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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32319

Sunstone Hotel Investors, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		20-1296886
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

15 Enterprise, Suite 200 Aliso Viejo, California		92656
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 330-4000


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SHO	New York Stock Exchange
Series H Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRH	New York Stock Exchange
Series I Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 3, 2025, there were 189,903,149 shares of Sunstone Hotel Investors, Inc.’s common stock, $0.01 par value per share, outstanding.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

QUARTERLY REPORT ON

FORM 10-Q

For the Quarterly Period Ended September 30, 2025

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of September 30, 2025 (unaudited) and December 31, 2024	2

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2025 and 2024	3

	Unaudited Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2025 and 2024	4

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024	6

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	40

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

SIGNATURES		43

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

SUNSTONE HOTEL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	September 30,		December 31,
	2025		2024
	(unaudited)
ASSETS
Investment in hotel properties, net	$	2,779,057	$	2,856,032
Operating lease right-of-use assets, net		5,477		8,464
Cash and cash equivalents		121,136		107,199
Restricted cash		76,433		73,078
Accounts receivable, net		29,444		34,109
Prepaid expenses and other assets, net		37,942		27,757
Total assets	$	3,049,489	$	3,106,639

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Debt, net of unamortized deferred financing costs	$	917,452	$	841,047
Operating lease obligations		8,574		12,019
Accounts payable and accrued expenses		63,942		52,722
Dividends and distributions payable		22,060		24,137
Other liabilities		77,866		72,694
Total liabilities		1,089,894		1,002,619
Commitments and contingencies (Note 13)

STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 100,000,000 shares authorized:
Series G Cumulative Redeemable Preferred Stock, 2,650,000 shares issued and outstanding at both September 30, 2025 and December 31, 2024, stated at liquidation preference of $25.00 per share		66,250		66,250
6.125% Series H Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at both September 30, 2025 and December 31, 2024, stated at liquidation preference of $25.00 per share		115,000		115,000
5.70% Series I Cumulative Redeemable Preferred Stock, 4,000,000 shares issued and outstanding at both September 30, 2025 and December 31, 2024, stated at liquidation preference of $25.00 per share		100,000		100,000
Common stock, $0.01 par value, 500,000,000 shares authorized, 189,911,794 shares issued and outstanding at September 30, 2025 and 200,824,993 shares issued and outstanding at December 31, 2024		1,899		2,008
Additional paid in capital		2,298,073		2,395,702
Distributions in excess of retained earnings		(621,627)		(574,940)
Total stockholders’ equity		1,959,595		2,104,020

Total liabilities and stockholders' equity	$	3,049,489	$	3,106,639

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
REVENUES
Room	$	139,523	$	138,759	$	440,492	$	425,870
Food and beverage		64,419		63,866		209,573		196,572
Other operating		25,381		23,767		73,095		68,597
Total revenues		229,323		226,392		723,160		691,039
OPERATING EXPENSES
Room		39,303		37,453		119,272		110,349
Food and beverage		48,717		46,286		150,566		138,343
Other operating		6,337		5,815		18,707		18,153
Advertising and promotion		13,420		13,220		40,758		38,326
Repairs and maintenance		9,954		9,094		29,514		26,783
Utilities		7,832		7,670		21,624		19,909
Franchise costs		4,471		4,711		13,773		13,735
Property tax, ground lease and insurance		19,574		19,777		57,425		58,686
Other property-level expenses		26,926		26,702		88,184		82,445
Corporate overhead		6,970		7,577		24,221		23,263
Depreciation and amortization		33,928		31,689		100,328		91,841
Total operating expenses		217,432		209,994		664,372		621,833
Interest and other income		3,160		2,350		7,024		11,306
Interest expense		(13,412)		(15,982)		(39,258)		(39,685)
(Loss) gain on sale of assets, net		—		—		(8,751)		457
(Loss) gain on extinguishment of debt		(180)		—		(180)		59
Income before income taxes		1,459		2,766		17,623		41,343
Income tax (provision) benefit, net		(137)		483		(272)		1,083
NET INCOME		1,322		3,249		17,351		42,426
Preferred stock dividends		(4,262)		(3,931)		(12,125)		(11,297)
(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(2,940)	$	(682)	$	5,226	$	31,129

Basic and diluted per share amounts:
Basic (loss) income attributable to common stockholders per common share	$	(0.02)	$	0.00	$	0.03	$	0.15
Diluted (loss) income attributable to common stockholders per common share	$	(0.02)	$	0.00	$	0.03	$	0.15

Basic weighted average common shares outstanding		189,253		201,402		195,110		202,261
Diluted weighted average common shares outstanding		189,253		201,402		195,866		202,857

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and per share data)


									Distributions
	Preferred Stock			Common Stock					in Excess of
	Number of			Number of			Additional		Retained
	Shares	Amount		Shares	Amount		Paid in Capital		Earnings		Total Equity
Balance at December 31, 2024 (audited)	11,250,000	$	281,250	200,824,993	$	2,008	$	2,395,702	$	(574,940)	$	2,104,020
Amortization of deferred stock compensation	—		—	—		—		2,236		—		2,236
Issuance of restricted common stock, net	—		—	367,149		4		(4,282)		—		(4,278)
Forfeiture of restricted common stock	—		—	(861)		—		—		—		—
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(17,778)		(17,778)
Series G preferred stock dividends declared at $0.281250 per share	—		—	—		—		—		(745)		(745)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(821,771)		(8)		(8,008)		—		(8,016)
Net income	—		—	—		—		—		5,255		5,255
Balance at March 31, 2025	11,250,000		281,250	200,369,510		2,004		2,385,648		(591,394)		2,077,508
Amortization of deferred stock compensation	—		—	—		—		2,949		—		2,949
Issuance of restricted common stock	—		—	102,244		1		(1)		—		—
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(16,859)		(16,859)
Series G preferred stock dividends declared at $0.281250 per share	—		—	—		—		—		(746)		(746)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(10,301,090)		(103)		(90,351)		—		(90,454)
Net income	—		—	—		—		—		10,774		10,774
Balance at June 30, 2025	11,250,000		281,250	190,170,664		1,902		2,298,245		(601,411)		1,979,986
Amortization of deferred stock compensation	—		—	—		—		2,082		—		2,082
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(17,276)		(17,276)
Series G preferred stock dividends declared at $0.406250 per share	—		—	—		—		—		(1,076)		(1,076)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(258,870)		(3)		(2,254)		—		(2,257)
Net income	—		—	—		—		—		1,322		1,322
Balance at September 30, 2025	11,250,000	$	281,250	189,911,794	$	1,899	$	2,298,073	$	(621,627)	$	1,959,595

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and per share data)


									Distributions
	Preferred Stock			Common Stock					in Excess of
	Number of			Number of			Additional		Retained
	Shares	Amount		Shares	Amount		Paid in Capital		Earnings		Total Equity
Balance at December 31, 2023 (audited)	11,250,000	$	281,250	203,479,585	$	2,035	$	2,416,417	$	(533,064)	$	2,166,638
Amortization of deferred stock compensation	—		—	—		—		2,887		—		2,887
Issuance of restricted common stock, net	—		—	194,813		2		(3,219)		—		(3,217)
Common stock distributions declared at $0.07 per share	—		—	—		—		—		(14,364)		(14,364)
Series G preferred stock dividends declared at $0.187500 per share	—		—	—		—		—		(497)		(497)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Net income	—		—	—		—		—		13,035		13,035
Balance at March 31, 2024	11,250,000		281,250	203,674,398		2,037		2,416,085		(538,076)		2,161,296
Amortization of deferred stock compensation	—		—	—		—		3,298		—		3,298
Issuance of restricted common stock	—		—	75,002		—		—		—		—
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(18,504)		(18,504)
Series G preferred stock dividends declared at $0.187500 per share	—		—	—		—		—		(497)		(497)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(359,008)		(3)		(3,619)		—		(3,622)
Net income	—		—	—		—		—		26,142		26,142
Balance at June 30, 2024	11,250,000		281,250	203,390,392		2,034		2,415,764		(534,121)		2,164,927
Amortization of deferred stock compensation	—		—	—		—		2,351		—		2,351
Repurchases of common stock for employee tax obligations	—		—	(91,439)		(1)		(942)		—		(943)
Forfeiture of restricted common stock	—		—	(68,131)		(1)		1		—		—
Common stock distributions declared at $0.09 per share	—		—	—		—		—		(18,186)		(18,186)
Series G preferred stock dividends declared at $0.281250 per share	—		—	—		—		—		(745)		(745)
Series H preferred stock dividends declared at $0.382813 per share	—		—	—		—		—		(1,761)		(1,761)
Series I preferred stock dividends declared at $0.356250 per share	—		—	—		—		—		(1,425)		(1,425)
Repurchases of outstanding common stock	—		—	(2,311,365)		(23)		(22,649)		—		(22,672)
Net income	—		—	—		—		—		3,249		3,249
Balance at September 30, 2024	11,250,000	$	281,250	200,919,457	$	2,009	$	2,394,525	$	(552,989)	$	2,124,795

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Nine Months Ended September 30,
	2025		2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	17,351	$	42,426
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		330		319
Loss (gain) on sale of assets, net		8,751		(457)
Loss (gain) on extinguishment of debt		180		(59)
Noncash interest on derivatives, net		668		1,095
Depreciation		99,188		90,862
Amortization of franchise fees and other intangibles		1,140		979
Amortization of deferred financing costs		2,782		2,219
Amortization of deferred stock compensation		6,741		8,381
Gain on insurance recoveries, net		(773)		(314)
Changes in operating assets and liabilities:
Accounts receivable, net		4,344		(17)
Prepaid expenses and other assets		(3,975)		(5,555)
Accounts payable and other liabilities		8,864		275
Operating lease right-of-use assets and obligations		(458)		(271)
Net cash provided by operating activities		145,133		139,883
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of hotel property		46,348		—
Acquisition of hotel property and other assets		(1,269)		(229,330)
Acquisition-related key money proceeds		4,000		—
Proceeds from property insurance		875		314
Renovations and additions to hotel properties and other assets		(73,694)		(110,241)
Net cash used in investing activities		(23,740)		(339,257)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of outstanding common stock		(100,727)		(26,294)
Repurchases of common stock for employee tax obligations		(4,278)		(4,160)
Proceeds from credit facility		50,000		—
Payments on credit facility		(50,000)		—
Proceeds from notes payable		149,600		—
Payments on notes payable		(64,600)		(1,613)
Payments of deferred financing costs		(17,981)		—
Dividends and distributions paid		(66,115)		(69,697)
Net cash used in financing activities		(104,101)		(101,764)
Net increase (decrease) in cash and cash equivalents and restricted cash		17,292		(301,138)
Cash and cash equivalents and restricted cash, beginning of period		180,277		493,698
Cash and cash equivalents and restricted cash, end of period	$	197,569	$	192,560

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Supplemental Disclosure of Cash Flow Information


	September 30,
	2025		2024
Cash and cash equivalents	$	121,136	$	115,542
Restricted cash		76,433		77,018
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows	$	197,569	$	192,560


	Nine Months Ended September 30,
	2025		2024
Cash paid for interest, net of capitalized interest	$	38,298	$	39,734
Cash (refunds) paid for income taxes, net	$	(1,222)	$	3,476
Operating cash flows used for operating leases	$	4,546	$	4,288

Changes in operating lease right-of-use assets	$	3,636	$	3,425
Changes in operating lease obligations		(4,094)		(3,696)
Changes in operating lease right-of-use assets and lease obligations, net	$	(458)	$	(271)

Supplemental Disclosure of Noncash Investing and Financing Activities


	Nine Months Ended September 30,
	2025		2024
Accrued renovations and additions to hotel properties and other assets	$	23,408	$	25,247
Operating lease right-of-use asset obtained in exchange for operating lease obligation	$	649	$	—
Amortization of deferred stock compensation — construction activities	$	526	$	155
Dividends and distributions payable	$	22,060	$	22,619

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Sunstone Hotel Investors, Inc. (the “Company”) was incorporated in Maryland on June 28, 2004 in anticipation of an initial public offering of common stock, which was consummated on October 26, 2004. The Company elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes, commencing with its taxable year ended on December 31, 2004. The Company, through its 100% controlling interest in Sunstone Hotel Partnership, LLC (the “Operating Partnership”), of which the Company is the sole managing member, and the subsidiaries of the Operating Partnership, including Sunstone Hotel TRS Lessee, Inc. (the “TRS Lessee”) and its subsidiaries, invests in hotels where it can add value through capital investment, hotel repositioning, and asset management. In addition, the Company seeks to capitalize on its portfolio’s embedded value and balance sheet strength to actively recycle past investments into new growth and value creation opportunities in order to deliver strong stockholder returns and superior per share net asset value growth.

As a REIT, certain tax laws limit the amount of “non-qualifying” income the Company can earn, including income derived directly from the operation of hotels. The Company leases all of its hotels to its TRS Lessee, which in turn enters into long-term management agreements with third parties to manage the operations of the Company’s hotels, in transactions that are intended to generate qualifying income.

As of September 30, 2025, the Company owned 14 hotels.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Principles of Consolidation

The accompanying consolidated financial statements as of September 30, 2025 and December 31, 2024, and for the three and nine months ended September 30, 2025 and 2024, include the accounts of the Company, the Operating Partnership, the TRS Lessee and their controlled subsidiaries. All significant intercompany balances and transactions have been eliminated. If the Company determines that it has an interest in a variable interest entity, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity.

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the Company’s opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. These financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 21, 2025. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

The Company does not have any comprehensive income other than what is included in net income. If the Company has any comprehensive income in the future such that a statement of comprehensive income would be necessary, the Company will include such statement in one continuous consolidated statement of operations.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

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Summary of Significant Accounting Policies

The Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 21, 2025, contains a discussion of significant accounting policies. There have been no changes to our significant accounting policies since December 31, 2024.

New Accounting Standards and Accounting Changes

In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update No. 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, and amortization) in each income statement line item that contains those expenses. All entities are required to apply the guidance prospectively and may apply it retrospectively. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating ASU 2024-03’s additional disclosure requirements.

3. Investment in Hotel Properties

Investment in hotel properties, net consisted of the following (in thousands):



	September 30,		December 31,
	2025		2024
	(unaudited)
Land	$	641,918	$	645,884
Buildings and improvements		2,902,647		2,824,364
Furniture, fixtures and equipment		478,930		445,696
Intangible assets		43,938		44,063
Construction in progress		31,522		147,250
Investment in hotel properties, gross		4,098,955		4,107,257
Accumulated depreciation and amortization		(1,319,898)		(1,251,225)
Investment in hotel properties, net	$	2,779,057	$	2,856,032

In June 2025, the Company sold the Hilton New Orleans St. Charles, located in Louisiana for a gross sale price of $47.0 million and recorded a loss of $8.8 million. The sale did not represent a strategic shift that had a major impact on the Company’s business plan or its primary markets; therefore, the hotel disposition did not qualify as a discontinued operation.

4. Fair Value Measurements and Interest Rate Derivatives

Fair Value Measurements

As of September 30, 2025 and December 31, 2024, the carrying amount of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued expenses were representative of their fair values due to the short-term maturity of these instruments.

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value is as follows:


Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2	Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3	Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

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As of both September 30, 2025 and December 31, 2024, the Company measured its interest rate derivatives at fair value on a recurring basis. The Company estimated the fair value of its interest rate derivatives using Level 2 measurements based on quotes obtained from the counterparties, which are based upon the consideration that would be required to terminate the agreements.

Fair Value of Debt

As of September 30, 2025 and December 31, 2024, 70.4% and 40.8%, respectively, of the Company’s outstanding debt had fixed interest rates, including the effects of interest rate swap derivatives. The Company uses Level 3 measurements to estimate the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates.

The Company’s principal balances and fair market values of its consolidated debt as of September 30, 2025 (unaudited) and December 31, 2024 were as follows (in thousands):


	September 30, 2025				December 31, 2024
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	930,000	$	930,340	$	845,000	$	841,027

(1)

The principal balance of debt is presented before any unamortized deferred financing costs.

(2)

Due to changes in market conditions and the economic environment, actual interest rates could vary materially from those estimated, which would result in variances in the Company’s calculations of the fair market value of its debt.

Interest Rate Derivatives

The Company’s interest rate swap derivatives, which are not designated as effective cash flow hedges, consisted of the following at September 30, 2025 (unaudited) and December 31, 2024 (in thousands):


								Estimated Fair Value of Assets (Liabilities) (1)
			Effective	Maturity	Notional			September 30,		December 31,
Hedged Debt (2)	Fixed Rate		Date	Date	Amount			2025		2024
Term Loan 2	3.675	%	March 17, 2023	March 17, 2026	$	75,000		$	56	$	370
Term Loan 2	3.931	%	September 14, 2023	September 14, 2026	$	100,000			(309)		186
Term Loan 2	4.020	%	January 31, 2025	November 7, 2026	$	100,000			(512)		—
Term Loans 1 and 3	3.226	%	September 9, 2025	September 9, 2028	$	210,000	(3)		607		—
Term Loan 1	3.206	%	January 10, 2026	January 10, 2028	$	65,000	(4)		46		—
								$	(112)	$	556

(1)

All of the Company’s swap agreements are indexed to CME Term SOFR. The fair values of the swap derivative assets were included in prepaid expenses and other assets, net on the accompanying consolidated balance sheets as of September 30, 2025 and December 31, 2024. The fair values of the swap derivative liabilities were included in other liabilities on the accompanying consolidated balance sheet as of September 30, 2025.

(2)

In September 2025, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), which, among other things, consolidated its four previous term loans into three new term loans (see Note 6).

(3)

In September 2025, the Company entered into an interest rate swap, which is effective September 9, 2025 and expires September 9, 2028. The swap fixes the SOFR rate on a portion of Term Loans 1 and 3 to 3.226% (see Note 6).

(4)

In August 2025, the Company entered into an interest rate swap, which is effective January 10, 2026 and expires January 10, 2028. The Company intends to use the swap to fix a portion of the interest rate on Term Loan 1 to 3.206% (see Note 6).

Noncash changes in the fair values of the Company’s interest rate derivatives resulted in (decreases) increases to interest expense for the three and nine months ended September 30, 2025 and 2024 as follows (unaudited and in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Noncash interest on derivatives, net	$	(495)	$	3,326	$	668	$	1,095

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5. Prepaid Expenses and Other Assets

Prepaid expenses and other assets, net consisted of the following (in thousands):


	September 30,		December 31,
	2025		2024
	(unaudited)
Prepaid expenses	$	13,807	$	10,488
Inventory		11,488		10,497
Deferred financing costs		8,648		2,223
Property and equipment, net		1,719		2,267
Interest rate derivatives		709		556
Deferred rent on straight-lined third-party tenant leases		209		369
Liquor licenses		930		930
Other		432		427
Total prepaid expenses and other assets, net	$	37,942	$	27,757

6. Debt

In April 2025 and July 2025, the Company drew down $27.0 million and $23.0 million, respectively, on its $500.0 million credit facility.

In September 2025, the Company entered into the Amended Credit Agreement, which expanded its unsecured debt borrowing capacity and extended the maturity of its term loans. The Amended Credit Agreement continues to provide for a $500.0 million revolving credit facility and increases the aggregate amount of the Company’s term loan facilities from $675.0 million (on four existing term loans) to $850.0 million (on three new term loans). The following includes the details of the Amended Credit Agreement:

●

The maturity of the revolving credit facility was extended from July 25, 2026, with two six-month options to extend, to September 24, 2029, with two six-month options to extend;

●

The new term loan facilities include a $275.0 million term loan, of which $185.0 million was funded in September 2025 and the remaining $90.0 million is available as a one-time delayed draw at any time through February 2026 (“New Term Loan 1”), a $275.0 million term loan funded in September 2025 (“New Term Loan 2”), and a $300.0 million term loan funded in September 2025 ("New Term Loan 3”) (together the “New Term Loans”);

●

The Company utilized the $760.0 million in proceeds received from the New Term Loans to consolidate its previous four term loans into the three New Term Loans and to repay the $50.0 million outstanding on its revolving credit facility;

●

The revolving credit facility and the New Term Loans bear interest pursuant to a leverage-based pricing grid ranging from 1.40% to 2.25% and 1.35% to 2.20%, respectively, over the applicable term SOFR;

●

New Term Loan 1 has an initial maturity of January 24, 2029, with two twelve-month extension options (subject to customary fees), which would result in an extended maturity of January 24, 2031;

●

New Term Loan 2 has an initial maturity of January 24, 2030, with one twelve-month extension option (subject to customary fees), which would result in an extended maturity of January 24, 2031;

●

New Term Loan 3 has a maturity of January 24, 2031, with no available extension options; and

●

The New Term Loans are available to be prepaid at any time with no prepayment penalty.

In connection with the Amended Credit Agreement, the Company incurred debt issuance costs of $17.5 million. A total of $7.7 million of the debt issuance costs were allocated to the revolving credit facility and the delayed draw portion of New Term Loan 1 and are included in prepaid expenses and other assets on the Company’s consolidated balance sheet as of September 30, 2025, and $9.9 million of the debt issuance costs were allocated to the funded New Terms Loans and are included in debt, net of unamortized deferred financing costs on the Company’s balance sheet as of September 30, 2025. In addition, the Company recorded a $0.2 million loss on extinguishment of debt related to the accelerated amortization of deferred financing costs.

As of September 30, 2025, the Company had no amount outstanding on its credit facility, with $500.0 million of capacity available for borrowing under the facility. The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various financial covenants.

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Debt consisted of the following (in thousands):


						Balance Outstanding as of
		September 30, 2025				September 30,		December 31,
		Rate Type	Interest Rate		Maturity Date	2025		2024
						(unaudited)
Unsecured Corporate Credit Facilities (1)
Term Loan 1	(2)	Fixed	4.68	%	January 24, 2029	$	185,000	$	175,000
Term Loan 2	(3)	Fixed	5.34	%	January 24, 2030		275,000		175,000
Term Loan 3	(4)	Floating	5.53	%	January 24, 2031		300,000		225,000
Term Loan 4	(5)	N/A	N/A		N/A		—		100,000
Total unsecured corporate credit facilities						$	760,000	$	675,000

Unsecured Senior Notes
Series A		Fixed	4.69	%	January 10, 2026	$	65,000	$	65,000
Series B		Fixed	4.79	%	January 10, 2028		105,000		105,000
Total unsecured senior notes						$	170,000	$	170,000

Total debt							930,000		845,000
Unamortized deferred financing costs							(12,548)		(3,953)
Debt, net of unamortized deferred financing costs						$	917,452	$	841,047

(1)

The variable interest rates on the Company’s unsecured corporate credit facilities are based on a pricing grid depending on the Company’s leverage ratio plus SOFR.

(2)

New Term Loan 1 is currently subject to one interest rate swap derivative (see Note 4). New Term Loan 1 has an initial maturity of January 24, 2029 with two twelve-month options to extend at the Company’s election, which would result in an extended maturity of January 24, 2031, upon the payment of applicable fees and the satisfaction of certain customary conditions.

(3)

New Term Loan 2 is subject to three interest rate swap derivatives (see Note 4). New Term Loan 2 has an initial maturity of January 24, 2030 with one twelve-month option to extend at the Company’s election, which would result in an extended maturity of January 24, 2031, upon the payment of applicable fees and the satisfaction of certain customary conditions.

(4)

New Term Loan 3 is subject to one interest rate swap derivative (see Note 4) covering a partial balance of $25.0 million.

(5)

Term Loan 4 was consolidated into the New Term Loans in conjunction with the Company’s Amended Credit Agreement.

Interest Expense

Total interest incurred and expensed on the Company’s debt was as follows (unaudited and in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Interest expense on debt	$	12,927	$	12,395	$	37,209	$	37,012
Noncash interest on derivatives, net		(495)		3,326		668		1,095
Amortization of deferred financing costs		980		741		2,782		2,219
Capitalized interest		—		(480)		(1,401)		(641)
Total interest expense	$	13,412	$	15,982	$	39,258	$	39,685

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7. Other Liabilities

Other liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2025		2024
	(unaudited)
Advance deposits	$	49,010	$	48,635
Property, sales and use taxes payable		16,808		10,088
Accrued interest		2,615		5,105
Deferred rent		894		1,433
Interest rate derivatives		821		—
Management fees payable		575		1,168
Other		7,143		6,265
Total other liabilities	$	77,866	$	72,694

During both the three months ended September 30, 2025 and 2024, the Company recognized approximately $4.6 million in revenue related to its outstanding contract liabilities. During the nine months ended September 30, 2025 and 2024, the Company recognized approximately $42.6 million and $38.3 million, respectively, in revenue related to its outstanding contract liabilities.

8. Leases

As of both September 30, 2025 and December 31, 2024, the Company had operating leases for ground, office, equipment, and airspace leases with maturity dates ranging from 2025 through 2097, excluding renewal options. Including renewal options available to the Company, the lease maturity date extends to 2147.

Operating leases were included on the Company’s consolidated balance sheets as follows (in thousands):


	September 30,			December 31,
	2025			2024
	(unaudited)
Right-of-use assets, net	$	5,477		$	8,464

Lease obligations	$	8,574		$	12,019

Weighted average remaining lease term		11 years
Weighted average discount rate		5.7	%

The components of lease expense were as follows (unaudited and in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Operating lease cost	$	1,380	$	1,334	$	4,108	$	4,024
Variable lease cost (1)		2,459		2,015		6,712		6,521
Sublease income (2)		(296)		(296)		(890)		(890)
Total lease cost	$	3,543	$	3,053	$	9,930	$	9,655

(1)

Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds.

(2)

Sublease income is included in corporate overhead in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024.

9. Stockholders’ Equity

Series G Cumulative Redeemable Preferred Stock

The Series G preferred stock, which is callable at its $25.00 redemption price plus accrued and unpaid dividends by the Company at any time, initially accrued dividends at a rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. In January 2024, the annual dividend rate increased to the greater of 3.0% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. Beginning with the

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third quarter of 2024, the annual dividend rate increased to the greater of 4.5% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. Beginning with the third quarter of 2025, the annual dividend rate increased to the greater of 6.5% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort, resulting in a dividend rate of 6.5% for the third quarter of 2025. Beginning in the third quarter of 2026, the annual dividend rate will increase to the greater of 7.5% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. The Series G preferred stock is not convertible into any other security.

Series H Cumulative Redeemable Preferred Stock

On or after May 24, 2026, the Series H preferred stock, which has an annual dividend rate of 6.125%, will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series H preferred stock, the Company may at its option redeem the Series H preferred stock for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. If the Company chooses not to redeem the Series H preferred stock upon the occurrence of a change of control, holders of the Series H preferred stock may convert their preferred shares into shares of the Company’s common stock.

Series I Cumulative Redeemable Preferred Stock

On or after July 16, 2026, the Series I preferred stock, which has an annual dividend rate of 5.70%, will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series I preferred stock, the Company may at its option redeem the Series I preferred stock for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. If the Company chooses not to redeem the Series I preferred stock upon the occurrence of a change of control, holders of the Series I preferred stock may convert their preferred shares into shares of the Company’s common stock.

Common Stock

Stock Repurchase Program. In February 2023, the Company’s board of directors reauthorized and restored the Company’s existing stock repurchase program, allowing the Company to acquire up to an aggregate of $500.0 million of its common and preferred stock. The stock repurchase program has no stated expiration date.

Details of the Company’s repurchases were as follows (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Number of common shares repurchased		258,870		2,311,365		11,381,731		2,670,373
Cost, including fees and commissions	$	2,257	$	22,672	$	100,727	$	26,294
Number of preferred shares repurchased		—		—		—		—

As of September 30, 2025, $327.0 million remains available for repurchase under the stock repurchase program. Future repurchases will depend on various factors, including the Company’s capital needs and restrictions under its various financing agreements, as well as the price of the Company’s common and preferred stock (see Note 14).

ATM Agreements. In March 2023, the Company entered into separate “At the Market” Agreements (the “ATM Agreements”) with several financial institutions. In accordance with the terms of the ATM Agreements, the Company may from time to time offer and sell shares of its common stock having an aggregate offering price of up to $300.0 million. No common stock was issued under the ATM Agreements during the three and nine months ended September 30, 2025 or 2024, leaving $300.0 million available for sale.

10. Incentive Award Plan

The Company’s Incentive Award Plan (the “Plan”) provides for granting discretionary awards to employees, consultants, and non-employee directors. The awards may be made in the form of options, restricted stock awards, dividend equivalents, stock payments, restricted stock units, other incentive awards, LTIP units, or share appreciation rights.

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Should a stock grant be forfeited prior to its vesting, the shares covered by the stock grant are added back to the Plan and remain available for future issuance. Shares of common stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligations upon the vesting of a stock grant are not added back to the Plan.

Restricted shares and units are measured at fair value on the date of grant and amortized as compensation expense over the relevant requisite service period or derived service period. The Company has elected to account for forfeitures as they occur.

As of both September 30, 2025 and 2024, the Company’s issued and outstanding awards consisted of both time-based and performance-based restricted stock grants. The Company’s amortization expense, including forfeitures related to restricted shares was as follows (unaudited and in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Amortization expense, including forfeitures	$	1,905	$	2,430	$	6,741	$	8,381

Capitalized compensation cost (1)	$	177	$	(79)	$	526	$	155

(1)

The Company capitalizes compensation costs related to restricted shares granted to certain employees whose work is directly related to the Company’s capital investment in its hotels.

Restricted Stock Awards

The Company’s restricted stock awards are time-based restricted shares that generally vest over periods ranging from three years to five years from the date of grant. The following is a summary of non-vested restricted stock award activity:


		Weighted-Average
		Grant Date
	Number of Shares	Fair Value
Unvested at January 1, 2025	688,288	$	10.70
Granted	411,809	$	10.57
Vested	(414,171)	$	10.34
Forfeited	(861)	$	11.27
Unvested at September 30, 2025	685,065	$	10.84

Restricted Stock Units

The Company’s restricted stock units are performance-based restricted shares that generally vest based on the Company’s total relative shareholder return (“RSR”) or the achievement of pre-determined stock price targets during performance periods ranging from three years to five years. The following is a summary of non-vested restricted stock unit activity at target performance:


		Weighted-Average
	Target Number	Grant Date
	of Shares	Fair Value
Unvested at January 1, 2025	1,382,074	$	10.90
Granted	429,587	$	11.48
Vested (1)	(257,911)	$	12.44
Forfeited	(118,018)	$	11.29
Unvested at September 30, 2025	1,435,732	$	10.77

(1)

Includes vested shares at target performance. In January 2025, the 2022 RSR Three-Year Performance Period restricted stock units vested between the target and maximum levels at 169.2% of target, resulting in the additional vesting of 176,286 shares of the Company’s common stock with a grant date fair value of $12.46.

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The restricted stock units granted during the first nine months of 2025 vest based on the Company’s total relative shareholder return following a three-year performance period. The number of shares that may become vested ranges from zero to 200% of the amount granted. The grant date fair values of the restricted stock units were determined using a Monte Carlo simulation model with the following assumptions:


Expected volatility	30.0	%
Dividend yield (1)	—
Risk-free rate	4.47	%
Expected term	3 years

(1)

Dividend equivalents are assumed to be reinvested in shares of the Company’s common stock and dividend equivalents will only be paid to the extent the award vests.

11. Earnings Per Share

The Company applies the two-class method when computing its earnings per share. Net income per share for each class of stock is calculated assuming all of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid), which include the Company’s time-based restricted stock awards, are considered participating securities and are included in the computation of earnings per share.

Basic earnings attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, including shares of the Company’s performance-based restricted stock units for which all necessary conditions have been satisfied except for the passage of time. Diluted earnings attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, plus potential common shares considered outstanding during the period, as long as the inclusion of such awards is not anti-dilutive. Potential common shares consist of time-based unvested restricted stock awards and performance-based restricted stock units, using the more dilutive of either the two-class method or the treasury stock method. The Company’s performance-based restricted stock units are considered for computing diluted net income per common share as of the beginning of the period in which all necessary conditions have been satisfied and the only remaining vesting condition is a service vesting condition.

The following table sets forth the computation of basic and diluted earnings per common share (unaudited and in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Numerator:
Net income	$	1,322	$	3,249	$	17,351	$	42,426
Preferred stock dividends		(4,262)		(3,931)		(12,125)		(11,297)
Distributions paid to participating securities		(62)		(62)		(185)		(211)
Numerator for basic and diluted (loss) income attributable to common stockholders	$	(3,002)	$	(744)	$	5,041	$	30,918
Denominator:
Weighted average basic common shares outstanding		189,253		201,402		195,110		202,261
Unvested restricted stock units		—		—		756		596
Weighted average diluted common shares outstanding		189,253		201,402		195,866		202,857

Basic (loss) income attributable to common stockholders per common share	$	(0.02)	$	0.00	$	0.03	$	0.15
Diluted (loss) income attributable to common stockholders per common share	$	(0.02)	$	0.00	$	0.03	$	0.15

In its calculation of diluted earnings per share, the Company excluded 685,065 and 688,288 anti-dilutive unvested time-based restricted stock awards for the three and nine months ended September 30, 2025 and 2024, respectively (see Note 10).

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The Company also had 1,435,732 and 1,382,074 unvested performance-based restricted stock units as of September 30, 2025 and 2024, respectively, that are not considered participating securities as the awards contain forfeitable rights to dividends or dividend equivalents. The performance-based restricted stock units were granted based on either target market condition thresholds or pre-determined stock price targets (see Note 10). Due to the Company’s loss attributable to common stockholders for both the third quarters of 2025 and 2024, the Company excluded all 1,435,732 and 1,382,074 anti-dilutive performance-based restricted stock units from its calculation of diluted earnings per share for the three months ended September 30, 2025 and 2024, respectively. Based on the Company’s total relative shareholder return and the Company’s common stock performance, the Company excluded 617,591 anti-dilutive performance-based restricted stock units from its calculation of diluted earnings per share for the nine months ended September 30, 2025. Based on the Company’s common stock performance, the Company excluded 188,004 anti-dilutive performance-based restricted stock units from its calculation of diluted earnings per share for the nine months ended September 30, 2024.

12. Segment Information

The Company considers each of its hotels to be an operating segment and allocates resources and assesses the operating performance for each hotel individually. The Company has aggregated its hotels into a single reportable segment, Hotel Ownership, based on the following aggregation criteria:

●

All of the Company’s hotels offer similar products and services to their customers in the form of hotel rooms, food and beverage, and ancillary services;

●

The Company utilizes third-party hotel management companies to deliver its products and services to its customers across all of its hotels;

●

The Company’s hotels are designed and operated to appeal to similar individuals, groups, leisure, and business customers that travel to its hotels; and

●

The Company’s third-party hotel managers utilize the same methods (direct hotel sales and various online booking portals) to distribute the Company’s products and services across all of its hotels.

The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The CODM reviews and makes decisions on all facets of the Company’s business using all available financial and non-financial data for each hotel individually. Capital allocation decisions to acquire, sell, enhance, redevelop, or perform renewal and replacement expenditures are determined on a hotel-by-hotel basis. Specifically, the CODM reviews the results of each hotel to assess the hotel’s profitability. The CODM does not use aggregated data by brand, property type, or geography to formulate the Company’s operating and investment strategy, to manage its business, or to make decisions about resource allocation. The key measure the CODM uses to allocate resources and assess performance is individual hotel net income (loss) before interest expense, income taxes, depreciation, and amortization for REITs, adjusted to exclude the following items that are not reflective of its ongoing operating performance or incurred in the normal course of business (“Hotel Adjusted EBITDAre”):

●

Business interruption insurance proceeds;

●

Property-level hurricane-related restoration expenses and legal fees;

●

Pre-opening costs associated with extensive renovation projects;

●

Property-level legal settlements, restructuring, severance, and management transition costs;

●

Taxes assessed on commercial rents; and

●

Other nonrecurring identified adjustments.

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The following tables include revenues, significant hotel operating expenses, and Hotel Adjusted EBITDAre for the Company’s hotels, reconciled to the consolidated amounts included in the Company’s consolidated statements of operations, which the CODM uses to manage its business, such as how to allocate capital to its hotels and how to determine the Company’s acquisition and disposition strategies (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Revenues
Total revenues	$	229,323	$	226,392	$	723,160	$	691,039

Operating Expenses
Room		39,303		37,342		117,333		110,145
Food and beverage		48,717		46,155		148,731		138,170
Other operating		6,337		5,797		18,430		18,126
Advertising and promotion		13,420		12,940		39,593		37,873
Repairs and maintenance		9,954		9,094		29,203		26,764
Utilities		7,832		7,670		21,624		19,909
Franchise costs		4,471		4,711		13,773		13,735
Property tax, ground lease and insurance		19,665		19,868		57,855		59,190
Other property-level expenses (1)		26,926		26,389		87,240		83,212
		176,625		169,966		533,782		507,124

Hotel Adjusted EBITDAre	$	52,698	$	56,426	$	189,378	$	183,915


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Reconciliation of Hotel Adjusted EBITDAre to Net Income
Hotel Adjusted EBITDAre	$	52,698	$	56,426	$	189,378	$	183,915
Non-hotel operating expenses, net (2)		(8)		18		100		9
Pre-opening expenses (3)		—		(853)		(6,471)		(1,452)
Property-level COVID-19 relief grant (3)		—		—		—		1,343
Taxes assessed on commercial rents (3)		(189)		(215)		(541)		(376)
Amortization of right-of-use assets and obligations		288		288		871		871
Corporate overhead		(6,970)		(7,577)		(24,221)		(23,263)
Depreciation and amortization		(33,928)		(31,689)		(100,328)		(91,841)
Interest and other income		3,160		2,350		7,024		11,306
Interest expense		(13,412)		(15,982)		(39,258)		(39,685)
(Loss) gain on sale of assets, net		—		—		(8,751)		457
(Loss) gain on extinguishment of debt		(180)		—		(180)		59
Income tax (provision) benefit, net		(137)		483		(272)		1,083
Net income	$	1,322	$	3,249	$	17,351	$	42,426

(1)

Other property-level expenses include property-level general and administrative expenses, such as payroll, benefits, and other employee-related expenses, contract and professional fees, credit and collection expenses, employee recruitment, relocation and training expenses, labor dispute expenses, consulting fees, management fees, and other expenses.

(2)

Non-hotel operating expenses, net are included in property tax, ground lease and insurance on the Company’s consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024, and include corporate-level current year property taxes and insurance, as well as any prior year property taxes assessed on sold hotels, net of any refunds received.

(3)

When assessing a hotel’s operating performance, the CODM excludes certain items that are not indicative of the ongoing operating performance of the Company’s hotels, including pre-opening expenses associated with extensive renovation projects such as the work performed at Andaz Miami Beach, property-level grants, and taxes assessed on commercial rents.

The CODM does not receive asset information by segment. Assets reported to the CODM are consistent with those included on the Company’s consolidated balance sheets, with particular emphasis on the Company’s cash and cash equivalents, restricted cash, and debt.

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13. Commitments and Contingencies

Management Agreements

Management agreements with the Company’s third-party hotel managers currently require the Company to pay between 2.5% and 3.0% of total revenue of the managed hotels to the third-party managers each month as a basic management fee. In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers.

Total basic management and incentive management fees were included in other property-level expenses on the Company’s consolidated statements of operations as follows (unaudited and in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Basic management fees	$	6,301	$	6,022	$	19,815	$	18,635
Incentive management fees		(933)		(744)		2,378		2,603
Total basic and incentive management fees	$	5,368	$	5,278	$	22,193	$	21,238

License and Franchise Agreements

The Company has entered into license and franchise agreements related to certain of its hotels. The license and franchise agreements require the Company to, among other things, pay monthly fees that are calculated based on specified percentages of certain revenues. The license and franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage, and protection of trademarks. Compliance with such standards may from time to time require the Company to make significant expenditures for capital improvements.

Total license and franchise fees were included in franchise costs on the Company’s consolidated statements of operations as follows (unaudited and in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Franchise assessments (1)	$	4,265	$	4,411	$	12,867	$	12,781
Franchise royalties		206		300		906		954
Total franchise costs	$	4,471	$	4,711	$	13,773	$	13,735

(1)

Includes advertising, reservation and frequent guest program assessments.

Renovation and Construction Commitments

At September 30, 2025, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotels. The remaining commitments under these contracts at September 30, 2025 totaled $60.5 million.

Concentration of Risk

The concentration of the Company’s hotels in California, Florida, Hawaii, and Washington, DC exposes the Company’s business to economic and severe weather conditions, competition, and real and personal property tax rates unique to these locales.

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As of September 30, 2025, the Company’s hotels were geographically concentrated as follows (unaudited):


				Trailing 12-Month
		Percentage of		Total Consolidated
	Number of Hotels	Total Rooms		Revenue
Northern California	3	15	%	22	%
Southern California	2	22	%	23	%
Florida	3	18	%	12	%
Hawaii	1	8	%	14	%
Washington, DC	1	12	%	10	%

Other

The Company has provided customary unsecured indemnities to certain lenders, including in particular, environmental indemnities. The Company has performed due diligence on the potential environmental risks, including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate the Company to reimburse the indemnified parties for damages related to certain environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners or a claim against its environmental insurance policies.

At September 30, 2025, the Company had $0.2 million of outstanding irrevocable letters of credit to guarantee the Company’s financial obligations related to workers’ compensation insurance programs from prior policy years. The beneficiaries of these letters of credit may draw upon the letters of credit in the event of a contractual default by the Company relating to each respective obligation. No draws have been made through September 30, 2025.

The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of its hotels, its managers and other Company matters. While it is not possible to ascertain the ultimate outcome of such matters, the Company believes that the aggregate identifiable amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on its financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings brought against the Company, however, is subject to significant uncertainties.

14. Subsequent Events

Subsequent to the end of the third quarter of 2025 and through the date of issuance of these financial statements, the Company repurchased 11,145 shares of its common stock for $0.1 million, including fees and commissions, leaving $326.9 million remaining for repurchase under the Company’s stock repurchase program.

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Cautionary Statement

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” or similar expressions. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control, and which could materially affect actual results, performances or achievements. Accordingly, there is no assurance that the Company’s expectations will be realized. In evaluating these statements, you should specifically consider the risks outlined in detail in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 21, 2025, under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, including but not limited to the following factors:

●

we own upper upscale and luxury hotels located in convention, urban, and resort destinations in an industry that is highly competitive;

●

events beyond our control, including economic slowdowns or recessions, uncertainty in connection with certain international economic and political relationships, including political disputes, government shutdowns, and the imposition of tariffs affecting commodity costs, pandemics, natural disasters, civil unrest, and terrorism may harm the operating performance of the hotel industry generally and the performance of our hotels;

●

inflation may adversely affect our financial condition and results of operations;

●

system security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt the information technology network and systems used by us, our suppliers, our third-party managers or our franchisors;

●

a significant portion of our hotels are geographically concentrated and, accordingly, we could be disproportionately harmed by economic conditions, competition, new hotel supply, real and personal property tax rates, or natural disasters in these areas of the country;

●

we face possible risks associated with the physical and transitional effects of climate change;

●

uninsured or underinsured losses could harm our financial condition;

●

the operating results of some of our hotels are significantly reliant upon group and transient business generated by large corporate customers, and the loss of such customers for any reason could harm our operating results;

●

the increased use of virtual meetings and similar technologies could lessen the need for business-related travel and, therefore, demand for rooms in our hotels may be adversely affected;

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our hotels require ongoing capital investment and we may incur significant capital expenditures in connection with acquisitions, repositionings, and other improvements, some of which are mandated by applicable laws or regulations or agreements with third parties, and the costs of such renovations, repositionings, or improvements, including commodity cost increases resulting from inflation or the implementation of international tariffs, and delays due to supply chain disruptions, may exceed our expectations or cause other problems;

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delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders;

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accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods;

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volatility in the debt and equity markets may adversely affect our ability to acquire, renovate, refinance or sell our hotels;

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we may pursue joint venture investments that could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturer;

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we may be subject to unknown or contingent liabilities related to recently sold or acquired hotels, as well as hotels we may sell or acquire in the future;

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we may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel;

Sunstone Hotel Investors, Inc. 10-Q