Financial Data and Key Metrics Changes - The third-quarter RevPAR increased by 2% compared to last year, while total RevPAR grew by 2.4% [14] - Adjusted EBITDA RE for the third quarter was $50 million, and adjusted FFO was $0.17 per diluted share [14] - For the first nine months of the year, comparable portfolio total RevPAR growth was 2.3%, with margins held within 20 basis points of the prior year [15] Business Line Data and Key Metrics Changes - Urban hotels experienced generally flat RevPAR growth, with Marriott Long Beach Downtown showing outsized growth post brand conversion [4] - Convention hotels reported better-than-expected performance with RevPAR growth of 3.5% [5] - San Francisco hotels achieved over 15% RevPAR growth, while Washington, D.C. faced weaker government-related demand [6] Market Data and Key Metrics Changes - The company booked 6% more rooms than the prior year, marking the strongest third-quarter booking volume since before the pandemic [6] - Positive group pace is anticipated for 2026, particularly in Orlando, Boston, Miami Beach, San Francisco, and Wine Country [7] - The resort portfolio faced softer performance due to weaker demand in South Florida and Maui, although there were signs of recovery in Maui [8] Company Strategy and Development Direction - The company aims to close the valuation discount and improve total shareholder returns through purposeful asset recycling [21] - Despite a challenging transaction market, the company disposed of over $600 million in lower-quality assets and acquired approximately $600 million in better real estate [22] - The company is focused on maintaining a strong balance sheet with net leverage of 3.5 times trailing earnings [16] Management's Comments on Operating Environment and Future Outlook - The operating environment remains choppy, with uncertainty from the government shutdown, but the company maintains its full-year earnings outlook [17] - The fourth quarter is projected to be the strongest for RevPAR growth, with total portfolio RevPAR growth expected in the mid-single-digit range [18] - Management is optimistic about benefiting from recent investments and delivering above-market growth in 2026 [10] Other Important Information - The company completed a renovation of the meeting space in San Antonio and is about to begin a similar project in San Diego [12] - The board has authorized a $0.09 per share common dividend for the fourth quarter [20] - The company has repurchased 11.4 million shares year-to-date at an average price of $8.83 per share, totaling $101 million [19] Q&A Session Summary Question: Thoughts on Q4 and mid-single-digit total RevPAR range - Management confirmed that Q4 was expected to be the strongest quarter for RevPAR growth, with Andaz Miami Beach contributing significantly to the growth [30] Question: Changes in the transaction market for 2026 - Management noted slight improvements in the transaction market, with expectations for continued improvement in 2026 [33] Question: Large buyers in the transaction market - Management indicated that while the market is challenging, they continue to look for opportunities to recycle assets [38] Question: EBITDA ramp for Andaz Miami Beach - Management expressed confidence in achieving the EBITDA range of $12 million-$16 million for next year, with strong bookings anticipated [41] Question: Group pace for 2026 - Management reported that they expect to have around 80% of room nights on the books for 2026, consistent with the prior year [45] Question: Ancillary spending and expense control - Management highlighted that out-of-room revenue growth has outpaced room revenue growth, contributing positively to overall performance [70] Question: G&A as a percentage of revenues - Management stated that G&A for the quarter was lower as a percentage, with guidance for the full year set at $20 million-$21 million [72]

分组1 - Sunstone Hotel Investors reported quarterly funds from operations (FFO) of $0.17 per share, exceeding the Zacks Consensus Estimate of $0.15 per share, but down from $0.18 per share a year ago, representing an FFO surprise of +13.33% [1] - The company achieved revenues of $229.32 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 1.90% and showing an increase from $226.39 million year-over-year [2] - Over the last four quarters, Sunstone Hotel has consistently surpassed consensus FFO estimates, achieving this four times [2] 分组2 - The stock has underperformed, losing about 21.6% since the beginning of the year, while the S&P 500 has gained 14.3% [3] - The current consensus FFO estimate for the upcoming quarter is $0.20 on revenues of $228.63 million, and for the current fiscal year, it is $0.84 on revenues of $947.58 million [7] - The Zacks Industry Rank for REIT and Equity Trust - Other is in the top 32% of over 250 Zacks industries, indicating a favorable outlook for the industry [8]

Financial Performance - For the quarter ended September 30, 2025, total revenues were $229.32 million, a decrease from $257.41 million in the previous quarter[25] - Room revenue for Q3 2025 was $139.52 million, compared to $154.06 million in Q2 2025, reflecting a decline of approximately 9.4%[25] - Net income for the quarter was $1.27 million, significantly lower than $19.31 million in the previous quarter, indicating a decrease of about 93.4%[25] - Total operating expenses for Q3 2025 were $217.48 million, down from $227.20 million in Q2 2025, representing a reduction of approximately 4.8%[25] - Corporate overhead expenses were $6.97 million for Q3 2025, a decrease from $8.35 million in Q2 2025, reflecting cost management strategies[25] - Net income for Q3 2025 was $1,322,000, with a trailing 12-month total of $18,187,000[27] - Adjusted EBITDAre for Q3 2025 was $50,052,000, with a trailing 12-month total of $228,083,000[27] - FFO attributable to common stockholders for Q3 2025 was $30,641,000, with a trailing 12-month total of $142,410,000[28] - Total Portfolio Revenues for Q3 2025 reached $229.32 million, a slight increase from $224.08 million in Q3 2024, reflecting a 1.0% growth[56] - Adjusted EBITDA for the Total Portfolio in Q3 2025 was $52.65 million, down from $56.13 million in Q3 2024, resulting in a margin decrease from 25.0% to 23.0%[56] - For the nine months ended September 30, 2025, the Total Portfolio Revenues were $715.71 million, compared to $698.76 million in the same period of 2024, marking a 2.4% increase[57] - The Adjusted EBITDA margin for the Total Portfolio for the nine months ended September 30, 2025, was 26.0%, a decrease from 26.9% in 2024[57] Debt and Capitalization - The company reported a loss on extinguishment of debt amounting to $180, indicating ongoing financial restructuring efforts[25] - Total debt as of September 30, 2025, was $930,000,000, representing 31.1% of total capitalization[34] - Market value of common equity increased to $1,779,474,000 as of September 30, 2025, compared to $1,650,681,000 in the previous quarter[34] - Total capitalization as of September 30, 2025, was $2,990,724,000[34] - The average interest rate on total debt was 5.16% as of September 30, 2025[37] Operational Metrics - The company owns 14 hotels with a total of 6,999 rooms, primarily under nationally recognized brands, focusing on long-term stakeholder value[8] - The total portfolio consists of 6,999 rooms across various hotels, with the Hilton San Diego Bayfront accounting for 1,190 rooms, representing 17% of the total[44] - For Q3 2025, the Hilton San Diego Bayfront reported an ADR of $281, occupancy of 85.5%, and RevPAR of $240, reflecting an 8.6% increase compared to Q3 2024[49] - The Hyatt Regency San Francisco achieved an ADR of $292, with occupancy at 86.8%, resulting in a RevPAR of $253, marking a 15.3% increase year-over-year[49] - The total portfolio's TRevPAR for Q3 2025 was $355, a 2.4% increase from Q3 2024[49] - The Andaz Miami Beach, which opened in May 2025, reported a 100% occupancy rate for Q3 2025, with an ADR of $305[49] - The Four Seasons Resort Napa Valley experienced a 9.3% decrease in ADR to $1,231, with occupancy at 59.5% for the nine months ended September 30, 2025[51] - The Montage Healdsburg's RevPAR for Q3 2025 was $701, down 6.6% from Q3 2024, with occupancy at 62.9%[49] Strategic Initiatives - Future strategies include potential acquisitions and dispositions of well-located hotel properties to enhance portfolio value[8] - The company emphasizes the importance of non-GAAP measures like FFO and Adjusted FFO to assess ongoing operational performance[15][16] - The company continues to focus on strategic renovations and acquisitions to enhance portfolio performance and operational efficiency[59] - The company acquired the remaining 25% interest in the Hilton San Diego Bayfront in June 2022, resulting in full ownership of the hotel[44] - The Series G cumulative redeemable preferred stock's dividend rate will increase to a minimum of 3.0% and 4.5% starting in Q1 and Q3 2024, respectively, and to at least 6.5% from Q3 2025, based on the Montage Healdsburg's annual net operating income yield[39] Renovation Impact - The Andaz Miami Beach, under renovation, reported a significant negative Adjusted EBITDA of $(2.49) million for Q3 2025, compared to $(0.56) million in Q3 2024[56] - The Hyatt Regency San Antonio Riverwalk, acquired in April 2024, showed a significant decline in Q3 2025 Adjusted EBITDA margin to 15.9%, down from 33.5% in Q3 2024[56] - The Marriott Long Beach Downtown, also undergoing renovation, showed a notable improvement in Q3 2025 with an Adjusted EBITDA margin of 23.3%, up from 11.6% in Q3 2024[56]

Core Viewpoint - Sunstone Hotel Investors, Inc. reported third-quarter results for 2025, showing a decline in net income and adjusted funds from operations, while maintaining its outlook for the year despite macroeconomic challenges [4][6][14]. Financial Performance - Net income for Q3 2025 was $1.3 million, down 59.3% from $3.2 million in Q3 2024 [5][6]. - Adjusted FFO attributable to common stockholders per diluted share decreased 5.6% to $0.17 [6][11]. - Total Portfolio RevPAR increased by 2.0% to $216.12, with an average daily rate of $307.43 and occupancy at 70.3% [6][11]. Operational Highlights - Strong performance in San Francisco helped offset weaker demand in other markets [4]. - The company successfully recast its credit facilities, addressing all debt maturities through 2028 and lowering borrowing costs [4][9]. Stock Repurchase Program - In Q3 2025, the company repurchased 258,870 shares at an average price of $8.70, totaling $2.3 million [11]. - Year-to-date, the company has repurchased 11,392,876 shares for $100.6 million, representing nearly 14% of shares outstanding at the start of 2022 [11]. Balance Sheet and Liquidity - As of September 30, 2025, the company had $197.6 million in cash and cash equivalents, total assets of $3.0 billion, and total debt of $930.0 million [12]. - Stockholders' equity stood at $2.0 billion [12]. Capital Investments - The company invested $73.7 million into its portfolio in the first nine months of 2025, expecting to invest an additional $80 million to $100 million by year-end [13]. 2025 Outlook - The company maintains its 2025 outlook, expecting net income between $14 million to $28 million and total portfolio RevPAR growth of 3.0% to 5.0% [15][14].

Group 1 - The article emphasizes the importance of timing in trading closed-end funds, highlighting the potential for directional and arbitrage opportunities due to market price deviations [1] - The focus is on Sunstone Hotel Investors, Inc. (SHO), identified as a reliable hotel REIT, suggesting it as a better investment alternative [2] - The investment service provided includes frequent picks for mispriced preferred stocks and baby bonds, along with weekly reviews of over 1200 equities and IPO previews [2] Group 2 - The article mentions that the analyst has a beneficial long position in SHO.PR.H, indicating a vested interest in the stock [2] - It clarifies that the views expressed may not reflect those of Seeking Alpha as a whole, emphasizing the independence of the analysts [3]

Group 1 - The article emphasizes the importance of timing in trading closed-end funds, highlighting the potential for directional and arbitrage opportunities due to market price deviations [1] - The focus is on Sunstone Hotel Investors, Inc. (SHO), identified as a reliable hotel REIT, suggesting it as a better investment alternative [2] - The investment service Trade With Beta offers features such as frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of over 1200 equities, IPO previews, and hedging strategies [2]

Core Points - Sunstone Hotel Investors, Inc. will report its financial results for the third quarter of 2025 on November 7, 2025, before the market opens [1] - A quarterly conference call will be held on the same day at 11:00 a.m. Eastern Time [1] - The call will be accessible via a live webcast on the Company's website and through a dedicated phone line [2] Company Overview - Sunstone Hotel Investors, Inc. is a lodging real estate investment trust (REIT) focused on creating long-term stakeholder value through the acquisition, active ownership, and disposition of well-located hotel and resort real estate [3]

Group 1 - Tarsadia Capital, holding a 3.4% economic interest in Sunstone Hotel Investors, has urged the board to initiate a dual process for either selling the entire company or liquidating its assets to maximize shareholder value [1] - The letter emphasizes that Sunstone's current position as a subscale lodging REIT is unsustainable and calls for immediate changes in the board to explore strategic alternatives [1] - Tarsadia Capital has expressed frustration over the board's inaction regarding the company's persistent undervaluation in public markets and is prepared to advocate for change among fellow shareholders if necessary [1]

Group 1 - Sunstone Hotel Investors Inc shares crossed above their 200-day moving average of $9.82, reaching a high of $10.27 per share on Friday [2] - The shares are currently trading up approximately 4.1% for the day [2] - The 52-week low for SHO shares is $7.45, while the 52-week high is $12.41, with the last trade recorded at $9.84 [2]

[Introductory Information](index=1&type=section&id=Introductory%20Information) [Company Details and Filing Status](index=1&type=section&id=Company%20Details%20and%20Filing%20Status) Sunstone Hotel Investors, Inc. filed its Quarterly Report on Form 10-Q for the period ended June 30, 2025, identifying as a large accelerated filer, with 189,969,350 shares of common stock outstanding as of August 1, 2025 - **Sunstone Hotel Investors, Inc.** is a Maryland corporation[2](index=2&type=chunk) - The filing is a **Quarterly Report on Form 10-Q** for the period ended **June 30, 2025**[2](index=2&type=chunk) Filer Status | Status | Indication | | :---------------------- | :--------- | | Large accelerated filer | ☒ | - As of **August 1, 2025**, **189,969,350 shares** of common stock were outstanding[5](index=5&type=chunk) [PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The financial statements for the quarter and six months ended June 30, 2025, show a decrease in net income and income attributable to common stockholders compared to the prior year, primarily driven by a loss on the sale of assets and increased operating expenses, while total assets and stockholders' equity decreased and total liabilities increased [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :----------------------------------- | :------------------------ | :------------------ | | Total assets | $3,010,987 | $3,106,639 | | Total liabilities | $1,031,001 | $1,002,619 | | Total stockholders' equity | $1,979,986 | $2,104,020 | - **Total assets decreased by $95,652 thousand** from December 31, 2024, to June 30, 2025[10](index=10&type=chunk) - **Total liabilities increased by $28,382 thousand** from December 31, 2024, to June 30, 2025[10](index=10&type=chunk) - **Total stockholders' equity decreased by $124,034 thousand** from December 31, 2024, to June 30, 2025[10](index=10&type=chunk) [Unaudited Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $259,772 | $247,481 | $493,837 | $464,647 | | Total operating expenses | $229,346 | $211,932 | $446,940 | $411,839 | | Net income | $10,774 | $26,142 | $16,029 | $39,177 | | Income attributable to common stockholders | $6,842 | $22,459 | $8,166 | $31,811 | | Basic and diluted EPS | $0.03 | $0.11 | $0.04 | $0.16 | - **Net income decreased by 58.8%** for the three months and **59.1%** for the six months ended June 30, 2025, compared to 2024[12](index=12&type=chunk) - **Income attributable to common stockholders decreased by 69.5%** for the three months and **74.3%** for the six months ended June 30, 2025, compared to 2024[12](index=12&type=chunk) [Unaudited Consolidated Statements of Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Equity) Consolidated Statements of Equity Highlights (in thousands) | Metric | December 31, 2024 (audited) | June 30, 2025 | | :-------------------------------- | :-------------------------- | :------------ | | Total Equity | $2,104,020 | $1,979,986 | | Common Stock Repurchases (6 months) | N/A | $(98,470) | | Net Income (6 months) | N/A | $16,029 | - The company repurchased **10,301,090 shares** of common stock for **$90,454 thousand** during the three months ended June 30, 2025[14](index=14&type=chunk) - For the six months ended June 30, 2025, **common stock repurchases totaled $98,470 thousand**[14](index=14&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :------------------------------------------ | :--------- | :--------- | | Net cash provided by operating activities | $90,763 | $93,277 | | Net cash used in investing activities | $(5,596) | $(297,848) | | Net cash used in financing activities | $(120,523) | $(55,123) | | Net decrease in cash and restricted cash | $(35,356) | $(259,694) | | Cash and restricted cash, end of period | $144,921 | $234,004 | - **Net cash used in investing activities significantly decreased in 2025** due to proceeds from a hotel sale and acquisition-related key money, contrasting with a large acquisition in 2024[18](index=18&type=chunk) - **Net cash used in financing activities increased substantially in 2025**, primarily driven by higher repurchases of outstanding common stock[18](index=18&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's organization, accounting policies, investments, debt, equity, and other financial commitments, including the sale of a hotel, changes in preferred stock dividend rates, significant common stock repurchases, and details on debt structure and interest rate derivatives [1. Organization and Description of Business](index=11&type=section&id=1.%20Organization%20and%20Description%20of%20Business) - **Sunstone Hotel Investors, Inc.** operates as a self-managed and self-administered **REIT** since December 31, 2004[22](index=22&type=chunk) - The company invests in hotels to add value through capital investment, repositioning, and asset management[22](index=22&type=chunk) - As of **June 30, 2025**, the Company owned **14 hotels**[24](index=24&type=chunk) [2. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - The interim financial statements are prepared in accordance with **GAAP and SEC rules**, reflecting all necessary normal and recurring adjustments[26](index=26&type=chunk) - There have been **no changes to significant accounting policies** since December 31, 2024[30](index=30&type=chunk) - The company is evaluating **ASU 2024-03**, effective for fiscal years beginning after December 15, 2026, for additional disclosure requirements regarding income statement expense disaggregation[31](index=31&type=chunk) [3. Investment in Hotel Properties](index=13&type=section&id=3.%20Investment%20in%20Hotel%20Properties) Investment in Hotel Properties, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------------- | :------------------------ | :------------------ | | Investment in hotel properties, net | $2,788,498 | $2,856,032 | - In **June 2025**, the Company sold the **Hilton New Orleans St. Charles** for a gross sale price of **$47.0 million**, recording a **loss of $8.8 million**[32](index=32&type=chunk) [4. Fair Value Measurements and Interest Rate Derivatives](index=13&type=section&id=4.%20Fair%20Value%20Measurements%20and%20Interest%20Rate%20Derivatives) - The company uses **Level 2 measurements** for interest rate derivatives and **Level 3 measurements** for debt fair value[36](index=36&type=chunk)[37](index=37&type=chunk) - As of **June 30, 2025**, **51.0%** of the company's outstanding debt had fixed interest rates, including interest rate swap derivatives[37](index=37&type=chunk) Noncash Interest on Derivatives, Net (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30, | $181 | $(189) | | Six Months Ended June 30, | $1,163 | $(2,231) | [5. Prepaid Expenses and Other Assets](index=16&type=section&id=5.%20Prepaid%20Expenses%20and%20Other%20Assets) Prepaid Expenses and Other Assets, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :----------------------------------- | :------------------------ | :------------------ | | Total prepaid expenses and other assets, net | $28,214 | $27,757 | [6. Debt](index=16&type=section&id=6.%20Debt) Debt Composition (in thousands) | Debt Type | June 30, 2025 (unaudited) | December 31, 2024 | | :--------------------------------------- | :------------------------ | :------------------ | | Unsecured Corporate Credit Facilities | $702,000 | $675,000 | | Unsecured Senior Notes | $170,000 | $170,000 | | Total debt | $872,000 | $845,000 | | Debt, net of unamortized deferred financing costs | $868,695 | $841,047 | - In **April 2025**, the Company drew down **$27.0 million** on its **$500.0 million credit facility**, leaving **$473.0 million available**[43](index=43&type=chunk) - The maturity of **Term Loan 3 was extended from May 1, 2025, to May 1, 2026**[44](index=44&type=chunk) Total Interest Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30, | $13,164 | $12,693 | | Six Months Ended June 30, | $25,846 | $23,703 | [7. Other Liabilities](index=17&type=section&id=7.%20Other%20Liabilities) Other Liabilities (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------- | :------------------------ | :------------------ | | Total other liabilities | $73,413 | $72,694 | - The Company recognized approximately **$38.0 million in revenue** related to outstanding contract liabilities for the six months ended June 30, 2025[46](index=46&type=chunk) [8. Leases](index=17&type=section&id=8.%20Leases) Operating Lease Balances (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Right-of-use assets, net | $6,575 | $8,464 | | Lease obligations | $9,830 | $12,019 | Total Lease Cost (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30, | $3,331 | $3,412 | | Six Months Ended June 30, | $6,387 | $6,602 | [9. Stockholders' Equity](index=18&type=section&id=9.%20Stockholders%27%20Equity) - The annual dividend rate for **Series G preferred stock increased to the greater of 4.5%** or Montage Healdsburg's annual net operating income yield, and will increase to **6.5% in Q3 2025**[51](index=51&type=chunk) - The company's stock repurchase program allows for up to **$500.0 million** in common and preferred stock repurchases, with **$329.3 million remaining** as of June 30, 2025[54](index=54&type=chunk)[55](index=55&type=chunk) Common Shares Repurchased (in thousands, except share data) | Period | Number of Common Shares Repurchased | Cost, including fees and commissions | | :-------------------------- | :---------------------------------- | :----------------------------------- | | Three Months Ended June 30, 2025 | 10,301,090 | $90,454 | | Six Months Ended June 30, 2025 | 11,122,861 | $98,470 | [10. Incentive Award Plan](index=19&type=section&id=10.%20Incentive%20Award%20Plan) - The **Incentive Award Plan** allows for various discretionary awards to employees, consultants, and non-employee directors[57](index=57&type=chunk) Amortization Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30, | $2,772 | $3,181 | | Six Months Ended June 30, | $4,836 | $5,951 | - In **January 2025**, 2022 RSR Three-Year Performance Period restricted stock units vested at **169.2% of target**, resulting in the vesting of an additional **176,286 shares**[62](index=62&type=chunk) [11. Earnings Per Share](index=21&type=section&id=11.%20Earnings%20Per%20Share) - The company applies the **two-class method** for computing earnings per share[64](index=64&type=chunk) Basic and Diluted EPS (per common share) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic income attributable to common stockholders | $0.03 | $0.11 | $0.04 | $0.16 | | Diluted income attributable to common stockholders | $0.03 | $0.11 | $0.04 | $0.16 | - The company excluded **685,065 anti-dilutive unvested time-based restricted stock awards** for the three months ended June 30, 2025[67](index=67&type=chunk) [12. Segment Information](index=22&type=section&id=12.%20Segment%20Information) - The company operates as a **single reportable segment: Hotel Ownership**[69](index=69&type=chunk) - The **Chief Operating Decision Maker (CODM)** reviews individual hotel performance using **Hotel Adjusted EBITDAre**[69](index=69&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) Hotel Adjusted EBITDAre (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :--------- | :--------- | | Three Months Ended June 30, | $75,908 | $75,194 | | Six Months Ended June 30, | $136,680 | $127,489 | [13. Commitments and Contingencies](index=26&type=section&id=13.%20Commitments%20and%20Contingencies) Total Basic and Incentive Management Fees (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30, | $8,843 | $6,957 | | Six Months Ended June 30, | $16,825 | $15,960 | Total Franchise Costs (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30, | $4,843 | $4,819 | | Six Months Ended June 30, | $9,302 | $9,024 | - As of **June 30, 2025**, the company had **$53.9 million** in remaining commitments for ongoing hotel renovations[79](index=79&type=chunk) - The company's hotels are geographically concentrated in **California, Florida, Hawaii, and Washington, DC**, exposing it to unique regional risks[81](index=81&type=chunk)[82](index=82&type=chunk) [14. Subsequent Events](index=28&type=section&id=14.%20Subsequent%20Events) - On **July 9, 2025**, the company drew an additional **$23.0 million** on its credit facility, leaving **$450.0 million available**[86](index=86&type=chunk) - Subsequent to **June 30, 2025**, the company repurchased **201,314 shares** of common stock for **$1.8 million**, with **$327.5 million remaining** under the stock repurchase program[87](index=87&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an in-depth analysis of the company's financial performance, liquidity, and capital resources, highlighting a significant decrease in net income and EPS due to a loss on asset sale and increased operating expenses, despite revenue growth, and covering the impact of hotel acquisitions, renovations, dispositions, non-GAAP financial measures, and critical accounting estimates [Overview](index=33&type=section&id=Overview) - The company operates as a **REIT**, owning **14 hotels** in convention, urban, and resort destinations, with most operating under nationally recognized brands[95](index=95&type=chunk)[96](index=96&type=chunk) - Revenues are primarily derived from **room, food and beverage, and other operating activities**[97](index=97&type=chunk) - Key performance indicators include **Occupancy, ADR, RevPAR, EBITDAre, and FFO**[99](index=99&type=chunk)[102](index=102&type=chunk) [Factors Affecting Operating Results](index=37&type=section&id=Factors%20Affecting%20Operating%20Results) - Demand for lodging is closely linked to the general economy, with **upper upscale and luxury hotels more susceptible to revenue decreases** during economic difficulties[101](index=101&type=chunk)[102](index=102&type=chunk) - **New competitive hotel supply** and the growth of vacation rental services can negatively impact **RevPAR and profits**[102](index=102&type=chunk) - **Inflationary pressures can increase operating costs**, potentially limiting the effectiveness of operators in minimizing expenses[102](index=102&type=chunk) [Operating Results Analysis](index=38&type=section&id=Operating%20Results%20Analysis) Revenue Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | Change % (QoQ) | 6M 2025 | 6M 2024 | Change % (YoY) | | :---------------- | :-------- | :-------- | :------------- | :-------- | :-------- | :------------- | | Room revenue | $156,048 | $151,296 | 3.1% | $300,969 | $287,111 | 4.8% | | Food and beverage | $78,026 | $71,367 | 9.3% | $145,154 | $132,706 | 9.4% | | Other operating | $25,698 | $24,818 | 3.5% | $47,714 | $44,830 | 6.4% | | Total revenues | $259,772 | $247,481 | 5.0% | $493,837 | $464,647 | 6.3% | - **Room revenue growth** was significantly impacted by the ramp-up of 'Two Renovation Hotels' (Andaz Miami Beach and Marriott Long Beach Downtown) and the acquisition of Hyatt Regency San Antonio Riverwalk, partially offset by the sale of Hilton New Orleans St. Charles[106](index=106&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - **Food and beverage revenue increased** due to higher banquet revenues, particularly at Hilton San Diego Bayfront, Hyatt Regency San Francisco, Montage Healdsburg, and Wailea Beach Resort, and the Super Bowl in New Orleans[114](index=114&type=chunk)[115](index=115&type=chunk) Expense Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | Change % (QoQ) | 6M 2025 | 6M 2024 | Change % (YoY) | | :-------------------------- | :-------- | :-------- | :------------- | :-------- | :-------- | :------------- | | Total operating expenses | $229,346 | $211,932 | 8.2% | $446,940 | $411,839 | 8.5% | | Corporate overhead | $8,346 | $8,168 | 2.2% | $17,251 | $15,686 | 10.0% | | Depreciation and amortization | $34,125 | $31,112 | 9.7% | $66,400 | $60,152 | 10.4% | | Interest and other income | $2,300 | $3,503 | -34.3% | $3,864 | $8,956 | -56.9% | | Interest expense | $(13,164) | $(12,693) | -3.7% | $(25,846) | $(23,703) | -9.0% | | Loss on sale of assets, net | $(8,751) | $0 | -100.0% | $(8,751) | $457 | -2014.9% | | Net income | $10,774 | $26,142 | -58.8% | $16,029 | $39,177 | -59.1% | | Income attributable to common stockholders | $6,842 | $22,459 | -69.5% | $8,166 | $31,811 | -74.3% | - **Corporate overhead increased** due to professional fees, due diligence fees, board of director expenses, and a severance payment related to executive team restructuring[120](index=120&type=chunk)[121](index=121&type=chunk) - **Interest and other income decreased** primarily due to lower cash balances following the Hyatt Regency San Antonio Riverwalk acquisition in April 2024[125](index=125&type=chunk)[127](index=127&type=chunk) - **Interest expense increased** due to noncash changes in derivative fair values and amortization of deferred financing costs, partially offset by increased capitalized interest[129](index=129&type=chunk) - The company recognized an **$8.8 million loss** on the sale of the Hilton New Orleans St. Charles in Q2 and 6M 2025[131](index=131&type=chunk) [Non-GAAP Financial Measures](index=50&type=section&id=Non-GAAP%20Financial%20Measures) - The company uses non-GAAP measures like **EBITDAre, Adjusted EBITDAre, FFO, and Adjusted FFO** to provide investors with supplemental information on operating performance[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) Adjusted EBITDAre (in thousands) | Period | 2025 | 2024 | Change % | | :-------------------------- | :--------- | :--------- | :--------- | | Three Months Ended June 30, | $72,682 | $73,523 | -1.1% | | Six Months Ended June 30, | $129,938 | $128,034 | 1.5% | - **Adjusted EBITDAre** was impacted by the acquisition of Hyatt Regency San Antonio Riverwalk, performance of 'Two Renovation Hotels', and corporate-level changes[143](index=143&type=chunk)[144](index=144&type=chunk) Adjusted FFO Attributable to Common Stockholders (in thousands) | Period | 2025 | 2024 | Change % | | :-------------------------- | :--------- | :--------- | :--------- | | Three Months Ended June 30, | $55,723 | $56,626 | -1.6% | | Six Months Ended June 30, | $97,223 | $94,144 | 3.3% | [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) - **Net cash provided by operating activities decreased to $90.8 million** for the first six months of 2025, primarily due to lower interest income and increased corporate expenses[151](index=151&type=chunk) - **Net cash used in investing activities significantly decreased to $5.6 million** for the first six months of 2025, driven by proceeds from a hotel sale and key money, contrasting with a large hotel acquisition in 2024[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) - **Net cash used in financing activities increased to $120.5 million** for the first six months of 2025, mainly due to higher common stock repurchases[156](index=156&type=chunk)[157](index=157&type=chunk) - The company expects future cash sources to include operating activities, credit facility borrowings, debt/equity issuances, and dispositions, with primary uses being operating expenses, capital investments, debt repayment, stock repurchases, and dividends[158](index=158&type=chunk)[159](index=159&type=chunk) - As of **June 30, 2025**, the company had **$73.6 million in unrestricted cash** and **$473.0 million available** under its unsecured revolving credit facility[161](index=161&type=chunk) - As of **June 30, 2025**, **51.0%** of the company's **$872.0 million outstanding debt** had fixed interest rates or was swapped to fixed rates[162](index=162&type=chunk)[165](index=165&type=chunk) Contractual Obligations as of June 30, 2025 (in thousands) | Obligation | Total | Less Than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | | :--------------------------------------- | :---------- | :--------------- | :----------- | :----------- | :---------------- | | Debt | $872,000 | $290,000 | $582,000 | $0 | $0 | | Interest obligations on debt | $88,796 | $47,157 | $41,639 | $0 | $0 | | Operating lease obligations, including imputed interest | $11,410 | $4,250 | $5,046 | $1,148 | $966 | | Construction commitments | $53,881 | $53,881 | $0 | $0 | $0 | | Total | $1,026,087 | $395,288 | $628,685 | $1,148 | $966 | - The company invested **$56.0 million in capital expenditures** for renovations and additions during the first six months of 2025[168](index=168&type=chunk) - **Inflationary pressures on operating costs** are a concern, though hotel operators' ability to adjust room rates historically mitigates the impact[160](index=160&type=chunk)[172](index=172&type=chunk) [Critical Accounting Estimates](index=61&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting estimates include the **impairment of investments in hotel properties**, involving significant judgment in determining fair value and recoverability[176](index=176&type=chunk) - **Income taxes**, particularly related to REIT qualification and the TRS Lessee, require estimates for deferred tax assets and liabilities and uncertain tax positions[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations on its variable rate debt, which it mitigates through interest rate derivatives, with 51.0% of its debt fixed or swapped to fixed rates as of June 30, 2025 - The company's future income and cash flows are dependent upon **prevailing market interest rates** due to variable interest rate debt[180](index=180&type=chunk) - As of **June 30, 2025**, **51.0%** of the company's debt obligations were fixed or subject to interest rate swap derivatives[181](index=181&type=chunk) - A **50 basis point increase or decrease** in the market interest rate on variable rate debt would result in an approximate **$2.1 million annual increase or decrease in interest expense**[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - The **CEO and CFO concluded that disclosure controls and procedures were effective** as of June 30, 2025[183](index=183&type=chunk) - **No material change in internal control over financial reporting** occurred during the quarter[184](index=184&type=chunk) [PART II—OTHER INFORMATION](index=63&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) There are no legal proceedings to report for the period - **No legal proceedings are reported**[186](index=186&type=chunk) [Item 1A. Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) No new material risk factors have been identified for the current reporting period, and readers are directed to the company's Annual Report on Form 10-K for a detailed discussion of existing risk factors - **No new risk factors are reported** in this quarterly report[186](index=186&type=chunk) - Readers should refer to the **Annual Report on Form 10-K** for a detailed discussion of risk factors[90](index=90&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the second quarter of 2025, the company repurchased 10,301,090 shares of its common stock for $90.5 million under its existing stock repurchase program, leaving $329.3 million available for future repurchases Common Stock Repurchases (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | :----------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | 1,510,549 | $8.44 | 1,510,549 | $406,754,207 | | May 1, 2025 - May 31, 2025 | 3,784,152 | $8.81 | 3,784,152 | $373,413,087 | | June 1, 2025 - June 30, 2025 | 5,006,389 | $8.82 | 5,006,389 | $329,263,171 | | Total | 10,301,090 | $8.76 | 10,301,090 | $329,263,171 | - The company repurchased **10,301,090 shares** of common stock for a total purchase price of **$90.5 million** during the three months ended June 30, 2025[192](index=192&type=chunk) - **$329.3 million remains available** under the stock repurchase program as of June 30, 2025[192](index=192&type=chunk) [Item 3. Defaults Upon Senior Securities](index=65&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report for the period - **No defaults upon senior securities are reported**[189](index=189&type=chunk) [Item 4. Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report for the period - **No mine safety disclosures are reported**[190](index=190&type=chunk) [Item 5. Other Information](index=65&type=section&id=Item%205.%20Other%20Information) This section reiterates details of the stock repurchase program and confirms no changes to Rule 10b5-1 trading arrangements by directors or officers during the quarter - The company's stock repurchase program, reauthorized in **February 2023**, allows for up to **$500.0 million** in common and preferred stock repurchases, with **$329.3 million remaining** as of June 30, 2025[192](index=192&type=chunk) - **No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement** during the quarter ended June 30, 2025[193](index=193&type=chunk) [Item 6. Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, employment agreements, incentive plans, certifications, and XBRL data - The report includes various exhibits such as **Articles of Amendment and Restatement, Bylaws, Articles Supplementary for preferred stock, and the Limited Liability Agreement of Sunstone Hotel Partnership LLC**[194](index=194&type=chunk) - **Employment agreements for Bryan A. Giglia and Aaron Reyes**, and an amendment to the **2022 Incentive Award Plan** are filed as exhibits[194](index=194&type=chunk) - **Certifications by the Principal Executive Officer and Principal Financial Officer**, as well as XBRL Instance Document and Taxonomy Extension Documents, are included[194](index=194&type=chunk) [SIGNATURES](index=67&type=section&id=SIGNATURES) The report was duly signed on August 6, 2025, by Aaron R. Reyes, Chief Financial Officer and Duly Authorized Officer - The report was signed on **August 6, 2025**[198](index=198&type=chunk) - The report was signed by **Aaron R. Reyes, Chief Financial Officer and Duly Authorized Officer**[198](index=198&type=chunk)