Table of Contents
UNITED STATESSECURITIES 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 March 31, 2026
OR
☐
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 ofIncorporation or Organization)
(I.R.S. EmployerIdentification Number)
15 Enterprise, Suite 200Aliso 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
Series I Cumulative Redeemable Preferred Stock, $0.01 par value
SHO.PRI
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 April 28, 2026, there were 186,291,270 shares of Sunstone Hotel Investors, Inc.’s common stock, $0.01 par value per share, outstanding.
SUNSTONE HOTEL INVESTORS, INC.
QUARTERLY REPORT ON
For the Quarterly Period Ended March 31, 2026
TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements
2
Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2026 and 2025
3
Unaudited Consolidated Statements of Equity for the Three Months Ended March 31, 2026 and 2025
4
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025
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
34
Item 4.
Controls and Procedures
PART II—OTHER INFORMATION
Legal Proceedings
35
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
36
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
37
SIGNATURES
38
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31,
December 31,
2026
2025
(unaudited)
ASSETS
Investment in hotel properties, net
$
2,753,361
2,771,180
Operating lease right-of-use assets, net
4,098
4,418
Cash and cash equivalents
91,134
109,189
Restricted cash
75,549
76,531
Accounts receivable, net
45,364
33,662
Prepaid expenses and other assets, net
40,637
34,025
Total assets
3,010,143
3,029,005
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt, net of unamortized deferred financing costs
942,715
918,086
Operating lease obligations
6,811
7,348
Accounts payable and accrued expenses
52,541
63,146
Dividends and distributions payable
21,305
22,975
Other liabilities
82,472
72,832
Total liabilities
1,105,844
1,084,387
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 March 31, 2026 and December 31, 2025, stated at liquidation preference of $25.00 per share
66,250
6.125% Series H Cumulative Redeemable Preferred Stock, 4,303,141 shares issued and outstanding at March 31, 2026 and 4,545,903 shares issued and outstanding at December 31, 2025, stated at liquidation preference of $25.00 per share
107,579
113,648
5.70% Series I Cumulative Redeemable Preferred Stock, 3,868,640 shares issued and outstanding at March 31, 2026 and 3,990,973 shares issued and outstanding at December 31, 2025, stated at liquidation preference of $25.00 per share
96,716
99,774
Common stock, $0.01 par value, 500,000,000 shares authorized, 186,967,315 shares issued and outstanding at March 31, 2026 and 189,709,516 shares issued and outstanding at December 31, 2025
1,870
1,897
Additional paid in capital
2,268,217
2,298,398
Distributions in excess of retained earnings
(636,333)
(635,349)
Total stockholders’ equity
1,904,299
1,944,618
Total liabilities and stockholders' equity
See accompanying notes to unaudited consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended March 31,
Revenues
Room
161,047
144,921
Food and beverage
74,287
67,128
Other operating
24,375
22,016
Total revenues
259,709
234,065
Operating Expenses
41,998
39,110
51,272
48,821
6,724
5,860
Advertising and promotion
13,692
13,116
Repairs and maintenance
11,654
9,685
Utilities
7,137
6,741
Franchise costs
4,585
4,459
Property tax, ground lease and insurance
20,454
18,897
Other property-level expenses
32,758
29,725
Corporate overhead
6,835
8,905
Depreciation and amortization
34,177
32,275
Total operating expenses
231,286
217,594
Interest and other income
1,533
1,564
Interest expense
(11,277)
(12,682)
Income before income taxes
18,679
5,353
Income tax provision, net
(122)
(98)
Net Income
18,557
5,255
Preferred stock dividends, net of gain on repurchases
(2,602)
(3,931)
Net income attributable to common stockholders
15,955
1,324
Basic and diluted income per share
Basic net income attributable to common stockholders per common share
0.08
0.01
Diluted net income attributable to common stockholders per common share
Basic weighted average common shares outstanding
188,361
200,410
Diluted weighted average common shares outstanding
188,668
201,444
UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
Distributions
Preferred Stock
Common Stock
in Excess of
Number of
Additional
Retained
Shares
Amount
Paid in Capital
Earnings
Total Equity
Balance at December 31, 2025 (audited)
11,186,876
279,672
189,709,516
Amortization of deferred stock compensation
—
2,038
Issuance of restricted common stock, net
442,567
(3,409)
(3,405)
Common stock distributions declared at $0.09 per share
(16,939)
Series G preferred stock dividends declared at $0.406250 per share
(1,077)
Series H preferred stock dividends declared at $0.382813 per share
(1,647)
Series I preferred stock dividends declared at $0.356250 per share
(1,378)
Repurchases of common stock
(3,184,768)
(31)
(29,113)
(29,144)
Repurchases of Series H preferred stock
(242,762)
(6,069)
201
820
(5,048)
Repurchases of Series I preferred stock
(122,333)
(3,058)
102
680
(2,276)
Net income
Balance at March 31, 2026
10,821,781
270,545
186,967,315
Balance at December 31, 2024 (audited)
11,250,000
281,250
200,824,993
2,008
2,395,702
(574,940)
2,104,020
2,236
367,149
(4,282)
(4,278)
Forfeiture of restricted common stock
(861)
(17,778)
Series G preferred stock dividends declared at $0.281250 per share
(745)
(1,761)
(1,425)
(821,771)
(8)
(8,008)
(8,016)
Balance at March 31, 2025
200,369,510
2,004
2,385,648
(591,394)
2,077,508
5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense
336
76
Noncash interest on derivatives, net
(2,121)
982
Depreciation
33,798
31,894
Amortization of franchise fees and other intangibles
379
381
Amortization of deferred financing costs
1,041
863
1,889
2,064
Gain on insurance recoveries
(143)
(99)
Changes in operating assets and liabilities:
(12,011)
(16,312)
Prepaid expenses and other assets
(6,457)
(7,633)
Accounts payable and other liabilities
10,392
14,701
Operating lease right-of-use assets and obligations
(217)
(141)
Net cash provided by operating activities
45,443
32,031
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition-related key money proceeds
4,000
Proceeds from property insurance
116
73
Renovations and additions to hotel properties and other assets
(31,012)
(28,189)
Net cash used in investing activities
(26,896)
(28,116)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock for employee tax obligations
(3,165)
Repurchases of preferred stock
(7,324)
Proceeds from term loans
90,000
Payments on senior notes
(65,000)
Payment of securities registration costs
(240)
Dividends and distributions paid
(22,711)
(23,104)
Net cash used in financing activities
(37,584)
(35,398)
Net decrease in cash and cash equivalents and restricted cash
(19,037)
(31,483)
Cash and cash equivalents and restricted cash, beginning of period
185,720
180,277
Cash and cash equivalents and restricted cash, end of period
166,683
148,794
Supplemental Disclosure of Cash Flow Information
72,334
76,460
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows
Cash paid for interest, net of capitalized interest
15,150
13,004
Cash paid (refunded) for income taxes, net
70
(145)
Changes in operating lease right-of-use assets
320
1,203
Changes in operating lease obligations
(537)
(1,344)
Changes in operating lease right-of-use assets and lease obligations, net
Supplemental Disclosure of Noncash Investing and Financing Activities
Accrued renovations and additions to hotel properties and other assets
13,209
19,642
Gain on repurchases of preferred stock
1,803
Operating lease right-of-use asset obtained in exchange for operating lease obligation
521
Amortization of deferred stock compensation — construction activities
149
172
22,742
7
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 March 31, 2026, 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 March 31, 2026 and December 31, 2025, and for the three months ended March 31, 2026 and 2025, 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, 2025, filed with the SEC on February 27, 2026. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
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.
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.
Restricted Cash
Restricted cash primarily includes reserves for operating expenses and capital expenditures required by certain of the Company’s management and franchise agreements, as well as cash held as collateral for certain letters of credit. At times, restricted cash also includes hotel acquisition or disposition-related earnest money held in escrow reserves pending completion of the associated transaction.
Summary of Significant Accounting Policies
The Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 27, 2026, contains a discussion of significant accounting policies. There have been no changes to our significant accounting policies since December 31, 2025.
New Accounting Standards and Accounting Changes
In November 2024, the Financial Accounting Standards Board (“FASB”) 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.
In December 2025, the FASB issued Accounting Standards Update No. 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”), which clarifies the scope and requirements for interim financial statement disclosures under U.S. GAAP. The guidance creates a comprehensive list of required interim disclosures and incorporates a disclosure principle that requires disclosures at interim periods when an event or change that has a material effect on the entity has occurred since the previous year-end. ASU 2025-11 may be applied prospectively or retrospectively and is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of ASU 2025-11 on its consolidated financial statements.
3. Investment in Hotel Properties
Investment in hotel properties, net consisted of the following (in thousands):
Land
640,798
641,358
Buildings and improvements
2,911,250
2,909,921
Furniture, fixtures and equipment
484,639
481,457
Intangible assets
43,937
Construction in progress
60,344
48,486
Investment in hotel properties, gross
4,140,968
4,125,159
Accumulated depreciation and amortization
(1,387,607)
(1,353,979)
4. Fair Value Measurements and Interest Rate Derivatives
Fair Value Measurements
As of March 31, 2026 and December 31, 2025, 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
9
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.
As of both March 31, 2026 and December 31, 2025, 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 March 31, 2026 and December 31, 2025, 60.7% and 70.4%, 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 March 31, 2026 (unaudited) and December 31, 2025 were as follows (in thousands):
March 31, 2026
December 31, 2025
Carrying Amount (1)
Fair Value (2)
Debt
955,000
953,446
930,000
929,162
Interest Rate Derivatives
The Company’s interest rate swap derivatives, which are not designated as effective cash flow hedges, consisted of the following at March 31, 2026 (unaudited) and December 31, 2025 (in thousands):
Estimated Fair Value of Assets (Liabilities) (1)
Effective
Maturity
Notional
Hedged Debt
Fixed Rate
Date
Term Loan 2
3.675
%
March 17, 2023
March 17, 2026
N/A
3.931
September 14, 2023
September 14, 2026
100,000
(124)
(311)
4.020
January 31, 2025
November 7, 2026
(213)
(491)
Term Loan 1
3.226
September 9, 2025
September 9, 2028
210,000
1,679
395
3.206
January 10, 2026
January 10, 2028
65,000
457
85
1,799
(322)
Noncash changes in the fair values of the Company’s interest rate derivatives resulted in a (decrease) increase to interest expense for the three months ended March 31, 2026 and 2025 as follows (unaudited and in thousands):
10
5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets, net consisted of the following (in thousands):
Prepaid expenses
17,009
10,617
Inventory
11,580
Deferred financing costs, net
6,854
8,266
Property and equipment, net
1,424
1,572
Interest rate derivatives
2,136
480
Deferred rent on straight-lined third-party tenant leases
194
145
Liquor licenses
930
Other
436
435
Total prepaid expenses and other assets, net
6. Debt
In January 2026, the Company drew down the $90.0 million available under the Term Loan 1 delayed draw and used the proceeds to repay the $65.0 million Series A Senior Notes at their scheduled maturity in January 2026 and for general corporate purposes. In connection with the draw down under the Term Loan 1 delayed draw, the Company reclassified deferred financing costs of $1.0 million from prepaid expenses and other assets, net to debt, net of unamortized deferred financing costs on the accompanying consolidated balance sheet as of March 31, 2026.
As of March 31, 2026, the Company had no amount outstanding on its credit facility, with $500.0 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 financial covenants.
Debt consisted of the following (in thousands):
Balance Outstanding as of
Rate Type
Interest Rate
Maturity Date
Unsecured Corporate Credit Facilities (1)
Fixed
(2)
4.67
January 24, 2029
275,000
185,000
(3)
5.34
January 24, 2030
Term Loan 3
Floating
5.13
January 24, 2031
300,000
Total unsecured corporate credit facilities
850,000
760,000
Unsecured Senior Notes
Series A
(4)
Series B
4.79
105,000
Total unsecured senior notes
170,000
Total debt
Unamortized deferred financing costs
(12,285)
(11,914)
11
Interest Expense
Total interest incurred and expensed on the Company’s debt was as follows (unaudited and in thousands):
Interest expense on debt
12,357
11,865
Capitalized interest
(1,028)
Total interest expense
11,277
12,682
7. Other Liabilities
Other liabilities consisted of the following (in thousands):
Advance deposits
56,598
47,035
Property, sales and use taxes payable
14,140
11,565
Accrued interest
1,779
4,572
Deferred rent
904
905
337
802
Management fees payable
1,449
1,875
7,265
6,078
Total other liabilities
During the three months ended March 31, 2026 and 2025, the Company recognized approximately $22.6 million and $23.8 million, respectively, in revenue related to its outstanding contract liabilities.
8. Leases
As of both March 31, 2026 and December 31, 2025, the Company had operating leases for ground, office, equipment, and airspace leases with current maturity dates ranging from 2028 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 accompanying consolidated balance sheets as follows (in thousands):
Right-of-use assets, net (1)
Lease obligations (1)
Weighted average remaining lease term
5 years
Weighted average discount rate
5.8
12
The components of lease expense, as well as supplemental cash flow information for operating leases, were as follows (unaudited and in thousands):
Operating lease cost
431
1,367
Variable lease cost (1)
3,253
1,986
Sublease income (2)
(305)
(297)
Total lease cost
3,379
3,056
Operating cash flows for operating leases (3)
619
1,505
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 Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. The dividend rate subsequently increased to the greater of the rate equal to Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort or 4.5% and 6.5% in July 2024 and July 2025, respectively, resulting in dividend rates of 6.5% and 4.5% for the first quarters of 2026 and 2025, respectively. Beginning in the third quarter of 2026, the annual dividend rate will increase to the greater of 7.5% or the rate equal to 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.
Stock Repurchase Program
In February 2026, the Company’s board of directors reauthorized and restored the Company’s existing stock repurchase program, allowing the Company to acquire up to $500.0 million of the Company’s aggregate common and preferred stock. The stock repurchase program has no stated expiration date.
13
Details of the Company’s common and preferred stock repurchases were as follows (dollars in thousands):
Number of common shares
3,184,768
821,771
Number of preferred shares (1)
365,095
Total cost, including fees and commissions
36,468
8,016
As of March 31, 2026, $471.1 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 months ended March 31, 2026 or 2025, 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 March 31, 2026 and 2025, 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):
Amortization expense, including forfeitures
Capitalized compensation cost (1)
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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, 2026
685,065
10.84
Granted
437,675
9.28
Vested
(307,140)
10.89
Unvested at March 31, 2026
815,600
9.98
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 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:
Target Number
of Shares
1,435,732
10.77
575,968
8.52
(352,033)
11.07
Forfeited
(49,830)
1,609,837
9.89
The restricted stock units granted during the first three months of 2026 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
3.64
Expected term
3 years
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
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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):
Numerator:
Distributions paid to participating securities
(73)
(62)
Numerator for basic and diluted net income attributable to common stockholders
15,882
1,262
Denominator:
Weighted average basic common shares outstanding
Unvested restricted stock units
307
1,034
Weighted average diluted common shares outstanding
In its calculation of diluted earnings per share, the Company excluded 815,600 and 685,065 anti-dilutive unvested time-based restricted stock awards for the three months ended March 31, 2026 and 2025, respectively (see Note 10).
The Company also had 1,609,837 and 1,435,732 unvested performance-based restricted stock units as of March 31, 2026 and 2025, 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 calculations of diluted earnings per share for both the three months ended March 31, 2026 and 2025.
12. Segment Information
The Company considers each of its hotels to be an operating segment and has aggregated its hotels into a single reportable segment, Hotel Ownership. The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The key measure the CODM uses to allocate resources and assess performance is individual hotel net income (loss) before interest expense, income taxes, and 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”):
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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 accompanying 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):
Expenses
38,266
47,891
5,771
12,501
9,581
9,537
20,145
19,029
Other property-level expenses (1)
29,098
187,892
173,293
Hotel Adjusted EBITDAre
71,817
60,772
Reconciliation of Hotel Adjusted EBITDAre to Net Income
Non-hotel operating expenses, net (2)
Severe weather-related restoration expenses (3)
(2,073)
Pre-opening expenses (3)
(3,253)
Taxes assessed on commercial rents (3)
(299)
(163)
Amortization of right-of-use assets and obligations
288
(6,835)
(8,905)
(34,177)
(32,275)
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 accompanying consolidated statements of operations as follows (unaudited and in thousands):
Basic management fees
7,304
6,397
Incentive management fees
1,581
1,585
Total basic and incentive management fees
8,885
7,982
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 accompanying consolidated statements of operations as follows (unaudited and in thousands):
Franchise assessments (1)
4,417
4,061
Franchise royalties
168
398
Total franchise costs
Renovation and Construction Commitments
At March 31, 2026, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotel properties. The remaining commitments under these contracts at March 31, 2026 totaled $49.1 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 March 31, 2026, 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
Southern California
Florida
Hawaii
1
Washington, DC
Maui Storms
During the first quarter of 2026, the Hawaiian Islands experienced multiple severe storms that impacted the Company’s Wailea Beach Resort. The resort remained open during and following the storms that occurred in March but sustained wind and water damage in some of the guestrooms, public areas, and portions of the resort’s roofs. The Company maintains customary property, casualty, environmental, flood, and business interruption insurance at all of its hotels; however, such coverage is subject to certain limitations, conditions, and deductibles.
The Company is continuing to assess the extent of the damage; however, based on currently available information and the preliminary nature of this assessment, the Company is not able to reasonably estimate the loss associated with the damaged assets at this time. The Company is working with its insurers to identify and pursue relevant insurance recoveries related to repair and restoration costs. In addition, the Company is pursuing and expects to receive recoveries for business interruption on estimated lost profits associated with the storm-related damage. Storm-related costs will be recognized as incurred, to the extent determinable. Any insurance recoveries for business interruption, if realized, are expected to generally be recognized in the period or periods in which they are received.
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.
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 April 8, 2026, the Company drew down $25.0 million on its $500.0 million credit facility, leaving $475.0 million of capacity available for borrowing under the facility. The Company intends to use the proceeds for general corporate purposes and expects to repay the draw using cash from future operations. 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 first quarter of 2026 and through the date of issuance of these financial statements, the Company repurchased 676,045 shares and 423,252 shares of its common and preferred stock, respectively, for $6.1 million and $8.4 million, respectively, including fees and commissions, leaving $456.7 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 27, 2026, under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, including but not limited to the following factors:
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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 Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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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 March 31, 2026, we owned 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.
During the first quarter of 2026, the Hawaiian Islands experienced multiple severe storms that impacted our Wailea Beach Resort. The resort remained open during and following the storms that occurred in March but sustained wind and water damage in some of the guestrooms, public areas, and portions of the resort’s roofs. We maintain customary property, casualty, environmental, flood, and business interruption insurance at all of our hotels; however, such coverage is subject to certain limitations, conditions, and deductibles.
We are continuing to assess the extent of the damage; however, based on currently available information and the preliminary nature of this assessment, we are not able to reasonably estimate the loss associated with the damaged assets at this time. We are working with our insurers to identify and pursue relevant insurance recoveries related to repair and restoration costs. In addition, we are pursuing and expect to receive recoveries for business interruption on estimated lost profits associated with the storm-related damage. Storm-related costs will be recognized as incurred, to the extent determinable. Any insurance recoveries for business interruption, if realized, are expected to generally be recognized in the period or periods in which they are received.
Operating Activities
Revenues. Substantially all of our revenues are derived from the operation of our hotels. Specifically, our revenues consist of the following:
Expenses. Our expenses consist of the following:
Other Revenue and Expense. Other revenue and expense consists of the following:
Operating Performance Indicators. The following performance indicators are commonly used in the hotel industry:
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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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Operating Results. The following table presents our unaudited operating results for the three months ended March 31, 2026 and 2025, including the amount and percentage change in the results between the two periods.
Change $
Change %
(in thousands, except statistical data)
REVENUES
16,126
11.1
7,159
10.7
2,359
25,644
11.0
OPERATING EXPENSES
Hotel operating
157,516
146,689
10,827
7.4
3,033
10.2
(2,070)
(23.2)
1,902
5.9
6.3
(2.0)
1,405
13,326
248.9
(24)
(24.5)
NET INCOME
13,302
253.1
1,329
33.8
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
14,631
1,105.1
Summary of Operating Results. The following items significantly impact the year-over-year comparability of our operations:
Room revenue. Room revenue increased $16.1 million, or 11.1%, in the first quarter of 2026 as compared to the first quarter of 2025 as follows:
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Change
Occ%
ADR
RevPAR
Comparable Portfolio
73.6
333.16
245.21
72.9
318.26
232.01
bps
4.7
5.7
Food and beverage revenue. Food and beverage revenue increased $7.2 million, or 10.7%, in the first quarter of 2026 as compared to the first quarter of 2025, as follows:
Other operating revenue. Other operating revenue increased $2.4 million, or 10.7%, in the first quarter of 2026 as compared to the first quarter of 2025 as follows:
Hotel operating expenses. Hotel operating expenses, which are comprised of room, food and beverage, advertising and promotion, repairs and maintenance, utilities, franchise costs, property tax, ground lease and insurance, and other hotel operating expenses increased $10.8 million, or 7.4%, in the first quarter of 2026 as compared to the first quarter of 2025 as follows:
Other property-level expenses. Other property-level expenses increased $3.0 million, or 10.2%, in the first quarter of 2026 as compared to the first quarter of 2025 as follows:
Corporate overhead expense. Corporate overhead expense decreased $2.1 million, or 23.2%, in the first quarter of 2026 as compared to the first quarter of 2025, due to decreased payroll and related expenses and deferred stock amortization expense due to the restructuring of our executive team in the first quarter of 2025, and decreased entity-level state franchise and minimum taxes.
Depreciation and amortization expense. Depreciation and amortization expense increased $1.9 million, or 5.9%, in the first quarter of 2026 as compared to the first quarter of 2025 as follows:
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Interest and other income. Interest and other income totaled $1.5 million and $1.6 million in the first quarters of 2026 and 2025, respectively.
During the first quarters of 2026 and 2025, we recognized interest income of $1.3 million and $1.4 million, respectively. Interest income decreased in the first quarter of 2026 as compared to the first quarter of 2025 due to decreased interest rates. In addition, during the first quarters of both 2026 and 2025, we recognized property insurance recoveries of $0.1 million and other miscellaneous income of $0.1 million.
Interest expense. We incurred interest expense as follows (in thousands):
Interest expense decreased $1.4 million, or 11.1%, in the first quarter of 2026 as compared to the same period in 2025.
The decrease in interest expense during the first quarter of 2026 as compared to the same period in 2025 was primarily due to a noncash change of $3.1 million in the fair market value of our derivatives. This decrease in interest expense was partially offset by a $1.0 million reduction in capitalized interest, which was related to the extensive renovation work at Andaz Miami Beach in 2025, as there was no corresponding capitalization of interest in the first quarter of 2026.
The decrease in total interest expense during the first quarter of 2026 as compared to the same period in 2025 was partially offset by a $0.5 million increase in interest expense on our debt primarily due to higher average debt balances, partially offset by lower average interest rates on our term loans. In addition, interest expense during the first quarter of 2026 increased $0.2 million as compared to the same period in 2025, due to higher amortization of deferred financing costs related to costs associated with the execution of the Third Amended and Restated Credit Agreement entered into in September 2025.
Our weighted average interest rate per annum, including our variable rate debt obligations and excluding capitalized interest, was approximately 5.0% and 5.5% at March 31, 2026 and 2025, respectively. Approximately 60.7% and 52.7% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates at March 31, 2026 and 2025, respectively.
Income tax provision, net. We lease our hotels to the TRS Lessee and its subsidiaries, which are subject to federal and state income taxes. In addition, we and the Operating Partnership may also be subject to various state and local income taxes.
For the first quarters of both 2026 and 2025, we recognized net current income tax provisions of $0.1 million, resulting from current state and federal income tax expenses, net of any refunds.
Preferred stock dividends, net of gain on repurchases. Preferred stock dividends, net of gain on repurchases were incurred as follows (in thousands):
Series G preferred stock
1,077
745
Series H preferred stock
827
(1)
1,761
Series I preferred stock
698
1,425
Total preferred stock dividends
2,602
3,931
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The dividend rate on the Series G preferred stock increased to the greater of the rate equal to Montage Healdsburg’s annual net operating income yield on our total investment in the resort or 4.5%, and 6.5% in July 2024, and July 2025, respectively, resulting in dividend rates of 6.5% and 4.5% for the first quarters of 2026 and 2025, respectively. Beginning in the third quarter of 2026, the annual dividend rate will increase to the greater of 7.5% or the rate equal to Montage Healdsburg’s annual net operating income yield on our total investment in the resort.
Non-GAAP Financial Measures. We use the following “non-GAAP financial measures” that we believe are useful to investors as key supplemental measures of our operating performance: EBITDAre; Adjusted EBITDAre; FFO attributable to common stockholders; and Adjusted FFO attributable to common stockholders. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with accounting principles generally accepted in the United States (“GAAP”). In addition, our calculation of these measures may not be comparable to other companies that do not define such terms exactly the same as us. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to net income (loss), cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.
We present EBITDAre in accordance with guidelines established by the National Association of Real Estate Investment Trusts (“Nareit”), as defined in its September 2017 white paper “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate.” We believe EBITDAre is a useful performance measure to help investors evaluate and compare the results of our operations from period to period in comparison to our peers. Nareit defines EBITDAre as net income (calculated in accordance with GAAP) plus interest expense, income tax expense, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change in control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates.
We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful information to investors regarding our operating performance, and that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s complete understanding of our operating performance. In addition, we use both EBITDAre and Adjusted EBITDAre as measures in determining the value of hotel acquisitions and dispositions.
We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:
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The following table reconciles our unaudited net income to EBITDAre and Adjusted EBITDAre for the three months ended March 31, 2026 and 2025 (in thousands):
122
98
EBITDAre
64,133
50,310
Loss (gain) on property damage, net
1,930
Pre-opening costs
Management transition costs
1,869
Adjustments to EBITDAre, net
3,602
6,946
Adjusted EBITDAre
67,735
57,256
Adjusted EBITDAre increased $10.5 million, or 18.3%, in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to the following:
We believe that the presentation of FFO attributable to common stockholders provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified noncash items such as real estate depreciation and amortization, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance. Our presentation of FFO attributable to common stockholders conforms to the Nareit definition of “FFO applicable to common shares.” Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current Nareit definition, or that interpret the current Nareit definition differently than we do.
We also present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and may facilitate comparisons of operating performance between periods and our peer companies.
We adjust FFO attributable to common stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to common stockholders:
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The following table reconciles our unaudited net income to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the three months ended March 31, 2026 and 2025 (in thousands):
Real estate depreciation and amortization
33,832
31,918
FFO attributable to common stockholders
49,787
33,242
Real estate amortization of right-of-use assets and obligations
(186)
(126)
Amortization of contract intangibles, net
315
Gain on preferred stock repurchases, net
(1,500)
Adjustments to FFO attributable to common stockholders, net
327
8,258
Adjusted FFO attributable to common stockholders
50,114
41,500
Adjusted FFO attributable to common stockholders increased $8.6 million, or 20.8%, in the first quarter of 2026 as compared to the same period in 2025 primarily due to the same reasons noted in the discussion above regarding Adjusted EBITDAre.
Liquidity and Capital Resources
During the periods presented, our sources of cash included our operating activities and working capital, as well as proceeds from our term loans, key money, and property insurance. Our primary uses of cash were for capital expenditures for hotels and other assets, operating expenses, repurchases of our preferred and common stock, repayments of our senior notes, and dividends and distributions on our preferred and common stock. We cannot be certain that the sources of funds we have relied on in the past will be available in the future.
Operating activities. Our net cash provided by or used in operating activities fluctuates primarily as a result of changes in the net cash generated by our hotels, offset by the cash paid for corporate expenses. Our net cash provided by or used in operating
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activities may also be affected by changes in our portfolio resulting from hotel acquisitions, dispositions or renovations. Net cash provided by operating activities was $45.4 million in the first three months of 2026 as compared to $32.0 million in the first three months of 2025. The net increase in cash provided by operating activities during the first three months of 2026 as compared to the same period in 2025 was primarily due to additional operating cash provided by the increase in travel demand benefiting our hotels, decreased corporate-level expenses, and the continued post-renovation ramp-up of Andaz Miami Beach. These increases were partially offset by our sale of Hilton New Orleans St. Charles.
Investing activities. Our net cash provided by or used in investing activities fluctuates primarily as a result of acquisitions, dispositions, and renovations of hotels and other assets. Net cash used in investing activities during the first three months of 2026 as compared to the first three months of 2025 was as follows (in thousands):
During the first three months of 2026, we invested $31.0 million for renovations and additions to our portfolio and other assets. These cash outflows were partially offset by $4.0 million in key money received from the manager of one of our hotels pursuant to the hotel’s management agreement, and $0.1 million in property insurance proceeds received.
During the first three months of 2025, we invested $28.2 million for renovations and additions to our portfolio and other assets and received $0.1 million in property insurance proceeds.
Financing activities. Our net cash provided by or used in financing activities fluctuates primarily as a result of our dividends and distributions paid, the issuance and repurchase of common stock, the issuance and repayment of debt, including draws on our credit facility and term loans, and the issuance, repurchase, and redemption of other forms of capital, including preferred equity. Net cash used in financing activities during the first three months of 2026 as compared to the first three months of 2025 was as follows (in thousands):
During the first three months of 2026, we paid $29.1 million to repurchase 3,184,768 shares of our common stock and $7.3 million to repurchase 242,762 shares and 122,333 shares of our Series H preferred stock and Series I preferred stock, respectively. We also paid $3.2 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $0.2 million in costs associated with our automatic shelf registration statement, and $22.7 million in dividends and distributions to our preferred and common stockholders. In January 2026, we drew down the $90.0 million available under the Term Loan 1 delayed draw and used a portion of the proceeds to repay the $65.0 million Series A Senior Notes at their scheduled maturity in January 2026.
During the first three months of 2025, we paid $8.0 million to repurchase 821,771 shares of our common stock, $4.3 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees and $23.1 million in dividends and distributions to our preferred and common stockholders.
Future. We expect our primary sources of cash will continue to be our operating activities, working capital, borrowing under our credit facility, additional issuances of debt, dispositions of hotel properties, and proceeds from offerings of common and preferred stock. However, there can be no assurance that our future asset sales, debt issuances or equity offerings will be successfully completed. As a result of potential increases in inflation rates and interest rates, as well as possible recessionary periods in the future, certain sources of capital may not be as readily available to us as they have in the past or may only be available at higher costs.
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We expect our primary uses of cash to be for operating expenses, capital investments in our hotels, repayment of principal on our debt and credit facility, interest expense, repurchases of our common and preferred stock, distributions on our common stock, dividends on our preferred stock, and acquisitions of hotels or interests in hotels.
While inflation moderated and remained relatively stable in 2025, inflation increased in March 2026, primarily driven by higher energy costs due to the war in Iran. The uncertainty surrounding certain international economic and political relationships, including political disputes and unfavorable perceptions of travel to the U.S., the economic impact arising from geopolitical instability in key energy‑producing regions, including volatility in transportation fuel costs and increases in air and ground travel costs, decreases in airline capacity, government shutdowns, and the imposition of tariffs affecting commodity costs, has had, or has the potential to have, a negative effect on our operations. We have experienced increases in wages, employee-related benefits, food costs, commodity costs, including those used to renovate or reposition our hotels, property taxes, liability insurance, utilities, and borrowing costs, and such pressures may persist. The imposition of tariffs could exacerbate existing cost pressures and create additional inflationary pressures that could further impact our results of operations. The ability of our hotel operators to adjust rates has historically mitigated the impact of increased operating costs on our financial position and results of operations.
Cash Balance. As of March 31, 2026, our unrestricted cash balance was $91.1 million. We believe that our current unrestricted cash balance and our ability to draw the $500.0 million capacity available for borrowing under the unsecured revolving credit facility will enable us to successfully manage our Company.
Debt. As of March 31, 2026, we had $955.0 million of unsecured corporate-level debt, $166.7 million of cash and cash equivalents, including restricted cash, and total assets of $3.0 billion. We believe that by maintaining appropriate debt levels, staggering maturity dates, and maintaining a highly flexible structure, we will have lower capital costs than more highly leveraged companies, or companies with limited flexibility due to restrictive covenants.
In January 2026, we drew down the $90.0 million available under the Term Loan 1 delayed draw and used the proceeds to repay the $65.0 million Series A Senior Notes at their scheduled maturity in January 2026 and for general corporate purposes.
As of March 31, 2026, 60.7% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates, including our $275.0 million Term Loan 1, $200.0 million of our Term Loan 2, and our $105.0 million Series B Senior Notes.
Our floating rate debt as of March 31, 2026 included $75.0 million of our Term Loan 2 and our $300.0 million Term Loan 3.
In April 2026, we drew down $25.0 million on our credit facility. We intend to use the proceeds for general corporate purposes and to repay the draw using cash from future operations.
Contractual Obligations. The following table summarizes our payment obligations and commitments as of March 31, 2026 (in thousands):
Payment due by period
Less Than
1 to 3
3 to 5
More than
Total
1 year
years
Debt (1)
Interest obligations on debt (1) (2)
226,565
46,468
94,277
85,820
Operating lease obligations, including imputed interest (3)
8,094
2,575
4,269
294
956
Construction commitments
49,057
1,238,716
98,100
203,546
936,114
32
We may in the future seek to obtain mortgages on one or more of our 14 unencumbered hotels (subject to certain stipulations under our unsecured term loans and senior notes), all of which were held by subsidiaries whose interests were pledged to our credit facilities as of March 31, 2026. Should we obtain secured financing on any or all of our unencumbered hotels, the amount of capital available through our credit facilities or future unsecured borrowings may be reduced.
Capital Expenditures and Reserve Funds
We believe we maintain each of our hotels in good repair and condition and in general conformity with applicable franchise and management agreements, ground lease, laws, and regulations. Our capital expenditures primarily relate to the ongoing maintenance of our hotels and are budgeted in the reserve accounts described in the following paragraph. We also incur capital expenditures for cyclical renovations, hotel repositionings, and development. We invested $31.0 million and $28.2 million in our portfolio and other assets during the first three months of 2026 and 2025, respectively. As of March 31, 2026, we have contractual construction commitments totaling $49.1 million for ongoing renovations. If we renovate additional hotels in the future, our capital expenditures will likely increase.
For our hotels that are operated under management or franchise agreements, we are generally obligated to maintain an FF&E reserve account for future planned and emergency-related capital expenditures at these hotels. The amount funded into each of these reserve accounts is determined pursuant to the management and franchise agreements for each of the respective hotels, ranging between 3.0% and 5.5% of the respective hotel’s applicable annual revenue. As of March 31, 2026, our balance sheet includes restricted cash of $75.4 million, which was held in FF&E reserve accounts for future capital expenditures. These reserve funds are held by the managers in restricted cash accounts, and we are not required to spend the entire amount in such reserve accounts each year.
Inflation
Inflation affects our expenses, including, without limitation, by increasing such costs as wages, employee-related benefits, food costs, commodity costs, including those used to renovate or reposition our hotels, property taxes, property and liability insurance, utilities, and borrowing costs. We rely on our hotel operators to adjust room rates and pricing for hotel services to reflect the effects of inflation. However, previously contracted rates, competitive pressures or other factors may limit the ability of our operators to respond to inflation. As a result, our expenses may increase at higher rates than our revenue and our expenses may not decrease if revenue decreases.
Seasonality and Volatility
As is typical of the lodging industry, we experience seasonality in our business. Demand at certain of our hotels is affected by seasonal business patterns that can cause quarterly fluctuations in our revenues.
Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as economic and business conditions, including a U.S. recession or increased inflation, trade conflicts and tariffs, changes impacting global travel, regional or global economic slowdowns, the economic impact arising from geopolitical instability in key energy‑producing regions, any flu or disease-related outbreak that impacts travel or the ability to travel, weather patterns, the adverse effects of climate change, the threat of terrorism, terrorist events, civil unrest, government shutdowns, events that reduce the capacity or availability of air travel, increased competition from other hotels in our markets, new hotel supply or alternative lodging options, and unexpected changes in commercial or leisure travel.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities.
We evaluate our estimates on an ongoing basis. We base our estimates on historical experience, information that is currently available to us, and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.
33
Recoverability of assets that will continue to be used is measured by comparing the carrying amount of the asset to the related total future undiscounted net cash flows. If an asset’s carrying value is not recoverable through those cash flows, the asset is considered to be impaired. The impairment is measured by the difference between the asset’s carrying amount and its fair value. We perform a fair value assessment using valuation techniques such as discounted cash flows and comparable sales transactions in the market to estimate the fair value of the hotel and, if appropriate and available, current estimated net sales proceeds from pending offers. The impairment assessment includes subjective assumptions such as determining the discount rate, terminal capitalization rate, the estimated growth of revenues and expenses, revenue per available room and margins, specific market and economic conditions, the estimated holding period, as well as the probability assigned to each future cash flow scenario.
We review any uncertain tax positions and, if necessary, we will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes federal and certain states.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
To the extent that we incur debt with variable interest rates, our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use interest rate derivatives to manage our exposure to the interest rate risks related to our floating rate debt. We have no derivative financial instruments held for trading purposes.
As of March 31, 2026, 60.7% of our debt obligations were fixed in nature or were subject to interest rate swap derivatives, which mitigates the effect of changes in interest rates on our cash interest payments. If the market rate of interest on our variable rate debt increases or decreases by 50 basis points, interest expense on an annualized basis would increase or decrease, respectively, by approximately $1.9 million based on the amount of variable rate debt outstanding at March 31, 2026.
Item 4. Controls and Procedures
Attached as exhibits to this Form 10-Q are the certifications required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This section includes information concerning the controls and control evaluations referred to in the certifications.
Evaluation of Disclosure Controls and Procedures. Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. During our fiscal quarter to which this Quarterly Report on Form 10-Q relates, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission on February 27, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2026, we withheld 347,141 shares of our restricted stock at an average market value of $9.12 per share and used the proceeds to satisfy the tax obligations in connection with the vesting of restricted common shares issued to employees.
The following table sets forth information regarding our repurchases of shares of common stock to satisfy the tax obligations in connection with the vesting of restricted common shares issued to employees and pursuant to the Stock Repurchase Program during the quarter ended March 31, 2026:
Maximum Number (or
Total Number of
Approximate Dollar
Shares Purchased
Value) of Shares that
Total Number
as Part of Publicly
May Yet Be Purchased
Average Price
Announced Plans
Under the Plans or
Period
Purchased (1)
Paid per Share
or Programs
Programs
January 1, 2026 — January 31, 2026
685,546
8.95
492,535
318,435,616
February 1, 2026 — February 28, 2026
294,186
8.98
146,820
499,992,590
March 1, 2026 — March 31, 2026
2,552,177
9.20
2,545,413
471,144,187
3,531,909
9.13
The following table sets forth information regarding our repurchases of shares of our Series H preferred stock pursuant to the Stock Repurchase Program during the quarter ended March 31, 2026:
Purchased
51,189
20.57
39,270
20.85
152,303
20.82
242,762
20.77
The following table sets forth information regarding our repurchases of shares of our Series I preferred stock pursuant to the Stock Repurchase Program during the quarter ended March 31, 2026:
19.25
122,327
18.58
122,333
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
The following Exhibits are filed as a part of this report:
Exhibit Number
Description
3.1
Articles of Amendment and Restatement of Sunstone Hotel Investors, Inc. (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company).
3.2
Third Amended and Restated Bylaws of Sunstone Hotel Investors, Inc. effective as of February 9, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on February 10, 2023).
3.3
Articles Supplementary Prohibiting the Company From Electing to be Subject to Section 3-803 of the Maryland General Corporation Law Absent Shareholder Approval (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 29, 2013).
3.4
Articles Supplementary for Series G preferred stock (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 28, 2021).
3.5
Articles Supplementary for Series H preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on May 20, 2021).
3.6
Articles Supplementary for Series I preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the company on July 15, 2021).
3.7
Eighth Amended and Restated Limited Liability Agreement of Sunstone Hotel Partnership LLC (incorporated by reference to Exhibit 3.2 to Form 8-K, filed by the Company on July 16, 2021).
10.1
Separation Agreement and General Release, dated as of May 1, 2026, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and David Klein. * #
31.1
Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS
XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.*
101.SCH
Inline XBRL Taxonomy Extension Schema Document. *
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document. *
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document. *
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document. *
104
Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 formatted in Inline XBRL (included in Exhibit 101).
*
Filed herewith.
#
Management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 5, 2026
By:
/s/ Aaron R. Reyes
Aaron R. Reyes(Chief Financial Officer and Duly Authorized Officer)