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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 June 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 August 1, 2025, there were 189,969,350 shares of Sunstone Hotel Investors, Inc.’s common stock, $0.01 par value per share, outstanding.

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SUNSTONE HOTEL INVESTORS, INC.

QUARTERLY REPORT ON

FORM 10-Q

For the Quarterly Period Ended June 30, 2025

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

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

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

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

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 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	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	38

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

SIGNATURES		41

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PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

SUNSTONE HOTEL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	June 30,		December 31,
	2025		2024
	(unaudited)
ASSETS
Investment in hotel properties, net	$	2,788,498	$	2,856,032
Operating lease right-of-use assets, net		6,575		8,464
Cash and cash equivalents		73,555		107,199
Restricted cash		71,366		73,078
Accounts receivable, net		42,779		34,109
Prepaid expenses and other assets, net		28,214		27,757
Total assets	$	3,010,987	$	3,106,639

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Debt, net of unamortized deferred financing costs	$	868,695	$	841,047
Operating lease obligations		9,830		12,019
Accounts payable and accrued expenses		56,749		52,722
Dividends and distributions payable		22,314		24,137
Other liabilities		73,413		72,694
Total liabilities		1,031,001		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 June 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 June 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 June 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, 190,170,664 shares issued and outstanding at June 30, 2025 and 200,824,993 shares issued and outstanding at December 31, 2024		1,902		2,008
Additional paid in capital		2,298,245		2,395,702
Distributions in excess of retained earnings		(601,411)		(574,940)
Total stockholders’ equity		1,979,986		2,104,020

Total liabilities and stockholders' equity	$	3,010,987	$	3,106,639

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
REVENUES
Room	$	156,048	$	151,296	$	300,969	$	287,111
Food and beverage		78,026		71,367		145,154		132,706
Other operating		25,698		24,818		47,714		44,830
Total revenues		259,772		247,481		493,837		464,647
OPERATING EXPENSES
Room		40,859		37,345		79,969		72,896
Food and beverage		53,028		47,742		101,849		92,057
Other operating		6,510		6,394		12,370		12,338
Advertising and promotion		14,222		12,974		27,338		25,106
Repairs and maintenance		9,875		8,979		19,560		17,689
Utilities		7,051		6,295		13,792		12,239
Franchise costs		4,843		4,819		9,302		9,024
Property tax, ground lease and insurance		18,954		19,984		37,851		38,909
Other property-level expenses		31,533		28,120		61,258		55,743
Corporate overhead		8,346		8,168		17,251		15,686
Depreciation and amortization		34,125		31,112		66,400		60,152
Total operating expenses		229,346		211,932		446,940		411,839
Interest and other income		2,300		3,503		3,864		8,956
Interest expense		(13,164)		(12,693)		(25,846)		(23,703)
(Loss) gain on sale of assets, net		(8,751)		—		(8,751)		457
Gain on extinguishment of debt		—		38		—		59
Income before income taxes		10,811		26,397		16,164		38,577
Income tax (provision) benefit, net		(37)		(255)		(135)		600
NET INCOME		10,774		26,142		16,029		39,177
Preferred stock dividends		(3,932)		(3,683)		(7,863)		(7,366)
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	6,842	$	22,459	$	8,166	$	31,811

Basic and diluted per share amounts:
Basic income attributable to common stockholders per common share	$	0.03	$	0.11	$	0.04	$	0.16
Diluted income attributable to common stockholders per common share	$	0.03	$	0.11	$	0.04	$	0.16

Basic weighted average common shares outstanding		195,791		202,758		198,087		202,695
Diluted weighted average common shares outstanding		196,304		203,455		198,859		203,227

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

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

See accompanying notes to unaudited consolidated financial statements.

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SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Six Months Ended June 30,
	2025		2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	16,029	$	39,177
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		229		164
Loss (gain) on sale of assets, net		8,751		(457)
Gain on extinguishment of debt		—		(59)
Noncash interest on derivatives, net		1,163		(2,231)
Depreciation		65,639		59,554
Amortization of franchise fees and other intangibles		761		598
Amortization of deferred financing costs		1,802		1,478
Amortization of deferred stock compensation		4,836		5,951
Gain on insurance recoveries		(99)		(314)
Changes in operating assets and liabilities:
Accounts receivable, net		(8,899)		(3,399)
Prepaid expenses and other assets		(1,804)		(1,034)
Accounts payable and other liabilities		2,655		(6,033)
Operating lease right-of-use assets and obligations		(300)		(118)
Net cash provided by operating activities		90,763		93,277
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of hotel property		46,348		—
Acquisition of hotel property		—		(229,330)
Acquisition-related key money proceeds		4,000		—
Proceeds from property insurance		99		168
Renovations and additions to hotel properties and other assets		(56,043)		(68,686)
Net cash used in investing activities		(5,596)		(297,848)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of outstanding common stock		(98,470)		(3,622)
Repurchases of common stock for employee tax obligations		(4,278)		(3,217)
Proceeds from credit facility		27,000		—
Payments of deferred financing costs		(452)		—
Payments on notes payable		—		(1,072)
Dividends and distributions paid		(44,323)		(47,212)
Net cash used in financing activities		(120,523)		(55,123)
Net decrease in cash and cash equivalents and restricted cash		(35,356)		(259,694)
Cash and cash equivalents and restricted cash, beginning of period		180,277		493,698
Cash and cash equivalents and restricted cash, end of period	$	144,921	$	234,004

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


	June 30,
	2025		2024
Cash and cash equivalents	$	73,555	$	159,151
Restricted cash		71,366		74,853
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows	$	144,921	$	234,004


	Six Months Ended June 30,
	2025		2024
Cash paid for interest, net of capitalized interest	$	22,995	$	25,517
Cash (refunds) paid for income taxes, net	$	(23)	$	3,391
Operating cash flows used for operating leases	$	3,012	$	2,802

Changes in operating lease right-of-use assets	$	2,410	$	2,272
Changes in operating lease obligations		(2,710)		(2,390)
Changes in operating lease right-of-use assets and lease obligations, net	$	(300)	$	(118)

Supplemental Disclosure of Noncash Investing and Financing Activities


	Six Months Ended June 30,
	2025		2024
Accrued renovations and additions to hotel properties and other assets	$	18,017	$	23,876
Operating lease right-of-use asset obtained in exchange for operating lease obligation	$	521	$	—
Amortization of deferred stock compensation — construction activities	$	349	$	234
Dividends and distributions payable	$	22,314	$	22,987

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 June 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 June 30, 2025 and December 31, 2024, and for the three and six months ended June 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 six months ended June 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):



	June 30,		December 31,
	2025		2024
	(unaudited)
Land	$	640,649	$	645,884
Buildings and improvements		2,867,419		2,824,364
Furniture, fixtures and equipment		473,289		445,696
Intangible assets		43,938		44,063
Construction in progress		49,286		147,250
Investment in hotel properties, gross		4,074,581		4,107,257
Accumulated depreciation and amortization		(1,286,083)		(1,251,225)
Investment in hotel properties, net	$	2,788,498	$	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 June 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 June 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 June 30, 2025 and December 31, 2024, 51.0% 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 June 30, 2025 (unaudited) and December 31, 2024 were as follows (in thousands):


	June 30, 2025				December 31, 2024
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	872,000	$	867,757	$	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 derivatives, which are not designated as effective cash flow hedges, consisted of the following at June 30, 2025 (unaudited) and December 31, 2024 (in thousands):


									Estimated Fair Value of Assets (Liabilities) (1)
					Effective	Maturity	Notional		June 30,		December 31,
Hedged Debt	Type	Fixed Rate		Index	Date	Date	Amount		2025		2024
Term Loan 1	Swap	3.675	%	CME Term SOFR	March 17, 2023	March 17, 2026	$	75,000	$	168	$	370
Term Loan 1	Swap	3.931	%	CME Term SOFR	September 14, 2023	September 14, 2026	$	100,000		(270)		186
Term Loan 4	Swap	4.020	%	CME Term SOFR	January 31, 2025	November 7, 2026	$	100,000		(505)		—
									$	(607)	$	556

(1)

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 June 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 June 30, 2025.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Noncash interest on derivatives, net	$	181	$	(189)	$	1,163	$	(2,231)

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5. Prepaid Expenses and Other Assets

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


	June 30,		December 31,
	2025		2024
	(unaudited)
Prepaid expenses	$	11,556	$	10,488
Inventory		11,387		10,497
Deferred financing costs		1,521		2,223
Property and equipment, net		1,889		2,267
Interest rate derivatives		168		556
Deferred rent on straight-lined third-party tenant leases		338		369
Liquor licenses		930		930
Other		425		427
Total prepaid expenses and other assets, net	$	28,214	$	27,757

6. Debt

Debt consisted of the following (in thousands):


						Balance Outstanding as of
	June 30, 2025					June 30,		December 31,
	Rate Type		Interest Rate		Maturity Date	2025		2024
						(unaudited)
Unsecured Corporate Credit Facilities (1)
Term Loan 1	Fixed	(2)	5.32	%	July 25, 2027	$	175,000	$	175,000
Term Loan 2	Variable		5.83	%	January 25, 2028		175,000		175,000
Term Loan 3	Variable	(3)	5.92	%	May 1, 2026		225,000		225,000
Term Loan 4	Fixed	(4)	5.52	%	November 7, 2025		100,000		100,000
Draw on credit facility	Variable		5.86	%	July 25, 2026		27,000		—
Total unsecured corporate credit facilities						$	702,000	$	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							872,000		845,000
Unamortized deferred financing costs							(3,305)		(3,953)
Debt, net of unamortized deferred financing costs						$	868,695	$	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 and additional adjustments pursuant to the applicable credit agreement.

(2)

Term Loan 1 is subject to two interest rate swap derivatives (see Note 4).

(3)

In April 2025, the Company exercised its option to extend the maturity of Term Loan 3 from May 1, 2025 to May 1, 2026.

(4)

Term Loan 4 is subject to an interest rate swap derivative (see Note 4). Term Loan 4 has an initial maturity of November 7, 2025 with two six-month extensions at the Company’s election, which would result in an extended maturity of November 7, 2026, upon the payment of applicable fees and the satisfaction of certain customary conditions.

In April 2025, the Company drew down $27.0 million on its $500.0 million credit facility, leaving $473.0 million of capacity available for borrowing under the facility (see Note 14). The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various covenants.

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Interest Expense

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Interest expense on debt	$	12,417	$	12,304	$	24,282	$	24,617
Noncash interest on derivatives, net		181		(189)		1,163		(2,231)
Amortization of deferred financing costs		939		739		1,802		1,478
Capitalized interest		(373)		(161)		(1,401)		(161)
Total interest expense	$	13,164	$	12,693	$	25,846	$	23,703

7. Other Liabilities

Other liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2025		2024
	(unaudited)
Advance deposits	$	45,851	$	48,635
Property, sales and use taxes payable		12,919		10,088
Accrued interest		4,991		5,105
Deferred rent		880		1,433
Interest rate derivative		775		—
Management fees payable		591		1,168
Other		7,406		6,265
Total other liabilities	$	73,413	$	72,694

During the three months ended June 30, 2025 and 2024, the Company recognized approximately $14.2 million and $13.5 million, respectively, in revenue related to its outstanding contract liabilities. During the six months ended June 30, 2025 and 2024, the Company recognized approximately $38.0 million and $33.7 million, respectively, in revenue related to its outstanding contract liabilities.

8. Leases

As of both June 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):


	June 30,			December 31,
	2025			2024
	(unaudited)
Right-of-use assets, net	$	6,575		$	8,464

Lease obligations	$	9,830		$	12,019

Weighted average remaining lease term		16 years
Weighted average discount rate		5.6	%

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Operating lease cost	$	1,361	$	1,338	$	2,728	$	2,690
Variable lease cost (1)		2,267		2,371		4,253		4,506
Sublease income (2)		(297)		(297)		(594)		(594)
Total lease cost	$	3,331	$	3,412	$	6,387	$	6,602

(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 six months ended June 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 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 in the third quarter of 2025, the annual dividend rate will increase 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. 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.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Number of common shares repurchased		10,301,090		359,008		11,122,861		359,008
Cost, including fees and commissions	$	90,454	$	3,622	$	98,470	$	3,622
Number of preferred shares repurchased		—		—		—		—

As of June 30, 2025, $329.3 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 six months ended June 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.

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 June 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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Amortization expense, including forfeitures	$	2,772	$	3,181	$	4,836	$	5,951

Capitalized compensation cost (1)	$	177	$	117	$	349	$	234

(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 June 30, 2025	685,065	$	10.84

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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 June 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.

The restricted stock units granted during the first six 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.

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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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Numerator:
Net income	$	10,774	$	26,142	$	16,029	$	39,177
Preferred stock dividends		(3,932)		(3,683)		(7,863)		(7,366)
Distributions paid to participating securities		(62)		(84)		(123)		(149)
Undistributed income allocated to participating securities		—		(19)		—		—
Numerator for basic and diluted income attributable to common stockholders	$	6,780	$	22,356	$	8,043	$	31,662
Denominator:
Weighted average basic common shares outstanding		195,791		202,758		198,087		202,695
Unvested restricted stock units		513		697		772		532
Weighted average diluted common shares outstanding		196,304		203,455		198,859		203,227

Basic income attributable to common stockholders per common share	$	0.03	$	0.11	$	0.04	$	0.16
Diluted income attributable to common stockholders per common share	$	0.03	$	0.11	$	0.04	$	0.16

In its calculation of diluted earnings per share, the Company excluded 685,065 and 929,928 anti-dilutive unvested time-based restricted stock awards for the three and six months ended June 30, 2025 and 2024, respectively (see Note 10).

The Company also had 1,435,732 and 1,382,074 unvested performance-based restricted stock units as of June 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). 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 three and six months ended June 30, 2025. Based on the Company’s common stock performance, the Company excluded 188,004 anti-dilutive performance-based restricted stock units from its calculations of diluted earnings per share for the three and six months ended June 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

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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.

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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Revenues
Total revenues	$	259,772	$	247,481	$	493,837	$	464,647

Operating Expenses
Room		39,764		37,252		78,030		72,803
Food and beverage		52,123		47,700		100,014		92,015
Other operating		6,322		6,385		12,093		12,329
Advertising and promotion		13,672		12,801		26,173		24,933
Repairs and maintenance		9,712		8,960		19,249		17,670
Utilities		7,051		6,295		13,792		12,239
Franchise costs		4,843		4,819		9,302		9,024
Property tax, ground lease and insurance		19,161		20,218		38,190		39,322
Other property-level expenses (1)		31,216		27,857		60,314		56,823
		183,864		172,287		357,157		337,158

Hotel Adjusted EBITDAre	$	75,908	$	75,194	$	136,680	$	127,489


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Reconciliation of Hotel Adjusted EBITDAre to Net Income
Hotel Adjusted EBITDAre	$	75,908	$	75,194	$	136,680	$	127,489
Non-hotel operating expenses, net (2)		101		1		108		(9)
Pre-opening expenses (3)		(3,218)		(599)		(6,471)		(599)
Property-level COVID-19 relief grant (3)		—		—		—		1,343
Taxes assessed on commercial rents (3)		(189)		(62)		(352)		(161)
Amortization of right-of use assets and obligations		295		295		583		583
Corporate overhead		(8,346)		(8,168)		(17,251)		(15,686)
Depreciation and amortization		(34,125)		(31,112)		(66,400)		(60,152)
Interest and other income		2,300		3,503		3,864		8,956
Interest expense		(13,164)		(12,693)		(25,846)		(23,703)
Loss (gain) on sale of assets, net		(8,751)		—		(8,751)		457
Gain on extinguishment of debt		—		38		—		59
Income tax (provision) benefit, net		(37)		(255)		(135)		600
Net income	$	10,774	$	26,142	$	16,029	$	39,177

(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.

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(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 six months ended June 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, such as 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.

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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Basic management fees	$	7,117	$	6,639	$	13,514	$	12,613
Incentive management fees		1,726		318		3,311		3,347
Total basic and incentive management fees	$	8,843	$	6,957	$	16,825	$	15,960

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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Franchise assessments (1)	$	4,541	$	4,488	$	8,602	$	8,370
Franchise royalties		302		331		700		654
Total franchise costs	$	4,843	$	4,819	$	9,302	$	9,024

(1)

Includes advertising, reservation and frequent guest program assessments.

Renovation and Construction Commitments

At June 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 June 30, 2025 totaled $53.9 million.

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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.

As of June 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	%	22	%
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 June 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 June 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

On July 9, 2025, the Company drew down $23.0 million on its credit facility, leaving $450.0 million of capacity available for borrowing under the facility. The Company intends to use the proceeds for general corporate purposes. The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various covenants.

Subsequent to the end of the second quarter of 2025 and through the date of issuance of these financial statements, the Company repurchased 201,314 shares of its common stock for $1.8 million, including fees and commissions, leaving $327.5 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 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;

●

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;

●

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

●

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;

●

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

●

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;

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the sale of a hotel or portfolio of hotels is typically subject to contingencies, risks and uncertainties, any of which may cause us to be unsuccessful in completing the disposition;

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the illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our hotels;

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we may issue or invest in hotel loans, including subordinated or mezzanine loans, which could involve greater risks of loss than senior loans secured by income-producing real properties;

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if we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor’s willingness to forfeit the property in lieu of the debt;

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one of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations;

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because we are a REIT, we depend on third parties to operate our hotels;

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we are subject to risks associated with our operators’ employment of hotel personnel;

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most of our hotels operate under a brand owned by Marriott, Hyatt, Hilton, Four Seasons or Montage. Should any of these brands experience a negative event, or receive negative publicity, our operating results may be harmed;

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our franchisors and brand managers may adopt new policies or change existing policies, which could result in increased costs that could negatively impact our hotels;

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future adverse litigation judgments or settlements resulting from legal proceedings could have an adverse effect on our financial condition;

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claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses;

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the hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue and operating results;

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changes in the debt and equity markets may adversely affect the value of our hotels;

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certain of our hotels have in the past become impaired and additional hotels may become impaired in the future;

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laws and governmental regulations may restrict the ways in which we use our hotel properties and increase the cost of compliance with such regulations. Noncompliance with such regulations could subject us to penalties, loss of value of our properties or civil damages;

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corporate responsibility, specifically related to environmental sustainability, social responsibility and corporate governance (“ESG”) factors and commitments, may impose additional costs and expose us to new risks that could adversely affect our results of operations, financial condition and cash flows;

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our franchisors and brand managers may require us to make capital expenditures pursuant to property improvement plans or to comply with brand standards, and the failure to make the required expenditures could cause the franchisors or hotel brands to terminate the franchise, management or operating lease agreements;

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termination of any of our franchise, management or operating lease agreements could cause us to lose business;

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the growth of alternative reservation channels could adversely affect our business and profitability;

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the failure of tenants in our hotels to make rent payments or otherwise comply with the material terms of our retail and restaurant leases may adversely affect our results of operations;

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we rely on our corporate and hotel senior management teams, the loss of whom may cause us to incur costs and harm our business;

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we could be harmed by inadvertent errors, misconduct or fraud that is difficult to detect;

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if we fail to maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or identify and prevent fraud;

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we have outstanding debt which may restrict our financial flexibility;

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our debt agreements contain various covenants, restrictions, requirements and other limitations, and should we default, we may be required to pay additional fees, provide additional security or repay the debt. Defaulting on existing debt may limit our ability to access additional debt financing in the future;

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certain of our unsecured term loans are subject to variable interest rates, which creates uncertainty in the amount of interest expense we will incur in the future and may negatively impact our operating results;

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we may not be able to refinance our debt on favorable terms or at all;

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our organizational documents contain no limitations on the amount of debt we can incur so we may become too highly leveraged;

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if we fail to qualify as a REIT, our distributions will not be deductible by us and our income will be subject to federal and state taxation;

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even as a REIT, we may become subject to federal, state or local taxes on our income or property;

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if the leases between our hotels and the TRS Lessee are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT;

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we may be subject to taxes in the event our operating leases are not held to be on an arm’s-length basis;

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legislative or other actions affecting REITs could have a negative effect on us; and

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our stock repurchase program may not enhance long-term stockholder value, could cause volatility in the price of our common and preferred stock and could diminish our cash reserves.

These factors may cause our actual events to differ materially from the expectations expressed or implied by any forward-looking statement. Except as otherwise required by federal securities laws, the Company disclaims any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in the

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Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

Overview

Sunstone Hotel Investors, Inc. (the “Company,” “we,” “our” or “us”) is a Maryland corporation. We operate as a self-managed and self-administered real estate investment trust (“REIT”). A REIT is a corporation that directly or indirectly owns real estate assets and has elected to be taxable as a real estate investment trust for federal income tax purposes. To qualify for taxation as a REIT, the REIT must meet certain requirements, including regarding the composition of its assets and the sources of its income. REITs generally are not subject to federal income taxes at the corporate level as long as they pay stockholder dividends equivalent to 100% of their taxable income. REITs are required to distribute to stockholders at least 90% of their REIT taxable income. We own, directly or indirectly, 100% of the interests of Sunstone Hotel Partnership, LLC (the “Operating Partnership”), which is the entity that directly or indirectly owns our hotels. We also own 100% of the interests of our taxable REIT subsidiary, Sunstone Hotel TRS Lessee, Inc. (the “TRS Lessee”), which, directly or indirectly, leases all of our hotels from the Operating Partnership, and engages independent third-parties to manage our hotels.

We own hotels in convention, urban, and resort destinations that benefit from significant barriers to entry by competitors and diverse economic drivers. As of June 30, 2025, we owned 14 hotels (the “14 Hotels”), which average 500 rooms in size. All of our hotels are operated under nationally recognized brands, except the Oceans Edge Resort & Marina, which operates independently.

Operating Activities

Revenues. Substantially all of our revenues are derived from the operation of our hotels. Specifically, our revenues consist of the following:

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Room revenue, which is comprised of revenue realized from the sale of rooms at our hotels;

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Food and beverage revenue, which is comprised of revenue realized in the hotel food and beverage outlets as well as banquet and catering events; and

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Other operating revenue, which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone/internet, parking, spa, destination and resort fees, entertainment, and other guest services. Additionally, this category includes, among other things, attrition and cancellation revenue, tenant revenue derived from hotel space and marina slips leased by third parties, winery revenue, any business interruption proceeds and any performance guarantee or reimbursements to offset net losses.

Expenses. Our expenses consist of the following:

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Room expense, which is primarily driven by occupancy and, therefore, has a significant correlation with room revenue;

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Food and beverage expense, which is primarily driven by hotel food and beverage sales and banquet and catering bookings and, therefore, has a significant correlation with food and beverage revenue;

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Other operating expense, which includes the corresponding expense of other operating revenue, advertising and promotion, repairs and maintenance, utilities and franchise costs;

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Property tax, ground lease and insurance expense, which includes the expenses associated with property tax, ground lease and insurance payments, each of which is primarily a fixed expense, however property tax is subject to regular revaluations based on the specific tax regulations and practices of each municipality, along with our cash and noncash operating lease expenses, general excise tax assessed by Hawaii and taxes assessed on commercial rents by San Francisco and Texas;

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Other property-level expenses, which includes our 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;

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Corporate overhead expense, which includes our corporate-level expenses, such as payroll, benefits, and other employee-related expenses, amortization of deferred stock compensation, business acquisition and due diligence expenses, legal expenses, contract and professional fees, board of director expenses, entity-level state franchise and minimum taxes, travel expenses, office rent, and other customary expenses; and

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Depreciation and amortization expense, which includes depreciation on our hotel buildings, improvements, furniture, fixtures and equipment (“FF&E”), along with amortization on our franchise fees and certain intangibles. Additionally, this category includes depreciation and amortization related to FF&E for our corporate office.

Other Revenue and Expense. Other revenue and expense consists of the following:

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Interest and other income, which includes interest we have earned on our restricted and unrestricted cash accounts, as well as any energy or other rebates, property insurance proceeds we have received, miscellaneous income, and any gains or losses we have recognized on sales or redemptions of assets other than real estate investments;

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Interest expense, which includes interest expense incurred on our outstanding fixed and variable rate debt, gains or losses on interest rate derivatives, amortization of deferred financing costs, and any loan fees incurred on our debt, net of any capitalized interest;

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Gain (loss) on sale of assets, net, which includes the gains or losses we recognized on our hotel sales, including the net gains related to the resolution of contingencies, that do not qualify as discontinued operations;

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Gain (loss) on extinguishment of debt, net, which includes gains related to the resolution of contingencies on extinguished debt and losses recognized on amendments or early repayments of mortgages or other debt obligations from the accelerated amortization of deferred financing costs, along with any other costs;

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Income tax (provision) benefit, net, which includes federal and state income taxes charged to the Company net of any refundable credits or refunds received, any adjustments to deferred tax assets, liabilities or valuation allowances, and any adjustments to unrecognized tax positions, along with any related interest and penalties incurred; and

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Preferred stock dividends, which includes dividends accrued on our Series G Cumulative Redeemable Preferred Stock (“Series G preferred stock”), Series H Cumulative Redeemable Preferred Stock (“Series H preferred stock”) and Series I Cumulative Redeemable Preferred Stock (“Series I preferred stock”).

Operating Performance Indicators. The following performance indicators are commonly used in the hotel industry:

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Occupancy, which is the quotient of total rooms sold divided by total rooms available;

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Average daily room rate, or ADR, which is the quotient of room revenue divided by total rooms sold;

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Revenue per available room, or RevPAR, which is the product of occupancy and ADR, and does not include food and beverage revenue, or other operating revenue;

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RevPAR index, which is the quotient of a hotel’s RevPAR divided by the average RevPAR of its competitors, multiplied by 100. A RevPAR index in excess of 100 indicates a hotel is achieving higher RevPAR than the average of its competitors. In addition to absolute RevPAR index, we monitor changes in RevPAR index;

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EBITDAre, which is net income excluding: interest expense; benefit or provision for income taxes, including any changes to deferred tax assets, liabilities or valuation allowances and income taxes applicable to the sale of assets; depreciation and amortization; gains or losses on disposition of depreciated property (including gains or losses on change in control); and any impairment write-downs of depreciated property;

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Adjusted EBITDAre, which is EBITDAre adjusted to exclude: amortization of deferred stock compensation; amortization of contract intangibles; amortization of right-of-use assets and obligations; the impact of any gain or loss from undepreciated asset sales or property damage from natural disasters; any lawsuit settlement costs; the write-off of development costs associated with abandoned projects; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects such as the work performed at Andaz Miami Beach; debt resolution costs; and any other nonrecurring identified adjustments;

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Funds from operations (“FFO”) attributable to common stockholders, which is net income and preferred stock dividends and any redemption charges, excluding: gains and losses from sales of property; real estate-related depreciation and amortization (excluding amortization of deferred financing costs and right-of-use assets and obligations); and any real estate-related impairment losses; and

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Adjusted FFO attributable to common stockholders, which is FFO attributable to common stockholders adjusted to exclude: amortization of deferred stock compensation; amortization of contract intangibles; real estate-related amortization of right-of-use assets and obligations; noncash interest on our derivatives; income tax benefits or provisions associated with any changes to deferred tax assets, liabilities or valuation allowances, the application of net operating loss carryforwards, uncertain tax positions or with the sale of assets; gains or losses due to property damage from natural disasters; any lawsuit settlement costs; the write-off of development costs associated with abandoned projects; non-real estate-related impairment losses; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects such as the work performed at Andaz Miami Beach; debt resolution costs; preferred stock redemption charges; and any other nonrecurring identified adjustments.

Factors Affecting Our Operating Results. The primary factors affecting our operating results include overall demand for hotel rooms, the pace of new hotel development, or supply, and the relative performance of our operators in increasing revenue and controlling hotel operating expenses.

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Demand. The demand for lodging has traditionally been closely linked with the performance of the general economy. Our hotels are classified as either upper upscale or luxury hotels. In periods of economic difficulties, including those caused by inflation or recession, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates in part because upper upscale and luxury hotels generally target business and leisure travelers at higher price points, and these groups may seek to curtail spending in periods of economic decline. In addition, operating results at our hotels in resort markets may be negatively affected by reduced demand from domestic travelers and by changes in the value of the U.S. dollar in relation to other currencies, which may make international travel more affordable; whereas operating results at our hotels in gateway markets may be negatively affected by reduced demand from international travelers due to uncertainty in connection with certain international and political relationships, including political disputes and the imposition of tariffs, financial conditions in their home countries or a material strengthening of the U.S. dollar in relation to other currencies which makes travel to the U.S. less affordable. Also, volatility in transportation fuel costs, increases in air and ground travel costs, decreases in airline capacity, and prolonged periods of inclement weather in our markets may reduce the demand for our hotels.

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Supply. The addition of new competitive hotels affects the ability of existing hotels to absorb demand for lodging and, therefore, impacts the ability to generate growth in RevPAR and profits. The development of new hotels is largely driven by construction costs, the cost and availability of financing, and the expected performance of existing hotels. In the years since the COVID-19 pandemic, U.S. hotel supply growth has been below historic levels in most markets as the cost of construction and the cost and availability of financing have not been conducive to the development of new hotels. More recently, the imposition of tariffs is expected to increase the commodity costs associated with the development of new hotels. Separate from the development of new hotels, an increase in the supply of vacation rental or sharing services such as Airbnb may negatively affect the ability of existing hotels to generate growth in RevPAR and profits.

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Revenues and expenses. We believe that marginal improvements in RevPAR index, even in the face of declining revenues, are a good indicator of the relative quality and appeal of our hotels, and our operators’ effectiveness in maximizing revenues. Similarly, we also evaluate our operators’ effectiveness in minimizing incremental operating expenses in the context of increasing revenues or, conversely, in reducing operating expenses in the context of declining revenues. Inflationary pressures could increase operating costs, which could limit our operators’ effectiveness in minimizing expenses.

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Operating Results. The following table presents our unaudited operating results for the three months ended June 30, 2025 and 2024, including the amount and percentage change in the results between the two periods.


	Three Months Ended June 30,
	2025		2024		Change $		Change %

	(in thousands, except statistical data)
REVENUES
Room	$	156,048	$	151,296	$	4,752	3.1	%
Food and beverage		78,026		71,367		6,659	9.3	%
Other operating		25,698		24,818		880	3.5	%
Total revenues		259,772		247,481		12,291	5.0	%
OPERATING EXPENSES
Hotel operating		155,342		144,532		10,810	7.5	%
Other property-level expenses		31,533		28,120		3,413	12.1	%
Corporate overhead		8,346		8,168		178	2.2	%
Depreciation and amortization		34,125		31,112		3,013	9.7	%
Total operating expenses		229,346		211,932		17,414	8.2	%
Interest and other income		2,300		3,503		(1,203)

Sunstone Hotel Investors, Inc. 10-Q