and related real estate assets that were originally part of Glenborough Realty Trust, a NYSE – listed REIT, which was sold to affiliates of Morgan Stanley in 2006. From December 2006 to October 2010, Mr. Batinovich served as President and CEO of Glenborough, LLC, a company formed by an affiliate of Morgan Stanley to acquire Glenborough Realty Trust. In 1996, Mr. Batinovich co – founded Glenborough Realty Trust and was President and CEO and a director at the time of the sale in 2006. Mr. Batinovich was appointed President of Glenborough Realty Trust in 1997 and CEO in 2003. He also served as Chief Operating Officer and Chief Financial Officer during his tenure at Glenborough Realty Trust. Prior to founding Glenborough Realty Trust, Mr. Batinovich served as Chief Operating Officer and Chief Financial Officer of Glenborough Corporation until 1996 when it was merged into Glenborough Realty Trust. Glenborough Corporation was a private real estate investment and management company that completed a number of private placements of office, industrial, residential and hotel properties. Prior to joining Glenborough Corporation in 1983, Mr. Batinovich was an officer of Security Pacific National Bank. He also serves as a trustee of the American University of Paris. Mr. Batinovich has a B.A. degree in International Business Administration from the American University of Paris. The following experience, qualifications, attributes and/or skills led our Board to conclude that Mr. Batinovich should serve as a director: his professional background and experience, education, previously held senior-executive level positions, other public company board experience, his extensive background and experience with REITs and his background and experience in real estate and finance transactions. |
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Committees: Audit Committee; Compensation Committee |
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2024 Proxy Statement |
15 |
PROPOSALS REQUIRING YOUR VOTE
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Monica S. Digilio Age: 60 Director |
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Ms. Digilio has served as a director since April 30, 2020. Ms. Digilio has over 30 years of C-Suite experience in public and privately held hospitality, gaming, entertainment, and real estate development companies worldwide. Ms. Digilio is the Founder and CEO of Compass Advisors LLC, a strategic advisory firm which draws on her expertise in human resources, talent management, business leadership and organizational development. Prior to establishing Compass Advisors, Ms. Digilio was the Executive Vice President and Chief Human Resources Officer for Caesars Entertainment Corporation, where she led the Human Resources and Corporate Social Responsibility functions (with oversight of ESG) from 2018 - 2020. Prior to her tenure at Caesars, Ms. Digilio spent six years as the Executive Vice President and Chief Human Resources Officer for Montage International and spent 12 years as the Executive Vice President, Global Human Resources Administration for Kerzner International, parent company of the Atlantis and OneOnly brands. Ms. Digilio began her hospitality career at ITT Sheraton Corporation. In addition to Sunstone Hotel Investors, Ms. Digilio currently serves on the boards of CopperPoint Insurance Companies and The Venetian Resort Las Vegas. Ms. Digilio is an Advisory Board Member for Cornell University’s Leland C. and Mary M. Pillsbury Institute for Hospitality Entrepreneurship. She is a member of the Women Corporate Directors Foundation (WCD) and the National Association of Corporate Directors (NACD). Ms. Digilio holds both a M.S. and a B.S. from Ithaca College in Ithaca, N.Y. The following experience, qualifications, attributes and/or skills led our Board to conclude that Ms. Digilio should serve as a director: her professional background and experience, extensive education, previously held senior-executive level positions, domestic and international real estate knowledge, labor relations, corporate governance, enterprise risk management and extensive experience with the hospitality industry in general. |
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Committees: Compensation Committee (Chair); Nominating and Corporate Governance Committee |
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Sunstone Hotel Investors |
PROPOSALS REQUIRING YOUR VOTE
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Bryan A. Giglia Age: 47 Director |
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Mr. Giglia is our Chief Executive Officer. Mr. Giglia joined the Company in March 2004, and between 2004 and 2013, served in numerous financial roles, including Senior Vice President Corporate Finance where he oversaw capital market transactions, corporate financial planning and analysis, and investor relations. In February 2013, Mr. Giglia was appointed Senior Vice President and Chief Financial Officer, and in February 2016 he was appointed Executive Vice President and Chief Financial Officer, a position he held until March 2022 when he was appointed Chief Executive Officer. Prior to joining Sunstone, Mr. Giglia served in a variety of accounting positions for Hilton Hotels Corporation. Mr. Giglia currently serves on the Board of the American Hotel and Lodging Association. Mr. Giglia attended the Marshall School of Business at the University of Southern California, where he earned an M.B.A. degree. Mr. Giglia earned his B.S. degree in Business Administration from the University of Arizona. The following experience, qualifications, attributes and/or skills led our Board to conclude that Mr. Giglia should serve as a director: his professional background and experience, education, previously held senior-executive level positions, his extensive background and experience with REITs and his background and experience in real estate and finance transactions. |
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2024 Proxy Statement |
17 |
PROPOSALS REQUIRING YOUR VOTE
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Kristina M. Leslie Age: 59 Director |
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Ms. Leslie has been a director since April 29, 2021. Ms. Leslie began her career at Paramount Communications in New York, serving in a variety of financial management roles, including treasury, investor relations, and strategic planning. Following the acquisition of Paramount by Viacom, Ms. Leslie served as Director of Strategic and Financial Planning for Viacom. In 1996, Ms. Leslie relocated to California to join DreamWorks, then in its infancy, as Head of Strategic Planning and Corporate Finance, where she oversaw financial planning, strategic partnerships and all investor and banking relationships. She became Chief Financial Officer of DreamWorks in 2003 and led the $840 million initial public offering of DreamWorks Animation in 2004. She continued to serve as DreamWorks’ CFO until her retirement in 2007. Over the past 15 years, Ms. Leslie has served on a number of public and private boards. Currently, Ms. Leslie is a Director and Chair of the Board of Blue Shield of California where she is also a member of the Nominating and Governance Committee. She is a Director, Chair of the Audit Committee and a member of the Compensation Committee of Justworks, Inc., a human resources service and benefits provider for small businesses . Ms. Leslie was also a Director, Chair of the Audit Committee and a member of the Compensation Committee of Rover Group, Inc. (Nasdaq: ROVR), the world’s largest marketplace for pet services, until its privatization in February 2024. She is also a member of the National Association of Corporate Directors (NACD). Ms. Leslie earned her B.A. in Economics from Bucknell University and her M.B.A in Finance from Columbia University. The following experience, qualifications, attributes and/or skills led our Board to conclude that Ms. Leslie should serve as a director: her professional background and experience, extensive education, previously held senior-executive level finance positions, significant public and private company board experience, her extensive experience in corporate strategy and enterprise risk, accounting, finance, and corporate governance. |
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Committees: Audit Committee (Chair); Compensation Committee |
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Sunstone Hotel Investors |
PROPOSALS REQUIRING YOUR VOTE
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Murray J. McCabe Age: 56 Director |
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Mr. McCabe has served as a director since April 28, 2016. Mr. McCabe is a founder and Managing Partner at Montgomery Street Partners, L.P., an investment firm. Prior to founding Montgomery Street Partners, Mr. McCabe worked at JPMorgan Chase Co. from 1992 through August 2012. During his 20 – year tenure at JPMorgan, Mr. McCabe held several positions in the Investment Banking Division, including Managing Director and Global Head of Real Estate and Lodging Investment Banking. In addition, Mr. McCabe served as a member of JPMorgan’s Mergers and Acquisitions Fairness Opinion Committee from 2001 to 2002, the Investment Banking Coverage Management Committee from 2010 through his departure in August 2012, and on the board of JPMorgan Real Estate Advisors during the same period. Mr. McCabe was a director of Columbia Property Trust (NYSE: CXP) until its sale in 2021, and remains a director of RREEF America REIT II Inc., a diversified real estate investment company with $16 billion in assets. He is an executive council member of the Real Estate Finance and Investment Center and serves on the REIT Investment Funds advisory board for the McCombs School of Business at the University of Texas, Austin. Mr. McCabe received his B.A. in Finance from the University of Texas, Austin. The following experience, qualifications, attributes and/or skills led our Board to conclude that Mr. McCabe should serve as a director: his professional background and experience, education, previously held and current senior-executive level positions, other public company board experience, his extensive background and experience with REITs and his background and experience in real estate and finance transactions. |
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Committees: Nominating and Corporate Governance Committee |
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2024 Proxy Statement |
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PROPOSALS REQUIRING YOUR VOTE
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Verett Mims Age: 61 Director |
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Ms. Mims has served as a director since April 29, 2021. Ms. Mims is currently the Chief Financial Officer at Blum Capital Partners, L.P., a long-term strategic equity investment management firm where she leads a team of seasoned accounting/finance professionals with responsibility for the Financial, Operations, Compliance and Tax functions of the firm. Prior to joining Blum Capital, Ms. Mims worked at The Boeing Company (NYSE: BA) from 2002 through early 2020. During her 18-year tenure at Boeing, Ms. Mims held several positions including Director, International Finance and the Assistant Treasurer, Global Treasury Operations. Ms. Mims had oversight of the Foreign exchange, commodity and inflation hedging portfolio, cash investments and global banking infrastructure and her notable contributions include the development of tech-driven processes and systems that drove efficiency, multimillion-dollar cost savings, and operational excellence. Prior to Boeing, Ms. Mims spent seven years in sales serving as a strategic advisor to match FX solutions with corporate clients’ risk profiles at Citibank (NYSE: C), NationsBank (NYSE: BAC) and Bank of Montreal (NYSE: BMO) where she pioneered an early Salesforce-like client management system and built a profitable book of business. Ms. Mims currently serves on the boards of Sila Realty Trust Inc. and Steppenwolf Theatre of Chicago. She has previously served on the boards of Arts Business Council of Chicago, San Miguel Schools of Chicago, Illinois Student Assistance Commission, Southern University MBA Board of Advisors, the Muntu Dance Theatre of Chicago, and most recently Illinois Humanities. Ms. Mims holds an M.B.A. from the Stanford University Graduate School of Business, an M.S. in physics from Massachusetts Institute of Technology, and a B.S. in physics from Southern University and AM College. The following experience, qualifications, attributes and/or skills led our Board to conclude that Ms. Mims should serve as a director: her professional background and experience, extensive education, private and public Board experience, previously held and current senior-executive level positions, and experience in enterprise risk, treasury accounting, and finance. |
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Committees: Audit Committee |
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PROPOSALS REQUIRING YOUR VOTE
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Douglas M. Pasquale Age: 69 Chairman of the Board |
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Mr. Pasquale has served as our Chairman of the Board since May 1, 2015, and as a director since November 7, 2011. In addition, Mr. Pasquale served as our Interim CEO from September 2, 2021 until March 7, 2022 and served as our Executive Chairman from March 7, 2022 until September 1, 2022. Mr. Pasquale is Founder CEO of Capstone Enterprises Corporation, an investment and consulting firm, since January 1, 2012. Mr. Pasquale served as Senior Advisor to Healthpeak (NYSE: PEAK) from June 2017 through December 2019. On the July 1, 2011 sale of Nationwide Health Properties, Inc. (NYSE: NHP) to Ventas Inc. (NYSE: VTR), Mr. Pasquale served as Senior Advisor from July 1, 2011 to December 31, 2011. He also served on the Ventas Board of Directors from July 1, 2011 to May 18, 2017. Prior to Nationwide Health Properties, Inc.’s sale, Mr. Pasquale served as Chairman of the Board of NHP from May 2009 to July 2011, as President and CEO of NHP from April 2004 to July 2011, and as Executive Vice President and Chief Operating Officer of NHP from November 2003 to April 2004. Mr. Pasquale was a Director of NHP from November 2003 to July 2011. Mr. Pasquale served as Chairman and CEO at ARV Assisted Living, Inc., a leading owner and operator of assisted living facilities, from June 1998 to September 2003 and concurrently served as President and CEO of Atria Senior Living Group, Inc. from April 2003 to September 2003. Mr. Pasquale also served as President and CEO of Richfield Hospitality Services, Inc. and Regal Hotels International—North America, a hotel ownership and management company, from 1996 to 1998, and as its Chief Financial Officer from 1994 to 1996. Prior to 1994, he served in various capacities primarily in finance, real estate, investment banking and public accounting. Mr. Pasquale has served on over a dozen public, private and philanthropic boards over the course of his career. He currently serves on three additional NYSE Boards and is a Director of: 154-year old Alexander and Baldwin, Inc. (NYSE: ALEX), a Honolulu - headquartered real estate and related business company, for which he serves as Lead Independent Director, Chairman of the Audit Committee, and Nominating and Corporate Governance Committee; Terreno Realty Corporation (NYSE: TRNO), a leading industrial REIT with a focus in six coastal U.S. markets, for which he serves as Lead Independent Director and a member of the Audit, Compensation, and Nominating and Corporate Governance Committees; and Dine Brands Global, Inc. (NYSE: DIN), which franchises Applebee’s, IHOP and Fuzzy’s Taco Shop restaurants, for which he serves as the Chairman of the Audit Committee. Mr. Pasquale is a successful leader in the real estate industry with extensive experience and skills in leadership, management, finance, mergers and acquisitions and strategic planning. Mr. Pasquale received his B.S. degree in Accounting and his M.B.A. degree with highest honors from the University of Colorado and is a guest lecturer at several universities. The following experience, qualifications, attributes and/or skills led our Board to conclude that Mr. Pasquale should serve as a director: his professional background and experience, extensive education, previously held senior-executive level positions, other public company board experience, his extensive background and experience with REITs and his background and experience in real estate and finance transactions. |
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PROPOSALS REQUIRING YOUR VOTE
Vote required . Directors will be elected by a majority of the votes cast. Any shares not voted, whether by abstention, “broker non - vote” or otherwise, will have no impact on the vote.
Our Corporate Governance Guidelines and bylaws provide a majority voting standard in uncontested director elections. A director nominee will be elected to the Board only if the number of votes cast “for” such nominee’s election exceeds the number of votes cast “against” or “withheld” with respect to such nominee’s election (with abstentions and broker non-votes not counted as votes cast either for or withheld in such election).
If an incumbent nominee for director fails to receive the required majority vote in a director election, our Corporate Governance Guidelines require that he or she tender his or her resignation as a director for consideration by the Nominating and Corporate Governance Committee, and ultimately the Board. Our Nominating and Corporate Governance Committee will evaluate the circumstances of the failed election and will make a recommendation regarding how to act upon the tendered resignation to the full Board, taking into consideration the best interests of the Company and its stockholders. After considering the recommendation of the Nominating and Corporate Governance Committee, the full Board will then act upon the resignation, and will publicly disclose its decision regarding the tendered resignation and its rationale within 90 days of the certification of the election results. If the Board accepts the resignation, the nominee will no longer serve on the Board. If the Board rejects the resignation, the nominee will continue to serve until his or her successor has been duly elected and qualified or until his or her earlier disqualification, death, resignation, or removal. Notwithstanding the foregoing, the Board shall be required to accept any resignation tendered by a nominee who is already serving as a director if such nominee shall have received more votes “against” or “withheld” than “for” his or her election at each of two consecutive annual meetings of stockholders for the uncontested election of directors at which a quorum was present.
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PROPOSALS REQUIRING YOUR VOTE
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PROPOSAL 2 |
RATIFICATION OF THE AUDIT COMMITTEE’S APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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The Board recommends that our stockholders vote FOR the ratification of the appointment of Ernst Young LLP as our independent registered public accounting firm for 2024. |
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The Audit Committee has selected and appointed the firm of Ernst Young LLP to act as our independent registered public accounting firm for the year ending December 31, 2024. Ernst Young LLP has audited the financial statements for us since our initial public offering on October 26, 2004.
Although stockholder ratification of the appointment of our independent auditor is not required by our bylaws or otherwise, we are submitting the selection of Ernst Young LLP to our stockholders for ratification as a matter of good corporate governance practice. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time if it determines that such a change would be in the best interests of the Company. If our stockholders do not ratify the Audit Committee’s selection, the Audit Committee will take that fact into consideration, together with such other factors it deems relevant, in determining its next selection of our independent registered public accounting firm.
In selecting Ernst Young LLP as the Company’s independent registered public accounting firm, the Audit Committee considered many factors, including the quality of its ongoing discussions with Ernst Young LLP’s representatives, the length of time the firm has been engaged, the appropriateness of fees, the experience and professional qualifications of Ernst Young LLP, and Ernst Young LLP’s programs and processes for maintaining its independence. Furthermore, in accordance with SEC rules and Ernst Young LLP’s policies, lead engagement partners are subject to rotation requirements to limit the number of consecutive years the lead partner may provide services. For lead audit partners, the maximum number of consecutive years of service in that capacity is five years. We select the Company’s lead audit partner pursuant to this rotation policy following meetings between the chair of the Audit Committee and candidates for that role, as well as discussions by the full Audit Committee, members of the Board and management.
The Audit Committee believes that the continued retention of Ernst Young LLP as the Company’s independent external auditor is in the best interests of the Company and its stockholders. The Board believes the Company receives significant benefits from the extensive history Ernst Young LLP has with the Company. These benefits include:
| ● | the quality of their audit work and accounting advice, and their institutional knowledge of our business operations, key risks, accounting policies, financial systems, and internal control framework; |
| ● | a competitive fee structure because of Ernst Young LLP’s familiarity with the Company; |
| ● | the significant time and expense that would be avoided by the Company to onboard a new auditor; and |
| ● | their commitment to maintaining their independence from the Company. |
Representatives of Ernst Young LLP are expected to be present at the Annual Meeting. These representatives will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
You can find more information about our relationship with Ernst Young LLP on page 72 of this proxy statement.
Vote required . Ratification of the appointment of Ernst Young LLP requires a majority of the votes cast. Any shares not voted, whether by abstention, “broker non - vote” or otherwise, have no impact on the vote.
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PROPOSALS REQUIRING YOUR VOTE
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PROPOSAL 3 |
ADVISORY SAY-ON-PAY VOTE |
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The Board recommends that our stockholders vote FOR the approval (on a non-binding, advisory basis) of the compensation of the NEOs as disclosed in this proxy statement. |
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Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), as enacted as part of the Dodd - Frank Wall Street Reform and Consumer Protection Act in July 2010 (“Dodd-Frank Act”) requires us to submit to our stockholders a non - binding advisory vote to approve the compensation of the NEOs listed in the Summary Compensation Table of this proxy statement, commonly referred to as a “say - on - pay” vote.
The Board has approved the submission of the following resolution to the Company’s stockholders for approval at the Annual Meeting:
“Resolved, that the stockholders hereby approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in the Company’s 2024 proxy statement pursuant to the disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and the other executive compensation tables and related discussion).”
As described more fully in the “ Compensation Discussion and Analysis ” beginning on page 40 of this proxy statement, the Company’s executive compensation program is designed to attract, motivate and retain talented executives through competitive compensation arrangements that, within appropriate risk parameters, provide strong financial incentives for the NEOs to maximize stockholder value. The compensation program is designed to achieve these objectives through a combination of the following types of compensation: base salary, annual cash incentive bonus and equity incentive awards. Base salary is intended to provide a baseline level of compensation for our NEOs. The remaining types of compensation, which in the aggregate represent the majority of our NEOs’ target total compensation opportunities, tie compensation directly to the achievement of corporate and individual objectives. Highlights of the Company’s executive compensation program include the following:
| ● | We pay for performance. Our executive compensation program is weighted towards performance-based and/or at-risk compensation, rather than fixed compensation. Specifically, the at-risk portion of our NEO compensation program is designed to reward performance relative to financial, stockholder return, and other metrics that we believe best align management with stockholder interests. Under the NEO compensation program, on average, approximately 79% of our NEOs’ total target compensation is considered performance-based and/or at-risk. |
| ● | We maintain a clawback policy. Effective October 2, 2023, we adopted a new clawback policy that complies with Section 10D of the Exchange Act and the NYSE listing standards adopted in 2023 as mandated by the Dodd-Frank Act. Each of our NEOs are subject to a compensation recovery policy that provides for the recovery of incentive compensation received by an NEO that is granted, earned, or vested based wholly or in part upon the attainment of one or more financial reporting measures, following an accounting restatement. |
| ● | We require our CEO and other executives to have a meaningful ownership interest in the Company. Our executive officer stock ownership policy requires that on or before January 1 of the year following the fourth anniversary of the CEO or President or other executive officers appointment to such position (i) the CEO or President will own and retain shares of the Company’s common stock having a value equal to at least six times his or her annual base salary, and (ii) each Executive Vice President will own and retain shares of the Company’s common stock having a value equal to at least three times his or her annual base salary. Our Compensation Committee believes that requiring the CEO and other executive officers to maintain a meaningful ownership interest in the Company aligns the interests of the CEO and other executive officers with those of our stockholders. |
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PROPOSALS REQUIRING YOUR VOTE
| ● | We maintain a double trigger requirement for acceleration of equity awards in connection with a Change of Control. To best align with our stockholders’ interests, we maintain a “double trigger” (requiring both a change in control and qualifying termination of employment) for an employee to receive accelerated vesting of equity awards in connection with a Change of Control. |
| ● | We solicit independent compensation advice. Our Compensation Committee retains Ferguson Partners Consulting, an independent compensation consultant, to advise the Compensation Committee with respect to the compensation of our NEOs. |
The Compensation Committee and the Board believe that these policies incentivize the NEOs to achieve strong financial performance and maximize stockholder returns.
At the 2023 annual meeting, the Company’s stockholders voted in favor of holding annual say-on-pay votes and our Board agreed with the stockholders’ advisory vote and resolved to continue to hold annual advisory say-on-pay votes. Unless our Board modifies its determination regarding the frequency of future say-on-pay advisory votes, the next say-on-pay vote will be held at the annual meeting of stockholders in 2025.
Vote required . The affirmative vote of a majority of the votes cast will be required to approve, on a non - binding, advisory basis, the Say-on-Pay Vote. Any shares not voted, whether by abstention, “broker non - vote” or otherwise, have no impact on the vote.
The stockholder vote on executive compensation is an advisory vote only, and it is not binding on the Company, the Board, or the Compensation Committee. Although the vote is non - binding, the Compensation Committee and the Board value the opinions of the stockholders and will consider the outcome of the vote when making future compensation decisions.
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COMPANY INFORMATION
CORPORATE GOVERNANCE
In light of applicable legal requirements, such as the Sarbanes – Oxley Act of 2002 and related rules promulgated by both the NYSE and the SEC, we provide the following discussion to inform you of our efforts to assure that we employ best practices in our corporate governance. We have also established conflict of interest and other policies to serve the long - term interests of our stockholders and further align the interests of our directors and management with our stockholders.
CONFLICT OF INTEREST POLICY
We have adopted a policy which provides that the approval of our Nominating and Corporate Governance Committee is required for any transaction involving the Company and any of our directors, officers or employees, or any entity in which any of our directors, officers or employees is employed or has an interest of more than 5%.
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a Code of Business Conduct and Ethics, which requires, among other things, that directors, officers and employees act with integrity. The Code of Business Conduct and Ethics also prohibits our directors, officers and employees from taking (or directing to a third party) a business opportunity that is originated through the use of corporate property, information or position, unless we have already been offered the opportunity and turned it down, in which case our Nominating and Corporate Governance Committee must in any event approve the director, officer or employee interest therein. More generally, our directors, officers and employees are prohibited from using corporate property, information, or position for personal gain.
POLITICAL CONTRIBUTIONS POLICY AND TRADE ASSOCIATION MEMBERSHIPS
It is the Company’s policy that funds are not used directly to contribute to candidates, campaigns, and political party committees. The Legal Department oversees compliance with our Company policy and may make exceptions where permissible under law and regulations. However, we are a member of certain industry associations which have a fee for membership or contribution for specific activities. The Company believes participation in these industry associations provides the opportunity to enhance stockholder value through involvement in public policy processes, networking, building of business skills, sharing collective best practices, and monitoring industry policies and market trends. Pursuant to the Company’s Code of Business Conduct and Ethics, total Company contributions for political advocacy purposes are reported as less than $30,000 in 2023.
PLEDGING AND HEDGING POLICIES
We maintain pledging and hedging policies applicable to our directors, officers, and other employees (collectively referred to in this section only as “insiders” and individually as an “insider”).
Margin Accounts and Pledges. Securities held in a margin account or pledged as collateral for a loan may be sold without the insider’s consent by the broker if the insider fails to meet a margin call or by the lender in foreclosure if the insider defaults on the loan. Because a margin or foreclosure sale may occur at a time when the insider is aware of material nonpublic information or otherwise is not permitted to trade in Company securities, insiders are prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero – cost collars and forward sale contracts, involve the establishment of a short position in the Company’s securities and limit or
COMPANY INFORMATION
eliminate an insider’s ability to profit from an increase in the value of the Company’s securities. Such transactions are complex and involve many aspects of the federal securities laws, including filing and disclosure requirements. Therefore, the Company prohibits insiders from any hedging transactions.
CORPORATE RESPONSIBILITY: ENVIRONMENTAL, SOCIAL, AND GOVERNANCE PRACTICES
Purpose and Governance of Corporate Responsibility Initiatives
We take a comprehensive approach to our business and balance the interests of all stakeholders, including our stockholders, the environment, our employees, our capital providers, the hotel associates, guests, and the communities in which we own hotels. We are committed to maintaining a strong corporate governance that establishes socially responsible practices at our hotels and corporate office and prioritizes investments that will lead to environmentally sustainable assets. When implemented successfully, we can increase profitability, improve our assets’ environmental performance, enhance asset resiliency, mitigate climate-related risks, strengthen relationships with suppliers and local communities, and foster a respectful and innovative work environment.
Board and Management Oversight. Our Board understands how environmental and social issues may impact the long-term interests of our stakeholders. The Board has assigned our Nominating and Corporate Governance Committee with direct oversight of the Company’s Corporate Responsibility program and its ESG-related objectives, policies, procedures and evaluation of risks and opportunities, including those related to climate change, resource scarcity, public disclosure strategy, DEIB, board refreshment and human rights. To ensure our Corporate Responsibility initiatives are continuously managed and integrated into our business strategy, we have an ESG Committee composed of dedicated internal resources and external advisors. Our ESG Committee is responsible for evaluating potential ESG risks and opportunities that have been identified as focus items by our stockholders, leading ESG frameworks and ESG rating agencies. Additionally, our ESG Committee is responsible for reviewing all ESG-related policies annually. Our ESG Committee reports to the Nominating and Corporate Governance Committee quarterly and to the full Board annually.
Disclosures, Transparency and Recognition. As part of our strong corporate governance, we aim to provide transparent disclosures to our stakeholders.
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Awards Recognition |
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Published our annual Corporate Responsibility Report with disclosures in-line with leading ESG frameworks, including the Sustainability Accounting Standards Board (“SASB”), the Global Reporting Initiative (“GRI”) and the Task Force on Climate-related Financial Disclosures (“TCFD”).
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American Hotel Lodging Association’s (“AHLA”) 5-Star Promise
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Newsweek’s America’s Most Responsible Companies
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AHLA’s Responsible Stay Principles
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R-Factor™ Industry Leader (Top 10%)
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Maintained various ESG-related policies including Environmental Policy, Human Rights Labor Rights Policy, Vendor and Business Partner Code of Conduct and an ISO 14001 aligned Environmental Management System (“EMS”).
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CEO Action for Diversity and Inclusion™
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ISS ESG Prime Corporate Rating
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AHLA’s No Room For Trafficking
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Four hotels (~30% of our portfolio) ENERGY STAR® certified in 2023
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Our Corporate Responsibility Report with the SASB, GRI and TCFD disclosures and our ESG Policies are provided in the Corporate Responsibility section of our website at www.sunstonehotels.com. The contents posted on, or accessible through, our website are not incorporated by reference into this Proxy Statement or any of our filings with the SEC and may be revised by us (in whole or in part) at any time and from time to time.
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COMPANY INFORMATION
Corporate Responsibility Strategy and Commitment
Sunstone’s Corporate Responsibility Program is committed to three core pillars: Environmental Sustainability, Social Responsibility, and Corporate Governance. We have made meaningful investments to improve our assets’ environmental performance, mitigate climate-related risks, enhance the quality of the work environment for the hotel associates, and support the communities in which we own hotels. Our ESG Commitment encompasses:
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Maximize low-carbon investment opportunities and responsible investments for net-zero carbon emissions
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Support the communities through advancing DEIB and charitable activities where we work and own hotels
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Ensure Board oversight of our ESG Program and Risk Management
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Optimize our EMS to reduce the environmental footprint of our hotels and our corporate office
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Provide resources to our employees and hotel operators to promote health, safety, and well-being
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Identify and mitigate climate-related risks in our short, medium, and long-term strategies
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Environmental Sustainability
Sunstone is committed to promoting environmental sustainability and protecting the natural resources that support our business. Sunstone’s comprehensive environmental efficiency program is designed to make our hotels more energy efficient, reduce carbon emissions, and create a resilient and eco – friendly environment, while still enhancing profitability at our hotels.
Climate Change, Resiliency and Risk Mitigation. We focus on assessing and minimizing the physical, transitional, regulatory, and market risks associated with climate change. Our environmental efficiency program includes retro – fitting lighting systems with new LED fixtures, guestroom “smart” thermostats that adjust room conditions based on whether the room is occupied or not, removable flood mitigation barriers at high-risk locations, central plant efficiency upgrades, bulk amenity dispensers for guestrooms, food waste prevention strategies, water recycling for laundry operations or laundry outsourcing, low – flow toilet systems, electric vehicle charging, and renewable solar energy.
Environmental Sustainability Management. Our environmental sustainability program and initiatives include monitoring, reporting, and investing in efficiency programs and operating procedures. Our Environmental Policy is designed to identify our environmental impact, drive sustainability within our portfolio, and raise environmental awareness among our stakeholders. Key elements of our Environmental Sustainability program include:
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Investing in efficiency projects and opportunities that reduce energy consumption, Greenhouse Gas (“GHG”) emissions, and water consumption, and minimizes waste creation and pollution
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Developing a sustainable supply chain
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Sunstone is committed to seeking and investing in new environmental and technological innovations and practices to implement across our portfolio, including low-carbon solutions, initiatives to reduce the environmental footprint of our hotels and programs that result in positive community impact.
Social Responsibility
We strive to create a healthy and supportive workplace for Sunstone employees, including the establishment of a safe, inclusive, and accommodating work environment, together with competitive wages and benefits, and career
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COMPANY INFORMATION
development opportunities. We also work with our hotel brands and operators to offer the financial resources that enable them to provide the same support for hotel associates. Furthermore, we seek to support the communities where we work and own hotels through community outreach programs and philanthropic engagement.
Social Responsibility Governance. We maintain a Human Rights Labor Rights Policy, Code of Business Conduct and Ethics and a Vendor and Business Partner Code of Conduct. All three policies are designed to drive social impact including DEIB and to raise social responsibility awareness among our stakeholders. Our program and initiatives include addressing social responsibility topics and initiatives at our corporate office, our hotels, and the communities in which we work and own hotels. Likewise, our Vendor and Business Partner Code of Conduct encourages our suppliers, vendors, tenants, and all other business partners to operate in a manner that seeks to minimize environmental and social risks and the impacts of their products and services.
Community Engagement. Sunstone’s Community Involvement Program aims to improve community health and well-being, provide assistance or support in case of disaster, and support charities and community groups. Our employees and Board have the opportunity to donate to qualifying organizations through our Matching Charitable Gifts Program where the Company will match dollar for dollar all donations made up to $5,000 per individual. Additionally, Sunstone’s Volunteer Time-Off policy provides full-time corporate employees an opportunity to use up to eight hours of paid work time per year towards volunteerism at qualifying charitable organizations.
DEIB. Sunstone recognizes the value of different perspectives, backgrounds, and experiences in our workplace, and seeks to foster a Company culture of belonging, where all employees are encouraged to be their authentic selves. In 2023, 100% of Sunstone employees participated in DEIB training through interactive workshops. As of December 31, 2023, we had 38 employees, of which approximately 40% identified as female and approximately 60% identified as male. Additionally, approximately 35% of our workforce identified as being from an underrepresented community.
INDEPENDENCE OF DIRECTORS AND COMMITTEES
The Board has determined that all directors of the current Board are independent as defined under the NYSE’s rules and that all directors (other than our CEO, Mr. Giglia) will continue to be independent if the slate of directors up for election in Proposal 1 of this proxy statement are elected. Directors who serve on the Compensation Committee and the Nominating and Corporate Governance Committee are also subject to these independence requirements. Directors who serve on the Audit Committee are subject to these and additional independence requirements.
To be considered independent under the NYSE’s rules, the Board must determine that a director does not have a material relationship with Sunstone and/or its consolidated subsidiaries (either directly or as a partner, stockholder, or officer of an organization that has a relationship with any of those entities).
The Board undertakes on an annual basis a review of the independence of the directors nominated for election at the upcoming annual meeting. During this review, the Board considers the transactions and relationships between each director or any member of his or her immediate family and Sunstone and its subsidiaries and affiliates as reported under “Certain Relationships and Related Party Transactions” below. The Board also examines transactions and relationships between directors or their affiliates and members of senior management or their affiliates. The purpose of this review is to determine whether any such relationships or transactions are inconsistent with a determination that such director is independent.
As a result of this review, the Board affirmatively determined that each member of the current Board is independent of Sunstone and its management under the independence standards of the NYSE. Assuming the nominees listed in Proposal 1 are elected as directors at the Annual Meeting, each member of the Board, other than Mr. Giglia, will be independent of Sunstone and its management under the independence standards of the NYSE.
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COMPANY INFORMATION
THE BOARD LEADERSHIP STRUCTURE
Mr. Pasquale, who serves as our Chairman of the Board, is independent of the CEO. Assuming that the nominees listed in Proposal 1 are elected as directors at the Annual Meeting, we expect Mr. Pasquale will continue to serve as our Chairman of the Board and Mr. Giglia as our CEO and a director.
The role of the Chair of the Board or lead independent director is to coordinate the activities of the independent directors, coordinate with the CEO, or management, and the corporate secretary to set the agenda for Board meetings and chair executive sessions of the independent directors. The Chair of the Board also provides leadership to the Board and upholds high corporate governance and ethical standards, communicates effectively with management on a regular basis, provides support and advice to the CEO and management, facilitates communication between and among the independent directors and management, takes a lead role in the Board’s self – assessment and evaluation processes, and performs the other duties either specified in the Corporate Governance Guidelines or assigned from time to time by the Board.
Our Board believes its leadership structure is appropriate as it effectively allocates authority, responsibility, and oversight between management and the independent members of our Board. It accomplishes this by giving management primary responsibility for the operational leadership and strategic direction of the Company, while facilitating our Boards’ independent oversight of management, promoting communication between management and our Board, and supporting our Boards’ consideration of key governance matters.
DIRECTOR ATTENDANCE AT MEETINGS
Each of our directors is encouraged to attend each annual meeting of stockholders and all meetings of the Board. The Board held four Board meetings and acted by written consent two times in 2023. During 2023, all directors attended 100% of the Committee meetings on which they served during the periods in which they served on such Committees. All directors attended 100% of the Board meetings. Although we do not have a policy requiring directors to attend our annual meetings of stockholders, all our directors attended our annual meeting of stockholders in 2023.
STOCKHOLDER ENGAGEMENT
We firmly believe that developing and maintaining transparent relationships with our stockholders is critical to our Company’s ability to create long-term value. We are committed to on-going stockholder engagement activities which allow management and our Board to remain informed of our stockholders’ perspectives and priorities and can incorporate these perspectives into the Board discussions and decisions.
Engagement Topics. We strive to maintain an active dialogue with stockholders to ensure a diversity of perspectives is considered on a variety of topics, including Company strategy, business performance, industry trends, risk management, culture and workplace topics, compensation practices, and Corporate Responsibility/ESG matters. Over the course of the year, we met with stockholders holding a majority of our outstanding shares of common stock. Among the topics we discussed were:
| ✓ | Company long-term strategy including capital allocation opportunities for growth; |
| ✓ | Return of capital to stockholders, including dividends and share repurchases; |
| ✓ | Renovation and capital investment strategy; |
| ✓ | Financial performance, industry trends, and market positioning; |
| ✓ | Corporate Responsibility program including ESG initiatives focused on climate-related risks and opportunities; |
| ✓ | Board governance including diversity commitment and refreshment initiatives; and |
| ✓ | NEO compensation program. |
|
30 |
Sunstone Hotel Investors |
COMPANY INFORMATION
Engagement Activities . Our stockholder and investor outreach activities include analyst and investor meetings, property tours, and industry conferences. We also communicate with stockholders and other key stakeholders through various channels, including our annual report and SEC filings, proxy statement, news releases, Corporate Responsibility Report, investor presentations, correspondence, our website, and on-going open dialogue. Additionally, our quarterly earnings conference calls are open to the public. These calls are available in real time with archived transcripts available on our website for a period of time.
RISK OVERSIGHT
The Board is responsible for the Company’s overall risk management strategy. The Board has delegated the oversight of certain risk areas to the various Committees. Each Committee provides periodic reports to the Board on their primary areas of risk. Company management is responsible for the day – to – day risk management processes and for providing quarterly (at a minimum) updates to the Committees and the Board. We, together with the Board, believe this division of responsibilities is the most effective approach for addressing the risks facing the Company. The chart below summarizes the primary areas of risk oversight for the Board and its Committees.
|
Board / Committee |
Primary Areas of Risk Oversight Responsibilities |
|
Board |
✔ Strategic, financial, and execution risks and exposures associated with the annual operating plan and the Company’s long-term strategic plan; ✔ Acquisitions and divestitures, capital investments, capital markets, and other investment opportunities; ✔ Major litigation and regulatory exposures; and ✔ Corporate culture and its effectiveness on advancing the Company’s strategy. |
|
Audit Committee |
✔ Financial matters, particularly the Company’s financial statements, tax matters, accounting and system of internal controls, and disclosure; ✔ Independence, qualifications, and performance of the Company’s external and internal auditors, and the Company’s compliance with legal and regulatory requirements; ✔ Risk management profile including programs, policies and strategies that guide the Company’s risk assessment and risk mitigation programs; and ✔ Cybersecurity risks. |
|
Nominating and Corporate Governance Committee |
✔ Board refreshment including the identification of qualified candidates to become Board members; ✔ Corporate governance programs, policies, and procedures including Board structure and Board Committee composition; and ✔ ESG policies, programs and practices, including climate change, social responsibility, resource scarcity, DEIB, and human rights. |
|
Compensation Committee |
✔ Compensation plans, policies, and procedures including NEO compensation, stock ownership and incentive-compensation plans, Director compensation, executive retention, and succession planning; ✔ Compensation practices to ensure (i) an appropriate balance of risk and reward compared to our overall business strategy; and (ii) incentives to our employees do not lead to excessive or inappropriate risks that could have a material adverse effect on the Company; and ✔ Human capital-related programs, including our employee engagement initiatives and talent management practices. |
|
2024 Proxy Statement |
31 |
COMPANY INFORMATION
STOCKHOLDER COMMUNICATION WITH THE BOARD
Stockholders, employees, and others interested in communicating with the Board may write any concerns they may have about the Company directly and confidentially with the full Board of Directors, the Chair of the Board, or individual Director(s) to: Sunstone Hotel Investors, Inc., 15 Enterprise, Suite 200, Aliso Viejo, California 92656, Attention: Secretary. The Secretary will review and forward all stockholder communications to the intended recipient except those unrelated to the duties and responsibilities of the Board.
In addition, the Audit Committee has adopted a confidential, anonymous process for anyone to send communications to the Audit Committee with concerns or complaints concerning the Company’s regulatory compliance, accounting, audit or internal controls issues. Any party may contact the Audit Committee via the third-party managed Sunstone Business Conduct and Ethics line which may be accessed online at www.ethicspoint.com or via telephone at 1-888-304-7806. Additionally, the Audit Committee may be contacted via mail to our Human Resources or Legal Department, or to the Chair of the Audit Committee addressed and mailed to: Sunstone Hotel Investors, Inc., Attn: Audit Committee Chair, 15 Enterprise, Suite 200, Aliso Viejo, CA 92656.
COMMITTEES OF THE BOARD
Our Board complements its oversight responsibilities through the following three standing committees, each of which is briefly described below: the Compensation Committee, the Audit Committee, and the Nominating and Corporate Governance Committee. Each of our standing committees has a charter, current copies of which may be viewed in the Corporate Governance section of our website at www.sunstonehotels.com.
|
32 |
Sunstone Hotel Investors |
COMPANY INFORMATION
Compensation Committee
As of March 20, 2024, the members of our Compensation Committee are:
|
Members |
The Compensation Committee Responsibilities |
|
W. Blake Baird; Andrew Batinovich; Monica S. Digilio (chair); and Kristina M. Leslie. |
✔ Our Board has adopted a Compensation Committee Charter, which defines the Compensation Committee’s purpose and direct responsibility to: ✔ Determine compensation and benefits for all NEOs, directors, and Committees, including overseeing our equity compensation plans; ✔ Oversee executive retention and succession planning; ✔ Supervise compensation policies applicable to employees generally; ✔ Oversee the Company’s compensation recovery policy; ✔ Review and discuss with the management of the Company the Compensation Discussion and Analysis (“CDA”), and make recommendations to the Board as to CDA content that should be included in the appropriate filing; and ✔ Review human capital-related programs, including our employee engagement initiatives and talent management practices. ✔ The Board has determined that each of the members of the Compensation Committee is independent within the meaning of the listing standards of the NYSE. ✔ The Compensation Committee held four meetings during 2023. |
|
2024 Proxy Statement |
33 |
COMPANY INFORMATION
Audit Committee
As of March 20, 2024, the members of our Audit Committee are:
|
Members |
The Audit Committee Responsibilities |
|
Andrew Batinovich; Kristina M. Leslie (chair); and Verett Mims. |
✔ Our Board has adopted an Audit Committee Charter, which defines the Audit Committee’s purpose to include oversight of: ✔ the integrity of our financial statements; ✔ the effectiveness of our internal control over enterprise risks, including financial reporting and cybersecurity risks; ✔ our compliance with legal and regulatory requirements; ✔ the independent auditors’ qualifications and independence; ✔ the performance of the independent auditors and our internal audit function; and ✔ preparation of an audit committee report as required by the SEC for inclusion in our annual proxy statement. ✔ All of the members of the Audit Committee are financially literate within the meaning of the listing standards and rules of the NYSE. All of the members of the Audit Committee possess accounting and financial management expertise within the meaning of the listing standards and rules of the NYSE. ✔ The Board has determined that each member of the Audit Committee is independent within the meaning of the rules of both the NYSE and the SEC. ✔ The Board has also determined that all of the current members of the Audit Committee are qualified as an audit committee financial expert within the meaning of SEC regulations. In making this determination, the Board considered the following qualifications: (a) understanding of generally accepted accounting principles (“GAAP”) and financial statements; (b) ability to apply GAAP to accounting for estimates, accruals, and reserves; (c) experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the issues likely to be raised by our financial statements, or experience actively supervising persons engaged in these activities; (d) understanding of internal control over financial reporting; and (e) understanding of audit committee functions. ✔ The Audit Committee held four meetings during 2023. |
|
34 |
Sunstone Hotel Investors |
COMPANY INFORMATION
Nominating and Corporate Governance Committee
As of March 20, 2024, the members of our Nominating and Corporate Governance Committee are:
|
Members |
The Nominating and Corporate Governance Committee Responsibilities |
|
W. Blake Baird (chair); Monica S. Digilio; Murray J. McCabe; and Douglas M. Pasquale. |
✔ The Board has adopted a Nominating and Corporate Governance Committee Charter, which defines the Nominating and Corporate Governance Committee’s purpose and responsibility to: ✔ Select and recommend to the Board, nominees for election at any annual meeting, or any special meeting of stockholders, and any person to be considered to fill a vacancy or a newly created directorship; ✔ Nominate directors for committee membership; ✔ Review and recommend revisions to our Corporate Governance Guidelines; ✔ Assist with the annual evaluation of the Board; ✔ Approve certain transactions involving a conflict of interest; and ✔ Oversee the Company’s policies, programs and strategies related to the Corporate Responsibility program, including environmental stewardship, responsible investment, corporate citizenship, human rights, human capital management, and other social and public matters of significance to the Company. ✔ The Board has determined that each of the members of the Nominating and Corporate Governance Committee is independent within the meaning of the listing standards of the NYSE. ✔ In connection with its annual process for identifying directors to nominate or re-nominate, or to be recommended to the Board for nomination or re-nomination, the Nominating and Corporate Governance Committee considers the following criteria: ✔ Personal qualities and characteristics, accomplishments and reputation in the business community; ✔ Current knowledge and contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business; ✔ Ability and willingness to commit adequate time to Board and committee matters; ✔ The fit of the individual’s skills and personality with those of other directors and potential directors in building a Board that is effective, collegial, and responsive to the needs of the Company; ✔ Diversity of gender, underrepresented communities, viewpoints, background, experience, and other demographics; and ✔ Representation of significant stockholders and the purpose and nature of the interests represented. ✔ The Nominating and Corporate Governance Committee held four meetings during 2023. |
|
2024 Proxy Statement |
35 |
COMPANY INFORMATION
Board Refreshment . Our Board remains committed to active board refreshment to ensure optimal board structure and composition. The Nominating and Corporate Governance Committee focuses on obtaining a desired mix of knowledge, skills, experience, perspective, and diversity relevant to the Company’s strategic direction. The Nominating and Corporate Governance Committee recommends, among other things, whether the existing Board contains the appropriate size, structure, and composition, whether some or all of the incumbent directors should be recommended to the Board for re - nomination and whether the Board should be enlarged to include additional directors.
The Nominating and Corporate Governance Committee will consider potential director nominee candidate recommendations from various sources, including any member of the Board or senior management. The Nominating and Corporate Governance Committee may also retain a third - party search firm to identify candidates. The Nominating and Corporate Governance Committee also considers recommendations for nominees that are timely submitted by stockholders and only if such recommendations are delivered in the same manner prescribed by the advance notice provisions contained in Article II, Section 2.11 of our bylaws for stockholder proposals. In addition to satisfying the timing, ownership, and other requirements specified in Article II, Section 2.11 of our bylaws, a stockholder’s notice must set forth, as to each person whom the stockholder proposes to recommend that the Committee nominate for election to the Board, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act and our bylaws (including such person’s written consent to being named in the proxy statement as a nominee and to serve as a director if elected). Properly communicated stockholder recommendations will be considered in the same manner as recommendations received from other sources.
Commitment to Diversity at the Company and on the Board . The Company is committed to diversity at the Board level. Our Board considers diversity, including gender, ethnicity, and other underrepresented communities when considering nominations to the Board and will continue to endeavor to include women and individuals from underrepresented communities in the qualified pool from which new director candidates are selected. The Board’s objective is to have a Board comprised of individuals who by occupation, background, and experience are in a position to make a strong, positive contribution to the Company and its stockholders.
Current Committee Membership . The table below summarizes the membership information for the committees of the Board as of March 20, 2024:
|
|
|
|
|
|
|
Nominating and |
|
|
|
|
|
|
|
Corporate |
|
|
|
Compensation |
|
Audit |
|
Governance |
|
W. Blake Baird |
|
M |
|
|
|
C |
|
Andrew Batinovich (F) |
|
M |
|
M |
|
|
|
Monica S. Digilio |
|
C |
|
|
|
M |
|
Kristina M. Leslie (F) |
|
M |
|
C |
|
|
|
Murray J. McCabe |
|
|
|
|
|
M |
|
Verett Mims (F) |
|
|
|
M |
|
|
|
Douglas M. Pasquale |
|
|
|
|
|
M |
C = Chair M = Member
F = Audit Committee Financial Expert
The Board, at the recommendation of the Nominating and Corporate Governance Committee, periodically reviews and modifies committee appointments.
Executive Sessions of Independent Directors . Each member of the Board is currently an independent, non-employee director. The independent, non-employee directors held executive sessions at least once each quarter in 2023 and held other meetings relating to corporate governance during the year. Following the Annual Meeting, we expect that our independent directors will continue to be members of the Board, and that Mr. Pasquale will continue to preside over executive sessions of the independent directors.
|
36 |
Sunstone Hotel Investors |
STOCK OWNERSHIP
STOCK OWNERSHIP REQUIREMENTS
We maintain a stock ownership policy for our executive officers because we believe that requiring our executive officers to maintain a meaningful ownership interest in the Company aligns the interests of the executive officers with those of our stockholders (i.e., the executive officer will experience the same downside risk and upside potential as our stockholders).
|
Stock Ownership Requirements (1) |
||
|
CEO and/or President |
|
6x base salary |
|
Executive Vice President |
|
3x base salary |
|
Senior Vice President |
|
2x base salary |
|
Independent Director |
|
5x annual cash retainer |
| (1) | The Company does not currently have any Senior Vice Presidents that are considered “executive officers.” |
The policy provides that, on or before January 1 of the year following the fourth anniversary of the CEO or President’s appointment to such position, the CEO or President will own and retain shares of the Company’s common stock having a value equal to at least six times his or her annual base salary rate in effect on the December 31 immediately preceding the applicable January 1 determination date (described below). The policy further provides that, on or before January 1 of the year following the fourth anniversary of the other executive officer’s appointment to such position, each Executive Vice President NEO will own and retain shares of the Company’s common stock having a value equal to at least three times his or her annual base salary rate in effect on the December 31 immediately preceding the applicable January 1 determination date (described below).
We also maintain a stock ownership policy for our independent directors, under which each existing independent director, on or before January 1 of the year following the fifth anniversary of such director’s election to the Board, is required to hold stock valued at no less than five times the amount of the annual cash retainer paid to such director.
To determine compliance with the stock ownership guidelines, we (a) include shares the individual director or executive officer owns outright, as well as awarded but unvested time-based restricted shares of Company stock and (b) calculate the value of each individual’s stock holdings based on the average closing price on the NYSE of the Company’s common stock for the year ended immediately prior to the applicable January 1 determination date.
As of January 1, 2024, each of our executive officers (other than Mr. Reyes) and each applicable independent director (other than Mses. Leslie and Mims) met or exceeded the stock ownership requirements. Based on the policy in place as of January 1, 2024, Mr. Reyes, who was promoted to Executive Vice President in 2024, must achieve compliance by January 1, 2029, and Mses. Leslie and Mims, both of whom joined the Board in 2021, must achieve compliance by January 1, 2027.
STOCK OWNERSHIP
SECURITY OWNERSHIP BY DIRECTORS, NAMED EXECUTIVE OFFICERS, AND FIVE PERCENT STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our common stock as of March 6, 2024 with respect to (a) each director and director nominee, (b) each NEO, (c) all of our directors and NEOs as a group and (d) each person (or group) known by us to be the beneficial owner of greater than a 5% interest in our common stock. Unless otherwise indicated, all shares of common stock are owned directly and the indicated person has sole voting and investment power. Percentage ownership is based on 203,694,178 shares of common stock outstanding as of March 6, 2024.
Unless otherwise indicated, the address of each person is 15 Enterprise, Suite 200, Aliso Viejo, California 92656.
|
|
|
Number of |
|
|
|
|
|
|
Shares of |
|
Percentage of |
|
|
Name of Beneficial Owner |
|
Common Stock |
|
Common Stock (1) |
|
|
Bryan A. Giglia, NEO (2) |
|
606,989 |
|
* |
|
|
Robert C. Springer, NEO (3) |
|
541,038 |
|
* |
|
|
David M. Klein, NEO (4) |
|
179,725 |
|
* |
|
|
Christopher G. Ostapovicz, NEO (5) |
|
136,276 |
|
* |
|
|
Aaron R. Reyes, NEO (6) |
|
87,831 |
|
* |
|
|
Douglas M. Pasquale, Director |
|
307,251 |
|
* |
|
|
Andrew Batinovich, Director |
|
116,597 |
|
* |
|
|
Murray J. McCabe, Director |
|
85,991 |
|
* |
|
|
W. Blake Baird, Director |
|
73,049 |
|
* |
|
|
Monica S. Digilio, Director |
|
40,662 |
|
* |
|
|
Kristina M. Leslie, Director |
|
28,192 |
|
* |
|
|
Verett Mims, Director |
|
28,192 |
|
* |
|
|
All directors and executive officers as a group |
|
2,231,793 |
|
1.1 |
% |
|
BlackRock, Inc. (7) |
|
38,220,478 |
|
18.8 |
% |
|
The Vanguard Group (8) |
|
32,210,355 |
|
15.8 |
% |
|
State Street Corporation (9) |
|
13,502,079 |
|
6.6 |
% |
|
Tarsadia Group (10) |
|
11,408,675 |
|
5.6 |
% |
|
* |
Represents less than 1.0% of the number of shares of our common stock and membership units in Sunstone Hotel Partnership, LLC. |
| (1) | Based on total outstanding shares of common stock of 203,694,178. |
| (2) | The number of shares of our common stock listed here includes 209,684 unvested time-based restricted stock awards granted under the 2004 Long-Term Incentive Plan, as amended and restated November 1, 2019 (“2004 Plan”) and under the Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan (the “2022 Plan”) and excludes up to 921,196 unvested performance-based restricted stock units, both of which are subject to forfeiture if the vesting criteria are not satisfied. |
| (3) | The number of shares of our common stock listed here includes 181,063 unvested time-based restricted stock awards granted under the 2004 Plan and the 2022 Plan and excludes up to 756,420 unvested performance-based restricted stock units, both of which are subject to forfeiture if the vesting criteria are not satisfied. |
STOCK OWNERSHIP
| (4) | The number of shares of our common stock listed here includes 66,664 unvested time-based restricted stock awards granted under the 2004 Plan and the 2022 Plan and excludes up to 301,062 unvested performance-based restricted stock units, both of which are subject to forfeiture if the vesting criteria are not satisfied. |
| (5) | The number of shares of our common stock listed here includes 73,621 unvested time-based restricted stock awards granted under the 2004 Plan and the 2022 Plan and excludes up to 348,370 unvested performance-based restricted stock units, both of which are subject to forfeiture if the vesting criteria are not satisfied. |
| (6) | The number of shares of our common stock listed here includes 44,535 unvested time-based restricted stock awards granted under the 2004 Plan and the 2022 Plan and excludes up to 249,096 unvested performance-based restricted stock units, both of which are subject to forfeiture if the vesting criteria are not satisfied. |
| (7) | Derived solely from information contained in the Schedule 13G/A filed with the SEC on January 19, 2024 by BlackRock, Inc. The address for BlackRock, Inc. is 50 Hudson Yards, New York, NY 10001. |
| (8) | Derived solely from information contained in the Schedule 13G/A filed with the SEC on February 13, 2024 by The Vanguard Group. The address for The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. |
| (9) | Derived solely from information contained in the Schedule 13G/A filed with the SEC on January 30, 2024 by State Street Corporation. The address for State Street Corporation is State Street Financial Center, 1 Congress Street, Suite 1, Boston, MA 02114-2016. |
| (10) | Derived solely from information contained in the Schedule 13G/A filed with the SEC on February 14, 2024 by a group comprised of the following, with the shares of our common stock held by the specified entity as of December 31, 2023 as indicated in parenthesis: (a) TCDS I, LP (993,369 shares); (b) TCLS I, LP (2,778,751 shares); (c) TCCS I, LP (836,555 shares) (collectively, the “Funds”); (d) TC GP, LLC, the general partner of the Funds, who reports shared voting and dispositive power over the shares held by the Funds; (e) Tarsadia Capital, LLC, the investment advisor to the Funds who reports shared voting and dispositive power over the shares held by the Funds; (f) TUP Investments, L.P. (4,400,000 shares), who together with the entities listed at (a) through (e) are referred to as the “Tarsadia Reporting Persons;” (g) PSP Land LLC (1,670,000 shares); (h) Cepheid Capital, LLC, who is the manager of PSP Land LLC, and reports shared voting and dispositive power over the shares held by PSP Land LLC, and together with PSP Land LLC is referred to as the “PSP Land Reporting Persons;” (i) T-Twelve Holdings, LLC (550,000 shares); (j) TFC Manager, LLC, who is the manager of T-Twelve Holdings LLC and reports shared voting and dispositive power over the shares held by T-Twelve Holdings LLC, and together with T-Twelve Holdings LLC is referred to as the “T-Twelve Reporting Persons;” (k) UKA, L.P. (180,000 shares); (l) BPP One, LLC, who is the general partner of UKA, L.P., and reports shared voting and dispositive power over the shares held by UKA, LP, and together with UKA L.P. is referred to as the “UKA Reporting Persons.” Tushar Patel is the ultimate control person of the Tarsadia Reporting Persons. Gautam Patel is the ultimate control person of the PSP Land Reporting Persons. John Galvin is the ultimate control person of the T-Twelve Reporting Persons. Rishi Reddy is the ultimate control person of the UKA Reporting Persons. The address for the entities identified at (a) through (e) and Gautam Patel is 712 Fifth Avenue, Suite 32D, New York, NY 10019. The address for the entities identified at (f), (k) and (I) and Tushar Patel and Rishi Reddy is 520 Newport Center Drive, 21 st Floor, Newport Beach, CA 92660. The address of the entities listed at (i) and (j) and John Galvin is c/o Sierra Fiduciary Support Services, 100 West Liberty Street, Suite 750, Reno, NV 89501. The address of the entity listed at (g) is c/o McCabe Heidrich Wong, PC, 4 Gatehall Drive, Parsippany, NJ 07054. The address of the entity listed at (h) is 1 John Street, #9D, Brooklyn, NY 11201. |
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
Overview. This CDA explains our compensation philosophy and policies that applied in 2023 to our NEOs listed in the Summary Compensation Table below. It explains the structure and rationale associated with each material element of the compensation program for the NEOs, describes the actual compensation paid to our NEOs for 2023, and provides important context for the more detailed disclosure relating to our NEOs in the compensation tables following this Compensation Discussion and Analysis. For additional information on our “ 2023 Company Highlights ” refer to pages 7 and 8 of this proxy statement.
Our NEOs for 2023 were Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein.
The Board and our Compensation Committee consider it our responsibility to structure our compensation program in a way that is highly aligned with the interests of our stockholders. Although the advisory stockholder vote on executive compensation is non - binding, the Compensation Committee has considered and will continue to consider the outcome of the vote when making future compensation decisions for NEOs. At our 2023 annual meeting of stockholders, 96.8% of the votes were cast in favor of our Say-on-Pay proposal. Additionally, at the 2023 annual meeting, the Company’s stockholders voted in favor of holding annual say-on-pay votes, and following the 2023 stockholder vote, our Board agreed with the stockholders’ advisory vote and resolved to continue to hold annual advisory say-on-pay votes. Unless our Board modifies its determination regarding the frequency of holding future say-on-pay advisory votes, the next advisory vote on the frequency of holding future say-on-pay votes will be held in 2029.
In addition, the Compensation Committee seeks to attract, motivate, and retain Sunstone’s NEOs through competitive compensation arrangements that the Compensation Committee believes provide strong financial incentives for the NEOs to maximize stockholder value, while maintaining appropriate risk parameters.
With respect to our NEOs, our executive compensation program is weighted towards variable, rather than fixed, compensation. Specifically, all at-risk compensation, including annual cash bonuses, is designed to reward performance relative to financial and other metrics that we believe will result in favorable Total Stockholder Returns (“TSR”), both in terms of absolute appreciation in the value of our shares, and relative performance as compared to our peers, taking into consideration our competitive position within the real estate industry and each executive’s contributions to the Company. The Compensation Committee has also designed our NEO compensation program to reward our NEOs at levels that the Compensation Committee believes to be competitive for companies in our industry, including in part, a review of NEO compensation levels at companies within our peer group, as identified below.
In 2022, our Compensation Committee made significant changes to the Company’s long-term incentive compensation program in order to better align with our peers, market practices, and our stockholders’ interests. In order to bridge the transition period between the old and new programs and maintain the same level of target stock compensation throughout the transition period, the awards granted by the Compensation Committee in 2022 included one-time transition awards for each NEO (other than Mr. Reyes who was not an NEO at the time) in the form of an award of time-based restricted stock awards, or RSAs, (the “Transition Time-Based RSAs”) that vest over a two-year period and an award of performance-based restricted stock units, or RSUs, (the “Transition Performance RSUs”, and together with Transition Time-Based RSAs, the “Transition Equity Awards”) eligible to vest after a two-year performance period. The one-time transition awards were designed to only compensate NEOs at their existing target level of equity compensation. No additional transition grants were made in 2023.
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION COMPOSITION
Our compensation program has three key elements—a base salary, an annual cash incentive, and a long-term equity incentive (in the form of time-based RSAs and performance-based RSUs). The following charts illustrate the 2023 target percentage allocation between base salary, annual cash incentive, time-based RSAs, and performance-based RSUs for our Chief Executive Officer and the average of our other NEOs. Consistent with our compensation philosophy, approximately 83% of our Chief Executive Officer’s compensation was performance-based and/or at-risk and approximately 77% of the average compensation of our other NEOs was performance-based and/or at-risk.
|
|
|
The table below outlines the 2023 target composition of cash compensation and the annual equity-based award program for our NEOs.
|
Component |
|
Type |
|
Metrics and Key Drivers |
|
Base Salary |
|
Fixed Cash |
|
●
Fixed compensation necessary to attract and retain executive talent
|
|
|
|
|
|
●
Provides market-competitive pay reflective of an executive’s role, experience, and individual performance
|
|
Annual Cash Incentive |
|
Performance-Based Cash |
|
●
75% of bonus is based on achievement of Company objectives
|
|
|
|
|
|
●
25% of bonus is based on achievement of NEO’s individual objectives
|
|
Annual Long-Term Equity Incentive (Performance-Based) |
|
Performance-Based RSUs |
|
●
75% of annual equity award is comprised of performance-based RSUs that vest after a 3-year Performance Period based on the Company’s RSR versus the Index Relative Performance (as defined below). If the Company’s TSR is negative for the applicable Performance Period, the vesting percentage is reduced by 25%
|
|
Annual Long-Term Equity Incentive (Time-Based) |
|
Time-Based RSAs |
|
●
25% of annual equity award is comprised of time-based RSAs that vest annually over a 3-year period
|
2023 COMPENSATION DECISIONS
The Compensation Committee determines the compensation of our NEOs. It evaluates and implements appropriate policies and decisions relative to NEO salary, benefits, bonus, incentive compensation, severance, equity-based and other compensation plans.
As described in more detail below, the Compensation Committee determined fiscal year 2023 compensation for each of our NEOs based upon a review of the Company’s performance (including the Company’s stockholder returns), the individual performance of each NEO, total compensation paid by the Company to each NEO in prior years, and, in certain instances, taking into account certain peer group information.
Commencing with awards granted in 2022, the Compensation Committee transitioned the Company’s annual grant practices with respect to performance-based equity awards to a program granting performance-based awards tied to future performance, rather than the historical practice of granting time-based awards in amounts based on the
COMPENSATION DISCUSSION AND ANALYSIS
historical achievement of trailing three- and five- year RSR performance metrics. We believe that tying a majority of the NEOs’ compensation to future performance aligns more closely with our stockholders’ interests and priorities and provides a strong financial incentive for our NEOs to continue to maximize stockholder value. Annual equity awards granted in 2023 consist of performance-based RSUs (75% of award) (the “Annual Performance RSUs”) and time-based RSAs (25% of award) (the “Annual Time-Based RSAs” and, together with the Annual Performance RSUs, the “Annual Equity Awards”). Annual Performance RSUs are subject to vesting based on achievement of RSR metrics over the applicable three-year performance period.
Management’s Involvement in Compensation Decisions . The Compensation Committee exercises independent discretion and judgment in making compensation decisions after evaluating the Company’s performance, the NEO’s past performance (including the extent to which the NEO has met or exceeded specified targets or affected the Company’s performance), and the NEO’s long - term potential to enhance stockholder value. From time to time, the Compensation Committee will direct management to work with its consultant(s) in providing proposals, program design, and compensation recommendations. The Compensation Committee considers the CEO’s assessment of the Company and individual performance; however, the CEO does not provide recommendations for changes in his own compensation. Any proposed changes to CEO compensation, as well as final determinations regarding CEO compensation, are made in executive session of the Compensation Committee, without the CEO present.
Independent Consultant . FPC advises our Compensation Committee on compensation program design and the amounts payable to our NEOs. FPC provides our Compensation Committee with information on executive compensation trends, best practices, and advice for potential improvements to the executive compensation program. FPC does not work for management, receives no compensation from the Company other than fees for its work in advising our Compensation Committee, and maintains no other economic relationships with the Company.
Annual Base Salary . The Compensation Committee reviews base salaries annually, but base salaries are not automatically increased pursuant to pre-determined formulas (or otherwise) and may not be increased if, among other things, the Compensation Committee believes that other elements of compensation are more appropriate in light of the Company’s stated objectives or that increases are not appropriate for other reasons. Each NEO’s base salary serves as the base amount for determining annual cash bonuses and equity incentive award opportunities, which are calculated as percentages of such NEO’s base salary. The base salary payable to each of our NEOs is based on the review of the Compensation Committee described above and the following:
| ● | an assessment of the scope of the NEO’s responsibilities and leadership; |
| ● | the NEO’s expertise and experience within the industry; |
| ● | an assessment of competitive market data and peer group compensation; |
| ● | the Company’s overall financial and business performance; and |
| ● | the NEO’s contributions to the Company. |
The foregoing determination is not formulaic and is not based on specific Company or individual performance objectives, but rather, is subjective and based on our compensation philosophy and objectives described above. The following table includes the 2023 base salary determinations for each of our NEOs.
|
|
|
|
|
|
% Change From |
|
|
|
|
2023 Base |
|
2022 Base |
|
|
|
Name |
|
Salary |
|
Salary |
|
|
|
Bryan A. Giglia |
|
$ |
650,000 |
|
8.3 |
% |
|
Robert C. Springer |
|
$ |
575,000 |
|
4.5 |
% |
|
Aaron R. Reyes (1) |
|
$ |
400,000 |
|
23.1 |
% |
|
Christopher G. Ostapovicz |
|
$ |
425,000 |
|
6.3 |
% |
|
David M. Klein |
|
$ |
435,000 |
|
2.4 |
% |
COMPENSATION DISCUSSION AND ANALYSIS
| (1) | Mr. Reyes’s increase in base salary was the result of both his 2022 performance, as well as increased parity amongst his peers; although his base salary remains below the median of his compensation peer set. |
Annual Cash Incentive Bonuses and Annual Equity Incentive Awards . We use annual cash incentive bonuses, granted under our Incentive Bonus Plan, and annual equity incentive awards to further motivate our NEOs by establishing relationships between the bonuses and awards, on the one hand, and the performance of the NEO and/or the Company, including RSR (discussed below) on the other. We believe that tying our NEOs’ cash bonus and long-term equity compensation to quantitative metrics, aligns the interests of our NEOs with those of our stockholders and provides a strong financial incentive to maximize stockholder value.
The annual cash incentive bonus and equity incentive awards are intended to compensate our NEOs for achieving our annual financial objectives at both the corporate and hotel levels, for achieving TSR and RSR, for implementing long-term plans and strategies, and for achieving individual objectives. The annual cash incentive bonus and annual equity incentive award programs are based on performance and responsibility level rather than seniority, tenure, or other entitlement. The target annual incentive cash bonus and annual equity incentive award for each of our NEOs represent a significant percentage of such NEO’s overall compensation. Performance thresholds applicable to these awards are set at levels intended to provide the NEOs with a significant incentive to enhance stockholder value.
Each year, the Compensation Committee establishes performance-based criteria, both corporate and individual, for each NEO, and the level of achievement of those criteria determines the size of the annual cash incentive bonuses made to the NEO in the next calendar year. The Company grants annual performance-based equity incentive awards tied to future performance for our NEOs. Performance-based compensation is intended to encourage our NEOs to continually improve their capabilities to enhance performance and deliver positive business results. Annual equity incentive awards are also intended to encourage ownership, foster retention through post-grant vesting schedules, and align the NEOs’ interests with the long- term interests and priorities of our stockholders.
Annual Cash Incentive Bonus. In the first quarter of 2023, the Compensation Committee established quantitative and qualitative performance measures for the annual cash incentive bonuses for the NEOs. Each NEO’s annual cash incentive bonus was based on the achievement of the corporate objectives (discussed below) and the achievement of each NEO’s individual objectives (discussed below) weighted at 75% for achievement of Company objectives and 25% for achievement of each NEO’s individual objectives.
The relative weighting of the annual cash incentive bonus objectives and each NEO’s individual objectives are established by the Compensation Committee and reflect its analysis of the appropriate amount of emphasis to place on both corporate and individual objectives, and not any pre-determined formula or methodology. The Compensation Committee may, at its discretion, adjust criteria to account for significant intra-year transactions and circumstances. The potential annual cash incentive payouts for 2023 are set forth in the table below.
|
|
2023 Annual Cash Incentive Potential Payouts |
||||||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
|
Annual |
|
|
|
|
|
Annual |
|
|
|
|
|
Annual |
|
|
|
|
|
|
Base |
|
|
|
|
|
Base |
|
|
|
|
|
Base |
|
|
Name |
Threshold |
|
Salary |
|
|
Target |
|
Salary |
|
|
Maximum |
|
Salary |
|
|||
|
Bryan A. Giglia |
$ |
438,750 |
|
67.5 |
% |
|
$ |
877,500 |
|
135.0 |
% |
|
$ |
1,316,250 |
|
202.5 |
% |
|
Robert C. Springer |
$ |
388,125 |
|
67.5 |
% |
|
$ |
776,250 |
|
135.0 |
% |
|
$ |
1,164,375 |
|
202.5 |
% |
|
Aaron R. Reyes |
$ |
200,000 |
|
50.0 |
% |
|
$ |
400,000 |
|
100.0 |
% |
|
$ |
600,000 |
|
150.0 |
% |
|
Christopher G. Ostapovicz |
$ |
212,500 |
|
50.0 |
% |
|
$ |
425,000 |
|
100.0 |
% |
|
$ |
637,500 |
|
150.0 |
% |
|
David M. Klein |
$ |
217,500 |
|
50.0 |
% |
|
$ |
435,000 |
|
100.0 |
% |
|
$ |
652,500 |
|
150.0 |
% |
The Committee selected four portfolio and operational metrics for the 2023 Annual Cash Incentive Bonus which are discussed in detail below.
Annual Cash Incentive Bonus Objectives . The Compensation Committee determined that the amount of the cash bonus paid to each NEO would be based on the achievement of both: (i) the following four Company objectives (the “Cash Incentive Bonus Objectives”), weighted as described below at Threshold, Target and Maximum, and (ii) individual objectives:
|
2024 Proxy Statement |
43 |
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
Objective Weight |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Target of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash |
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
Objective |
|
Incentive Bonus |
|
|
Threshold |
|
Target |
|
Maximum |
|
Performance |
||||
|
Objective #1:
|
|
15.0 |
% |
|
$ |
0.85 |
|
$ |
0.94 |
|
$ |
1.03 |
|
$ |
0.95 |
|
Objective #2:
|
|
26.2 |
% |
|
|
1.0 |
|
|
3.0 |
|
|
5.0 |
|
|
3.00 |
|
Objective #3:
|
|
18.8 |
% |
|
|
1.0 |
|
|
3.0 |
|
|
5.0 |
|
|
3.50 |
|
Objective #4:
|
|
15.0 |
% |
|
|
1.0 |
|
|
3.0 |
|
|
5.0 |
|
|
3.50 |
|
Individual Objectives (1) |
|
25.0 |
% |
|
|
1.0 |
|
|
3.0 |
|
|
5.0 |
|
|
3.13 to 3.86 |
| (1) | Performance for these objectives is determined based on a five-point scale with an achievement of one at threshold, three at target and five at maximum, as determined by our Compensation Committee. |
For the Company’s Cash Incentive Bonus Objectives, the Compensation Committee established three achievement levels—“Threshold,” “Target” and “Maximum,” and for each achievement level, a corresponding multiple of base salary for each NEO. For each of the components, the amount paid to the applicable NEO was the product of (a) his base salary, (b) the weighting for that component, (c) the multiple corresponding to the level of achievement and (d) the Compensation Committee’s subjective assessment as to whether the NEO’s performance warranted an increase or decrease.
Each of the Cash Incentive Bonus Objectives is further discussed below. The Cash Incentive Bonus Objectives consist of both quantitative and qualitative measures designed to advance the Company’s strategic objectives. The Compensation Committee has set Target performance requirements for these objectives at a challenging level with achievement above Target requiring exceptional performance.
Objective Number 1 – Adjusted Funds From Operations Attributable to Common Stockholder Per Share (“AFFO”) . The primary objective of the AFFO per share component was to measure management’s ability to oversee the financial performance of the Company. We compute the AFFO per share component by adjusting Funds From Operations (“FFO”), which we calculate in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), for certain noncash or nonrecurring items. AFFO is then divided by our weighted average number of common shares outstanding, adjusted for the assumed issuance of all potentially dilutive shares, for the year ended December 31, 2023. For more information on this metric, refer to “ Non-GAAP Financial Measures ” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023. This component comprises 15% of the total Cash Incentive Bonus and 20% of the total Company Incentive Bonus.
Objective Number 2 – Capital Recycling . The primary objective of the Capital Recycling component was to measure management’s ability to meet its business objectives through: (i) the disposition of hotels that do not meet the Company’s long-term investment criteria or present a strategic or opportunistic outcome, (ii) the acquisition of and/or redeployment of sale proceeds in hotels that meet the Company’s portfolio and return requirements, and (iii) the repurchase of the Company’s common stock below net asset value. Capital recycling is also compared to the capital recycling activity of the Hotel REIT Peer Group (as described below). This component comprises 26.2% of the total Cash Incentive Bonus and 35% of the total Company Incentive Bonus.
Objective Number 3 – Capital Investment / Rebranding . The primary objective of the Capital Investment/Rebranding component was to measure management’s ability to meet its business objective of completing the 2023 capital plan, including but not limited to the conversion of The Westin Washington, DC Downtown, the positioning of the Renaissance Long Beach for conversion to Marriott Long Beach Downtown in 2024, the achievement of all 2023 construction milestones for the Andaz Miami Beach conversion, and the successful completion of other 2023 investment projects. An additional element was to identify future value creation opportunities throughout the portfolio. This component comprises 18.8% of the total Cash Incentive Bonus and 25% of the total Company Incentive Bonus.
|
44 |
Sunstone Hotel Investors |
COMPENSATION DISCUSSION AND ANALYSIS
Objective Number 4 – Asset Management . The primary objective of the Asset Management component was to measure management’s ability to meet its business objective of achieving portfolio profitability through active asset management, including increasing food and beverage profitability as compared to 2021, selecting and negotiating terms with a food and beverage operator for the specialty outlets at the Andaz Miami Beach, transitioning the Renaissance Washington DC to The Westin Washington, DC Downtown, and positioning the Renaissance Long Beach for conversion to the Marriott Long Beach Downtown in 2024. Additional elements included achieving certain targets for group room nights, food and beverage costs, resort and destination fees, and portfolio profitability. This component comprises 15% of the total Cash Incentive Bonus and 20% of the total Company Incentive Bonus.
Individual Objectives . The primary objective of this component was to drive individual performance and to ensure accountability with respect to individual performance throughout the calendar year. Each of the NEO’s individualized objectives for 2023 is summarized below:
| ● | Mr. Giglia’s objectives included achievement of certain corporate, ESG initiatives, financial, strategic and operational objectives, including the overall execution of the Company’s business plan, transitioning CFO responsibilities to our new CFO, and effectively recycling capital into future growth opportunities. |
Specific accomplishments included: (i) guided the Company’s execution of its annual business plan and advancement of its capital recycling initiatives, including the sale of the Boston Park Plaza; conversion of The Westin Washington, DC Downtown; and successfully meeting renovation and repositioning milestones, (ii) oversaw the Company’s capital markets and refinancing activities, (iii) provided guidance on return of capital to stockholders including share repurchases and dividend increases, (iv) led the Company’s ESG program and further advanced diversity, equity and inclusion at the Company and our hotels, and (v) continued to lead and support employee and NEO development.
| ● | Mr. Springer’s objectives included implementing the Company’s portfolio management objectives, including enhancing the Company’s portfolio quality through acquisitions and dispositions, evaluating third-party manager changes, assessing ESG initiative opportunities for acquisition targets, and evaluating alternative uses of owned real estate. |
Specific accomplishments included: (i) executed the Company’s annual business plan and advancement of its capital recycling initiatives, including the sale of the Boston Park Plaza, (ii) led the acquisition and disposition activity and expanded relationships to facilitate and increase directly sourced transactions, (iii) aligned investments and asset management to increase effectiveness of identifying and implementing internal value add opportunities, (iv) improved the integration of the Company’s ESG initiatives in the acquisition underwriting and evaluation process, and (v) supported the development of the acquisition team.
| ● | Mr. Reyes’s objectives included managing the Company’s leverage levels, preparing for upcoming debt maturities, addressing covenant waivers as needed, directing the accounting and tax functions, and overseeing the Company’s ESG initiatives. |
Specific accomplishments included: (i) directed the Company’s finance function providing liquidity to facilitate capital recycling initiatives, (ii) successfully repaid the maturing $220 million mortgage on the Hilton San Diego Bayfront with a new $225 million unsecured term loan, (iii) executed the Company’s share repurchase activity, repurchasing $56 million of common stock, (iv) oversaw and led the Company’s accounting, tax and information technology functions, (v) refined and expanded the Company’s investor outreach program, (vi) identified and planned an upgrade to the Company’s accounting and reporting systems, and (vii) oversaw the implementation of the Company’s ESG program.
| ● | Mr. Ostapovicz’s objectives included updating and executing the plans to maximize the profitability and long-term value of each hotel through oversight of operations, identifying future investment opportunities at our hotels, facilitating the execution and operational implementation of value-enhancing renovations, and implementing ESG initiatives at the hotel properties. |
Specific accomplishments included: (i) transitioned the Renaissance Washington DC to The Westin Washington, DC Downtown, (ii) initiated the Renaissance Long Beach conversion to the Marriott Long Beach Downtown to be completed in 2024, (iii) secured agreements for the management and licensing of
|
2024 Proxy Statement |
45 |
COMPENSATION DISCUSSION AND ANALYSIS
primary food and beverage outlets at the Andaz Miami Beach, and (iv) executed property-level initiatives focused on increasing revenues, decreasing costs, and improving labor productivity.
| ● | Mr. Klein’s objectives included managing the legal process for all transactions, overseeing legal proceedings and regulatory filings, advising on labor matters, assessing and advising on the Company’s corporate governance and risk management policies, and overseeing the Company’s ESG initiatives. |
Specific accomplishments included: (i) led all legal functions associated with the disposition of the Boston Park Plaza, (ii) resolved and secured the release of remaining pension fund liability held in escrow related to previously disposed hotels, (iii) secured favorable trial court ruling resulting in $10 million settlement payout of COVID-related insurance claims, (iv) negotiated and finalized agreements for the management and licensing of primary food and beverage outlets at the Andaz Miami Beach, and (v) oversaw the implementation of the Company’s ESG program.
To determine the cash incentive bonus payable to each NEO, in February 2024, the Compensation Committee reviewed and assessed the performance of the Company and each NEO and compared such performance to the Company and individual objectives established in 2023, subject to the Compensation Committee’s subjective assessment as to whether the NEO’s performance warranted an increase or decrease. The CEO provided recommendations to the Compensation Committee for each NEO’s individual performance. The Compensation Committee did not adjust the performance measures established for fiscal year 2023.
The following table summarizes all of the components of the Cash Incentive Bonus Objectives with respect to fiscal year 2023, paid in February 2024 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein (dollar values rounded to the nearest whole dollar). For Messrs. Giglia and Springer, the cash bonus reflects the product of base salary multiplied by the weighting of each objective and the interpolated achieved objective multiplier (Threshold – 67.5%; Target – 135.0%; Maximum – 202.5%). For Messrs. Reyes, Ostapovicz, and Klein, the cash bonus reflects the product of base salary multiplied by the weighting of each objective and the interpolated achieved objective multiplier (Threshold – 50.0%; Target – 100.0%; Maximum – 150.0%).
|
|
|
Bryan A. |
|
Robert C. |
|
Aaron R. |
|
Christopher G. |
|
David M. |
||||||
|
Objective |
|
Giglia |
|
Springer |
|
Reyes |
|
Ostapovicz |
|
Klein |
||||||
|
Objective #1:
|
|
$ |
138,938 |
|
$ |
122,906 |
|
$ |
63,333 |
|
$ |
67,292 |
|
$ |
68,875 |
|
|
Objective #2:
|
|
|
230,344 |
|
|
203,766 |
|
|
105,000 |
|
|
111,563 |
|
|
114,188 |
|
|
Objective #3: Investment / Rebranding |
|
|
185,098 |
|
|
163,740 |
|
|
84,375 |
|
|
89,648 |
|
|
91,758 |
|
|
Objective #4: Asset Management |
|
|
148,078 |
|
|
130,992 |
|
|
67,500 |
|
|
71,719 |
|
|
73,406 |
|
|
Individual Objectives |
|
|
242,227 |
|
|
214,277 |
|
|
121,429 |
|
|
109,570 |
|
|
112,148 |
|
|
Total Cash Incentive Bonus |
|
$ |
944,684 |
|
$ |
835,682 |
|
$ |
441,637 |
|
$ |
449,792 |
|
$ |
460,375 |
|
|
46 |
Sunstone Hotel Investors |
COMPENSATION DISCUSSION AND ANALYSIS
Annual Equity Incentive Awards. In February 2023, Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein were each granted Annual Performance RSUs and Annual Time-Based RSAs. Seventy-five percent of each NEO’s annual award was in the form of Annual Performance RSUs and 25% was in the form of Annual Time-Based RSAs. A summary of the key plan features is provided in the table below.
|
Alignment with Stockholders |
|
Target to Outperform |
|
Absolute TSR Cap |
|
Majority of annual equity award (75%) tied to performance and 100% of such award is based on RSR versus the defined performance peer group |
To earn target payout, SHO must achieve an RSR at or above 55% of the peers |
In the event the Company TSR is negative for the applicable Performance Period, Performance RSU awards will be reduced by 25% |
|
|
|
|
|
|
|
RSR vs FTSE Nareit Lodging/Resorts Index |
|
|||
|
|
|
|
|
|
|
(over $500 Million Market Cap) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSR Vesting |
|
|
Index Relative |
|
|
|
|
|
|
|
|
Percentage* |
|
|
Performance Hurdles |
|
|
75% |
|
|
|
Performance |
|
Below Threshold (0%) |
|
|
30 th Percentile |
|
|
|
|
|
|
RSUs |
|
Threshold (50%) |
|
|
30 th Percentile |
|
|
|
|
|
|
|
|
Target (100%) |
|
|
55 th Percentile |
|
|
|
|
|
|
|
|
Maximum (200%) |
|
|
≥ 80 th Percentile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VEST AT THE END OF THE 3-YEAR
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
25% |
|
|
|
Time-Based RSAs |
|
VEST ANNUALLY OVER A 3-YEAR PERIOD |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* In the event of negative Company TSR for the applicable Performance Period, the percentage of Performance RSU Awards that vest will be reduced by 25%. |
|
|||||
Performance RSUs Awards.
General. Pursuant to the Annual Performance RSU awards, the NEOs are eligible to vest in a number of RSUs ranging from 0% to 200% of the Target number of RSUs granted, based on the Company’s RSR during the applicable performance period, subject to the applicable NEO’s continued service with the Company.
Performance Vesting. The Annual Performance RSU awards vest based on the Company’s annualized TSR performance (the “Company TSR”) during a three-year performance period, commencing on January 1, 2023 (the “Performance Period”), as compared to the annualized TSR percentages of the companies included on the FTSE Nareit Lodging/Resort Index that have a minimum equity market capitalization of $500,000,000 (the “Index Relative Performance”). In the event the Index Relative Performance is achieved at the “Threshold,” “Target” or “Maximum” level as specified in the applicable award agreement, the award will become vested with respect to the percentage of RSUs as set forth in the chart above.
If the Index Relative Performance falls between the levels specified as Threshold and Target or between the levels specified as Target and Maximum, the percentage of RSUs subject to the Annual Performance RSU Awards that will vest will be determined using straight-line linear interpolation between such levels.
Notwithstanding the foregoing, if Company TSR is negative for the Performance Period, the percentage of RSUs subject to the Annual Performance RSU Awards that vest will be reduced by 25%.
|
2024 Proxy Statement |
47 |
COMPENSATION DISCUSSION AND ANALYSIS
The table below sets forth the Target dollar denominated value and number of shares subject to the Annual Performance RSUs awarded to each NEO in February 2023.
|
|
|
Annual Performance RSUs (Target) |
|||
|
Name |
|
|
Grant Amount |
|
Number of Shares(1) |
|
Bryan A. Giglia |
|
$ |
1,668,750 |
|
161,544 |
|
Robert C. Springer |
|
$ |
1,312,500 |
|
127,057 |
|
Aaron R. Reyes |
|
$ |
600,000 |
|
58,083 |
|
Christopher G. Ostapovicz |
|
$ |
637,500 |
|
61,713 |
|
David M. Klein |
|
$ |
570,000 |
|
55,179 |
| (1) | To determine the number of RSUs granted to each NEO, the applicable total dollar amount was divided by the average closing price of the Company’s stock over the 20 consecutive trading days ending three trading days prior to the grant date, rounded to the nearest whole share. |
Time-Based RSA Awards .
The Annual Time-Based RSAs will vest in three equal annual installments over a three-year period on February 15 th of each year following the date of grant, subject to the applicable NEO’s continued service through each applicable vesting date.
The table below sets forth the dollar denominated value and number of shares subject to the Annual Time-Based RSAs granted to the NEOs in February 2023.
|
|
|
Annual Time-Based RSAs |
|||
|
Name |
|
|
Grant Amount |
|
Number of Shares(1) |
|
Bryan A. Giglia |
|
$ |
556,250 |
|
53,848 |
|
Robert C. Springer |
|
$ |
437,500 |
|
42,352 |
|
Aaron R. Reyes |
|
$ |
200,000 |
|
19,361 |
|
Christopher G. Ostapovicz |
|
$ |
212,500 |
|
20,571 |
|
David M. Klein |
|
$ |
190,000 |
|
18,393 |
| (1) | To determine the number of RSAs granted to each NEO, the applicable total dollar amount was divided by the average closing price of the Company’s stock over the 20 consecutive trading days ending three trading days prior to the grant date, rounded to the nearest whole share. |
Dividend Equivalents. The Annual Performance RSU Awards were granted in tandem with a corresponding dividend equivalent. Each dividend equivalent entitles the NEO to receive payments equal to the amount of the dividends paid on the share of common stock underlying the RSU to which the dividend equivalent relates. Any dividend equivalent payments that would have been made prior to the date on which the RSU becomes a vested or an earned RSU (plus or minus the amount of gain or loss on such amounts had they been reinvested in common stock on the date that they were paid) will be paid within 45 days following the date on which the RSU becomes a vested or an earned RSU. Upon the NEO’s termination of service for any reason, the NEO will not be entitled to any dividend equivalent payments with respect to any RSUs that do not become vested or an earned RSU.
Benefits and Perquisites . Our benefit programs are based on an assessment of competitive market factors, and a determination of what is needed to attract and retain qualified executives. Our primary benefits for executives include participation in our broad-based plans at the same cost and on the same terms as other employees. These plans include a tax qualified 401(k) savings plan (with safe harbor contributions equal to 3% of a participant’s pay up to $9,900), additional Company 401(k) contributions, health, dental and vision insurance plans, term life insurance and disability coverage and a matching charitable gift program up to a maximum of $5,000 for each employee. In addition, each of our NEOs receive a maximum reimbursement credit of $5,000 for room and tax expenditures at the Company’s hotels and resorts.
The Company does not provide non – qualified deferred compensation or pension benefits to any of its employees, including its NEOs.
|
48 |
Sunstone Hotel Investors |
COMPENSATION DISCUSSION AND ANALYSIS
Performance RSU Awards Vesting. In February 2022, Messrs. Giglia, Springer, Ostapovicz, and Klein were each granted Transition Performance RSUs which vested based on the Company’s TSR during the performance period commencing January 1, 2022 and ending on December 31, 2023 (the “Transition Performance Period”), as compared to the Index Relative Performance. If the Index Relative Performance falls between the levels specified as Threshold and Target or between the levels specified as Target and Maximum, the percentage of RSUs subject to the Performance RSU Awards that will vest will be determined using straight-line linear interpolation between such levels. Notwithstanding the foregoing, if Company TSR is negative for the Performance Period, the percentage of RSUs subject to the Performance RSU Awards that vest will be reduced by 25%.
|
Performance-Based RSU Award Status through December 31, 2023 |
|||||
|
Performance Period |
|
2022 |
2023 |
2024 |
2025 |
|
2022 - 2023 2-Year Transition Performance-Based RSUs |
|
100%
|
|
|
|
|
2022 - 2024 3-Year Annual Performance-Based RSUs |
|
|
66%
|
|
|
|
2023 - 2025 3-Year Annual Performance-Based RSUs |
|
|
|
33%
|
|
| (1) | Our Company TSR versus the Index Relative Performance during the Transition Performance Period was between threshold and target, at the 52nd percentile, but our Company TSR was negative (-3.9%), which resulted in the vesting of 70.5% of the target Transition Performance RSUs, rather than 94% of the target Transition Performance RSUs that would have otherwise vested. |
The following table represents the 2022 Transition Performance RSUs original number of shares granted at Target as well as the actual number of RSUs earned based on the results identified in the chart above.
|
|
|
Shares Subject to |
||
|
|
|
Transition Performance RSUs |
||
|
Name |
|
Granted (Target) |
|
Earned |
|
Bryan A. Giglia |
|
56,095 |
|
39,547 |
|
Robert C. Springer |
|
47,482 |
|
33,475 |
|
Christopher G. Ostapovicz |
|
35,336 |
|
24,912 |
|
David M. Klein |
|
30,919 |
|
21,798 |
|
2024 Proxy Statement |
49 |
COMPENSATION DISCUSSION AND ANALYSIS
Peer Group Information. The Compensation Committee uses comparison data from various companies in certain peer groups as a guide in its review and determination of base salaries, annual cash bonuses and annual equity incentive awards for its NEOs. During 2023, the Compensation Committee reviewed peer group data provided by its independent compensation consultant, FPC, in the 2022 FPC Executive Compensation Report, to assist and make informed decisions in its determination regarding 2023 compensation for our NEOs. The Compensation Committee evaluates the Company’s performance and determines whether the compensation elements and levels that we provide to our NEOs are generally appropriate relative to the compensation elements and levels provided to their counterparts at our peer companies, based on our performance relative to our peers and in light of each NEO’s contribution to our performance.
2022 FPC Executive Compensation Report . In 2023, the Compensation Committee, based on the information provided by the 2022 FPC Executive Compensation Report, determined and monitored the composition of our peer groups. The peer groups selected and used by the Compensation Committee were all public real estate companies in 2022 and were divided into two groups: hotel REIT peers and size/geographic peers. Each peer group is discussed and identified below:
| ● | Hotel REIT Peer Group. This peer group consisted of 10 public hospitality REITs that the Company and FPC consider to be the most relevant peer group against which to review compensation for NEOs, as they are all lodging-focused, self-managed REITs. This peer group, as of September 30, 2022, had total capitalization ranging from approximately $1.9 billion to $16.5 billion compared to the Company’s consolidated total capitalization of $3.1 billion. |
| ● | Size/Geographic - Based Peer Group. This peer group consisted of 12 public real estate companies, three of which have corporate headquarters located within the state of California. This peer group focuses on a variety of asset classes, but the companies were viewed by FPC as comparable given a combination of business focus, size and geography. This peer group, as of September 30, 2022, had total capitalization ranging from approximately $2.1 billion to $7.3 billion compared to the Company’s consolidated total capitalization of $3.1 billion. |
|
Hotel REIT Peer Group |
|
Size/Geographic - Based Peer Group |
|
Apple Hospitality REIT, Inc. |
|
Acadia Realty Trust |
|
DiamondRock Hospitality Company |
|
Apple Hospitality REIT, Inc. |
|
Hersha Hospitality Trust |
|
Brandywine Realty Trust |
|
Host Hotels Resorts, Inc. |
|
Choice Hotels International, Inc. |
|
Park Hotels Resorts, Inc. |
|
Easterly Government Properties, Inc. |
|
Pebblebrook Hotel Trust |
|
Elme Communities |
|
RLJ Lodging Trust |
|
Hudson Pacific Properties, Inc. |
|
Ryman Hospitality Properties, Inc. |
|
LXP Industrial Trust |
|
Summit Hotel Properties, Inc. |
|
Retail Opportunity Investments Corp. |
|
Xenia Hotels Resorts, Inc. |
|
Ryman Hospitality Properties, Inc. |
|
|
Sabra Health Care REIT, Inc. |
|
|
|
|
Summit Hotel Properties, Inc. |
|
50 |
Sunstone Hotel Investors |
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The following is a report by the Company’s Compensation Committee regarding the Company’s executive officer compensation program.
The Compensation Committee of the Board of Directors of Sunstone Hotel Investors, Inc. (the “Company”) has reviewed and discussed the Compensation Discussion and Analysis (“CDA”) contained in the proxy statement of the Company for the 2024 annual meeting of stockholders with management of the Company. Based on the Compensation Committee’s review of the CDA and the Compensation Committee’s discussions of the CDA with management, the Compensation Committee recommended to the Board of Directors (and the Board of Directors has approved) that the CDA be included in the Company’s proxy statement on Schedule 14A prepared in connection with the annual meeting.
COMPENSATION COMMITTEE:
Monica S. Digilio, Chair
W. Blake Baird
Andrew Batinovich
Kristina M. Leslie
March 20, 2024
EXECUTIVE COMPENSATION
The Summary Compensation Table (“SCT”) below shows compensation information about our principal executive officer (“PEO”) (Mr. Giglia), our principal financial officer (Mr. Reyes) and the three other most highly compensated officers (Messrs. Springer, Ostapovicz, and Klein) as of December 31, 2023. In February 2024, Mr. Reyes was promoted to Executive Vice President – Chief Financial Officer.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
Incentive Plan |
|
All Other |
|
|
|
Principal |
|
|
|
Salary |
|
Stock |
|
Compensation |
|
Compensation |
|
|
|
Position |
|
Year |
|
($) (1) |
|
Awards ($) (2) |
|
($) (3) |
|
($) (4) |
|
Total ($) |
|
Bryan A. Giglia |
|
2023 |
|
650,000 |
|
2,365,543 |
|
944,684 |
|
105,269 |
|
4,065,496 |
|
CEO |
|
2022 |
|
591,346 |
|
3,616,381 |
|
1,085,906 |
|
66,698 |
|
5,360,331 |
|
|
|
2021 |
|
520,200 |
|
1,242,307 |
|
169,065 |
|
46,046 |
|
1,977,618 |
|
Robert C. Springer |
|
2023 |
|
575,000 |
|
1,860,534 |
|
835,682 |
|
101,280 |
|
3,372,496 |
|
President - CIO |
|
2022 |
|
541,346 |
|
3,257,976 |
|
995,414 |
|
60,346 |
|
4,855,082 |
|
|
|
2021 |
|
441,660 |
|
1,054,743 |
|
143,540 |
|
43,250 |
|
1,683,193 |
|
Aaron R. Reyes |
|
2023 |
|
400,000 |
|
850,529 |
|
441,637 |
|
55,992 |
|
1,748,158 |
|
SVP - CFO |
|
2022 |
|
320,673 |
|
332,833 |
|
438,750 |
|
46,469 |
|
1,138,725 |
|
Christopher G. Ostapovicz |
|
2023 |
|
425,000 |
|
903,684 |
|
449,792 |
|
72,315 |
|
1,850,791 |
|
EVP - COO |
|
2022 |
|
400,000 |
|
1,470,331 |
|
533,750 |
|
56,831 |
|
2,460,912 |
|
|
|
2021 |
|
310,096 |
|
1,351,982 |
|
108,750 |
|
44,158 |
|
1,814,986 |
|
David M. Klein |
|
2023 |
|
435,000 |
|
808,005 |
|
460,375 |
|
71,604 |
|
1,774,984 |
|
EVP - General |
|
2022 |
|
425,000 |
|
1,286,522 |
|
572,422 |
|
53,408 |
|
2,337,352 |
|
Counsel |
|
2021 |
|
361,080 |
|
785,650 |
|
104,713 |
|
44,190 |
|
1,295,633 |
| (1) | Amounts represent base salary earned by our NEOs for the applicable year. |
| (2) | For 2023, amounts in this column represent the grant date fair value of (i) the Annual Time-Based RSAs and (ii) the Annual Performance RSUs, in each case, granted to the NEO in February 2023. Amounts in each case have been computed as prescribed by Accounting Standards Codification Topic 718, Compensation—Stock Compensation (referred to as “ASC Topic 718”). The grant date fair values shown for the 2023 Annual Performance RSUs were calculated in accordance with ASC Topic 718 using a Monte Carlo simulation valuation model. Because the Performance RSU awards are earned based solely on market conditions (relative and absolute TSR performance), the value of the Performance RSU awards assuming maximum performance is not presented in this footnote. For more information, including the assumptions used to calculate such values, please see Note 12 (“ Incentive Award Plan ”) to our audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023. |
| a. | The table below sets forth the grant date fair value for the 2023 Annual Time-Based RSAs and the 2023 Annual Performance RSUs. |
|
|
|
Grant Date Fair Value ($) |
||
|
Name |
|
Time-Based RSAs |
|
Performance RSUs |
|
Bryan A. Giglia |
|
577,251 |
|
1,788,292 |
|
Robert C. Springer |
|
454,013 |
|
1,406,521 |
|
Aaron R. Reyes |
|
207,550 |
|
642,979 |
|
Christopher G. Ostapovicz |
|
220,521 |
|
683,163 |
|
David M. Klein |
|
197,173 |
|
610,832 |
| (3) | The amounts in this column represent the annual cash incentive bonus earned for the fiscal year and paid in the first fiscal quarter of the following year. |
EXECUTIVE COMPENSATION
| (4) | “All Other Compensation” includes the following amounts for fiscal year 2023: |
|
|
|
|
|
Dividends Paid |
|
|
|
|
|
|
|
|
|
Company |
|
on Awarded |
|
Employer |
|
Company |
|
|
|
|
|
Contributions |
|
but Unvested |
|
Matching |
|
Hotel |
|
|
|
|
|
to 401(k) |
|
Stock |
|
Charitable |
|
Reimbursement |
|
|
|
Name |
|
Plan ($) |
|
Awards($) |
|
Contributions ($) |
|
Credit ($) |
|
Total ($) |
|
Bryan A. Giglia |
|
43,500 |
|
55,303 |
|
5,000 |
|
1,466 |
|
105,269 |
|
Robert C. Springer |
|
43,500 |
|
48,280 |
|
4,500 |
|
5,000 |
|
101,280 |
|
Aaron R. Reyes |
|
43,500 |
|
10,335 |
|
— |
|
2,157 |
|
55,992 |
|
Christopher G. Ostapovicz |
|
43,500 |
|
21,773 |
|
5,000 |
|
2,042 |
|
72,315 |
|
David M. Klein |
|
43,500 |
|
22,503 |
|
5,000 |
|
601 |
|
71,604 |
2023 GRANTS OF PLAN-BASED AWARDS
The following table sets forth the information with respect to plan – based awards granted to the NEOs in 2023.
2023 GRANTS OF PLAN-BASED AWARDS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Grant Date |
|
|
|
|
|
Estimated Future Payouts |
|
Estimated Future Payouts |
|
Number of |
|
Fair Value |
||||||||
|
|
|
|
|
Under Non-Equity |
|
Under Equity |
|
Shares of |
|
of Stock |
||||||||
|
|
|
|
|
Incentive Plan Awards (1) |
|
Incentive Plan Awards (2) |
|
Stock or |
|
and Option |
||||||||
|
|
|
Grant |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
Units |
|
Awards |
|
Name |
|
Date |
|
($) |
|
($) |
|
($) |
|
(#) |
|
(#) |
|
(#) |
|
(#) (3) |
|
($) (4) |
|
Bryan A. Giglia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
RSA |
|
2/9/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
53,848 |
|
577,251 |
|
RSU |
|
2/9/2023 |
|
|
|
|
|
|
|
80,772 |
|
161,544 |
|
323,088 |
|
|
|
1,788,292 |
|
Annual Cash Bonus |
|
n/a |
|
438,750 |
|
877,500 |
|
1,316,250 |
|
|
|
|
|
|
|
|
|
|
|
Robert C. Springer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
RSA |
|
2/9/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
42,352 |
|
454,013 |
|
RSU |
|
2/9/2023 |
|
|
|
|
|
|
|
63,529 |
|
127,057 |
|
254,114 |
|
|
|
1,406,521 |
|
Annual Cash Bonus |
|
n/a |
|
388,125 |
|
776,250 |
|
1,164,375 |
|
|
|
|
|
|
|
|
|
|
|
Aaron R. Reyes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
RSA |
|
2/9/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,361 |
|
207,550 |
|
RSU |
|
2/9/2023 |
|
|
|
|
|
|
|
29,042 |
|
58,083 |
|
116,166 |
|
|
|
642,979 |
|
Annual Cash Bonus |
|
n/a |
|
200,000 |
|
400,000 |
|
600,000 |
|
|
|
|
|
|
|
|
|
|
|
Christopher G. Ostapovicz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
RSA |
|
2/9/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20,571 |
|
220,521 |
|
RSU |
|
2/9/2023 |
|
|
|
|
|
|
|
30,857 |
|
61,713 |
|
123,426 |
|
|
|
683,163 |
|
Annual Cash Bonus |
|
n/a |
|
212,500 |
|
425,000 |
|
637,500 |
|
|
|
|
|
|
|
|
|
|
|
David M. Klein |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
RSA |
|
2/9/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
18,393 |
|
197,173 |
|
RSU |
|
2/9/2023 |
|
|
|
|
|
|
|
27,590 |
|
55,179 |
|
110,358 |
|
|
|
610,832 |
|
Annual Cash Bonus |
|
n/a |
|
217,500 |
|
435,000 |
|
652,500 |
|
|
|
|
|
|
|
|
|
|
| (1) | We pay a cash incentive bonus for performance under our Incentive Bonus Plan in February following the performance year if the performance criteria related to the Cash Incentive Bonus Objectives have been satisfied in the performance year. The actual amounts of the fiscal year 2023 performance cash incentive bonus are shown in the SCT in the “Non – Equity Incentive Plan Compensation” column. The Threshold, Target, and Maximum award opportunities shown under this heading are for 2023 performance. For our NEOs, the amounts are a multiple of each NEO’s base salary in 2023. See “ Compensation Discussion and Analysis—2023 Compensation Decisions (Annual Cash Incentive Bonuses and Annual Equity Incentive Awards) ” for a detailed description of the annual cash incentive bonuses. |
| (2) | The amounts reported in the Estimated Future Payouts Under Equity Incentive Plan Awards column represent the possible number of Annual Performance RSUs that may vest based upon the level of achievement of the applicable performance measures. These estimated possible payouts for each NEO do not include dividend equivalent units that may vest, if at all, following the end of the performance period. The Annual Performance RSUs have a three-year performance period and vest based on the Company’s TSR compared to Index Relative Performance. Threshold assumes that 50% of the RSUs awarded vest, Target assumes that 100% of the RSUs awarded vest, and Maximum assumes that 200% of the RSUs awarded vest. See “ Compensation Discussion and Analysis—2023 Compensation Decisions (Annual Cash Incentive Bonuses and Annual Equity Incentive Awards) ” for a detailed description of the Annual Performance RSUs. |
| (3) | The amounts in this column represent the number of time-based RSAs granted to the NEOs in 2023. See “ Compensation Discussion and Analysis—2023 Compensation Decisions (Annual Cash Incentive Bonuses and Annual Equity Incentive Awards) ” for a detailed description of the Annual Time-Based RSAs. |
|
54 |
Sunstone Hotel Investors |
2023 GRANTS OF PLAN-BASED AWARDS
| (4) | The grant date fair value for each of the time-based RSAs equals the number of time-based RSAs multiplied by the closing common stock price on the NYSE on the applicable grant date as reported in the table above, computed in accordance with ASC Topic 718. The amount shown for grant date fair value for each of the Annual Performance RSUs is calculated using a Monte Carlo simulation valuation model in accordance with ASC Topic 718. For more information, including the assumptions used to calculate such values, please see Note 12 (“ Incentive Award Plan ”) to our audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023. |
EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENTS (GIGLIA, SPRINGER, REYES, OSTAPOVICZ, AND KLEIN)
On August 29, 2022, we entered into amended and restated employment agreements with Messrs. Giglia, Springer, Ostapovicz, and Klein in order to reflect each NEO’s updated executive officer position and compensation (collectively, the “Amended and Restated Employment Agreements”). On August 29, 2022, we also entered into an employment agreement with Mr. Reyes (together with the Amended and Restated Employment Agreements, the “Employment Agreements”). A summary of the material terms of each Employment Agreement is below.
Each of the Employment Agreements will continue until terminated in accordance with its terms. Each of the Employment Agreements provides for an annual base salary, eligibility to earn an annual cash incentive bonus, eligibility to receive an annual equity award, and certain severance payments and benefits, each as described more fully below. In addition, each of the NEOs will be eligible to participate in welfare and fringe benefit plans, incentive plans and savings/retirement plans generally available to senior executives of the Company.
The Employment Agreements provide for the following initial annual base salaries: $600,000 for Mr. Giglia ($650,000 in 2023), $550,000 for Mr. Springer ($575,000 in 2023), $325,000 for Mr. Reyes ($400,000 in 2023), $400,000 for Mr. Ostapovicz ($425,000 in 2023), and $425,000 for Mr. Klein ($435,000 in 2023), all of which may be increased from time to time in the Company’s sole discretion as determined by the Compensation Committee. In addition, under the Employment Agreements, each NEO is eligible to earn an annual cash incentive bonus based on the attainment of individual and Company performance objectives as determined by the Compensation Committee with (i) a Threshold level equal to 67.5% of base salary for Messrs. Giglia and Springer, and 50% of base salary for Messrs. Reyes, Ostapovicz, and Klein, (ii) a Target level equal to 135% of base salary for Messrs. Giglia and Springer, and 100% of base salary for Messrs. Reyes, Ostapovicz, and Klein, and (iii) a Maximum level equal to 202.5% of base salary for Messrs. Giglia and Springer, and 150% of base salary for Messrs. Reyes, Ostapovicz, and Klein, with no guaranteed minimum (and any award may equal zero in any given year).
Pursuant to their respective Employment Agreements, each of the NEOs is eligible to receive severance payments and benefits in the event of certain terminations of his employment described below under “ Potential Payments Upon Termination or Change in Control .” Each Employment Agreement also includes certain restrictive covenants, including non-solicitation and non-disparagement. In connection with entering into the Employment Agreements, each NEO also entered into an indemnification agreement with the Company providing that the Company will indemnify and advance expenses to him in the case of certain claims made against him by virtue of his position with the Company.
|
56 |
Sunstone Hotel Investors |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END
The following table sets forth information with respect to outstanding RSAs and RSUs held by the NEOs as of December 31, 2023.
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
|
|
|
|
|
Stock Awards |
||||||
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
Equity Incentive Plan |
|
|
|
|
|
Number of |
|
Market Value |
|
Plan Awards: |
|
Awards: Market or |
|
|
|
|
|
Shares of |
|
of Shares of |
|
Number of Unearned |
|
Payout Value of |
|
|
|
|
|
Stock That |
|
Stock That |
|
Shares, Units |
|
Unearned Shares, Units |
|
|
|
Grant |
|
Have Not |
|
Have Not |
|
or Other Rights That |
|
or Other Rights That |
|
Name |
|
Date |
|
Vested (#)(1) |
|
Vested ($)(2) |
|
Have Not Vested (#) |
|
Have Not Vested ($)(2) |
|
Bryan A. Giglia |
|
2/09/2023 |
|
53,848 |
|
577,789 |
|
— |
|
— |
|
|
|
2/09/2023 |
|
— |
|
— |
|
161,544 |
(3) |
1,733,367 |
|
|
|
3/07/2022 |
|
56,401 |
|
605,183 |
|
— |
|
— |
|
|
|
3/07/2022 |
|
— |
|
— |
|
94,002 |
(4) |
1,008,641 |
|
|
|
2/10/2022 |
|
18,698 |
|
200,630 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
14,024 |
|
150,478 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
— |
|
— |
|
84,143 |
(3) |
902,854 |
|
|
|
2/10/2022 |
|
39,547 |
(5) |
424,339 |
|
— |
|
— |
|
|
|
9/09/2021 |
|
52,066 |
|
558,668 |
|
— |
|
— |
|
|
|
2/10/2021 |
|
34,994 |
|
375,486 |
|
— |
|
— |
|
Robert C. Springer |
|
2/09/2023 |
|
42,352 |
|
454,437 |
|
— |
|
— |
|
|
|
2/09/2023 |
|
— |
|
— |
|
127,057 |
(3) |
1,363,322 |
|
|
|
3/07/2022 |
|
56,401 |
|
605,183 |
|
— |
|
— |
|
|
|
3/07/2022 |
|
— |
|
— |
|
94,002 |
(4) |
1,008,641 |
|
|
|
2/10/2022 |
|
15,826 |
|
169,813 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
11,870 |
|
127,365 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
— |
|
— |
|
71,223 |
(3) |
764,223 |
|
|
|
2/10/2022 |
|
33,475 |
(5) |
359,187 |
|
— |
|
— |
|
|
|
9/09/2021 |
|
44,205 |
|
474,320 |
|
— |
|
— |
|
|
|
2/10/2021 |
|
29,711 |
|
318,799 |
|
— |
|
— |
|
Aaron R. Reyes |
|
2/09/2023 |
|
19,361 |
|
207,744 |
|
— |
|
— |
|
|
|
2/09/2023 |
|
— |
|
— |
|
58,083 |
(3) |
623,231 |
|
|
|
2/10/2022 |
|
18,948 |
|
203,312 |
|
— |
|
— |
|
|
|
2/10/2021 |
|
7,676 |
|
82,363 |
|
— |
|
— |
|
Christopher G. Ostapovicz |
|
2/09/2023 |
|
20,571 |
|
220,727 |
|
— |
|
— |
|
|
|
2/09/2023 |
|
— |
|
— |
|
61,713 |
(3) |
662,180 |
|
|
|
2/10/2022 |
|
11,778 |
|
126,378 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
8,834 |
|
94,789 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
— |
|
— |
|
53,004 |
(3) |
568,733 |
|
|
|
2/10/2022 |
|
24,912 |
(5) |
267,306 |
|
— |
|
— |
|
|
|
9/09/2021 |
|
34,197 |
|
366,934 |
|
— |
|
— |
|
|
|
3/08/2021 |
|
13,970 |
|
149,898 |
|
— |
|
— |
|
David M. Klein |
|
2/09/2023 |
|
18,393 |
|
197,357 |
|
— |
|
— |
|
|
|
2/09/2023 |
|
— |
|
— |
|
55,179 |
(3) |
592,071 |
|
|
|
2/10/2022 |
|
10,304 |
|
110,562 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
7,729 |
|
82,932 |
|
— |
|
— |
|
|
|
2/10/2022 |
|
— |
|
— |
|
46,378 |
(3) |
497,636 |
|
|
|
2/10/2022 |
|
21,798 |
(5) |
233,893 |
|
— |
|
— |
|
|
|
9/09/2021 |
|
32,927 |
|
353,307 |
|
— |
|
— |
|
|
|
2/10/2021 |
|
18,741 |
|
201,091 |
|
— |
|
— |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END
| (1) | The restricted stock awards listed in this column, excluding the Transition Performance RSUs, are scheduled to vest as set forth below. |
|
|
|
|
|
Bryan A. |
|
Robert C. |
|
Aaron R. |
|
Christopher G. |
|
David M. |
|
Grant Date |
|
Vesting Date |
|
Giglia |
|
Springer |
|
Reyes |
|
Ostapovicz |
|
Klein |
|
2/10/2021 |
|
2/15/2024 |
|
34,994 |
|
29,711 |
|
7,676 |
|
— |
|
18,741 |
|
3/08/2021 |
|
2/15/2024 |
|
— |
|
— |
|
— |
|
13,970 |
|
— |
|
9/09/2021 |
|
9/30/2024 |
|
52,066 |
|
44,205 |
|
— |
|
34,197 |
|
32,927 |
|
2/10/2022 |
|
2/15/2024 |
|
9,349 |
|
7,913 |
|
9,474 |
|
5,889 |
|
5,152 |
|
2/10/2022 |
|
2/15/2025 |
|
9,349 |
|
7,913 |
|
9,474 |
|
5,889 |
|
5,152 |
|
2/10/2022 |
|
2/15/2024 |
|
14,024 |
|
11,870 |
|
— |
|
8,834 |
|
7,729 |
|
3/07/2022 |
|
3/07/2024 |
|
6,267 |
|
6,267 |
|
— |
|
— |
|
— |
|
3/07/2022 |
|
3/07/2025 |
|
6,267 |
|
6,267 |
|
— |
|
— |
|
— |
|
3/07/2022 |
|
3/07/2026 |
|
6,267 |
|
6,267 |
|
— |
|
— |
|
— |
|
3/07/2022 |
|
3/07/2027 |
|
37,600 |
|
37,600 |
|
— |
|
— |
|
— |
|
2/09/2023 |
|
2/15/2024 |
|
17,950 |
|
14,118 |
|
6,455 |
|
6,859 |
|
6,133 |
|
2/09/2023 |
|
2/15/2025 |
|
17,949 |
|
14,117 |
|
6,453 |
|
6,856 |
|
6,130 |
|
2/09/2023 |
|
2/15/2026 |
|
17,949 |
|
14,117 |
|
6,453 |
|
6,856 |
|
6,130 |
|
|
|
|
|
230,031 |
|
200,365 |
|
45,985 |
|
89,350 |
|
88,094 |
| (2) | The market value of the unvested restricted shares of common stock is based on the closing common stock price of $10.73 on the NYSE on December 31, 2023. |
| (3) | Reflects Target performance for the applicable Annual Performance RSUs. The Annual Performance RSUs subject to the awards are eligible to vest based on RSR performance over a three-year Performance Period commencing on the applicable grant date. In the event that Company TSR is negative for the Performance Period, the percentage of RSUs subject to the Annual Performance RSUs that vest will be reduced by 25%. For 2022 Annual Performance RSUs and 2023 Annual Performance RSUs, RSR would have been achieved above Threshold performance level but below Target performance level had the applicable performance period ended as of December 31, 2023. |
| (4) | Represents the one-time awards of performance-based RSUs in connection with Mr. Giglia’s appointment as our CEO and Mr. Springer’s appointment as our President and Chief Investment Officer in March 2022 (“Promotion Performance RSUs”), which may be earned as to one-fifth of the RSUs subject to such award upon achievement of average closing share price targets of $13.50, $15.00, $16.50, $18.00 and $19.50, in each case, during a 20 consecutive trading day period prior to the fifth anniversary of the grant date, assuming that each such share price target is met. Earned RSUs will vest, subject to the NEO’s continued service, on the later of the date on which the price per share target is achieved during a five-year performance period commencing March 7, 2022 and ending on March 7, 2027 (the “Promotion Performance Period”), and the third anniversary of the grant date (“Promotion Vesting Date”). |
| (5) | Reflects actual performance for the applicable Transition Performance RSUs. The RSUs subject to the award are eligible to vest subject to approval by the Compensation Committee in January 2024 based on RSR performance over a two-year Performance Period which ended on December 31, 2023. The Company’s TSR was negative for the Performance Period, resulting in a 25% reduction to the percentage of RSUs that vested on January 25, 2024. |
2023 OPTION EXERCISES AND STOCK VESTED
The following table sets forth information with respect to the vesting of restricted stock in 2023 for each NEO. The number of shares acquired on vesting and the value of those shares do not reflect the withholding of shares to satisfy federal and state income tax withholdings. No NEO held stock options or exercised any stock options during 2023.
2023 OPTION EXERCISES AND STOCK VESTED TABLE
|
|
|
Stock Awards |
||
|
|
|
Number of Shares |
|
Value |
|
|
|
Acquired on |
|
Realized Upon |
|
Name |
|
Vesting (#) |
|
Vesting ($)(1) |
|
Bryan A. Giglia |
|
147,773 |
|
1,579,712 |
|
Robert C. Springer |
|
126,350 |
|
1,350,396 |
|
Aaron R. Reyes |
|
23,735 |
|
256,088 |
|
Christopher G. Ostapovicz |
|
62,891 |
|
671,931 |
|
David M. Klein |
|
80,831 |
|
864,569 |
| (1) | Value realized upon vesting is calculated as the gross number of shares vested in February 2023 and March 2023 multiplied by the closing stock price on the vesting date on the NYSE ranging from $10.38 to $10.82. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Our NEOs are entitled to certain payments and benefits upon a qualifying termination of employment as defined in the Employment Agreements including a qualifying termination upon a change in control. The following discussion describes the payments and benefits to which our NEOs would have become entitled to upon a qualifying termination with and without a change in control, as applicable, occurring on December 31, 2023.
EMPLOYMENT AGREEMENTS (GIGLIA, SPRINGER, REYES, OSTAPOVICZ, AND KLEIN)
Pursuant to their respective Employment Agreements, if the Company terminates the applicable NEO’s employment without “cause” or the NEO terminates his employment for “good reason” (each as defined in the applicable NEO’s Employment Agreement), then, conditioned upon the NEO’s timely execution (and non-revocation) of a general release of claims, the NEO will be entitled to receive (i) a cash severance payment equal to the sum of: (A) two times the sum of: (x) the NEO’s annual base salary as in effect on the date of termination, and (y) the greater of the NEO’s Target annual bonus for the year in which the termination occurs and the actual annual bonus paid with respect to the last completed calendar year preceding the termination date, (B) any earned but unpaid annual bonus for a prior calendar year, and (C) a pro-rated bonus for the year in which such termination occurs (based on the NEO’s Target level bonus), and (ii) Company-paid continued health insurance coverage for himself and his eligible family members for up to 18 months following the termination date. In addition, Company equity awards granted prior to January 1, 2022 will vest to the extent that such awards were scheduled to vest within the 12-month period immediately following the date of termination (or in full if such termination occurs within 12 months following a change in control of the Company), and Company equity awards granted on or after January 1, 2022 that vest solely based on the NEO’s continued employment or service will vest and become exercisable in full.
Pursuant to their respective Employment Agreements, if the applicable NEO’s employment is terminated by reason of death or “disability”, he (or his estate) will be entitled to receive (i) an amount equal to the sum of (A) 100% of his annual base salary then in effect, (B) any earned but unpaid annual bonus for the calendar year preceding the year in which such termination occurs, and (C) a pro-rated bonus for the calendar year in which the death or “disability” occurs (based on the NEO’s Target bonus), (ii) accelerated vesting of all outstanding time-based RSA awards, and (iii) Company-paid continued health insurance coverage for himself and/or his eligible family members for up to 18 months following the termination date.
We believe that job security and terminations of employment are causes of significant concern and uncertainty for senior executives and that providing protections to our NEOs in these contexts is therefore appropriate in order to alleviate these concerns and allow the executives to remain focused on their duties and responsibilities to our Company in all situations.
EQUITY AWARD AGREEMENTS (GIGLIA, SPRINGER, REYES, OSTAPOVICZ, AND KLEIN)
Performance RSUs (Annual and Transition)
Pursuant to the applicable award agreements, if an NEO’s service is terminated by the Company without “cause”, by the NEO for “good reason”, or due to the NEO’s death or “disability” (each as defined in the applicable award agreement), in any case, prior to the completion of the applicable Performance Period, the Performance RSU Awards will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual performance as of and assuming the completion of the applicable Performance Period as of the date of such termination, prorated based on the number of days during the applicable Performance Period through and including the date of such termination, upon the administrators’ determination, within 45 days following the date of the NEO’s termination of service. Any such RSUs that do not become fully vested in accordance with the preceding sentence upon the administrators’ determination will be cancelled and forfeited by the NEO.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
In addition, in the event that (i) a change in control of the Company occurs prior to the completion of the applicable Performance Period, (ii) the NEO has not incurred a termination of service prior to such change in control and (iii) the Performance RSU Awards are not converted, assumed or replaced by the surviving entity in such change in control, the Performance RSU Awards will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual performance levels as of, and assuming the completion of, the applicable Performance Period as of the date of such change in control. Any such RSUs that have not fully vested as of the date on which the change in control occurs will be cancelled and forfeited by the NEO.
Promotion Time-Based RSAs
Pursuant to the applicable award agreements for the one-time awards of time-based RSAs in connection with Messrs. Giglia and Springer’s appointment as our CEO and President and Chief Investment Officer, respectively, in March 2022 (“Promotion Time-Based RSAs”), in the event of a change in control of the Company or a termination of Mr. Giglia’s and/or Mr. Springer’s, as applicable, service by the Company without “cause” or by Mr. Giglia and/or Mr. Springer, as applicable, for “good reason”, the shares subject to the Promotion Time-Based RSAs will vest in full. Except as provided in the foregoing sentence, unless the Compensation Committee determines otherwise, upon termination of Mr. Giglia’s and/or Mr. Springer’s, as applicable, service with the Company (e.g. death or “disability”), all unvested Promotion Time-Based RSAs will be forfeited.
Promotion Performance RSUs
Pursuant to the applicable award agreements, if Mr. Giglia’s and/or Mr. Springer’s, as applicable, service is terminated by the Company without “cause”, by Mr. Giglia and/or Mr. Springer, as applicable, for “good reason”, or due to death or “disability”, in each case, prior to the completion of the applicable Performance Period, the Promotion Performance RSUs will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual achievement of stock price targets as of the date of such termination and assuming the Promotion Vesting Date occurred as of the date of such termination. Any such RSUs that are not fully earned and vested as of the date on which such termination occurs will be cancelled and forfeited by Mr. Giglia and/or Mr. Springer, as applicable.
In addition, pursuant to the applicable award agreements, in the event that a change in control of the Company occurs prior to the completion of the Performance Period, if Mr. Giglia and/or Mr. Springer, as applicable, has not incurred a termination of service prior to such change in control and the Promotion Performance RSUs are not converted, assumed or replaced by the surviving entity in such change in control, the Promotion Performance RSUs will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual achievement of stock price targets as of the date of such change in control and assuming the Promotion Vesting Date occurred as the date of such change in control. Any such RSUs that are not fully earned and vested as of the date on which the change in control occurs will be cancelled and forfeited by Mr. Giglia and/or Mr. Springer, as applicable.
Retention Program Awards
The RSAs granted to each of Messrs. Giglia, Springer, Ostapovicz, and Klein in September of 2021 pursuant to a one-time retention program (the “Retention Program”) will vest in full upon a termination of the NEO’s employment by the Company without “cause”, by the NEO for “good reason” (each as defined in the applicable NEO’s employment agreement) or by reason of the NEO's death or “disability”, in each case subject to the NEO’s (or his estate’s) timely execution and non-revocation of a general release of claims.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
POTENTIAL PAYMENTS
The following table summarizes the amounts that would have been paid to each of Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein in connection with the events listed below, assuming such events occurred on December 31, 2023.
|
|
|
|
|
Health |
|
Unvested |
|
|
|
|
|
Severance |
|
Insurance |
|
Stock |
|
|
|
Name |
|
Amount ($) |
|
Coverage ($) |
|
Awards ($) |
|
Total ($) |
|
Bryan A. Giglia |
|
|
|
|
|
|
|
|
|
By Company for “Cause” or By Executive without “Good Reason” |
|
— |
|
— |
|
— |
|
— |
|
By Company without “Cause” or By Executive with “Good Reason” |
|
4,349,313 |
(1) |
42,991 |
(2) |
3,892,948 |
(3) |
8,285,252 |
|
Death or "Disability" |
|
1,527,500 |
(4) |
42,991 |
(2) |
3,287,765 |
(5) |
4,858,256 |
|
By Company without “Cause” or By Executive for “Good Reason” upon a Change in Control |
|
4,349,313 |
(1) |
42,991 |
(2) |
5,198,653 |
(6) |
9,590,957 |
|
Robert C. Springer |
|
|
|
|
|
|
|
|
|
By Company for “Cause” or By Executive without “Good Reason” |
|
— |
|
— |
|
— |
|
— |
|
By Company without “Cause” or By Executive with “Good Reason” |
|
3,917,078 |
(1) |
49,249 |
(2) |
3,323,357 |
(3) |
7,289,684 |
|
Death or "Disability" |
|
1,351,250 |
(4) |
49,249 |
(2) |
2,718,175 |
(5) |
4,118,674 |
|
By Company without “Cause” or By Executive for “Good Reason” upon a Change in Control |
|
3,917,078 |
(1) |
49,249 |
(2) |
4,363,527 |
(6) |
8,329,854 |
|
Aaron R. Reyes |
|
|
|
|
|
|
|
|
|
By Company for “Cause” or By Executive without “Good Reason” |
|
— |
|
— |
|
— |
|
— |
|
By Company without “Cause” or By Executive with “Good Reason” |
|
2,077,500 |
(1) |
12,803 |
(2) |
688,501 |
(3) |
2,778,804 |
|
Death or "Disability" |
|
800,000 |
(4) |
12,803 |
(2) |
688,501 |
(5) |
1,501,304 |
|
By Company without “Cause” or By Executive for “Good Reason” upon a Change in Control |
|
2,077,500 |
(1) |
12,803 |
(2) |
1,078,676 |
(6) |
3,168,979 |
|
Christopher G. Ostapovicz |
|
|
|
|
|
|
|
|
|
By Company for “Cause” or By Executive without “Good Reason” |
|
— |
|
— |
|
— |
|
— |
|
By Company without “Cause” or By Executive with “Good Reason” |
|
2,342,500 |
(1) |
52,187 |
(2) |
1,721,694 |
(3) |
4,116,381 |
|
Death or "Disability" |
|
850,000 |
(4) |
52,187 |
(2) |
1,721,694 |
(5) |
2,623,881 |
|
By Company without “Cause” or By Executive for “Good Reason” upon a Change in Control |
|
2,342,500 |
(1) |
52,187 |
(2) |
2,275,164 |
(6) |
4,669,851 |
|
David M. Klein |
|
|
|
|
|
|
|
|
|
By Company for “Cause” or By Executive without “Good Reason” |
|
— |
|
— |
|
— |
|
— |
|
By Company without “Cause” or By Executive with “Good Reason” |
|
2,449,844 |
(1) |
53,903 |
(2) |
1,616,792 |
(3) |
4,120,539 |
|
Death or "Disability" |
|
870,000 |
(4) |
53,903 |
(2) |
1,616,792 |
(5) |
2,540,695 |
|
By Company without “Cause” or By Executive for “Good Reason” upon a Change in Control |
|
2,449,844 |
(1) |
53,903 |
(2) |
2,109,012 |
(6) |
4,612,759 |
| (1) | Pursuant to the terms of each NEO’s Employment Agreement, if the NEO’s employment with the Company is terminated by the Company without “cause” or by the executive for “good reason”, the severance payment is the sum of the following: (A) (1) earned but unpaid base salary, (2) accrued but unpaid vacation pay through the date of termination, and (3) any vested amounts due under any plan, program or policy of the Company, to the extent not previously paid (if any) (together, the “Accrued Obligations”); and (B) a severance amount equal to the sum of: (1) two times the sum of (i) the NEO’s base salary in effect on the date of termination (which was $650,000, $575,000, $400,000, $425,000, and $435,000 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively, in 2023), and (ii) the greater of (x) the target annual cash bonus (which was $877,500, $776,250, $400,000, $425,000, and $435,000 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively, in 2023) and (y) the actual annual cash bonus paid to the NEO with respect to the last full calendar year immediately preceding the date of termination (which was $1,085,906, $995,414, $438,750, $533,750, and $572,422 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively, in 2022), and (2) a pro-rata portion of the annual cash bonus for the partial calendar year in which the date of termination occurs, determined by multiplying the target annual cash bonus (which was $877,500, $776,250, $400,000, $425,000, and $435,000 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively , in 2023) by a fraction, the numerator of which is the number of days elapsed in the calendar year through the date of termination and the denominator of which is 365. The severance figure in the table does not include any Accrued Obligations. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
| (2) | Pursuant to the terms of each NEO’s Employment Agreement, the Company shall provide group health coverage for the NEO and his eligible family members for a period of up to 18 months after termination. The health insurance coverage amount reflects 18 months of monthly premium totaling $42,991, $49,249, $12,803, $52,187, and $53,903 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively, in 2023. |
| (3) | Pursuant to the terms of each NEO’s Employment Agreement, if the NEO’s employment with the Company is terminated by the Company without “cause” or by the executive for “good reason”, the portion of any then-outstanding restricted stock and other equity awards granted prior to January 1, 2022 will vest to the extent that such awards were scheduled to vest within the 12-month period immediately following the date of termination, and any then-outstanding restricted stock and other equity awards granted on or after January 1, 2022 that vest solely based on the NEO’s continued employment or service will vest and become exercisable in full. Notwithstanding the foregoing, if any NEO experiences a “qualifying termination” (as defined in the NEO’s Employment Agreement), vesting of the restricted stock granted under the Retention Program will accelerate in full subject to the execution of a general release, excluding Mr. Reyes who did not participate in the Retention Program. In addition, pursuant to the applicable award agreements, if an NEO’s service is terminated by the Company without “cause” or by the NEO for “good reason”, prior to the completion of the applicable Performance Period, the Performance RSU Awards will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual performance as of and assuming the completion of the applicable Performance Period as of the date of such termination, prorated based on the number of days during the applicable Performance Period through and including the date of such termination. For Messrs. Giglia and Springer, the shares subject to the Promotion Time-Based RSAs will vest in full and the Promotion Performance RSUs will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual achievement of stock price targets as of the date of such termination and assuming the Promotion Vesting Date occurred as the date of such termination. Amounts reported are based on the closing common stock price of $10.73 on the NYSE as of December 31, 2023 and includes payable dividend equivalents associated with the Performance RSU Awards. |
| (4) | Pursuant to the terms of each NEO’s Employment Agreement, if the NEO’s employment with the Company is terminated by reason of death or “disability”, he or, as appropriate, his estate or beneficiaries will be paid a severance amount equal to the sum of: (i) the Accrued Obligations, (ii) 100% of his annual base salary then in effect (which was $650,000, $575,000, $400,000, $425,000, and $435,000 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively, in 2023) and (iii) a pro-rata portion of the annual cash bonus for the partial calendar year in which the date of termination occurs, determined by multiplying the target annual cash bonus (which was $877,500, $776,250, $400,000, $425,000, and $435,000 for Messrs. Giglia, Springer, Reyes, Ostapovicz, and Klein, respectively, in 2023) by a fraction, the numerator of which is the number of days elapsed in the calendar year through the date of termination and the denominator of which is 365. The severance figure in the table does not include any Accrued Obligations. |
| (5) | Pursuant to the terms of each NEO’s Employment Agreement, if the NEO’s employment with the Company is terminated by reason of death or “disability”, he or, as appropriate, his estate or beneficiaries will fully vest in all then-outstanding restricted stock and other equity awards to the extent such outstanding awards, excluding the Promotion Time-Based RSAs, were scheduled to vest solely based on the passage of time and the NEO’s continued employment or service with the Company. In addition, pursuant to the applicable award agreements, if an NEO’s service is terminated by reason of death or “disability” prior to the completion of the applicable Performance Period, the Performance RSU Awards will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual performance as of and assuming the completion of the applicable Performance Period as of the date of such termination, prorated based on the number of days during the applicable Performance Period through and including the date of such termination. For Messrs. Giglia and Springer, the Promotion Performance RSUs will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual achievement of stock price targets as of the date of such termination and assuming the Promotion Vesting Date occurred as the date of such termination. Amounts reported are based on the closing common stock price of $10.73 on the NYSE as of December 31, 2023 and includes payable dividend equivalents associated with the Performance RSU Awards. |
| (6) | Pursuant to the terms of each NEO’s Employment Agreement, if the executive’s employment with the Company is terminated by the Company without “cause” or by the executive for “good reason” in connection with a change of control, the portion of any then-outstanding restricted stock and other equity awards that vest solely based |
|
2024 Proxy Statement |
63 |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
| on the NEO’s continued employment or service will vest and become exercisable in full. In addition, pursuant to the applicable award agreements, if an NEO’s service is terminated by the Company without “cause” or by the NEO for “good reason,” in connection with a change of control prior to the completion of the applicable Performance Period, the Performance RSU Awards will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual performance as of and assuming the completion of the applicable Performance Period as of the date of such termination, and such RSUs shall become fully vested. For Messrs. Giglia and Springer, the shares subject to the Promotion Time-Based RSAs will vest in full and the Promotion Performance RSUs will vest with respect to a number of RSUs equal to the number of RSUs which would have vested based on actual achievement of stock price targets as of the date of such termination and assuming the Promotion Vesting Date occurred as the date of such change of control. Amounts reported are based on the closing common stock price of $10.73 on the NYSE as of December 31, 2023 and includes payable dividend equivalents associated with the Performance RSU Awards. |
|
64 |
Sunstone Hotel Investors |
PAY RATIO DISCLOSURE
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S - K, we are providing the following information regarding the relationship of the annual total compensation of our employees and the annual total compensation of Bryan A. Giglia, our CEO as of December 31, 2023. The pay ratio specified below is a reasonable estimate calculated in a manner that is intended to be consistent with Item 402(u) of Regulation S - K.
For 2023, our last completed fiscal year:
| ● | the median of the annual total compensation of all of our employees (other than our CEO) was $213,303; and |
| ● | the annual total compensation of our CEO, as reported in the Summary Compensation Table included above in this Proxy Statement was $4,065,496. |
Based on this information, for 2023, our CEO’s annual total compensation was 19.1 times that of the median of the annual total compensation of all of our employees (other than our CEO).
DETERMINING THE MEDIAN EMPLOYEE
Employee Population . We determined that, as of December 31, 2023, our employee population, excluding our CEO, consisted of 37 full-time employees.
Methodology for Determining Our Median Employee . To identify the median employee from our employee population, we reviewed the annual total compensation of each of our 37 employees in the same manner as calculated for the annual total compensation of our CEO.
COMPENSATION MEASURE AND ANNUAL TOTAL COMPENSATION OF MEDIAN EMPLOYEE
With respect to the annual total compensation of the median employee, we identified and calculated the elements of such employee’s compensation for 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $213,303.
ANNUAL TOTAL COMPENSATION OF CEO
With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2023 Summary Compensation Table included in this Proxy Statement.
PAY VERSUS PERFORMANCE DISCLOSURE
PAY VERSUS PERFORMANCE TABLE
|
|
|
Summary Compensation |
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|
|
|
|
|
|
Average |
|
Average |
|
Value of Initial Fixed |
|
|
|
|
||||||
|
|
|
Table Total (1) |
|
Compensation Actually Paid (2) |
|
Summary |
|
Compensation |
|
$100 Investment |
|
|
|
|
||||||||||
|
|
|
PEO 1 |
|
PEO 2 |
|
PEO 3 |
|
PEO 1 |
|
PEO 2 |
|
PEO 3 |
|
Compensation |
|
Actually |
|
Based On: |
|
|
|
|
||
|
|
|
John V. |
|
Douglas M. |
|
Bryan A. |
|
John V. |
|
Douglas M. |
|
Bryan A. |
|
Table Total |
|
Paid |
|
|
|
Peer |
|
Net Income |
|
AFFO |
|
|
|
Arabia |
|
Pasquale |
|
Giglia |
|
Arabia |
|
Pasquale |
|
Giglia |
|
Non-PEO NEOs |
|
Non-PEO NEOs |
|
Company |
|
Group |
|
(Loss) |
|
Per Share |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) (3) |
|
($) (3) (4) |
|
TSR ($) |
|
TSR ($) (5) |
|
($ thousands) |
|
($) (6) |
|
2023 |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
|
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
(
|
|
(
|
| (1) | Amounts represent the compensation reported in the “Total” column for the applicable PEO in the SCT. |
| (2) | Amounts reported under Compensation Actually Paid (“CAP”) represent the amount of CAP to the applicable PEO, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to the applicable PEO during each year. |
| a. | Mr. Arabia separated from employment with the Company effective as of September 2, 2021 and Mr. Pasquale ceased to serve as Interim CEO upon the appointment of Mr. Giglia as CEO on March 7, 2022. |
| b. | In accordance with the requirements of Item 402(v) of Regulation S-K, the adjustments in the table below were made to the 2023 PEO’s total compensation presented to determine the CAP: |
|
|
|
|
2023 |
|
Name |
|
|
|
|
SCT Total Compensation |
|
$ |
|
|
Minus SCT "Stock Awards" |
|
|
(
|
|
Plus Fair Value at Fiscal Year ("FY") End of Outstanding and Unvested Stock Awards Granted in FY |
|
|
|
|
Plus Change in Fair Value of Outstanding and Unvested Stock Awards Granted in Prior FYs |
|
|
|
|
Plus Change in Fair Value as of Vesting Date of Stock Awards Granted in Prior FYs |
|
|
|
|
CAP to PEO |
|
$ |
|
| c. | Fair value or change in fair value, as applicable, of equity awards in the CAP columns was determined by (i) for time-based RSAs, the closing stock price on the applicable year-end date(s) or, in the case of awards vesting during the applicable year, the closing stock price on the applicable vesting date(s); and (ii) for performance-based RSUs, the same valuation methodology as the Performance RSUs in the SCT above, the fair value was calculated using a Monte Carlo simulation valuation model as of the applicable year-end date and including assumptions expected for volatility of our stock price, dividend yield, and risk-free rate. |
| (3) | The Non-PEO NEO’s include the individuals indicated in the table below for each fiscal year. |
|
Year |
|
Non-PEO NEOs |
|
2023 |
|
Robert C. Springer, Aaron R. Reyes, Christopher G. Ostapovicz, and David M. Klein |
|
2022 |
|
Robert C. Springer, Aaron R. Reyes, Christopher G. Ostapovicz, and David M. Klein |
|
2021 |
|
Bryan A. Giglia, Robert C. Springer, David M. Klein, Christopher G. Ostapovicz, and Marc A. Hoffman |
|
2020 |
|
Bryan A. Giglia, Marc A. Hoffman, Robert C. Springer, and David M. Klein |
PAY VERSUS PERFORMANCE DISCLOSURE
| (4) | Amounts reported under “Average Compensation Actually Paid” represent the amount of average CAP to the Average Non-PEO NEOs, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual average amount of compensation earned by or paid to the Non-PEO NEOs during each year. In accordance with the requirements of Item 402(v) of Regulation S-K, the adjustments in the table below were made to the average Non-PEO NEOs total compensation for 2023 to determine the CAP: |
|
|
|
|
|
|
|
|
|
2023 |
|
Name |
|
|
Average Non-PEO NEOs |
|
SCT Total Compensation |
|
$ |
|
|
Minus SCT "Stock Awards" |
|
|
(
|
|
Plus Fair Value at Fiscal Year ("FY") End of Outstanding and Unvested Stock Awards Granted in FY |
|
|
|
|
Plus Change in Fair Value of Outstanding and Unvested Stock Awards Granted in Prior FYs |
|
|
|
|
Plus Change in Fair Value as of Vesting Date of Stock Awards Granted in Prior FYs |
|
|
|
|
CAP to Average Non-PEO NEOs |
|
$ |
|
| a. | Fair value or change in fair value, as applicable, of equity awards in the average CAP column was determined by (i) for time-based RSAs, the closing stock price on the applicable year-end date(s) or, in the case of awards vesting during the applicable year, the closing stock price on the applicable vesting date(s); and (ii) for performance-based RSUs, the same valuation methodology as the Performance RSUs in the SCT above, the fair value was calculated using a Monte Carlo simulation valuation model as of the applicable year-end date and including assumptions expected for volatility of our stock price, dividend yield, and risk-free rate. |
| (5) | For each applicable fiscal year, the cumulative Peer Group TSR (the “Peer Group TSR”) represents the FTSE Nareit Equity Lodging/Resorts Index. |
| (6) |
AFFO per share is a non-GAAP measure. We compute the
|
TABULAR LIST OF MOST IMPORTANT PERFORMANCE MEASURES
The following list includes the most important performance measures used to link NEO compensation to our Company performance in 2023. See “ Compensation Discussion and Analysis—2023 Compensation Decisions (Annual Cash Incentive Bonuses and Annual Equity Incentive Awards) ” for a detailed description of the performance measures.
|
Most Important Performance Measures |
|
|
|
|
|
|
PAY VERSUS PERFORMANCE DISCLOSURE
DESCRIPTION OF RELATIONSHIP BETWEEN PAY AND PERFORMANCE
These graphs compare the CAP to our PEOs and the average of the CAP to our remaining NEOs, with (i) our cumulative TSR and cumulative Peer Group TSR, (ii) our Net Income (Loss), and (iii) our AFFO per share for the fiscal years ended December 31, 2020, 2021, 2022, and 2023. The amounts shown in 2021 for PEO 1, Mr. Arabia, includes $7,569,546 additional expense related to his separation from employment with the Company.
| (1) | The Company does not currently utilize Net Income (Loss) as a metric in its compensation program. |
DIRECTOR COMPENSATION
BOARD MEMBER CASH AND EQUITY-BASED COMPENSATION (2023)
Based on the 2022 FPC director compensation report (discussed below) and the Compensation Committee’s review and analysis, the Compensation Committee, together with all other members of the Board, approved the following compensation structure for our Board:
|
|
Audit Committee |
Compensation Committee |
|
Chair: $20,000 |
Chair: $20,000 |
|
|
Member: $10,000 |
Member: $10,000 |
|
|
Nominating and Corporate Governance Committee |
||
|
Chair: $20,000 |
||
|
Member: $10,000 |
||
|
Meeting fees(2) |
Board Chair |
|
|
$1,500 per board or committee meeting in excess of 8 meetings |
Receives an additional $60,000 cash retainer and $60,000 equity retainer |
|
| (1) | Annual stock retainer which vests upon grant. |
| (2) | No meeting fees for Board and Committee meetings are paid unless, in the applicable 12 - month period, the aggregate number of Board meetings exceeds eight or the aggregate number of each Committee meetings exceeds eight (in which case participant members of the Board or any Committee will be paid $1,500 for each meeting in excess of eight). |
Directors are entitled to reimbursement for expenses incurred in fulfilling their duties as our directors. In addition, directors are entitled to receive a maximum annual reimbursement credit of $5,000 for room and tax expenditures incurred at our hotels and resorts and may participate in our matching charitable gift program up to an annual maximum of $5,000.
2023 INDEPENDENT DIRECTOR COMPENSATION
|
|
|
Fees Earned or |
|
Stock |
|
Matching Charitable |
|
|
|
Name |
|
Paid in Cash ($)(1) |
|
Awards ($)(2) |
|
Contributions ($)(3) |
|
Total ($) |
|
W. Blake Baird |
|
90,000 |
|
108,376 |
|
— |
|
198,376 |
|
Andrew Batinovich |
|
80,000 |
|
108,376 |
|
— |
|
188,376 |
|
Monica S. Digilio |
|
90,000 |
|
108,376 |
|
— |
|
198,376 |
|
Kristina M. Leslie |
|
90,000 |
|
108,376 |
|
— |
|
198,376 |
|
Murray J. McCabe |
|
70,000 |
|
108,376 |
|
— |
|
178,376 |
|
Verett Mims |
|
70,000 |
|
108,376 |
|
— |
|
178,376 |
|
Douglas M. Pasquale (4) |
|
130,000 |
|
170,312 |
|
5,000 |
|
305,312 |
| (1) | The amounts in this column represent cash compensation earned by the applicable director during 2023. Compensation for service on the Board and its Committees is payable quarterly in arrears. |
| (2) | The amounts in this column represent the grant date fair value for awards of fully vested stock made to the director in 2023 as prescribed by ASC Topic 718. To determine the number of shares granted to each director, the amount of the grant, $105,000 (or $165,000 in the case of Mr. Pasquale), was divided by the average closing price of the Company’s stock over the 20 trading days ending three trading days prior to the grant date. |
DIRECTOR COMPENSATION
| (3) | The amounts in this column represent the aggregate annual cost to the Company of payments made in the form of charitable matching contributions. |
| (4) | The Compensation Committee reviewed Mr. Pasquale’s independent chair compensation in conjunction with the full Board compensation review and the 2022 FPC Board Compensation Report and concluded that no changes should be made based on Mr. Pasquale’s REIT expertise, board experience, and substantial contributions to the Company. Additionally, the Compensation Committee recognized the significant additional time commitment and guidance provided by Mr. Pasquale that goes above and beyond what is typically required by other directors. |
INDEPENDENT REVIEW OF DIRECTOR COMPENSATION
The Compensation Committee is responsible for reviewing and making recommendations to the Board on compensation and benefits for the independent directors. The Compensation Committee generally reviews the compensatory arrangement for the independent directors biennially.
2022 FPC Board Compensation Report . During the first quarter of 2022, FPC’s report detailed the 2020 director compensation programs (as disclosed in the 2021 proxy statements) for two select groups of publicly - traded REITs as of December 31, 2021, comprised of (a) a hotel peer group consisting of 10 companies with implied total capitalizations ranging from approximately $2.0 billion to $18.8 billion and (b) a size/geographic peer group consisting of 12 companies with implied total capitalizations ranging from approximately $2.5 billion to $9.7 billion compared to the Company’s consolidated total capitalization of $3.7 billion. Findings from the 2022 FPC Board Compensation Report were used to set the 2022 independent director compensation.
Based on the 2022 FPC report and current market trends, the Compensation Committee recommended that no changes were necessary for the independent directors’ compensation for 2023.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since the beginning of fiscal year 2023, we have not entered into any related party transactions and there are no currently proposed related party transactions, in which we were or are to be a participant, where the amount involved exceeds $120,000, and any related person had or will have a direct or indirect material interest. We have adopted a written policy which provides that the approval of our Nominating and Corporate Governance Committee is required for any related party transaction involving us and any of our directors, officers or employees, or any entity in which any of our directors, officers or employees is employed by or has an interest of 5% or more. Our Nominating and Corporate Governance Committee may consider in its decision process, among other factors it deems appropriate, due inquiries of disinterested members of management, disinterested directors, and legal counsel.
|
2024 Proxy Statement |
71 |
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
APPOINTMENT OF ERNST YOUNG LLP
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the work of our independent registered public accounting firm. The committee has appointed Ernst Young LLP as our independent registered public accounting firm, who will audit our consolidated financial statements for 2024 and the effectiveness of our internal control over financial reporting as of December 31, 2024. This appointment has been submitted to you for your ratification. The Audit Committee and the Board believe that the continued retention of Ernst Young LLP as our independent registered public accounting firm is in the best interests of the Company and its stockholders. If you do not ratify the appointment of Ernst Young LLP, the committee will reconsider their appointment. Representatives of Ernst Young LLP will attend the Annual Meeting and will have an opportunity to speak and respond to your questions.
FEE INFORMATION
The aggregate fees billed for professional services provided by Ernst Young LLP for 2023 and 2022 were as follows:
|
Description of Services |
|
2023 |
|
2022 |
||||
|
Audit Fees |
|
$ |
1,153,000 |
|
$ |
1,195,000 |
||
|
Audit-Related Fees |
|
|
— |
|
|
— |
||
|
Tax Fees |
|
|
4,784 |
|
|
13,036 |
||
|
All Other Fees |
|
|
— |
|
|
— |
||
|
Total Fees |
|
$ |
1,157,784 |
|
$ |
1,208,036 |
||
In the above table, in accordance with the definitions of the SEC, “audit fees” are fees and expenses paid by us to Ernst Young LLP for the audit of our consolidated financial statements included in our Annual Report on Form 10 - K and the review of the unaudited financial statements included in our quarterly reports on Form 10 - Q or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, including in connection with public offerings of securities. “Audit fees” also include fees paid by us to Ernst Young LLP for the audit of our internal control over financial reporting. In 2023 and 2022, audit fees, exclusive of out-of-pocket expenses, consisted primarily of $1,095,500 and $1,132,000, respectively, for the full - year audit, quarterly reviews and the audit of our internal control over financial reporting and $57,500 and $63,000, respectively, for services related to statutory and regulatory filings and public offerings.
“Audit-related Fees” are fees billed by Ernst Young LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. “Tax Fees” are fees billed by Ernst Young LLP that relate to tax consulting and advisory services. “All Other Fees” are fees billed by Ernst Young LLP to us for any services not included in the first three categories.
AUDIT COMMITTEE PRE - APPROVAL POLICIES AND PROCEDURES
Our Audit Committee has adopted a pre - approval policy requiring that the Audit Committee pre - approve all audit and permissible non - audit services to be performed by Ernst Young LLP. Any proposed service that has received pre - approval but which will exceed pre - approved cost limits will require separate pre - approval by the Audit Committee. The Audit Committee has delegated to its chair the authority to grant the required approvals for all audit and permissible non - audit services to be performed by Ernst Young LLP, provided that the chair reports the details of the exercise of any such delegated authority at the next meeting of the Audit Committee. All services performed by the independent registered public accounting firm in 2023 were approved by the Audit Committee pursuant to its pre - approval policy.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The following report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of Sunstone’s filings under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate this report by reference.
The Audit Committee (the “Committee”) of the Board of Directors (“Board”) of Sunstone Hotel Investors, Inc. (“Sunstone” or the “Company”) is composed of three directors, each of whom meet the independence and other requirements of the New York Stock Exchange, and all of whom qualify as “audit committee financial experts” within the meaning of Item 401(e) of Regulation S-K of the Sarbanes-Oxley Act of 2002. The Audit Committee operates under a written charter adopted by the Board that outlines its responsibilities and the practices it follows. You can view the charter in the Corporate Governance section of our website at www.sunstonehotels.com. The Committee reviews and assesses the adequacy of its charter at least annually and, when appropriate, recommends changes to the Board to reflect the evolving role of the Audit Committee.
Sunstone’s management has responsibility for preparing the Company’s financial statements, including the Company’s internal control over financial reporting. Ernst Young LLP, acting as independent registered public accountants, is responsible for performing an audit of the Company’s annual consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) and for issuing a report on those statements. Ernst Young LLP is also responsible for auditing Sunstone’s effectiveness of internal controls over financial reporting and issuing a report thereon. The Committee is responsible for the integrity of the Company’s financial statements and internal control structure on behalf of the Board. The Committee met four times during 2023, including meetings regularly with Ernst Young LLP and the internal auditor, both privately and with management present. In addition, before each Committee meeting, the Chair of the Committee holds a discussion with the Ernst Young LLP audit partner.
In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management and Ernst Young LLP the audited financial statements for the year ended December 31, 2023 as well as the interim financial statements for the periods ended March 31, 2023, June 30, 2023 and September 30, 2023. These reviews included a discussion:
| ● | of critical accounting policies of the Company and potential or planned future changes to accounting standards and any impact their implementation could have on the Company’s financial statements; |
| ● | of the reasonableness of significant financial reporting estimates and judgments made in connection with the financial statements, including the quality (and not just acceptability) of the Company’s accounting policies; |
| ● | with the Company’s internal and independent auditors of the scope for their respective audits, the results of their respective reviews and their evaluations of the overall quality of the Company’s internal controls and financial reporting; |
| ● | of the written disclosures and the letter from Ernst Young LLP that is required by the Public Company Accounting Oversight Board (“PCAOB”) regarding the independent accountant’s communications with the Audit Committee concerning independence; and |
| ● | of the potential effects of regulatory and accounting initiatives on the Company’s financial statements. |
The Committee has also discussed with the independent auditors the matters required to be discussed under PCAOB Auditing Standard No. 1301, “ Communications with Audit Committees .” In addition, the Committee has received the written disclosures and the letter from the independent accountant required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent auditors the auditors’ independence from Sunstone and its management, including the matters in the written disclosures and letter required by applicable requirements of the PCAOB.
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD
Among other matters, the Committee also:
| ● | reviewed the level of fees paid relative to fees paid by peers and companies of similar size and geographic location, and engaged the internal and independent auditor and appointed Ernst Young LLP to serve in the capacity of independent auditor during 2023; |
| ● | reviewed Ernst Young’s performance, qualifications, technical expertise, efficiency of services provided, knowledge of the Company’s operations and industry and quality control procedures in its determination to recommend the retention of Ernst Young LLP, including reviewing reports on Ernst Young provided by the PCAOB and reviewing Ernst Young’s performance from the perspective of the members of senior management ; |
| ● | reviewed and approved the Company’s policy for the pre - approval of audit and permitted non - audit services by the independent auditor and reviewed and approved fees and services; |
| ● | consulted with management and Ernst Young LLP with respect to the Company’s processes for risk assessment including meetings between the chair of the Committee and the lead audit partner; |
| ● | reviewed significant legal developments which affect or could affect the Company; |
| ● | reviewed the Company’s cybersecurity policies, procedures and systems in-place to protect the Company’s financial and other proprietary data; |
| ● | reviewed the enterprise risk management assessment and the status of the Company’s identified risks; |
| ● | reviewed communications from and management’s responses to governmental agencies for matters of material significance; |
| ● | reviewed and approved the type and presentation of information, including earnings guidance, to be included in the Company’s earnings releases and financial supplemental disclosures; and |
| ● | reviewed and responded to any calls placed on the third-party managed Sunstone Business Conduct and Ethics Hotline. |
Members of the Committee are not full - time employees of Sunstone and are not performing the functions of auditors or accountants. As such, it is not the duty or responsibility of the Committee or its members to conduct “field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards. Members of the Committee necessarily rely on the information provided to them by management and the independent accountants. Accordingly, the Committee’s considerations and discussions referred to above do not ensure that the audit of the Company’s financial statements has been carried out in accordance with U.S. GAAP or that the Company’s auditors are in fact “independent.”
In reliance on the reviews and discussions referred to above, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Committee charter, the Committee recommended to the Board the inclusion of the audited financial statements in Sunstone’s 2023 Annual Report on Form 10 - K for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE:
Kristina M. Leslie, Chair
Andrew Batinovich
Verett Mims
March 20, 2024
MISCELLANEOUS
STOCKHOLDER PROPOSALS FOR THE 2025 ANNUAL MEETING
Stockholder proposals intended to be presented at the 2025 Annual Meeting pursuant to SEC Rule 14a-8 must be received by the Secretary of Sunstone no later than 5:00 p.m. Pacific Time on November 20, 2024, to be considered for inclusion in our proxy statement and proxy card relating to the 2025 Annual Meeting. In addition, any stockholder who wishes to propose a nominee to the Board or submit any other matter to a vote at the 2025 Annual Meeting (other than a stockholder proposal included in our proxy materials pursuant to SEC Rule 14a-8) must deliver such information to our Secretary no earlier than October 21, 2024 and no later than 5:00 p.m. Pacific Time on November 20, 2024 and must comply with the other provisions and requirements of Article II, Section 2.11 of our then current bylaws, which are on file with the SEC and may be obtained from our Secretary upon request. Additionally, any stockholder who wishes to propose a nominee to the Board for inclusion in our proxy materials for the 2025 Annual Meeting pursuant to our proxy access bylaw must deliver such information to our Secretary no earlier than October 21, 2024 and no later than 5:00 p.m. Pacific Time on November 20, 2024 and must comply with the other provisions and requirements of Article II, Section 2.16 of our then current bylaws, which are on file with the SEC and may be obtained from our Secretary upon request.
We intend to file the Proxy Statement and a white proxy card with the SEC in connection with our solicitation of proxies for our 2025 Annual Meeting of Stockholders. Stockholders may obtain the Proxy Statement (and any amendments and supplements thereto) and other documents as and when filed by the Company with the SEC without charge from the SEC’s website at: www.sec.gov .
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements with respect to two or more stockholders sharing the same address by delivering a single Proxy Statement, Annual Report or Notice Card, as applicable, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. A number of brokers with account holders who are stockholders may be householding the Company’s proxy materials. If you receive a householding notification from your broker, a single set of proxy materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received by your broker. Once you receive notice from your broker that they will be householding communications to your address, householding will continue until you are notified otherwise. Stockholders who currently receive multiple copies of the proxy materials at their address and would like to request householding of their communications should contact their broker. In addition, if you receive a householding notification and wish to receive a separate Proxy Statement, Annual Report or Notice Card, as applicable, at your address, you should also contact your broker directly.
If you wish to receive a separate set of proxy materials for the 2024 Annual Meeting, we will deliver them promptly upon request sent to Sunstone Hotel Investors, Inc., 15 Enterprise, Suite 200, Aliso Viejo, California 92656, Attention: Secretary.
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The Board knows of no other matters to be presented for stockholder action at the Annual Meeting. If any other matters are properly presented at the meeting for action, it is intended that the persons named in the proxies will vote upon such matters in accordance with their discretion.
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MISCELLANEOUS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our Compensation Committee is or has been a former or current executive officer or employee of the Company. During 2023, no member of the Compensation Committee had a relationship that must be described under the SEC rules relating to disclosure of related person transactions.
None of our executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served as a director or member of our Compensation Committee during the fiscal year ended December 31, 2023.
OTHER INFORMATION
Sunstone will pay the cost of its proxy solicitation. We also expect that some of our employees may solicit Sunstone stockholders personally and by telephone. None of these employees will receive any additional or special compensation for doing this. We may engage the services of a proxy solicitation firm to assist in the solicitation of proxies. Sunstone will pay all costs associated with any engagement of a proxy solicitation firm, which we estimate would not exceed $25,000.
By Order of the Board of Directors
Bryan A. Giglia
Chief Executive Officer
Aliso Viejo, California
March 20, 2024
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. V31662-P03777 For Against Abstain For Against Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! SUNSTONE HOTEL INVESTORS, INC. 15 ENTERPRISE SUITE 200 ALISO VIEJO, CA 92656 1a. W. Blake Baird 1d. Bryan A. Giglia 1b. Andrew Batinovich 1c. Monica S. Digilio 1f. Murray J. McCabe Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. 1e. Kristina M. Leslie 1g. Verett Mims 1h. Douglas M. Pasquale 2. Ratification of the Audit Committee's appointment of Ernst Young LLP to act as the independent registered public accounting firm for the fiscal year ending December 31, 2024. 3. Advisory vote to approve the compensation of Sunstone's named executive officers, as set forth in Sunstone's Proxy Statement for the 2024 Annual Meeting. NOTE: Transaction of such other business as may be properly brought before the Annual Meeting or any adjournment or postponement thereof. THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED "FOR" EACH OF THE NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3. THE PROXY ALSO CONFERS DISCRETIONARY AUTHORITY ON THE PROXY HOLDERS TO VOTE AS TO ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING THAT THE BOARD OF DIRECTORS DID NOT HAVE NOTICE OF PRIOR TO MARCH 20, 2024. 1. Election of the following eight nominees to serve as directors until the next Annual Meeting and until their successors are elected and qualified: SUNSTONE HOTEL INVESTORS, INC. The Board of Directors recommends you vote FOR the following: The Board of Directors recommends you vote FOR proposals 2 and 3. ! ! ! ! ! ! VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time on May 2, 2024 for shares held directly and by 11:59 p.m. Eastern Time on April 30, 2024 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 p.m. Eastern Time on May 2, 2024 for shares held directly and by 11:59 p.m. Eastern Time on April 30, 2024 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. SCAN TO VIEW MATERIALS VOTEw |
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V31663-P03777 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice of Meeting and Proxy Statement are available at www.proxyvote.com. PROXY SUNSTONE HOTEL INVESTORS, INC. This Proxy is being solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders to be held on May 3, 2024 The undersigned stockholder of Sunstone Hotel Investors, Inc., a Maryland corporation ("Sunstone"), hereby appoints Aaron R. Reyes and David M. Klein (the "Proxy Holders"), with full power of substitution, as proxy for the undersigned to attend and represent the undersigned at the Annual Meeting of Stockholders of Sunstone to be held at the Hilton San Diego Bayfront, 1 Park Boulevard, San Diego, CA 92101, at 8:00 a.m. Pacific Time on May 3, 2024, and any adjournment or postponement thereof (the "Annual Meeting"), and to cast on behalf of the undersigned all votes that the undersigned is entitled to vote at the Annual Meeting and otherwise to represent the undersigned at the meeting with all powers possessed by the undersigned if personally present at the meeting. The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting and of the accompanying Proxy Statement, the terms of which are hereby incorporated by reference, and revokes any proxy heretofore given with respect to such shares. WHEN PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS ON THIS PROXY. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" EACH OF THE NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3. THE VOTE ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. THE BOARD OF DIRECTORS OF SUNSTONE RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3. You are encouraged to specify your choices by marking the appropriate boxes ON THE REVERSE SIDE. The Proxy Holders cannot vote the shares unless you sign and return this card or, if you own shares through a bank or broker that provides for voting proxy by phone or over the Internet, by submitting your vote by phone or over the Internet in accordance with your bank’s or broker’s instructions. (CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) |
