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What changed in Sunstone Hotel Investors, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sunstone Hotel Investors, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+495 added−589 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-23)

Top changes in Sunstone Hotel Investors, Inc.'s 2023 10-K

495 paragraphs added · 589 removed · 403 edited across 2 sections

Item 1. Business

Business — how the company describes what it does

143 edited+36 added−32 removed230 unchanged
Biggest changeNoncompliance with such regulations could subject us to penalties, loss of value of our properties or civil damages; ● corporate responsibility, specifically related to ESG factors and commitments, may impose additional costs and expose us to new risks that could adversely affect our results of operations, financial condition and cash flows; ● our franchisors and brand managers may require us to make capital expenditures pursuant to property improvement plans or to comply with brand standards; ● termination of any of our franchise, management or operating lease agreements could cause us to lose business or lead to a default or acceleration of our obligations under certain of our debt instruments; ● the growth of alternative reservation channels could adversely affect our business and profitability; ● the failure of tenants in our hotels to make rent payments under our retail and restaurant leases may adversely affect our results of operations; ● we rely on our corporate and hotel senior management teams, the loss of whom may cause us to incur costs and harm our business; and ● if we fail to maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results. ​ Risks Related to Our Debt and Financing: ● we have outstanding debt which may restrict our financial flexibility; ● we are subject to various financial covenants, and should we default, we may be required to pay additional fees, provide additional security, repay the debt or forfeit the hotel securing the debt; ● financial covenants in our debt instruments may restrict our operating or acquisition activities; ● our existing mortgage debt agreements contain “cash trap” provisions that could limit our ability to use funds generated by our hotels for other corporate purposes or to make distributions to our stockholders; ● certain of our debt is subject to variable interest rates, which can create uncertainty in forecasting our interest expense and may negatively impact our operating results; ● we may not be able to refinance our debt on favorable terms or at all; and ● our organizational documents contain no limitations on the amount of debt we can incur so we may become too highly leveraged. ​ Risks Related to Our Status as a REIT: ● if we fail to qualify as a REIT, our distributions will not be deductible by us and our income will be subject to federal and state taxation; ● even as a REIT, we may become subject to federal, state or local taxes on our income or property; ● dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends; ● if the leases between our hotels and the TRS Lessee are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT; ● we may be subject to taxes in the event our operating leases are not held to be on an arm’s-length basis; ● the TRS Lessee is subject to special rules that may result in increased taxes; ● because we are a REIT, we depend on the TRS Lessee and its subsidiaries to make rent payments to us; ● we may be required to pay a penalty tax upon sale of a hotel; ● we may be subject to corporate level income tax on certain built-in gains; ● a transaction intended to qualify as a Section 1031 Exchange may later be determined to be taxable; and ● legislative or other actions affecting REITs could have a negative effect on us. ​ Risks Related to Our Common Stock and Corporate Structure: 12 Table of Contents ● the market price of our equity securities may vary substantially; ● any future distributions to our common stockholders may vary, and distributions on our common stock may be made in the form of cash, stock or a combination of both; however, the IRS may disallow our use of stock dividends; ● shares of our common stock that are or become available for sale could affect the share price; ● our earnings and cash distributions may affect the market price of our common stock; ● provisions of Maryland law and our organizational documents may limit the ability of a third party to acquire control of our Company and may serve to limit our stock price; and ● our board of directors may change our significant corporate policies without the consent of our stockholders.
Biggest changeDefaulting on existing debt may limit our ability to access additional debt financing in the future; ● covenants in our debt instruments may restrict our operating, acquisition or disposition activities; ● our debt agreements contain “cash trap” and restricted payment provisions that, in certain circumstances, could limit our ability to use funds generated by our hotels for other corporate purposes or to make distributions to our stockholders; ● certain of our debt is subject to variable interest rates, which creates uncertainty in the amount of interest expense we will incur in the future and may negatively impact our operating results; ● we may not be able to refinance our debt on favorable terms or at all; and ● our organizational documents contain no limitations on the amount of debt we can incur so we may become too highly leveraged. ​ Risks Related to Our Status as a REIT: ● if we fail to qualify as a REIT, our distributions will not be deductible by us and our income will be subject to federal and state taxation; ● even as a REIT, we may become subject to federal, state or local taxes on our income or property; ● dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends; ● if the leases between our hotels and the TRS Lessee are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT; ● we may be subject to taxes in the event our operating leases are not held to be on an arm’s-length basis; ● the TRS Lessee is subject to special rules that may result in increased taxes; ● because we are a REIT, we depend on the TRS Lessee and its subsidiaries to make rent payments to us; ● we may be required to pay a penalty tax upon the sale of a hotel; ● we may be subject to corporate income tax on certain built-in gains; ● a transaction intended to qualify as a Section 1031 Exchange may later be determined to be taxable; and ● legislative or other actions affecting REITs could have a negative effect on us. ​ Risks Related to Our Common Stock and Corporate Structure: ● the market price of our equity securities may vary substantially; ● any future distributions to our common stockholders may vary, and distributions on our common stock may be made in the form of cash, stock or a combination of both; however, the IRS may disallow our use of stock dividends; ● shares of our common stock that are or become available for sale could affect the stock price; ● our earnings and cash distributions may affect the market price of our common stock; ● our stock repurchase program may not enhance long-term stockholder value, could cause volatility in the price of our common and preferred stock and could diminish our cash reserves; 12 Table of Contents ● provisions of Maryland law and our organizational documents may limit the ability of a third party to acquire control of the Company and may serve to limit our stock price; and ● our board of directors may change our significant corporate policies without the consent of our stockholders.
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.
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.
If our projections are inaccurate, we may not achieve our anticipated returns. ​ Accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods. ​ The acquisition of a hotel property or other entity requires an analysis of the transaction to determine if it qualifies as the purchase of a business or an asset.
If our projections are inaccurate, we may not achieve our anticipated returns. ​ Accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods. ​ Accounting for the acquisition of a hotel property or other entity requires an analysis of the transaction to determine if it qualifies as the purchase of a business or an asset.
These capital improvements may give rise to the following additional risks, among others: ● construction cost overruns and delays, including inflationary increases to commodity costs and supply chain disruptions; ● a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on affordable terms; ● uncertainties as to market demand or a loss of market demand after capital improvements have begun; ● disruption in service and room availability causing reduced demand, occupancy and rates; ● possible environmental problems; and ● disputes with managers or franchisors regarding our compliance with the requirements under the relevant management, operating lease or franchise agreement. ​ Delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders . ​ Delays we encounter in the selection, acquisition, renovation and repositioning of hotel properties could adversely affect investor returns.
These capital improvements may give rise to the following additional risks, among others: ● construction cost overruns and delays, including inflationary increases to commodity costs and supply chain disruptions; ● a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on affordable terms; ● uncertainties as to market demand or a loss of market demand after capital improvements have begun; ● disruption in service and room availability causing reduced demand, occupancy and rates; ● possible environmental problems; and ● disputes with managers or franchisors regarding our compliance with the requirements under the relevant management, operating lease or franchise agreement. ​ Delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders . ​ Delays we encounter in the acquisition, renovation and repositioning of hotel properties could adversely affect investor returns.
Our hotels may be subject to additional costs to manage consumer expectations for sustainable buildings and hotel operations. ​ There can be no assurance that climate change will not have a material adverse effect on our hotels, operating results or cash flows. ​ Uninsured and underinsured losses could harm our financial condition, results of operations and ability to make distributions to our stockholders. ​ Various types of litigation losses and catastrophic losses, such as losses due to wars, terrorist acts, earthquakes, floods, hurricanes, pollution, climate change or other environmental matters, generally are either uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments.
Our hotels may be subject to additional costs to manage consumer expectations for sustainable buildings and hotel operations. ​ There can be no assurance that climate change will not have a material adverse effect on our hotels, operating results or cash flows. ​ Uninsured or underinsured losses could harm our financial condition, results of operations and ability to make distributions to our stockholders. ​ Various types of litigation losses and catastrophic losses, such as those due to wars, terrorist acts, earthquakes, floods, hurricanes, pollution, climate change or other environmental matters, generally are either uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments.
As a result, our hotel expenses may increase at higher rates than hotel revenue. ​ System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt the information technology network and systems used by us, our suppliers, our third-party managers or our franchisors, and any such disruption could reduce our expected revenue, increase our expenses, compromise confidential information, damage our reputation, increase our potential liability and adversely affect our common stock price. ​ We and our third-party managers and franchisors rely on information technology networks and systems, including the internet, to access, process, transmit and store electronic customer and financial information.
As a result, our expenses may increase at higher rates than our revenue. ​ System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt the information technology network and systems used by us, our suppliers, our third-party managers or our franchisors, and any such disruption could reduce our expected revenue, increase our expenses, compromise confidential information, damage our reputation, increase our potential liability and adversely affect our common stock price. ​ We and our third-party managers and franchisors rely on information technology networks and systems, including the internet, to access, process, transmit and store electronic customer and financial information.
Should the IRS disallow our future use of cash/common stock dividends, the distribution would not qualify for purposes of meeting our distribution requirements, and we would need to make additional all cash distributions to satisfy the distribution requirement through the use of the deficiency dividend procedures outlined in the Code. ​ Shares of our common stock that are or become available for sale could affect the share price. ​ We have in the past, and may in the future, issue additional shares of common stock to raise the capital necessary to finance hotel acquisitions, fund capital expenditures, redeem our preferred stock, repay indebtedness or for other corporate purposes.
Should the IRS disallow our future use of cash/common stock dividends, the distribution would not qualify for purposes of meeting our distribution requirements, and we would need to make additional all cash distributions to satisfy the distribution requirement through the use of the deficiency dividend procedures outlined in the Code. ​ Shares of our common stock that are or become available for sale could affect the stock price. ​ We have in the past, and may in the future, issue additional shares of common stock to raise the capital necessary to finance hotel acquisitions, fund capital expenditures, redeem our preferred stock, repay indebtedness or for other corporate purposes.
As a result, we may be required to identify and utilize other sources of cash or employ a partial cash and partial stock dividend to satisfy our taxable income distribution requirements as a REIT. ​ Financial covenants in our debt instruments may restrict our operating or acquisition activities. ​ Our existing debt agreements and other potential financings that we may incur or assume in the future may contain restrictions, requirements and other limitations on our ability to incur additional debt and make distributions to our stockholders, as well as financial covenants relating to the performance of our hotel properties.
As a result, we may be required to identify and utilize other sources of cash or employ a partial cash and partial stock dividend to satisfy our taxable income distribution requirements as a REIT. ​ Covenants in our debt instruments may restrict our operating, acquisition or disposition activities. ​ Our existing debt agreements and other potential financings that we may incur or assume in the future may contain restrictions, requirements and other limitations on our ability to incur additional debt and make distributions to our stockholders, as well as financial covenants relating to the performance of our hotel properties.
If we cannot not meet these goals fully or on time, our reputation may be damaged. ​ 22 Table of Contents Our franchisors and brand managers may require us to make capital expenditures pursuant to property improvement plans (“PIPs”) or to comply with brand standards, and the failure to make the required expenditures could cause the franchisors or hotel brands to terminate the franchise, management or operating lease agreements. ​ Our franchisors and brand managers may require that we make renovations to certain of our hotels in connection with revisions to our franchise, management or operating lease agreements.
If we cannot meet these goals fully or on time, our reputation may be damaged. ​ 22 Table of Contents Our franchisors and brand managers may require us to make capital expenditures pursuant to property improvement plans (“PIPs”) or to comply with brand standards, and the failure to make the required expenditures could cause the franchisors or hotel brands to terminate the franchise, management or operating lease agreements. ​ Our franchisors and brand managers may require that we make renovations to certain of our hotels in connection with revisions to our franchise, management or operating lease agreements.
While we may agree to share any legal costs with our third-party managers, any adverse legal judgments or settlements resulting in payment by us of a material sum of money may materially and adversely affect our financial condition and results of operations. ​ Claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses. ​ We could incur liabilities resulting from loss or injury to our hotels or to persons at our hotels.
While we may agree to pay or share any legal costs with our third-party managers, any adverse legal judgments or settlements resulting in payment by us of a material sum of money may materially and adversely affect our financial condition and results of operations. ​ Claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses. ​ We could incur liabilities resulting from loss or injury to our hotels or to persons at our hotels.
The leases generally require us to make rental payments and payments for all or portions of costs and expenses, including real and personal property taxes, insurance and utilities associated with the leased property. ​ Any proposed sale of a property that is subject to a ground or airspace lease or any proposed assignment of our leasehold interest as lessee under the ground or airspace lease may require the consent of the applicable lessor.
The leases generally require us to make rental payments and payments for all or portions of costs and expenses, including real and personal property taxes, insurance and utilities associated with the leased property. ​ Any proposed sale of a hotel that is subject to a ground or airspace lease or any proposed assignment of our leasehold interest as lessee under the ground or airspace lease may require the consent of the applicable lessor.
In addition, a total of six hotels are located in Florida, Hawaii and Louisiana, which each have an increased potential to experience strong winds, tropical storms and hurricanes. In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment.
In addition, a total of six hotels are located in Florida, Hawaii and Louisiana, which each have an increased potential to experience strong winds, wildfires, tropical storms and hurricanes. In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment.
When our current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our hotels at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (e.g., earthquake, fire, flood and terrorism) may not be generally available at current levels.
When our existing insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our hotels at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (e.g., earthquake, fire, flood and terrorism) may not be generally available at current levels.
We place a very high emphasis on maintaining positive relations with all of our employees and strive to create an inspiring and inclusive work environment where our employees feel motivated and empowered to produce exceptional results for the Company. Our capital resource objectives include, as applicable, identifying, recruiting, retaining and incentivizing our employees.
We place a very high emphasis on maintaining positive relations with all of our employees and strive to create an inspiring and inclusive work environment where our employees feel motivated and empowered to produce exceptional results for the Company. Our human capital resource objectives include, as applicable, identifying, recruiting, retaining and incentivizing our employees.
These claims, regardless of their merit, could harm the reputation of a hotel, or cause us to incur losses which could harm our results of operations. ​ The hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue. ​ As is typical of the lodging industry, we experience some seasonality in our business.
These claims, regardless of their merit, could harm the reputation of a hotel, or cause us to incur losses which could harm our results of operations. ​ The hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue and operating results. ​ As is typical of the lodging industry, we experience some seasonality in our business.
Our ability to commit to purchase specific assets will depend, in part, on the amount of our available cash at a given time. Renovation or repositioning programs may take longer and cost more than initially expected. Therefore, we may experience delays in receiving cash distributions from such hotels.
Our ability to purchase specific assets will depend, in part, on the amount of our available cash at a given time. Renovation or repositioning programs may take longer and cost more than initially expected. Therefore, we may experience delays in receiving cash distributions from such hotels.
The real estate market, including our hotels, is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We may not be able to sell any of our hotels on favorable terms.
The real estate market, including the market for our hotels, is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We may not be able to sell any of our hotels on favorable terms.
To the extent that such technologies, or new technologies, play an increased role in business interactions and the need for business-related travel decreases, demand for hotel rooms may decrease and our hotels could be adversely affected. ​ Our hotels have an ongoing need for capital investment and we may incur significant capital expenditures in connection with acquisitions, repositionings and other improvements, some of which are mandated by applicable laws or regulations or agreements with third parties, and the costs of such renovations, repositionings or improvements may exceed our expectations or cause other problems. ​ In addition to capital expenditures required by our management, franchise and loan agreements, from time to time we will need to make capital expenditures to comply with applicable laws and regulations, to remain competitive with other hotels and to maintain the economic value of our hotels.
To the extent that such technologies, or new technologies, play an increased role in business interactions and the need for business-related travel decreases, demand for hotel rooms may decrease and our hotels could be adversely affected. ​ Our hotels require ongoing capital investment and we may incur significant capital expenditures in connection with acquisitions, repositionings and other improvements, some of which are mandated by applicable laws or regulations or agreements with third parties, and the costs of such renovations, repositionings or improvements may exceed our expectations or cause other problems. ​ In addition to capital expenditures required by our management, franchise and loan agreements, from time to time we will need to make capital expenditures to comply with applicable laws and regulations, to remain competitive with other hotels and to maintain the economic value of our hotels.
Some of our competitors may have hotels that are better located, have a stronger reputation, or possess superior physical attributes than our hotels. This competition could reduce occupancy levels and room revenue at our hotels, which would harm our operations and limit or slow our future growth.
Some of our competitors may have hotels that are better located, have a stronger reputation, or possess superior physical attributes than our hotels. This competition could reduce occupancy levels and revenue at our hotels, which would harm our operations and limit or slow our future growth.
It is also possible that because of our California, Florida, Hawaii and Massachusetts concentrations, a change in laws applicable to such hotels and the lodging industry may have a greater impact on us than a change in comparable laws in another geographical area in which we have hotels.
It is also possible that because of our California, Florida and Hawaii concentrations, a change in laws applicable to such hotels and the lodging industry may have a greater impact on us than a change in comparable laws in another geographical area in which we have hotels.
The following includes a more detailed discussion of our material risk factors: ​ Risks Related to Our Business and Industry ​ We own primarily upper upscale and luxury hotels located in urban and resort destinations in an industry that is highly competitive. ​ The lodging industry is highly competitive.
The following includes a more detailed discussion of our material risk factors: ​ Risks Related to Our Business and Industry ​ We own upper upscale and luxury hotels located in urban and resort destinations in an industry that is highly competitive. ​ The lodging industry is highly competitive.
Should any of these brands experience a negative event, or receive negative publicity, our operating results may be harmed; ● our franchisors and brand managers may adopt new policies or change existing policies, which could result in increased costs that could negatively impact our hotels; ● future adverse litigation judgments or settlements resulting from legal proceedings could have an adverse effect on our financial condition; ● claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses; ● the hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue; ● changes in the debt and equity markets may adversely affect the value of our hotels; ● certain of our hotels have in the past become impaired and additional hotels may become impaired in the future; ● laws and governmental regulations may restrict the ways in which we use our hotel properties and increase the cost of compliance with such regulations.
Should any of these brands experience a negative event, or receive negative publicity, our operating results may be harmed; ● our franchisors and brand managers may adopt new policies or change existing policies, which could result in increased costs that could negatively impact our hotels; ● future adverse litigation judgments or settlements resulting from legal proceedings could have an adverse effect on our financial condition; ● claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses; ● the hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue and operating results; ● changes in the debt and equity markets may adversely affect the value of our hotels; 11 Table of Contents ● certain of our hotels have in the past become impaired and additional hotels may become impaired in the future; ● laws and governmental regulations may restrict the ways in which we use our hotel properties and increase the cost of compliance with such regulations.
As a result, we participate in the operations of our hotels only through our share of rent paid pursuant to the leases. ​ The ability of the TRS Lessee and its subsidiaries to pay rent may be affected by factors beyond its control, such as changes in general economic conditions, the level of demand for hotels and the related services of our hotels, competition in the lodging and hospitality industry, the ability to maintain and increase gross revenue at our hotels and other factors relating to the operations of our hotels. ​ Although failure on the part of the TRS Lessee or its subsidiaries to materially comply with the terms of a lease (including failure to pay rent when due) would give us the right to terminate the lease, repossess the hotel and enforce the payment obligations under the lease, such steps may not provide us with any substantive relief since the TRS Lessee is our subsidiary.
As a result, we participate in the operations of our hotels only through our share of rent paid pursuant to the leases. ​ The ability of the TRS Lessee and its subsidiaries to pay rent may be affected by factors beyond its control, such as changes in general economic conditions, the level of demand for hotels and the related services of our hotels, competition in the lodging and hospitality industry, the ability to maintain and increase gross revenue at our hotels and other factors relating to the operations of our hotels. 27 Table of Contents Although failure on the part of the TRS Lessee or its subsidiaries to materially comply with the terms of a lease (including failure to pay rent when due) would give us the right to terminate the lease, repossess the hotel and enforce the payment obligations under the lease, such steps may not provide us with any substantive relief since the TRS Lessee is our subsidiary.
I n addition , th e tota l amoun t o f cost s an d expense s tha t ma y b e incurre d wit h respec t t o th e unknow n o r contingent liabilitie s ma y excee d ou r expectations , an d w e ma y experienc e othe r unanticipate d advers e effects , al l o f whic h coul d adversel y affec t ou r operating results an d cash flows . ​ 18 Table of Contents We may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel. ​ We have acquired in the past, and may acquire in the future, multiple hotels in single transactions.
I n addition , th e tota l amoun t o f cost s an d expense s tha t ma y b e incurre d wit h respec t t o th e unknow n o r contingent liabilitie s ma y excee d ou r expectations , an d w e ma y experienc e othe r unanticipate d advers e effects , al l o f whic h coul d adversel y affec t ou r operating results an d cash flows . ​ We may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel. ​ We have acquired in the past, and may acquire in the future, multiple hotels in single transactions.
The obligation to make readily accessible accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect. ​ Inflation ​ Inflation affects our expenses, including, without limitation, by increasing costs such 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.
The obligation to make readily accessible accommodations is ongoing, and we will continue to assess our properties and to make alterations as appropriate in this respect. ​ Inflation ​ Inflation affects our expenses, including, without limitation, by increasing costs such 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.
In addition, it remains unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. ​ While some of the changes made by the TCJA may adversely affect the Company in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. ​ Risks Related to Our Common Stock and Corporate Structure ​ The market price of our equity securities may vary substantially. ​ The trading prices of equity securities issued by REITs may be affected by changes in market interest rates and other factors.
In addition, it remains unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. ​ While some of the changes made by the TCJA may adversely affect the Company in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. ​ 28 Table of Contents Risks Related to Our Common Stock and Corporate Structure ​ The market price of our equity securities may vary substantially. ​ The trading prices of equity securities issued by REITs may be affected by changes in market interest rates and other factors.
The sponsor may elect to file bankruptcy which could materially impact our ability to perfect our interest in the property and could result in a loss on our investment in the debt or note. ​ One of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations. ​ Our rights to use the underlying land at the Hilton San Diego Bayfront is based upon our interest under a long-term lease with an unaffiliated party.
The sponsor may elect to file bankruptcy which could materially impact our ability to perfect our interest in the property and could result in a loss on our investment in the debt or note. 19 Table of Contents One of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations. ​ Our rights to use the underlying land at the Hilton San Diego Bayfront is based upon our interest under a long-term lease with an unaffiliated party.
The duty of the directors of a Maryland corporation does not require them to: accept, recommend or respond on behalf of the corporation to any proposal by a person seeking to acquire control of the corporation; authorize the corporation to redeem any rights under, or modify or render inapplicable, a stockholders’ rights plan; elect on behalf of the corporation to be subject to or refrain from electing on behalf of the corporation to be subject to the unsolicited takeover provisions 30 Table of Contents of Maryland law; make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act; or act or fail to act solely because of the effect the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.
The duty of the directors of a Maryland corporation does not require them to: accept, recommend or respond on behalf of the corporation to any proposal by a person seeking to acquire control of the corporation; authorize the corporation to redeem any rights under, or modify or render inapplicable, a stockholders’ rights plan; elect on behalf of the corporation to be subject to or refrain from electing on behalf of the corporation to be subject to the unsolicited takeover provisions of Maryland law; make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act; or act or fail to act solely because of the effect the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.
In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal. ​ 19 Table of Contents If we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor’s willingness to forfeit the property in lieu of the debt. ​ If we invest in a mortgage loan or note secured by the equity interest in a property with the intention of gaining ownership through the foreclosure process, the time it will take for us to perfect our interest in the property may depend on the sponsor’s willingness to cooperate during the foreclosure process.
In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal. ​ If we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor’s willingness to forfeit the property in lieu of the debt. ​ If we invest in a mortgage loan or note secured by the equity interest in a property with the intention of gaining ownership through the foreclosure process, the time it will take for us to perfect our interest in the property may depend on the sponsor’s willingness to cooperate during the foreclosure process.
As a result, our hotel expenses may increase at higher rates than hotel revenue. ​ Securities Exchange Act Reports ​ Our internet address is www.sunstonehotels.com.
As a result, our expenses may increase at higher rates than revenue. ​ Securities Exchange Act Reports ​ Our internet address is www.sunstonehotels.com.
Increasing inflation could adversely affect consumer confidence, which could reduce consumer purchasing power and demand for lodging. Additionally, inflation affects our hotel 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 and utilities.
Increasing inflation could adversely affect consumer confidence, which could reduce consumer purchasing power and demand for lodging. Additionally, 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.
Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs. 26 Table of Contents If the leases between our hotels and the TRS Lessee are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT. ​ To qualify as a REIT, we must satisfy two gross income tests annually, under which specified percentages of our gross income must be passive income.
Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs. ​ If the leases between our hotels and the TRS Lessee are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT. ​ To qualify as a REIT, we must satisfy two gross income tests annually, under which specified percentages of our gross income must be passive income.
The 75% asset test generally requires that at least 75% of the value of our total assets be represented by real estate assets, cash or government securities. ​ The rent that we receive from a TRS attributable to leases of “qualified lodging facilities” qualifies as “rents from real property” as long as the property is operated on behalf of the TRS by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating “qualified lodging facilities” for any person unrelated to us and the TRS (an “eligible independent contractor”).
The 75% asset test generally requires that at least 75% of the value of our total assets be represented by real estate assets, cash or government securities. ​ The rent that we receive from a TRS attributable to leases of “qualified lodging facilities” qualifies as “rents from real property” as long as the property is operated on behalf of the TRS by a person who qualifies as an “independent contractor” and who is, or is 6 Table of Contents related to a person who is, actively engaged in the trade or business of operating “qualified lodging facilities” for any person unrelated to us and the TRS (an “eligible independent contractor”).
As a result, the operating results for our individual hotels can fluctuate as a result of these factors, possibly in adverse ways, and these fluctuations can affect our overall operating results. ​ The increased use of virtual meetings and other similar technologies could lessen the need for business-related travel, and, therefore, demand for rooms in our hotels may be adversely affected. ​ During 2020 and 2021, the COVID-19 pandemic caused a significant decrease in business-related travel as companies increasingly utilized virtual meetings in response to travel restrictions and to protect the health and safety of their employees.
As a result, the operating results for our individual hotels can fluctuate as a result of these factors, possibly in adverse ways, and these fluctuations can affect our overall operating results. ​ The increased use of virtual meetings and other similar technologies could lessen the need for business-related travel, and, therefore, demand for rooms in our hotels may be adversely affected. ​ The COVID-19 pandemic caused a significant decrease in business-related travel as companies increasingly utilized virtual meetings in response to travel restrictions and to protect the health and safety of their employees.
Moreover, hospitality intermediaries generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries’ offered brands, websites and reservations systems rather than to the brands of our managers and franchisors.
Moreover, hospitality intermediaries generally employ aggressive marketing strategies, including expending significant resources for advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries’ offered brands, websites and reservations systems rather than to the brands of our managers and franchisors.
In April 2013, however, we amended our charter to prohibit us from dividing directors into classes unless such action is first approved by the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors. ​ Our board of directors may change our significant corporate policies without the consent of our stockholders. ​ Our board of directors determines our significant corporate policies, including those related to acquisitions, financing, borrowing, qualification as a REIT and distributions to our stockholders.
In April 2013, however, we amended our charter to prohibit us from dividing directors into classes unless such action is first approved by the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors. ​ 31 Table of Contents Our board of directors may change our significant corporate policies without the consent of our stockholders. ​ Our board of directors determines our significant corporate policies, including those related to acquisitions, financing, borrowing, qualification as a REIT and distributions to our stockholders.
All officers serve at the discretion of the board of directors subject to the terms of their respective employment agreements with the Company. ​ ​ ​ ​ ​ Name ​ Age ​ Position Bryan A. Giglia ​ 46 ​ Chief Executive Officer Robert C. Springer ​ 45 ​ President and Chief Investment Officer David M.
All officers serve at the discretion of the board of directors subject to the terms of their respective employment agreements with the Company. ​ ​ ​ ​ ​ Name ​ Age ​ Position Bryan A. Giglia ​ 47 ​ Chief Executive Officer Robert C. Springer ​ 46 ​ President and Chief Investment Officer David M.
A discussion and analysis of the year ended December 31, 2021 as compared to the year ended December 31, 2020 is included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2022, under the caption “
A discussion and analysis of the year ended December 31, 2022 as compared to the year ended December 31, 2021 is included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2023, under the caption “
In addition to the systems operated by our third-party managers and franchisors, we have our own corporate technologies and systems to support our corporate business. ​ Certain of our third-party managers and their service providers have publicly released statements disclosing cyber-attacks and/or unauthorized access to their guest reservation, point-of-sale systems and other sensitive databases, some of which have or may have impacted our hotels and guests who have used our hotels' services or amenities.
In addition to the systems operated by our third-party managers and franchisors, we have our own corporate technologies and systems to support our corporate business. ​ Certain of our third-party managers and their service providers have been subject to, and previously publicly released statements disclosing, cyber-attacks and/or unauthorized access to their guest reservation, point-of-sale systems and other sensitive databases, some of which have or may have impacted our hotels and guests who have used our hotels’ services or amenities.
The following is a summary of the material risks to our business, all of which are described in more detail below: ​ Risks Related to Our Business and Industry: ● we own upper upscale and luxury hotels located in urban and resort destinations in an industry that is highly competitive; ● events beyond our control, including economic slowdowns or recessions, pandemics such as the pandemic caused by COVID-19 and its variants, natural disasters, civil unrest and terrorism may harm the operating performance of the hotel industry generally and the performance of our hotels; ● inflation may adversely affect our financial condition and results of operations; ● system security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt the information technology network and systems used by us, our suppliers, our third-party managers or our franchisors; ● a significant portion of our hotels are geographically concentrated and, accordingly, we could be disproportionately harmed by economic downturns or natural disasters in these areas of the country; ● we face possible risks associated with the physical and transitional effects of climate change; ● uninsured or underinsured losses could harm our financial condition; ● the operating results of some of our hotels are significantly reliant upon group and transient business generated by large corporate customers, and the loss of such customers for any reason could harm our operating results; ● the increased use of virtual meetings and other similar technologies could lessen the need for business-related travel, and, therefore, demand for rooms in our hotels may be adversely affected; ● our hotels have an ongoing need for capital investment and we may incur significant capital expenditures in connection with acquisitions, repositionings and other improvements, some of which are mandated by applicable laws or regulations or agreements with third parties, and the costs of such renovations, repositionings or improvements may exceed our expectations or cause other problems; ● delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders; ● accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods; ● volatility in the debt and equity markets may adversely affect our ability to acquire, renovate, refinance or sell our hotels; ● we may pursue joint venture investments that could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturer; ● we may be subject to unknown or contingent liabilities related to recently sold or acquired hotels, as well as hotels we may sell or acquire in the future; ● we may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel; ● the sale of a hotel or portfolio of hotels is typically subject to contingencies, risks and uncertainties, any of which may cause us to be unsuccessful in completing the disposition; ● the illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our hotels; ● we may issue or invest in hotel loans, including subordinated or mezzanine loans, which could involve greater risks of loss than senior loans secured by income-producing real properties; ● if we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor’s willingness to forfeit the property in lieu of the debt; ● one of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations; 11 Table of Contents ● because we are a REIT, we depend on third-parties to operate our hotels; ● we are subject to risks associated with our operators’ employment of hotel personnel; ● most of our hotels operate under a brand owned by Marriott, Hilton, Hyatt, Four Seasons or Montage.
The following is a summary of the material risks to our business, all of which are described in more detail below: ​ 10 Table of Contents Risks Related to Our Business and Industry: ● we own upper upscale and luxury hotels located in urban and resort destinations in an industry that is highly competitive; ● events beyond our control, including economic slowdowns or recessions, pandemics, natural disasters, civil unrest and terrorism may harm the operating performance of the hotel industry generally and the performance of our hotels; ● inflation may adversely affect our financial condition and results of operations; ● system security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt the information technology network and systems used by us, our suppliers, our third-party managers or our franchisors; ● a significant portion of our hotels are geographically concentrated and, accordingly, we could be disproportionately harmed by economic conditions, competition, new hotel supply, real and personal property tax rates, or natural disasters in these areas of the country; ● we face possible risks associated with the physical and transitional effects of climate change; ● uninsured or underinsured losses could harm our financial condition; ● the operating results of some of our hotels are significantly reliant upon group and transient business generated by large corporate customers, and the loss of such customers for any reason could harm our operating results; ● the increased use of virtual meetings and other similar technologies could lessen the need for business-related travel, and, therefore, demand for rooms in our hotels may be adversely affected; ● our hotels require ongoing capital investment and we may incur significant capital expenditures in connection with acquisitions, repositionings and other improvements, some of which are mandated by applicable laws or regulations or agreements with third parties, and the costs of such renovations, repositionings or improvements may exceed our expectations or cause other problems; ● delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders; ● accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods; ● volatility in the debt and equity markets may adversely affect our ability to acquire, renovate, refinance or sell our hotels; ● we may pursue joint venture investments that could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturer; ● we may be subject to unknown or contingent liabilities related to recently sold or acquired hotels, as well as hotels we may sell or acquire in the future; ● we may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel; ● the sale of a hotel or portfolio of hotels is typically subject to contingencies, risks and uncertainties, any of which may cause us to be unsuccessful in completing the disposition; ● the illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our hotels; ● we may issue or invest in hotel loans, including subordinated or mezzanine loans, which could involve greater risks of loss than senior loans secured by income-producing real properties; ● if we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor’s willingness to forfeit the property in lieu of the debt; ● one of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations; ● because we are a REIT, we depend on third parties to operate our hotels; ● we are subject to risks associated with our operators’ employment of hotel personnel; ● most of our hotels operate under a brand owned by Marriott, Hilton, Hyatt, Four Seasons or Montage.
Any policy changes could have an adverse effect on our financial condition, results of operations, the trading price of our common stock and our ability to make distributions to our common and preferred stockholders. ​ ​ Item 1 B. Unresolved Staff Comments ​ None. ​ ​ Item 2.
Any policy changes could have an adverse effect on our financial condition, results of operations, the trading price of our common stock and our ability to make distributions to our common and preferred stockholders. ​ ​ Item 1 B. Unresolved Staff Comments ​ None. ​ ​ Item 1 C.
If we are unable to refinance our indebtedness with property secured debt or corporate debt on acceptable terms, or at all, and are unable to negotiate an extension with the lender, we may be in default or forced to sell one or more of our properties on potentially disadvantageous terms, which might increase our borrowing costs, result in losses to us and reduce the amount of cash available to us for distributions to our stockholders.
If we are unable to refinance our indebtedness with secured debt or unsecured debt on acceptable terms, or at all, and are unable to negotiate an extension with the lender, we may be in default or forced to sell one or more of our properties on potentially disadvantageous terms, which might increase our borrowing costs, result in losses to us and reduce the amount of cash available to us for distributions to our stockholders.
In that event, we might nevertheless remain obligated for any notes payable or other financial obligations related to the property, in addition to obligations to our ground lessor, franchisors and managers. ​ Five of our hotels are located in California, which has been historically at greater risk to certain acts of nature (such as wildfires, earthquakes and mudslides) than other states.
In that event, we might nevertheless remain obligated for any notes payable or other financial obligations related to the property, in addition to obligations to our ground lessor, franchisors and managers. ​ Five of our hotels are located in California, which has been historically at greater risk of certain acts of nature, including wildfires, earthquakes and mudslides, than other states.
Any of these events could adversely affect our financial results, common stock price and reputation, lead to unauthorized disclosure of confidential information, result in misstated financial reports, monetary losses or regulatory penalties and subject us to potential litigation and liability. ​ Portions of our information technology infrastructure or that of our third-party managers and franchisors also may experience interruptions, delays or cessations of service or produce errors in connection with systems installation, integration or migration work that takes place from time to time.
Any of these events could adversely affect our financial results, common stock price and reputation, lead to unauthorized 14 Table of Contents disclosure of confidential information, result in delayed or misstated financial reports, monetary losses or regulatory penalties and subject us to potential litigation and liability. ​ Portions of our information technology infrastructure or that of our third-party managers and franchisors also may experience interruptions, delays or cessations of service or produce errors in connection with systems installation, integration or migration work that takes place from time to time.
More recently, the IRS issued Revenue Procedure 2021-53, temporarily reducing the cash component of a REIT’s dividends to not less than 10%. However, we have no assurance that the IRS will continue to provide such relief in the future; in which case, we may make cash/common stock distributions prior to receiving a private letter ruling.
More recently, the IRS issued Revenue Procedure 2021-53, temporarily reducing the cash component of a REIT’s dividends to not less than 10%. However, we have no 29 Table of Contents assurance that the IRS will continue to provide such relief in the future; in which case, we may make cash/common stock distributions prior to receiving a private letter ruling.
Interest rate volatility, including volatility due to the 2022 interest rate increases implemented by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), could reduce our access to capital markets or increase the cost of funding our debt requirements.
Interest rate volatility, including volatility due to the 2022 and 2023 interest rate increases implemented by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), could reduce our access to capital markets or increase the cost of funding our debt requirements.
Accordingly, we must enter into management or operating lease agreements (together, “management agreements”) with eligible independent contractors to manage our hotels. Thus, independent management companies control the daily operations of our hotels. ​ As of December 31, 2022, our third-party managers consisted of Four Seasons, Highgate, Hilton, Hyatt, IHR, Marriott, Montage, Sage and Singh.
Accordingly, we must enter into management or operating lease agreements (together, “management agreements”) with eligible independent contractors to manage our hotels. Thus, independent management companies control the daily operations of our hotels. ​ As of December 31, 2023, our third-party managers consisted of Four Seasons, Hilton, Hyatt, IHR, Marriott, Montage, Sage and Singh.
Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult, or not possible, for us to dispose of properties on a tax deferred basis. ​ Legislative or other actions affecting REITs could have a negative effect on us. ​ The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.
Moreover, legislation has been and could continue to be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult, or not possible, for us to dispose of properties on a tax deferred basis. ​ Legislative or other actions affecting REITs could have a negative effect on us. ​ The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.
Phase I assessments are designed to evaluate the potential for environmental contamination of properties based generally upon site inspections, facility personnel interviews, historical information and certain publicly available databases. Phase I assessments will not 8 Table of Contents necessarily reveal the existence or extent of all environmental conditions, liabilities or compliance concerns at the properties.
Phase I assessments are designed to evaluate the potential for environmental contamination of properties based generally upon site inspections, facility personnel interviews, historical information and certain publicly available databases. Phase I assessments will not necessarily reveal the existence or extent of all environmental conditions, liabilities or compliance concerns at the properties.
If we are unable to obtain adequate insurance on our hotels for certain risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments we have to our ground lessor, franchisors and managers which require us to maintain adequate insurance on our properties to protect against the risk of loss.
If we are unable to obtain adequate insurance on our hotels, it could cause us to be in default under certain covenants of our indebtedness or other contractual commitments we have to our ground lessor, franchisors and managers which require us to maintain adequate insurance on our properties to protect against the risk of loss.
We may make sales that do not satisfy the requirements of the safe harbors or the IRS may successfully assert that one or more of our sales are prohibited transactions and, therefore, we may be required to pay a penalty tax. ​ 27 Table of Contents We may be subject to corporate level income tax on certain built-in gains. ​ We may acquire properties in the future from C corporations, in which we must adopt the C corporation’s tax basis in the acquired asset as our tax basis.
We may make sales that do not satisfy the requirements of the safe harbors or the IRS may successfully assert that one or more of our sales are prohibited transactions and, therefore, we may be required to pay a penalty tax. ​ We may be subject to corporate income tax on certain built-in gains. ​ We may acquire properties in the future from C corporations, in which we must adopt the C corporation’s tax basis in the acquired asset as our tax basis.
Seasonal fluctuations in revenue could adversely affect our business, financial conditions, results of operations and our ability to make distributions to our stockholders or to fund our debt service. ​ Changes in the debt and equity markets may adversely affect the value of our hotels. ​ In general, the value of hotel real estate has an inverse correlation to the capital costs of hotel investors.
Seasonal variations in revenue could adversely affect our business, financial conditions, results of operations and our ability to make distributions to our stockholders or to service our debt. ​ Changes in the debt and equity markets may adversely affect the value of our hotels. ​ In general, the value of hotel real estate has an inverse correlation to the capital costs of hotel investors.
Our charter authorizes our board of directors to amend our charter without stockholder approval to increase or decrease the aggregate number of shares of stock or the number of shares of any class or series of our stock that it has authority to issue, to classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified shares.
Our charter authorizes our board of directors to amend our charter without stockholder approval to increase or decrease the aggregate number of shares of stock or the number of shares of any class or series of 30 Table of Contents our stock that it has authority to issue, to classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified shares.
We are installing bulk amenity dispensers and water filtration systems in our hotels to reduce waste. Additionally, on an annual basis, we publish a Corporate Responsibility Report on our website, which includes disclosures on our environmental and social performance and information related to our carbon footprint and the emissions at our hotels.
We are continuing to install bulk amenity dispensers and water filtration systems in our hotels to reduce waste. Additionally, on an annual basis, we publish a Corporate Responsibility Report on our website, which includes disclosures on our environmental and social performance and information related to our carbon footprint and the emissions at our hotels.
These contracts and customers vary from hotel to hotel and change from time to time. Such group contracts are typically for a limited period of time after which they may be put up for competitive bidding. The impact and timing of large events 16 Table of Contents are not always easy to predict.
These contracts and customers vary from hotel to hotel and change from time to time. Such group contracts are typically for a limited period of time after which they may be put up for competitive bidding. The impact and timing of large events are not always easy to predict.
If that growth continues, it could both divert group and convention business away from our hotels, and it could also increase our cost of sales for group and convention business. ​ In an effort to lure business away from internet travel intermediaries and to drive business on their own websites, our managers and franchisors may discount the room rates available on their websites even further, which may also significantly impact our business and profitability. ​ 23 Table of Contents The failure of tenants in our hotels to make rent payments under our retail and restaurant leases may adversely affect our results of operations. ​ A portion of the space in many of our hotels is leased to third-party tenants for retail or restaurant purposes.
If that growth continues, it could both divert group and convention business away from our hotels, and it could also increase our cost of sales for group and convention business. ​ In an effort to lure business away from internet travel intermediaries and to drive business on their own websites, our managers and franchisors may discount the room rates available on their websites even further, which may also significantly impact our business and profitability. ​ 23 Table of Contents The failure of tenants in our hotels to make rent payments or otherwise comply with the material terms of our retail and restaurant leases may adversely affect our results of operations. ​ A portion of the space in many of our hotels is leased to third-party tenants for retail or restaurant purposes.
We do not believe that the resolution of any such pending legal matters will have a material adverse effect on our financial position or results of operations when resolved. ​ ​ Item 4. Mine Safety Disclosures ​ Not applicable. ​ ​ PART I I ​ Item 5.
We do not believe that the resolution of any such pending legal matters will have a material adverse effect on our financial position or results of operations when resolved. 33 Table of Contents Item 4. Mine Safety Disclosures ​ Not applicable. ​ ​ PART I I ​ Item 5.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. All persons employed in the day-to-day operations of the hotels are employees of the management companies engaged by the TRS Lessee or its subsidiaries to operate such hotels. 7 Table of Contents Our employees are vital to the success of our Company.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. All persons employed in the day-to-day operations of the hotels are employees of the management companies engaged by the TRS Lessee or its subsidiaries to operate such hotels. ​ Our employees are vital to the success of our Company.
In addition, we are required to operate our hotel properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and become applicable to our properties. ​ Corporate responsibility, specifically related to ESG factors and commitments, may impose additional costs and expose us to new risks that could adversely affect our results of operations, financial condition and cash flows. ​ We are committed to ensuring ESG initiatives are part of our operating and investment strategies.
In addition, we are required to operate our hotel properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and become applicable to our properties. ​ Corporate responsibility, specifically related to ESG factors and commitments, may impose additional costs and expose us to new risks that could adversely affect our results of operations, financial condition and cash flows. ​ We incorporate ESG initiatives into our operating and investment strategies.
In addition, we have reserved 3.75 million shares of our common stock for issuance under the Company’s 2022 Incentive Award Plan, and 3,731,191 shares remained available for future issuance as of December 31, 2022. ​ Our earnings and cash distributions may affect the market price of our common stock. ​ We believe that the market value of a REIT’s equity securities is based primarily on the value of the REIT’s owned real estate, capital structure, debt levels and perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales, acquisitions, development or refinancings.
In addition, we have reserved 3.75 million shares of our common stock for issuance under the Company’s 2022 Incentive Award Plan, and 2,581,199 shares remained available for future issuance as of December 31, 2023. ​ Our earnings and cash distributions may affect the market price of our common stock. ​ We believe that the market value of a REIT’s equity securities is based primarily on the value of the REIT’s owned real estate, capital structure, debt levels and perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales, acquisitions, development or refinancings.
Climate change also may affect our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable in areas most vulnerable to such events, increasing operating costs at our hotels, such as the cost of water or energy, and requiring us to expend funds as we seek to mitigate, repair and protect our hotels against such risks. ​ We are subject to the climate change risks associated with the transitional effects to a low carbon scenario, which can include increased regulation for building efficiency and equipment specifications, increased regulations or investor requirements for Environmental and Social disclosures, increased cost of goods and raw materials and increased costs to manage the shift in consumer preferences.
Climate change also may affect our business by increasing the cost 15 Table of Contents or limiting the availability of property insurance on terms we find acceptable in areas most vulnerable to such events, increasing operating costs at our hotels, such as the cost of water or energy, and requiring us to expend funds as we seek to mitigate, repair and protect our hotels against such risks. ​ We are subject to the climate change risks associated with the transitional effects to a low carbon scenario, which can include increased regulation for building efficiency and equipment specifications, increased regulations or investor requirements for Environmental and Social disclosures, increased cost of goods and raw materials and increased costs to manage the shift in consumer preferences.
To the extent climate change causes changes in weather patterns, our coastal markets could experience 15 Table of Contents increases in storm intensity and rising sea-levels causing damage to our hotels. As a result, we could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance.
To the extent climate change causes changes in weather patterns, our coastal markets could experience increases in storm intensity and rising sea-levels causing damage to our hotels. As a result, we could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance.
We cannot assure you as to the timing or amount of future dividends on our common stock. ​ During the past three years, we paid quarterly cash dividends on our common stock as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2021 ​ 2022 ​ 2023 January $ 0.59 ​ $ 0.00 ​ $ 0.00 ​ $ 0.05 April $ 0.05 ​ $ 0.00 ​ $ 0.00 ​ ​ ​ July $ 0.00 ​ $ 0.00 ​ $ 0.00 ​ ​ ​ October $ 0.00 ​ $ 0.00 ​ $ 0.05 ​ ​ ​ ​ Distributions on our common stock may be made in the form of cash, stock, or a combination of both. ​ As a REIT, we are required to distribute at least 90% of our REIT taxable income to our stockholders.
We cannot assure you as to the timing or amount of future dividends on our common stock. ​ During the past three years, we paid quarterly cash dividends on our common stock as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2022 ​ 2023 ​ 2024 January $ 0.00 ​ $ 0.00 ​ $ 0.05 ​ $ 0.13 April $ 0.00 ​ $ 0.00 ​ $ 0.05 ​ ​ ​ July $ 0.00 ​ $ 0.00 ​ $ 0.05 ​ ​ ​ October $ 0.00 ​ $ 0.05 ​ $ 0.07 ​ ​ ​ ​ Distributions on our common stock may be made in the form of cash, stock, or a combination of both. ​ As a REIT, we are required to distribute at least 90% of our REIT taxable income to our stockholders.
In those events, we expect to attempt to sell the hotels that do not meet our investment criteria, but may not be able to do so on acceptable terms, or if successful, the sales may be recharacterized by the IRS as dealer sales and subject to a 100% “prohibited transactions” tax on any gain.
In those events, we expect to attempt to sell the hotels that do not meet our investment criteria, but may not be able to do so on acceptable terms, or if successful, the sales may be recharacterized by the IRS as dealer sales and subject to a 100% 18 Table of Contents “prohibited transactions” tax on any gain.
We may also be subject to federal income and excise tax on our undistributed income. ​ 6 Table of Contents Taxable REIT Subsidiary ​ Subject to certain limitations, a REIT is permitted to own, directly or indirectly, up to 100% of the stock of a taxable REIT subsidiary, or TRS.
We may also be subject to federal income and excise tax on our undistributed income. ​ Taxable REIT Subsidiary ​ Subject to certain limitations, a REIT is permitted to own, directly or indirectly, up to 100% of the stock of a taxable REIT subsidiary, or TRS.
We believe that all transactions between us and the TRS Lessee are conducted on an arm’s-length basis. ​ The TRS Lessee has engaged eligible independent contractors to manage the hotels it leases from the Operating Partnership. ​ Ground and Airspace Lease Agreements ​ At December 31, 2022, the Hilton San Diego Bayfront was subject to a ground lease with an unaffiliated party, and the JW Marriott New Orleans was subject to an airspace lease that applies only to certain balcony space fronting Canal Street that is not integral to the hotel’s operations.
We believe that all transactions between us and the TRS Lessee are conducted on an arm’s-length basis. ​ The TRS Lessee has engaged eligible independent contractors to manage the hotels it leases from the Operating Partnership. ​ Ground, Building and Airspace Lease Agreements ​ At December 31, 2023, the Hilton San Diego Bayfront was subject to a ground lease with an unaffiliated party, and the JW Marriott New Orleans was subject to an airspace lease that applies only to certain balcony space that is not integral to the hotel’s operations.
The resolution of labor disputes or re-negotiated labor contracts could lead to increased 20 Table of Contents labor costs, a significant component of our costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs.
The resolution of labor disputes or re-negotiated labor contracts could lead to increased labor costs, a significant component of our costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs.
Charles ​ New Orleans ​ Louisiana ​ Upper Upscale ​ Full Service ​ 252 ​ IHR Hilton San Diego Bayfront (1) ​ San Diego ​ California ​ Upper Upscale ​ Full Service ​ 1,190 ​ Hilton Hyatt Regency San Francisco ​ San Francisco ​ California ​ Upper Upscale ​ Full Service ​ 821 ​ Hyatt JW Marriott New Orleans (1) ​ New Orleans ​ Louisiana ​ Luxury ​ Full Service ​ 501 ​ Marriott Marriott Boston Long Wharf ​ Boston ​ Massachusetts ​ Upper Upscale ​ Full Service ​ 415 ​ Marriott Montage Healdsburg ​ Healdsburg ​ California ​ Luxury ​ Full Service ​ 130 ​ Montage Oceans Edge Resort & Marina ​ Key West ​ Florida ​ Upper Upscale ​ Full Service ​ 175 ​ Singh Renaissance Long Beach ​ Long Beach ​ California ​ Upper Upscale ​ Full Service ​ 374 ​ Marriott Renaissance Orlando at SeaWorld® ​ Orlando ​ Florida ​ Upper Upscale ​ Full Service ​ 781 ​ Marriott Renaissance Washington DC ​ Washington DC ​ District of Columbia ​ Upper Upscale ​ Full Service ​ 807 ​ Marriott The Bidwell Marriott Portland ​ Portland ​ Oregon ​ Upper Upscale ​ Full Service ​ 258 ​ Sage The Confidante Miami Beach ​ Miami Beach ​ Florida ​ Upper Upscale ​ Full Service ​ 339 ​ Hyatt Wailea Beach Resort ​ Wailea ​ Hawaii ​ Upper Upscale ​ Full Service ​ 547 ​ Marriott ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of rooms ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,735 ​ ​ (1) Subject to a ground or airspace lease with an unaffiliated third party.
Charles ​ New Orleans ​ Louisiana ​ Upper Upscale ​ 252 ​ IHR Hilton San Diego Bayfront (1) ​ San Diego ​ California ​ Upper Upscale ​ 1,190 ​ Hilton Hyatt Regency San Francisco ​ San Francisco ​ California ​ Upper Upscale ​ 821 ​ Hyatt JW Marriott New Orleans (1) ​ New Orleans ​ Louisiana ​ Luxury ​ 501 ​ Marriott Marriott Boston Long Wharf ​ Boston ​ Massachusetts ​ Upper Upscale ​ 415 ​ Marriott Montage Healdsburg ​ Healdsburg ​ California ​ Luxury ​ 130 ​ Montage Oceans Edge Resort & Marina ​ Key West ​ Florida ​ Upper Upscale ​ 175 ​ Singh Renaissance Long Beach ​ Long Beach ​ California ​ Upper Upscale ​ 374 ​ Marriott Renaissance Orlando at SeaWorld® ​ Orlando ​ Florida ​ Upper Upscale ​ 781 ​ Marriott The Bidwell Marriott Portland ​ Portland ​ Oregon ​ Upper Upscale ​ 258 ​ Sage The Confidante Miami Beach ​ Miami Beach ​ Florida ​ Upper Upscale ​ 339 ​ Hyatt The Westin Washington, DC Downtown ​ Washington DC ​ District of Columbia ​ Upper Upscale ​ 807 ​ Marriott Wailea Beach Resort ​ Wailea ​ Hawaii ​ Upper Upscale ​ 547 ​ Marriott ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of rooms ​ ​ ​ ​ ​ ​ ​ 6,675 ​ ​ (1) Subject to a ground or airspace lease with an unaffiliated third party.
We generally do not have the ability to affect the outcome of these negotiations. ​ Most of our hotels operate under a brand owned by Marriott, Hilton, Hyatt, Four Seasons or Montage.
We generally do not have the ability to affect the outcome of these negotiations. ​ 20 Table of Contents Most of our hotels operate under a brand owned by Marriott, Hilton, Hyatt, Four Seasons or Montage.
There can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.
There can be no assurance that future audits will not occur with increased 26 Table of Contents frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.
In addition, in periods of weak demand, profitability is negatively affected by the relatively high fixed costs of operating upper upscale and luxury hotels when compared to other classes of hotels. ​ In addition, our business strategy is predicated on a cycle-appropriate approach to hotel acquisitions and dispositions, and we may not be successful in identifying or completing acquisitions or dispositions that are consistent with our strategy.
In addition, in periods of low demand, profitability is negatively affected by the relatively high fixed costs of operating upper upscale and luxury hotels when compared to other classes of hotels. ​ In addition, our business strategy is predicated on a lifecycle approach to hotel acquisitions and dispositions, and we may not be successful in identifying or completing acquisitions or dispositions that are consistent with our strategy.
It may take a long time to find a willing purchaser and to close the sale of a hotel if we want to sell.
If we elect to sell a hotel, it may take a long time to find a willing purchaser and to close the sale of a hotel.
Current and future dislocations in the debt markets may reduce the amount of capital that is available to finance real estate, which, in turn may limit our ability to finance the acquisition of hotels or the ability of purchasers to obtain financing for hotels that we wish to sell, either of which may have a material adverse impact on revenues, income and/or cash flow. ​ We have historically used capital obtained from debt and equity markets, including both secured mortgage debt and unsecured corporate debt, to acquire, renovate and refinance hotel assets.
Current and future dislocations in the debt markets may reduce the amount of capital that is available to finance real estate, which, in turn may limit our ability to finance the acquisition of hotels or the ability of purchasers to obtain financing for hotels that we wish to sell, either of which may have a material adverse impact on revenues, income and/or cash flow. ​ We have historically used capital obtained from debt and equity markets to acquire, renovate and refinance hotel assets.
We continuously seek opportunities to invest in initiatives intended to reduce energy, water and waste impacts, enhance the overall environment and health, safety and well-being of guests and associates at our properties as well as our employees, promote diversity, equity, inclusion and belonging, and improve the local communities in which we conduct business or own hotels.
We continuously seek opportunities to invest in initiatives intended to reduce energy, water and waste impacts; enhance the overall environment and health, safety and well-being of guests, hotel associates and our corporate employees; promote diversity, equity, inclusion and belonging; and improve the local communities in which we conduct business or own hotels.
If prevailing interest rates or other factors at the time of any refinancing result in 25 Table of Contents higher interest rates on new debt, our interest expense would increase, and potential proceeds we would be able to secure from future debt refinancings may decrease, which would harm our operating results. ​ Our organizational documents contain no limitations on the amount of debt we may incur, so we may become too highly leveraged. ​ Our organizational documents do not limit the amount of indebtedness that we may incur.
If prevailing interest rates or other factors at the time of any refinancing result in higher interest rates on new debt, our interest expense could increase, and potential proceeds we would be able to secure from future debt refinancings may decrease, which could harm our financial condition and operating results. ​ Our organizational documents contain no limitations on the amount of debt we can incur, so we may become too highly leveraged. ​ Our organizational documents do not limit the amount of indebtedness that we may incur.
We own five hotels located in seismically active areas of California and six hotels located in areas that have an increased potential to experience hurricanes (Florida, Hawaii, and Louisiana).
We own five hotels located in wildfire-prone or seismically active areas of California and six hotels located in areas that have an increased potential to experience hurricanes (Florida, Hawaii, and Louisiana).
An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of our stock to demand a higher annual yield, which could reduce the market price of our equity securities. ​ In addition, other factors that could affect the market price of our equity securities include the following: ● the continuing impact of the COVID-19 pandemic on our hotel operations and future earnings; ● inflation causing our hotel expenses to increase at higher rates than our hotel revenue; ● a U.S. recession impacting the market for common equity generally ; ● actual or anticipated variations in our quarterly or annual results of operations; ● changes in market valuations or investment return requirements of companies in the hotel or real estate industries; ● changes in expectations of our future financial performance, changes in our estimates by securities analysts or failures to achieve those expectations or estimates; ● the trading volumes of our stock; 28 Table of Contents ● additional issuances or repurchases of our common stock or other securities, including the issuance or repurchase of our preferred stock; ● the addition or departure of board members or senior management; ● disputes with any of our lenders or managers or franchisors; and ● announcements by us, our competitors or other industry participants of acquisitions, investments or strategic alliances. ​ Distributions to our common stockholders may vary. ​ Due to the COVID-19 pandemic, we suspended our common stock quarterly dividend beginning with the second quarter of 2020 to preserve liquidity.
An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of our stock to demand a higher annual yield, which could reduce the market price of our equity securities. ​ In addition, other factors that could affect the market price of our equity securities include the following: ● the impact of a pandemic on our hotel operations and future earnings; ● inflation causing our expenses to increase at higher rates than our revenue; ● a U.S. recession impacting the market for common equity generally ; ● actual or anticipated variations in our quarterly or annual results of operations; ● changes in market valuations or investment return requirements of companies in the hotel or real estate industries; ● changes in expectations of our future financial performance, changes in our estimates by securities analysts or failures to achieve those expectations or estimates; ● the trading volumes of our stock; ● additional issuances or repurchases of our common stock or other securities, including the issuance or repurchase of our preferred stock; ● the addition or departure of board members or senior management; ● disputes with any of our lenders or managers or franchisors; and ● announcements by us, our competitors or other industry participants of acquisitions, investments or strategic alliances. ​ Distributions to our common stockholders may vary. ​ We reinstated our common stock quarterly dividend in the third quarter of 2022, after its suspension in 2020 to preserve liquidity during the COVID-19 pandemic.
In addition, we own five hotels that are located in concentrated business sectors in major cities such as Boston, San Diego, San Francisco and Washington DC that may be subject to higher-than-normal risk of terrorist attacks.
In addition, we own four hotels that are located in concentrated business sectors in major cities (Boston, San Diego, San Francisco and Washington, DC) that may be subject to higher-than-normal risk of terrorist attacks.
In connection with the ownership and operation of our properties, we or the TRS Lessee, as the case may be, may be potentially liable for such costs.
In connection with the 8 Table of Contents ownership and operation of our properties, we or the TRS Lessee, as the case may be, may be potentially liable for such costs.
Our information network and systems and the information networks and systems used by our third-party managers and franchisors can be vulnerable to threats such as: system, network or internet failures; computer hacking or business disruption, including through 14 Table of Contents network- and email-based attacks; cyber-terrorism; viruses, worms, ransomware or other malicious software programs; and employee error, negligence or fraud.
Our information network and systems and the information networks and systems used by our third-party managers and franchisors can be vulnerable to threats such as: system, network or internet failures; computer hacking or business disruption, including through network- and email-based attacks; cyber-terrorism; viruses, worms, ransomware or other malicious software programs; social engineering; and employee error, negligence or fraud.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

260 edited+56 added−154 removed158 unchanged
Biggest changeCONSOLIDATED STATEMENTS OF EQUIT Y (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noncontrolling ​ ​ ​ ​ ​ Preferred Stock ​ Common Stock ​ ​ ​ ​ ​ ​ Cumulative ​ Interest in ​ ​ ​ ​ Number of ​ ​ Number of ​ Additional Retained Dividends and Consolidated ​ ​ ​ Shares ​ Amount ​ Shares ​ Amount ​ Paid in Capital ​ Earnings ​ Distributions ​ Joint Venture ​ Total Equity Balance at December 31, 2019 ​ 7,600,000 ​ $ 190,000 ​ 224,855,351 ​ $ 2,249 ​ $ 2,683,913 ​ $ 1,318,455 ​ $ (1,619,779) ​ $ 46,233 ​ $ 2,621,071 ​ Amortization of deferred stock compensation — ​ ​ — ​ — ​ — ​ 9,988 ​ — ​ — ​ — ​ 9,988 ​ Issuance of restricted common stock, net ​ — ​ ​ — ​ 550,635 ​ ​ 5 ​ ​ (3,997) ​ ​ — ​ ​ — ​ ​ — ​ ​ (3,992) ​ Forfeiture of restricted common stock ​ — ​ ​ — ​ (42,504) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Common stock distributions and distributions payable at $0.05 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (10,777) ​ ​ — ​ ​ (10,777) ​ Series E preferred stock dividends and dividends payable at $1.7375 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (7,992) ​ ​ — ​ ​ (7,992) ​ Series F preferred stock dividends and dividends payable at $1.6125 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (4,838) ​ ​ — ​ ​ (4,838) ​ Distributions to noncontrolling interest — ​ ​ — ​ — ​ — ​ — ​ — ​ — ​ (2,000) ​ (2,000) ​ Contributions from noncontrolling interest ​ — ​ ​ — ​ — ​ — ​ — ​ — ​ — ​ 2,319 ​ 2,319 ​ Repurchase of outstanding common stock — ​ ​ — ​ (9,770,081) ​ (98) ​ (103,796) ​ — ​ — ​ — ​ (103,894) ​ Net loss ​ — ​ ​ — ​ — ​ — ​ — ​ (404,689) ​ — ​ (5,817) ​ (410,506) ​ Balance at December 31, 2020 7,600,000 ​ ​ 190,000 ​ 215,593,401 ​ ​ 2,156 ​ ​ 2,586,108 ​ ​ 913,766 ​ ​ (1,643,386) ​ ​ 40,735 ​ ​ 2,089,379 ​ Amortization of deferred stock compensation — ​ ​ — ​ — ​ ​ — ​ ​ 13,278 ​ ​ — ​ ​ — ​ ​ — ​ 13,278 ​ Issuance of restricted common stock, net ​ — ​ ​ — ​ 1,062,106 ​ ​ 10 ​ ​ (4,887) ​ ​ — ​ ​ — ​ ​ — ​ ​ (4,877) ​ Forfeiture of restricted common stock ​ — ​ ​ — ​ (235,406) ​ ​ (2) ​ ​ 2 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Net proceeds from issuance of common stock ​ — ​ ​ — ​ 2,913,682 ​ ​ 29 ​ ​ 37,630 ​ ​ — ​ ​ — ​ ​ — ​ ​ 37,659 ​ Net issuance of Series G preferred stock in connection with hotel acquisition ​ 2,650,000 ​ ​ 66,250 ​ — ​ ​ — ​ ​ (142) ​ ​ — ​ ​ — ​ ​ — ​ ​ 66,108 ​ Net proceeds from issuance of Series H preferred stock ​ 4,600,000 ​ ​ 115,000 ​ — ​ ​ — ​ ​ (3,801) ​ ​ — ​ ​ — ​ ​ — ​ ​ 111,199 ​ Net proceeds from issuance of Series I preferred stock ​ 4,000,000 ​ ​ 100,000 ​ — ​ ​ — ​ ​ (3,344) ​ ​ — ​ ​ — ​ ​ — ​ ​ 96,656 ​ Redemption of Series E preferred stock ​ (4,600,000) ​ ​ (115,000) ​ — ​ ​ — ​ ​ 4,016 ​ ​ — ​ ​ (4,016) ​ ​ — ​ ​ (115,000) ​ Redemption of Series F preferred stock ​ (3,000,000) ​ ​ (75,000) ​ — ​ ​ — ​ ​ 2,624 ​ ​ — ​ ​ (2,624) ​ ​ ​ ​ ​ (75,000) ​ Series E preferred stock dividends and dividends payable at $0.772222 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (3,552) ​ ​ — ​ ​ (3,552) ​ Series F preferred stock dividends and dividends payable at $0.989896 per share — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (2,969) ​ ​ — ​ (2,969) ​ Series G preferred stock dividends and dividends payable at $0.233685 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (619) ​ ​ — ​ ​ (619) ​ Series H preferred stock dividends and dividends payable at $0.923004 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (4,246) ​ ​ — ​ ​ (4,246) ​ Series I preferred stock dividends and dividends payable at $0.653125 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (2,612) ​ ​ — ​ ​ (2,612) ​ Contributions from noncontrolling interest ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,375 ​ ​ 1,375 ​ Net income (loss) — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 34,298 ​ ​ — ​ ​ (1,303) ​ 32,995 ​ Balance at December 31, 2021 11,250,000 ​ ​ 281,250 ​ 219,333,783 ​ 2,193 ​ 2,631,484 ​ 948,064 ​ (1,664,024) ​ 40,807 ​ 2,239,774 ​ Amortization of deferred stock compensation — ​ ​ — ​ — ​ ​ — ​ ​ 11,372 ​ ​ — ​ ​ — ​ ​ — ​ 11,372 ​ Issuance of restricted common stock, net ​ — ​ ​ — ​ 266,795 ​ ​ 3 ​ ​ (3,445) ​ ​ — ​ ​ — ​ ​ — ​ ​ (3,442) ​ Forfeiture of restricted common stock ​ — ​ ​ — ​ (34,807) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Common stock distributions and distributions payable at $0.10 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (21,059) ​ ​ — ​ ​ (21,059) ​ Series G preferred stock dividends and dividends payable at $0.567112 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (1,503) ​ ​ — ​ ​ (1,503) ​ Series H preferred stock dividends and dividends payable at $1.531252 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (7,044) ​ ​ — ​ ​ (7,044) ​ Series I preferred stock dividends and dividends payable at $1.425000 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (5,700) ​ ​ — ​ ​ (5,700) ​ Repurchase of outstanding common stock — ​ ​ — ​ (10,245,324) ​ ​ (103) ​ ​ (108,339) ​ — ​ — ​ — ​ (108,442) ​ Distributions to noncontrolling interest — ​ ​ — ​ — ​ — ​ — ​ — ​ — ​ (5,500) ​ (5,500) ​ Acquisition of noncontrolling interest, net ​ — ​ ​ — ​ — ​ ​ — ​ ​ (65,477) ​ ​ — ​ ​ — ​ ​ (38,784) ​ ​ (104,261) ​ Net income — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 87,289 ​ ​ — ​ ​ 3,477 ​ 90,766 ​ Balance at December 31, 2022 11,250,000 ​ $ 281,250 ​ 209,320,447 ​ $ 2,093 ​ $ 2,465,595 ​ $ 1,035,353 ​ $ (1,699,330) ​ $ — ​ $ 2,084,961 ​ ​ See accompanying notes to consolidated financial statements. ​ F-6 Table of Contents SUNSTONE HOTEL INVESTORS, INC.
Biggest changeCONSOLIDATED STATEMENTS OF EQUIT Y (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Distributions ​ Noncontrolling ​ ​ ​ ​ ​ Preferred Stock ​ Common Stock ​ ​ ​ in Excess of ​ Interest in ​ ​ ​ ​ Number of ​ ​ Number of ​ Additional Retained Consolidated ​ ​ ​ Shares ​ Amount ​ Shares ​ Amount ​ Paid in Capital ​ Earnings ​ Joint Venture ​ Total Equity Balance at December 31, 2020 ​ 7,600,000 ​ $ 190,000 ​ 215,593,401 ​ $ 2,156 ​ $ 2,586,108 ​ $ (729,620) ​ $ 40,735 ​ $ 2,089,379 ​ Amortization of deferred stock compensation — ​ ​ — ​ — ​ — ​ 13,278 ​ — ​ — ​ 13,278 ​ Issuance of restricted common stock, net ​ — ​ ​ — ​ 1,062,106 ​ ​ 10 ​ ​ (4,887) ​ ​ — ​ ​ — ​ ​ (4,877) ​ Forfeiture of restricted common stock ​ — ​ ​ — ​ (235,406) ​ ​ (2) ​ ​ 2 ​ ​ — ​ ​ — ​ ​ — ​ Net proceeds from issuance of common stock ​ — ​ ​ — ​ 2,913,682 ​ ​ 29 ​ ​ 37,630 ​ ​ — ​ ​ — ​ ​ 37,659 ​ Net issuance of Series G preferred stock in connection with hotel acquisition ​ 2,650,000 ​ ​ 66,250 ​ — ​ ​ — ​ ​ (142) ​ ​ — ​ ​ — ​ ​ 66,108 ​ Net proceeds from issuance of Series H preferred stock ​ 4,600,000 ​ ​ 115,000 ​ — ​ ​ — ​ ​ (3,801) ​ ​ — ​ ​ — ​ ​ 111,199 ​ Net proceeds from issuance of Series I preferred stock ​ 4,000,000 ​ ​ 100,000 ​ — ​ ​ — ​ ​ (3,344) ​ ​ — ​ ​ — ​ ​ 96,656 ​ Redemption of Series E preferred stock ​ (4,600,000) ​ ​ (115,000) ​ — ​ ​ — ​ ​ 4,016 ​ ​ (4,016) ​ ​ — ​ ​ (115,000) ​ Redemption of Series F preferred stock ​ (3,000,000) ​ ​ (75,000) ​ — ​ ​ — ​ ​ 2,624 ​ ​ (2,624) ​ ​ — ​ ​ (75,000) ​ Series E preferred stock dividends and dividends payable at $0.772222 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (3,552) ​ ​ — ​ ​ (3,552) ​ Series F preferred stock dividends and dividends payable at $0.989896 per share — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (2,969) ​ ​ — ​ (2,969) ​ Series G preferred stock dividends and dividends payable at $0.233685 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (619) ​ ​ — ​ ​ (619) ​ Series H preferred stock dividends and dividends payable at $0.923004 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (4,246) ​ ​ — ​ ​ (4,246) ​ Series I preferred stock dividends and dividends payable at $0.653125 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (2,612) ​ ​ — ​ ​ (2,612) ​ Contributions from noncontrolling interest ​ — ​ ​ — ​ — ​ — ​ — ​ — ​ 1,375 ​ 1,375 ​ Net income (loss) ​ — ​ ​ — ​ — ​ — ​ — ​ 34,298 ​ (1,303) ​ 32,995 ​ Balance at December 31, 2021 11,250,000 ​ ​ 281,250 ​ 219,333,783 ​ ​ 2,193 ​ ​ 2,631,484 ​ ​ (715,960) ​ ​ 40,807 ​ ​ 2,239,774 ​ Amortization of deferred stock compensation — ​ ​ — ​ — ​ ​ — ​ ​ 11,372 ​ ​ — ​ ​ — ​ 11,372 ​ Issuance of restricted common stock, net ​ — ​ ​ — ​ 266,795 ​ ​ 3 ​ ​ (3,445) ​ ​ — ​ ​ — ​ ​ (3,442) ​ Forfeiture of restricted common stock ​ — ​ ​ — ​ (34,807) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Common stock distributions and distributions payable at $0.10 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (21,059) ​ ​ — ​ ​ (21,059) ​ Series G preferred stock dividends and dividends payable at $0.567112 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (1,503) ​ ​ — ​ ​ (1,503) ​ Series H preferred stock dividends and dividends payable at $1.531252 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (7,044) ​ ​ — ​ ​ (7,044) ​ Series I preferred stock dividends and dividends payable at $1.425000 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (5,700) ​ ​ — ​ ​ (5,700) ​ Repurchase of outstanding common stock — ​ ​ — ​ (10,245,324) ​ ​ (103) ​ ​ (108,339) ​ — ​ — ​ (108,442) ​ Distributions to noncontrolling interest — ​ ​ — ​ — ​ — ​ — ​ — ​ (5,500) ​ (5,500) ​ Acquisition of noncontrolling interest, net ​ — ​ ​ — ​ — ​ ​ — ​ ​ (65,477) ​ ​ — ​ ​ (38,784) ​ ​ (104,261) ​ Net income — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 87,289 ​ ​ 3,477 ​ 90,766 ​ Balance at December 31, 2022 11,250,000 ​ ​ 281,250 ​ 209,320,447 ​ 2,093 ​ 2,465,595 ​ (663,977) ​ — ​ 2,084,961 ​ Amortization of deferred stock compensation — ​ ​ — ​ — ​ ​ — ​ ​ 11,242 ​ ​ — ​ ​ — ​ 11,242 ​ Issuance of restricted common stock, net ​ — ​ ​ — ​ 138,522 ​ ​ 2 ​ ​ (3,778) ​ ​ — ​ ​ — ​ ​ (3,776) ​ Forfeiture of restricted common stock ​ — ​ ​ — ​ (8,192) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Common stock distributions and distributions payable at $0.30 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (61,807) ​ ​ — ​ ​ (61,807) ​ Series G preferred stock dividends and dividends payable at $0.469437 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (1,244) ​ ​ — ​ ​ (1,244) ​ Series H preferred stock dividends and dividends payable at $1.531252 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (7,044) ​ ​ — ​ ​ (7,044) ​ Series I preferred stock dividends and dividends payable at $1.425000 per share ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (5,700) ​ ​ — ​ ​ (5,700) ​ Repurchase of outstanding common stock — ​ ​ — ​ (5,971,192) ​ ​ (60) ​ ​ (56,343) ​ — ​ — ​ (56,403) ​ Acquisition of noncontrolling interest, net ​ — ​ ​ — ​ — ​ ​ — ​ ​ (299) ​ ​ — ​ ​ — ​ ​ (299) ​ Net income — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 206,708 ​ ​ — ​ 206,708 ​ Balance at December 31, 2023 11,250,000 ​ $ 281,250 ​ 203,479,585 ​ $ 2,035 ​ $ 2,416,417 ​ $ (533,064) ​ $ — ​ $ 2,166,638 ​ ​ ​ ​ ​ See accompanying notes to consolidated financial statements. ​ F-6 Table of Contents SUNSTONE HOTEL INVESTORS, INC.
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: 44 Table of Contents ● 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. ● Amortization of contract intangibles : we exclude the noncash amortization of any favorable or unfavorable contract intangibles recorded in conjunction with our hotel acquisitions.
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 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. 44 Table of Contents ● Amortization of contract intangibles : we exclude the noncash amortization of any favorable or unfavorable contract intangibles recorded in conjunction with our hotel acquisitions.
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.
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.
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.
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.
Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year.
Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year.
The remaining agreements are amortized using the straight-line method over the lives of the franchise agreements and will be fully amortized in October 2024 and April 2028 for The Bidwell Portland Marriott and the Hilton New Orleans St. Charles, respectively.
The remaining agreements are amortized using the straight-line method over the lives of the franchise agreements and will be fully amortized in October 2024 and April 2028 for The Bidwell Marriott Portland and the Hilton New Orleans St. Charles, respectively.
(2) Prior to the sale of the Hyatt Centric Chicago Magnificent Mile in February 2022 (see Note 4), franchise royalties included key money received from the hotel’s franchisor, which the Company was amortizing over the term of the hotel’s franchise agreement. ​ Renovation and Construction Commitments ​ At December 31, 2022, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotel properties.
(2) Prior to the sale of the Hyatt Centric Chicago Magnificent Mile in February 2022 (see Note 4), franchise royalties included key money received from the hotel’s franchisor, which the Company was amortizing over the term of the hotel’s franchise agreement. ​ Renovation and Construction Commitments ​ At December 31, 2023, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotel properties.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2024 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management.
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15 and our report dated February 23, 2023 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15 and our report dated February 23, 2024 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.
We perform a fair value assessment using valuation techniques such as discounted cash flows and comparable sale 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.
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.
Diluted earnings (loss) attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, plus potential common shares considered outstanding during the period, as long as the inclusion of such awards is not anti-dilutive.
Diluted earnings attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, plus potential common shares considered outstanding during the period, as long as the inclusion of such awards is not anti-dilutive.
How We Addressed the Matter in Our Audit ​ We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls related to the impairment assessment of investment in hotel properties, including controls over management’s identification of indicators of impairment. ​ We performed audit procedures to test management’s identification of events or changes in circumstances that might indicate that the carrying amount of a hotel might not be recoverable, that included, among others, obtaining evidence to corroborate management’s judgments and searching for contrary evidence such as significant declines in operating results, market and economic trends, disposition strategies, or market effects.
How We Addressed the Matter in Our Audit ​ We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls related to the impairment assessment of investment in hotel properties, including controls over management’s identification of indicators of impairment. ​ We performed audit procedures to test management’s identification of events or changes in circumstances that might indicate that the carrying amount of a hotel might not be recoverable, that included, among others, obtaining evidence to corroborate management’s judgments and searching for contrary evidence such as significant declines in operating results, market and economic conditions, disposition strategies, or market effects.
In addition to absolute RevPAR index, we monitor changes in RevPAR index; ​ ● EBITDAre , which is net income (loss) 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, excluding noncontrolling interest , which is EBITDA re adjusted to exclude: the net income (loss) allocated to a third-party’s 25.0% ownership interest in the joint venture that owned the Hilton San Diego Bayfront prior to our acquisition of the interest in June 2022, along with the noncontrolling partner’s pro rata share of any EBITDA re components; amortization of deferred stock compensation; amortization of contract intangibles; amortization of right-of-use assets and obligations; the cash component of ground lease expense for any finance lease obligation that was included in interest expense; 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; 37 Table of Contents property-level restructuring, severance and management transition costs; debt resolution costs; and any other nonrecurring identified adjustments; ​ ● Funds from operations (“FFO”) attributable to common stockholders , which is net income (loss) and preferred stock dividends and any redemption charges, excluding: gains and losses from sales of property; real estate-related depreciation and amortization (excluding amortization of deferred financing costs and right-of-use assets and obligations); any real estate-related impairment losses; and the noncontrolling partner’s pro rata share of net income (loss) and any FFO components prior to our acquisition of the noncontrolling partner’s interest in June 2022; 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 and any finance lease obligations; income tax benefits or provisions associated with any changes to deferred tax assets, liabilities or valuation allowances, the application of net operating loss carryforwards and uncertain tax positions; 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; debt resolution costs; preferred stock redemption charges; the noncontrolling partner’s pro rata share of any Adjusted FFO components prior to our acquisition of the noncontrolling partner’s interest in June 2022; and any other nonrecurring identified adjustments. ​ Factors Affecting Our Operating Results.
In addition to absolute RevPAR index, we monitor changes in RevPAR index; ​ ● EBITDAre , which is net income (loss) 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, excluding noncontrolling interest , which is EBITDA re adjusted to exclude: the net income allocated to a third-party’s 25.0% ownership interest in the joint venture that owned the Hilton San Diego Bayfront prior to our acquisition of the interest in June 2022, along with the noncontrolling partner’s pro rata share of any EBITDA re components; amortization of deferred stock compensation; amortization of contract intangibles; amortization of right-of-use assets and obligations; the cash component of ground lease expense for any finance lease obligation that was included in interest expense; 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, pre-opening and management transition costs; debt resolution costs; and any other nonrecurring identified adjustments; ​ ● Funds from operations (“FFO”) attributable to common stockholders , which is net income (loss) and preferred stock dividends and any redemption charges, excluding: gains and losses from sales of property; real estate-related depreciation and amortization (excluding amortization of deferred financing costs and right-of-use assets and obligations); any real estate-related impairment losses; and the noncontrolling partner’s pro rata share of net income and any FFO components prior to our acquisition of the noncontrolling partner’s interest in June 2022; 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 and any finance lease obligations; 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, pre-opening and management transition costs; debt resolution costs; preferred stock redemption charges; the noncontrolling partner’s pro rata share of any Adjusted FFO components prior to our acquisition of the noncontrolling partner’s interest in June 2022; and any other nonrecurring identified adjustments. ​ Factors Affecting Our Operating Results.
ASU No. 2020-04 was effective upon issuance, applied prospectively from any date beginning March 12, 2020, and generally could not be applied to contract modifications that occurred after December 31, 2022.
ASU 2020-04 was effective upon issuance, applied prospectively from any date beginning March 12, 2020, and generally could not be applied to contract modifications that occurred after December 31, 2022.
There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners or a claim against its environmental insurance policies. ​ At December 31, 2022, the Company had $0.2 million of outstanding irrevocable letters of credit to guarantee the Company’s financial obligations related to workers’ compensation insurance programs from prior policy years.
There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners or a claim against its environmental insurance policies. ​ At December 31, 2023, the Company had $0.2 million of outstanding irrevocable letters of credit to guarantee the Company’s financial obligations related to workers’ compensation insurance programs from prior policy years.
NAREIT defines EBITDA re 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 EBITDA re of unconsolidated affiliates. ​ We make additional adjustments to EBITDA re 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 EBITDA re , excluding noncontrolling interest, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s complete understanding of our operating performance.
Nareit defines EBITDA re 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 42 Table of Contents unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity’s share of EBITDA re of unconsolidated affiliates. ​ We make additional adjustments to EBITDA re 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 EBITDA re , excluding noncontrolling interest, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s complete understanding of our operating performance.
Because the redemption of the Series E preferred stock was a redemption in full, trading of the Series E preferred stock on the New York Stock Exchange ceased on the June 11, 2021 redemption date. ​ F-30 Table of Contents Series F Cumulative Redeemable Preferred Stock ​ In August 2021, the Company redeemed all 3,000,000 shares of its 6.45% Series F preferred stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date.
Because the redemption of the Series E preferred stock was a redemption in full, trading of the Series E preferred stock on the New York Stock Exchange ceased on the June 11, 2021 redemption date. ​ F-27 Table of Contents Series F Cumulative Redeemable Preferred Stock ​ In August 2021, the Company redeemed all 3,000,000 shares of its 6.45% Series F preferred stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date.
The realization of the Company’s investment in hotel properties is dependent upon future uncertain events and conditions and, accordingly, the actual timing and amounts realized by the Company may be materially different from their estimated fair values. ​ Assets Held for Sale ​ The Company considers a hotel and related assets held for sale if it is probable that the sale will be completed within 12 months , among other requirements.
The realization of the Company’s investment in hotel properties is dependent upon future uncertain events and conditions and, accordingly, the actual timing and amounts realized by the Company may be materially different from their estimated fair values. ​ Assets Held for Sale ​ The Company considers a hotel and related assets held for sale if it is probable that the sale will be completed within twelve months , among other requirements.
(incorporated by reference to Exhibit 10.14 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). # ​ ​ ​ 10.8 ​ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.7 to Form 10-K, filed by the Company on February 19, 2015). # ​ ​ ​ 10.9 ​ Form of Restricted Stock Award Certificate (incorporated by reference to Exhibit 10.8 to Form 10-K, filed by the Company on February 19, 2015). # ​ ​ ​ 10.10 ​ Form of Performance-Vesting Restricted Stock Unit Award Agreement (2022) (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on February 11, 2022). # ​ ​ ​ 10.11 ​ Form of Performance-Vesting Restricted Stock Unit Award Agreement (Transition 2022) (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on February 11, 2022). # ​ ​ ​ 10.12 ​ Form of Performance-Vesting Restricted Stock Unit Award Agreement (Promotion) (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on March 7, 2022). # ​ ​ ​ 10.13 ​ 2022 Incentive Award Plan of Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on April 28, 2022). # ​ ​ ​ 10.14 ​ Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.1 to Form 10-Q, filed by the Company on August 7, 2012). # ​ ​ ​ 10.15 ​ 2004 Long-Term Incentive Plan of Sunstone Hotel Investors, Inc., as amended and restated effective November 1, 2019 (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on November 4, 2019). # 58 Table of Contents ​ ​ ​ 10.16 ​ Sunstone Hotel Investors, Inc.
(incorporated by reference to Exhibit 10.14 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). # ​ ​ ​ 10.8 ​ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.7 to Form 10-K, filed by the Company on February 19, 2015). # ​ ​ ​ 10.9 ​ Form of Restricted Stock Award Certificate (incorporated by reference to Exhibit 10.8 to Form 10-K, filed by the Company on February 19, 2015). # ​ ​ ​ 10.10 ​ Form of Performance-Vesting Restricted Stock Unit Award Agreement (2022) (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on February 11, 2022). # ​ ​ ​ 10.11 ​ Form of Performance-Vesting Restricted Stock Unit Award Agreement (Transition 2022) (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on February 11, 2022). # ​ ​ ​ 10.12 ​ Form of Performance-Vesting Restricted Stock Unit Award Agreement (Promotion) (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on March 7, 2022). # ​ ​ ​ 10.13 ​ 2022 Incentive Award Plan of Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on April 28, 2022). # ​ ​ ​ 10.14 ​ Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.1 to Form 10-Q, filed by the Company on August 7, 2012). # ​ ​ ​ 10.15 ​ 2004 Long-Term Incentive Plan of Sunstone Hotel Investors, Inc., as amended and restated effective November 1, 2019 (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on November 4, 2019). # ​ ​ ​ 10.16 ​ Sunstone Hotel Investors, Inc.
Certain Relationships and Related Transactions, and Director Independence ​ The information required by this Item is set forth under the caption “Certain Relationships and Related Transactions” and “Company Information” in our definitive Proxy Statement, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act and is incorporated herein by reference. ​ 56 Table of Contents Item 1 4.
Certain Relationships and Related Transactions, and Director Independence ​ The information required by this Item is set forth under the caption “Certain Relationships and Related Transactions” and “Company Information” in our definitive Proxy Statement, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act and is incorporated herein by reference. ​ 53 Table of Contents Item 1 4.
Safe Harbor contributions made by the Company totaled $0.2 million in each of the years 2022, 2021 and 2020, and were included in corporate overhead expense on the Company’s consolidated statements of operations. ​ The Company is also responsible for funding various retirement plans at certain hotels operated by its management companies.
Safe Harbor contributions made by the Company totaled $0.2 million in each of the years 2023, 2022 and 2021, and were included in corporate overhead expense on the Company’s consolidated statements of operations. ​ The Company is also responsible for funding various retirement plans at certain hotels operated by its management companies.
We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure. ​ We present EBITDA re 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 EBITDA re is a useful performance measure to help investors evaluate and compare the results of our operations 42 Table of Contents from period to period in comparison to our peers.
We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure. ​ We present EBITDA re 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 EBITDA re 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.
In addition, the potential obligation is reassessed at the end of every quarter, resulting in gains on extinguishment of debt of $0.1 million in 2022 and $0.3 million in 2021, both of which are included in (loss) gain on extinguishment of debt, net on the accompanying consolidated statements of operations for the years ended December 31, 2022 and 2021.
In addition, the remaining potential obligation is reassessed at the end of every quarter, resulting in gains on extinguishment of debt of $0.1 million in both 2023 and 2022 and $0.3 million in 2021, which are included in gain (loss) on extinguishment of debt, net on the accompanying consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021.
Because all of the Company’s hotels have similar economic characteristics, facilities and services, the hotels have been aggregated into one single reportable segment, hotel ownership. ​ F-15 Table of Contents New Accounting Standards and Accounting Changes ​ In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ” (“ASU No. 2020-04”), which provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”).
Because all of the Company’s hotels have similar economic characteristics, facilities and services, the hotels have been aggregated into one single reportable segment, hotel ownership. ​ New Accounting Standards and Accounting Changes ​ In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ” (“ASU 2020-04”), which provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”).
Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying consolidated financial statements as of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021 and 2020, include the accounts of the Company, the Operating Partnership, the TRS Lessee, and their controlled subsidiaries. All significant intercompany balances and transactions have been eliminated.
Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying consolidated financial statements as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021, include the accounts of the Company, the Operating Partnership, the TRS Lessee, and their controlled subsidiaries. All significant intercompany balances and transactions have been eliminated.
Additionally, this category includes depreciation and amortization related to FF&E for our corporate office; and ​ ● Impairment losses , which includes the charges we have recognized to reduce the carrying values of certain hotels or our corporate headquarters 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 hurricane-related property damage. ​ 36 Table of Contents Other Revenue and Expense.
Additionally, this category includes depreciation and amortization related to FF&E for our corporate office; and ​ ● Impairment losses , which includes the charges we have recognized to reduce the carrying values of certain hotels or our corporate headquarters 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 hurricane-related property damage. ​ Other Revenue and Expense.
Our net cash provided by or used in financing activities fluctuates primarily as a result of our dividends and distributions paid, issuance and repurchase of common stock, issuance and repayment of notes payable and our credit facility, debt restructurings and issuance and redemption of other forms of capital, including preferred equity.
Our net cash provided by or used in financing activities fluctuates primarily as a result of our dividends and distributions paid, issuance and repurchase of common stock, issuance and repayment of notes payable and our credit facility, and issuance and redemption of other forms of capital, including preferred equity.
(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations , equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).
(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations , equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).
Changes in the fair value of derivatives are recorded each period in the consolidated statements of operations. ​ Leases ​ The Company determines if a contract is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Changes in the fair value of derivatives are recorded each period in the consolidated statements of operations. ​ Leases ​ The Company determines if a contract is a lease at inception. Leases with an initial term of twelve months or less are not recorded on the balance sheet.
Pasquale (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on September 13, 2021). # ​ ​ ​ 10.26 ​ Form of Letter Agreement with Named Executive Officers (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on October 1, 2021). # ​ ​ ​ 10.27 ​ Loan Agreement, dated as of April 15, 2011, among One Park Boulevard, LLC as Borrower, Sunstone Park Lessee, LLC as Operating Lessee, Aareal Capital Corporation as Agent for the Lenders, and Aareal Capital Corporation as Lender (incorporated by reference to Exhibit 10.3 to Form 10-Q, filed by the Company on May 6, 2011). ​ ​ ​ 10.27.1 ​ Second Amendment to Loan Agreement, dated as of August 8, 2014, among One Park Boulevard, LLC as Borrower, Sunstone Park Lessee, LLC as Operating Lessee, MUFG Union Bank, N.A. as Agent for the Lenders, and MUFG Union Bank, N.A., Compass Bank and CIBC Inc. as Lenders (incorporated by reference to Exhibit 10.1 to Form 10-Q, filed by the Company on November 4, 2014). ​ ​ ​ 10.28 ​ Credit Agreement, dated April 2, 2015, among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC, Wells Fargo Bank, National Association, Bank of America, N.A., JPMORGAN Chase Bank, N.A. and certain other lenders named therein (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on April 2, 2015). ​ ​ ​ 10.28.1 ​ Term Loan Supplement Agreement, dated September 3, 2015, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., Wells Fargo Bank, National Association and certain other lenders named therein (incorporated by reference to Exhibit 10.1 to Form 10-Q, filed by the Company on November 3, 2015). ​ ​ ​ 59 Table of Contents 10.28.2 ​ Amended and Restated Credit Agreement, dated October 17, 2018, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on October 19, 2018). ​ ​ ​ 10.28.3 ​ First Amendment to Amended and Restated Credit Agreement, dated July 15, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on July 17, 2020). ​ ​ ​ 10.28.4 ​ Second Amendment to Amended and Restated Credit Agreement, dated December 21, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on December 23, 2020). ​ ​ ​ 10.28.5 ​ Third Amendment to Amended and Restated Credit Agreement, dated July 2, 2021 by and among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 Form 8-K, filed by the Company on July 8, 2021). ​ ​ ​ 10.28.6 ​ Fourth Amendment to Amended and Restated Credit Agreement, dated November 22, 2021 by and among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 Form 8-K, filed by the Company on November 26, 2021). ​ ​ ​ 10.28.7 ​ Second Amended and Restated Credit Agreement, dated July 25, 2022, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on July 27, 2022). ​ ​ ​ 10.29 ​ Note and Guarantee Agreement, dated December 20, 2016, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the Initial Subsidiary Guarantors named therein, and the Purchasers named therein (incorporated by reference to Exhibit 10.20 to Form 10-K, filed by the Company on February 23, 2017). ​ ​ ​ 10.30 ​ First Amendment to Note and Guarantee Agreement, dated July 15, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on July 17, 2020). ​ ​ ​ 10.30.1 ​ Second Amendment to Note and Guarantee Agreement, dated December 21, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on December 23, 2020). ​ ​ ​ 10.30.2 ​ Third Amendment to Note and Guarantee Agreement, dated July 2, 2021, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on July 8, 2021). ​ ​ ​ 10.30.3 ​ Fourth Amendment to Note and Guarantee Agreement, dated November 22, 2021, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on November 26, 2021). ​ ​ ​ 21.1 ​ List of subsidiaries. * ​ ​ ​ 23.1 ​ Consent of Ernst & Young LLP. * ​ ​ ​ 31.1 ​ Certification of Principal Executive Officer (Section 302 Certification). * ​ ​ ​ 31.2 ​ Certification of Principal Financial Officer (Section 302 Certification). * ​ ​ ​ 32.1 ​ Certification of Principal Executive Officer and Principal Financial Officer (Section 906 Certification). * ​ ​ ​ 101.INS ​ Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. * ​ ​ ​ 101.SCH ​ Inline XBRL Taxonomy Extension Schema Document * 60 Table of Contents ​ ​ ​ 101.CAL ​ Inline XBRL Taxonomy Extension Calculation Linkbase Document * ​ ​ ​ 101.LAB ​ Inline XBRL Taxonomy Extension Label Linkbase Document * ​ ​ ​ 101.PRE ​ Inline XBRL Taxonomy Extension Presentation Linkbase Document * ​ ​ ​ 101.DEF ​ Inline XBRL Taxonomy Extension Definition Linkbase Document * ​ ​ ​ ​ ​ ​ ​ ​ ​ 104 ​ Cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline XBRL (included in Exhibit 101). * Filed herewith. # Management contract or compensatory plan or arrangement.
Pasquale (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on September 13, 2021). # ​ ​ ​ 10.26 ​ Form of Letter Agreement with Named Executive Officers (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on October 1, 2021). # ​ ​ ​ 10.27 ​ Loan Agreement, dated as of April 15, 2011, among One Park Boulevard, LLC as Borrower, Sunstone Park Lessee, LLC as Operating Lessee, Aareal Capital Corporation as Agent for the Lenders, and Aareal Capital Corporation as Lender (incorporated by reference to Exhibit 10.3 to Form 10-Q, filed by the Company on May 6, 2011). ​ ​ ​ 10.27.1 ​ Second Amendment to Loan Agreement, dated as of August 8, 2014, among One Park Boulevard, LLC as Borrower, Sunstone Park Lessee, LLC as Operating Lessee, MUFG Union Bank, N.A. as Agent for the Lenders, and MUFG Union Bank, N.A., Compass Bank and CIBC Inc. as Lenders (incorporated by reference to Exhibit 10.1 to Form 10-Q, filed by the Company on November 4, 2014). ​ ​ ​ 10.28 ​ Credit Agreement, dated April 2, 2015, among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC, Wells Fargo Bank, National Association, Bank of America, N.A., JPMORGAN Chase Bank, N.A. and certain other lenders named therein (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on April 2, 2015). ​ ​ ​ 10.28.1 ​ Term Loan Supplement Agreement, dated September 3, 2015, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., Wells Fargo Bank, National Association and certain other lenders named therein (incorporated by reference to Exhibit 10.1 to Form 10-Q, filed by the Company on November 3, 2015). ​ ​ ​ 10.28.2 ​ Amended and Restated Credit Agreement, dated October 17, 2018, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on October 19, 2018). ​ ​ ​ 10.28.3 ​ First Amendment to Amended and Restated Credit Agreement, dated July 15, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on July 17, 2020). ​ ​ ​ 10.28.4 ​ Second Amendment to Amended and Restated Credit Agreement, dated December 21, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on December 23, 2020). ​ ​ ​ 56 Table of Contents 10.28.5 ​ Third Amendment to Amended and Restated Credit Agreement, dated July 2, 2021 by and among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 Form 8-K, filed by the Company on July 8, 2021). ​ ​ ​ 10.28.6 ​ Fourth Amendment to Amended and Restated Credit Agreement, dated November 22, 2021 by and among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 Form 8-K, filed by the Company on November 26, 2021). ​ ​ ​ 10.28.7 ​ Second Amended and Restated Credit Agreement, dated July 25, 2022, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on July 27, 2022). ​ ​ ​ 10.29 ​ Note and Guarantee Agreement, dated December 20, 2016, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the Initial Subsidiary Guarantors named therein, and the Purchasers named therein (incorporated by reference to Exhibit 10.20 to Form 10-K, filed by the Company on February 23, 2017). ​ ​ ​ 10.30 ​ First Amendment to Note and Guarantee Agreement, dated July 15, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on July 17, 2020). ​ ​ ​ 10.30.1 ​ Second Amendment to Note and Guarantee Agreement, dated December 21, 2020, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on December 23, 2020). ​ ​ ​ 10.30.2 ​ Third Amendment to Note and Guarantee Agreement, dated July 2, 2021, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on July 8, 2021). ​ ​ ​ 10.30.3 ​ Fourth Amendment to Note and Guarantee Agreement, dated November 22, 2021, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., the subsidiary guarantors from time to time party thereto, and the Purchasers named therein (incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on November 26, 2021). ​ ​ ​ 10.31 ​ Term Loan Agreement, dated May 1, 2023, among Sunstone Hotel Partnership, LLC, Sunstone Hotel Investors, Inc., Bank of America, N.A., and certain other lenders named therein (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on May 5, 2023). ​ ​ ​ 21.1 ​ List of subsidiaries. * ​ ​ ​ 23.1 ​ Consent of Ernst & Young LLP. * ​ ​ ​ 31.1 ​ Certification of Principal Executive Officer (Section 302 Certification). * ​ ​ ​ 31.2 ​ Certification of Principal Financial Officer (Section 302 Certification). * ​ ​ ​ 32.1 ​ Certification of Principal Executive Officer and Principal Financial Officer (Section 906 Certification). * ​ ​ ​ 97.1 ​ Policy for Recovery of Erroneously Awarded Compensation. * ​ ​ ​ 101.INS ​ Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. * ​ ​ ​ 101.SCH ​ Inline XBRL Taxonomy Extension Schema Document * ​ ​ ​ 101.CAL ​ Inline XBRL Taxonomy Extension Calculation Linkbase Document * ​ ​ ​ 101.LAB ​ Inline XBRL Taxonomy Extension Label Linkbase Document * ​ ​ ​ 57 Table of Contents 101.PRE ​ Inline XBRL Taxonomy Extension Presentation Linkbase Document * ​ ​ ​ 101.DEF ​ Inline XBRL Taxonomy Extension Definition Linkbase Document * ​ ​ ​ 104 ​ Cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 formatted in Inline XBRL (included in Exhibit 101). * Filed herewith. # Management contract or compensatory plan or arrangement.
These assumptions are required to be consistent with market participant assumptions that are reasonably available. ​ As of both December 31, 2022 and 2021, the Company measured its interest rate derivatives at fair value on a recurring basis.
These assumptions are required to be consistent with market participant assumptions that are reasonably available. ​ As of both December 31, 2023 and 2022, the Company measured its interest rate derivatives at fair value on a recurring basis.
At December 31, 2022, only shares of restricted stock were issued and outstanding under the Plan. ​ Should a stock grant be forfeited prior to its vesting, the shares covered by the stock grant are added back to the Plan and remain available for future issuance.
At December 31, 2023, only shares of restricted stock were issued and outstanding under the Plan. ​ Should a stock grant be forfeited prior to its vesting, the shares covered by the stock grant are added back to the Plan and remain available for future issuance.
(incorporated by reference to Exhibit 4.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). ​ ​ ​ 4.2 ​ Letter furnished to Securities and Exchange Commission agreeing to furnish certain debt instruments (incorporated by reference to Exhibit 4.2 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). ​ ​ ​ 4.5 ​ Description of Securities of the Registrant (incorporated by reference to Exhibit 4.5 to Form 10-K, filed by the Company on February 23, 2022). ​ ​ ​ 4.6 ​ Articles Supplementary for Series G preferred stock (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 28, 2021). ​ ​ ​ 4.7 ​ Articles Supplementary for Series H preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on May 20, 2021). ​ ​ ​ 4.8 ​ Articles Supplementary for Series I preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on July 15, 2021). ​ ​ ​ 4.9 ​ Form of Specimen Certificate of Series H Preferred Stock of Sunstone Hotel Investors, Inc.
(incorporated by reference to Exhibit 4.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). ​ ​ ​ 4.2 ​ Letter furnished to Securities and Exchange Commission agreeing to furnish certain debt instruments (incorporated by reference to Exhibit 4.2 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). ​ ​ ​ 4.5 ​ Description of Securities of the Registrant. * ​ ​ ​ 4.6 ​ Articles Supplementary for Series G preferred stock (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 28, 2021). ​ ​ ​ 4.7 ​ Articles Supplementary for Series H preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on May 20, 2021). ​ ​ ​ 4.8 ​ Articles Supplementary for Series I preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on July 15, 2021). ​ ​ ​ 4.9 ​ Form of Specimen Certificate of Series H Preferred Stock of Sunstone Hotel Investors, Inc.
Based on its evaluation, our management concluded that our internal control over financial reporting was effective to the reasonable assurance level as of December 31, 2022. ​ Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein at page 55, on the effectiveness of our internal control over financial reporting. ​ (c) Changes in Internal Control over Financial Reporting ​ There was no change in our internal control over financial reporting that occurred during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ​ 54 Table of Contents Report of Independent Registered Public Accounting Firm ​ The Board of Directors and Stockholders of Sunstone Hotel Investors, Inc. ​ Opinion on Internal Control over Financial Reporting ​ We have audited Sunstone Hotel Investors, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria).
Based on its evaluation, our management concluded that our internal control over financial reporting was effective to the reasonable assurance level as of December 31, 2023. ​ Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein at page 52, on the effectiveness of our internal control over financial reporting. ​ (c) Changes in Internal Control over Financial Reporting ​ There was no change in our internal control over financial reporting that occurred during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ​ 51 Table of Contents Report of Independent Registered Public Accounting Firm ​ The Board of Directors and Stockholders of Sunstone Hotel Investors, Inc. ​ Opinion on Internal Control over Financial Reporting ​ We have audited Sunstone Hotel Investors, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria).
Expense for these short-term leases is recognized on a straight-line basis over the lease term. For leases with an initial term greater than 12 months , the Company records a right-of-use (“ROU”) asset and a corresponding lease obligation.
Expense for these short-term leases is recognized on a straight-line basis over the lease term. For leases with an initial term greater than twelve months , the Company records a right-of-use (“ROU”) asset and a corresponding lease obligation.
(incorporated by reference to Exhibit 3.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). ​ ​ ​ 3.2 ​ Second Amended and Restated Bylaws of Sunstone Hotel Investors, Inc., effective as of November 15, 2018 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on November 15, 2018). ​ ​ ​ 3.2.1 ​ Third Amended and Restated Bylaws of Sunstone Hotel Investors, Inc., effective as of February 9, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on February 10, 2023) . ​ ​ ​ 3.3 ​ Articles Supplementary Prohibiting the Company From Electing to be Subject to Section 3-803 of the Maryland General Corporation Law Absent Shareholder Approval (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 29, 2013). ​ ​ ​ 4.1 ​ Specimen Certificate of Common Stock of Sunstone Hotel Investors, Inc.
(incorporated by reference to Exhibit 3.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company). ​ ​ ​ 3.2 ​ Third Amended and Restated Bylaws of Sunstone Hotel Investors, Inc., effective as of February 9, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on February 10, 2023) . ​ ​ ​ 3.3 ​ Articles Supplementary Prohibiting the Company From Electing to be Subject to Section 3-803 of the Maryland General Corporation Law Absent Shareholder Approval (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 29, 2013). ​ ​ ​ 4.1 ​ Specimen Certificate of Common Stock of Sunstone Hotel Investors, Inc.
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.
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 ; ​ 37 Table of Contents ● 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.
If we renovate additional hotels in the future, our capital expenditures will likely increase. ​ With respect to our hotels that are operated under management or franchise agreements with major national hotel brands and our hotels subject to first mortgage liens, we are obligated to maintain an FF&E reserve account for future planned and emergency-related capital expenditures at these hotels.
If we renovate additional hotels in the future, our capital expenditures will likely increase. ​ With respect to our hotels that are operated under management or franchise agreements with major national hotel brands and our hotel subject to a first mortgage lien, we are obligated to maintain an FF&E reserve account for future planned and emergency-related capital expenditures at these hotels.
Because the redemption of the Series F preferred stock was a redemption in full, trading of the Series F preferred stock on the New York Stock Exchange ceased on the August 12, 2021 redemption date. ​ Series G Cumulative Redeemable Preferred Stock ​ Contemporaneous with the Company’s April 2021 purchase of the Montage Healdsburg, the Company issued 2,650,000 shares of its Series G preferred stock to the hotel’s seller as partial payment of the hotel (see Note 3).
Because the redemption of the Series F preferred stock was a redemption in full, trading of the Series F preferred stock on the New York Stock Exchange ceased on the August 12, 2021 redemption date. ​ Series G Cumulative Redeemable Preferred Stock ​ Contemporaneous with the Company’s April 2021 purchase of the Montage Healdsburg, the Company issued 2,650,000 shares of its Series G preferred stock to the hotel’s seller as partial payment of the hotel.
If a loan is refinanced or paid before its maturity, any unamortized deferred financing costs will generally be expensed unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. ​ Deferred financing costs related to the Company’s undrawn credit facility are included on the Company’s consolidated balance sheets as an asset, and are amortized ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement.
If a loan is refinanced or paid before its maturity, any unamortized deferred financing costs will generally be expensed unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. ​ F-11 Table of Contents Deferred financing costs related to the Company’s undrawn credit facility are included on the Company’s consolidated balance sheets as an asset and are amortized ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement.
The amount funded into each of these reserve accounts is determined pursuant to the management, franchise and loan agreements for each of the respective hotels, ranging between 2.0% and 5.0% of the respective hotel’s applicable annual revenue.
The amount funded into each of these reserve accounts is determined pursuant to the management, franchise and loan agreements for each of the respective hotels, ranging between 1.0% and 5.0% of the respective hotel’s applicable annual revenue.
The beneficiaries of these letters of credit may draw upon the letters of credit in the event of a contractual default by the Company relating to each respective obligation. No draws have been made through December 31, 2022.
The beneficiaries of these letters of credit may draw upon the letters of credit in the event of a contractual default by the Company relating to each respective obligation. No draws have been made through December 31, 2023.
(3) Operating lease obligations include a ground lease that expires in 2071 and requires a reassessment of rent payments due after 2025, agreed upon by both us and the lessor; therefore, no amounts are included in the above table for this ground lease after 2025. ​ Capital Expenditures and Reserve Funds ​ We believe we maintain all of our hotels in good repair and condition and in general conformity with applicable franchise and management agreements, ground lease, laws and regulations.
In addition, operating lease obligations include a ground lease that expires in 2071 and requires a reassessment of rent payments due after 2025, agreed upon by both us and the lessor; therefore, no amounts are included in the above table for this ground lease after 2025. ​ 48 Table of Contents Capital Expenditures and Reserve Funds ​ We believe we maintain all of our hotels in good repair and condition and in general conformity with applicable franchise and management agreements, ground lease, laws and regulations.
Leases ​ As of both December 31, 2022 and 2021, the Company had operating leases for ground, office, equipment and airspace leases with maturity dates ranging from 2024 through 2097, excluding renewal options.
Leases ​ As of both December 31, 2023 and 2022, the Company had operating leases for ground, office, equipment and airspace leases with maturity dates ranging from 2024 through 2097, excluding renewal options.
Actual results could differ materially from those estimates. ​ Cash and Cash Equivalents ​ Cash and cash equivalents includes cash on hand and in various bank accounts plus credit card receivables and all short-term investments with an original maturity of three months or less. ​ The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions.
Actual results could differ materially from those estimates. ​ Cash and Cash Equivalents ​ Cash and cash equivalents includes cash on hand and in various bank accounts plus credit card receivables and all short-term investments with an original maturity of three months or less. ​ The Company maintains cash and cash equivalents with various financial institutions.
In 2022, in connection with an initiative to reduce future operating expenses, the Company recorded a noncash impairment loss of $3.5 million related to the relocation of its corporate headquarters, which is included in impairment losses on the Company’s consolidated statement of operations for the year ended December 31, 2022.
In 2022, in connection with an initiative to reduce future operating expenses, the Company recorded a noncash impairment loss of $3.5 million related to the subleasing of its former corporate headquarters, which is included in impairment losses on the Company’s consolidated statement of operations for the year ended December 31, 2022.
In July 2022, we entered into the Amended Credit Agreement and received $243.6 million in proceeds associated with additional 47 Table of Contents borrowing on our two term loans. We utilized the proceeds received from the incremental borrowing on the term loans to fully repay the $230.0 million we drew on our credit facility in the second quarter of 2022.
In July 2022, we entered into the Amended Credit Agreement and received $243.6 million in proceeds associated with additional borrowing on our two term loans. We utilized the proceeds received from the incremental borrowing on the term loans to fully repay the $230.0 million we drew on our credit facility in the second quarter of 2022.
Financial Statements and Supplementary Data ​ The Company’s consolidated financial statements, together with the reports of the Company’s independent registered public accounting firm and the supplementary financial data are included in the Index beginning on page F-1 of this Annual Report on Form 10-K and are incorporated by reference herein. 53 Table of Contents Item 9.
Financial Statements and Supplementary Data ​ The Company’s consolidated financial statements, together with the reports of the Company’s independent registered public accounting firm and the supplementary financial data are included in the Index beginning on page F-1 of this Annual Report on Form 10-K and are incorporated by reference herein. ​ ​ Item 9.
Giglia (incorporated by reference to Exhibit 10.2 to Form 10-Q, filed by the Company on November 8, 2022). # ​ ​ ​ 10.19 ​ Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and Robert C.
Giglia (incorporated by reference to Exhibit 10.2 to Form 10-Q, filed by the Company on November 8, 2022). # ​ ​ ​ 55 Table of Contents 10.19 ​ Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and Robert C.
Form 10-K Summary ​ None. ​ ​ ​ 61 Table of Contents SIGNATUR ES ​ Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ​ ​ ​ ​ Sunstone Hotel Investors, Inc. ​ ​ Date: February 23, 2023 /S/ Aaron R.
Form 10-K Summary ​ None. ​ ​ ​ 58 Table of Contents SIGNATUR ES ​ Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ​ ​ ​ ​ Sunstone Hotel Investors, Inc. ​ ​ Date: February 23, 2024 /S/ AARON R.
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ Impairment of hotel properties ​ ​ Description of the Matter ​ The Company’s investment in hotel properties totaled $2.8 billion as of December 31, 2022.
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ Impairment of hotel properties ​ ​ Description of the Matter ​ The Company’s investment in hotel properties totaled $2.6 billion as of December 31, 2023.
In addition, the Company purchased an interest F-23 Table of Contents rate cap derivative for $0.3 million that will continue to cap the loan’s underlying floating rate interest benchmark at 6.0% until December 2023 (see Note 5). ​ Certain of the Company’s loan agreements contain cash trap provisions that may be triggered if the performance of the hotels securing the loans decline.
In addition, the Company purchased an interest rate cap derivative for $0.3 million that will continue to cap the loan’s underlying floating rate interest benchmark at 6.0% until December 2023 (see Note 5). ​ Certain of the Company’s loan agreements contain cash trap provisions that may be triggered if the performance of the hotels securing the loans decline.
Earned Five Year Performance Period Shares will vest on the later to occur of the date on which the stock price target is achieved and the third anniversary of the grant date. ​ ​ 13.
The Stock Price Target Five-Year Performance Period Shares will vest on the later to occur of the date on which the stock price target is achieved and the third anniversary of the grant date.
Directors, Executive Officers and Corporate Governance ​ The information required by this Item is set forth under the captions “Proposal 1: Election of Directors,” “Delinquent Section 16(a) Reports” and “Company Information” in our definitive Proxy Statement, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act and is incorporated herein by reference. ​ Certain other information concerning executive officers of the Company is included in Part I, Item 1 of this Annual Report on Form 10-K under the caption “ Information about our Executive Officers .” ​ ​ Item 1 1.
Directors, Executive Officers and Corporate Governance ​ The information required by this Item is set forth under the captions “Proposal 1: Election of Directors,” and “Company Information” in our definitive Proxy Statement, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act and is incorporated herein by reference. ​ Certain other information concerning executive officers of the Company is included in Part I, Item 1 of this Annual Report on Form 10-K under the caption “ Information about our Executive Officers .” ​ ​ Item 1 1.
McCabe ​ ​ ​ ​ ​ ​ ​ ​ ​ /S/ VERETT MIMS ​ Director ​ February 23, 2023 Verett Mims ​ ​ ​ ​ ​ ​ ​ ​ 62 Table of Contents ​ INDEX TO FINANCIAL STATEMENTS AND SCHEDULE ​ ​ ​ ​ Sunstone Hotel Investors, Inc.: Page ​ ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) ​ F-2 ​ ​ ​ Consolidated Balance Sheets as of December 31, 2022 and 2021 ​ F-4 ​ ​ ​ Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 ​ F-5 ​ ​ ​ Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020 ​ F-6 ​ ​ ​ Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 ​ F-7 ​ ​ ​ Notes to Consolidated Financial Statements ​ F-9 ​ ​ ​ Schedule III—Real Estate and Accumulated Depreciation ​ F-37 ​ ​ ​ F-1 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Stockholders of Sunstone Hotel Investors, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Sunstone Hotel Investors, Inc.
McCabe ​ ​ ​ ​ ​ ​ ​ ​ ​ /S/ VERETT MIMS ​ Director ​ February 23, 2024 Verett Mims ​ ​ ​ ​ ​ ​ ​ ​ 59 Table of Contents ​ INDEX TO FINANCIAL STATEMENTS AND SCHEDULE ​ ​ ​ ​ Sunstone Hotel Investors, Inc.: Page ​ ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) ​ F-2 ​ ​ ​ Consolidated Balance Sheets as of December 31, 2023 and 2022 ​ F-4 ​ ​ ​ Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 ​ F-5 ​ ​ ​ Consolidated Statements of Equity for the years ended December 31, 2023, 2022 and 2021 ​ F-6 ​ ​ ​ Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 ​ F-7 ​ ​ ​ Notes to Consolidated Financial Statements ​ F-9 ​ ​ ​ Schedule III—Real Estate and Accumulated Depreciation ​ F-34 ​ ​ ​ F-1 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Stockholders of Sunstone Hotel Investors, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Sunstone Hotel Investors, Inc.
At December 31, 2022 and 2021, the Company had amounts in banks that were in excess of federally insured amounts. ​ Restricted Cash ​ Restricted cash primarily includes lender reserves required by the Company’s debt agreements and reserves for operating expenses and capital expenditures required by certain of the Company’s management and franchise agreements.
At December 31, 2023 and 2022, the Company had amounts in banks that were in excess of federally insured amounts. ​ Restricted Cash ​ Restricted cash primarily includes reserves for operating expenses and capital expenditures required by certain of the Company’s management, franchise and debt agreements.
(4) Residential program agreements as of both December 31, 2022 and 2021 included $13.7 million and $7.3 million at the Montage Healdsburg and the Four Seasons Resort Napa Valley, respectively. The value of the agreements were determined based on each hotel’s purchase price allocation.
(3) Residential program agreements as of both December 31, 2023 and 2022 included $13.7 million and $7.3 million at the Montage Healdsburg and the Four Seasons Resort Napa Valley, respectively. The value of the agreements were determined based on each hotel’s purchase price allocation.
The $3.5 million impairment loss consisted of a $1.4 million write-down of the Company’s tenant improvements, net, which are included in other assets, net on the Company’s consolidated balance sheet at December 31, 2022 (see Note 6), and a $2.1 million write-down of the Company’s operating lease right-of-use assets, net related to the office lease at its corporate headquarters (see Note 9). ​ F-20 Table of Contents In 2022, the Company determined that it could reduce its future operating expenses by relocating its corporate headquarters to decrease the amount of space the Company occupied and to secure a lower rental cost per square foot.
The $3.5 million impairment loss consisted of a $1.4 million write-down of the Company’s tenant improvements, net, which are included in prepaid expenses and other assets, net on the Company’s consolidated balance sheet at December 31, 2022 (see Note 6), and a $2.1 million write-down of the Company’s operating lease right-of-use assets, net related to the office lease at its former corporate headquarters (see Note 9). ​ In 2022, the Company determined that it could reduce its future operating expenses by relocating its corporate headquarters to decrease the amount of space the Company occupied and to secure a lower rental cost per square foot.
We use the following “non-GAAP financial measures” that we believe are useful to investors as key supplemental measures of our operating performance: EBITDA re ; Adjusted EBITDA re , excluding noncontrolling interest; FFO attributable to common stockholders; Adjusted FFO attributable to common stockholders; and Existing Portfolio revenues.
We use the following “non-GAAP financial measures” that we believe are useful to investors as key supplemental measures of our operating performance: EBITDA re ; Adjusted EBITDA re , excluding noncontrolling interest; FFO attributable to common stockholders; and Adjusted FFO attributable to common stockholders.
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. ​ The Company reviews any uncertain tax positions and, if necessary, records the expected future tax consequences of uncertain tax positions in its consolidated financial statements.
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. ​ F-13 Table of Contents The Company reviews any uncertain tax positions and, if necessary, records the expected future tax consequences of uncertain tax positions in its consolidated financial statements.
In addition, the $65.5 million of excess cash paid to acquire the 25.0% noncontrolling partner’s ownership interest was classified as additional paid in capital.
In addition, the $65.8 million of excess cash paid to acquire the 25.0% noncontrolling partner’s ownership interest was classified as additional paid in capital.
Other property-level expenses on the Company’s consolidated statements of operations includes matching contributions into these various retirement plans of $1.4 million in 2022, $1.0 million in 2021 and $0.8 million in 2020. ​ Collective Bargaining Agreements ​ The Company is subject to exposure to collective bargaining agreements at certain hotels operated by its management companies.
Other property-level expenses on the Company’s consolidated statements of operations includes matching contributions into these various retirement plans of $1.6 million in 2023, $1.4 million in 2022 and $1.0 million in 2021. ​ Collective Bargaining Agreements ​ The Company is subject to exposure to collective bargaining agreements at certain hotels operated by its management companies.
In April 2022, the Company began to recognize revenue associated with the residential program agreement at the Four Seasons Resort Napa Valley and began to amortize the agreement using the straight-line method over the life of the related remaining 20-year management agreement.
In April 2022, the Company began to recognize revenue associated with the residential program agreement at the Four Seasons Resort Napa Valley, amortizing the agreement using the straight-line method over the life of the related remaining 20-year management agreement.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ ​ ​ /s/ Ernst & Young LLP ​ ​ ​ Irvine, California ​ February 23, 2023 ​ ​ ​ 55 Table of Contents Item 9 B.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ ​ ​ /s/ Ernst & Young LLP ​ ​ ​ Irvine, California ​ February 23, 2024 ​ ​ ​ 52 Table of Contents Item 9 B.
Intangible assets are amortized using the straight-line method over the shorter of their estimated useful life or over the length of the related agreement. ​ The Company’s investment in hotel properties, net also includes initial franchise fees which are recorded at cost and amortized using the straight-line method over the terms of the franchise agreements ranging from 15 years to 20 years .
Intangible assets are amortized using the straight-line method over the shorter of their estimated useful life or over the length of the related agreement. ​ The Company’s investment in hotel properties, net also includes initial franchise fees which are recorded at cost and amortized using the straight-line method over the terms of the franchise agreements ranging from fifteen years to twenty years .
For the year ended December 31, 2022, no hotels were impaired. ​ Auditing management’s impairment assessment of investment in hotel properties was challenging because determining whether events or changes in circumstances indicate that the investment may not be recoverable is highly judgmental due to the high degree of subjectivity in evaluating management’s identification of indicators of impairment, specifically related to a change in the hold period and disposition strategy of a hotel investment.
For the year ended December 31, 2023, no hotels were impaired. ​ Auditing management’s impairment assessment of investment in hotel properties was challenging because determining whether events or changes in circumstances indicate that the investment may not be recoverable is judgmental due to the subjectivity in evaluating management’s identification of indicators of impairment, specifically related to a change in the hold period and disposition strategy of a hotel investment.
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. ​ ​ ​ ​ 38 Table of Contents Operating Results .
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 .
We own, directly or indirectly, 100% of the interests of Sunstone Hotel Partnership, LLC, which is the entity that directly or indirectly owns our hotel properties.
We own, directly or indirectly, 100% of the interests of Sunstone Hotel Partnership, LLC, which is the entity that directly or indirectly owns our hotels.
We determined that the building lease is a finance lease, and, therefore, we included a portion of the lease payment each month in interest expense.
We determined that the building lease was a finance lease, and, therefore, we included a portion of the lease payment each month in interest expense.
Fair Value Measurements and Interest Rate Derivatives ​ Fair Value Measurements ​ As of December 31, 2022 and 2021, the carrying amount of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses were representative of their fair values due to the short-term maturity of these instruments. ​ A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction.
Fair Value Measurements and Interest Rate Derivatives ​ Fair Value Measurements ​ As of December 31, 2023 and 2022, the carrying amount of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses were representative of their fair values due to the short-term maturity of these instruments. ​ F-18 Table of Contents A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction.
In November and December 2021, the Company drew a total of $110.0 million under the revolving portion of its credit facility to fund a portion of its purchase of the Four Seasons Resort Napa Valley in December 2021 (see Note 3).
In November and December 2021, the Company drew a total of $110.0 million under the revolving portion of its credit facility to fund a portion of its purchase of the Four Seasons Resort Napa Valley in December 2021.
In accordance with the terms of the ATM Agreements, the Company may from time to time offer and sell shares of its common stock having an aggregate offering price of up to $300.0 million.
In accordance with the terms of the 2017 ATM Agreements, the Company could from time to time offer and sell shares of its common stock having an aggregate offering price of up to $300.0 million.
The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of current market yields as well as future events and F-11 Table of Contents conditions. Such future events and conditions include economic and market conditions, as well as the availability of suitable financing.
The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of current market yields as well as future events and conditions. Such future events and conditions include economic and market conditions, as well as the availability of suitable financing.
The amortization expense for the franchise agreements is included in depreciation and amortization expense in the Company’s consolidated statements of operations. (7) The in-place lease agreement as of December 31, 2022 consisted of an agreement at The Confidante Miami Beach. The value of the agreement was determined as part of the hotel’s purchase price allocation.
The amortization expense for the franchise agreements is included in depreciation and amortization expense in the Company’s consolidated statements of operations. (6) The in-place lease agreement as of both December 31, 2023 and 2022 consisted of an agreement at The Confidante Miami Beach. The value of the agreement was determined as part of the hotel’s purchase price allocation.
The following table sets forth certain information with respect to securities authorized for issuance under the equity compensation plan as of December 31, 2022: ​ Equity Compensation Plan Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ remaining available ​ ​ ​ ​ ​ ​ ​ for future issuance ​ ​ ​ ​ ​ ​ ​ under the Long-term ​ ​ Number of securities to ​ Weighted-average ​ Incentive Plan ​ ​ be issued upon exercise ​ exercise price of ​ (excluding securities ​ ​ of outstanding awards ​ outstanding awards ​ reflected in column a) ​ ​ (a) ​ (b) ​ (c) Equity compensation plans approved by the Company’s stockholders: ​ ​ ​ ​ ​ ​ ​ - 2022 Incentive Award Plan ​ ​ ​ ​ ​ 3,731,191 ​ ​ Item 1 3.
The following table sets forth certain information with respect to securities authorized for issuance under the equity compensation plan as of December 31, 2023: ​ Equity Compensation Plan Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ remaining available ​ ​ ​ ​ ​ ​ ​ for future issuance ​ ​ ​ ​ ​ ​ ​ under the Long-term ​ ​ Number of securities to ​ Weighted-average ​ Incentive Plan ​ ​ be issued upon exercise ​ exercise price of ​ (excluding securities ​ ​ of outstanding awards ​ outstanding awards ​ reflected in column a) ​ ​ (a) ​ (b) ​ (c) Equity compensation plans approved by the Company’s stockholders: ​ ​ ​ ​ ​ ​ ​ - 2022 Incentive Award Plan ​ ​ ​ ​ ​ 2,581,199 ​ ​ Item 1 3.
Additionally, this category includes, among other things, attrition and cancellation revenue, tenant revenue derived from hotel space and marina slips leased by third parties, winery revenue, any business interruption proceeds and any performance guarantee or reimbursements to offset net losses. ​ Expenses.
Additionally, this category includes, among other things, attrition and cancellation revenue, tenant revenue derived from hotel space and marina slips leased by third parties, winery revenue, any business interruption proceeds and any performance guarantee or reimbursements to offset net losses. ​ 36 Table of Contents Expenses.
Reyes ​ Chief Financial Officer (Principal Financial and Accounting Officer) ​ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. ​ ​ ​ ​ ​ ​ Signature Title Date ​ ​ ​ ​ ​ /S/ DOUGLAS M.
Reyes ​ Chief Financial Officer (Principal Financial and Accounting Officer) ​ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. ​ ​ ​ ​ ​ ​ Signature Title Date ​ ​ ​ ​ ​ /S/ BRYAN A.
We adjust EBITDA re for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA re , excluding noncontrolling interest: ​ ● 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. ​ ● Amortization of contract intangibles : we exclude the noncash amortization of any favorable or unfavorable contract intangibles recorded in conjunction with our hotel acquisitions.
In addition, we use both EBITDA re and Adjusted EBITDA re , excluding noncontrolling interest as measures in determining the value of hotel acquisitions and dispositions. ​ We adjust EBITDA re for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA re , excluding noncontrolling interest: ​ ● 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. ​ ● Amortization of contract intangibles : we exclude the noncash amortization of any favorable or unfavorable contract intangibles recorded in conjunction with our hotel acquisitions.
In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers. ​ Total basic management and incentive management fees were included in other property-level expenses on the Company’s consolidated statements of operations as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Basic management fees ​ $ 24,858 ​ $ 13,406 ​ $ 7,095 ​ Incentive management fees ​ 6,696 ​ 1,806 ​ — ​ Total basic and incentive management fees ​ $ 31,554 ​ $ 15,212 ​ $ 7,095 ​ ​ License and Franchise Agreements ​ The Company has entered into license and franchise agreements related to certain of its hotels.
In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers. ​ Total basic management and incentive management fees were included in other property-level expenses on the Company’s consolidated statements of operations as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Basic management fees ​ $ 27,122 ​ $ 24,858 ​ $ 13,406 ​ Incentive management fees ​ 7,534 ​ 6,696 ​ 1,806 ​ Total basic and incentive management fees ​ $ 34,656 ​ $ 31,554 ​ $ 15,212 ​ ​ License and Franchise Agreements ​ The Company has entered into license and franchise agreements related to certain of its hotels.

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