noodls browser compatibility check

The security settings of your browser are blocking the execution of scripts.

To use noodls, javascript support must be enabled. Please change your browser's security settings to enable javascript.

If you have changed your browser's security settings, you can click here.

related announcements

Company News

Financial Services

Sunstone Hotel Investors Inc.

11/06/2026 | Press release | Distributed by Public on 11/06/2026 13:29

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 September 30, 2026, we owned 13 hotels, which average 475 rooms in size. Following the July 1, 2026, rebranding of Oceans Edge Resort & Marina as Hilton Key West Resort & Marina, all of our hotels are operated under nationally recognized brands.

Maui Storms

During the first quarter of 2026, the Hawaiian Islands experienced multiple severe storms that impacted our Wailea Beach Resort, causing wind and water damage to certain 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.

During the third quarter of 2026, we recognized a $0.6 million net benefit related to storm-related repair and restoration activity. For the nine months ended September 30, 2026, storm-related repair and restoration costs were fully offset by insurance proceeds. We also recognized a $1.6 million loss related to the write-off of storm-damaged assets, $2.4 million of property insurance claim recoveries, and $1.2 million of business interruption insurance proceeds related to storm-related lost profits, all of which were recognized during the second quarter of 2026. These amounts were recorded in impairment and other losses, interest and other income, and other operating revenue, respectively, in the consolidated statements of operations. No additional storm-related write-offs or business interruption insurance proceeds were recorded during the third quarter of 2026.

We continue to work with our insurers to pursue additional recoveries related to repair and restoration costs. Additional storm-related costs will be recognized as incurred. Any additional business interruption insurance recoveries, if realized, are expected to be recognized in the period in which the proceeds are received or the related contingency is resolved and amounts become realizable.

Operating Activities

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

•

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

•

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

•

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

Expenses. Our expenses consist of the following:

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

Impairment and other losses, which includes the charges we have recognized to reduce the carrying values of certain hotels on our balance sheet to their fair values in association with our impairment evaluations, along with the write-off of any development costs associated with abandoned projects or any physical property damage due to unforeseen events such as natural disasters.

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

•

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

•

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

•

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

•

Loss on extinguishment of debt, which includes losses recognized on amendments or early repayments of mortgages or other debt obligations from the accelerated amortization of deferred financing costs, along with any other costs;

•

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

•

Preferred stock dividends, net of gain on repurchases, which includes dividends accrued on our Series G Cumulative Redeemable Preferred Stock ("Series G preferred stock"), Series H Cumulative Redeemable Preferred Stock ("Series H preferred stock") and Series I Cumulative Redeemable Preferred Stock ("Series I preferred stock"), net of any preferred stock repurchased at a discount to its carrying value, along with the related write-off of any original issuance costs previously included in additional paid in capital.

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

•

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

•

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

•

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

•

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

•

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

•

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

•

Funds from operations ("FFO") attributable to common stockholders, which is net income and preferred stock dividends, including any gains or losses on the redemptions or repurchases of preferred stock, excluding: gains and losses from sales of property; real estate-related depreciation and amortization (excluding amortization of deferred financing costs and right-of-use assets and obligations); and any real estate-related impairment losses; and

•

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

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

•

Demand. The demand for lodging has traditionally been closely linked with the performance of the general economy. Our hotels are classified as either upper upscale or luxury hotels. In periods of economic difficulties, including those caused by inflation or recession, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates in part because upper upscale and luxury hotels generally target business and leisure travelers at higher price points, and these groups may seek to curtail spending in periods of economic decline. In addition, changes in the value of the U.S. dollar relative to other currencies may impact the demand for our hotels by making international travel more or less affordable. Also, operating results at our hotels may be negatively affected by uncertainty surrounding certain international economic and political relationships, including political disputes and unfavorable perceptions of travel to the U.S., which could further reduce international travel demand. The economic impacts arising from geopolitical instability in key energy producing regions, including volatility in transportation fuel costs and increases in air and ground travel costs, along with decreases in airline capacity, government shutdowns, the imposition of tariffs, and prolonged periods of inclement weather in our markets may reduce the demand for our hotels.

•

Supply. The addition of new competitive hotels affects the ability of existing hotels to attract demand for lodging and, therefore, impacts the ability to generate growth in RevPAR and profits. The development of new hotels is largely driven by construction costs, the cost and availability of financing, and the expected performance of existing hotels. We believe that both new hotel construction and new hotel openings were delayed or even cancelled over the past several years due to construction supply constraints, the cost and availability of financing, and inflationary pressures on the cost of building materials, which made new hotel development less financially feasible. We believe that many of these same factors combined with the imposition of tariffs will continue to discourage new hotel supply in many markets, although some markets may experience new hotel openings at or greater than historical levels. Separate from the development of new

hotels, an increase in the supply of vacation rental or sharing services such as Airbnb may negatively affect the ability of existing hotels to generate growth in RevPAR and profits.

•

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

Operating Results. The following table presents our unaudited operating results for the three months ended September 30, 2026 and 2025, including the amount and percentage change in the results between the two periods.


	Three Months Ended September 30,
	2026		2025		Change $		Change %
	(in thousands, except statistical data)
REVENUES
Room	$	140,053	$	139,523	$	530	0.4	%
Food and beverage		68,601		64,419		4,182	6.5	%
Other operating		25,064		25,381		(317)	(1.2)	%
Total revenues		233,718		229,323		4,395	1.9	%
OPERATING EXPENSES
Hotel operating		151,363		149,608		1,755	1.2	%
Other property-level expenses		27,853		26,926		927	3.4	%
Corporate overhead		6,410		6,970		(560)	(8.0)	%
Depreciation and amortization		30,287		33,928		(3,641)	(10.7)	%
Total operating expenses		215,913		217,432		(1,519)	(0.7)	%
Interest and other income		2,620		3,160		(540)	(17.1)	%
Interest expense		(10,729)		(13,412)		2,683	20.0	%
Gain on sale of assets		31,489		-		31,489	100.0	%
Loss on extinguishment of debt		-		(180)		180	100.0	%
Income before income taxes		41,185		1,459		39,726	2,722.8	%
Income tax provision, net		(296)		(137)		(159)	(116.1)	%
NET INCOME		40,889		1,322		39,567	2,993.0	%
Preferred stock dividends, net of gain on repurchases		(2,196)		(4,262)		2,066	48.5	%
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	38,693	$	(2,940)	$	41,633	1,416.1	%

The following table presents our unaudited operating results for the nine months ended September 30, 2026 and 2025, including the amount and percentage change in the results between the two periods.


	Nine Months Ended September 30,
	2026		2025		Change $		Change %
	(in thousands, except statistical data)
REVENUES
Room	$	469,368	$	440,492	$	28,876	6.6	%
Food and beverage		221,792		209,573		12,219	5.8	%
Other operating		79,376		73,095		6,281	8.6	%
Total revenues		770,536		723,160		47,376	6.6	%
OPERATING EXPENSES
Hotel operating		472,187		451,639		20,548	4.5	%
Other property-level expenses		95,550		88,184		7,366	8.4	%
Corporate overhead		22,005		24,221		(2,216)	(9.1)	%
Depreciation and amortization		98,724		100,328		(1,604)	(1.6)	%
Impairment and other losses		1,639		-		1,639	100.0	%
Total operating expenses		690,105		664,372		25,733	3.9	%
Interest and other income		7,944		7,024		920	13.1	%
Interest expense		(33,788)		(39,258)		5,470	13.9	%
Gain (loss) on sale of assets		31,489		(8,751)		40,240	459.8	%
Loss on extinguishment of debt		-		(180)		180	100.0	%
Income before income taxes		86,076		17,623		68,453	388.4	%
Income tax provision, net		(605)		(272)		(333)	(122.4)	%
NET INCOME		85,471		17,351		68,120	392.6	%
Preferred stock dividends, net of gain on repurchases		(4,844)		(12,125)		7,281	60.0	%
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	80,627	$	5,226	$	75,401	1,442.8	%

Summary of Operating Results. The following items significantly impact the year-over-year comparability of our operations:

•

Hotel Renovation: In March 2024, we closed The Confidante Miami Beach to perform extensive renovation work. The resort reopened as Andaz Miami Beach in May 2025. As a result of the renovation, our revenues and operating expenses in the third quarter and first nine months of 2026 are not comparable to the same periods in 2025.

•

Hotel Dispositions: In June 2025, we sold Hilton New Orleans St. Charles, and in July 2026, we sold Hyatt Regency San Francisco. As a result of these two hotel dispositions (the "Two Disposed Hotels"), our revenues, operating expenses, and depreciation expense for the third quarter and first nine months of 2026 are not comparable to the same periods in 2025.

Room revenue. Room revenue increased $0.5 million, or 0.4%, in the third quarter of 2026 as compared to the third quarter of 2025 as follows:

•

Occupancy at all 13 hotels owned during the entirety of the third quarters of both 2026 and 2025 increased by 460 basis points, and ADR increased by 4.4%, resulting in an 11.4% increase in RevPAR.

•

Room revenue at the 12 hotels we owned during the entirety of the third quarters of both 2026 and 2025, excluding Andaz Miami Beach (the "Comparable Portfolio"), increased $12.2 million. Occupancy increased 410 basis points and the ADR increased 4.2%, resulting in a 10.3% increase in RevPAR. The Comparable Portfolio's room revenue was positively impacted by strong leisure, group and contract demand at Wailea Beach Resort, increased leisure and group demand at Four Seasons Resort Napa Valley, and stronger transient and group performance at Hyatt Regency San Antonio Riverwalk. Additional growth was driven by increased transient and group demand at Montage Healdsburg, higher occupancy from group and contract business at Marriott Boston Long Wharf, and stronger transient demand at The Westin Washington, DC Downtown and Marriott Long Beach Downtown. These positive impacts were partially offset by lower room revenue at Hilton San Diego Bayfront due to lower group and contract demand and at Hilton Key West Resort & Marina as ongoing guest room renovations reduced available inventory and occupancy.


	Three Months Ended September 30,
	2026						2025						Change
	Occ%			ADR	RevPAR		Occ%			ADR	RevPAR		Occ%		ADR		RevPAR
Comparable Portfolio	73.8	%	$	323.15	$	238.48	69.7	%	$	310.18	$	216.20	410	bps	4.2	%	10.3	%

•

Andaz Miami Beach caused room revenue to increase by $1.4 million. For the third quarter of 2026, occupancy was 49.0% and the ADR was $336.10, resulting in RevPAR of $164.69. Andaz Miami Beach was undergoing renovation and reopened in May 2025.

•

The sale of Hyatt Regency San Francisco caused room revenue to decrease by $13.1 million.

For the nine months ended September 30, 2026, room revenue increased $28.9 million, or 6.6%, as compared to the nine months ended September 30, 2025 as follows:

•

Occupancy at all 13 hotels owned during the entirety of the first nine months of both 2026 and 2025 increased by 390 basis points, and ADR increased by 5.0%, resulting in a 10.8% increase in RevPAR.

•

Andaz Miami Beach caused room revenue to increase by $21.6 million. For the first nine months of 2026, occupancy was 69.0% and the ADR was $477.06, resulting in RevPAR of $329.17. Andaz Miami Beach was undergoing renovation and reopened in May 2025.

•

Room revenue at the Comparable Portfolio increased $19.4 million. Occupancy increased 150 basis points and the ADR increased 3.0%, resulting in a 5.1% increase in RevPAR. The Comparable Portfolio's room revenue was positively impacted by increased leisure, group and contract demand at Wailea Beach Resort, reflecting strong growth and the continued recovery of the Wailea market. In addition, strong leisure demand, together with increased group demand, contributed to higher room revenue at Four Seasons Resort Napa Valley and Montage Healdsburg. Increased transient and group demand at Hyatt Regency San Antonio Riverwalk and increased group and contract demand at Marriott Boston Long Wharf also contributed to the increase. These positive impacts were partially offset by lower room revenue at Renaissance Orlando at SeaWorld®, driven by decreased transient and group demand, and at Hilton San Diego Bayfront, driven by decreased group and contract demand, as well as meeting space renovations.


	Nine Months Ended September 30,
	2026						2025						Change
	Occ%			ADR	RevPAR		Occ%			ADR	RevPAR		Occ%		ADR		RevPAR
Comparable Portfolio	74.6	%	$	328.75	$	245.25	73.1	%	$	319.25	$	233.37	150	bps	3.0	%	5.1	%

•

The Two Disposed Hotels caused room revenue to decrease by $12.1 million.

Food and beverage revenue. Food and beverage revenue increased $4.2 million, or 6.5%, in the third quarter of 2026 as compared to the third quarter of 2025, as follows:

•

Food and beverage revenue at the Comparable Portfolio increased $6.0 million due to increases in both outlet and banquet revenue. Outlet revenue increased primarily at Wailea Beach Resort, Hilton San Diego Bayfront, Marriott Boston Long Wharf and The Westin Washington, DC Downtown, supported by higher transient occupancy and increased guest spending. Banquet revenue increased primarily at Wailea Beach Resort, Hyatt Regency San Antonio Riverwalk, Renaissance Orlando at SeaWorld®, and Marriott Boston Long Wharf due to stronger group demand and higher banquet spending. These increases were partially offset by lower banquet revenue at Hilton San Diego Bayfront and The Westin Washington, DC Downtown driven by lower group demand.

•

Andaz Miami Beach caused food and beverage revenue to increase by $0.7 million.

•

The sale of Hyatt Regency San Francisco caused a $2.5 million decrease in food and beverage revenue.

For the nine months ended September 30, 2026, food and beverage revenue increased $12.2 million, or 5.8%, as compared to the nine months ended September 30, 2025 as follows:

•

Andaz Miami Beach caused food and beverage revenue to increase by $8.0 million.

•

Food and beverage revenue at the Comparable Portfolio increased $7.0 million due to increased outlet revenue, partly offset by a decrease in banquet revenue. Outlet revenue increased primarily due to higher transient occupancy at a majority of the hotels, with outlet revenue increases primarily occurring at Wailea Beach Resort, Hilton San Diego Bayfront, The Westin Washington, DC Downtown, Marriott Boston Long Wharf, Marriott Long Beach Downtown and Four Seasons Resort Napa Valley. Banquet revenue decreased primarily at Hilton San Diego Bayfront due to lower group demand, which was due in part to meeting space renovations in early 2026, and at The Westin Washington, DC Downtown due to lower group demand. These decreases were partially offset by increased banquet revenue at Hyatt Regency San Antonio Riverwalk,

Renaissance Orlando at SeaWorld®, JW Marriott New Orleans and Marriott Boston Long Wharf due to stronger group demand and higher banquet spending.

•

The Two Disposed Hotels caused a $2.8 million decrease in food and beverage revenue.

Other operating revenue. Other operating revenue decreased $0.3 million, or 1.2%, in the third quarter of 2026 as compared to the third quarter of 2025 as follows:

•

Other operating revenue at the Comparable Portfolio increased $0.8 million, primarily due to increases in parking revenues, destination and resort fees, and recreation and pool revenues. These increases were partially offset by decreases in cancellation and attrition fees and other ancillary hotel revenues.

•

Andaz Miami Beach caused other operating revenue to increase by $0.4 million.

•

The sale of Hyatt Regency San Francisco caused other operating revenue to decrease by $1.5 million.

For the nine months ended September 30, 2026, other operating revenue increased $6.3 million, or 8.6%, as compared to the nine months ended September 30, 2025 as follows:

•

Other operating revenue at the Comparable Portfolio increased $4.2 million, primarily due to increases in destination and resort fees, parking revenues, recreation and pool revenues, and spa revenues. The increase in other operating revenue also included the recognition of $1.2 million in business interruption proceeds during the second quarter of 2026, the majority of which related to lost profits at Wailea Beach Resort as a result of the storm damage sustained in the first quarter of 2026. These increases were partially offset by decreases in cancellation and attrition fees and other ancillary hotel revenues.

•

Andaz Miami Beach caused other operating revenue to increase by $3.5 million.

•

The Two Disposed Hotels caused other operating revenue to decrease by $1.4 million.

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 $1.8 million, or 1.2%, in the third quarter of 2026 as compared to the third quarter of 2025 as follows:

•

Hotel operating expenses at the Comparable Portfolio increased $12.4 million, primarily corresponding to the increases in the Comparable Portfolio's revenues and occupancy rates, as well as increased property taxes, repairs and maintenance expenses, advertising and promotion costs, and utilities. The increase in property taxes was due to positive appeals and reassessments at several hotels in the prior year, with no comparable benefit in the current period. In addition, hotel operating expenses increased due to higher payroll and related expenses at Wailea Beach Resort driven by significantly higher occupancy relative to the third quarter of 2025.

•

Andaz Miami Beach caused hotel operating expenses to increase by $1.6 million.

•

The sale of Hyatt Regency San Francisco caused hotel operating expenses to decrease by $12.2 million.

For the nine months ended September 30, 2026, hotel operating expenses increased $20.5 million, or 4.5%, as compared to the nine months ended September 30, 2025 as follows:

•

Hotel operating expenses at the Comparable Portfolio increased $22.5 million, primarily corresponding to the increases in the Comparable Portfolio's revenues and occupancy rates. The increase also reflected higher repairs and maintenance expenses, including severe weather-related repairs and restoration at The Westin Washington, DC Downtown and other repairs at Renaissance Orlando at SeaWorld®, as well as higher property taxes, advertising and promotion costs, and utilities. Property taxes increased primarily due to positive appeals and reassessments at several hotels in the prior year period, with no comparable benefit in the current year period. Hotel operating expenses also increased due to higher payroll and related expenses at Wailea Beach Resort driven by significantly higher occupancy and higher Hawaii general excise taxes associated with the increase in revenue.

•

Andaz Miami Beach caused hotel operating expenses to increase by $11.4 million.

•

The Two Disposed Hotels caused hotel operating expenses to decrease by $13.4 million.

Other property-level expenses. Other property-level expenses increased $0.9 million, or 3.4%, in the third quarter of 2026 as compared to the third quarter of 2025 as follows:

•

Other property-level expenses at the Comparable Portfolio increased $2.7 million, primarily due to increased payroll and related expenses, information and technology expenses, credit card commissions, and management fees.

•

Andaz Miami Beach caused other property-level expenses to increase by $0.3 million.

•

The sale of Hyatt Regency San Francisco caused other property-level expenses to decrease by $2.1 million.

For the nine months ended September 30, 2026, other property-level expenses increased $7.4 million, or 8.4%, as compared to the nine months ended September 30, 2025 as follows:

•

Other property-level expenses at the Comparable Portfolio increased $6.6 million, primarily due to increased information and technology expenses, payroll and related expenses, legal expenses, credit card commissions, and management fees.

•

Andaz Miami Beach caused other property-level expenses to increase by $2.5 million.

•

The Two Disposed Hotels caused other property-level expenses to decrease by $1.7 million.

Corporate overhead expense. Corporate overhead expense decreased $0.6 million, or 8.0%, in the third quarter of 2026 as compared to the third quarter of 2025, due to decreased payroll and related expenses resulting from the restructuring of our executive team in the second quarter of 2026, as well as lower professional and due diligence fees.

For the nine months ended September 30, 2026, corporate overhead expense decreased $2.2 million, or 9.1%, as compared to the nine months ended September 30, 2025, primarily due to lower payroll and related expenses resulting from the restructuring of our executive team in the first quarter of 2025, as well as lower professional and due diligence fees. These lower expenses were partially offset by higher payroll and related expenses resulting from the restructuring of our executive team in the second quarter of 2026, as well as higher corporate governance expenses.

Depreciation and amortization expense. Depreciation and amortization expense decreased $3.6 million, or 10.7%, in the third quarter of 2026 as compared to the third quarter of 2025 as follows:

•

Andaz Miami Beach caused a $0.3 million increase in depreciation and amortization expense primarily due to new assets placed in service as part of the renovation.

•

Depreciation and amortization expense related to the Comparable Portfolio remained relatively flat compared to the prior year period.

•

The sale of Hyatt Regency San Francisco caused depreciation and amortization expense to decrease by $3.9 million.

For the nine months ended September 30, 2026, depreciation and amortization expense decreased $1.6 million, or 1.6%, as compared to the nine months ended September 30, 2025 as follows:

•

Andaz Miami Beach caused a $2.2 million increase in depreciation and amortization expense primarily due to new assets placed in service as part of the renovation.

•

Depreciation and amortization expense related to the Comparable Portfolio increased $1.2 million as increased expense at our recently renovated hotels was partially offset by reduced expense due to fully depreciated assets.

•

The Two Disposed Hotels caused depreciation and amortization expense to decrease by $5.0 million.

Impairment and other losses. Impairment and other losses were zero and $1.6 million for the three and nine months ended September 30, 2026, respectively, and zero for both the three and nine months ended September 30, 2025. In June 2026, we recorded a $1.6 million loss at Wailea Beach Resort related to the write-off of storm-damaged assets.

Interest and other income. Interest and other income totaled $2.6 million and $3.2 million in the third quarters of 2026 and 2025, respectively, and $7.9 million and $7.0 million in the nine months ended September 30, 2026 and 2025, respectively.

During the third quarters of 2026 and 2025, we recognized interest income of $2.5 million and $1.4 million, respectively. Interest income increased in the third quarter of 2026 as compared to the third quarter of 2025 due to increases in our cash balances following our disposition of Hyatt Regency San Francisco in July 2026. In addition, during the third quarter of 2026, we recognized property insurance recoveries of $0.1 million. During the third quarter of 2025, we recognized a $1.0 million settlement for certain construction-related claims at Hilton Key West Resort & Marina, $0.7 million in net property insurance recoveries related to 2025 water damage at The Westin Washington, DC Downtown, and other miscellaneous income of $0.1 million.

During the nine months ended September 30, 2026 and 2025, we recognized interest income of $5.1 million and $4.2 million, respectively. Interest income increased in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025 due to increases in our cash balances following our disposition of Hyatt Regency San Francisco in July 2026. During the nine months ended September 30, 2026, we recognized property insurance recoveries of $2.7 million, primarily related to storm-related damage claims at Wailea Beach Resort, and other miscellaneous income of $0.1 million. During the nine months ended September 30, 2025, we recognized a $1.9 million settlement for certain construction-related claims at Hilton Key West Resort & Marina, $0.8 million in net property insurance recoveries related to 2023 fire damage at Hilton San Diego Bayfront and 2025 water damage at The Westin Washington, DC Downtown, and other miscellaneous income of $0.1 million.

Interest expense. We incurred interest expense as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2026			2025			2026			2025
Interest expense on debt	$	12,683		$	12,927		$	37,745		$	37,209
Noncash interest on derivatives, net		(2,995	)		(495	)		(7,080	)		668
Amortization of deferred financing costs		1,041			980			3,123			2,782
Capitalized interest		-			-			-			(1,401	)
Total interest expense	$	10,729		$	13,412		$	33,788		$	39,258

Interest expense decreased $2.7 million, or 20.0%, in the third quarter of 2026 as compared to the same period in 2025, and decreased $5.5 million, or 13.9%, in the nine months ended September 30, 2026 as compared to the same period in 2025.

The decreases in interest expense during the third quarter of 2026 and the nine months ended September 30, 2026 as compared to the same periods in 2025 were primarily due to noncash changes of $2.5 million and $7.7 million, respectively, in the fair market value of our derivatives. Additionally, interest expense during the third quarter of 2026 decreased by $0.2 million, as compared to the same period in 2025, primarily due to lower average interest rates on our term loans. These decreases in interest expense were partially offset by a reduction in capitalized interest of $1.4 million during the nine months ended September 30, 2026, as compared to the same period in 2025. Capitalized interest in the first half of 2025 was related to the extensive renovation work at Andaz Miami Beach, and there was no corresponding capitalization of interest during the nine months ended September 30, 2026.

The decreases in total interest expense during the third quarter of 2026 and the nine months ended September 30, 2026 as compared to the same periods in 2025 were partially offset by a $0.5 million increase in interest expense on our debt during the nine months ended September 30, 2026, primarily due to higher average debt balances, partially offset by lower average interest rates on our term loans. In addition, interest expense during the third quarter and the nine months ended September 30, 2026 increased by $0.1 million and $0.3 million, respectively, as compared to the same periods 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 5.1% and 5.2% at September 30, 2026 and 2025, respectively. Approximately 50.3% and 70.4% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates at September 30, 2026 and 2025, respectively. Including the effect of our interest rate derivative swaps entered into in October 2026 on Term Loan 2, 68.6% of our outstanding debt has fixed interest rates or has been swapped to fixed interest rates.

Gain (loss) on sale of assets. Gain on sale of assets totaled $31.5 million for both the third quarter and the nine months ended September 30, 2026, zero for the third quarter of 2025 and a loss of $8.8 million for the nine months ended September 30, 2025. In the third quarter and nine months ended September 30, 2026, we recognized a $31.5 million gain on our sale of Hyatt Regency San Francisco. In the nine months ended September 30, 2025, we recognized an $8.8 million loss on our sale of Hilton New Orleans St. Charles.

Loss on extinguishment of debt. Loss on extinguishment of debt totaled zero for both the third quarter and the nine months ended September 30, 2026, and a loss of $0.2 million for both the third quarter and the nine months ended September 30, 2025. In the third quarter and nine months ended September 30, 2025, we recorded a loss of $0.2 million related to the write-off of unamortized deferred financing costs associated with the execution of the Third Amended and Restated Credit Agreement entered into in September 2025.

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 third quarter and the nine months ended September 30, 2026, we recognized net current income tax provisions of $0.3 million and $0.6 million, respectively, resulting from current state and federal income tax expenses, net of any refunds.

In the third quarter and the nine months ended September 30, 2025, we recognized net current income tax provisions of $0.1 million and $0.3 million, respectively, 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):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2026			2025		2026				2025
Series G preferred stock	$	1,242		$	1,076	$	3,395			$	2,567
Series H preferred stock		786	(1)		1,761		2,122		(1)		5,283
Series I preferred stock		168	(1)		1,425		(673	)	(1)		4,275
Total preferred stock dividends	$	2,196		$	4,262	$	4,844			$	12,125

(1)

Includes net gains of $0.6 million and $0.8 million related to the Series H preferred stock and the Series I preferred stock repurchases, respectively, for the three months ended September 30, 2026, and net gains of $2.4 million and $4.2 million related to the Series H preferred stock and the Series I preferred stock repurchases, respectively, for the nine months ended September 30, 2026.

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%, 6.5%, and 7.5% beginning in July 2024, July 2025, and July 2026, respectively. Accordingly, the dividend rate was 4.5% for the first and second quarters of 2025, 6.5% for the third and fourth quarters of 2025 and the first and second quarters of 2026, and 7.5% for the third quarter of 2026. Beginning in the third quarter of 2027, the annual dividend rate will increase to the greater of 8.5% 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 we do. 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:

•

Amortization of deferred stock compensation: we exclude the noncash expense incurred with the amortization of deferred stock compensation as this expense is based on historical stock prices at the date of grant to our corporate employees and does not reflect the underlying performance of our hotels.

•

intangibles because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.

•

Amortization of right-of-use assets and obligations: we exclude the amortization of our right-of-use assets and related lease obligations, as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels.

•

Undepreciated asset transactions: we exclude the effect of gains and losses on the disposition of undepreciated assets because we believe that including them in Adjusted EBITDAre is not consistent with reflecting the ongoing performance of our assets.

•

Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired because, like interest expense, their removal helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure.

•

Cumulative effect of a change in accounting principle: from time to time, the Financial Accounting Standards Board ("FASB") promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.

•

The following table reconciles our unaudited net income to EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, 2026 and 2025 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2026			2025			2026			2025
Net income	$	40,889		$	1,322		$	85,471		$	17,351
Depreciation and amortization		30,287			33,928			98,724			100,328
Interest expense		10,729			13,412			33,788			39,258
Income tax provision, net		296			137			605			272
(Gain) loss on sale of assets		(31,489	)		-			(31,489	)		8,751
Impairment and other losses		-			-			1,639			-
EBITDAre		50,712			48,799			188,738			165,960

Amortization of deferred stock compensation		2,015			1,905			7,461			6,741
Amortization of right-of-use assets and obligations		(233	)		(158	)		(675	)		(458	)
Loss on extinguishment of debt		-			180			-			180
(Gain) loss on property damage, net		1,144			(674	)		601			(773	)
Property-level pre-opening and management transition costs		841			-			959			6,471
Property-level legal settlement costs		-			-			935			-
Management transition costs		-			-			907			1,869
Adjustments to EBITDAre, net		3,767			1,253			10,188			14,030
Adjusted EBITDAre	$	54,479		$	50,052		$	198,926		$	179,990

Adjusted EBITDAre increased $4.4 million, or 8.8%, in the third quarter of 2026 as compared to the third quarter of 2025, and increased $18.9 million, or 10.5%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, primarily due to the following:

•

Adjusted EBITDAre at Andaz Miami Beach increased $0.9 million and $13.0 million in the third quarter and the nine months ended September 30, 2026, respectively, as compared to the same periods in 2025, primarily due to the changes in

Andaz Miami Beach's revenues and expenses included in the discussion above regarding the operating results for the third quarter and the nine months ended September 30, 2026.

•

Adjusted EBITDAre at the Comparable Portfolio increased $6.0 million, or 11.6%, and increased $7.2 million, or 3.9%, in the third quarter and the nine months ended September 30, 2026, respectively, as compared to the same periods in 2025 due to the changes in the Comparable Portfolio's revenues and expenses included in the discussion above regarding the operating results for the third quarter and the nine months ended September 30, 2026.

•

Hyatt Regency San Francisco recorded Adjusted EBITDAre of $0.3 million and $11.0 million in the third quarter and the nine months ended September 30, 2026, respectively, and the Two Disposed Hotels recorded $3.1 million and $11.8 million in the third quarter and the nine months ended September 30, 2025, respectively.

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:

•

Amortization of contract intangibles: we exclude the noncash amortization of any favorable or unfavorable contract intangibles recorded in conjunction with our hotel acquisitions. We exclude the noncash amortization of contract intangibles because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.

•

Real estate amortization of right-of-use assets and obligations: we exclude the amortization of our real estate right-of-use assets and related lease obligations (with the exception of our corporate operating lease) as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels.

•

Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired, as well as the noncash interest on our derivatives. We believe that these items are not reflective of our ongoing finance costs.

•

Cumulative effect of a change in accounting principle: from time to time, the FASB promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.

•

Other adjustments: we exclude other adjustments that we believe are outside the ordinary course of business because we do not believe these costs reflect our actual performance for that period and/or the ongoing operations of our hotels. Such items may include: lawsuit settlement costs; the write-off of development costs associated with abandoned projects; changes to deferred tax assets, liabilities or valuation allowances; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects; debt resolution costs; gains or losses on the redemptions or repurchases of preferred stock; lease terminations; property insurance restoration proceeds or uninsured losses; income tax benefits or provisions associated with the application of net operating loss carryforwards, uncertain tax positions or with the sale of assets; and other nonrecurring identified adjustments.

The following table reconciles our unaudited net income to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the three and nine months ended September 30, 2026 and 2025 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2026			2025			2026			2025
Net income	$	40,889		$	1,322		$	85,471		$	17,351
Preferred stock dividends, net of gain on repurchases		(2,196	)		(4,262	)		(4,844	)		(12,125	)
Real estate depreciation and amortization		29,946			33,581			97,696			99,278
(Gain) loss on sale of assets		(31,489	)		-			(31,489	)		8,751
Impairment and other losses		-			-			1,639			-
FFO attributable to common stockholders		37,150			30,641			148,473			113,255

Amortization of deferred stock compensation		2,015			1,905			7,461			6,741
Real estate amortization of right-of-use assets and obligations		(200	)		(130	)		(586	)		(390	)
Amortization of contract intangibles, net		312			315			941			944
Noncash interest on derivatives, net		(2,995	)		(495	)		(7,080	)		668
Loss on extinguishment of debt		-			180			-			180
(Gain) loss on property damage, net		1,144			(674	)		601			(773	)
Property-level pre-opening and management transition costs		841			-			959			6,471
Property-level legal settlement costs		-			-			935			-
Management transition costs		-			-			907			1,869
Gain on preferred stock repurchases, net		(1,452	)		-			(6,637	)		-
Income tax related to hotel disposition		361			-			361			-
Adjustments to FFO attributable to common stockholders, net		26			1,101			(2,138	)		15,710
Adjusted FFO attributable to common stockholders	$	37,176		$	31,742		$	146,335		$	128,965

Adjusted FFO attributable to common stockholders increased $5.4 million, or 17.1%, and increased $17.4 million, or 13.5%, in the third quarter and the nine months ended September 30, 2026, respectively, as compared to the same periods 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 hotel dispositions, our term loans, our credit facility, key money, and property insurance. Our primary uses of cash were for capital expenditures for hotels and other assets, the acquisition of land adjacent to one of our hotels, operating expenses, repurchases of our preferred and common stock, repayments of our credit facility, term loans, and senior notes, payments of deferred financing costs, 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 activities may also be affected by changes in our portfolio resulting from hotel acquisitions, dispositions or renovations. Net cash provided by operating activities was $161.2 million in the nine months ended September 30, 2026, as compared to $145.1 million in the nine months ended September 30, 2025. The net increase in cash provided by operating activities during the nine months ended September 30, 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 Hyatt Regency San Francisco and 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 provided by or used in investing activities during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025, was as follows (in thousands):


	Nine Months Ended September 30,
	2026			2025
Proceeds from sale of hotel property	$	270,811		$	46,348
Acquisition of hotel property and other assets		-			(1,269	)
Acquisition-related key money proceeds		4,000			4,000
Proceeds from property insurance		2,585			875
Renovations and additions to hotel properties and other assets		(76,570	)		(73,694	)
Net cash provided by (used in) investing activities	$	200,826		$	(23,740	)

During the nine months ended September 30, 2026, we received $270.8 million of proceeds from the sale of Hyatt Regency San Francisco, $4.0 million in key money received from the manager of one of our hotels pursuant to the hotel's management agreement, and $2.6 million in property insurance proceeds received. These cash inflows were partially offset by our investment of $76.6 million for renovations and additions to our portfolio and other assets.

During the nine months ended September 30, 2025, we invested $73.7 million for renovations and additions to our portfolio and other assets, and we purchased land adjacent to the Hilton Key West Resort & Marina for $1.3 million. These cash outflows were partially offset by $46.3 million of proceeds received from the sale of Hilton New Orleans St. Charles, $4.0 million in key money received from the manager of one of our hotels pursuant to the hotel's management agreement, and $0.9 million in property insurance proceeds received.

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 nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025, was as follows (in thousands):


	Nine Months Ended September 30,
	2026			2025
Repurchases of common stock	$	(143,711	)	$	(100,727	)
Repurchases of common stock for employee tax obligations		(3,742	)		(4,278	)
Repurchases of preferred stock		(43,041	)		-
Proceeds from credit facility		25,000			50,000
Payments on credit facility		(25,000	)		(50,000	)
Payments of deferred financing costs		-			(17,981	)
Proceeds from term loans		90,000			149,600
Payments on term loans		-			(64,600	)
Payments on senior notes		(65,000	)		-
Payment of securities registration costs		(249	)		-
Dividends and distributions paid		(64,100	)		(66,115	)
Net cash used in financing activities	$	(229,843	)	$	(104,101	)

During the nine months ended September 30, 2026, we paid $143.7 million to repurchase 13,748,527 shares of our common stock and $43.0 million to repurchase 901,319 shares and 1,154,230 shares of our Series H preferred stock and Series I preferred stock, respectively. We also paid $3.7 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 $64.1 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. Additionally, in April 2026, we drew down $25.0 million on our credit facility and repaid the full amount in July 2026.

During the nine months ended September 30, 2025, we paid $100.7 million to repurchase 11,381,731 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 $66.1 million in dividends and distributions to our preferred and common stockholders. In September 2025, we entered into the Third Amended and Restated Credit Agreement and received $149.6 million from additional borrowing on

our term loans and repaid $64.6 million to lenders as a result of modifications to their commitment levels under the Third Amended and Restated Credit Agreement. We used a portion of the proceeds received to repay the $50.0 million we drew down on our credit facility in April 2025 and July 2025. During the first nine months of 2025, we also paid $18.0 million in deferred financing costs related to the extension of the maturity of our previous Term Loan 3 and the execution of the Third Amended and Restated Credit Agreement.

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 been in the past or may only be available at higher costs.

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 during the first half of 2026 before moderating in June, remaining relatively stable in July and August, and increasing in September, reflecting continued volatility in energy prices and broader economic conditions. 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 September 30, 2026, our unrestricted cash balance was $236.5 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 September 30, 2026, we had $955.0 million of unsecured corporate-level debt, $317.9 million of cash and cash equivalents, including restricted cash, and total assets of $2.9 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. In addition, in April 2026, we drew down $25.0 million on our credit facility and repaid the full amount in July 2026.

As of September 30, 2026, 50.3% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates, including our $275.0 million Term Loan 1, $100.0 million of our Term Loan 2, and our $105.0 million Series B Senior Notes.

Our floating rate debt as of September 30, 2026 included $175.0 million of the $275.0 million total outstanding under our Term Loan 2 and our $300.0 million Term Loan 3.

In October 2026, we entered into two separate interest rate swap agreements on portions of our Term Loan 2 balance. The first interest rate swap agreement has a notional amount of $75.0 million, became effective on October 6, 2026, expires on January 24, 2029, and effectively fixes the SOFR component of the interest rate on $75.0 million of Term Loan 2 borrowings at 4.59%. The second interest rate swap agreement has a notional amount of $100.0 million, became effective on October 22, 2026, expires on January 24, 2030, and effectively fixes the SOFR component of the interest rate on $100.0 million of Term Loan 2 borrowings at 4.49%. Including the effect of our interest rate derivative swaps entered into in October 2026 on Term Loan 2, 68.6% of our outstanding debt has fixed interest rates or has been swapped to fixed interest rates.

Contractual Obligations. The following table summarizes our payment obligations and commitments as of September 30, 2026 (in thousands):


	Payment due by period
			Less Than		1 to 3		3 to 5		More than
	Total		1 year		years		years		5 years
Debt (1)	$	955,000	$	-	$	105,000	$	850,000	$	-
Interest obligations on debt (1) (2)		209,593		47,735		96,176		65,682		-
Operating lease obligations, including imputed interest (3)		7,101		2,669		3,254		236		942
Construction commitments		32,772		32,772	-		-		-
Total	$	1,204,466	$	83,176	$	204,430	$	915,918	$	942

(1)

Debt and interest obligations on debt assume we will exercise all available extension options on our revolving credit facility and Term Loans, upon payment of applicable fees and the satisfaction of certain customary conditions.

(2)

Interest is calculated based on the loan balances and variable rates, as applicable, at September 30, 2026, and includes the effect of our interest rate derivatives.

(3)

Operating lease obligations include the lease on our current corporate headquarters and the sublease on our former corporate headquarters. In addition, our operating lease obligations include a ground lease that expires in 2071 and requires a reassessment of rent payments for periods subsequent to 2025, agreed upon by both us and the lessor. As of September 30, 2026, the reassessment had not been finalized; therefore, no amounts related to this ground lease are included in the table above. We recorded lease expense of approximately $3.6 million and $10.1 million during the three and nine months ended September 30, 2026, respectively, based on the contractual rent in effect as of December 31, 2025.

We may in the future seek to obtain mortgages on one or more of our 13 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 September 30, 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 $76.6 million and $73.7 million in our portfolio and other assets during the nine months ended September 30, 2026 and 2025, respectively. As of September 30, 2026, we have contractual construction commitments totaling $32.8 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 1.0% and 5.5% of the respective hotel's applicable annual revenue. As of September 30, 2026, our balance sheet includes restricted cash of $81.2 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.

•

Impairment of investments in hotel properties. Impairment losses are recorded on investments in hotel properties to be held and used by us whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors we consider when assessing whether impairment indicators exist include, but are not limited to, hotel disposition strategy and hold period, a significant decline in operating results not related to renovations or repositionings, significant changes in the manner in which the Company uses the asset, physical damage to the property due to unforeseen events such as natural disasters, and other market and economic conditions.

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.

•

Income taxes. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to our stockholders. As a REIT, we generally will not be subject to federal corporate income tax on that portion of our taxable income that is currently distributed to stockholders. We are subject to certain state and local taxes on our income and property, and to federal income and excise taxes on our undistributed taxable income. In addition, our wholly owned TRS, which leases our hotels from the Operating Partnership, is subject to federal and state income taxes. We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

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.

Sunstone Hotel Investors Inc. published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 19:29 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]