10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission file number 001-32319

Sunstone Hotel Investors, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	20-1296886
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
200 Spectrum Center Drive, 21st Floor Irvine, California	92618
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 330-4000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SHO	New York Stock Exchange
Series H Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRH	New York Stock Exchange
Series I Cumulative Redeemable Preferred Stock, $0.01 par value	SHO.PRI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 1, 2022, there were 210,399,520 shares of Sunstone Hotel Investors, Inc.’s common stock, $0.01 par value per share, outstanding.

SUNSTONE HOTEL INVESTORS, INC.

QUARTERLY REPORT ON

FORM 10-Q

For the Quarterly Period Ended September 30, 2022

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	2
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Unaudited Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
SIGNATURES		48

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SUNSTONE HOTEL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	September 30,		December 31,
	2022		2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	117,588	$	120,483
Restricted cash		50,253		42,234
Accounts receivable, net		45,750		28,733
Prepaid expenses and other current assets		14,374		14,338
Assets held for sale, net		—		76,308
Total current assets		227,965		282,096
Investment in hotel properties, net		2,850,225		2,720,016
Operating lease right-of-use assets, net		17,866		23,161
Deferred financing costs, net		5,382		2,580
Other assets, net		8,945		13,196
Total assets	$	3,110,383	$	3,041,049
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	60,512	$	47,701
Accrued payroll and employee benefits		22,413		19,753
Dividends and distributions payable		13,961		3,513
Other current liabilities		68,920		58,884
Current portion of notes payable, net		2,088		20,694
Liabilities of assets held for sale		—		25,213
Total current liabilities		167,894		175,758
Notes payable, less current portion, net		810,909		588,741
Operating lease obligations, less current portion		18,349		25,120
Other liabilities		9,575		11,656
Total liabilities		1,006,727		801,275
Commitments and contingencies (Note 12)
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized:
Series G Cumulative Redeemable Preferred Stock, 2,650,000 shares issued and outstanding at both September 30, 2022 and December 31, 2021, stated at liquidation preference of $25.00 per share		66,250		66,250
6.125% Series H Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at both September 30, 2022 and December 31, 2021, stated at liquidation preference of $25.00 per share		115,000		115,000
5.70% Series I Cumulative Redeemable Preferred Stock, 4,000,000 shares issued and outstanding at both September 30, 2022 and December 31, 2021, stated at liquidation preference of $25.00 per share		100,000		100,000
Common stock, $0.01 par value, 500,000,000 shares authorized, 211,570,211 shares issued and outstanding at September 30, 2022 and 219,333,783 shares issued and outstanding at December 31, 2021		2,116		2,193
Additional paid in capital		2,487,931		2,631,484
Retained earnings		1,017,890		948,064
Cumulative dividends and distributions		(1,685,531)		(1,664,024)
Total stockholders’ equity		2,103,656		2,198,967
Noncontrolling interest in consolidated joint venture		—		40,807
Total equity		2,103,656		2,239,774
Total liabilities and equity	$	3,110,383	$	3,041,049

See accompanying notes to consolidated financial statements.

2

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
REVENUES
Room	$	158,400	$	118,061	$	428,893	$	236,877
Food and beverage		63,476		27,338		174,717		47,547
Other operating		22,438		22,022		64,299		50,840
Total revenues		244,314		167,421		667,909		335,264
OPERATING EXPENSES
Room		38,791		32,106		106,594		66,692
Food and beverage		47,181		27,440		125,959		49,088
Other operating		6,440		4,643		17,965		9,934
Advertising and promotion		12,325		8,883		34,420		20,800
Repairs and maintenance		9,382		10,001		27,369		22,678
Utilities		7,708		6,164		19,652		14,998
Franchise costs		4,145		4,181		11,429		7,468
Property tax, ground lease and insurance		19,714		17,528		53,160		47,821
Other property-level expenses		29,032		21,633		83,333		48,177
Corporate overhead		7,879		15,422		27,310		32,066
Depreciation and amortization		31,750		32,585		94,003		96,084
Impairment loss		—		1,014		—		1,014
Total operating expenses		214,347		181,600		601,194		416,820
Interest and other income (loss)		270		2		4,766		(356)
Interest expense		(9,269)		(7,983)		(20,288)		(23,697)
Gain on sale of assets		—		—		22,946		—
(Loss) gain on extinguishment of debt, net		(770)		61		(962)		371
Income (loss) before income taxes		20,198		(22,099)		73,177		(105,238)
Income tax benefit (provision), net		290		(25)		126		(91)
NET INCOME (LOSS)		20,488		(22,124)		73,303		(105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Preferred stock dividends and redemption charges		(3,351)		(6,287)		(10,897)		(17,289)
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	17,137	$	(29,344)	$	58,929	$	(120,980)
Basic and diluted per share amounts:
Basic income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)
Diluted income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)
Basic weighted average common shares outstanding		211,010		217,709		213,799		215,765
Diluted weighted average common shares outstanding		211,289		217,709		213,869		215,765

See accompanying notes to consolidated financial statements.

3

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(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, 2021 (audited)	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	—		—	—		—		3,701		—		—		—		3,701
Issuance of restricted common stock, net	—		—	213,179		2		(3,353)		—		—		—		(3,351)
Series G preferred stock dividends and dividends payable at $0.221475 per share	—		—	—		—		—		—		(587)		—		(587)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		—		(1,425)		—		(1,425)
Repurchase of outstanding common stock	—		—	(3,879,025)		(38)		(43,427)		—		—		—		(43,465)
Net income	—		—	—		—		—		13,989		—		1,134		15,123
Balance at March 31, 2022	11,250,000	$	281,250	215,667,937	$	2,157	$	2,588,405	$	962,053	$	(1,667,797)	$	41,941	$	2,208,009
Amortization of deferred stock compensation	—		—	—		—		2,971		—		—		—		2,971
Issuance of restricted common stock	—		—	53,616		1		(92)		—		—		—		(91)
Forfeiture of restricted common stock	—		—	(34,807)		—		—		—		—		—		—
Series G preferred stock dividends and dividends payable at $0.221475 per share	—		—	—		—		—		—		(587)		—		(587)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		—		(1,425)		—		(1,425)
Repurchase of outstanding common stock	—		—	(3,235,958)		(33)		(34,482)		—		—		—		(34,515)
Distribution to noncontrolling interest	—		—	—		—		—		—		—		(5,500)		(5,500)
Acquisition of noncontrolling interest, net	—		—	—		—		(62,564)		—		—		(38,784)		(101,348)
Net income	—		—	—		—		—		35,349		—		2,343		37,692
Balance at June 30, 2022	11,250,000	$	281,250	212,450,788	$	2,125	$	2,494,238	$	997,402	$	(1,671,570)	$	—	$	2,103,445
Amortization of deferred stock compensation	—		—	—		—		2,350		—		—		—		2,350
Common stock distributions and distributions payable at $0.05 per share	—		—	—		—		—		—		(10,610)		—		(10,610)
Series G preferred stock dividends and dividends payable at $0.062081 per share	—		—	—		—		—		—		(165)		—		(165)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.356250 per share	—		—	—		—		—		—		(1,425)		—		(1,425)
Repurchase of outstanding common stock	—		—	(880,577)		(9)		(8,657)		—		—		—		(8,666)
Net income	—		—	—		—		—		20,488		—		—		20,488
Balance at September 30, 2022	11,250,000	$	281,250	211,570,211	$	2,116	$	2,487,931	$	1,017,890	$	(1,685,531)	$	—	$	2,103,656

See accompanying notes to consolidated financial statements.

4

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(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, 2020 (audited)	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	—		—	—		—		2,869		—		—		—		2,869
Issuance of restricted common stock, net	—		—	581,683		6		(3,522)		—		—		—		(3,516)
Series E preferred stock dividends and dividends payable at $0.434375 per share	—		—	—		—		—		—		(1,998)		—		(1,998)
Series F preferred stock dividends and dividends payable at $0.403125 per share	—		—	—		—		—		—		(1,209)		—		(1,209)
Contribution from noncontrolling interest	—		—	—		—		—		—		—		1,375		1,375
Net loss	—		—	—		—		—		(53,312)		—		(1,975)		(55,287)
Balance at March 31, 2021	7,600,000	$	190,000	216,175,084	$	2,162	$	2,585,455	$	860,454	$	(1,646,593)	$	40,135	$	2,031,613
Amortization of deferred stock compensation	—		—	—		—		4,784		—		—		—		4,784
Repurchase of common stock for employee tax obligations net of restricted common stock issued	—		—	(45,661)		(1)		(1,360)		—		—		—		(1,361)
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
Redemption of Series E preferred stock	(4,600,000)		(115,000)	—		—		4,016		—		(4,016)		—		(115,000)
Series E preferred stock dividends at $0.337847 per share through redemption date	—		—	—		—		—		—		(1,554)		—		(1,554)
Series F preferred stock dividends and dividends payable at $0.403125 per share	—		—	—		—		—		—		(1,209)		—		(1,209)
Series G preferred stock dividends and dividends payable at $0.110259 per share	—		—	—		—		—		—		(292)		—		(292)
Series H preferred stock dividends and dividends payable at $0.157378 per share	—		—	—		—		—		—		(724)		—		(724)
Net loss	—		—	—		—		—		(27,322)		—		(596)		(27,918)
Balance at June 30, 2021	10,250,000	$	256,250	219,043,105	$	2,190	$	2,626,582	$	833,132	$	(1,654,388)	$	39,539	$	2,103,305
Amortization of deferred stock compensation	—		—	—		—		3,289		—		—		—		3,289
Issuance of restricted common stock	—		—	526,084		5		(5)		—		—		—		—
Forfeiture of restricted common stock	—		—	(235,406)		(2)		2		—		—		—		—
Net proceeds from issuance of Series I preferred stock	4,000,000		100,000	—		—		(3,344)		—		—		—		96,656
Redemption of Series F preferred stock	(3,000,000)		(75,000)	—		—		2,624		—		(2,624)		—		(75,000)
Series F preferred stock dividends at $0.183646 per share through redemption date	—		—	—		—		—		—		(551)		—		(551)
Series G preferred stock dividends and dividends payable at $0.061713 per share	—		—	—		—		—		—		(164)		—		(164)
Series H preferred stock dividends and dividends payable at $0.382813 per share	—		—	—		—		—		—		(1,761)		—		(1,761)
Series I preferred stock dividends and dividends payable at $0.296875 per share	—		—	—		—		—		—		(1,187)		—		(1,187)
Net (loss) income	—		—	—		—		—		(23,057)		—		933		(22,124)
Balance at September 30, 2021	11,250,000	$	281,250	219,333,783	$	2,193	$	2,629,148	$	810,075	$	(1,660,675)	$	40,472	$	2,102,463

See accompanying notes to consolidated financial statements.

5

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	73,303	$	(105,329)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Bad debt expense		846		322
(Gain) loss on sale of assets		(22,946)		82
Loss (gain) on extinguishment of debt, net		962		(371)
Noncash interest on derivatives, net		(2,904)		(2,194)
Depreciation		93,573		96,053
Amortization of franchise fees and other intangibles		387		31
Amortization of deferred financing costs		1,940		2,207
Amortization of deferred stock compensation		8,661		10,576
Gain on hurricane-related damage		(4,369)		—
Impairment loss		—		1,014
Changes in operating assets and liabilities:
Accounts receivable		(16,279)		(20,241)
Prepaid expenses and other assets		5,465		(3,228)
Accounts payable and other liabilities		10,831		23,403
Accrued payroll and employee benefits		1,278		7,083
Operating lease right-of-use assets and obligations		(1,050)		(1,004)
Net cash provided by operating activities		149,698		8,404
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets		191,291		—
Acquisition and disposition deposits, net		—		(3,900)
Proceeds from property insurance		4,369		—
Acquisitions of hotel properties and other assets		(232,506)		(195,706)
Renovations and additions to hotel properties and other assets		(97,539)		(41,910)
Payment for interest rate derivative		—		(80)
Net cash used in investing activities		(134,385)		(241,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of noncontrolling interest, including transaction costs		(101,348)		—
Proceeds from preferred stock offerings		—		215,000
Payment of preferred stock offering costs		—		(7,287)
Redemptions of preferred stock		—		(190,000)
Proceeds from common stock offerings		—		38,443
Payment of common stock offering costs		(91)		(784)
Repurchases of outstanding common stock		(86,646)		—
Repurchases of common stock for employee tax obligations		(3,351)		(4,877)
Proceeds from credit facility		230,000		—
Payment on credit facility		(230,000)		—
Proceeds from notes payable		243,615		—
Payments on notes payable		(38,405)		(2,461)
Payments of deferred financing costs		(7,404)		—
Dividends and distributions paid		(11,059)		(10,745)
Distribution to noncontrolling interest		(5,500)		—
Contribution from noncontrolling interest		—		1,375
Net cash (used in) provided by financing activities		(10,189)		38,664
Net increase (decrease) in cash and cash equivalents and restricted cash		5,124		(194,528)
Cash and cash equivalents and restricted cash, beginning of period		162,717		416,139
Cash and cash equivalents and restricted cash, end of period	$	167,841	$	221,611

See accompanying notes to consolidated financial statements.

6

SUNSTONE HOTEL INVESTORS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Supplemental Disclosure of Cash Flow Information

	September 30,
	2022		2021
Cash and cash equivalents	$	117,588	$	179,487
Restricted cash		50,253		42,124
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows	$	167,841	$	221,611

	Nine Months Ended September 30,
	2022		2021
Cash paid for interest	$	24,279	$	26,629
Cash paid for income taxes, net	$	218	$	45
Operating cash flows used for operating leases	$	5,080	$	5,077
Changes in operating lease right-of-use assets	$	3,020	$	2,804
Changes in operating lease obligations		(4,070)		(3,808)
Changes in operating lease right-of-use assets and lease obligations, net	$	(1,050)	$	(1,004)

Supplemental Disclosure of Noncash Investing and Financing Activities

	Nine Months Ended September 30,
	2022		2021
Accrued renovations and additions to hotel properties and other assets	$	17,630	$	9,932
Disposition deposit received in prior year in connection with sale of hotel	$	4,000	$	—
Assignment of finance lease right-of-use asset in connection with sale of hotel	$	44,712	$	—
Assignment of finance lease obligation in connection with sale of hotel	$	15,569	$	—
Assignment of operating lease right-of-use asset in connection with sale of hotel	$	2,275	$	—
Assignment of operating lease obligation in connection with sale of hotel	$	2,609	$	—
Issuance of preferred stock in connection with hotel acquisition	$	—	$	66,250
Amortization of deferred stock compensation — construction activities	$	361	$	366
Preferred stock redemption charges	$	—	$	6,640
Dividends and distributions payable	$	13,961	$	3,112

See accompanying notes to consolidated financial statements.

7

SUNSTONE HOTEL INVESTORS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Sunstone Hotel Investors, Inc. (the “Company”) was incorporated in Maryland on June 28, 2004 in anticipation of an initial public offering of common stock, which was consummated on October 26, 2004. The Company elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes, commencing with its taxable year ended on December 31, 2004. The Company, through its 100% controlling interest in Sunstone Hotel Partnership, LLC (the “Operating Partnership”), of which the Company is the sole managing member, and the subsidiaries of the Operating Partnership, including Sunstone Hotel TRS Lessee, Inc. (the “TRS Lessee”) and its subsidiaries, is currently engaged in acquiring, owning, asset managing and renovating or repositioning hotel properties, and may also selectively sell hotels that no longer fit its stated strategy.

As a REIT, certain tax laws limit the amount of “non-qualifying” income the Company can earn, including income derived directly from the operation of hotels. The Company leases all of its hotels to its TRS Lessee, which in turn enters into long-term management agreements with third parties to manage the operations of the Company’s hotels, in transactions that are intended to generate qualifying income.

As of September 30, 2022, the Company owned 15 hotels (the “15 Hotels”) currently held for investment. The Company’s third-party managers included the following:

	Number of Hotels
Subsidiaries of Marriott International, Inc. or Marriott Hotel Services, Inc. (collectively, “Marriott”)	6
Hyatt Hotels Corporation	2
Interstate Hotels & Resorts, Inc.	2	(1)
Four Seasons Hotels Limited	1
Highgate Hotels L.P. and an affiliate	1
Hilton Worldwide	1
Montage North America, LLC	1
Singh Hospitality, LLC	1
Total hotels owned as of September 30, 2022	15

(1) In October 2022, Sage Hospitality Group commenced management of The Bidwell Portland Marriott.

COVID-19 Operational Update

COVID-19 and its variants have had and continue to have a detrimental effect on the hotel industry and the Company’s business, including significant room and event cancellations, corporate and government travel restrictions and an unprecedented decline in hotel demand. While operations have gradually improved since the onset of the COVID-19 pandemic in 2020, the Omicron variant in December 2021 led to a slowdown in demand recovery at the Company’s hotels. However, demand began to recover again in February 2022 as Omicron-related case counts subsided and travel patterns re-accelerated.

During the first nine months of 2022, corporate transient and group demand accelerated, reducing the Company’s reliance on leisure demand, which was the dominant source of business at many of the Company’s hotels during 2021. While leisure demand continued to be robust, the greatest demand growth during the second and third quarters of 2022 was at the Company’s urban and group-oriented hotels which experienced increased near-term booking activity, higher than expected attendance at group events and increased business transient demand. The amount of corporate business at the Company’s hotels continues to grow and the Company expects business travel to continue to increase as the year progresses. The Company anticipates that group demand will compose a more meaningful component of its total room nights during the remainder of 2022. However, the negative effects of the COVID-19 pandemic on the hotel industry have been unprecedented, and the Company continues to have limited visibility to predict future operations.

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2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements as of September 30, 2022 and December 31, 2021, and for the three and nine months ended September 30, 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. If the Company determines that it has an interest in a variable interest entity, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity.

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission. In the Company’s opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. These financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 23, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The Company does not have any comprehensive income other than what is included in net income. If the Company has any comprehensive income in the future such that a statement of comprehensive income would be necessary, the Company will include such statement in one continuous consolidated statement of operations.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Earnings Per Share

The Company applies the two-class method when computing its earnings per share. Net income per share for each class of stock is calculated assuming all of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid), which include the Company’s time-based restricted stock awards, are considered participating securities and are included in the computation of earnings per share.

Basic earnings (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. 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. Potential common shares consist of unvested restricted stock awards and units, using the more dilutive of either the two-class method or the treasury stock method.

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The following table sets forth the computation of basic and diluted earnings (loss) per common share (unaudited and in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income (loss)	$	20,488	$	(22,124)	$	73,303	$	(105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Preferred stock dividends and redemption charges		(3,351)		(6,287)		(10,897)		(17,289)
Distributions paid to participating securities		(64)		—		(64)		—
Undistributed income allocated to participating securities		(40)		—		(301)		—
Numerator for basic and diluted income (loss) attributable to common stockholders	$	17,033	$	(29,344)	$	58,564	$	(120,980)
Denominator:
Weighted average basic common shares outstanding		211,010		217,709		213,799		215,765
Unvested restricted stock units		279		—		70		—
Weighted average diluted common shares outstanding		211,289		217,709		213,869		215,765
Basic income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)
Diluted income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)

At September 30, 2022 and 2021, the Company excluded 1,289,146 and 1,463,315 anti-dilutive unvested time-based restricted stock awards, respectively, from its calculation of diluted earnings per share. The unvested time-based restricted stock awards generally vest over periods ranging from three years to five years.

The Company also had unvested performance-based restricted stock units as of September 30, 2022 that were granted based on target market condition thresholds as follows: 169,832 shares that vest based on the achievement of the Company’s total relative shareholder return following a two year performance period (the “Two Year Performance Period Shares”); 254,748 shares that vest based on the achievement of the Company’s total relative shareholder return following a three year performance period (the “Three Year Performance Period Shares”); and 188,004 shares that vest based on the achievement of pre-determined stock price targets during a five year performance period (the “Five Year Performance Period Shares”). Based on the Company’s common stock performance during the nine months ended September 30, 2022, the Company excluded the Five Year Performance Period Shares from its September 30, 2022 calculations of diluted earnings per share because their effect would have been anti-dilutive.

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 times, restricted cash also includes hotel acquisition or disposition-related earnest money held in escrow reserves pending completion of the associated transaction. In addition, restricted cash as of September 30, 2022 and December 31, 2021 included $10.3 million and $10.4 million, respectively, held in escrow related to certain current and potential employee-related obligations of one of the Company’s former hotels, $3.1 million held in escrow as of both September 30, 2022 and December 31, 2021 for the purpose of satisfying any potential employee-related obligations that arise in connection with the termination of hotel personnel and any employment claim by hotel personnel at the Four Seasons Resort Napa Valley and $0.2 million held as collateral for certain letters of credit as of both September 30, 2022 and December 31, 2021 (see Note 12).

Investments in Hotel Properties

Investments in hotel properties, including land, buildings, furniture, fixtures and equipment (“FF&E”) and identifiable intangible assets are recorded at their respective relative fair values for an asset acquisition or at their estimated fair values for a business acquisition. Property and equipment purchased after the hotel acquisition date is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset,

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the cost and related accumulated depreciation is removed from the Company’s accounts and any resulting gain or loss is included in the consolidated statements of operations.

Depreciation expense is based on the estimated life of the Company’s assets. The life of the assets is based on a number of assumptions, including the cost and timing of capital expenditures to maintain and refurbish the Company’s hotels, as well as specific market and economic conditions. Hotel properties are depreciated using the straight-line method over estimated useful lives primarily ranging from five to 40 years for buildings and improvements and three to 12 years for FF&E. Finance lease right-of-use assets other than land are depreciated using the straight-line method over the shorter of either their estimated useful life or the life of the related finance lease obligation. 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 to 20 years. All other franchise fees that are based on the Company’s results of operations are expensed as incurred.

While the Company believes its estimates are reasonable, a change in the estimated lives could affect depreciation expense and net income or the gain or loss on the sale of any of the Company’s hotels. The Company has not changed the useful lives of any of its assets during the periods discussed.

Impairment losses are recorded on long-lived assets to be held and used by the Company when indicators of impairment are present and the future undiscounted net cash flows, including potential sale proceeds, expected to be generated by those assets based on the Company’s anticipated investment horizon, are less than the assets’ carrying amount. The Company evaluates its long-lived assets to determine if there are indicators of impairment on a quarterly basis. No single indicator would necessarily result in the Company preparing an estimate to determine if a hotel’s future undiscounted cash flows are less than the book value of the hotel. The Company uses judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity that when combined, would result in an indication that a hotel requires an estimate of the undiscounted cash flows to determine if an impairment has occurred. If a hotel is considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The Company performs a fair value assessment, using one or more discounted cash flow analyses to estimate the fair value of the hotel, taking into account the hotel’s expected cash flow from operations, the Company’s estimate of how long it will own the hotel and the estimated proceeds from the disposition of the hotel. When multiple cash flow analyses are prepared, a probability is assigned to each cash flow analysis based upon the estimated likelihood of each scenario occurring. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and terminal capitalization rate. The Company’s judgment is required in determining the discount rate applied to estimated cash flows, the estimated growth of revenues and expenses, net operating income and margins, the need for capital expenditures, as well as specific market and economic conditions. Based on the Company’s review, no hotels were impaired during either the three or nine months ended September 30, 2022. In September 2021, the Company recognized a $1.0 million impairment loss on the Hilton New Orleans St. Charles due to Hurricane Ida-related damage at the hotel (see Note 12).

Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than a forced or liquidation sale. 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 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.

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. 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. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease obligations represent the Company’s obligation to make fixed lease payments as stipulated by the lease. The Company has elected to not separate lease components from nonlease components, resulting in the Company accounting for lease and nonlease components as one single lease component.

Leases are accounted for using a dual approach, classifying leases as either operating or financing based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the Company. This classification determines whether the lease expense is recognized on a straight-line basis over the term of the lease for operating leases or based on an effective interest method for finance leases.

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Lease ROU assets are recognized at the lease commencement date and include the amount of the initial operating lease obligation, any lease payments made at or before the commencement date, excluding any lease incentives received, and any initial direct costs incurred. For leases that have extension options that the Company can exercise at its discretion, management uses judgment to determine if it is reasonably certain that the Company will in fact exercise such option. If the extension option is reasonably certain to occur, the Company includes the extended term’s lease payments in the calculation of the respective lease liability. None of the Company’s leases contain any material residual value guarantees or material restrictive covenants.

Lease obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (“IBR”) based on information available at the commencement date in determining the present value of lease payments over the lease term. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In order to estimate the Company’s IBR, the Company first looks to its own unsecured debt offerings, and adjusts the rate for both length of term and secured borrowing using available market data as well as consultations with leading national financial institutions that are active in the issuance of both secured and unsecured notes.

The Company reviews its right-of-use assets for indicators of impairment. If such assets are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Based on the Company’s review, no operating or finance lease ROU assets were impaired during either the three or nine months ended September 30, 2022 or 2021.

Noncontrolling Interest

In June 2022, the Company acquired the 25.0% outside equity interest in the Hilton San Diego Bayfront (see Note 3). Prior to this acquisition, the noncontrolling interest reported in the accompanying consolidated financial statements consisted of a third-party’s 25.0% ownership interest in the Hilton San Diego Bayfront. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interest is reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from the less-than-wholly owned subsidiary are reported at their consolidated amounts, including both the amounts attributable to the Company and the noncontrolling interest. Income or loss is allocated to the noncontrolling interest based on its weighted average ownership percentage for the applicable period. The consolidated statements of equity include beginning balances, activity for the period and ending balances for each component of stockholders’ equity, noncontrolling interest and total equity.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to hotel guests, which is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel’s services. Room revenue and other occupancy based fees are recognized over a guest’s stay at the previously agreed upon daily rate. Some of the Company’s hotel rooms are booked through independent internet travel intermediaries. If the guest pays the independent internet travel intermediary directly, revenue for the room is recognized by the Company at the price the Company sold the room to the independent internet travel intermediary, less any discount or commission paid. If the guest pays the Company directly, revenue for the room is recognized by the Company on a gross basis, with the related discount or commission recognized in room expense. A majority of the Company’s hotels participate in frequent guest programs sponsored by the hotel brand owners whereby the hotel allows guests to earn loyalty points during their hotel stay. The Company expenses charges associated with these programs as incurred, and recognizes revenue at the amount it will receive from the brand when a guest redeems their loyalty points by staying at one of the Company’s hotels. In addition, some contracts for rooms or food and beverage services require an advance deposit, which the Company records as deferred revenue (or a contract liability) and recognizes once the performance obligations are satisfied. Cancellation fees and attrition fees, which are charged to groups when they do not fulfill their contracted minimum number of room nights or minimum food and beverage spending requirements, are typically recognized as revenue in the period the Company determines it is probable that a significant reversal in the amount of revenue recognized will not occur, which is generally the period in which these fees are collected.

Food and beverage revenue and other ancillary services revenue are generated when a customer chooses to purchase goods or services separately from a hotel room. The revenue is recognized when the goods or services are provided to the customer at the amount the Company expects to be entitled to in exchange for those goods or services. For ancillary services provided by third parties, the Company assesses whether it is the principal or the agent. If the Company is the principal, revenue is recognized based upon the gross sales price. If the Company is the agent, revenue is recognized based upon the commission earned from the third party.

Additionally, the Company collects sales, use, occupancy and other similar taxes from customers at its hotels at the time of purchase, which are not included in revenue. The Company records a liability upon collection of such taxes from the customer, and relieves the liability when payments are remitted to the applicable governmental agency.

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Trade receivables and contract liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Trade receivables, net (1)	$	28,487	$	16,055
Contract liabilities (2)	$	51,648	$	40,226

(1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets.

(2) Contract liabilities consist of advance deposits and are included in either other current liabilities or other liabilities on the accompanying consolidated balance sheets.

During the three months ended September 30, 2022 and 2021, the Company recognized approximately $3.0 million and $0.2 million, respectively, in revenue related to its outstanding contract liabilities. During the nine months ended September 30, 2022 and 2021, the Company recognized approximately $25.4 million and $1.3 million, respectively, in revenue related to its outstanding contract liabilities.

Segment Reporting

The Company considers each of its hotels to be an operating segment, and allocates resources and assesses the operating performance for each hotel. 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 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”). Contracts that meet the following criteria are eligible for relief from the modification accounting requirements in GAAP: the contract references LIBOR or another rate that is expected to be discontinued due to reference rate reform; the modified terms directly replace or have the potential to replace the reference rate that is expected to be discontinued due to reference rate reform; and any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the reference rate. For a contract that meets the criteria, the guidance generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. ASU No. 2020-04 is effective upon issuance, and is applied prospectively from any date beginning March 12, 2020. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022. In June 2022, the FASB proposed an accounting standards update to defer the sunset date from December 31, 2022 to December 31, 2024.

Under the terms of the Amended Credit Agreement (see Note 7), the Company’s credit facility, Term Loan 1 and Term Loan 2 are now subject to SOFR rather than LIBOR. The Company’s two interest rate swap derivatives on its term loans either expired in September 2022 or will expire in January 2023. Currently, the Company’s $220.0 million loan secured by the Hilton San Diego Bayfront and its related interest rate cap derivative are subject to LIBOR. The loan matures in December 2022; however, the Company has notified the lenders of its election to exercise its remaining one-year option to extend the loan’s maturity to December 2023. The interest rate cap derivative expires in December 2022, and the Company will be required to obtain a new interest rate cap derivative in order to secure the one-year extension on the loan. The adoption of ASU No. 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.

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3. Investment in Hotel Properties

Investment in hotel properties, net consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Land	$	672,531	$	604,692
Buildings and improvements		2,780,117		2,729,461
Furniture, fixtures and equipment		423,546		431,780
Intangible assets		42,408		43,117
Construction in progress		65,121		41,260
Investment in hotel properties, gross		3,983,723		3,850,310
Accumulated depreciation and amortization		(1,133,498)		(1,130,294)
Investment in hotel properties, net	$	2,850,225	$	2,720,016

In June 2022, the Company purchased the fee-simple interest in the 339-room The Confidante Miami Beach, Florida for a contractual purchase price of $232.0 million. The acquisition was funded from available cash and with $140.0 million of proceeds received from the Company’s revolving credit facility (see Note 7). As part of the purchase price allocation for The Confidante Miami Beach, the Company allocated $0.5 million to intangible assets related to an in-place lease agreement. The $0.5 million will be amortized over the remaining five-year life of the lease.

In June 2022, the Company acquired the 25.0% noncontrolling partner’s ownership interest in the Hilton San Diego Bayfront for a contractual purchase price of $102.0 million plus 25.0% of closing date working capital and cash. The Company paid a preliminary purchase price of $101.3 million on the closing date based on estimated working capital and cash amounts, with the actual amounts to be determined in the fourth quarter of 2022. Following this acquisition, the Company owns 100% of the hotel. The acquisition was funded from available cash and with $90.0 million of proceeds received from the Company’s revolving credit facility (see Note 7). The transaction was accounted for as an equity transaction. The acquisition date noncontrolling interest balance of $38.8 million was reclassified to additional paid in capital. In addition, the $62.5 million of excess cash paid to acquire the 25.0% noncontrolling partner’s ownership interest was classified as additional paid in capital. No gain or loss was recognized in the accompanying consolidated statements of operations for either the three or nine months ended September 30, 2022 related to the acquisition.

4. Disposals

In February 2022, the Company sold the Hyatt Centric Chicago Magnificent Mile for net proceeds of $67.2 million, including a $4.0 million deposit received from the buyer of the hotel in December 2021, and recorded a gain of $11.3 million. In March 2022, the Company sold the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile for combined net proceeds of $128.1 million and recorded a combined gain of $11.6 million. None of these sales represented a strategic shift that had a major impact on the Company’s business plan or its primary markets; therefore none of the hotels qualified as a discontinued operation.

5. Fair Value Measurements and Interest Rate Derivatives

Fair Value Measurements

As of September 30, 2022 and December 31, 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. The hierarchy for inputs used in measuring fair value is as follows:

Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2	Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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Level 3 Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

As of both September 30, 2022 and December 31, 2021, the Company measured its interest rate derivatives at fair value on a recurring basis. The Company estimated the fair value of its interest rate derivatives using Level 2 measurements based on quotes obtained from the counterparties, which are based upon the consideration that would be required to terminate the agreements.

Fair Value of Debt

As of September 30, 2022 and December 31, 2021, 42.4% and 64.0%, respectively, of the Company’s outstanding debt had fixed interest rates, including the effects of interest rate swap agreements. The Company uses Level 3 measurements to estimate the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates.

The Company’s principal balances and fair market values of its consolidated debt as of September 30, 2022 (unaudited) and December 31, 2021 were as follows (in thousands):

	September 30, 2022				December 31, 2021
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	816,647	$	798,323	$	611,437	$	590,359

(1) The principal balance of debt is presented before any unamortized deferred financing costs.

(2) Due to prevailing market conditions and the uncertain economic environment caused by the COVID-19 pandemic, actual interest rates could vary materially from those estimated, which would result in variances in the Company’s calculations of the fair market value of its debt.

Interest Rate Derivatives

The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at September 30, 2022 (unaudited) and December 31, 2021 (in thousands):

									Estimated Fair Value of Assets (Liabilities) (1)
		Strike / Capped			Effective	Maturity	Notional		September 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2022		2021
Hilton San Diego Bayfront	Cap	6.000	%	1-Month LIBOR	December 9, 2021	December 15, 2022	$	220,000	$	—	$	3
Term Loan 1	Swap	1.591	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000		N/A		(744)
Term Loan 2	Swap	1.853	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000		679		(1,484)
									$	679	$	(2,225)

(1) The fair values of the cap derivative are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets as of both September 30, 2022 and December 31, 2021. The Term Loan 1 swap derivative expired in September 2022. The fair value of the Term Loan 2 swap derivative is included in prepaid expenses and other current assets on the accompanying consolidated balance sheet as of September 30, 2022. As of December 31, 2021, the fair values of both swap derivatives are included in other current liabilities and other liabilities, respectively, on the accompanying consolidated balance sheet.

Noncash changes in the fair values of the Company’s interest rate derivatives resulted in decreases to interest expense for the three and nine months ended September 30, 2022 and 2021 as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Noncash interest on derivatives, net	$	(39)	$	(616)	$	(2,904)	$	(2,194)

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6. Other Assets

Other assets, net consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Property and equipment, net	$	5,113	$	5,912
Deferred rent on straight-lined third-party tenant leases		2,103		2,455
Liquor licenses		928		826
Other receivables		715		3,914
Other		86		89
Total other assets, net	$	8,945	$	13,196

7. Notes Payable

Notes payable consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points, resulting in effective interest rates of 3.824% and 1.140% at September 30, 2022 and December 31, 2021, respectively; matures on December 9, 2022 with notice provided to the lenders of intent to exercise remaining one-year option to extend (subject to a 25 basis point increase in the LIBOR spread). The note is collateralized by a first deed of trust on one hotel property.	$	220,000	$	220,000
Note payable requiring payments of interest and principal, with a fixed rate of 4.15%; matures on December 11, 2024. The note is collateralized by a first deed of trust on one hotel property.		76,647		78,137
Unsecured Term Loan 1 requiring payments of interest only with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points, depending on the Company's leverage ratios, plus SOFR and 10 basis points, resulting in an effective interest rate of 4.597% at September 30, 2022, and a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points as of December 31, 2021. LIBOR was swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 3.941% at December 31, 2021. Matures on July 25, 2027.		175,000		19,400
Unsecured Term Loan 2 requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points, depending on the Company's leverage ratios, plus SOFR and 10 basis points as of September 30, 2022, and a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points as of December 31, 2021. LIBOR was swapped to a fixed rate of 1.853%, resulting in effective interest rates of 3.628% and 4.203% at September 30, 2022 and December 31, 2021, respectively. Matures on January 25, 2028.		175,000		88,900
Unsecured Series A Senior Notes requiring semi-annual payments of interest only, bearing interest at 5.94%. Matures on January 10, 2026.		65,000		90,000
Unsecured Series B Senior Notes requiring semi-annual payments of interest only, bearing interest at 6.04%. Matures on January 10, 2028.		105,000		115,000
Total notes payable	$	816,647	$	611,437
Current portion of notes payable	$	2,145	$	21,401
Less: current portion of deferred financing costs		(57)		(707)
Carrying value of current portion of notes payable	$	2,088	$	20,694
Notes payable, less current portion	$	814,502	$	590,036
Less: long-term portion of deferred financing costs		(3,593)		(1,295)
Carrying value of notes payable, less current portion	$	810,909	$	588,741

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In February 2022, the Company used a portion of the proceeds received from the disposition of the Hyatt Centric Chicago Magnificent Mile to repay $25.0 million of its unsecured Series A Senior Notes and $10.0 million of its unsecured Series B Senior Notes, resulting in remaining balances of $65.0 million and $105.0 million, respectively, as of September 30, 2022. In conjunction with the repayments, the Company recorded a $0.2 million loss on extinguishment of debt related to the write-off of deferred financing costs.

In March 2022, the Company elected to early terminate the covenant relief period related to its unsecured debt, having satisfied the financial covenants stipulated in the 2020 and 2021 amendments to its unsecured debt agreements (the “Unsecured Debt Amendments”) for the quarter ended December 31, 2021. The Unsecured Debt Amendments were scheduled to provide covenant relief through the end of the third quarter of 2022, with quarterly testing resuming for the period ending September 30, 2022. Following the Company’s early termination of the covenant relief period in March 2022, the original financial covenants on its unsecured debt agreements were to be phased-in over the following five quarters to ease compliance. By exiting the covenant relief period, the Company is no longer subject to the additional restrictions on debt issuance and repayment, capital investment, share repurchases and dividend distributions that were imposed as part of the Unsecured Debt Amendments.

In June 2022, the Company drew a total of $230.0 million under the revolving portion of its credit facility to fund the acquisitions of The Confidante Miami Beach and the 25.0% noncontrolling interest in the Hilton San Diego Bayfront (see Note 3).

In July 2022, the Company entered into a Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”) which expanded its unsecured borrowing capacity and extended the maturity of the Company’s two unsecured term loans. The Amended Credit Agreement increased the balances of both Term Loan 1 and Term Loan 2 to $175.0 million each from $19.4 million and $88.9 million, respectively. In addition, the maturity dates were extended to July 2027 and January 2028 for Term Loan 1 and Term Loan 2, respectively. Under the Amended Credit Agreement, the term loans bear interest pursuant to a leverage-based pricing grid ranging from 135 basis points to 220 basis points over the applicable adjusted term SOFR.

In July 2022, the Company utilized the proceeds received from the incremental borrowing on the term loans to fully repay the $230.0 million that was outstanding on its revolving credit facility. The Amended Credit Agreement continues to provide for a $500.0 million revolving credit facility, with two six-month extension options, which would result in an extended maturity of July 2027. Under the Amended Credit Agreement, the revolving credit facility bears interest pursuant to a leverage-based pricing grid ranging from 140 basis points to 225 basis points over the applicable adjusted term SOFR. As of September 30, 2022, the Company had no amount outstanding on its credit facility, with $500.0 million of capacity available for borrowing under the facility. The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various financial covenants.

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. These provisions were triggered in January 2021 for the loan secured by the JW Marriott New Orleans and in May 2021 for the loan secured by the Hilton San Diego Bayfront. In April 2022, the loan secured by the Hilton San Diego Bayfront exited the cash trap, and in October 2022, the Company notified the lender for the loan secured by the JW Marriott New Orleans that it had met the criteria to exit the cash trap. As of September 30, 2022, no excess cash generated by the JW Marriott New Orleans was held in a lockbox account for the benefit of the lender.

Interest Expense

Total interest incurred and expensed on the notes payable and finance lease obligation was as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest expense on debt and finance lease obligation	$	8,719	$	7,864	$	21,252	$	23,684
Noncash interest on derivatives, net		(39)		(616)		(2,904)		(2,194)
Amortization of deferred financing costs		589		735		1,940		2,207
Total interest expense	$	9,269	$	7,983	$	20,288	$	23,697

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8. Other Current Liabilities and Other Liabilities

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Property, sales and use taxes payable	$	14,538	$	12,591
Accrued interest		3,832		6,858
Advance deposits		44,673		33,750
Interest rate swap derivative		—		744
Management fees payable		1,297		1,691
Other		4,580		3,250
Total other current liabilities	$	68,920	$	58,884

Other Liabilities

Other liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Deferred revenue	$	7,076	$	6,598
Interest rate swap derivative		—		1,484
Other		2,499		3,574
Total other liabilities	$	9,575	$	11,656

9. Leases

As of both September 30, 2022 and December 31, 2021, the Company had operating leases for ground, office, equipment and airspace leases with maturity dates ranging from 2024 through 2097, excluding renewal options. Including renewal options available to the Company, the lease maturity date extends to 2147.

Operating leases were included on the Company’s consolidated balance sheets as follows (in thousands):

	September 30,			December 31,
	2022			2021
	(unaudited)
Right-of-use assets, net	$	17,866		$	23,161
Accounts payable and accrued expenses	$	5,678		$	5,586
Lease obligations, less current portion		18,349			25,120
Total lease obligations	$	24,027		$	30,706
Weighted average remaining lease term		33 years
Weighted average discount rate		5.0	%

As of December 31, 2021, the Company had an operating lease related to certain office and parking space at the Hilton Garden Inn Chicago Downtown/Magnificent Mile. Upon the hotel’s sale in March 2022 (see Note 4), the Company was no longer obligated under the operating lease and the related $2.3 million right-of-use asset, net and $2.6 million lease obligation were removed from the Company’s consolidated balance sheet.

As of December 31, 2021, the Company also had a finance lease related to the building occupied by the Hyatt Centric Chicago Magnificent Mile. The related lease obligation and right-of-use asset, net were classified as held for sale on the accompanying consolidated balance sheet as of December 31, 2021. Upon the hotel’s sale in February 2022 (see Note 4), the Company was no longer

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obligated under the building lease and the related $44.7 million right-of-use asset, net and $15.6 million finance lease obligation were removed from the Company’s consolidated balance sheet.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Finance lease cost (1):
Amortization of right-of-use asset	$	—	$	368	$	—	$	1,103
Interest on lease obligation		—		351		117		1,053
Operating lease cost		1,325		1,382		4,041		4,068
Variable lease cost (2)		2,241		—		5,100		13
Total lease cost	$	3,566	$	2,101	$	9,258	$	6,237

(1) Finance lease cost for the nine months ended September 30, 2022 and the three and nine months ended September 30, 2021 included expenses for the Hyatt Centric Chicago Magnificent Mile’s finance lease obligation before the hotel’s sale in February 2022 (see Note 4).

(2) Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds.

10. Stockholders’ Equity

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 Cumulative Redeemable Preferred Stock (“Series G preferred stock”) to the hotel’s seller as partial payment of the hotel. The Series G preferred stock, which is callable at its $25.00 redemption price plus accrued and unpaid dividends by the Company at any time, accrues dividends at an initial rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s investment in the resort. The annual dividend rate is expected to increase in 2023 to the greater of 3.0% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. The Series G preferred stock is not convertible into any other security.

Series H Cumulative Redeemable Preferred Stock

In May 2021, the Company issued 4,600,000 shares of its 6.125% Series H Cumulative Redeemable Preferred Stock (“Series H preferred stock”) with a liquidation preference of $25.00. On or after May 24, 2026, the Series H preferred stock will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series H preferred stock, the Company may at its option redeem the Series H preferred stock for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. If the Company chooses not to redeem the Series H preferred stock upon the occurrence of a change of control, holders of the Series H preferred stock may convert their preferred shares into shares of the Company’s common stock.

Series I Cumulative Redeemable Preferred Stock

In July 2021, the Company issued 4,000,000 shares of its 5.70% Series I Cumulative Redeemable Preferred Stock (“Series I preferred stock”) with a liquidation preference of $25.00. On or after July 16, 2026, the Series I preferred stock will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series I preferred stock, the Company may at its option redeem the Series I preferred stock for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. If the Company chooses not to redeem the Series I preferred stock upon the occurrence of a change of control, holders of the Series I preferred stock may convert their preferred shares into shares of the Company’s common stock.

Common Stock

Stock Repurchase Program. In February 2021, the Company’s board of directors reauthorized the Company’s existing stock repurchase program, allowing the Company to acquire up to $500.0 million of the Company’s common and preferred stock. The stock repurchase program has no stated expiration date. During the third quarter and first nine months of 2022, the Company repurchased

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880,577 shares and 7,995,560 shares of its common stock, respectively, for $8.7 million and $86.6 million, respectively, including fees and commissions, leaving $413.5 million remaining for repurchase under the program. Future repurchases will depend on various factors, including the Company’s capital needs and restrictions under its various financing agreements, as well as the price of the Company’s common and preferred stock.

ATM Agreements. In February 2017, the Company entered into separate “At the Market” Agreements (the “ATM Agreements”) with each of BofA Securities, Inc., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC. 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 February 2022, the Company’s board of directors reauthorized the $300.0 million ATM Agreements, or new similar agreements. No common stock was issued under the ATM Agreements during the first nine months of 2022, leaving $300.0 million available for sale.

11. Long-Term Incentive Plan

The Company’s Long-Term Incentive Plan (“LTIP”) provides for granting awards to directors, officers and eligible employees. The awards may be in the form of incentive or nonqualified stock options, restricted shares or units, performance shares or units, share appreciation rights, or any combination thereof. As of September 30, 2022, the Company’s issued and outstanding awards consist of both time-based and performance-based restricted stock grants. Time-based restricted shares generally vest over periods ranging from three years to five years from the date of grant. Performance-based restricted shares generally vest based on the Company’s total relative shareholder return and achievement of pre-determined stock price targets during performance periods ranging from two years to five years.

Should a stock grant be forfeited prior to its vesting, the shares covered by the stock grant are added back to the LTIP and remain available for future issuance. Shares of common stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligations upon the vesting of a stock grant are not added back to the LTIP.

Compensation expense related to awards of restricted shares are measured at fair value on the date of grant and amortized over the relevant requisite service period or derived service period. The Company has elected to account for forfeitures as they occur.

The Company’s amortization expense, including forfeitures related to restricted shares was as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Amortization expense, including forfeitures	$	2,230	$	3,165	$	8,661	$	10,576
Capitalized compensation cost (1)	$	120	$	124	$	361	$	366

(1) The Company capitalizes compensation costs related to restricted shares granted to certain employees whose work is directly related to the Company’s capital investment in its hotels.

12. Commitments and Contingencies

Management Agreements

Management agreements with the Company’s third-party hotel managers currently require the Company to pay between 2.0% and 3.0% of total revenue of the managed hotels to the third-party managers each month as a basic management fee. In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers.

Total basic and incentive management fees were included in other property-level expenses on the Company’s consolidated statements of operations as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic management fees	$	6,695	$	4,391	$	18,310	$	8,767
Incentive management fees		736		687		5,361		687
Total basic and incentive management fees	$	7,431	$	5,078	$	23,671	$	9,454

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License and Franchise Agreements

The Company has entered into license and franchise agreements related to certain of its hotels. The license and franchise agreements require the Company to, among other things, pay monthly fees that are calculated based on specified percentages of certain revenues. The license and franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with such standards may from time to time require the Company to make significant expenditures for capital improvements.

Total license and franchise fees were included in franchise costs on the Company’s consolidated statements of operations as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Franchise assessments (1)	$	3,877	$	3,241	$	10,564	$	5,961
Franchise royalties (2)		268		940		865		1,507
Total franchise costs	$	4,145	$	4,181	$	11,429	$	7,468

(1) Includes advertising, reservation and frequent guest program assessments.

(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 September 30, 2022, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotel properties. The remaining commitments under these contracts at September 30, 2022 totaled $66.7 million.

Concentration of Risk

The concentration of the Company’s hotels in California, Florida, Hawaii and Massachusetts exposes the Company’s business to economic and severe weather conditions, competition and real and personal property tax rates unique to these locales.

As of September 30, 2022, 11 of the 15 Hotels were geographically concentrated as follows (unaudited):

				Trailing 12-Month
		Percentage of		Total Consolidated
	Number of Hotels	Total Rooms		Revenue
California	5	34	%	39	%
Florida	3	17	%	14	%
Hawaii	1	7	%	19	%
Massachusetts	2	19	%	16	%

Hurricanes Ida and Ian

During the third quarter of 2021, the Company’s two New Orleans hotels were impacted to varying degrees by Hurricane Ida. While both hotels remained open during the storm, they sustained wind-driven damage, rain infiltration and water damage. The Company maintains customary property, casualty, environmental, flood and business interruption insurance at all of its hotels, the coverage of which is subject to certain limitations including higher deductibles in the event of a named storm. The Company is working with its insurers to identify and settle a property damage claim and a business interruption claim at the Hilton New Orleans St. Charles for portions of the costs related to Hurricane Ida. The Company has concluded that the cost to restore damages at the JW Marriott New Orleans will not exceed the hotel’s deductible.

During the first nine months of 2022, the Company incurred Hurricane Ida-related restoration expenses of $1.5 million and $0.1 million at the Hilton New Orleans St. Charles and the JW Marriott New Orleans, respectively, with only a nominal amount incurred at the Hilton New Orleans St. Charles during the third quarter of 2022. During the three and nine months ended September 30, 2021, the Company incurred Hurricane Ida-related restoration expenses of $1.2 million and $0.4 million at the Hilton New Orleans St. Charles

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and the JW Marriott New Orleans, respectively. All restoration expenses are included in repairs and maintenance expense in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021. Through September 30, 2022, the Company has incurred total Hurricane Ida-related restoration expenses of $4.5 million at the Hilton New Orleans St. Charles and $1.4 million at the JW Marriott New Orleans. In addition, in the third quarter of 2021, the Company wrote-off $1.0 million in assets at the Hilton New Orleans St. Charles due to Hurricane Ida-related damage, which is included in impairment losses in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2021. Though the property damage claim has not been finalized, the Company recognized an advance payment of $4.4 million from its insurers in the first nine months of 2022 for Hurricane Ida-related property damage expenses previously incurred, which is included in interest and other income (loss) on the accompanying consolidated statement of operations for the nine months ended September 30, 2022. During the first nine months of 2022, the Company also recognized an advance payment of $1.0 million from its insurers related to its ongoing business interruption claim at the Hilton New Orleans St. Charles, which is included in other operating revenue on the accompanying consolidated statement of operations for the nine months ended September 30, 2022.

In late September 2022, two of the Company’s Florida hotels, the Oceans Edge Resort & Marina and the Renaissance Orlando at SeaWorld® were immaterially impacted by Hurricane Ian. The Company expects to incur approximately $0.6 million in Hurricane Ian-related restoration expenses at the two Florida hotels in the fourth quarter of 2022, and anticipates that the costs to restore the damages will not exceed either of the hotel’s property insurance deductible.

The Company may incur additional expenses related to Hurricane Ida and Hurricane Ian at the New Orleans and Florida hotels in the future. Any additional expenses will be recognized as incurred, and any additional property damage or business interruption recoveries will not be recognized until final settlements have been reached with the Company’s insurers.

Other

In accordance with the assignment-in-lieu agreement executed in December 2020 between the Company and the mortgage holder of the Hilton Times Square, the Company was required to retain approximately $11.6 million related to certain current and potential employee-related obligations (the “potential obligation”). As of September 30, 2022, $0.9 million of the potential obligation has been paid to the hotel’s employees, including $0.1 million paid during the first nine months of 2022. In addition, the potential obligation is reassessed at the end of every quarter, resulting in nominal gains on extinguishment of debt included on the accompanying consolidated statements of operations for the three and nine months ended September 30, 2022, and gains on extinguishment of debt of $0.1 million and $0.4 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022 and December 31, 2021, restricted cash on the accompanying consolidated balance sheets included $10.3 million and $10.4 million, respectively, which will continue to be held in escrow until the potential obligation is resolved. Other current liabilities on the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021, included the potential obligation balances of $10.3 million and $10.5 million, respectively.

Coterminous with the Company’s acquisition of the Four Seasons Resort Napa Valley in 2021, the Company was required to deposit $3.1 million into a restricted bank account owned by the Company, but to which the hotel’s management company, Four Seasons, has sole and unrestricted access to withdraw funds for the purpose of satisfying any potential employee-related obligations that arise in connection with the termination of hotel personnel and any employment claim by hotel personnel (“severance obligations”). Prior to Four Seasons withdrawing funds from the restricted account, the Company has the option to pay the severance obligations using its cash on hand. Should amounts in the restricted bank account be used to fund the severance obligations, the Company will be required to deposit additional funds into the restricted bank account so that the amount in the account totals any estimated future severance obligations. Currently, the estimated future severance obligations total $3.1 million, which is included in restricted cash on the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021; however, the estimated future severance obligations may increase up to a maximum of $5.0 million.

The Company has provided customary unsecured indemnities to certain lenders, including in particular, environmental indemnities. The Company has performed due diligence on the potential environmental risks, including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate the Company to reimburse the indemnified parties for damages related to certain environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners or a claim against its environmental insurance policies.

At September 30, 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. 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 September 30, 2022. The letters of credit are collateralized with $0.2 million held in a restricted bank account owned by the Company, which is included in restricted cash on the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021.

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The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of its hotels, its managers and other Company matters. While it is not possible to ascertain the ultimate outcome of such matters, the Company believes that the aggregate identifiable amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on its financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings, including any potential COVID-19-related litigation, brought against the Company, however, is subject to significant uncertainties.

13. Subsequent Events

Subsequent to the end of the third quarter of 2022 and through the date of issuance of these financial statements, the Company repurchased 1,170,791 shares of its common stock for $11.3 million, including fees and commissions, increasing the year to date amount repurchased to 9,166,351 shares of its common stock for $98.0 million, including fees and commissions, and leaving $402.2 million remaining for repurchase under the program.

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Cautionary Statement

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” or similar expressions. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control, and which could materially affect actual results, performances or achievements. Accordingly, there is no assurance that the Company’s expectations will be realized. In evaluating these statements, you should specifically consider the risks outlined in detail in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2022, under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, including but not limited to the following factors:

● the significant impact COVID-19 and its variants have had, and are expected to continue to have, on our business and the economy, as well as the response of governments to manage and control COVID-19 and its variants and the degree and speed to which traditional transient and group business returns to our hotels;

● increased risks related to employee matters, including increased employment litigation and claims for severance or other benefits tied to termination or furloughs as a result of temporary hotel suspensions or reduced hotel operations due to COVID-19 or its variants;

● general economic and business conditions, including a U.S. recession or increased and ongoing inflation, trade conflicts and tariffs, regional or global economic slowdowns and any type of flu or disease-related pandemic that impacts travel or the ability to travel, including COVID-19 and its variants;

● system security risks, data protection breaches, cyber-attacks and systems integration issues, including those impacting our suppliers, our third-party hotel managers or our franchisors;

● risks associated with the physical effects of climate change, which can include more frequent or severe storms, hurricanes, flooding, droughts and wildfires adversely affecting our hotels;

● the need for business-related transient and group travel, including the increased use of business-related technology;

● rising hotel operating costs due to labor costs, workers’ compensation and health-care related costs, utility costs, property and liability insurance costs, unanticipated costs such as acts of nature and their consequences and other costs that may not be offset by increased room rates;

● the ground lease for one of our hotels;

● the need for renovations, repositionings and other capital expenditures for our hotels;

● the impact, including any delays, of renovations and repositionings on hotel operations;

● new hotel supply, or alternative lodging options such as timeshare, vacation rentals or sharing services such as Airbnb, in our markets, which could harm our occupancy levels and revenue at our hotels;

● competition from hotels not owned by us;

● relationships with, and the requirements, performance and reputation of, the managers of our hotels;

● relationships with, and the requirements and reputation of, our franchisors and hotel brands;

● our hotels may become impaired, which may adversely affect our financial condition and results of operations;

● competition for the acquisition of hotels, and our ability to complete acquisitions and dispositions;

● performance of hotels after they are acquired;

● changes in our business strategy or acquisition or disposition plans;

● our level of debt, including secured, unsecured, fixed and variable rate debt and the corresponding interest expense associated with our debt;

● financial and other covenants on our debt and preferred stock;

● the impact on our business of potential defaults by us on our debt agreements or leases;

● volatility in the capital markets and the effect on lodging demand or our ability to obtain capital on favorable terms or at all;

● our need to operate as a REIT and comply with other applicable laws and regulations, including new laws, interpretations or court decisions that may change the federal or state tax laws or the federal or state income tax consequences of our qualification as a REIT;

● potential adverse tax consequences in the event that our operating leases with our taxable REIT subsidiaries are not held to have been made on an arm’s-length basis; and

● other events beyond our control, including natural disasters, terrorist attacks or civil unrest.

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These factors may cause our actual events to differ materially from the expectations expressed or implied by any forward-looking statement. Except as otherwise required by federal securities laws, the Company disclaims any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

Overview

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

We own hotels that we consider to be Long-Term Relevant Real Estate® (or LTRR®) in the United States, specifically hotels in urban and resort destination locations that benefit from significant barriers to entry by competitors and diverse economic drivers. As part of our ongoing portfolio management strategy, on an opportunistic basis, we may also sell hotel properties that we believe will not satisfy our long-term return requirements. As of September 30, 2022, we owned 15 hotels, which average 516 rooms in size. All but two of our hotels (the Boston Park Plaza and the Oceans Edge Resort & Marina) are operated under nationally recognized brands. Our two unbranded hotels are located in top urban and resort destination markets that have enabled them to establish awareness with both group and transient customers.

COVID-19 Operational Update

COVID-19 and its variants have had and continue to have a detrimental effect on the hotel industry and our business, including significant room and event cancellations, corporate and government travel restrictions and an unprecedented decline in hotel demand. While operations have gradually improved since the onset of the COVID-19 pandemic in 2020, the Omicron variant in December 2021 led to a slowdown in demand recovery at our hotels. However, demand began to recover again in February 2022 as Omicron-related case counts subsided and travel patterns re-accelerated.

During the first nine months of 2022, corporate transient and group demand accelerated, reducing our reliance on leisure demand, which was the dominant source of business at many of our hotels during 2021. While leisure demand continued to be robust, the greatest demand growth during the second and third quarters of 2022 was at our urban and group-oriented hotels which experienced increased near-term booking activity, higher than expected attendance at group events and increased business transient demand. The amount of corporate business at our hotels continues to grow and we expect business travel to continue to increase as the year progresses. We anticipate that group demand will compose a more meaningful component of our total room nights during the remainder of 2022. However, the negative effects of the COVID-19 pandemic on the hotel industry have been unprecedented, and we continue to have limited visibility to predict future operations.

Year To Date 2022 Overview

Demand. We continue to experience improvements in hotel demand. Occupancy during the first nine months of 2022 and 2021 at the 12 hotels we owned during all reporting periods (the “Existing Portfolio”) was as follows:

	January		February		March		April		May		June		July		August		September
2022	37.9	%	53.6	%	67.9	%	75.7	%	73.4	%	75.1	%	74.7	%	70.1	%	72.7	%
2021	14.0	%	24.5	%	31.7	%	42.0	%	47.3	%	50.7	%	60.7	%	50.6	%	48.3	%

Acquisitions. In June 2022, we purchased the 339-room The Confidante Miami Beach for a contractual purchase price of $232.0 million. Also in June 2022, we purchased the 25.0% noncontrolling partner’s ownership interest in the Hilton San Diego Bayfront for a contractual purchase price of $102.0 million plus 25.0% of closing date working capital and cash and the effective assumption of the 25.0% noncontrolling partner’s share of the existing mortgage loan on the hotel, which was already fully consolidated in our financial

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statements. We paid a preliminary purchase price of $101.3 million on the closing date based on estimated working capital and cash amounts, with actual amounts to be determined in the fourth quarter of 2022. Following this acquisition, we own 100% of the Hilton San Diego Bayfront.

Dispositions. During the first nine months of 2022, we sold three hotels. In February 2022, we sold the Hyatt Centric Chicago Magnificent Mile for gross proceeds of $67.5 million, excluding closing costs, and recorded a gain of $11.3 million. In March 2022, we sold the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile for combined gross proceeds of $129.5 million, excluding closing costs, and recorded a combined gain of $11.6 million.

Significant Renovations. During the first nine months of 2022, our significant renovations primarily consisted of additional progress on the renovation of the Renaissance Washington DC in preparation for its conversion to the Westin brand in 2023, and the completion of the room renovation at the Hyatt Regency San Francisco.

Debt Transactions. In February 2022, we used a portion of the proceeds received from the disposition of the Hyatt Centric Chicago Magnificent Mile to repay $25.0 million of our unsecured Series A Senior Notes and $10.0 million of our unsecured Series B Senior Notes, resulting in remaining balances of $65.0 million and $105.0 million, respectively, as of September 30, 2022.

In March 2022, we elected to early terminate the covenant relief period related to our unsecured debt, having satisfied the financial covenants stipulated in the 2020 and 2021 amendments to our unsecured debt agreements (the “Unsecured Debt Amendments”) for the quarter ended December 31, 2021. The Unsecured Debt Amendments were scheduled to provide covenant relief through the end of the third quarter of 2022, with quarterly testing resuming for the period ending September 30, 2022. Following our early termination of the covenant relief period in March 2022, the original financial covenants on our unsecured debt agreements were to be phased-in over the following five quarters to ease compliance. By exiting the covenant relief period, we are no longer subject to additional restrictions on debt issuance and repayment, capital investment, share repurchases and dividend distributions.

In June 2022, we drew a total of $230.0 million under the revolving portion of our credit facility to fund the acquisitions of The Confidante Miami Beach and the noncontrolling partner’s 25.0% interest in the Hilton San Diego Bayfront.

In July 2022, we entered into a Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”) which expanded our unsecured borrowing capacity and extended the maturity of our two unsecured term loans. The Amended Credit Agreement increased the balances of both Term Loan 1 and Term Loan 2 to $175.0 million each from $19.4 million and $88.9 million, respectively. In addition, the maturity dates were extended to July 2027 and January 2028 for Term Loan 1 and Term Loan 2, respectively. Under the Amended Credit Agreement, the term loans bear interest pursuant to a leverage-based pricing grid ranging from 135 basis points to 220 basis points over the applicable adjusted term SOFR.

In July 2022, we utilized the proceeds received from the incremental borrowing on the term loans to fully repay the $230.0 million that was outstanding on our revolving credit facility. The Amended Credit Agreement continues to provide for a $500.0 million revolving credit facility, with two six-month extension options, which would result in an extended maturity of July 2027. Under the Amended Credit Agreement, the revolving credit facility bears interest pursuant to a leverage-based pricing grid ranging from 140 basis points to 225 basis points over the applicable adjusted term SOFR. As of September 30, 2022, we had no amount outstanding on our credit facility, with $500.0 million of capacity available for borrowing under the facility.

Capital Transactions. During the third quarter and first nine months of 2022, we repurchased 880,577 shares and 7,995,560 shares of our common stock, respectively, under our stock repurchase program at average purchase prices of $9.82 per share and $10.82 per share, respectively. As of September 30, 2022, approximately $413.5 million of authorized capacity remains under our stock repurchase program.

Operating Activities

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

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

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

● Other operating revenue, which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone/internet, parking, spa, facility and resort fees, entertainment and other guest services. Additionally, this category

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includes, among other things, attrition and cancellation revenue, tenant revenue derived from hotel space and marina slips leased by third parties, winery revenue, any business interruption proceeds and any performance guarantee or reimbursements to offset net losses.

Expenses. Our expenses consist of the following:

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

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

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

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

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

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

● Depreciation and amortization expense, which includes depreciation on our hotel buildings, improvements, furniture, fixtures and equipment (“FF&E”), along with amortization on our finance lease right-of-use asset (prior to the related hotel’s sale in February 2022), franchise fees and certain intangibles. Additionally, this category includes depreciation and amortization related to FF&E for our corporate office.

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

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

● Interest expense, which includes interest expense incurred on our outstanding fixed and variable rate debt and finance lease obligation (prior to the related hotel’s sale in February 2022), gains or losses on interest rate derivatives, amortization of deferred financing costs, and any loan or waiver fees incurred on our debt;

● Gain on sale of assets, which includes the gains we recognized on our hotel sales that do not qualify as discontinued operations;

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

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

● (Income) loss from consolidated joint venture attributable to noncontrolling interest, which includes the net (income) loss attributable 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; and

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● Preferred stock dividends and redemption charges, which includes dividends accrued on our Series E Cumulative Redeemable Preferred Stock (“Series E preferred stock”) and Series F Cumulative Redeemable Preferred Stock (“Series F preferred stock”) until their redemptions in June 2021 and August 2021, respectively, as well as dividends accrued on our Series G Cumulative Redeemable Preferred Stock (“Series G preferred stock”), Series H Cumulative Redeemable Preferred Stock (“Series H preferred stock”) and Series I Cumulative Redeemable Preferred Stock (“Series I preferred stock”), along with any redemption charges on preferred stock redemptions made in excess of net carrying values.

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

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

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

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

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

● EBITDAre, which is net income (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 EBITDAre 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 EBITDAre 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 has been 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; prior year property tax assessments or credits; the write-off of development costs associated with abandoned projects; 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 derivative 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; prior year property tax assessments or credits; 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. The primary factors affecting our operating results include overall demand for hotel rooms, the pace of new hotel development, or supply, and the relative performance of our operators in increasing revenue and controlling hotel operating expenses.

● Demand. The demand for lodging has traditionally been closely linked with the performance of the general economy. Our hotels are classified as either upper upscale or luxury hotels. In an economic downturn, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates in part because

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they generally target business and high-end leisure travelers. In periods of economic difficulty, including those caused by global pandemics and inflation, business and leisure travelers may reduce costs by limiting travel or by using lower cost accommodations. In addition, operating results in key gateway markets may be negatively affected by reduced demand from international travelers due to pandemic-related travel restrictions, financial conditions in their home countries or a material strengthening of the U.S. dollar in relation to other currencies. Also, volatility in transportation fuel costs, increases in air and ground travel costs and decreases in airline capacity may reduce the demand for our hotel rooms.

● Supply. The addition of new competitive hotels affects the ability of existing hotels to absorb demand for lodging and, therefore, impacts the ability to generate growth in RevPAR and profits. The development of new hotels is largely driven by construction costs and expected performance of existing hotels. Prior to the COVID-19 pandemic, U.S. hotel supply continued to increase. On a market-by-market basis, some markets experienced new hotel room openings at or greater than historic levels, including in Boston, Orlando and Portland. Additionally, an increase in the supply of vacation rental or sharing services such as Airbnb also affects the ability of existing hotels to generate growth in RevPAR and profits. We believe that both new full-service hotel construction and new hotel openings will be delayed in the near-term due to several factors, including COVID-19’s effect on the economy, increased borrowing costs and an increase in materials and construction costs.

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

Operating Results. The following table presents our unaudited operating results for our total portfolio for the three months ended September 30, 2022 and 2021, including the amount and percentage change in the results between the two periods.

	Three Months Ended September 30,
	2022		2021		Change $		Change %
	(in thousands, except statistical data)
REVENUES
Room	$	158,400	$	118,061	$	40,339	34.2	%
Food and beverage		63,476		27,338		36,138	132.2	%
Other operating		22,438		22,022		416	1.9	%
Total revenues		244,314		167,421		76,893	45.9	%
OPERATING EXPENSES
Hotel operating		145,686		110,946		34,740	31.3	%
Other property-level expenses		29,032		21,633		7,399	34.2	%
Corporate overhead		7,879		15,422		(7,543)	(48.9)	%
Depreciation and amortization		31,750		32,585		(835)	(2.6)	%
Impairment loss		—		1,014		(1,014)	(100.0)	%
Total operating expenses		214,347		181,600		32,747	18.0	%
Interest and other income		270		2		268	13,400.0	%
Interest expense		(9,269)		(7,983)		(1,286)	(16.1)	%
(Loss) gain on extinguishment of debt, net		(770)		61		(831)	(1,362.3)	%
Income (loss) before income taxes		20,198		(22,099)		42,297	191.4	%
Income tax benefit (provision), net		290		(25)		315	1,260.0	%
NET INCOME (LOSS)		20,488		(22,124)		42,612	192.6	%
Income from consolidated joint venture attributable to noncontrolling interest		—		(933)		933	100.0	%
Preferred stock dividends and redemption charge		(3,351)		(6,287)		2,936	46.7	%
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	17,137	$	(29,344)	$	46,481	158.4	%

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The following table presents our unaudited operating results for our total portfolio for the nine months ended September 30, 2022 and 2021, including the amount and percentage change in the results between the two periods.

	Nine Months Ended September 30,
	2022		2021		Change $		Change %
	(in thousands, except statistical data)
REVENUES
Room	$	428,893	$	236,877	$	192,016	81.1	%
Food and beverage		174,717		47,547		127,170	267.5	%
Other operating		64,299		50,840		13,459	26.5	%
Total revenues		667,909		335,264		332,645	99.2	%
OPERATING EXPENSES
Hotel operating		396,548		239,479		157,069	65.6	%
Other property-level expenses		83,333		48,177		35,156	73.0	%
Corporate overhead		27,310		32,066		(4,756)	(14.8)	%
Depreciation and amortization		94,003		96,084		(2,081)	(2.2)	%
Impairment loss		—		1,014		(1,014)	(100.0)	%
Total operating expenses		601,194		416,820		184,374	44.2	%
Interest and other income (loss)		4,766		(356)		5,122	1,438.8	%
Interest expense		(20,288)		(23,697)		3,409	14.4	%
Gain on sale of assets		22,946		—		22,946	100.0	%
(Loss) gain on extinguishment of debt, net		(962)		371		(1,333)	(359.3)	%
Income (loss) before income taxes		73,177		(105,238)		178,415	169.5	%
Income tax benefit (provision), net		126		(91)		217	238.5	%
NET INCOME (LOSS)		73,303		(105,329)		178,632	169.6	%
(Income) loss from consolidated joint venture attributable to noncontrolling interest		(3,477)		1,638		(5,115)	(312.3)	%
Preferred stock dividends and redemption charges		(10,897)		(17,289)		6,392	37.0	%
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	58,929	$	(120,980)	$	179,909	148.7	%

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

● COVID-19: Our operations have been and continue to be affected by COVID-19 and its variants. Since our portfolio’s pandemic-induced occupancy low point in April 2020, our hotels have generated RevPAR improvements driven by demand growth and continued rate strength across our portfolio. Consequently, the results of our operations for the third quarter and first nine months of 2022 are not comparable to the same periods in 2021.

● Hotel Acquisitions: In April 2021, December 2021 and June 2022, we purchased the Montage Healdsburg, the Four Seasons Resort Napa Valley and The Confidante Miami Beach (the “Three Recently Acquired Hotels”), respectively, resulting in increased revenues, operating expenses and depreciation expense for the third quarter and first nine months of 2022 as compared to the same periods in 2021.

● Hotel Dispositions: In February 2022, we sold the Hyatt Centric Chicago Magnificent Mile, and in March 2022, we sold both the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile. In addition, in October 2021 and December 2021, we sold the Renaissance Westchester and the Embassy Suites La Jolla, respectively. As a result of these five hotel dispositions (the “Five Disposed Hotels”), our revenues, operating expenses and depreciation expense for the third quarter and first nine months of 2022 are not comparable to the same periods in 2021.

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Room revenue. Room revenue increased $40.3 million, or 34.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 as follows:

● Room revenue at the Existing Portfolio increased $47.0 million. Occupancy increased 1,930 basis points and the average daily room rate increased 11.0%, resulting in a 51.2% increase in RevPAR:

	Three Months Ended September 30,
	2022						2021						Change
	Occ%		ADR		RevPAR		Occ%		ADR		RevPAR		Occ%		ADR		RevPAR
Existing Portfolio	72.5	%	$	290.42	$	210.55	53.2	%	$	261.72	$	139.24	1,930	bps	11.0	%	51.2	%
Three Recently Acquired Hotels	57.2	%	$	656.33	$	375.42	N/A			N/A		N/A	N/A		N/A		N/A

● The Three Recently Acquired Hotels caused room revenue to increase by $9.8 million.

● The dispositions of the Five Disposed Hotels caused room revenue to decrease by $16.5 million.

For the nine months ended September 30, 2022, room revenue increased $192.0 million, or 81.1%, as compared to the nine months ended September 30, 2021 as follows:

● Room revenue at the Existing Portfolio increased $185.4 million. Occupancy increased 2,560 basis points and the average daily room rate increased 20.7%, resulting in a 95.7% increase in RevPAR:

	Nine Months Ended September 30,
	2022						2021						Change
	Occ%		ADR		RevPAR		Occ%		ADR		RevPAR		Occ%		ADR		RevPAR
Existing Portfolio	66.8	%	$	289.10	$	193.12	41.2	%	$	239.52	$	98.68	2,560	bps	20.7	%	95.7	%
Three Recently Acquired Hotels	56.7	%	$	829.25	$	470.18	N/A			N/A		N/A	N/A		N/A		N/A

● The Three Recently Acquired Hotels caused room revenue to increase by $32.1 million.

● The dispositions of the Five Disposed Hotels caused room revenue to decrease by $25.5 million.

Food and beverage revenue. Food and beverage revenue increased $36.1 million, or 132.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 as follows:

● Food and beverage revenue at the Existing Portfolio increased $32.7 million.

● The Three Recently Acquired Hotels caused food and beverage revenue to increase by $4.6 million.

● The dispositions of the Five Disposed Hotels caused food and beverage revenue to decrease by $1.2 million.

For the nine months ended September 30, 2022, food and beverage revenue increased $127.2 million, or 267.5%, as compared to the nine months ended September 30, 2021 as follows:

● Food and beverage revenue at the Existing Portfolio increased $111.4 million.

● The Three Recently Acquired Hotels caused food and beverage revenue to increase by $17.2 million.

● The dispositions of the Five Disposed Hotels caused food and beverage revenue to decrease by $1.4 million.

Other operating revenue. Other operating revenue increased $0.4 million, or 1.9%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 as follows:

● Other operating revenue at the Existing Portfolio decreased $0.2 million as a $1.7 million decrease in the reimbursement amount to offset net losses at the Hyatt Regency San Francisco was mostly offset by increased internet, parking, retail, facility and resort fees, spa, marina, tenant rent and contract commissions. During the third quarter of 2021, we recognized a $1.7 million reimbursement to offset net losses at the Hyatt Regency San Francisco as stipulated by the hotel’s operating lease agreement, with no corresponding reimbursement recognized in the third quarter of 2022.

● The Three Recently Acquired Hotels caused other operating revenue to increase by $2.5 million.

● The dispositions of the Five Disposed Hotels caused other operating revenue to decrease by $1.9 million.

For the nine months ended September 30, 2022, other operating revenue increased $13.5 million, or 26.5%, as compared to the nine months ended September 30, 2021 as follows:

● Other operating revenue at the Existing Portfolio increased $10.6 million, which includes $1.0 million in business interruption proceeds recognized in the first quarter of 2022 at the Hilton New Orleans St. Charles related to Hurricane Ida disruption in 2021. In addition, other operating revenue at the Existing Portfolio increased due to increases in internet, parking, retail, facility and resort fees, spa, marina, cancellation fees, tenant rent and contract commissions.

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These increases were partially offset by an $8.8 million reimbursement recognized in the first nine months of 2021 to offset net losses at the Hyatt Regency San Francisco as stipulated by the hotel’s operating lease agreement, with no corresponding reimbursement recognized in the first nine months of 2022.

● The Three Recently Acquired Hotels caused other operating revenue to increase by $6.2 million.

● The dispositions of the Five Disposed Hotels caused other operating revenue to decrease by $3.3 million.

Hotel operating expenses. Hotel operating expenses, which are comprised of room, food and beverage, advertising and promotion, repairs and maintenance, utilities, franchise costs, property tax, ground lease and insurance and other hotel operating expenses increased $34.7 million, or 31.3%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 as follows:

● Hotel operating expenses at the Existing Portfolio increased $37.0 million, primarily corresponding to the increases in the Existing Portfolio’s revenues and occupancy rates, along with increased property and liability insurance. In addition, utility expenses at the Existing Portfolio increased due to increases in the cost of natural gas. These increased expenses were partially offset by decreased Hurricane Ida-related restoration expenses. During the third quarter of 2021, we recognized $1.6 million in Hurricane Ida-related restoration expenses at our New Orleans hotels, with nominal corresponding expense recognized in the third quarter of 2022.

● The Three Recently Acquired Hotels caused hotel operating expenses to increase by $14.4 million.

● The dispositions of the Five Disposed Hotels caused hotel operating expenses to decrease by $16.7 million.

For the nine months ended September 30, 2022, hotel operating expenses increased $157.1 million, or 65.6%, as compared to the nine months ended September 30, 2021 as follows:

● Hotel operating expenses at the Existing Portfolio increased $144.4 million, primarily corresponding to the increases in the Existing Portfolio’s revenues and occupancy rates, along with increased property and liability insurance and property taxes. In addition, utility expenses at the Existing Portfolio increased due to increases in the cost of natural gas. Hurricane Ida-related restoration expenses recognized by our New Orleans hotels totaled $1.6 million in both the first nine months of 2022 and 2021. While our hotels were not significantly impacted by Hurricane Ian in late September 2022, we expect to incur approximately $0.6 million in related restoration expenses at two of our Florida hotels in the fourth quarter of 2022, which will not exceed the hotels’ property insurance deductibles.

● The Three Recently Acquired Hotels caused hotel operating expenses to increase by $42.9 million.

● The dispositions of the Five Disposed Hotels caused hotel operating expenses to decrease by $30.2 million.

Other property-level expenses. Other property-level expenses increased $7.4 million, or 34.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 as follows:

● Other property-level expenses at the Existing Portfolio increased $6.9 million, including a $2.3 million increase in management fees related to the increases in the Existing Portfolio’s revenues. Additional increases to other property-level expenses at the Existing Portfolio included payroll and related expenses, credit card commissions, employee recruiting and training expenses, dues and subscriptions, travel expenses and supply expenses, partially offset by decreased contract and professional fees.

● The Three Recently Acquired Hotels caused other property-level expenses to increase by $2.8 million.

● The dispositions of the Five Disposed Hotels caused other property-level expenses to decrease by $2.3 million.

For the nine months ended September 30, 2022, other property-level expenses increased $35.2 million, or 73.0%, as compared to the nine months ended September 30, 2021 as follows:

● Other property-level expenses at the Existing Portfolio increased $30.9 million, including a $13.6 million increase in management fees related to the increases in the Existing Portfolio’s revenues. Additional increases to other property-level expenses at the Existing Portfolio included payroll and related expenses, credit card commissions, employee recruiting and training expenses, dues and subscriptions, contract and professional fees, travel expenses and supply expenses.

● The Three Recently Acquired Hotels caused other property-level expenses to increase by $9.1 million.

● The dispositions of the Five Disposed Hotels caused other property-level expenses to decrease by $4.8 million.

Corporate overhead expense. Corporate overhead expense decreased $7.5 million, or 48.9%, during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 primarily due to decreased payroll expenses, deferred stock amortization expense and board of director expenses related to chief executive officer transition costs recognized in September 2021. These decreased expenses were partially offset by increased due diligence expenses and professional fees.

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For the nine months ended September 30, 2022, corporate overhead expense decreased $4.8 million, or 14.8%, as compared to the nine months ended September 30, 2021, due to decreased payroll expenses, deferred stock amortization expense and board of director expenses related to chief executive officer transition costs recognized in September 2021. In addition, deferred stock amortization expense decreased due to the second quarter 2021 retirement of our former chief operating officer. These decreased expenses were partially offset by increased due diligence expenses, professional fees and travel expenses.

Depreciation and amortization expense. Depreciation and amortization expense decreased $0.8 million, or 2.6%, during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 as follows:

● Depreciation and amortization expense related to the Existing Portfolio increased $0.1 million due to increased depreciation and amortization at our newly renovated hotels, partially offset by decreased expense due to fully depreciated assets.

● The Three Recently Acquired Hotels caused depreciation and amortization to increase by $2.7 million.

● The dispositions of the Five Disposed Hotels resulted in a decrease in depreciation and amortization of $3.6 million.

For the nine months ended September 30, 2022, depreciation and amortization expense decreased $2.1 million, or 2.2%, as compared to the nine months ended September 30, 2021 as follows:

● Depreciation and amortization expense related to the Existing Portfolio increased $0.1 million primarily due to the same reasons noted above in the discussion regarding the third quarter.

● The Three Recently Acquired Hotels caused depreciation and amortization to increase by $8.1 million.

● The dispositions of the Five Disposed Hotels resulted in a decrease in depreciation and amortization of $10.2 million.

Impairment loss. Impairment loss totaled zero for both the three and nine months ended September 30, 2022, and $1.0 million for both the three and nine months ended September 30, 2021. In September 2021, we recorded an impairment loss of $1.0 million on the Hilton New Orleans St. Charles due to Hurricane Ida-related damage to the hotel.

Interest and other income (loss). Interest and other income (loss) for the three months ended September 30, 2022 totaled income of $0.3 million as compared to $2,000 for the three months ended September 30, 2021. During the three months ended September 30, 2022 and 2021, we recognized interest income of $0.3 million and $2,000, respectively. Interest income increased in the third quarter of 2022 as compared to the same period in 2021 due to higher interest rates.

Interest and other income (loss) for the nine months ended September 30, 2022 totaled income of $4.8 million as compared to a loss of $0.4 million for the nine months ended September 30, 2021. During the first nine months of 2022, we recognized $4.4 million in insurance proceeds for Hurricane Ida-related property damage at our New Orleans hotels and $0.4 million in interest income. During the first nine months of 2021, we accrued a post-closing contingency of $0.4 million to the current owner of a hotel we sold in 2018, which was slightly offset by the recognition of a nominal amount of interest income. As noted above, interest income increased during the first nine months of 2022 as compared to the same period in 2021 due to higher interest rates.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest expense on debt and finance lease obligation	$	8,719	$	7,864	$	21,252	$	23,684
Noncash interest on derivatives, net		(39)		(616)		(2,904)		(2,194)
Amortization of deferred financing costs		589		735		1,940		2,207
Total interest expense	$	9,269	$	7,983	$	20,288	$	23,697

Interest expense increased $1.3 million, or 16.1%, during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, and decreased $3.4 million, or 14.4%, during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 as follows:

Interest expense on our debt and finance lease obligation increased $0.9 million in the third quarter of 2022 as compared to the same period in 2021 primarily due to the additional amounts borrowed under our term loans in July 2022, as well as increased interest on our variable rate debt. These increases were partially offset by decreased interest due to the assignment of the loan secured by the Embassy Suites La Jolla to the hotel’s buyer in December 2021. In addition, interest expense on our finance lease obligation decreased due to our sale of the Hyatt Centric Chicago Magnificent Mile in February 2022.

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Interest expense on our debt and finance lease obligation decreased $2.4 million in the first nine months of 2022 as compared to the same period in 2021 primarily due to our 2022 and 2021 debt transactions, including our partial repayments of the senior notes and term loans in February 2022 and December 2021, respectively, and the assignment of the loan secured by the Embassy Suites La Jolla to the hotel’s buyer in December 2021. In addition, interest expense on our finance lease obligation decreased due to our sale of the Hyatt Centric Chicago Magnificent Mile in February 2022. These decreases were partially offset by increased interest due to our second quarter 2022 draws on our credit facility and the additional amounts borrowed under our term loans in July 2022, as well as increased interest on our variable rate debt.

Noncash changes in the fair market value of our derivatives caused interest expense to increase $0.6 million and to decrease $0.7 million in the third quarter and first nine months of 2022, respectively, as compared to the same periods in 2021.

The amortization of deferred financing costs caused interest expense to decrease $0.1 million and $0.3 million in the third quarter and first nine months of 2022, respectively, as compared to the same periods in 2021.

Our weighted average interest rate per annum, including our variable rate debt obligation, was approximately 4.4% and 3.8% at September 30, 2022 and 2021, respectively. Approximately 42.4% and 70.5% of our outstanding notes payable had fixed interest rates at September 30, 2022 and 2021, respectively.

Gain on sale of assets. Gain on sale of assets totaled zero and $22.9 million for the three and nine months ended September 30, 2022, respectively, and zero for both the three and nine months ended September 30, 2021. In the first nine months of 2022, we recognized an $11.3 million gain on the sale of the Hyatt Centric Chicago Magnificent Mile and an $11.6 million gain on the combined sale of the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile.

(Loss) gain on extinguishment of debt, net. (Loss) gain on extinguishment of debt, net totaled a loss of $0.8 million and a gain of $0.1 million for the three months ended September 30, 2022 and 2021, respectively. During the third quarter of 2022, we recognized a loss of $0.8 million related to lender fees and the write-off of deferred financing costs associated with our July 2022 Amended Credit Agreement. During the third quarter of 2021, we recognized a gain of $0.1 million associated with the assignment of the Hilton Times Square to the hotel’s mortgage holder due to reassessments of the potential employee-related obligations currently held in escrow.

(Loss) gain on extinguishment of debt, net for the nine months ended September 30, 2022 totaled a loss of $1.0 million as compared to a gain of $0.4 million for the nine months ended September 30, 2021. During the first nine months of 2022, we recognized a loss of $1.0 million related to lender fees and the write-off of deferred financing costs associated with our July 2022 Amended Credit Agreement and the February 2022 repayments of a portion of our senior notes. During the first nine months of 2022 and 2021, we recognized a nominal gain and $0.4 million, respectively, associated with the assignment of the Hilton Times Square to the hotel’s mortgage holder due to reassessments of the potential employee-related obligations currently held in escrow.

Income tax benefit (provision), net. We lease our hotels to the TRS Lessee and its subsidiaries, which are subject to federal and state income taxes. In addition, we and the Operating Partnership may also be subject to various state and local income taxes.

During the three and nine months ended September 30, 2022, we recognized net current income tax benefits of $0.3 million and $0.1 million, respectively. In September 2022, we recognized a state tax credit of $0.4 million associated with solar improvements at the Wailea Beach Resort. This credit was partially offset by $0.1 million in current state income tax expense. During the first nine months of September 2022, the Wailea Beach Resort solar state tax credit of $0.4 million was partially offset by $0.3 million in current state income tax expense.

During the three and nine months ended September 30, 2021, we recognized net current income tax provisions of $25,000 and $0.1 million, respectively, resulting from current state income tax expense.

(Income) loss from consolidated joint venture attributable to noncontrolling interest. (Income) loss from consolidated joint venture attributable to noncontrolling interest, which represents the outside 25.0% interest in the entity that owned the Hilton San Diego Bayfront, totaled zero and income of $3.5 million for the three and nine months ended September 30, 2022, respectively, and income of $0.9 million and a loss of $1.6 million for the three and nine months ended September 30, 2021, respectively.

In June 2022, we acquired the outside 25.0% interest in the entity that owns the Hilton San Diego Bayfront, resulting in our owning 100% of the hotel.

Preferred stock dividends and redemption charges. Preferred stock dividends and redemption charges decreased $2.9 million, or 46.7%, during the three months ended September 30, 2022 as compared to the same period in 2021, and $6.4 million, or 37.0%, during the nine months ended September 30, 2022 as compared to the same period in 2021 due to the redemptions of our Series E

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preferred stock and Series F preferred stock, partially offset by the issuances of our Series G preferred stock, Series H preferred stock and Series I preferred stock.

Preferred stock dividends and redemption charges were incurred as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021			2022		2021
Series E preferred stock	$	—	$	—		$	—	$	7,568	(1)
Series F preferred stock		—		3,175	(1)		—		5,593	(1)
Series G preferred stock		165		164			1,339		456
Series H preferred stock		1,761		1,761			5,283		2,485
Series I preferred stock		1,425		1,187			4,275		1,187
Total preferred stock dividends and redemption charges	$	3,351	$	6,287		$	10,897	$	17,289

(1) Includes redemption charges of $4.0 million and $2.6 million related to the original issuance costs of the Series E preferred stock and the Series F preferred stock, respectively, which were previously included in additional paid in capital.

Non-GAAP Financial Measures. We use the following “non-GAAP financial measures” that we believe are useful to investors as key supplemental measures of our operating performance: EBITDAre; Adjusted EBITDAre, excluding noncontrolling interest; FFO attributable to common stockholders; and Adjusted FFO attributable to common stockholders. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. In addition, our calculation of these measures may not be comparable to other companies that do not define such terms exactly the same as the Company. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to net income (loss), cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

We present EBITDAre in accordance with guidelines established by the National Association of Real Estate Investment Trusts (“NAREIT”), as defined in its September 2017 white paper “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate.” We believe EBITDAre is a useful performance measure to help investors evaluate and compare the results of our operations from period to period in comparison to our peers. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) plus interest expense, income tax expense, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change in control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates.

We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful information to investors regarding our operating performance, and that the presentation of Adjusted EBITDAre, 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. In addition, we use both EBITDAre and Adjusted EBITDAre, excluding noncontrolling interest as measures in determining the value of hotel acquisitions and dispositions. We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre, 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. We exclude the noncash amortization of contract intangibles because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.

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

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● Finance lease obligation interest – cash ground rent: we include an adjustment for the cash finance lease expense recorded on the building lease at the Hyatt Centric Chicago Magnificent Mile (prior to the hotel’s sale in February 2022). We determined that the building lease is a finance lease, and, therefore, we include a portion of the lease payment each month in interest expense. We adjust EBITDAre for the finance lease in order to more accurately reflect the actual rent due to the hotel’s lessor in the current period, as well as the operating performance of the hotel.

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

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

● Acquisition costs: under GAAP, costs associated with acquisitions that meet the definition of a business are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company or our hotels.

● Noncontrolling interest: we exclude the noncontrolling partner’s pro rata share of the net (income) loss allocated to the Hilton San Diego Bayfront partnership prior to our acquisition of the noncontrolling partner’s interest in June 2022, as well as the noncontrolling partner’s pro rata share of any EBITDAre and Adjusted EBITDAre components.

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

● Other adjustments: we exclude other adjustments that we believe are outside the ordinary course of business because we do not believe these costs reflect our actual performance for the period and/or the ongoing operations of our hotels. Such items may include: lawsuit settlement costs; prior year property tax assessments or credits; the write-off of development costs associated with abandoned projects; property-level restructuring, severance and management transition costs; debt resolution costs; lease terminations; property insurance restoration proceeds or uninsured losses; and other nonrecurring identified adjustments.

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The following table reconciles our unaudited net income (loss) to EBITDAre and Adjusted EBITDAre, excluding noncontrolling interest for our total portfolio for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	20,488	$	(22,124)	$	73,303	$	(105,329)
Operations held for investment:
Depreciation and amortization		31,750		32,585		94,003		96,084
Interest expense		9,269		7,983		20,288		23,697
Income tax (benefit) provision, net		(290)		25		(126)		91
Loss (gain) on sale of assets		—		12		(22,946)		82
Impairment loss		—		1,014		—		1,014
EBITDAre		61,217		19,495		164,522		15,639
Operations held for investment:
Amortization of deferred stock compensation		2,230		3,165		8,661		10,576
Amortization of right-of-use assets and obligations		(350)		(335)		(1,050)		(1,004)
Amortization of contract intangibles, net		(19)		—		(43)		—
Finance lease obligation interest — cash ground rent		—		(351)		(117)		(1,053)
Loss (gain) on extinguishment of debt, net		770		(61)		962		(371)
Prior year property tax adjustments, net		—		605		—		(1,384)
Hurricane-related losses net of (insurance restoration proceeds)		—		1,621		(2,755)		1,621
Property-level severance related to sold hotel		—		4,562		—		4,562
Lawsuit settlement cost		—		691		—		691
CEO transition costs		—		7,976		—		7,976
Noncontrolling interest:
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Depreciation and amortization		—		(791)		(1,456)		(2,407)
Interest expense		—		(181)		(374)		(501)
Amortization of right-of-use asset and obligation		—		72		132		217
Lawsuit settlement cost		—		(173)		—		(173)
Adjustments to EBITDAre, net		2,631		15,867		483		20,388
Adjusted EBITDAre, excluding noncontrolling interest	$	63,848	$	35,362	$	165,005	$	36,027

Adjusted EBITDAre, excluding noncontrolling interest increased $28.5 million, or 80.6%, in the third quarter of 2022 as compared to the same period in 2021, and $129.0 million, or 358.0%, in the first nine months of 2022 as compared to the same period in 2021 primarily due to the following:

● Adjusted EBITDAre at the Existing Portfolio increased $34.4 million, or 108.6%, and $141.6 million, or 351.2%, in the third quarter and first nine months of 2022, respectively, as compared to the same periods in 2021 primarily due to the changes in the Existing Portfolio’s revenues and expenses included in the discussion above regarding the operating results for the third quarter and first nine months of 2022.

● The Three Recently Acquired Hotels recorded Adjusted EBITDAre of $3.3 million and $8.8 million in the third quarter and first nine months of 2022, respectively. The Montage Healdsburg, acquired in April 2021, recorded Adjusted EBITDAre of $3.6 million and $5.2 million for the third quarter and first nine months of 2021, respectively.

● The Five Disposed Hotels recorded net negative Adjusted EBITDAre of $2.2 million in the first nine months of 2022 as compared to net positive Adjusted EBITDAre of $4.7 million and net negative Adjusted EBITDAre of $3.4 million in the third quarter and first nine months of 2021, respectively.

● Corporate-level Adjusted EBITDAre decreased $0.9 million and $17.4 million in the third quarter and first nine months of 2022 as compared to the same periods in 2021, respectively.

We believe that the presentation of FFO attributable to common stockholders provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified noncash items such as real estate depreciation and amortization, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance. Our presentation of FFO attributable to common stockholders conforms to the NAREIT definition of “FFO applicable to common shares.” Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do.

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We also present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, and may facilitate comparisons of operating performance between periods and our peer companies. We adjust FFO attributable to common stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to common stockholders:

● Amortization of 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 exclude the noncash amortization of contract intangibles because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.

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

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

● Acquisition costs: under GAAP, costs associated with acquisitions that meet the definition of a business are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company or our hotels.

● Noncontrolling interest: we deduct the noncontrolling partner’s pro rata share of any FFO adjustments related to our consolidated Hilton San Diego Bayfront partnership prior to our acquisition of the noncontrolling partner’s interest in June 2022.

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

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

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The following table reconciles our unaudited net income (loss) to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for our total portfolio for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	20,488	$	(22,124)	$	73,303	$	(105,329)
Preferred stock dividends and redemption charges		(3,351)		(6,287)		(10,897)		(17,289)
Operations held for investment:
Real estate depreciation and amortization		31,313		31,959		92,796		94,206
Loss (gain) on sale of assets		—		12		(22,946)		82
Impairment loss		—		1,014		—		1,014
Noncontrolling interest:
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Real estate depreciation and amortization		—		(791)		(1,456)		(2,407)
FFO attributable to common stockholders		48,450		2,850		127,323		(28,085)
Operations held for investment:
Amortization of deferred stock compensation (1)		2,230		3,165		8,661		10,576
Real estate amortization of right-of-use assets and obligations		(288)		87		(868)		249
Amortization of contract intangibles, net		141		—		344		—
Noncash interest on derivatives, net		(39)		(616)		(2,904)		(2,194)
Loss (gain) on extinguishment of debt, net		770		(61)		962		(371)
Prior year property tax adjustments, net		—		605		—		(1,384)
Hurricane-related losses net of (insurance restoration proceeds)		—		1,621		(2,755)		1,621
Property-level severance related to sold hotel		—		4,562		—		4,562
Lawsuit settlement cost		—		691		—		691
CEO transition costs		—		7,976		—		7,976
Preferred stock redemption charges		—		2,624		—		6,640
Noncontrolling interest:
Real estate amortization of right-of-use asset and obligation		—		72		132		217
Lawsuit settlement cost		—		(173)		—		(173)
Noncash interest on derivatives, net		—		(20)		—		(20)
Adjustments to FFO attributable to common stockholders, net		2,814		20,533		3,572		28,390
Adjusted FFO attributable to common stockholders	$	51,264	$	23,383	$	130,895	$	305

(1) Amortization of deferred stock compensation has been added to the adjustments to FFO attributable to common stockholders, net for the three and nine months ended September 30, 2021 to conform to the current year’s presentation.

Adjusted FFO attributable to common stockholders increased $27.9 million, or 119.2%, in the third quarter of 2022 as compared to the same period in 2021, and $130.6 million, or 42,816.4%, in the first nine months of 2022 as compared to the same period in 2021 primarily due to the same reasons noted in the discussion above regarding Adjusted EBITDAre, excluding noncontrolling interest.

Liquidity and Capital Resources

During the periods presented, our sources of cash included our operating activities and working capital, as well as proceeds from hotel dispositions, our credit facility and term loans, issuances of both common and preferred stock, property insurance and contributions from our former joint venture partner. Our primary uses of cash were for capital expenditures for hotels and other assets, acquisitions of hotels and other assets, operating expenses, including funding the negative cash flow at our hotels, repurchases of our common stock, redemptions of our preferred stock, repayments of notes payable and our credit facility, dividends and distributions on our preferred and common stock and distributions to our former joint venture partner. We cannot be certain that traditional sources of funds will be available in the future.

Operating activities. Our net cash provided by or used in operating activities fluctuates primarily as a result of changes in hotel revenue and the operating cash flow of our hotels. Our net cash provided by or used in operating activities may also be affected by changes in our portfolio resulting from hotel acquisitions, dispositions or renovations. Net cash provided by operating activities was $149.7 million for the nine months ended September 30, 2022 as compared to $8.4 million for the nine months ended September 30, 2021. The net increase in cash provided by operating activities during the first nine months of 2022 as compared to the same period in

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2021 was primarily due to the increase in travel demand benefiting our hotels and additional operating cash provided by the Three Recently Acquired Hotels, partially offset by a decrease in operating cash caused by the sales of the Five Disposed Hotels.

Investing activities. Our net cash provided by or used in investing activities fluctuates primarily as a result of acquisitions, dispositions and renovations of hotels and other assets. Net cash used in investing activities during the first nine months of 2022 as compared to the first nine months of 2021 was as follows (in thousands):

	Nine Months Ended September 30,
	2022		2021
Proceeds from sale of assets	$	191,291	$	—
Acquisition and disposition deposits, net		—		(3,900)
Proceeds from property insurance		4,369		—
Acquisitions of hotel properties and other assets		(232,506)		(195,706)
Renovations and additions to hotel properties and other assets		(97,539)		(41,910)
Payment for interest rate derivative		—		(80)
Net cash used in investing activities	$	(134,385)	$	(241,596)

During the first nine months of 2022, we received total proceeds of $191.3 million from our sales of three hotels, consisting of $63.2 million for the Hyatt Centric Chicago Magnificent Mile (having already received a $4.0 million disposition deposit in December 2021) and $128.1 million for the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile. In addition, we received insurance proceeds of $4.4 million for hurricane-related property damage at the Hilton New Orleans St. Charles. These cash inflows were partially offset by $232.5 million paid to acquire hotel properties and other assets, consisting of $232.0 million for The Confidante Miami Beach, including closing costs and prorations, and $0.5 million paid to acquire additional wet and dry boat slips at the Oceans Edge Resort & Marina. In addition, we invested $97.5 million for renovations and additions to our portfolio and other assets.

During the first nine months of 2021, we paid a deposit of $4.0 million towards our December 2021 acquisition of the Four Seasons Resort Napa Valley, and we received a deposit of $0.1 million from the buyer of the Renaissance Westchester, which we sold in October 2021. In addition, during the first nine months of 2021, we paid a total of $195.7 million to acquire hotel properties and other assets, including $195.6 million to acquire the Montage Healdsburg and $0.1 million to acquire an additional dry boat slip at the Oceans Edge Resort & Marina. We also invested $41.9 million for renovations and additions to our portfolio and other assets and paid $0.1 million for an interest rate cap derivative on debt secured by the Hilton San Diego Bayfront.

Financing activities. 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. Net cash used in financing activities during the first nine months of 2022 as compared to net cash provided by financing activities during the first nine months of 2021 was as follows (in thousands):

	Nine Months Ended September 30,
	2022		2021
Acquisition of noncontrolling interest, including transaction costs	$	(101,348)	$	—
Proceeds from preferred stock offerings		—		215,000
Payment of preferred stock offering costs		—		(7,287)
Redemptions of preferred stock		—		(190,000)
Proceeds from common stock offerings		—		38,443
Payment of common stock offering costs		(91)		(784)
Repurchases of outstanding common stock		(86,646)		—
Repurchases of common stock for employee tax obligations		(3,351)		(4,877)
Proceeds from credit facility		230,000		—
Payment on credit facility		(230,000)		—
Proceeds from notes payable		243,615		—
Payments on notes payable		(38,405)		(2,461)
Payments of deferred financing costs		(7,404)		—
Dividends and distributions paid		(11,059)		(10,745)
Distribution to noncontrolling interest		(5,500)		—
Contribution from noncontrolling interest		—		1,375
Net cash (used in) provided by financing activities	$	(10,189)	$	38,664

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During the first nine months of 2022, we paid $101.3 million to acquire the outside 25.0% equity interest in the entity that owns the Hilton San Diego Bayfront, $86.6 million to repurchase 7,995,560 shares of our outstanding common stock and $0.1 million in common stock offering costs related to restricted common stock issued to employees. We also paid $3.4 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $11.1 million in dividends and distributions to our preferred and common stockholders and $5.5 million in distributions to our former joint venture partner. 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. In addition, we paid $38.4 million in principal payments on our notes payable, including $35.0 million to repay a portion of our senior notes, $1.5 million in scheduled principal payments on our notes payable and $1.9 million in principal payments associated with our Amended Credit Agreement, and we paid $7.4 million in deferred financing costs related to the Amended Credit Agreement.

During the first nine months of 2021, we received total gross proceeds of $215.0 million on our preferred stock offerings, including $115.0 million from the issuance of 4,600,000 shares of our Series H preferred stock and $100.0 million from the issuance of 4,000,000 shares of our Series I preferred stock, and we paid a total of $7.3 million in offering costs on our Series G preferred stock, Series H preferred stock and Series I preferred stock. We used $190.0 million of the proceeds received from our preferred stock issuances to redeem in full all 4,600,000 shares of our Series E preferred stock and all 3,000,000 shares of our Series F preferred stock. In addition, we received gross proceeds of $38.4 million from the issuance of 2,913,682 shares of our common stock under our ATM Program, and paid $0.8 million in related offering costs. We also received a $1.4 million contribution from our former joint venture partner. These net cash inflows were partially offset as we paid $4.9 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $2.5 million in principal payments on our notes payable and $10.7 million in dividends to our preferred stockholders.

Future. While operations have improved in the first nine months of 2022 as compared to the same period in 2021, certain of our hotels continue to operate below pre-pandemic levels. We believe the ongoing effects of the COVID-19 pandemic on our operations could continue to have a negative impact on our financial results and liquidity in 2022. Despite these challenges, we believe that we have sufficient liquidity, as well as access to our credit facility and capital markets, to withstand any potential declines in our operating cash flow. Given the unprecedented impact of COVID-19 on the global market and our hotel operations, we cannot, however, assure you that our forecast or the assumptions we used to estimate our liquidity requirements will be correct. In addition, the magnitude and duration of the COVID-19 pandemic is uncertain.

We expect our primary sources of cash will continue to be our working capital, credit facility, dispositions of hotel properties and proceeds from public and private offerings of debt securities and common and preferred stock. However, there can be no assurance that our future asset sales will be successfully completed or that the capital markets will be available to us in the future on favorable terms or at all.

We expect our primary uses of cash to be for operating expenses, including funding the cash flow needs at our hotels if necessary, capital investments in our hotels, repayment of principal on our notes payable and credit facility, interest expense, repurchases of our common stock, distributions on our common stock, dividends on our preferred stock and acquisitions of hotels or interests in hotels.

In the third quarter of 2022, our board of directors declared a cash dividend of $0.05 per share of common stock that was paid in October 2022. Any future common stock dividends will be determined by our board of directors after considering our obligations under our various financing agreements, projected taxable income, compliance with our debt covenants, long-term operating projections, expected capital requirements and risks affecting our business.

Cash Balance. As of September 30, 2022, our unrestricted cash balance was $117.6 million. We believe that our current unrestricted cash balance and our ability to draw the $500.0 million of capacity available for borrowing under the unsecured revolving credit facility will enable us to successfully manage our Company while operations at our hotels are reduced.

Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of the hotels securing the loans decline. These provisions were triggered in January 2021 for the loan secured by the JW Marriott New Orleans and in May 2021 for the loan secured by the Hilton San Diego Bayfront. In April 2022, the loan secured by the Hilton San Diego Bayfront exited the cash trap, and in October 2022 we notified the lender for the loan secured by the JW Marriott New Orleans that we have met the criteria to exit the cash trap. As of September 30, 2022, no excess cash generated by the JW Marriott New Orleans was held in a lockbox account for the benefit of the lender.

Debt. As of September 30, 2022, we had $816.6 million of debt, $167.8 million of cash and cash equivalents, including restricted cash, and total assets of $3.1 billion. We believe that by maintaining appropriate debt levels, staggering maturity dates and

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maintaining a highly flexible structure, we will have lower capital costs than more highly leveraged companies, or companies with limited flexibility due to restrictive corporate-level financial covenants.

In February 2022, we used a portion of the proceeds received from the disposition of the Hyatt Centric Chicago Magnificent Mile to repay $25.0 million of our unsecured Series A Senior Notes and $10.0 million of our unsecured Series B Senior Notes, resulting in remaining balances of $65.0 million and $105.0 million on our Series A Senior Notes and Series B Senior Notes, respectively, as of September 30, 2022.

In March 2022, we elected to early terminate the covenant relief period related to our unsecured debt, having satisfied the financial covenants stipulated in the 2020 and 2021 Unsecured Debt Amendments for the quarter ended December 31, 2021. The Unsecured Debt Amendments were scheduled to provide covenant relief through the end of the third quarter of 2022, with quarterly testing resuming for the period ending September 30, 2022. Following our early termination of the covenant relief period in March 2022, the original financial covenants on our unsecured debt agreements were to be phased-in over the following five quarters to ease compliance. By exiting the covenant relief period, we are no longer subject to additional restrictions on debt issuance and repayment, capital investment, share repurchases and dividend distributions that were imposed as part of the Unsecured Debt Amendments.

In May 2022 and June 2022, we drew $140.0 million and $90.0 million, respectively, under our credit facility to acquire The Confidante Miami Beach and the outside 25.0% equity interest in the entity that owns the Hilton San Diego Bayfront.

In July 2022, we entered into the Amended Credit Agreement which expanded our unsecured borrowing capacity and extended the maturity of the in-place term loans. The Amended Credit Agreement continues to provide for a $500.0 million revolving credit facility and increased the aggregate amount of our two term loans from $108.3 million to $350.0 million. The facilities bear interest pursuant to a leverage-based pricing grid ranging from 1.35% to 2.25% over the applicable adjusted term SOFR. The $500.0 million revolving credit facility has two six-month extension options, which would result in an extended maturity of July 2027. The two term loan facilities each have a balance of $175.0 million and mature in July 2027 and January 2028. We utilized the proceeds received from the incremental borrowing on the term loans to fully repay the $230.0 million that was outstanding on our revolving credit facility. As of September 30, 2022, we have no amount outstanding under the revolving portion of our credit facility, with $500.0 million of capacity available for additional borrowing under the facility. The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various financial covenants.

As of September 30, 2022, 42.4% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates, including the loan secured by the JW Marriott New Orleans, a portion of our unsecured corporate-level Term Loan 2 and two unsecured corporate-level senior notes. The Company’s floating rate debt includes the $220.0 million non-recourse mortgage on the Hilton San Diego Bayfront, which is subject to an interest rate cap derivative that caps the floating interest rate at 6.0% until December 2022, our $175.0 million unsecured corporate-level Term Loan 1, which was subject to an interest rate swap derivative until the derivative matured in September 2022, and a portion of our $175.0 million unsecured corporate-level Term Loan 2.

We may in the future seek to obtain mortgages on one or more of our 13 unencumbered hotels (subject to certain stipulations under our unsecured term loans and senior notes), all of which were held by subsidiaries whose interests were pledged to our credit facility as of September 30, 2022. Our 13 unencumbered hotels include: Boston Park Plaza; Four Seasons Resort Napa Valley; Hilton New Orleans St. Charles; Hyatt Regency San Francisco; Marriott Boston Long Wharf; Montage Healdsburg; Oceans Edge Resort & Marina; Renaissance Long Beach; Renaissance Orlando at SeaWorld®; Renaissance Washington DC; The Bidwell Marriott Portland; The Confidante Miami Beach; and Wailea Beach Resort. Should we obtain secured financing on any or all of our unencumbered hotels, the amount of capital available through our credit facility or future unsecured borrowings may be reduced.

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Contractual Obligations. The following table summarizes our payment obligations and commitments as of September 30, 2022 (in thousands):

	Payment due by period
			Less Than		1 to 3		3 to 5		More than
	Total		1 year		years		years		5 years
Notes payable (1)	$	816,647	$	2,145	$	294,502	$	240,000	$	280,000
Interest obligations on notes payable (2)		134,395		35,428		53,115		40,455		5,397
Operating lease obligations, including imputed interest (3)		27,414		6,734		13,391		4,656		2,633
Construction commitments		66,701		66,701		—		—		—
Total	$	1,045,157	$	111,008	$	361,008	$	285,111	$	288,030

(1) Notes payable includes the $220.0 million mortgage secured by the Hilton San Diego Bayfront, which is scheduled to mature in December 2022. We have notified the lenders of our intent to exercise the remaining one-year option to extend the maturity to December 2023.

(2) Interest is calculated based on the loan balances and variable rates, as applicable, at September 30, 2022, and includes the effect of our interest rate derivatives.

(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 each of our hotels in good repair and condition and in general conformity with applicable franchise and management agreements, ground lease, laws and regulations. Our capital expenditures primarily relate to the ongoing maintenance of our hotels and are budgeted in the reserve accounts described in the following paragraph. We also incur capital expenditures for cyclical renovations, hotel repositionings and development. We invested $97.5 million in our portfolio and other assets during the first nine months of 2022. As of September 30, 2022, we have contractual construction commitments totaling $66.7 million for ongoing renovations. If we renovate or develop additional hotels or other assets 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. 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. As of September 30, 2022, our balance sheet includes restricted cash of $36.2 million, which was held in FF&E reserve accounts for future capital expenditures at the majority of our hotels. According to certain loan agreements, reserve funds are to be held by the lenders or managers in restricted cash accounts, and we are not required to spend the entire amount in such reserve accounts each year.

Seasonality and Volatility

As is typical of the lodging industry, we experience some seasonality in our business. Revenue for certain of our hotels is generally affected by seasonal business patterns (e.g., the first quarter is strong in Hawaii, Key West, New Orleans and Orlando, the second quarter is strong for the Mid-Atlantic business hotels, both the second and third quarters are strong for the California counties of Napa and Sonoma and the fourth quarter is strong for Hawaii and Key West). Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as economic and business conditions, including a U.S. recession or increased inflation, trade conflicts and tariffs, changes impacting global travel, regional or global economic slowdowns, any flu or disease-related pandemic that impacts travel or the ability to travel, including the COVID-19 pandemic, the adverse effects of climate change, the threat of terrorism, terrorist events, civil unrest, government shutdowns, events that reduce the capacity or availability of air travel, increased competition from other hotels in our markets, new hotel supply or alternative lodging options and unexpected changes in business, commercial travel, leisure travel and tourism.

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Inflation

Inflation affects our expenses, including, without limitation, by increasing such costs as wages, employee-related benefits, food, commodities, including those used to renovate or reposition our hotels, taxes, property and liability insurance, utilities and borrowing costs. We rely on our hotel operators to adjust room rates and pricing for hotel services to reflect the effects of inflation. However, previously contracted rates, competitive pressures or other factors may limit the ability of our operators to respond to inflation. As a result, our hotel expenses may increase at higher rates than hotel revenue.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.

We evaluate our estimates on an ongoing basis. We base our estimates on historical experience, information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.

● Impairment of long-lived assets. Impairment losses are recorded on long-lived assets to be held and used by us when indicators of impairment are present and the future undiscounted net cash flows, including potential sale proceeds, expected to be generated by those assets, based on our anticipated investment horizon, are less than the assets’ carrying amount. We evaluate our long-lived assets to determine if there are indicators of impairment on a quarterly basis. No single indicator would necessarily result in us preparing an estimate to determine if a hotel’s future undiscounted cash flows are less than the book value of the hotel. We use judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity that when combined, would result in an indication that a hotel requires an estimate of the undiscounted cash flows to determine if an impairment has occurred.

If a hotel is considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. We perform a fair value assessment, using one or more discounted cash flow analyses to estimate the fair value of the hotel, taking into account the hotel’s expected cash flow from operations, our estimate of how long we will own the hotel and the estimated proceeds from the disposition of the hotel. When multiple cash flow analyses are prepared, a probability is assigned to each cash flow analysis based upon the estimated likelihood of each scenario. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and the terminal capitalization rate. Our judgment is required in determining the discount rate applied to estimated cash flows, the estimated growth of revenues and expenses, net operating income (loss) and margins, the need for capital expenditures, as well as specific market and economic conditions.

● Acquisition related assets and liabilities. Accounting for the acquisition of a hotel property or other entity requires either allocating the purchase price to the assets acquired and the liabilities assumed in the transaction at their respective relative fair values for an asset acquisition or recording the assets and liabilities at their estimated fair values with any excess consideration above net assets going to goodwill for a business combination. The most difficult estimations of individual fair values are those involving long-lived assets, such as property, equipment and intangible assets, together with any finance or operating lease right-of-use assets and their related obligations. When we acquire a hotel property or other entity, we use all available information to make these fair value determinations, including discounted cash flow analyses, market comparable data and replacement cost data. In addition, we make significant estimations regarding capitalization rates, discount rates, average daily rates, revenue growth rates and occupancy. We also engage independent valuation specialists to assist in the fair value determinations of the long-lived assets acquired and the liabilities assumed. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods. Given the subjectivity, business combinations are provided a one-year measurement period to adjust the provisional amounts recognized if the necessary information is not available by the end of the reporting period in which the acquisition occurs.

In addition, 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 the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, then the transaction is an asset acquisition. Transaction costs associated with asset acquisitions are capitalized and subsequently depreciated over the life of the related asset, while the same costs associated with a business combination are expensed as incurred and included in corporate overhead on our

44

consolidated statements of operations. Also, asset acquisitions are not subject to a measurement period, as are business combinations.

● Depreciation and amortization expense. Depreciation expense is based on the estimated useful life of our assets. The life of the assets is based on a number of assumptions, including the cost and timing of capital expenditures to maintain and refurbish our hotels, as well as specific market and economic conditions. Hotel properties are depreciated using the straight-line method over estimated useful lives primarily ranging from five to 40 years for buildings and improvements and three to 12 years for FF&E. Finance lease right-of-use assets other than land are depreciated using the straight-line method over the shorter of either their estimated useful life or the life of the related finance lease obligation. Intangible assets are amortized using the straight-line method over the shorter of their estimated useful life or the length of the related agreement. While we believe our estimates are reasonable, a change in the estimated lives could affect depreciation expense and net income or the gain or loss on the sale of any of our hotels. We have not changed the useful lives of any of our assets during the periods discussed.

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

We review any uncertain tax positions and, if necessary, we will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes federal and certain states.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

To the extent that we incur debt with variable interest rates, our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We have no derivative financial instruments held for trading purposes. We use derivative financial instruments, which are intended to manage interest rate risks on our floating rate debt.

As of September 30, 2022, 69.4% of our debt obligations are fixed in nature or are subject to an interest rate cap agreement, which mitigates the effect of changes in interest rates on our cash interest payments. If the market rate of interest on our variable rate debt increases or decreases by 50 basis points, interest expense would increase or decrease, respectively, our future consolidated annual earnings and cash flows by approximately $2.4 million based on the variable rates at September 30, 2022.

Item 4. Controls and Procedures

Attached as exhibits to this Form 10-Q are the certifications required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This section includes information concerning the controls and control evaluations referred to in the certifications.

Evaluation of Disclosure Controls and Procedures. Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time

45

periods specified by the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. During our fiscal quarter to which this Quarterly Report on Form 10-Q relates, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

None.

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

(c)Issuer Purchases of Equity Securities

In February 2021, the Company’s board of directors reauthorized the Company’s existing stock repurchase program, allowing the Company to acquire up to an aggregate of $500.0 million of the Company’s common and preferred stock. During the three months ended September 30, 2022, the Company repurchased 880,577 shares of its common stock for a total purchase price of $8.7 million, including fees and commissions, leaving $413.5 million remaining under the stock repurchase program. The stock repurchase program has no stated expiration date. Future repurchases will depend on various factors, including the Company’s capital needs and restrictions under its various financing agreements, as well as the price of the Company’s common and preferred stock.

					Maximum Number (or
				Total Number of	Appropriate Dollar
				Shares Purchased	Value) of Shares that
	Total Number			as Part of Publicly	May Yet Be Purchased
	of Shares	Average Price Paid		Announced Plans	Under the Plans or
Period	Purchased	per Share		or Programs	Programs
July 1, 2022 - July 31, 2022	134,444	$	9.77	134,444	$	420,849,319
August 1, 2022 - August 31, 2022	—	$	—	—	$	420,849,319
September 1, 2022 - September 30, 2022	746,133	$	9.83	746,133	$	413,513,729
Total	880,577	$	9.82	880,577	$	413,513,729

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

The following Exhibits are filed as a part of this report:

Exhibit Number	Description
3.1	Articles of Amendment and Restatement of Sunstone Hotel Investors, Inc. (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-11 (File No. 333-117141) filed by the Company).
3.2	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).
3.3	Articles Supplementary Prohibiting the Company From Electing to be Subject to Section 3-803 of the Maryland General Corporation Law Absent Shareholder Approval (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 29, 2013).
3.4	Articles Supplementary for Series G preferred stock (incorporated by reference to Exhibit 3.1 to Form 8-K, filed by the Company on April 28, 2021).
3.5	Articles Supplementary for Series H preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the Company on May 20, 2021).
3.6	Articles Supplementary for Series I preferred stock (incorporated by reference to Exhibit 3.3 to the registration statement on Form 8-A, filed by the company on July 15, 2021).
3.7	Eighth Amended and Restated Limited Liability Agreement of Sunstone Hotel Partnership LLC (incorporated by reference to Exhibit 3.2 to Form 8-K, filed by the Company on July 16, 2021).
10.1	Second Amended and Restated Credit Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the Company on July 27, 2022).
10.2	Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and Bryan A. Giglia. * #
10.3	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. Springer. * #
10.4	Fifth Amended and Restated Employment Agreement, dated as of August 29, 2022, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and David M. Klein. * #
10.5	Amended and Restated Employment Agreement, dated as of August 29, 2022, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and Christopher Ostapovicz. * #
10.6	Employment Agreement, dated as of August 29, 2022, by and among Sunstone Hotel Investors, Inc., Sunstone Hotel Partnership, LLC and Aaron R. Reyes. * #
31.1	Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.*
101.SCH	Inline XBRL Taxonomy Extension Schema Document. *
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document. *
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document. *
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document. *
104	Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL (included in Exhibit 101).

*	Filed herewith.
#	Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Sunstone Hotel Investors, Inc.
Date: November 8, 2022	By:	/s/ Aaron R. Reyes
		Aaron R. Reyes (Chief Financial Officer and Duly Authorized Officer)

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EX-10.2

Exhibit 10.2

FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of August 29, 2022 (the “Effective Date”), is entered into by and among Sunstone Hotel Investors, Inc., a Maryland corporation (“Sunstone”), Sunstone Hotel Partnership, LLC, a Delaware limited liability company (the “Operating Partnership,” and together with Sunstone, the “Company”), and Bryan A. Giglia (the “Executive”).

WHEREAS, the Company and the Executive are parties to that certain Third Amended and Restated Employment Agreement, dated March 31, 2020 as amended September 30, 2021 (the “Prior Agreement”);

WHEREAS, the Company and the Executive desire to terminate the Prior Agreement;

WHEREAS, the Company desires to enter into a new agreement embodying the terms of Executive’s continued employment with the Company; and

WHEREAS, the Executive desires to continue employment with the Company, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.Employment Period.  Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term (the “Employment Period”) commencing on the Effective Date and continuing indefinitely until terminated in accordance with the terms of this Agreement. Notwithstanding anything herein, the Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof.  

2.Terms of Employment.

(a)Position and Duties.

(i)During the Employment Period, the Executive shall serve as Chief Executive Officer of Sunstone and the Operating Partnership and shall perform such employment duties as are usual and customary for such positions and such other duties as the Company shall from time to time reasonably assign to the Executive.  The Executive shall report directly to the Board of Directors of the Company (the “Board”).

(ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company.  Notwithstanding the foregoing, during the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees consistent with the Company’s conflicts of interests policies and corporate governance guidelines in effect from time to time; provided, however, service on a corporate board shall require the prior written approval of the

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Nominating and Corporate Governance Committee, or (B) manage his personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as an executive officer of the Company.

(iii)The Executive agrees that he will not take personal advantage of any business opportunity that arises during his employment by the Company and which may be of benefit to the Company; provided, however, that the Executive may take advantage of any such opportunities to the extent the Executive satisfies all conditions precedent to doing so, as required by the Company’s Code of Business Conduct and Ethics.

(b)Compensation.

(i)Base Salary.  During the Employment Period, the Executive shall receive a base salary (the “Base Salary”) of $600,000 per annum.  The Base Salary shall be paid in installments at such intervals as the Company pays executive salaries generally, but not less often than monthly.  During the Employment Period, the Base Salary shall be reviewed at least annually for possible increase in the Company’s sole discretion, as determined by the compensation committee (the “Compensation Committee”) of the Board.  The term “Base Salary” as utilized in this Agreement shall refer to Base Salary as so adjusted.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.

(ii)Annual Bonus.  In addition to the Base Salary, the Executive shall be eligible to earn, for each calendar year ending during the Employment Period, an annual cash performance bonus (an “Annual Bonus”) under the Company’s bonus plan or plans applicable to senior executives.  The amount of any Annual Bonus and the performance goals applicable to such Annual Bonus for the relevant year shall be determined by the Compensation Committee in accordance with the terms and conditions of said bonus plan as in effect from time to time, provided that, subject to the terms of such bonus plan and the attainment of performance goals established by the Compensation Committee, Executive’s threshold level, target level and maximum level Annual Bonus shall be equal to 67.5%, 135% and 202.5%, respectively, of the Executive’s Base Salary for such year.  The Annual Bonus payable, if any, in respect of any calendar year shall be paid no later than the March 15 immediately following such calendar year performance period, subject to the Executive’s continued employment through the payment date.

(iii)Equity Awards.  During the Employment Period, the Executive shall be eligible to receive equity awards under the Company’s long-term incentive plan, subject to vesting and other conditions determined by the Compensation Committee, in its sole discretion.  The form, amount and terms of any such equity awards, if any, shall be determined by the Compensation Committee in its sole discretion in accordance with the terms and conditions of plans as in effect from time to time.

(iv)Incentive, Savings and Retirement Plans.  During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, policies and programs, in each case that are applicable generally to senior executives of the Company.

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(v)Welfare Benefit Plans.  During the Employment Period, the Executive and the Executive’s eligible family members shall be eligible to participate in the welfare benefit plans, practices, policies and programs (including, if applicable, medical, dental, vision, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its senior executives.

(vi)Business Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company provided to senior executives of the Company.

(vii)Fringe Benefits.  During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its senior executives from time to time, in accordance with the policies, practices and procedures of the Company.

(viii)Vacation.  During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company applicable to its senior executives, but in no event shall the Executive accrue less than four weeks of vacation per calendar year (pro-rated for any partial year of service); provided, however, that the Executive shall not accrue any vacation time in excess of 1.5 times the Executive’s applicable annual vacation accrual (the “Accrual Limit”), and shall cease accruing vacation time if the Executive’s accrued vacation reaches the Accrual Limit until such time as the Executive’s accrued vacation time drops below the Accrual Limit.

3.Termination of Employment.

(a)Death or Disability.  The Executive’s employment shall terminate upon the Executive’s death or Disability during the Employment Period.  For purposes of this Agreement, “Disability” means the Executive’s inability by reason of permanent physical or mental illness to fulfill his obligations hereunder for 120 consecutive days or on a total of 180 days in any 12 month period which, in the reasonable opinion of an independent physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive’s legal representative, renders the Executive unable to perform the essential functions of his job, even after reasonable accommodations are made by the Company.  The Company is not, however, required to make unreasonable accommodations for the Executive or accommodations that would create an undue hardship on the Company.  For purposes of clarity, this provision is not intended to, and does not, alter or affect any and all rights the Executive has to avail himself of leaves of absence in accordance with Company policies applicable to senior executives or his rights under applicable disability and leave of absences laws, including, without limitation, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, and the California Family Rights Act.

(b)Termination by the Company.  The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause.  For purposes of this Agreement, “Cause” shall mean the occurrence of one or more of the following events:

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(i)The Executive’s continued and willful failure to perform or gross negligence in performing his duties owed to the Company, which is not cured within 15 days following a written notice being delivered to the Executive, which notice specifies such failure or negligence;

(ii)The Executive’s willful commission of an act of fraud or material dishonesty in the performance of his duties, the nature of which, and the support for which, shall be provided to the Executive in writing;

(iii)The indictment of the Executive, conviction of the Executive, or entry by the Executive of a guilty or no contest plea to any felony or any other felony or misdemeanor involving moral turpitude;

(iv)Any material breach by the Executive of his fiduciary duty or duty of loyalty to the Company; or

(v)The Executive’s material breach of any of the provisions of this Agreement, or any other written agreement between the Executive and the Company, which is not cured within 15 days following written notice thereof from the Company.

(c)Termination by the Executive.  The Executive’s employment may be terminated by the Executive for Good Reason or without Good Reason.  For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without the Executive’s prior written consent:

(i)A material reduction in the Executive’s title, duties, authority, responsibilities, reporting relationships, including, without limitation, the Company ceasing to be a public company or ceasing to be traded on the New York Stock Exchange (or similar exchange) following a Change in Control, or the assignment to the Executive of any duties materially inconsistent with the Executive’s position, title, authority, duties or responsibilities;

(ii)During the Employment Period, a reduction by the Company of the Executive’s annual Base Salary (as in effect or as may be increased from time to time) by greater than three percent (3%);

(iii)The relocation of the Company’s headquarters to a location more than 35 miles from the Company’s current headquarters in Irvine, California; and

(iv)The Company’s material breach of its obligations under this Agreement.

For purposes of this Agreement, a termination of employment by the Executive shall not be deemed to be for Good Reason unless (A) the Executive gives the Company written notice describing the event or events which are the basis for such termination within 90 days after the event or events occur, (B) such grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days after the Company’s receipt of such notice, and (C) the Executive terminates his employment no later than 45 days after the Executive provides notice to the Company in accordance with clause (A) of this paragraph.

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(d)Notice of Termination.  Any termination other than due to death shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 12(c) below.  For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice or, in the case of a termination by the Executive for Good Reason more than 45 days after the date on which the Executive provides written notice of intent to terminate for Good Reason in accordance with Section 3(c) above).  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e)Date of Termination.  For purposes of this Agreement, “Date of Termination” means (i) if the Executive’s employment is terminated by the Company, the date of receipt by the Executive of the Notice of Termination or any later date specified therein (which date shall not be more than 30 days after date of receipt by the Executive of such notice), (ii) if the Executive’s employment is terminated by the Executive, the Date of Termination shall be the 30th day after the date on which the Executive notifies the Company of such termination (or, in the case of a termination by the Executive for Good Reason on the 45th day after the date on which the Executive provides written notice in accordance with Section 3(c) above), unless otherwise agreed by the Company and the Executive, and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date the death or Disability of the Executive is determined as described in Section 3(a) above, as the case may be.

4.Obligations of the Company Upon Termination.

(a)Accrued Obligations.  If, during the Employment Period, the Executive’s employment is terminated for any reason, the Company will pay or provide to the Executive:  (i) any earned but unpaid Base Salary, (ii) accrued but unpaid vacation pay through the Date of Termination, (iii) any vested amounts due to the Executive under any plan, program or policy of the Company, to the extent not previously paid (if any) (together, the “Accrued Obligations”). The Accrued Obligations described in clauses (i) – (ii) of the preceding sentence shall be paid within 30 days after the Date of Termination (or such earlier date as may be required by applicable law) and the Accrued Obligations described in clause (iii) of the preceding sentence shall be paid in accordance with the terms of the governing plan or program.  

(b)Without Cause or for Good Reason.  If, during the Employment Period, the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then, in addition to the Accrued Obligations, the Executive shall be paid or receive:

(i)An amount (the “Severance Amount”) equal to the sum of:

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(A)Two times the sum of (i) the Base Salary in effect on the Date of Termination (but in no event less than the highest Base Salary paid to the Executive during the Employment Period) and (ii) the greater of (x) Executive’s target Annual Bonus (the “Target Annual Bonus”) in effect on the Date of Termination and (y) the Annual Bonus actually paid to the Executive in respect of the calendar year immediately preceding the Date of Termination,

(B)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination, to the extent not previously paid (if any), and

(C)A pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Target Annual Bonus for such year (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365.

Subject to Section 12(e) below, the Severance Amount shall be paid within 15 days following the date on which the Release (as defined below) becomes effective and irrevocable in accordance with Section 4(b)(v) below.

(ii)The portion of any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted prior to January 1, 2022 that would have become vested and, as applicable, exercisable during the 12 month period immediately following the Executive’s Date of Termination had the Executive remained continuously employed by the Company during such period shall become immediately vested and, as applicable, exercisable; provided, however, that if the termination occurs on or within 12 months following a Change in Control (as defined in the Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan), any such equity awards shall vest and become exercisable in full (together with the accelerated vesting under Section 4(b)(iii) below, the “Vesting Acceleration”). The accelerated portion of such equity awards shall remain outstanding and shall vest upon the effectiveness of the Release. The portion of any outstanding restricted stock and other equity awards granted prior to January 1, 2022 that does not become vested and, as applicable, exercisable in accordance with this Section 4(b)(ii) (whether because such portion would not have vested during the 12 month period immediately following the Executive’s Date of Termination or because the Executive does not timely execute and not revoke the Release) shall automatically be cancelled and forfeited, and the Executive shall have no further interest therein.

(iii)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted on or after January 1, 2022 and are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with

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the Company shall remain outstanding and shall vest in full upon the effectiveness of the Release.

(iv)During the period commencing on the Date of Termination and ending on the earlier to occur of (i) the 18 month anniversary of the Date of Termination and (ii) the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code and the regulations thereunder (together, the “Code”), the Company shall continue to provide, at the Company’s expense, the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination (the “COBRA Coverage”), provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a) (5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(v)Notwithstanding anything herein to the contrary, it shall be a condition to the Executive’s right to receive any of the Severance Amount, the Vesting Acceleration and/or the COBRA Coverage that the Executive timely execute and deliver to the Company within 21 days (or 45 days, if required by applicable law) and not revoke within 7 days following such execution and delivery a release of claims in substantially the form attached hereto as Exhibit A (the “Release”).

(c)Death or Disability.  If, during the Employment Period, the Executive’s employment is terminated by reason of the Executive’s death or Disability then, in addition to the Accrued Obligations:

(i)An amount equal to 100% of the Executive’s annual Base Salary, as in effect on the Date of Termination, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

(ii)An amount equal to a pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Executive’s Target Annual Bonus for such year under the applicable Company bonus program (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

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(iii)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, to the extent not previously paid (if any), within 30 days after the Date of Termination;

(iv)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with the Company shall vest in full; and

(v)During the 18 month period following the Date of Termination, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code, the Company shall continue to provide the Executive and the Executive’s eligible dependents with COBRA Coverage, provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(d)Other Terminations.  If the Executive’s employment with the Company terminates for any reason not described in Section 4(b) or Section 4(c) above, the Company shall pay the Executive only the Accrued Obligations and shall have no further obligations to the Executive under this Agreement.

6.Excess Parachute Payments; Limitations on Payments.  

(a)Best Pay Cap.  Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part) to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”) then, if elected by the Executive, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, any cash payments shall first be reduced, and any noncash payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting

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the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

(b)Certain Exclusions.  For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7.Restrictive Covenants.

(a)While employed by the Company (whether pursuant to this Agreement or otherwise) and for a period of 12 months following the Executive’s termination of employment for any reason, the Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of any member of the Company and its parents, subsidiaries and affiliates to terminate their employment or other relationship with the Company and its parents, subsidiaries and affiliates or to cease to render services to any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(b)During his employment with the Company (whether pursuant to this Agreement or otherwise) and thereafter, the Executive shall not use any trade secret of the Company or its parents, subsidiaries or affiliates to solicit, induce, or encourage any customer, client, vendor, or other party doing business with any member of the Company and its parents, subsidiaries and affiliates to terminate its relationship therewith or transfer its business from any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(c)The Executive agrees not to disparage the Company, and the Executive agrees not to disparage any parent, subsidiary or affiliate of the Company and/or any officers, directors, employees, shareholders and/or agents of the Company or any parent, subsidiary or affiliate of the Company, in any manner intended or reasonably likely to be harmful to them, their business, business reputation or personal reputation.  Notwithstanding the foregoing, nothing in this

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Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process, or from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation.

(d)In recognition of the facts that irreparable injury will result to the Company in the event of a breach by the Executive of his obligations under Sections 7(a), (b) and (c) hereof, that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law therefor, the Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by the Executive.

8.Full Settlement.The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment.

9.Successors.

(a)This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)The Company will require any successor (whether direct or indirect, by purchase merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise, including without limitation, a Change in Control.

10.Payment of Financial Obligations.The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement shall be allocated to the Operating Partnership, Sunstone, Sunstone Hotel TRS Lessee, Inc. and, if applicable, any of their respective subsidiaries and/or affiliates in accordance with any employee

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sharing and expense allocation agreement, by and between Sunstone and the Operating Partnership, as in effect from time to time.

11.Ancillary Agreements.  The Company and the Executive previously executed the Indemnification Agreement attached hereto as Exhibit B (the “Indemnification Agreement”).  The Executive hereby acknowledges that the Executive previously has entered into an arrangement with the Company containing confidentiality and other protective covenants (the “Confidentiality Policy”) and that the Executive shall continue to be bound by the terms and conditions of the Confidentiality Policy.

12.Miscellaneous.

(a)Governing Law; Amendment.  This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)Arbitration.  To the fullest extent allowed by law, any controversy, claim or dispute between the Executive and the Company (and or any of its owners, directors, officers, employees, affiliates, or agents) relating to or arising out of the Executive’s employment or the cessation of that employment will be submitted to final and binding arbitration in the county in which the Executive worked for determination by one arbitrator with hotel industry experience in accordance with the American Arbitration Association’s (“AAA”) National Rules for the Resolution of Employment Disputes, as the exclusive remedy for such controversy, claim or dispute.  In any such arbitration, the parties may conduct discovery in accordance with the applicable rules of the arbitration forum, except that the arbitrator shall have the authority to order and permit discovery as the arbitrator may deem necessary and appropriate in accordance with applicable state or federal discovery statutes.  The arbitrator shall issue a reasoned, written decision, and shall have full authority to award all remedies which would be available in court.  The parties shall share the filing fees required for the arbitration, provided that the Executive shall not be required to pay an amount in excess of the lesser of the filing fees required by a federal or state court with jurisdiction.  The Company shall pay the arbitrator’s fees and any AAA administrative expenses.  Any judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  Possible disputes covered by the above include (but are not limited to) unpaid wages, breach of contract, torts, violation of public policy, discrimination, harassment, or any other employment-related claims under laws including but not limited to, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the California Labor Code, and any other statutes or laws relating to an employee’s relationship with his her employer, regardless of whether such dispute is initiated by the Executive or the Company.  Thus, this bilateral arbitration agreement applies to any and all claims that the Company may have against the Executive, including but not limited to, claims for misappropriation of Company property, disclosure of proprietary information or trade secrets, interference with contract, trade libel, gross negligence, or any other claim for alleged wrongful conduct or breach of the duty of loyalty by the Executive.  However, notwithstanding anything to the contrary contained herein, the Company and the Executive shall have their respective rights to seek and obtain injunctive relief with respect to any

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controversy, claim or dispute to the extent permitted by law.  Claims for workers’ compensation benefits and unemployment insurance (or any other claims where mandatory arbitration is prohibited by law) are not covered by this arbitration agreement, and such claims may be presented by either the Executive or the Company to the appropriate court or government agency.  BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY.  THE EXECUTIVE AND THE COMPANY WAIVE ANY CONSTITUTIONAL OR OTHER RIGHT TO BRING CLAIMS COVERED BY THIS AGREEMENT OTHER THAN IN THEIR INDIVIDUAL CAPACITIES.  EXCEPT AS MAY BE PROHIBITED BY LAW, THIS WAIVER INCLUDES THE ABILITY TO ASSERT CLAIMS AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.  This arbitration agreement is to be construed as broadly as is permissible under applicable law.

(c)Notices.  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:  at the Executive’s most recent address on the records of the Company.

If to Sunstone or the Operating Partnership:

Sunstone Hotel Investors, Inc.

200 Spectrum Center Drive, 21^st Floor

Irvine, California 92618

Attn: Corporate Secretary

with a copy to:

Latham & Watkins

355 South Grand Ave., Suite 100

Los Angeles, California 90071-1560

Attn: Steven Stokdyk, Esq.

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

(d)Sarbanes-Oxley Act of 2002.  Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any transfer or deemed transfer of funds hereunder is likely to be construed as a personal loan prohibited by Section 13(k) of the Exchange Act and the rules and regulations promulgated thereunder, then such transfer or deemed transfer shall not be made to the extent necessary or appropriate so as not to violate the Exchange Act and the rules and regulations promulgated thereunder.

(e)Section 409A.

(i)The parties agree that this Agreement is intended to comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (“Section 409A”) or an exemption from Section 409A.

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(ii)For purposes of this Agreement, each amount to be paid or benefit to be provided hereunder (including any right to a series of installment payments) shall be construed as a separate identified payment or a right to a series of separate payments for purposes of Section 409A. Any payments subject to Section 409A that are subject to execution of a waiver and release (including the Release) which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as termination of employment) occurs shall be paid or commence payment, as applicable, only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A and to the extent an amount is payable within a time period, the time during which such amount is paid shall be in the discretion of the Company.

(iii)With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in­ kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

(iv)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “nonqualified deferred compensation” under Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service”.

(v)Notwithstanding anything to the contrary in this Agreement, no compensation or benefits payable in connection with a “separation from service” (within the meaning of Section 409A) shall be paid to the Executive during the six-month period following his “separation from service” to the extent that the Company determines that the Executive is a “specified employee” at the time of such “separation from service” and that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Internal Revenue Code Section 409A(a)(2)(b)(i).  If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six-month period (or such earlier date upon which such amount can be paid under Section 409A without being subject to such additional taxes, including as a result of the Executive’s death), the Company shall pay to the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such six-month period, without interest thereon.

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(f)Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision or term hereof is deemed to have exceeded applicable legal authority or shall be in conflict with applicable legal limitations, such provision shall be reformed and rewritten as necessary to achieve consistency with such applicable law.

(g)Withholding.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(h)No Waiver.  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(i)Employment-At-Will.  The Executive acknowledges that his employment with the Company is “at-will” for all purposes and, subject to the termination and severance obligations contained in Sections 3 and 4 above, the Executive hereby agrees that the Company may dismiss him and terminate his employment with the Company at any time, with or without Cause.  Inclusion under any benefit plan or compensation arrangement will not give the Executive any right or claim to any benefit hereunder except to the extent such right has become fixed under the express terms of this Agreement.

(j)Entire Agreement.  As of the Effective Date, this Agreement, together with the Indemnification Agreement and the Confidentiality Agreement, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, made to the Executive by the Company, including, without limitation, the Prior Agreement.

(k)Survival.  Section 4 (Obligations of the Company Upon Termination), Section 7 (Restrictive Covenants) and Section 12(b) (Arbitration), as well as the Indemnification Agreement and Confidentiality Policy, shall survive termination or expiration of this Agreement and shall continue in effect.

(l)Representations and Warranties.  The Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) the Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) the Executive is not subject to any pending or, to the Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company.  The Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

(m)Consultation with Counsel.  The Executive acknowledges that he has had a full and complete opportunity to consult with counsel and other advisors of his own choosing concerning

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the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability or implications of this Agreement other than as reflected in this Agreement.

(n)Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

[signatures follow on next page]

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE	SUNSTONE HOTEL INVESTORS, INC.
	a Maryland corporation
/s/ Bryan A. Giglia	By:	/s/ Robert C. Springer
Bryan A. Giglia	Name:	Robert C. Springer
	Its:	President
	SUNSTONE HOTEL PARTNERSHIP, LLC
	a Delaware limited liability company
	By:	Sunstone Hotel Investors, Inc.
		Its Managing Member
	By:	/s/ Robert C. Springer
	Name:	Robert C. Springer
	Its:	President

EXHIBIT A

GENERAL RELEASE

For a valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Operating Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.  The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment, any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act.  Notwithstanding the foregoing, this general release (the “Release”) shall not operate to release any rights or claims of the undersigned (i) to payments or benefits under Section 4(a), 4(b) or 4(c) of that certain Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, between Sunstone Hotel Investors, Inc., Sunstone Operating Partnership, LLC and the undersigned (the “Employment Agreement”), whichever is applicable to the payments and benefits provided in exchange for this Release, (ii) with respect to Section 2(b)(vi) of the Employment Agreement, (iii) to accrued or vested benefits the undersigned may have, if any, as of the date hereof under any applicable plan, policy, practice, program, contract or agreement with the Company, (iv) to any Claims, including claims for indemnification and/or advancement of expenses arising under any indemnification agreement between the undersigned and the Company or under the bylaws, certificate of incorporation of other similar governing document of the Company, (v) to any Claims which cannot be waived by an employee under applicable law or (vi) with respect to the undersigned’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator.

THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

A-1

THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

(A)HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

(B)HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT: AND

(C)HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.]¹

The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against the undersigned under this indemnity.

The undersigned agrees that if he hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim.

The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned.

IN WITNESS WHEREOF, the undersigned has executed this Release this           day of
            , 20    .

​ ​Bryan A. Giglia

¹ NTD: Include only if the executive is 40 or older at time release is signed.

A-2

EXHIBIT B

[INDEMNIFICATION AGREEMENT]

(attached)

B-1

EX-10.3

Exhibit 10.3

FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of August 29, 2022 (the “Effective Date”), is entered into by and among Sunstone Hotel Investors, Inc., a Maryland corporation (“Sunstone”), Sunstone Hotel Partnership, LLC, a Delaware limited liability company (the “Operating Partnership,” and together with Sunstone, the “Company”), and Robert C. Springer (the “Executive”).

WHEREAS, the Company and the Executive are parties to that certain Third Amended and Restated Employment Agreement, dated March 31, 2020 as amended September 30, 2021 (the “Prior Agreement”);

WHEREAS, the Company and the Executive desire to terminate the Prior Agreement;

WHEREAS, the Company desires to enter into a new agreement embodying the terms of Executive’s continued employment with the Company; and

WHEREAS, the Executive desires to continue employment with the Company, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.Employment Period.  Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term (the “Employment Period”) commencing on the Effective Date and continuing indefinitely until terminated in accordance with the terms of this Agreement. Notwithstanding anything herein, the Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof.  

2.Terms of Employment.

(a)Position and Duties.

(i)During the Employment Period, the Executive shall serve as President and Chief Investment Officer of Sunstone and the Operating Partnership and shall perform such employment duties as are usual and customary for such positions and such other duties as the Company shall from time to time reasonably assign to the Executive.  The Executive shall report directly to the Chief Executive Officer of the Company.

(ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company.  Notwithstanding the foregoing, during the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees consistent with the Company’s conflicts of interests policies and corporate governance guidelines in effect from time to time; provided, however, service on a corporate board shall require the prior written approval of the

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Nominating and Corporate Governance Committee, or (B) manage his personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as an executive officer of the Company.

(iii)The Executive agrees that he will not take personal advantage of any business opportunity that arises during his employment by the Company and which may be of benefit to the Company; provided, however, that the Executive may take advantage of any such opportunities to the extent the Executive satisfies all conditions precedent to doing so, as required by the Company’s Code of Business Conduct and Ethics.

(b)Compensation.

(i)Base Salary.  During the Employment Period, the Executive shall receive a base salary (the “Base Salary”) of $550,000 per annum.  The Base Salary shall be paid in installments at such intervals as the Company pays executive salaries generally, but not less often than monthly.  During the Employment Period, the Base Salary shall be reviewed at least annually for possible increase in the Company’s sole discretion, as determined by the compensation committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”).  The term “Base Salary” as utilized in this Agreement shall refer to Base Salary as so adjusted.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.

(ii)Annual Bonus.  In addition to the Base Salary, the Executive shall be eligible to earn, for each calendar year ending during the Employment Period, an annual cash performance bonus (an “Annual Bonus”) under the Company’s bonus plan or plans applicable to senior executives.  The amount of any Annual Bonus and the performance goals applicable to such Annual Bonus for the relevant year shall be determined by the Compensation Committee in accordance with the terms and conditions of said bonus plan as in effect from time to time, provided that, subject to the terms of such bonus plan and the attainment of performance goals established by the Compensation Committee, Executive’s threshold level, target level and maximum level Annual Bonus shall be equal to 67.5%, 135% and 202.5%, respectively, of the Executive’s Base Salary for such year.  The Annual Bonus payable, if any, in respect of any calendar year shall be paid no later than the March 15 immediately following such calendar year performance period, subject to the Executive’s continued employment through the payment date.

(iii)Equity Awards.  During the Employment Period, the Executive shall be eligible to receive equity awards under the Company’s long-term incentive plan, subject to vesting and other conditions determined by the Compensation Committee, in its sole discretion.  The form, amount and terms of any such equity awards, if any, shall be determined by the Compensation Committee in its sole discretion in accordance with the terms and conditions of plans as in effect from time to time.

(iv)Incentive, Savings and Retirement Plans.  During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, policies and programs, in each case that are applicable generally to senior executives of the Company.

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(v)Welfare Benefit Plans.  During the Employment Period, the Executive and the Executive’s eligible family members shall be eligible to participate in the welfare benefit plans, practices, policies and programs (including, if applicable, medical, dental, vision, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its senior executives.

(vi)Business Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company provided to senior executives of the Company.

(vii)Fringe Benefits.  During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its senior executives from time to time, in accordance with the policies, practices and procedures of the Company.

(viii)Vacation.  During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company applicable to its senior executives, but in no event shall the Executive accrue less than four weeks of vacation per calendar year (pro-rated for any partial year of service); provided, however, that the Executive shall not accrue any vacation time in excess of 1.5 times the Executive’s applicable annual vacation accrual (the “Accrual Limit”), and shall cease accruing vacation time if the Executive’s accrued vacation reaches the Accrual Limit until such time as the Executive’s accrued vacation time drops below the Accrual Limit.

3.Termination of Employment.

(a)Death or Disability.  The Executive’s employment shall terminate upon the Executive’s death or Disability during the Employment Period.  For purposes of this Agreement, “Disability” means the Executive’s inability by reason of permanent physical or mental illness to fulfill his obligations hereunder for 120 consecutive days or on a total of 180 days in any 12 month period which, in the reasonable opinion of an independent physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive’s legal representative, renders the Executive unable to perform the essential functions of his job, even after reasonable accommodations are made by the Company.  The Company is not, however, required to make unreasonable accommodations for the Executive or accommodations that would create an undue hardship on the Company.  For purposes of clarity, this provision is not intended to, and does not, alter or affect any and all rights the Executive has to avail himself of leaves of absence in accordance with Company policies applicable to senior executives or his rights under applicable disability and leave of absences laws, including, without limitation, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, and the California Family Rights Act.

(b)Termination by the Company.  The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause.  For purposes of this Agreement, “Cause” shall mean the occurrence of one or more of the following events:

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(i)The Executive’s continued and willful failure to perform or gross negligence in performing his duties owed to the Company, which is not cured within 15 days following a written notice being delivered to the Executive, which notice specifies such failure or negligence;

(ii)The Executive’s willful commission of an act of fraud or material dishonesty in the performance of his duties, the nature of which, and the support for which, shall be provided to the Executive in writing;

(iii)The indictment of the Executive, conviction of the Executive, or entry by the Executive of a guilty or no contest plea to any felony or any other felony or misdemeanor involving moral turpitude;

(iv)Any material breach by the Executive of his fiduciary duty or duty of loyalty to the Company; or

(v)The Executive’s material breach of any of the provisions of this Agreement, or any other written agreement between the Executive and the Company, which is not cured within 15 days following written notice thereof from the Company.

(c)Termination by the Executive.  The Executive’s employment may be terminated by the Executive for Good Reason or without Good Reason.  For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without the Executive’s prior written consent:

(i)A material reduction in the Executive’s title, duties, authority, responsibilities, reporting relationships, including, without limitation, the Company ceasing to be a public company or ceasing to be traded on the New York Stock Exchange (or similar exchange) following a Change in Control, or the assignment to the Executive of any duties materially inconsistent with the Executive’s position, title, authority, duties or responsibilities;

(ii)During the Employment Period, a reduction by the Company of the Executive’s annual Base Salary (as in effect or as may be increased from time to time) by greater than three percent (3%);

(iii)The relocation of the Company’s headquarters to a location more than 35 miles from the Company’s current headquarters in Irvine, California; and

(iv)The Company’s material breach of its obligations under this Agreement.

For purposes of this Agreement, a termination of employment by the Executive shall not be deemed to be for Good Reason unless (A) the Executive gives the Company written notice describing the event or events which are the basis for such termination within 90 days after the event or events occur, (B) such grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days after the Company’s receipt of such notice, and (C) the Executive terminates his employment no later than 45 days after the Executive provides notice to the Company in accordance with clause (A) of this paragraph.

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(d)Notice of Termination.  Any termination other than due to death shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 12(c) below.  For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice or, in the case of a termination by the Executive for Good Reason more than 45 days after the date on which the Executive provides written notice of intent to terminate for Good Reason in accordance with Section 3(c) above).  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e)Date of Termination.  For purposes of this Agreement, “Date of Termination” means (i) if the Executive’s employment is terminated by the Company, the date of receipt by the Executive of the Notice of Termination or any later date specified therein (which date shall not be more than 30 days after date of receipt by the Executive of such notice), (ii) if the Executive’s employment is terminated by the Executive, the Date of Termination shall be the 30th day after the date on which the Executive notifies the Company of such termination (or, in the case of a termination by the Executive for Good Reason on the 45th day after the date on which the Executive provides written notice in accordance with Section 3(c) above), unless otherwise agreed by the Company and the Executive, and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date the death or Disability of the Executive is determined as described in Section 3(a) above, as the case may be.

4.Obligations of the Company Upon Termination.

(a)Accrued Obligations.  If, during the Employment Period, the Executive’s employment is terminated for any reason, the Company will pay or provide to the Executive:  (i) any earned but unpaid Base Salary, (ii) accrued but unpaid vacation pay through the Date of Termination, (iii) any vested amounts due to the Executive under any plan, program or policy of the Company, to the extent not previously paid (if any) (together, the “Accrued Obligations”). The Accrued Obligations described in clauses (i) – (ii) of the preceding sentence shall be paid within 30 days after the Date of Termination (or such earlier date as may be required by applicable law) and the Accrued Obligations described in clause (iii) of the preceding sentence shall be paid in accordance with the terms of the governing plan or program.  

(b)Without Cause or for Good Reason.  If, during the Employment Period, the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then, in addition to the Accrued Obligations, the Executive shall be paid or receive:

(i)An amount (the “Severance Amount”) equal to the sum of:

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(A)Two times the sum of (i) the Base Salary in effect on the Date of Termination (but in no event less than the highest Base Salary paid to the Executive during the Employment Period) and (ii) the greater of (x) Executive’s target Annual Bonus (the “Target Annual Bonus”) in effect on the Date of Termination and (y) the Annual Bonus actually paid to the Executive in respect of the calendar year immediately preceding the Date of Termination,

(B)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination, to the extent not previously paid (if any), and

(C)A pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Target Annual Bonus for such year (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365.

Subject to Section 12(e) below, the Severance Amount shall be paid within 15 days following the date on which the Release (as defined below) becomes effective and irrevocable in accordance with Section 4(b)(v) below.

(ii)The portion of any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted prior to January 1, 2022 that would have become vested and, as applicable, exercisable during the 12 month period immediately following the Executive’s Date of Termination had the Executive remained continuously employed by the Company during such period shall become immediately vested and, as applicable, exercisable; provided, however, that if the termination occurs on or within 12 months following a Change in Control (as defined in the Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan), any such equity awards shall vest and become exercisable in full (together with the accelerated vesting under Section 4(b)(iii) below, the “Vesting Acceleration”). The accelerated portion of such equity awards shall remain outstanding and shall vest upon the effectiveness of the Release. The portion of any outstanding restricted stock and other equity awards granted prior to January 1, 2022 that does not become vested and, as applicable, exercisable in accordance with this Section 4(b)(ii) (whether because such portion would not have vested during the 12 month period immediately following the Executive’s Date of Termination or because the Executive does not timely execute and not revoke the Release) shall automatically be cancelled and forfeited, and the Executive shall have no further interest therein.

(iii)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted on or after January 1, 2022 and are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with

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the Company shall remain outstanding and shall vest in full upon the effectiveness of the Release.

(iv)During the period commencing on the Date of Termination and ending on the earlier to occur of (i) the 18 month anniversary of the Date of Termination and (ii) the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code and the regulations thereunder (together, the “Code”), the Company shall continue to provide, at the Company’s expense, the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination (the “COBRA Coverage”), provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a) (5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(v)Notwithstanding anything herein to the contrary, it shall be a condition to the Executive’s right to receive any of the Severance Amount, the Vesting Acceleration and/or the COBRA Coverage that the Executive timely execute and deliver to the Company within 21 days (or 45 days, if required by applicable law) and not revoke within 7 days following such execution and delivery a release of claims in substantially the form attached hereto as Exhibit A (the “Release”).

(c)Death or Disability.  If, during the Employment Period, the Executive’s employment is terminated by reason of the Executive’s death or Disability then, in addition to the Accrued Obligations:

(i)An amount equal to 100% of the Executive’s annual Base Salary, as in effect on the Date of Termination, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

(ii)An amount equal to a pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Executive’s Target Annual Bonus for such year under the applicable Company bonus program (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

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(iii)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, to the extent not previously paid (if any), within 30 days after the Date of Termination;

(iv)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with the Company shall vest in full; and

(v)During the 18 month period following the Date of Termination, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code, the Company shall continue to provide the Executive and the Executive’s eligible dependents with COBRA Coverage, provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(d)Other Terminations.  If the Executive’s employment with the Company terminates for any reason not described in Section 4(b) or Section 4(c) above, the Company shall pay the Executive only the Accrued Obligations and shall have no further obligations to the Executive under this Agreement.

6.Excess Parachute Payments; Limitations on Payments.  

(a)Best Pay Cap.  Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part) to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”) then, if elected by the Executive, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, any cash payments shall first be reduced, and any noncash payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting

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the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

(b)Certain Exclusions.  For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7.Restrictive Covenants.

(a)While employed by the Company (whether pursuant to this Agreement or otherwise) and for a period of 12 months following the Executive’s termination of employment for any reason, the Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of any member of the Company and its parents, subsidiaries and affiliates to terminate their employment or other relationship with the Company and its parents, subsidiaries and affiliates or to cease to render services to any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(b)During his employment with the Company (whether pursuant to this Agreement or otherwise) and thereafter, the Executive shall not use any trade secret of the Company or its parents, subsidiaries or affiliates to solicit, induce, or encourage any customer, client, vendor, or other party doing business with any member of the Company and its parents, subsidiaries and affiliates to terminate its relationship therewith or transfer its business from any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(c)The Executive agrees not to disparage the Company, and the Executive agrees not to disparage any parent, subsidiary or affiliate of the Company and/or any officers, directors, employees, shareholders and/or agents of the Company or any parent, subsidiary or affiliate of the Company, in any manner intended or reasonably likely to be harmful to them, their business, business reputation or personal reputation.  Notwithstanding the foregoing, nothing in this

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Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process, or from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation.

(d)In recognition of the facts that irreparable injury will result to the Company in the event of a breach by the Executive of his obligations under Sections 7(a), (b) and (c) hereof, that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law therefor, the Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by the Executive.

8.Full Settlement.The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment.

9.Successors.

(a)This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)The Company will require any successor (whether direct or indirect, by purchase merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise, including without limitation, a Change in Control.

10.Payment of Financial Obligations.The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement shall be allocated to the Operating Partnership, Sunstone, Sunstone Hotel TRS Lessee, Inc. and, if applicable, any of their respective subsidiaries and/or affiliates in accordance with any employee

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sharing and expense allocation agreement, by and between Sunstone and the Operating Partnership, as in effect from time to time.

11.Ancillary Agreements.  The Company and the Executive previously executed the Indemnification Agreement attached hereto as Exhibit B (the “Indemnification Agreement”).  The Executive hereby acknowledges that the Executive previously has entered into an arrangement with the Company containing confidentiality and other protective covenants (the “Confidentiality Policy”) and that the Executive shall continue to be bound by the terms and conditions of the Confidentiality Policy.

12.Miscellaneous.

(a)Governing Law; Amendment.  This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)Arbitration.  To the fullest extent allowed by law, any controversy, claim or dispute between the Executive and the Company (and or any of its owners, directors, officers, employees, affiliates, or agents) relating to or arising out of the Executive’s employment or the cessation of that employment will be submitted to final and binding arbitration in the county in which the Executive worked for determination by one arbitrator with hotel industry experience in accordance with the American Arbitration Association’s (“AAA”) National Rules for the Resolution of Employment Disputes, as the exclusive remedy for such controversy, claim or dispute.  In any such arbitration, the parties may conduct discovery in accordance with the applicable rules of the arbitration forum, except that the arbitrator shall have the authority to order and permit discovery as the arbitrator may deem necessary and appropriate in accordance with applicable state or federal discovery statutes.  The arbitrator shall issue a reasoned, written decision, and shall have full authority to award all remedies which would be available in court.  The parties shall share the filing fees required for the arbitration, provided that the Executive shall not be required to pay an amount in excess of the lesser of the filing fees required by a federal or state court with jurisdiction.  The Company shall pay the arbitrator’s fees and any AAA administrative expenses.  Any judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  Possible disputes covered by the above include (but are not limited to) unpaid wages, breach of contract, torts, violation of public policy, discrimination, harassment, or any other employment-related claims under laws including but not limited to, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the California Labor Code, and any other statutes or laws relating to an employee’s relationship with his her employer, regardless of whether such dispute is initiated by the Executive or the Company.  Thus, this bilateral arbitration agreement applies to any and all claims that the Company may have against the Executive, including but not limited to, claims for misappropriation of Company property, disclosure of proprietary information or trade secrets, interference with contract, trade libel, gross negligence, or any other claim for alleged wrongful conduct or breach of the duty of loyalty by the Executive.  However, notwithstanding anything to the contrary contained herein, the Company and the Executive shall have their respective rights to seek and obtain injunctive relief with respect to any

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controversy, claim or dispute to the extent permitted by law.  Claims for workers’ compensation benefits and unemployment insurance (or any other claims where mandatory arbitration is prohibited by law) are not covered by this arbitration agreement, and such claims may be presented by either the Executive or the Company to the appropriate court or government agency.  BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY.  THE EXECUTIVE AND THE COMPANY WAIVE ANY CONSTITUTIONAL OR OTHER RIGHT TO BRING CLAIMS COVERED BY THIS AGREEMENT OTHER THAN IN THEIR INDIVIDUAL CAPACITIES.  EXCEPT AS MAY BE PROHIBITED BY LAW, THIS WAIVER INCLUDES THE ABILITY TO ASSERT CLAIMS AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.  This arbitration agreement is to be construed as broadly as is permissible under applicable law.

(c)Notices.  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:  at the Executive’s most recent address on the records of the Company.

If to Sunstone or the Operating Partnership:

Sunstone Hotel Investors, Inc.

200 Spectrum Center Drive, 21^st Floor

Irvine, California 92618

Attn: Corporate Secretary

with a copy to:

Latham & Watkins

355 South Grand Ave., Suite 100

Los Angeles, California 90071-1560

Attn: Steven Stokdyk, Esq.

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

(d)Sarbanes-Oxley Act of 2002.  Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any transfer or deemed transfer of funds hereunder is likely to be construed as a personal loan prohibited by Section 13(k) of the Exchange Act and the rules and regulations promulgated thereunder, then such transfer or deemed transfer shall not be made to the extent necessary or appropriate so as not to violate the Exchange Act and the rules and regulations promulgated thereunder.

(e)Section 409A.

(i)The parties agree that this Agreement is intended to comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (“Section 409A”) or an exemption from Section 409A.

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(ii)For purposes of this Agreement, each amount to be paid or benefit to be provided hereunder (including any right to a series of installment payments) shall be construed as a separate identified payment or a right to a series of separate payments for purposes of Section 409A. Any payments subject to Section 409A that are subject to execution of a waiver and release (including the Release) which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as termination of employment) occurs shall be paid or commence payment, as applicable, only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A and to the extent an amount is payable within a time period, the time during which such amount is paid shall be in the discretion of the Company.

(iii)With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in­ kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

(iv)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “nonqualified deferred compensation” under Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service”.

(v)Notwithstanding anything to the contrary in this Agreement, no compensation or benefits payable in connection with a “separation from service” (within the meaning of Section 409A) shall be paid to the Executive during the six-month period following his “separation from service” to the extent that the Company determines that the Executive is a “specified employee” at the time of such “separation from service” and that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Internal Revenue Code Section 409A(a)(2)(b)(i).  If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six-month period (or such earlier date upon which such amount can be paid under Section 409A without being subject to such additional taxes, including as a result of the Executive’s death), the Company shall pay to the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such six-month period, without interest thereon.

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(f)Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision or term hereof is deemed to have exceeded applicable legal authority or shall be in conflict with applicable legal limitations, such provision shall be reformed and rewritten as necessary to achieve consistency with such applicable law.

(g)Withholding.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(h)No Waiver.  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(i)Employment-At-Will.  The Executive acknowledges that his employment with the Company is “at-will” for all purposes and, subject to the termination and severance obligations contained in Sections 3 and 4 above, the Executive hereby agrees that the Company may dismiss him and terminate his employment with the Company at any time, with or without Cause.  Inclusion under any benefit plan or compensation arrangement will not give the Executive any right or claim to any benefit hereunder except to the extent such right has become fixed under the express terms of this Agreement.

(j)Entire Agreement.  As of the Effective Date, this Agreement, together with the Indemnification Agreement and the Confidentiality Agreement, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, made to the Executive by the Company, including, without limitation, the Prior Agreement.

(k)Survival.  Section 4 (Obligations of the Company Upon Termination), Section 7 (Restrictive Covenants) and Section 12(b) (Arbitration), as well as the Indemnification Agreement and Confidentiality Policy, shall survive termination or expiration of this Agreement and shall continue in effect.

(l)Representations and Warranties.  The Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) the Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) the Executive is not subject to any pending or, to the Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company.  The Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

(m)Consultation with Counsel.  The Executive acknowledges that he has had a full and complete opportunity to consult with counsel and other advisors of his own choosing concerning

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the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability or implications of this Agreement other than as reflected in this Agreement.

(n)Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

[signatures follow on next page]

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE	SUNSTONE HOTEL INVESTORS, INC.
	a Maryland corporation
/s/ Robert C. Springer	By:	/s/ Bryan A. Giglia
Robert C. Springer	Name:	Bryan A. Giglia
	Its:	CEO
	SUNSTONE HOTEL PARTNERSHIP, LLC
	a Delaware limited liability company
	By:	Sunstone Hotel Investors, Inc.
		Its Managing Member
	By:	/s/ Bryan A. Giglia
	Name:	Bryan A. Giglia
	Its:	CEO

EXHIBIT A

GENERAL RELEASE

For a valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Operating Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.  The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment, any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act.  Notwithstanding the foregoing, this general release (the “Release”) shall not operate to release any rights or claims of the undersigned (i) to payments or benefits under Section 4(a), 4(b) or 4(c) of that certain Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, between Sunstone Hotel Investors, Inc., Sunstone Operating Partnership, LLC and the undersigned (the “Employment Agreement”), whichever is applicable to the payments and benefits provided in exchange for this Release, (ii) with respect to Section 2(b)(vi) of the Employment Agreement, (iii) to accrued or vested benefits the undersigned may have, if any, as of the date hereof under any applicable plan, policy, practice, program, contract or agreement with the Company, (iv) to any Claims, including claims for indemnification and/or advancement of expenses arising under any indemnification agreement between the undersigned and the Company or under the bylaws, certificate of incorporation of other similar governing document of the Company, (v) to any Claims which cannot be waived by an employee under applicable law or (vi) with respect to the undersigned’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator.

THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

A-1

THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

(A)HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

(B)HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT: AND

(C)HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.]¹

The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against the undersigned under this indemnity.

The undersigned agrees that if he hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim.

The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned.

IN WITNESS WHEREOF, the undersigned has executed this Release this           day of
            , 20    .

​ ​Robert C. Springer

¹ NTD: Include only if the executive is 40 or older at time release is signed.

A-2

EXHIBIT B

[INDEMNIFICATION AGREEMENT]

(attached)

B-1

EX-10.4

Exhibit 10.4

FIFTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS FIFTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of August 29, 2022 (the “Effective Date”), is entered into by and among Sunstone Hotel Investors, Inc., a Maryland corporation (“Sunstone”), Sunstone Hotel Partnership, LLC, a Delaware limited liability company (the “Operating Partnership,” and together with Sunstone, the “Company”), and David M. Klein (the “Executive”).

WHEREAS, the Company and the Executive are parties to that certain Fourth Amended and Restated Employment Agreement, dated March 31, 2021 as amended September 30, 2021 (the “Prior Agreement”);

WHEREAS, the Company and the Executive desire to terminate the Prior Agreement;

WHEREAS, the Company desires to enter into a new agreement embodying the terms of Executive’s continued employment with the Company; and

WHEREAS, the Executive desires to continue employment with the Company, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.Employment Period.  Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term (the “Employment Period”) commencing on the Effective Date and continuing indefinitely until terminated in accordance with the terms of this Agreement. Notwithstanding anything herein, the Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof.  

2.Terms of Employment.

(a)Position and Duties.

(i)During the Employment Period, the Executive shall serve as Executive Vice President – General Counsel of Sunstone and the Operating Partnership and shall perform such employment duties as are usual and customary for such positions and such other duties as the Company shall from time to time reasonably assign to the Executive.  The Executive shall report directly to the Chief Executive Officer of the Company.

(ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company.  Notwithstanding the foregoing, during the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees consistent with the Company’s conflicts of interests policies and corporate governance guidelines in effect from time to time; provided, however, service on a corporate board shall require the prior written approval of the

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Nominating and Corporate Governance Committee, or (B) manage his personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as an executive officer of the Company.

(iii)The Executive agrees that he will not take personal advantage of any business opportunity that arises during his employment by the Company and which may be of benefit to the Company; provided, however, that the Executive may take advantage of any such opportunities to the extent the Executive satisfies all conditions precedent to doing so, as required by the Company’s Code of Business Conduct and Ethics.

(b)Compensation.

(i)Base Salary.  During the Employment Period, the Executive shall receive a base salary (the “Base Salary”) of $425,000 per annum.  The Base Salary shall be paid in installments at such intervals as the Company pays executive salaries generally, but not less often than monthly.  During the Employment Period, the Base Salary shall be reviewed at least annually for possible increase in the Company’s sole discretion, as determined by the compensation committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”).  The term “Base Salary” as utilized in this Agreement shall refer to Base Salary as so adjusted.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.

(ii)Annual Bonus.  In addition to the Base Salary, the Executive shall be eligible to earn, for each calendar year ending during the Employment Period, an annual cash performance bonus (an “Annual Bonus”) under the Company’s bonus plan or plans applicable to senior executives.  The amount of any Annual Bonus and the performance goals applicable to such Annual Bonus for the relevant year shall be determined by the Compensation Committee in accordance with the terms and conditions of said bonus plan as in effect from time to time, provided that, subject to the terms of such bonus plan and the attainment of performance goals established by the Compensation Committee, Executive’s threshold level, target level and maximum level Annual Bonus shall be equal to 50%, 100% and 150%, respectively, of the Executive’s Base Salary for such year.  The Annual Bonus payable, if any, in respect of any calendar year shall be paid no later than the March 15 immediately following such calendar year performance period, subject to the Executive’s continued employment through the payment date.

(iii)Equity Awards.  During the Employment Period, the Executive shall be eligible to receive equity awards under the Company’s long-term incentive plan, subject to vesting and other conditions determined by the Compensation Committee, in its sole discretion.  The form, amount and terms of any such equity awards, if any, shall be determined by the Compensation Committee in its sole discretion in accordance with the terms and conditions of plans as in effect from time to time.

(iv)Incentive, Savings and Retirement Plans.  During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, policies and programs, in each case that are applicable generally to senior executives of the Company.

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(v)Welfare Benefit Plans.  During the Employment Period, the Executive and the Executive’s eligible family members shall be eligible to participate in the welfare benefit plans, practices, policies and programs (including, if applicable, medical, dental, vision, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its senior executives.

(vi)Business Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company provided to senior executives of the Company.

(vii)Fringe Benefits.  During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its senior executives from time to time, in accordance with the policies, practices and procedures of the Company.

(viii)Vacation.  During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company applicable to its senior executives, but in no event shall the Executive accrue less than four weeks of vacation per calendar year (pro-rated for any partial year of service); provided, however, that the Executive shall not accrue any vacation time in excess of 1.5 times the Executive’s applicable annual vacation accrual (the “Accrual Limit”), and shall cease accruing vacation time if the Executive’s accrued vacation reaches the Accrual Limit until such time as the Executive’s accrued vacation time drops below the Accrual Limit.

3.Termination of Employment.

(a)Death or Disability.  The Executive’s employment shall terminate upon the Executive’s death or Disability during the Employment Period.  For purposes of this Agreement, “Disability” means the Executive’s inability by reason of permanent physical or mental illness to fulfill his obligations hereunder for 120 consecutive days or on a total of 180 days in any 12 month period which, in the reasonable opinion of an independent physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive’s legal representative, renders the Executive unable to perform the essential functions of his job, even after reasonable accommodations are made by the Company.  The Company is not, however, required to make unreasonable accommodations for the Executive or accommodations that would create an undue hardship on the Company.  For purposes of clarity, this provision is not intended to, and does not, alter or affect any and all rights the Executive has to avail himself of leaves of absence in accordance with Company policies applicable to senior executives or his rights under applicable disability and leave of absences laws, including, without limitation, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, and the California Family Rights Act.

(b)Termination by the Company.  The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause.  For purposes of this Agreement, “Cause” shall mean the occurrence of one or more of the following events:

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(i)The Executive’s continued and willful failure to perform or gross negligence in performing his duties owed to the Company, which is not cured within 15 days following a written notice being delivered to the Executive, which notice specifies such failure or negligence;

(ii)The Executive’s willful commission of an act of fraud or material dishonesty in the performance of his duties, the nature of which, and the support for which, shall be provided to the Executive in writing;

(iii)The indictment of the Executive, conviction of the Executive, or entry by the Executive of a guilty or no contest plea to any felony or any other felony or misdemeanor involving moral turpitude;

(iv)Any material breach by the Executive of his fiduciary duty or duty of loyalty to the Company; or

(v)The Executive’s material breach of any of the provisions of this Agreement, or any other written agreement between the Executive and the Company, which is not cured within 15 days following written notice thereof from the Company.

(c)Termination by the Executive.  The Executive’s employment may be terminated by the Executive for Good Reason or without Good Reason.  For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without the Executive’s prior written consent:

(i)A material reduction in the Executive’s title, duties, authority, responsibilities, reporting relationships, including, without limitation, the Company ceasing to be a public company or ceasing to be traded on the New York Stock Exchange (or similar exchange) following a Change in Control, or the assignment to the Executive of any duties materially inconsistent with the Executive’s position, title, authority, duties or responsibilities;

(ii)During the Employment Period, a reduction by the Company of the Executive’s annual Base Salary (as in effect or as may be increased from time to time) by greater than three percent (3%);

(iii)The relocation of the Company’s headquarters to a location more than 35 miles from the Company’s current headquarters in Irvine, California; and

(iv)The Company’s material breach of its obligations under this Agreement.

For purposes of this Agreement, a termination of employment by the Executive shall not be deemed to be for Good Reason unless (A) the Executive gives the Company written notice describing the event or events which are the basis for such termination within 90 days after the event or events occur, (B) such grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days after the Company’s receipt of such notice, and (C) the Executive terminates his employment no later than 45 days after the Executive provides notice to the Company in accordance with clause (A) of this paragraph.

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(d)Notice of Termination.  Any termination other than due to death shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 12(c) below.  For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice or, in the case of a termination by the Executive for Good Reason more than 45 days after the date on which the Executive provides written notice of intent to terminate for Good Reason in accordance with Section 3(c) above).  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e)Date of Termination.  For purposes of this Agreement, “Date of Termination” means (i) if the Executive’s employment is terminated by the Company, the date of receipt by the Executive of the Notice of Termination or any later date specified therein (which date shall not be more than 30 days after date of receipt by the Executive of such notice), (ii) if the Executive’s employment is terminated by the Executive, the Date of Termination shall be the 30th day after the date on which the Executive notifies the Company of such termination (or, in the case of a termination by the Executive for Good Reason on the 45th day after the date on which the Executive provides written notice in accordance with Section 3(c) above), unless otherwise agreed by the Company and the Executive, and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date the death or Disability of the Executive is determined as described in Section 3(a) above, as the case may be.

4.Obligations of the Company Upon Termination.

(a)Accrued Obligations.  If, during the Employment Period, the Executive’s employment is terminated for any reason, the Company will pay or provide to the Executive:  (i) any earned but unpaid Base Salary, (ii) accrued but unpaid vacation pay through the Date of Termination, (iii) any vested amounts due to the Executive under any plan, program or policy of the Company, to the extent not previously paid (if any) (together, the “Accrued Obligations”). The Accrued Obligations described in clauses (i) – (ii) of the preceding sentence shall be paid within 30 days after the Date of Termination (or such earlier date as may be required by applicable law) and the Accrued Obligations described in clause (iii) of the preceding sentence shall be paid in accordance with the terms of the governing plan or program.  

(b)Without Cause or for Good Reason.  If, during the Employment Period, the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then, in addition to the Accrued Obligations, the Executive shall be paid or receive:

(i)An amount (the “Severance Amount”) equal to the sum of:

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(A)Two times the sum of (i) the Base Salary in effect on the Date of Termination (but in no event less than the highest Base Salary paid to the Executive during the Employment Period) and (ii) the greater of (x) Executive’s target Annual Bonus (the “Target Annual Bonus”) in effect on the Date of Termination and (y) the Annual Bonus actually paid to the Executive in respect of the calendar year immediately preceding the Date of Termination,

(B)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination, to the extent not previously paid (if any), and

(C)A pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Target Annual Bonus for such year (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365.

Subject to Section 12(e) below, the Severance Amount shall be paid within 15 days following the date on which the Release (as defined below) becomes effective and irrevocable in accordance with Section 4(b)(v) below.

(ii)The portion of any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted prior to January 1, 2022 that would have become vested and, as applicable, exercisable during the 12 month period immediately following the Executive’s Date of Termination had the Executive remained continuously employed by the Company during such period shall become immediately vested and, as applicable, exercisable; provided, however, that if the termination occurs on or within 12 months following a Change in Control (as defined in the Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan), any such equity awards shall vest and become exercisable in full (together with the accelerated vesting under Section 4(b)(iii) below, the “Vesting Acceleration”). The accelerated portion of such equity awards shall remain outstanding and shall vest upon the effectiveness of the Release. The portion of any outstanding restricted stock and other equity awards granted prior to January 1, 2022 that does not become vested and, as applicable, exercisable in accordance with this Section 4(b)(ii) (whether because such portion would not have vested during the 12 month period immediately following the Executive’s Date of Termination or because the Executive does not timely execute and not revoke the Release) shall automatically be cancelled and forfeited, and the Executive shall have no further interest therein.

(iii)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted on or after January 1, 2022 and are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with

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the Company shall remain outstanding and shall vest in full upon the effectiveness of the Release.

(iv)During the period commencing on the Date of Termination and ending on the earlier to occur of (i) the 18 month anniversary of the Date of Termination and (ii) the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code and the regulations thereunder (together, the “Code”), the Company shall continue to provide, at the Company’s expense, the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination (the “COBRA Coverage”), provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a) (5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(v)Notwithstanding anything herein to the contrary, it shall be a condition to the Executive’s right to receive any of the Severance Amount, the Vesting Acceleration and/or the COBRA Coverage that the Executive timely execute and deliver to the Company within 21 days (or 45 days, if required by applicable law) and not revoke within 7 days following such execution and delivery a release of claims in substantially the form attached hereto as Exhibit A (the “Release”).

(c)Death or Disability.  If, during the Employment Period, the Executive’s employment is terminated by reason of the Executive’s death or Disability then, in addition to the Accrued Obligations:

(i)An amount equal to 100% of the Executive’s annual Base Salary, as in effect on the Date of Termination, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

(ii)An amount equal to a pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Executive’s Target Annual Bonus for such year under the applicable Company bonus program (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

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(iii)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, to the extent not previously paid (if any), within 30 days after the Date of Termination;

(iv)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with the Company shall vest in full; and

(v)During the 18 month period following the Date of Termination, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code, the Company shall continue to provide the Executive and the Executive’s eligible dependents with COBRA Coverage, provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(d)Other Terminations.  If the Executive’s employment with the Company terminates for any reason not described in Section 4(b) or Section 4(c) above, the Company shall pay the Executive only the Accrued Obligations and shall have no further obligations to the Executive under this Agreement.

6.Excess Parachute Payments; Limitations on Payments.  

(a)Best Pay Cap.  Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part) to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”) then, if elected by the Executive, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, any cash payments shall first be reduced, and any noncash payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting

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the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

(b)Certain Exclusions.  For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7.Restrictive Covenants.

(a)While employed by the Company (whether pursuant to this Agreement or otherwise) and for a period of 12 months following the Executive’s termination of employment for any reason, the Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of any member of the Company and its parents, subsidiaries and affiliates to terminate their employment or other relationship with the Company and its parents, subsidiaries and affiliates or to cease to render services to any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(b)During his employment with the Company (whether pursuant to this Agreement or otherwise) and thereafter, the Executive shall not use any trade secret of the Company or its parents, subsidiaries or affiliates to solicit, induce, or encourage any customer, client, vendor, or other party doing business with any member of the Company and its parents, subsidiaries and affiliates to terminate its relationship therewith or transfer its business from any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(c)The Executive agrees not to disparage the Company, and the Executive agrees not to disparage any parent, subsidiary or affiliate of the Company and/or any officers, directors, employees, shareholders and/or agents of the Company or any parent, subsidiary or affiliate of the Company, in any manner intended or reasonably likely to be harmful to them, their business, business reputation or personal reputation.  Notwithstanding the foregoing, nothing in this

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Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process, or from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation.

(d)In recognition of the facts that irreparable injury will result to the Company in the event of a breach by the Executive of his obligations under Sections 7(a), (b) and (c) hereof, that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law therefor, the Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by the Executive.

8.Full Settlement.The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment.

9.Successors.

(a)This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)The Company will require any successor (whether direct or indirect, by purchase merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise, including without limitation, a Change in Control.

10.Payment of Financial Obligations.The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement shall be allocated to the Operating Partnership, Sunstone, Sunstone Hotel TRS Lessee, Inc. and, if applicable, any of their respective subsidiaries and/or affiliates in accordance with any employee

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sharing and expense allocation agreement, by and between Sunstone and the Operating Partnership, as in effect from time to time.

11.Ancillary Agreements.  The Company and the Executive previously executed the Indemnification Agreement attached hereto as Exhibit B (the “Indemnification Agreement”).  The Executive hereby acknowledges that the Executive previously has entered into an arrangement with the Company containing confidentiality and other protective covenants (the “Confidentiality Policy”) and that the Executive shall continue to be bound by the terms and conditions of the Confidentiality Policy.

12.Miscellaneous.

(a)Governing Law; Amendment.  This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)Arbitration.  To the fullest extent allowed by law, any controversy, claim or dispute between the Executive and the Company (and or any of its owners, directors, officers, employees, affiliates, or agents) relating to or arising out of the Executive’s employment or the cessation of that employment will be submitted to final and binding arbitration in the county in which the Executive worked for determination by one arbitrator with hotel industry experience in accordance with the American Arbitration Association’s (“AAA”) National Rules for the Resolution of Employment Disputes, as the exclusive remedy for such controversy, claim or dispute.  In any such arbitration, the parties may conduct discovery in accordance with the applicable rules of the arbitration forum, except that the arbitrator shall have the authority to order and permit discovery as the arbitrator may deem necessary and appropriate in accordance with applicable state or federal discovery statutes.  The arbitrator shall issue a reasoned, written decision, and shall have full authority to award all remedies which would be available in court.  The parties shall share the filing fees required for the arbitration, provided that the Executive shall not be required to pay an amount in excess of the lesser of the filing fees required by a federal or state court with jurisdiction.  The Company shall pay the arbitrator’s fees and any AAA administrative expenses.  Any judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  Possible disputes covered by the above include (but are not limited to) unpaid wages, breach of contract, torts, violation of public policy, discrimination, harassment, or any other employment-related claims under laws including but not limited to, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the California Labor Code, and any other statutes or laws relating to an employee’s relationship with his her employer, regardless of whether such dispute is initiated by the Executive or the Company.  Thus, this bilateral arbitration agreement applies to any and all claims that the Company may have against the Executive, including but not limited to, claims for misappropriation of Company property, disclosure of proprietary information or trade secrets, interference with contract, trade libel, gross negligence, or any other claim for alleged wrongful conduct or breach of the duty of loyalty by the Executive.  However, notwithstanding anything to the contrary contained herein, the Company and the Executive shall have their respective rights to seek and obtain injunctive relief with respect to any

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controversy, claim or dispute to the extent permitted by law.  Claims for workers’ compensation benefits and unemployment insurance (or any other claims where mandatory arbitration is prohibited by law) are not covered by this arbitration agreement, and such claims may be presented by either the Executive or the Company to the appropriate court or government agency.  BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY.  THE EXECUTIVE AND THE COMPANY WAIVE ANY CONSTITUTIONAL OR OTHER RIGHT TO BRING CLAIMS COVERED BY THIS AGREEMENT OTHER THAN IN THEIR INDIVIDUAL CAPACITIES.  EXCEPT AS MAY BE PROHIBITED BY LAW, THIS WAIVER INCLUDES THE ABILITY TO ASSERT CLAIMS AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.  This arbitration agreement is to be construed as broadly as is permissible under applicable law.

(c)Notices.  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:  at the Executive’s most recent address on the records of the Company.

If to Sunstone or the Operating Partnership:

Sunstone Hotel Investors, Inc.

200 Spectrum Center Drive, 21^st Floor

Irvine, California 92618

Attn: Corporate Secretary

with a copy to:

Latham & Watkins

355 South Grand Ave., Suite 100

Los Angeles, California 90071-1560

Attn: Steven Stokdyk, Esq.

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

(d)Sarbanes-Oxley Act of 2002.  Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any transfer or deemed transfer of funds hereunder is likely to be construed as a personal loan prohibited by Section 13(k) of the Exchange Act and the rules and regulations promulgated thereunder, then such transfer or deemed transfer shall not be made to the extent necessary or appropriate so as not to violate the Exchange Act and the rules and regulations promulgated thereunder.

(e)Section 409A.

(i)The parties agree that this Agreement is intended to comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (“Section 409A”) or an exemption from Section 409A.

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(ii)For purposes of this Agreement, each amount to be paid or benefit to be provided hereunder (including any right to a series of installment payments) shall be construed as a separate identified payment or a right to a series of separate payments for purposes of Section 409A. Any payments subject to Section 409A that are subject to execution of a waiver and release (including the Release) which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as termination of employment) occurs shall be paid or commence payment, as applicable, only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A and to the extent an amount is payable within a time period, the time during which such amount is paid shall be in the discretion of the Company.

(iii)With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in­ kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

(iv)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “nonqualified deferred compensation” under Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service”.

(v)Notwithstanding anything to the contrary in this Agreement, no compensation or benefits payable in connection with a “separation from service” (within the meaning of Section 409A) shall be paid to the Executive during the six-month period following his “separation from service” to the extent that the Company determines that the Executive is a “specified employee” at the time of such “separation from service” and that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Internal Revenue Code Section 409A(a)(2)(b)(i).  If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six-month period (or such earlier date upon which such amount can be paid under Section 409A without being subject to such additional taxes, including as a result of the Executive’s death), the Company shall pay to the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such six-month period, without interest thereon.

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(f)Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision or term hereof is deemed to have exceeded applicable legal authority or shall be in conflict with applicable legal limitations, such provision shall be reformed and rewritten as necessary to achieve consistency with such applicable law.

(g)Withholding.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(h)No Waiver.  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(i)Employment-At-Will.  The Executive acknowledges that his employment with the Company is “at-will” for all purposes and, subject to the termination and severance obligations contained in Sections 3 and 4 above, the Executive hereby agrees that the Company may dismiss him and terminate his employment with the Company at any time, with or without Cause.  Inclusion under any benefit plan or compensation arrangement will not give the Executive any right or claim to any benefit hereunder except to the extent such right has become fixed under the express terms of this Agreement.

(j)Entire Agreement.  As of the Effective Date, this Agreement, together with the Indemnification Agreement and the Confidentiality Agreement, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, made to the Executive by the Company, including, without limitation, the Prior Agreement.

(k)Survival.  Section 4 (Obligations of the Company Upon Termination), Section 7 (Restrictive Covenants) and Section 12(b) (Arbitration), as well as the Indemnification Agreement and Confidentiality Policy, shall survive termination or expiration of this Agreement and shall continue in effect.

(l)Representations and Warranties.  The Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) the Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) the Executive is not subject to any pending or, to the Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company.  The Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

(m)Consultation with Counsel.  The Executive acknowledges that he has had a full and complete opportunity to consult with counsel and other advisors of his own choosing concerning

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the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability or implications of this Agreement other than as reflected in this Agreement.

(n)Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

[signatures follow on next page]

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE	SUNSTONE HOTEL INVESTORS, INC.
	a Maryland corporation
/s/ David M. Klein	By:	/s/ Bryan A. Giglia
David M. Klein	Name:	Bryan A. Giglia
	Its:	CEO
	SUNSTONE HOTEL PARTNERSHIP, LLC
	a Delaware limited liability company
	By:	Sunstone Hotel Investors, Inc.
		Its Managing Member
	By:	/s/ Bryan A. Giglia
	Name:	Bryan A. Giglia
	Its:	CEO

EXHIBIT A

GENERAL RELEASE

For a valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Operating Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.  The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment, any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act.  Notwithstanding the foregoing, this general release (the “Release”) shall not operate to release any rights or claims of the undersigned (i) to payments or benefits under Section 4(a), 4(b) or 4(c) of that certain Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, between Sunstone Hotel Investors, Inc., Sunstone Operating Partnership, LLC and the undersigned (the “Employment Agreement”), whichever is applicable to the payments and benefits provided in exchange for this Release, (ii) with respect to Section 2(b)(vi) of the Employment Agreement, (iii) to accrued or vested benefits the undersigned may have, if any, as of the date hereof under any applicable plan, policy, practice, program, contract or agreement with the Company, (iv) to any Claims, including claims for indemnification and/or advancement of expenses arising under any indemnification agreement between the undersigned and the Company or under the bylaws, certificate of incorporation of other similar governing document of the Company, (v) to any Claims which cannot be waived by an employee under applicable law or (vi) with respect to the undersigned’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator.

THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

A-1

THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

(A)HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

(B)HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT: AND

(C)HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.]¹

The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against the undersigned under this indemnity.

The undersigned agrees that if he hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim.

The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned.

IN WITNESS WHEREOF, the undersigned has executed this Release this           day of
            , 20    .

​ ​David M. Kein

¹ NTD: Include only if the executive is 40 or older at time release is signed.

A-2

EXHIBIT B

[INDEMNIFICATION AGREEMENT]

(attached)

B-1

EX-10.5

Exhibit 10.5

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of August 29, 2022 (the “Effective Date”), is entered into by and among Sunstone Hotel Investors, Inc., a Maryland corporation (“Sunstone”), Sunstone Hotel Partnership, LLC, a Delaware limited liability company (the “Operating Partnership,” and together with Sunstone, the “Company”), and Christopher Ostapovicz (the “Executive”).

WHEREAS, the Company and the Executive are parties to that certain Employment Agreement, dated March 2, 2021 as amended September 10, 2021 (the “Prior Agreement”);

WHEREAS, the Company and the Executive desire to terminate the Prior Agreement;

WHEREAS, the Company desires to enter into a new agreement embodying the terms of Executive’s continued employment with the Company; and

WHEREAS, the Executive desires to continue employment with the Company, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.Employment Period.  Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term (the “Employment Period”) commencing on the Effective Date and continuing indefinitely until terminated in accordance with the terms of this Agreement. Notwithstanding anything herein, the Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof.  

2.Terms of Employment.

(a)Position and Duties.

(i)During the Employment Period, the Executive shall serve as Executive Vice President and Chief Operating Officer of Sunstone and the Operating Partnership and shall perform such employment duties as are usual and customary for such positions and such other duties as the Company shall from time to time reasonably assign to the Executive.  The Executive shall report directly to the President and Chief Investment Officer or the Chief Executive Officer of the Company.

(ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company.  Notwithstanding the foregoing, during the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees consistent with the Company’s conflicts of interests policies and corporate governance guidelines in effect from time to time; provided, however, service on a corporate board shall require the prior written approval of the

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Nominating and Corporate Governance Committee, or (B) manage his personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as an executive officer of the Company.

(iii)The Executive agrees that he will not take personal advantage of any business opportunity that arises during his employment by the Company and which may be of benefit to the Company; provided, however, that the Executive may take advantage of any such opportunities to the extent the Executive satisfies all conditions precedent to doing so, as required by the Company’s Code of Business Conduct and Ethics.

(b)Compensation.

(i)Base Salary.  During the Employment Period, the Executive shall receive a base salary (the “Base Salary”) of $400,000 per annum.  The Base Salary shall be paid in installments at such intervals as the Company pays executive salaries generally, but not less often than monthly.  During the Employment Period, the Base Salary shall be reviewed at least annually for possible increase in the Company’s sole discretion, as determined by the compensation committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”).  The term “Base Salary” as utilized in this Agreement shall refer to Base Salary as so adjusted.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.

(ii)Annual Bonus.  In addition to the Base Salary, the Executive shall be eligible to earn, for each calendar year ending during the Employment Period, an annual cash performance bonus (an “Annual Bonus”) under the Company’s bonus plan or plans applicable to senior executives.  The amount of any Annual Bonus and the performance goals applicable to such Annual Bonus for the relevant year shall be determined by the Compensation Committee in accordance with the terms and conditions of said bonus plan as in effect from time to time, provided that, subject to the terms of such bonus plan and the attainment of performance goals established by the Compensation Committee, Executive’s threshold level, target level and maximum level Annual Bonus shall be equal to 50%, 100% and 150%, respectively, of the Executive’s Base Salary for such year.  The Annual Bonus payable, if any, in respect of any calendar year shall be paid no later than the March 15 immediately following such calendar year performance period, subject to the Executive’s continued employment through the payment date.

(iii)Equity Awards.  During the Employment Period, the Executive shall be eligible to receive equity awards under the Company’s long-term incentive plan, subject to vesting and other conditions determined by the Compensation Committee, in its sole discretion.  The form, amount and terms of any such equity awards, if any, shall be determined by the Compensation Committee in its sole discretion in accordance with the terms and conditions of plans as in effect from time to time.

(iv)Incentive, Savings and Retirement Plans.  During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, policies and programs, in each case that are applicable generally to senior executives of the Company.

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(v)Welfare Benefit Plans.  During the Employment Period, the Executive and the Executive’s eligible family members shall be eligible to participate in the welfare benefit plans, practices, policies and programs (including, if applicable, medical, dental, vision, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its senior executives.

(vi)Business Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company provided to senior executives of the Company.

(vii)Fringe Benefits.  During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its senior executives from time to time, in accordance with the policies, practices and procedures of the Company.

(viii)Vacation.  During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company applicable to its senior executives, but in no event shall the Executive accrue less than four weeks of vacation per calendar year (pro-rated for any partial year of service); provided, however, that the Executive shall not accrue any vacation time in excess of 1.5 times the Executive’s applicable annual vacation accrual (the “Accrual Limit”), and shall cease accruing vacation time if the Executive’s accrued vacation reaches the Accrual Limit until such time as the Executive’s accrued vacation time drops below the Accrual Limit.

3.Termination of Employment.

(a)Death or Disability.  The Executive’s employment shall terminate upon the Executive’s death or Disability during the Employment Period.  For purposes of this Agreement, “Disability” means the Executive’s inability by reason of permanent physical or mental illness to fulfill his obligations hereunder for 120 consecutive days or on a total of 180 days in any 12 month period which, in the reasonable opinion of an independent physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive’s legal representative, renders the Executive unable to perform the essential functions of his job, even after reasonable accommodations are made by the Company.  The Company is not, however, required to make unreasonable accommodations for the Executive or accommodations that would create an undue hardship on the Company.  For purposes of clarity, this provision is not intended to, and does not, alter or affect any and all rights the Executive has to avail himself of leaves of absence in accordance with Company policies applicable to senior executives or his rights under applicable disability and leave of absences laws, including, without limitation, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, and the California Family Rights Act.

(b)Termination by the Company.  The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause.  For purposes of this Agreement, “Cause” shall mean the occurrence of one or more of the following events:

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(i)The Executive’s continued and willful failure to perform or gross negligence in performing his duties owed to the Company, which is not cured within 15 days following a written notice being delivered to the Executive, which notice specifies such failure or negligence;

(ii)The Executive’s willful commission of an act of fraud or material dishonesty in the performance of his duties, the nature of which, and the support for which, shall be provided to the Executive in writing;

(iii)The indictment of the Executive, conviction of the Executive, or entry by the Executive of a guilty or no contest plea to any felony or any other felony or misdemeanor involving moral turpitude;

(iv)Any material breach by the Executive of his fiduciary duty or duty of loyalty to the Company; or

(v)The Executive’s material breach of any of the provisions of this Agreement, or any other written agreement between the Executive and the Company, which is not cured within 15 days following written notice thereof from the Company.

(c)Termination by the Executive.  The Executive’s employment may be terminated by the Executive for Good Reason or without Good Reason.  For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without the Executive’s prior written consent:

(i)A material reduction in the Executive’s title, duties, authority, responsibilities, reporting relationships, including, without limitation, the Company ceasing to be a public company or ceasing to be traded on the New York Stock Exchange (or similar exchange) following a Change in Control, or the assignment to the Executive of any duties materially inconsistent with the Executive’s position, title, authority, duties or responsibilities;

(ii)During the Employment Period, a reduction by the Company of the Executive’s annual Base Salary (as in effect or as may be increased from time to time) by greater than three percent (3%);

(iii)The relocation of the Company’s headquarters to a location more than 35 miles from the Company’s current headquarters in Irvine, California; and

(iv)The Company’s material breach of its obligations under this Agreement.

For purposes of this Agreement, a termination of employment by the Executive shall not be deemed to be for Good Reason unless (A) the Executive gives the Company written notice describing the event or events which are the basis for such termination within 90 days after the event or events occur, (B) such grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days after the Company’s receipt of such notice, and (C) the Executive terminates his employment no later than 45 days after the Executive provides notice to the Company in accordance with clause (A) of this paragraph.

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(d)Notice of Termination.  Any termination other than due to death shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 12(c) below.  For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice or, in the case of a termination by the Executive for Good Reason more than 45 days after the date on which the Executive provides written notice of intent to terminate for Good Reason in accordance with Section 3(c) above).  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e)Date of Termination.  For purposes of this Agreement, “Date of Termination” means (i) if the Executive’s employment is terminated by the Company, the date of receipt by the Executive of the Notice of Termination or any later date specified therein (which date shall not be more than 30 days after date of receipt by the Executive of such notice), (ii) if the Executive’s employment is terminated by the Executive, the Date of Termination shall be the 30th day after the date on which the Executive notifies the Company of such termination (or, in the case of a termination by the Executive for Good Reason on the 45th day after the date on which the Executive provides written notice in accordance with Section 3(c) above), unless otherwise agreed by the Company and the Executive, and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date the death or Disability of the Executive is determined as described in Section 3(a) above, as the case may be.

4.Obligations of the Company Upon Termination.

(a)Accrued Obligations.  If, during the Employment Period, the Executive’s employment is terminated for any reason, the Company will pay or provide to the Executive:  (i) any earned but unpaid Base Salary, (ii) accrued but unpaid vacation pay through the Date of Termination, (iii) any vested amounts due to the Executive under any plan, program or policy of the Company, to the extent not previously paid (if any) (together, the “Accrued Obligations”). The Accrued Obligations described in clauses (i) – (ii) of the preceding sentence shall be paid within 30 days after the Date of Termination (or such earlier date as may be required by applicable law) and the Accrued Obligations described in clause (iii) of the preceding sentence shall be paid in accordance with the terms of the governing plan or program.  

(b)Without Cause or for Good Reason.  If, during the Employment Period, the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then, in addition to the Accrued Obligations, the Executive shall be paid or receive:

(i)An amount (the “Severance Amount”) equal to the sum of:

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(A)Two times the sum of (i) the Base Salary in effect on the Date of Termination (but in no event less than the highest Base Salary paid to the Executive during the Employment Period) and (ii) the greater of (x) Executive’s target Annual Bonus (the “Target Annual Bonus”) in effect on the Date of Termination and (y) the Annual Bonus actually paid to the Executive in respect of the calendar year immediately preceding the Date of Termination,

(B)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination, to the extent not previously paid (if any), and

(C)A pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Target Annual Bonus for such year (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365.

Subject to Section 12(e) below, the Severance Amount shall be paid within 15 days following the date on which the Release (as defined below) becomes effective and irrevocable in accordance with Section 4(b)(v) below.

(ii)The portion of any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted prior to January 1, 2022 that would have become vested and, as applicable, exercisable during the 12 month period immediately following the Executive’s Date of Termination had the Executive remained continuously employed by the Company during such period shall become immediately vested and, as applicable, exercisable; provided, however, that if the termination occurs on or within 12 months following a Change in Control (as defined in the Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan), any such equity awards shall vest and become exercisable in full (together with the accelerated vesting under Section 4(b)(iii) below, the “Vesting Acceleration”). The accelerated portion of such equity awards shall remain outstanding and shall vest upon the effectiveness of the Release. The portion of any outstanding restricted stock and other equity awards granted prior to January 1, 2022 that does not become vested and, as applicable, exercisable in accordance with this Section 4(b)(ii) (whether because such portion would not have vested during the 12 month period immediately following the Executive’s Date of Termination or because the Executive does not timely execute and not revoke the Release) shall automatically be cancelled and forfeited, and the Executive shall have no further interest therein.

(iii)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted on or after January 1, 2022 and are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with

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the Company shall remain outstanding and shall vest in full upon the effectiveness of the Release.

(iv)During the period commencing on the Date of Termination and ending on the earlier to occur of (i) the 18 month anniversary of the Date of Termination and (ii) the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code and the regulations thereunder (together, the “Code”), the Company shall continue to provide, at the Company’s expense, the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination (the “COBRA Coverage”), provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a) (5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(v)Notwithstanding anything herein to the contrary, it shall be a condition to the Executive’s right to receive any of the Severance Amount, the Vesting Acceleration and/or the COBRA Coverage that the Executive timely execute and deliver to the Company within 21 days (or 45 days, if required by applicable law) and not revoke within 7 days following such execution and delivery a release of claims in substantially the form attached hereto as Exhibit A (the “Release”).

(c)Death or Disability.  If, during the Employment Period, the Executive’s employment is terminated by reason of the Executive’s death or Disability then, in addition to the Accrued Obligations:

(i)An amount equal to 100% of the Executive’s annual Base Salary, as in effect on the Date of Termination, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

(ii)An amount equal to a pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Executive’s Target Annual Bonus for such year under the applicable Company bonus program (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

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(iii)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, to the extent not previously paid (if any), within 30 days after the Date of Termination;

(iv)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with the Company shall vest in full; and

(v)During the 18 month period following the Date of Termination, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code, the Company shall continue to provide the Executive and the Executive’s eligible dependents with COBRA Coverage, provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(d)Other Terminations.  If the Executive’s employment with the Company terminates for any reason not described in Section 4(b) or Section 4(c) above, the Company shall pay the Executive only the Accrued Obligations and shall have no further obligations to the Executive under this Agreement.

6.Excess Parachute Payments; Limitations on Payments.  

(a)Best Pay Cap.  Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part) to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”) then, if elected by the Executive, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, any cash payments shall first be reduced, and any noncash payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting

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the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

(b)Certain Exclusions.  For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7.Restrictive Covenants.

(a)While employed by the Company (whether pursuant to this Agreement or otherwise) and for a period of 12 months following the Executive’s termination of employment for any reason, the Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of any member of the Company and its parents, subsidiaries and affiliates to terminate their employment or other relationship with the Company and its parents, subsidiaries and affiliates or to cease to render services to any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(b)During his employment with the Company (whether pursuant to this Agreement or otherwise) and thereafter, the Executive shall not use any trade secret of the Company or its parents, subsidiaries or affiliates to solicit, induce, or encourage any customer, client, vendor, or other party doing business with any member of the Company and its parents, subsidiaries and affiliates to terminate its relationship therewith or transfer its business from any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(c)The Executive agrees not to disparage the Company, and the Executive agrees not to disparage any parent, subsidiary or affiliate of the Company and/or any officers, directors, employees, shareholders and/or agents of the Company or any parent, subsidiary or affiliate of the Company, in any manner intended or reasonably likely to be harmful to them, their business, business reputation or personal reputation.  Notwithstanding the foregoing, nothing in this

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Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process, or from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation.

(d)In recognition of the facts that irreparable injury will result to the Company in the event of a breach by the Executive of his obligations under Sections 7(a), (b) and (c) hereof, that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law therefor, the Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by the Executive.

8.Full Settlement.The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment.

9.Successors.

(a)This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)The Company will require any successor (whether direct or indirect, by purchase merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise, including without limitation, a Change in Control.

10.Payment of Financial Obligations.The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement shall be allocated to the Operating Partnership, Sunstone, Sunstone Hotel TRS Lessee, Inc. and, if applicable, any of their respective subsidiaries and/or affiliates in accordance with any employee

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sharing and expense allocation agreement, by and between Sunstone and the Operating Partnership, as in effect from time to time.

11.Ancillary Agreements.  The Company and the Executive previously executed the Indemnification Agreement attached hereto as Exhibit B (the “Indemnification Agreement”).  The Executive hereby acknowledges that the Executive previously has entered into an arrangement with the Company containing confidentiality and other protective covenants (the “Confidentiality Policy”) and that the Executive shall continue to be bound by the terms and conditions of the Confidentiality Policy.

12.Miscellaneous.

(a)Governing Law; Amendment.  This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)Arbitration.  To the fullest extent allowed by law, any controversy, claim or dispute between the Executive and the Company (and or any of its owners, directors, officers, employees, affiliates, or agents) relating to or arising out of the Executive’s employment or the cessation of that employment will be submitted to final and binding arbitration in the county in which the Executive worked for determination by one arbitrator with hotel industry experience in accordance with the American Arbitration Association’s (“AAA”) National Rules for the Resolution of Employment Disputes, as the exclusive remedy for such controversy, claim or dispute.  In any such arbitration, the parties may conduct discovery in accordance with the applicable rules of the arbitration forum, except that the arbitrator shall have the authority to order and permit discovery as the arbitrator may deem necessary and appropriate in accordance with applicable state or federal discovery statutes.  The arbitrator shall issue a reasoned, written decision, and shall have full authority to award all remedies which would be available in court.  The parties shall share the filing fees required for the arbitration, provided that the Executive shall not be required to pay an amount in excess of the lesser of the filing fees required by a federal or state court with jurisdiction.  The Company shall pay the arbitrator’s fees and any AAA administrative expenses.  Any judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  Possible disputes covered by the above include (but are not limited to) unpaid wages, breach of contract, torts, violation of public policy, discrimination, harassment, or any other employment-related claims under laws including but not limited to, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the California Labor Code, and any other statutes or laws relating to an employee’s relationship with his her employer, regardless of whether such dispute is initiated by the Executive or the Company.  Thus, this bilateral arbitration agreement applies to any and all claims that the Company may have against the Executive, including but not limited to, claims for misappropriation of Company property, disclosure of proprietary information or trade secrets, interference with contract, trade libel, gross negligence, or any other claim for alleged wrongful conduct or breach of the duty of loyalty by the Executive.  However, notwithstanding anything to the contrary contained herein, the Company and the Executive shall have their respective rights to seek and obtain injunctive relief with respect to any

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controversy, claim or dispute to the extent permitted by law.  Claims for workers’ compensation benefits and unemployment insurance (or any other claims where mandatory arbitration is prohibited by law) are not covered by this arbitration agreement, and such claims may be presented by either the Executive or the Company to the appropriate court or government agency.  BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY.  THE EXECUTIVE AND THE COMPANY WAIVE ANY CONSTITUTIONAL OR OTHER RIGHT TO BRING CLAIMS COVERED BY THIS AGREEMENT OTHER THAN IN THEIR INDIVIDUAL CAPACITIES.  EXCEPT AS MAY BE PROHIBITED BY LAW, THIS WAIVER INCLUDES THE ABILITY TO ASSERT CLAIMS AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.  This arbitration agreement is to be construed as broadly as is permissible under applicable law.

(c)Notices.  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:  at the Executive’s most recent address on the records of the Company.

If to Sunstone or the Operating Partnership:

Sunstone Hotel Investors, Inc.

200 Spectrum Center Drive, 21^st Floor

Irvine, California 92618

Attn: Corporate Secretary

with a copy to:

Latham & Watkins

355 South Grand Ave., Suite 100

Los Angeles, California 90071-1560

Attn: Steven Stokdyk, Esq.

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

(d)Sarbanes-Oxley Act of 2002.  Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any transfer or deemed transfer of funds hereunder is likely to be construed as a personal loan prohibited by Section 13(k) of the Exchange Act and the rules and regulations promulgated thereunder, then such transfer or deemed transfer shall not be made to the extent necessary or appropriate so as not to violate the Exchange Act and the rules and regulations promulgated thereunder.

(e)Section 409A.

(i)The parties agree that this Agreement is intended to comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (“Section 409A”) or an exemption from Section 409A.

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(ii)For purposes of this Agreement, each amount to be paid or benefit to be provided hereunder (including any right to a series of installment payments) shall be construed as a separate identified payment or a right to a series of separate payments for purposes of Section 409A. Any payments subject to Section 409A that are subject to execution of a waiver and release (including the Release) which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as termination of employment) occurs shall be paid or commence payment, as applicable, only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A and to the extent an amount is payable within a time period, the time during which such amount is paid shall be in the discretion of the Company.

(iii)With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in­ kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

(iv)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “nonqualified deferred compensation” under Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service”.

(v)Notwithstanding anything to the contrary in this Agreement, no compensation or benefits payable in connection with a “separation from service” (within the meaning of Section 409A) shall be paid to the Executive during the six-month period following his “separation from service” to the extent that the Company determines that the Executive is a “specified employee” at the time of such “separation from service” and that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Internal Revenue Code Section 409A(a)(2)(b)(i).  If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six-month period (or such earlier date upon which such amount can be paid under Section 409A without being subject to such additional taxes, including as a result of the Executive’s death), the Company shall pay to the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such six-month period, without interest thereon.

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(f)Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision or term hereof is deemed to have exceeded applicable legal authority or shall be in conflict with applicable legal limitations, such provision shall be reformed and rewritten as necessary to achieve consistency with such applicable law.

(g)Withholding.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(h)No Waiver.  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(i)Employment-At-Will.  The Executive acknowledges that his employment with the Company is “at-will” for all purposes and, subject to the termination and severance obligations contained in Sections 3 and 4 above, the Executive hereby agrees that the Company may dismiss him and terminate his employment with the Company at any time, with or without Cause.  Inclusion under any benefit plan or compensation arrangement will not give the Executive any right or claim to any benefit hereunder except to the extent such right has become fixed under the express terms of this Agreement.

(j)Entire Agreement.  As of the Effective Date, this Agreement, together with the Indemnification Agreement and the Confidentiality Agreement, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, made to the Executive by the Company, including, without limitation, the Prior Agreement.

(k)Survival.  Section 4 (Obligations of the Company Upon Termination), Section 7 (Restrictive Covenants) and Section 12(b) (Arbitration), as well as the Indemnification Agreement and Confidentiality Policy, shall survive termination or expiration of this Agreement and shall continue in effect.

(l)Representations and Warranties.  The Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) the Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) the Executive is not subject to any pending or, to the Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company.  The Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

(m)Consultation with Counsel.  The Executive acknowledges that he has had a full and complete opportunity to consult with counsel and other advisors of his own choosing concerning

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the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability or implications of this Agreement other than as reflected in this Agreement.

(n)Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

[signatures follow on next page]

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE	SUNSTONE HOTEL INVESTORS, INC.
	a Maryland corporation
/s/ Christopher Ostapovicz	By:	/s/ Bryan A. Giglia
Christopher Ostapovicz	Name:	Bryan A. Giglia
	Its:	CEO
	SUNSTONE HOTEL PARTNERSHIP, LLC
	a Delaware limited liability company
	By:	Sunstone Hotel Investors, Inc.
		Its Managing Member
	By:	/s/ Bryan A. Giglia
	Name:	Bryan A. Giglia
	Its:	CEO

EXHIBIT A

GENERAL RELEASE

For a valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Operating Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.  The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment, any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act.  Notwithstanding the foregoing, this general release (the “Release”) shall not operate to release any rights or claims of the undersigned (i) to payments or benefits under Section 4(a), 4(b) or 4(c) of that certain Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, between Sunstone Hotel Investors, Inc., Sunstone Operating Partnership, LLC and the undersigned (the “Employment Agreement”), whichever is applicable to the payments and benefits provided in exchange for this Release, (ii) with respect to Section 2(b)(vi) of the Employment Agreement, (iii) to accrued or vested benefits the undersigned may have, if any, as of the date hereof under any applicable plan, policy, practice, program, contract or agreement with the Company, (iv) to any Claims, including claims for indemnification and/or advancement of expenses arising under any indemnification agreement between the undersigned and the Company or under the bylaws, certificate of incorporation of other similar governing document of the Company, (v) to any Claims which cannot be waived by an employee under applicable law or (vi) with respect to the undersigned’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator.

THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

A-1

THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

(A)HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

(B)HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT: AND

(C)HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.]¹

The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against the undersigned under this indemnity.

The undersigned agrees that if he hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim.

The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned.

IN WITNESS WHEREOF, the undersigned has executed this Release this           day of
            , 20    .

​ ​Christopher Ostapovicz

¹ NTD: Include only if the executive is 40 or older at time release is signed.

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EXHIBIT B

[INDEMNIFICATION AGREEMENT]

(attached)

B-1

EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of August 29, 2022 (the “Effective Date”), is entered into by and among Sunstone Hotel Investors, Inc., a Maryland corporation (“Sunstone”), Sunstone Hotel Partnership, LLC, a Delaware limited liability company (the “Operating Partnership,” and together with Sunstone, the “Company”), and Aaron Reyes (the “Executive”).

WHEREAS, the Company desires to enter into a new agreement embodying the terms of Executive’s continued employment with the Company; and

WHEREAS, the Executive desires to continue employment with the Company, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.Employment Period.  Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term (the “Employment Period”) commencing on the Effective Date and continuing indefinitely until terminated in accordance with the terms of this Agreement. Notwithstanding anything herein, the Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof.  

2.Terms of Employment.

(a)Position and Duties.

(i)During the Employment Period, the Executive shall serve as Senior Vice President - Chief Financial Officer of Sunstone and the Operating Partnership and shall perform such employment duties as are usual and customary for such positions and such other duties as the Company shall from time to time reasonably assign to the Executive.  The Executive shall report directly to the Chief Executive Officer of the Company.

(ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company.  Notwithstanding the foregoing, during the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees consistent with the Company’s conflicts of interests policies and corporate governance guidelines in effect from time to time; provided, however, service on a corporate board shall require the prior written approval of the Nominating and Corporate Governance Committee, or (B) manage his personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as an executive officer of the Company.

(iii)The Executive agrees that he will not take personal advantage of any business opportunity that arises during his employment by the Company and which may

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be of benefit to the Company; provided, however, that the Executive may take advantage of any such opportunities to the extent the Executive satisfies all conditions precedent to doing so, as required by the Company’s Code of Business Conduct and Ethics.

(b)Compensation.

(i)Base Salary.  During the Employment Period, the Executive shall receive a base salary (the “Base Salary”) of $325,000 per annum.  The Base Salary shall be paid in installments at such intervals as the Company pays executive salaries generally, but not less often than monthly.  During the Employment Period, the Base Salary shall be reviewed at least annually for possible increase in the Company’s sole discretion, as determined by the compensation committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”).  The term “Base Salary” as utilized in this Agreement shall refer to Base Salary as so adjusted.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.

(ii)Annual Bonus.  In addition to the Base Salary, the Executive shall be eligible to earn, for each calendar year ending during the Employment Period, an annual cash performance bonus (an “Annual Bonus”) under the Company’s bonus plan or plans applicable to senior executives.  The amount of any Annual Bonus and the performance goals applicable to such Annual Bonus for the relevant year shall be determined by the Compensation Committee in accordance with the terms and conditions of said bonus plan as in effect from time to time, provided that, subject to the terms of such bonus plan and the attainment of performance goals established by the Compensation Committee, Executive’s threshold level, target level and maximum level Annual Bonus shall be equal to 50%, 100% and 150%, respectively, of the Executive’s Base Salary for such year.  The Annual Bonus payable, if any, in respect of any calendar year shall be paid no later than the March 15 immediately following such calendar year performance period, subject to the Executive’s continued employment through the payment date.

(iii)Equity Awards.  During the Employment Period, the Executive shall be eligible to receive equity awards under the Company’s long-term incentive plan, subject to vesting and other conditions determined by the Compensation Committee, in its sole discretion.  The form, amount and terms of any such equity awards, if any, shall be determined by the Compensation Committee in its sole discretion in accordance with the terms and conditions of plans as in effect from time to time.

(iv)Incentive, Savings and Retirement Plans.  During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, policies and programs, in each case that are applicable generally to senior executives of the Company.

(v)Welfare Benefit Plans.  During the Employment Period, the Executive and the Executive’s eligible family members shall be eligible to participate in the welfare benefit plans, practices, policies and programs (including, if applicable, medical, dental, vision, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its senior executives.

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(vi)Business Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company provided to senior executives of the Company.

(vii)Fringe Benefits.  During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its senior executives from time to time, in accordance with the policies, practices and procedures of the Company.

(viii)Vacation.  During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company applicable to its senior executives, but in no event shall the Executive accrue less than four weeks of vacation per calendar year (pro-rated for any partial year of service); provided, however, that the Executive shall not accrue any vacation time in excess of 1.5 times the Executive’s applicable annual vacation accrual (the “Accrual Limit”), and shall cease accruing vacation time if the Executive’s accrued vacation reaches the Accrual Limit until such time as the Executive’s accrued vacation time drops below the Accrual Limit.

3.Termination of Employment.

(a)Death or Disability.  The Executive’s employment shall terminate upon the Executive’s death or Disability during the Employment Period.  For purposes of this Agreement, “Disability” means the Executive’s inability by reason of permanent physical or mental illness to fulfill his obligations hereunder for 120 consecutive days or on a total of 180 days in any 12 month period which, in the reasonable opinion of an independent physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive’s legal representative, renders the Executive unable to perform the essential functions of his job, even after reasonable accommodations are made by the Company.  The Company is not, however, required to make unreasonable accommodations for the Executive or accommodations that would create an undue hardship on the Company.  For purposes of clarity, this provision is not intended to, and does not, alter or affect any and all rights the Executive has to avail himself of leaves of absence in accordance with Company policies applicable to senior executives or his rights under applicable disability and leave of absences laws, including, without limitation, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, and the California Family Rights Act.

(b)Termination by the Company.  The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause.  For purposes of this Agreement, “Cause” shall mean the occurrence of one or more of the following events:

(i)The Executive’s continued and willful failure to perform or gross negligence in performing his duties owed to the Company, which is not cured within 15 days following a written notice being delivered to the Executive, which notice specifies such failure or negligence;

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(ii)The Executive’s willful commission of an act of fraud or material dishonesty in the performance of his duties, the nature of which, and the support for which, shall be provided to the Executive in writing;

(iii)The indictment of the Executive, conviction of the Executive, or entry by the Executive of a guilty or no contest plea to any felony or any other felony or misdemeanor involving moral turpitude;

(iv)Any material breach by the Executive of his fiduciary duty or duty of loyalty to the Company; or

(v)The Executive’s material breach of any of the provisions of this Agreement, or any other written agreement between the Executive and the Company, which is not cured within 15 days following written notice thereof from the Company.

(c)Termination by the Executive.  The Executive’s employment may be terminated by the Executive for Good Reason or without Good Reason.  For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without the Executive’s prior written consent:

(i)A material reduction in the Executive’s title, duties, authority, responsibilities, reporting relationships, including, without limitation, the Company ceasing to be a public company or ceasing to be traded on the New York Stock Exchange (or similar exchange) following a Change in Control, or the assignment to the Executive of any duties materially inconsistent with the Executive’s position, title, authority, duties or responsibilities;

(ii)During the Employment Period, a reduction by the Company of the Executive’s annual Base Salary (as in effect or as may be increased from time to time) by greater than three percent (3%);

(iii)The relocation of the Company’s headquarters to a location more than 35 miles from the Company’s current headquarters in Irvine, California; and

(iv)The Company’s material breach of its obligations under this Agreement.

For purposes of this Agreement, a termination of employment by the Executive shall not be deemed to be for Good Reason unless (A) the Executive gives the Company written notice describing the event or events which are the basis for such termination within 90 days after the event or events occur, (B) such grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days after the Company’s receipt of such notice, and (C) the Executive terminates his employment no later than 45 days after the Executive provides notice to the Company in accordance with clause (A) of this paragraph.

(d)Notice of Termination.  Any termination other than due to death shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 12(c) below.  For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to

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the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice or, in the case of a termination by the Executive for Good Reason more than 45 days after the date on which the Executive provides written notice of intent to terminate for Good Reason in accordance with Section 3(c) above).  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e)Date of Termination.  For purposes of this Agreement, “Date of Termination” means (i) if the Executive’s employment is terminated by the Company, the date of receipt by the Executive of the Notice of Termination or any later date specified therein (which date shall not be more than 30 days after date of receipt by the Executive of such notice), (ii) if the Executive’s employment is terminated by the Executive, the Date of Termination shall be the 30th day after the date on which the Executive notifies the Company of such termination (or, in the case of a termination by the Executive for Good Reason on the 45th day after the date on which the Executive provides written notice in accordance with Section 3(c) above), unless otherwise agreed by the Company and the Executive, and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date the death or Disability of the Executive is determined as described in Section 3(a) above, as the case may be.

4.Obligations of the Company Upon Termination.

(a)Accrued Obligations.  If, during the Employment Period, the Executive’s employment is terminated for any reason, the Company will pay or provide to the Executive:  (i) any earned but unpaid Base Salary, (ii) accrued but unpaid vacation pay through the Date of Termination, (iii) any vested amounts due to the Executive under any plan, program or policy of the Company, to the extent not previously paid (if any) (together, the “Accrued Obligations”). The Accrued Obligations described in clauses (i) – (ii) of the preceding sentence shall be paid within 30 days after the Date of Termination (or such earlier date as may be required by applicable law) and the Accrued Obligations described in clause (iii) of the preceding sentence shall be paid in accordance with the terms of the governing plan or program.  

(b)Without Cause or for Good Reason.  If, during the Employment Period, the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then, in addition to the Accrued Obligations, the Executive shall be paid or receive:

(i)An amount (the “Severance Amount”) equal to the sum of:

(A)Two times the sum of (i) the Base Salary in effect on the Date of Termination (but in no event less than the highest Base Salary paid to the Executive during the Employment Period) and (ii) the greater of (x) Executive’s target Annual Bonus (the “Target Annual Bonus”) in effect on the Date of Termination and (y)

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the Annual Bonus actually paid to the Executive in respect of the calendar year immediately preceding the Date of Termination,

(B)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination, to the extent not previously paid (if any), and

(C)A pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Target Annual Bonus for such year (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365.

Subject to Section 12(e) below, the Severance Amount shall be paid within 15 days following the date on which the Release (as defined below) becomes effective and irrevocable in accordance with Section 4(b)(v) below.

(ii)The portion of any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted prior to January 1, 2022 that would have become vested and, as applicable, exercisable during the 12 month period immediately following the Executive’s Date of Termination had the Executive remained continuously employed by the Company during such period shall become immediately vested and, as applicable, exercisable; provided, however, that if the termination occurs on or within 12 months following a Change in Control (as defined in the Sunstone Hotel Investors, Inc. and Sunstone Hotel Partnership, LLC 2022 Incentive Award Plan), any such equity awards shall vest and become exercisable in full (together with the accelerated vesting under Section 4(b)(iii) below, the “Vesting Acceleration”). The accelerated portion of such equity awards shall remain outstanding and shall vest upon the effectiveness of the Release. The portion of any outstanding restricted stock and other equity awards granted prior to January 1, 2022 that does not become vested and, as applicable, exercisable in accordance with this Section 4(b)(ii) (whether because such portion would not have vested during the 12 month period immediately following the Executive’s Date of Termination or because the Executive does not timely execute and not revoke the Release) shall automatically be cancelled and forfeited, and the Executive shall have no further interest therein.

(iii)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which were granted on or after January 1, 2022 and are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with the Company shall remain outstanding and shall vest in full upon the effectiveness of the Release.

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(iv)During the period commencing on the Date of Termination and ending on the earlier to occur of (i) the 18 month anniversary of the Date of Termination and (ii) the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code and the regulations thereunder (together, the “Code”), the Company shall continue to provide, at the Company’s expense, the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination (the “COBRA Coverage”), provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a) (5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(v)Notwithstanding anything herein to the contrary, it shall be a condition to the Executive’s right to receive any of the Severance Amount, the Vesting Acceleration and/or the COBRA Coverage that the Executive timely execute and deliver to the Company within 21 days (or 45 days, if required by applicable law) and not revoke within 7 days following such execution and delivery a release of claims in substantially the form attached hereto as Exhibit A (the “Release”).

(c)Death or Disability.  If, during the Employment Period, the Executive’s employment is terminated by reason of the Executive’s death or Disability then, in addition to the Accrued Obligations:

(i)An amount equal to 100% of the Executive’s annual Base Salary, as in effect on the Date of Termination, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

(ii)An amount equal to a pro rata portion of the Annual Bonus for the partial calendar year in which the Date of Termination occurs, determined by multiplying the Executive’s Target Annual Bonus for such year under the applicable Company bonus program (or such higher amount in the sole discretion of the Compensation Committee) by a fraction, the numerator of which is the number of days elapsed in the calendar year during which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, within 30 days after the Date of Termination;

(iii)Any Annual Bonus earned by the Executive pursuant to Section 2(b)(ii) above for any calendar year of the Company that ends on or before the Date of Termination

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shall be paid to the Executive’s estate or beneficiaries or to the Executive, as applicable, to the extent not previously paid (if any), within 30 days after the Date of Termination;

(iv)Any then-outstanding restricted stock, restricted stock unit or other equity-based awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefor covering the securities of a successor company) which are outstanding and unvested as of the Date of Termination that vest based solely on Executive’s continued employment or service with the Company shall vest in full; and

(v)During the 18 month period following the Date of Termination, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code, the Company shall continue to provide the Executive and the Executive’s eligible dependents with COBRA Coverage, provided, however, that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover the Executive under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to 150% of each remaining Company subsidy shall thereafter be paid to the Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(d)Other Terminations.  If the Executive’s employment with the Company terminates for any reason not described in Section 4(b) or Section 4(c) above, the Company shall pay the Executive only the Accrued Obligations and shall have no further obligations to the Executive under this Agreement.

6.Excess Parachute Payments; Limitations on Payments.  

(a)Best Pay Cap.  Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part) to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”) then, if elected by the Executive, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, any cash payments shall first be reduced, and any noncash payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments

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and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

(b)Certain Exclusions.  For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7.Restrictive Covenants.

(a)While employed by the Company (whether pursuant to this Agreement or otherwise) and for a period of 12 months following the Executive’s termination of employment for any reason, the Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of any member of the Company and its parents, subsidiaries and affiliates to terminate their employment or other relationship with the Company and its parents, subsidiaries and affiliates or to cease to render services to any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(b)During his employment with the Company (whether pursuant to this Agreement or otherwise) and thereafter, the Executive shall not use any trade secret of the Company or its parents, subsidiaries or affiliates to solicit, induce, or encourage any customer, client, vendor, or other party doing business with any member of the Company and its parents, subsidiaries and affiliates to terminate its relationship therewith or transfer its business from any member of the Company and its parents, subsidiaries and affiliates and the Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(c)The Executive agrees not to disparage the Company, and the Executive agrees not to disparage any parent, subsidiary or affiliate of the Company and/or any officers, directors, employees, shareholders and/or agents of the Company or any parent, subsidiary or affiliate of the Company, in any manner intended or reasonably likely to be harmful to them, their business, business reputation or personal reputation.  Notwithstanding the foregoing, nothing in this Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process, or from filing a charge with, reporting

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possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation.

(d)In recognition of the facts that irreparable injury will result to the Company in the event of a breach by the Executive of his obligations under Sections 7(a), (b) and (c) hereof, that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law therefor, the Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by the Executive.

8.Full Settlement.The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment.

9.Successors.

(a)This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)The Company will require any successor (whether direct or indirect, by purchase merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise, including without limitation, a Change in Control.

10.Payment of Financial Obligations.The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement shall be allocated to the Operating Partnership, Sunstone, Sunstone Hotel TRS Lessee, Inc. and, if applicable, any of their respective subsidiaries and/or affiliates in accordance with any employee sharing and expense allocation agreement, by and between Sunstone and the Operating Partnership, as in effect from time to time.

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11.Ancillary Agreements.  The Company and the Executive previously executed the Indemnification Agreement attached hereto as Exhibit B (the “Indemnification Agreement”).  The Executive hereby acknowledges that the Executive previously has entered into an arrangement with the Company containing confidentiality and other protective covenants (the “Confidentiality Policy”) and that the Executive shall continue to be bound by the terms and conditions of the Confidentiality Policy.

12.Miscellaneous.

(a)Governing Law; Amendment.  This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)Arbitration.  To the fullest extent allowed by law, any controversy, claim or dispute between the Executive and the Company (and or any of its owners, directors, officers, employees, affiliates, or agents) relating to or arising out of the Executive’s employment or the cessation of that employment will be submitted to final and binding arbitration in the county in which the Executive worked for determination by one arbitrator with hotel industry experience in accordance with the American Arbitration Association’s (“AAA”) National Rules for the Resolution of Employment Disputes, as the exclusive remedy for such controversy, claim or dispute.  In any such arbitration, the parties may conduct discovery in accordance with the applicable rules of the arbitration forum, except that the arbitrator shall have the authority to order and permit discovery as the arbitrator may deem necessary and appropriate in accordance with applicable state or federal discovery statutes.  The arbitrator shall issue a reasoned, written decision, and shall have full authority to award all remedies which would be available in court.  The parties shall share the filing fees required for the arbitration, provided that the Executive shall not be required to pay an amount in excess of the lesser of the filing fees required by a federal or state court with jurisdiction.  The Company shall pay the arbitrator’s fees and any AAA administrative expenses.  Any judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  Possible disputes covered by the above include (but are not limited to) unpaid wages, breach of contract, torts, violation of public policy, discrimination, harassment, or any other employment-related claims under laws including but not limited to, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, the California Labor Code, and any other statutes or laws relating to an employee’s relationship with his her employer, regardless of whether such dispute is initiated by the Executive or the Company.  Thus, this bilateral arbitration agreement applies to any and all claims that the Company may have against the Executive, including but not limited to, claims for misappropriation of Company property, disclosure of proprietary information or trade secrets, interference with contract, trade libel, gross negligence, or any other claim for alleged wrongful conduct or breach of the duty of loyalty by the Executive.  However, notwithstanding anything to the contrary contained herein, the Company and the Executive shall have their respective rights to seek and obtain injunctive relief with respect to any controversy, claim or dispute to the extent permitted by law.  Claims for workers’ compensation benefits and unemployment insurance (or any other claims where mandatory arbitration is prohibited by law) are not covered by this arbitration agreement, and such claims may be presented

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by either the Executive or the Company to the appropriate court or government agency.  BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY.  THE EXECUTIVE AND THE COMPANY WAIVE ANY CONSTITUTIONAL OR OTHER RIGHT TO BRING CLAIMS COVERED BY THIS AGREEMENT OTHER THAN IN THEIR INDIVIDUAL CAPACITIES.  EXCEPT AS MAY BE PROHIBITED BY LAW, THIS WAIVER INCLUDES THE ABILITY TO ASSERT CLAIMS AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.  This arbitration agreement is to be construed as broadly as is permissible under applicable law.

(c)Notices.  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:  at the Executive’s most recent address on the records of the Company.

If to Sunstone or the Operating Partnership:

Sunstone Hotel Investors, Inc.

200 Spectrum Center Drive, 21^st Floor

Irvine, California 92618

Attn: Corporate Secretary

with a copy to:

Latham & Watkins

355 South Grand Ave., Suite 100

Los Angeles, California 90071-1560

Attn: Steven Stokdyk, Esq.

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

(d)Sarbanes-Oxley Act of 2002.  Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any transfer or deemed transfer of funds hereunder is likely to be construed as a personal loan prohibited by Section 13(k) of the Exchange Act and the rules and regulations promulgated thereunder, then such transfer or deemed transfer shall not be made to the extent necessary or appropriate so as not to violate the Exchange Act and the rules and regulations promulgated thereunder.

(e)Section 409A.

(i)The parties agree that this Agreement is intended to comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (“Section 409A”) or an exemption from Section 409A.

(ii)For purposes of this Agreement, each amount to be paid or benefit to be provided hereunder (including any right to a series of installment payments) shall be

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construed as a separate identified payment or a right to a series of separate payments for purposes of Section 409A. Any payments subject to Section 409A that are subject to execution of a waiver and release (including the Release) which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as termination of employment) occurs shall be paid or commence payment, as applicable, only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A and to the extent an amount is payable within a time period, the time during which such amount is paid shall be in the discretion of the Company.

(iii)With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in­ kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

(iv)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “nonqualified deferred compensation” under Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service”.

(v)Notwithstanding anything to the contrary in this Agreement, no compensation or benefits payable in connection with a “separation from service” (within the meaning of Section 409A) shall be paid to the Executive during the six-month period following his “separation from service” to the extent that the Company determines that the Executive is a “specified employee” at the time of such “separation from service” and that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Internal Revenue Code Section 409A(a)(2)(b)(i).  If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six-month period (or such earlier date upon which such amount can be paid under Section 409A without being subject to such additional taxes, including as a result of the Executive’s death), the Company shall pay to the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such six-month period, without interest thereon.

(f)Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision or term hereof is deemed to have exceeded applicable legal authority or shall be in

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conflict with applicable legal limitations, such provision shall be reformed and rewritten as necessary to achieve consistency with such applicable law.

(g)Withholding.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(h)No Waiver.  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(i)Employment-At-Will.  The Executive acknowledges that his employment with the Company is “at-will” for all purposes and, subject to the termination and severance obligations contained in Sections 3 and 4 above, the Executive hereby agrees that the Company may dismiss him and terminate his employment with the Company at any time, with or without Cause.  Inclusion under any benefit plan or compensation arrangement will not give the Executive any right or claim to any benefit hereunder except to the extent such right has become fixed under the express terms of this Agreement.

(j)Entire Agreement.  As of the Effective Date, this Agreement, together with the Indemnification Agreement and the Confidentiality Agreement, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, made to the Executive by the Company.

(k)Survival.  Section 4 (Obligations of the Company Upon Termination), Section 7 (Restrictive Covenants) and Section 12(b) (Arbitration), as well as the Indemnification Agreement and Confidentiality Policy, shall survive termination or expiration of this Agreement and shall continue in effect.

(l)Representations and Warranties.  The Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) the Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) the Executive is not subject to any pending or, to the Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company.  The Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

(m)Consultation with Counsel.  The Executive acknowledges that he has had a full and complete opportunity to consult with counsel and other advisors of his own choosing concerning the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability or implications of this Agreement other than as reflected in this Agreement.

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(n)Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

[signatures follow on next page]

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE	SUNSTONE HOTEL INVESTORS, INC.
	a Maryland corporation
/s/ Aaron R. Reyes	By:	/s/ Bryan A. Giglia
Aaron R. Reyes	Name:	Bryan A. Giglia
	Its:	CEO
	SUNSTONE HOTEL PARTNERSHIP, LLC
	a Delaware limited liability company
	By:	Sunstone Hotel Investors, Inc.
		Its Managing Member
	By:	/s/ Bryan A. Giglia
	Name:	Bryan A. Giglia
	Its:	CEO

EXHIBIT A

GENERAL RELEASE

For a valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Sunstone Hotel Investors, Inc., a Maryland corporation, Sunstone Operating Partnership, LLC, a Delaware limited liability company and each of their partners, subsidiaries, associates, affiliates, successors, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.  The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination of employment of the undersigned by the Releasees, or any of them; any alleged breach of any express or implied contract of employment, any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination In Employment Act, the Americans With Disabilities Act, and the California Fair Employment and Housing Act.  Notwithstanding the foregoing, this general release (the “Release”) shall not operate to release any rights or claims of the undersigned (i) to payments or benefits under Section 4(a), 4(b) or 4(c) of that certain Fourth Amended and Restated Employment Agreement, dated as of August 29, 2022, between Sunstone Hotel Investors, Inc., Sunstone Operating Partnership, LLC and the undersigned (the “Employment Agreement”), whichever is applicable to the payments and benefits provided in exchange for this Release, (ii) with respect to Section 2(b)(vi) of the Employment Agreement, (iii) to accrued or vested benefits the undersigned may have, if any, as of the date hereof under any applicable plan, policy, practice, program, contract or agreement with the Company, (iv) to any Claims, including claims for indemnification and/or advancement of expenses arising under any indemnification agreement between the undersigned and the Company or under the bylaws, certificate of incorporation of other similar governing document of the Company, (v) to any Claims which cannot be waived by an employee under applicable law or (vi) with respect to the undersigned’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator.

THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

A-1

THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

(A)HE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

(B)HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT: AND

(C)HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.]¹

The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any Claim which he may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against the undersigned under this indemnity.

The undersigned agrees that if he hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then the undersigned agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim.

The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned.

IN WITNESS WHEREOF, the undersigned has executed this Release this           day of
            , 20    .

​ ​Aaron R. Reyes

¹ NTD: Include only if the executive is 40 or older at time release is signed.

A-2

EXHIBIT B

[INDEMNIFICATION AGREEMENT]

(attached)

B-1

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Bryan A. Giglia, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sunstone Hotel Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

7
Date: November 8, 2022	/s/ Bryan A. Giglia
	Bryan A. Giglia
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Aaron R. Reyes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sunstone Hotel Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

7
Date: November 8, 2022	/s/ Aaron R. Reyes
	Aaron R. Reyes
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Chief Executive Officer and the Chief Financial Officer of Sunstone Hotel Investors, Inc. (the “Company”), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each hereby certifies that to his knowledge on the date hereof:

(a) The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2022, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2022	/s/ Bryan A. Giglia
	Bryan A. Giglia
	Chief Executive Officer
Date: November 8, 2022	/s/ Aaron R. Reyes
	Aaron R. Reyes
	Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Nov. 01, 2022
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
Document Transition Report	false
Entity File Number	001-32319
Entity Registrant Name	Sunstone Hotel Investors, Inc.
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	20-1296886
Entity Address, Address Line One	200 Spectrum Center Drive, 21st Floor
Entity Address, City or Town	Irvine
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92618
City Area Code	949
Local Phone Number	330-4000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		210,399,520
Entity Central Index Key	0001295810
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false
Common Stock
Document Information [Line Items]
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	SHO
Security Exchange Name	NYSE
Series H Cumulative Redeemable Preferred Stock
Document Information [Line Items]
Title of 12(b) Security	Series H Cumulative Redeemable Preferred Stock, $0.01 par value
Trading Symbol	SHO.PRH
Security Exchange Name	NYSE
Series I Cumulative Redeemable Preferred Stock
Document Information [Line Items]
Title of 12(b) Security	Series I Cumulative Redeemable Preferred Stock, $0.01 par value
Trading Symbol	SHO.PRI
Security Exchange Name	NYSE

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 117,588	$ 120,483
Restricted cash	50,253	42,234
Accounts receivable, net	45,750	28,733
Prepaid expenses and other current assets	14,374	14,338
Assets held for sale, net		76,308
Total current assets	227,965	282,096
Investment in hotel properties, net	2,850,225	2,720,016
Operating lease right-of-use assets, net	17,866	23,161
Deferred financing costs, net	5,382	2,580
Other assets, net	8,945	13,196
Total assets	3,110,383	3,041,049
Current liabilities:
Accounts payable and accrued expenses	60,512	47,701
Accrued payroll and employee benefits	22,413	19,753
Dividends and distributions payable	13,961	3,513
Other current liabilities	68,920	58,884
Current portion of notes payable, net	2,088	20,694
Liabilities of assets held for sale		25,213
Total current liabilities	167,894	175,758
Notes payable, less current portion, net	810,909	588,741
Operating lease obligations, less current portion	18,349	25,120
Other liabilities	9,575	11,656
Total liabilities	1,006,727	801,275
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 211,570,211 shares issued and outstanding at September 30, 2022 and 219,333,783 shares issued and outstanding at December 31, 2021	2,116	2,193
Additional paid in capital	2,487,931	2,631,484
Retained earnings	1,017,890	948,064
Cumulative dividends and distributions	(1,685,531)	(1,664,024)
Total stockholders' equity	2,103,656	2,198,967
Noncontrolling interest in consolidated joint venture		40,807
Total equity	2,103,656	2,239,774
Total liabilities and equity	3,110,383	3,041,049
Series G Cumulative Redeemable Preferred Stock
Stockholders' equity:
Cumulative Redeemable Preferred Stock	66,250	66,250
Series H Cumulative Redeemable Preferred Stock
Stockholders' equity:
Cumulative Redeemable Preferred Stock	115,000	115,000
Series I Cumulative Redeemable Preferred Stock
Stockholders' equity:
Cumulative Redeemable Preferred Stock	$ 100,000	$ 100,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2022	Dec. 31, 2021
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	211,570,211	219,333,783
Common stock, shares outstanding (in shares)	211,570,211	219,333,783
Series G Cumulative Redeemable Preferred Stock
Preferred stock, Cumulative Redeemable Preferred Stock, shares issued (in shares)	2,650,000	2,650,000
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares)	2,650,000	2,650,000
Preferred stock, Cumulative Redeemable Preferred Stock, liquidation preference (in dollars per share)	$ 25.00	$ 25.00
Series H Cumulative Redeemable Preferred Stock
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent)	6.125%	6.125%
Preferred stock, Cumulative Redeemable Preferred Stock, shares issued (in shares)	4,600,000	4,600,000
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares)	4,600,000	4,600,000
Preferred stock, Cumulative Redeemable Preferred Stock, liquidation preference (in dollars per share)	$ 25.00	$ 25.00
Series I Cumulative Redeemable Preferred Stock
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent)	5.70%	5.70%
Preferred stock, Cumulative Redeemable Preferred Stock, shares issued (in shares)	4,000,000	4,000,000
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares)	4,000,000	4,000,000
Preferred stock, Cumulative Redeemable Preferred Stock, liquidation preference (in dollars per share)	$ 25.00	$ 25.00

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
REVENUES
Revenues	$ 244,314	$ 167,421	$ 667,909	$ 335,264
OPERATING EXPENSES
Advertising and promotion	12,325	8,883	34,420	20,800
Repairs and maintenance	9,382	10,001	27,369	22,678
Utilities	7,708	6,164	19,652	14,998
Franchise costs	4,145	4,181	11,429	7,468
Property tax, ground lease and insurance	19,714	17,528	53,160	47,821
Other property-level expenses	29,032	21,633	83,333	48,177
Corporate overhead	7,879	15,422	27,310	32,066
Depreciation and amortization	31,750	32,585	94,003	96,084
Impairment loss		1,014		1,014
Total operating expenses	214,347	181,600	601,194	416,820
Interest and other income (loss)	270	2	4,766	(356)
Interest expense	(9,269)	(7,983)	(20,288)	(23,697)
Gain on sale of assets			22,946
(Loss) gain on extinguishment of debt, net	(770)	61	(962)	371
Income (loss) before income taxes	20,198	(22,099)	73,177	(105,238)
Income tax benefit (provision), net	290	(25)	126	(91)
NET INCOME (LOSS)	20,488	(22,124)	73,303	(105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		(933)	(3,477)	1,638
Preferred stock dividends and redemption charges	(3,351)	(6,287)	(10,897)	(17,289)
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$ 17,137	$ (29,344)	$ 58,929	$ (120,980)
Basic and diluted per share amounts:
Basic income (loss) attributable to common stockholders per common share (in dollars per share)	$ 0.08	$ (0.13)	$ 0.27	$ (0.56)
Diluted income (loss) attributable to common stockholders per common share (in dollars per share)	$ 0.08	$ (0.13)	$ 0.27	$ (0.56)
Basic weighted average common shares outstanding (in shares)	211,010	217,709	213,799	215,765
Diluted weighted average common shares outstanding (in shares)	211,289	217,709	213,869	215,765
Room
REVENUES
Revenues	$ 158,400	$ 118,061	$ 428,893	$ 236,877
OPERATING EXPENSES
Expenses	38,791	32,106	106,594	66,692
Food and beverage
REVENUES
Revenues	63,476	27,338	174,717	47,547
OPERATING EXPENSES
Expenses	47,181	27,440	125,959	49,088
Other operating
REVENUES
Revenues	22,438	22,022	64,299	50,840
OPERATING EXPENSES
Expenses	$ 6,440	$ 4,643	$ 17,965	$ 9,934

XML

CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands	Series E Cumulative Redeemable Preferred Stock Preferred Stock	Series E Cumulative Redeemable Preferred Stock Additional Paid In Capital	Series E Cumulative Redeemable Preferred Stock Cumulative dividends and distributions	Series E Cumulative Redeemable Preferred Stock	Series F Cumulative Redeemable Preferred Stock Preferred Stock	Series F Cumulative Redeemable Preferred Stock Additional Paid In Capital	Series F Cumulative Redeemable Preferred Stock Cumulative dividends and distributions	Series F Cumulative Redeemable Preferred Stock	Series G Cumulative Redeemable Preferred Stock Preferred Stock	Series G Cumulative Redeemable Preferred Stock Additional Paid In Capital	Series G Cumulative Redeemable Preferred Stock Cumulative dividends and distributions	Series G Cumulative Redeemable Preferred Stock	Series H Cumulative Redeemable Preferred Stock Preferred Stock	Series H Cumulative Redeemable Preferred Stock Additional Paid In Capital	Series H Cumulative Redeemable Preferred Stock Cumulative dividends and distributions	Series H Cumulative Redeemable Preferred Stock	Series I Cumulative Redeemable Preferred Stock Preferred Stock	Series I Cumulative Redeemable Preferred Stock Additional Paid In Capital	Series I Cumulative Redeemable Preferred Stock Cumulative dividends and distributions	Series I Cumulative Redeemable Preferred Stock	Preferred Stock	Common Stock	Additional Paid In Capital	Retained Earnings	Cumulative dividends and distributions	Non-Controlling Interest in Consolidated Joint Venture	Total
Beginning Balance at Dec. 31, 2020																					$ 190,000	$ 2,156	$ 2,586,108	$ 913,766	$ (1,643,386)	$ 40,735	$ 2,089,379
Beginning Balance (in shares) at Dec. 31, 2020																					7,600,000	215,593,401
Increase (Decrease) in Stockholders' Equity
Amortization of deferred stock compensation																							2,869				2,869
Issuance of restricted common stock, net																						$ 6	(3,522)				(3,516)
Issuance of restricted common stock, net (in shares)																						581,683
Preferred stock dividends and dividends payable			$ (1,998)	$ (1,998)			$ (1,209)	$ (1,209)
Contribution from noncontrolling interest																										1,375	1,375
Net income (loss)																								(53,312)		(1,975)	(55,287)
Ending Balance at Mar. 31, 2021																					$ 190,000	$ 2,162	2,585,455	860,454	(1,646,593)	40,135	2,031,613
Ending Balance (in shares) at Mar. 31, 2021																					7,600,000	216,175,084
Beginning Balance at Dec. 31, 2020																					$ 190,000	$ 2,156	2,586,108	913,766	(1,643,386)	40,735	2,089,379
Beginning Balance (in shares) at Dec. 31, 2020																					7,600,000	215,593,401
Increase (Decrease) in Stockholders' Equity
Net income (loss)																											(105,329)
Ending Balance at Sep. 30, 2021																					$ 281,250	$ 2,193	2,629,148	810,075	(1,660,675)	40,472	2,102,463
Ending Balance (in shares) at Sep. 30, 2021																					11,250,000	219,333,783
Beginning Balance at Mar. 31, 2021																					$ 190,000	$ 2,162	2,585,455	860,454	(1,646,593)	40,135	2,031,613
Beginning Balance (in shares) at Mar. 31, 2021																					7,600,000	216,175,084
Increase (Decrease) in Stockholders' Equity
Amortization of deferred stock compensation																							4,784				4,784
Issuance of restricted common stock, net																						$ (1)	(1,360)				(1,361)
Issuance of restricted common stock, net (in shares)																						(45,661)
Preferred stock dividends and dividends payable			(1,554)	(1,554)			(1,209)	(1,209)			$ (292)	$ (292)			$ (724)	$ (724)
Net proceeds from issuance of common stock																						$ 29	37,630				37,659
Number of shares of common stock issued (in shares)																						2,913,682
Net issuance of preferred stock in connection with hotel acquisition									$ 66,250	$ (142)		66,108
Net issuance of preferred stock in connection with hotel acquisition (in shares)									2,650,000
Net proceeds from issuance of preferred stock													$ 115,000	$ (3,801)		111,199
Number of shares of preferred stock issued (in shares)													4,600,000
Redemption of preferred stock	$ (115,000)	$ 4,016	$ (4,016)	$ (115,000)
Redemption of preferred stock (in shares)	(4,600,000)
Net income (loss)																								(27,322)		(596)	(27,918)
Ending Balance at Jun. 30, 2021																					$ 256,250	$ 2,190	2,626,582	833,132	(1,654,388)	39,539	2,103,305
Ending Balance (in shares) at Jun. 30, 2021																					10,250,000	219,043,105
Increase (Decrease) in Stockholders' Equity
Amortization of deferred stock compensation																							3,289				3,289
Issuance of restricted common stock, net																						$ 5	(5)
Issuance of restricted common stock, net (in shares)																						526,084
Forfeiture of restricted common stock																						$ (2)	2
Forfeiture of restricted common stock (in shares)																						(235,406)
Preferred stock dividends and dividends payable							(551)	(551)			(164)	(164)			(1,761)	(1,761)			$ (1,187)	$ (1,187)
Net proceeds from issuance of preferred stock																	$ 100,000	$ (3,344)		96,656
Number of shares of preferred stock issued (in shares)																	4,000,000
Redemption of preferred stock					$ (75,000)	$ 2,624	$ (2,624)	$ (75,000)
Redemption of preferred stock (in shares)					(3,000,000)
Net income (loss)																								(23,057)		933	(22,124)
Ending Balance at Sep. 30, 2021																					$ 281,250	$ 2,193	2,629,148	810,075	(1,660,675)	40,472	2,102,463
Ending Balance (in shares) at Sep. 30, 2021																					11,250,000	219,333,783
Beginning Balance at Dec. 31, 2021																					$ 281,250	$ 2,193	2,631,484	948,064	(1,664,024)	40,807	2,239,774
Beginning Balance (in shares) at Dec. 31, 2021																					11,250,000	219,333,783
Increase (Decrease) in Stockholders' Equity
Amortization of deferred stock compensation																							3,701				3,701
Issuance of restricted common stock, net																						$ 2	(3,353)				(3,351)
Issuance of restricted common stock, net (in shares)																						213,179
Preferred stock dividends and dividends payable											(587)	(587)			(1,761)	(1,761)			(1,425)	(1,425)
Repurchases of outstanding common stock																						$ (38)	(43,427)				(43,465)
Repurchases of outstanding common stock (in shares)																						(3,879,025)
Net income (loss)																								13,989		1,134	15,123
Ending Balance at Mar. 31, 2022																					$ 281,250	$ 2,157	2,588,405	962,053	(1,667,797)	41,941	2,208,009
Ending Balance (in shares) at Mar. 31, 2022																					11,250,000	215,667,937
Beginning Balance at Dec. 31, 2021																					$ 281,250	$ 2,193	2,631,484	948,064	(1,664,024)	40,807	2,239,774
Beginning Balance (in shares) at Dec. 31, 2021																					11,250,000	219,333,783
Increase (Decrease) in Stockholders' Equity
Net income (loss)																											73,303
Ending Balance at Sep. 30, 2022																					$ 281,250	$ 2,116	2,487,931	1,017,890	(1,685,531)		2,103,656
Ending Balance (in shares) at Sep. 30, 2022																					11,250,000	211,570,211
Beginning Balance at Mar. 31, 2022																					$ 281,250	$ 2,157	2,588,405	962,053	(1,667,797)	41,941	2,208,009
Beginning Balance (in shares) at Mar. 31, 2022																					11,250,000	215,667,937
Increase (Decrease) in Stockholders' Equity
Amortization of deferred stock compensation																							2,971				2,971
Forfeiture of restricted common stock (in shares)																						(34,807)
Preferred stock dividends and dividends payable											(587)	(587)			(1,761)	(1,761)			(1,425)	(1,425)
Distribution to noncontrolling interest																										(5,500)	(5,500)
Issuance of restricted common stock																						$ 1	(92)				(91)
Issuance of restricted common stock (in shares)																						53,616
Repurchases of outstanding common stock																						$ (33)	(34,482)				(34,515)
Repurchases of outstanding common stock (in shares)																						(3,235,958)
Acquisition of noncontrolling interest, net																							(62,564)			(38,784)	(101,348)
Net income (loss)																								35,349		$ 2,343	37,692
Ending Balance at Jun. 30, 2022																					$ 281,250	$ 2,125	2,494,238	997,402	(1,671,570)		2,103,445
Ending Balance (in shares) at Jun. 30, 2022																					11,250,000	212,450,788
Increase (Decrease) in Stockholders' Equity
Amortization of deferred stock compensation																							2,350				2,350
Common stock distributions and distributions payable																									(10,610)		(10,610)
Preferred stock dividends and dividends payable											$ (165)	$ (165)			$ (1,761)	$ (1,761)			$ (1,425)	$ (1,425)
Repurchases of outstanding common stock																						$ (9)	(8,657)				(8,666)
Repurchases of outstanding common stock (in shares)																						(880,577)
Net income (loss)																								20,488			20,488
Ending Balance at Sep. 30, 2022																					$ 281,250	$ 2,116	$ 2,487,931	$ 1,017,890	$ (1,685,531)		$ 2,103,656
Ending Balance (in shares) at Sep. 30, 2022																					11,250,000	211,570,211

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CONSOLIDATED STATEMENT OF EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021
Common stock distributions and distributions payable, per share (in dollars per share)	$ 0.05
Series E Cumulative Redeemable Preferred Stock
Preferred stock dividends and dividends payable (in dollars per share)					$ 0.337847	$ 0.434375
Series F Cumulative Redeemable Preferred Stock
Preferred stock dividends and dividends payable (in dollars per share)				$ 0.183646	0.403125	$ 0.403125
Series G Cumulative Redeemable Preferred Stock
Preferred stock dividends and dividends payable (in dollars per share)	0.062081	$ 0.221475	$ 0.221475	0.061713	0.110259
Series H Cumulative Redeemable Preferred Stock
Preferred stock dividends and dividends payable (in dollars per share)	0.382813	0.382813	0.382813	0.382813	$ 0.157378
Series I Cumulative Redeemable Preferred Stock
Preferred stock dividends and dividends payable (in dollars per share)	$ 0.356250	$ 0.356250	$ 0.356250	$ 0.296875

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CONSOLIDATED STATEMENTS OF CASH FLOWS $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2022 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 20,488	$ 73,303	$ (105,329)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Bad debt expense		846	322
(Gain) loss on sale of assets		(22,946)	82
Loss (gain) on extinguishment of debt, net	770	962	(371)
Noncash interest on derivatives, net		(2,904)	(2,194)
Depreciation		93,573	96,053
Amortization of franchise fees and other intangibles		387	31
Amortization of deferred financing costs	589	1,940	2,207
Amortization of deferred stock compensation		8,661	10,576
Gain on hurricane-related damage		(4,369)
Impairment loss			1,014
Changes in operating assets and liabilities:
Accounts receivable		(16,279)	(20,241)
Prepaid expenses and other assets		5,465	(3,228)
Accounts payable and other liabilities		10,831	23,403
Accrued payroll and employee benefits		1,278	7,083
Operating lease right-of-use assets and obligations		(1,050)	(1,004)
Net cash provided by operating activities		149,698	8,404
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets		191,291
Acquisition and disposition deposits, net			(3,900)
Proceeds from property insurance		4,369
Acquisitions of hotel properties and other assets		(232,506)	(195,706)
Renovations and additions to hotel properties and other assets		(97,539)	(41,910)
Payment for interest rate derivative			(80)
Net cash used in investing activities		(134,385)	(241,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of noncontrolling interest, including transaction costs		(101,348)
Proceeds from preferred stock offerings			215,000
Redemptions of preferred stock			(190,000)
Proceeds from common stock offerings			38,443
Repurchases of outstanding common stock		(86,646)
Repurchases of common stock for employee tax obligations		(3,351)	(4,877)
Proceeds from credit facility		230,000
Payment on credit facility		(230,000)
Proceeds from notes payable		243,615
Payments on notes payable		(38,405)	(2,461)
Payments of deferred financing costs		(7,404)
Dividends and distributions paid		(11,059)	(10,745)
Distribution to noncontrolling interest		(5,500)
Contribution from noncontrolling interest			1,375
Net cash (used in) provided by financing activities		(10,189)	38,664
Net increase (decrease) in cash and cash equivalents and restricted cash		5,124	(194,528)
Cash and cash equivalents and restricted cash, beginning of period		162,717	416,139
Cash and cash equivalents and restricted cash, end of period	167,841	167,841	221,611
Supplemental Disclosure of Cash Flow Information
Cash and cash equivalents	117,588	117,588	179,487
Restricted cash	50,253	50,253	42,124
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows	167,841	167,841	221,611
Cash paid for interest		24,279	26,629
Cash paid for income taxes, net		218	45
Operating cash flows used for operating leases		5,080	5,077
Changes in operating lease right-of-use assets		3,020	2,804
Changes in operating lease obligations		(4,070)	(3,808)
Changes in operating lease right-of-use assets and lease obligations, net		(1,050)	(1,004)
Supplemental Disclosure of Noncash Investing and Financing Activities
Accrued renovations and additions to hotel properties and other assets		17,630	9,932
Amortization of deferred stock compensation - construction activities		361	366
Preferred stock redemption charges			6,640
Dividends and distributions payable	13,961	13,961	3,112
Montage Healdsburg
Supplemental Disclosure of Noncash Investing and Financing Activities
Issuance of preferred stock in connection with hotel acquisition			66,250
Hyatt Centric Chicago Magnificent Mile
Supplemental Disclosure of Noncash Investing and Financing Activities
Disposition deposit received in prior year in connection with sale of hotel		4,000
Assignment of finance lease right-of-use asset in connection with sale of hotel	44,712	44,712
Assignment of finance lease obligation in connection with sale of hotel	15,569	15,569
Hilton Garden Inn Chicago Downtown/Magnificent Mile
Supplemental Disclosure of Noncash Investing and Financing Activities
Assignment of operating lease right-of-use asset in connection with sale of hotel	2,275	2,275
Assignment of operating lease obligation in connection with sale of hotel	$ 2,609	2,609
Preferred Stock
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of stock issuance costs			(7,287)
Common Stock
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of stock issuance costs		$ (91)	$ (784)

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Organization and Description of Business

9 Months Ended

Sep. 30, 2022

Organization and Description of Business

Organization and Description of Business

1. Organization and Description of Business

Sunstone Hotel Investors, Inc. (the “Company”) was incorporated in Maryland on June 28, 2004 in anticipation of an initial public offering of common stock, which was consummated on October 26, 2004. The Company elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes, commencing with its taxable year ended on December 31, 2004. The Company, through its 100% controlling interest in Sunstone Hotel Partnership, LLC (the “Operating Partnership”), of which the Company is the sole managing member, and the subsidiaries of the Operating Partnership, including Sunstone Hotel TRS Lessee, Inc. (the “TRS Lessee”) and its subsidiaries, is currently engaged in acquiring, owning, asset managing and renovating or repositioning hotel properties, and may also selectively sell hotels that no longer fit its stated strategy.

As a REIT, certain tax laws limit the amount of “non-qualifying” income the Company can earn, including income derived directly from the operation of hotels. The Company leases all of its hotels to its TRS Lessee, which in turn enters into long-term management agreements with third parties to manage the operations of the Company’s hotels, in transactions that are intended to generate qualifying income.

As of September 30, 2022, the Company owned 15 hotels (the “15 Hotels”) currently held for investment. The Company’s third-party managers included the following:

	Number of Hotels
Subsidiaries of Marriott International, Inc. or Marriott Hotel Services, Inc. (collectively, “Marriott”)	6
Hyatt Hotels Corporation	2
Interstate Hotels & Resorts, Inc.	2	(1)
Four Seasons Hotels Limited	1
Highgate Hotels L.P. and an affiliate	1
Hilton Worldwide	1
Montage North America, LLC	1
Singh Hospitality, LLC	1
Total hotels owned as of September 30, 2022	15

(1) In October 2022, Sage Hospitality Group commenced management of The Bidwell Portland Marriott.

COVID-19 Operational Update

COVID-19 and its variants have had and continue to have a detrimental effect on the hotel industry and the Company’s business, including significant room and event cancellations, corporate and government travel restrictions and an unprecedented decline in hotel demand. While operations have gradually improved since the onset of the COVID-19 pandemic in 2020, the Omicron variant in December 2021 led to a slowdown in demand recovery at the Company’s hotels. However, demand began to recover again in February 2022 as Omicron-related case counts subsided and travel patterns re-accelerated.

During the first nine months of 2022, corporate transient and group demand accelerated, reducing the Company’s reliance on leisure demand, which was the dominant source of business at many of the Company’s hotels during 2021. While leisure demand continued to be robust, the greatest demand growth during the second and third quarters of 2022 was at the Company’s urban and group-oriented hotels which experienced increased near-term booking activity, higher than expected attendance at group events and increased business transient demand. The amount of corporate business at the Company’s hotels continues to grow and the Company expects business travel to continue to increase as the year progresses. The Company anticipates that group demand will compose a more meaningful component of its total room nights during the remainder of 2022. However, the negative effects of the COVID-19 pandemic on the hotel industry have been unprecedented, and the Company continues to have limited visibility to predict future operations.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements as of September 30, 2022 and December 31, 2021, and for the three and nine months ended September 30, 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. If the Company determines that it has an interest in a variable interest entity, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity.

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission. In the Company’s opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. These financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 23, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The Company does not have any comprehensive income other than what is included in net income. If the Company has any comprehensive income in the future such that a statement of comprehensive income would be necessary, the Company will include such statement in one continuous consolidated statement of operations.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Earnings Per Share

The Company applies the two-class method when computing its earnings per share. Net income per share for each class of stock is calculated assuming all of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid), which include the Company’s time-based restricted stock awards, are considered participating securities and are included in the computation of earnings per share.

Basic earnings (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. 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. Potential common shares consist of unvested restricted stock awards and units, using the more dilutive of either the two-class method or the treasury stock method.

The following table sets forth the computation of basic and diluted earnings (loss) per common share (unaudited and in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income (loss)	$	20,488	$	(22,124)	$	73,303	$	(105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Preferred stock dividends and redemption charges		(3,351)		(6,287)		(10,897)		(17,289)
Distributions paid to participating securities		(64)		—		(64)		—
Undistributed income allocated to participating securities		(40)		—		(301)		—
Numerator for basic and diluted income (loss) attributable to common stockholders	$	17,033	$	(29,344)	$	58,564	$	(120,980)
Denominator:
Weighted average basic common shares outstanding		211,010		217,709		213,799		215,765
Unvested restricted stock units		279		—		70		—
Weighted average diluted common shares outstanding		211,289		217,709		213,869		215,765
Basic income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)
Diluted income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)

At September 30, 2022 and 2021, the Company excluded 1,289,146 and 1,463,315 anti-dilutive unvested time-based restricted stock awards, respectively, from its calculation of diluted earnings per share. The unvested time-based restricted stock awards generally vest over periods ranging from three years to five years.

The Company also had unvested performance-based restricted stock units as of September 30, 2022 that were granted based on target market condition thresholds as follows: 169,832 shares that vest based on the achievement of the Company’s total relative shareholder return following a two year performance period (the “Two Year Performance Period Shares”); 254,748 shares that vest based on the achievement of the Company’s total relative shareholder return following a three year performance period (the “Three Year Performance Period Shares”); and 188,004 shares that vest based on the achievement of pre-determined stock price targets during a five year performance period (the “Five Year Performance Period Shares”). Based on the Company’s common stock performance during the nine months ended September 30, 2022, the Company excluded the Five Year Performance Period Shares from its September 30, 2022 calculations of diluted earnings per share because their effect would have been anti-dilutive.

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 times, restricted cash also includes hotel acquisition or disposition-related earnest money held in escrow reserves pending completion of the associated transaction. In addition, restricted cash as of September 30, 2022 and December 31, 2021 included $10.3 million and $10.4 million, respectively, held in escrow related to certain current and potential employee-related obligations of one of the Company’s former hotels, $3.1 million held in escrow as of both September 30, 2022 and December 31, 2021 for the purpose of satisfying any potential employee-related obligations that arise in connection with the termination of hotel personnel and any employment claim by hotel personnel at the Four Seasons Resort Napa Valley and $0.2 million held as collateral for certain letters of credit as of both September 30, 2022 and December 31, 2021 (see Note 12).

Investments in Hotel Properties

Investments in hotel properties, including land, buildings, furniture, fixtures and equipment (“FF&E”) and identifiable intangible assets are recorded at their respective relative fair values for an asset acquisition or at their estimated fair values for a business acquisition. Property and equipment purchased after the hotel acquisition date is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset,

the cost and related accumulated depreciation is removed from the Company’s accounts and any resulting gain or loss is included in the consolidated statements of operations.

Depreciation expense is based on the estimated life of the Company’s assets. The life of the assets is based on a number of assumptions, including the cost and timing of capital expenditures to maintain and refurbish the Company’s hotels, as well as specific market and economic conditions. Hotel properties are depreciated using the straight-line method over estimated useful lives primarily ranging from five to 40 years for buildings and improvements and three to 12 years for FF&E. Finance lease right-of-use assets other than land are depreciated using the straight-line method over the shorter of either their estimated useful life or the life of the related finance lease obligation. 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 to 20 years. All other franchise fees that are based on the Company’s results of operations are expensed as incurred.

While the Company believes its estimates are reasonable, a change in the estimated lives could affect depreciation expense and net income or the gain or loss on the sale of any of the Company’s hotels. The Company has not changed the useful lives of any of its assets during the periods discussed.

Impairment losses are recorded on long-lived assets to be held and used by the Company when indicators of impairment are present and the future undiscounted net cash flows, including potential sale proceeds, expected to be generated by those assets based on the Company’s anticipated investment horizon, are less than the assets’ carrying amount. The Company evaluates its long-lived assets to determine if there are indicators of impairment on a quarterly basis. No single indicator would necessarily result in the Company preparing an estimate to determine if a hotel’s future undiscounted cash flows are less than the book value of the hotel. The Company uses judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity that when combined, would result in an indication that a hotel requires an estimate of the undiscounted cash flows to determine if an impairment has occurred. If a hotel is considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The Company performs a fair value assessment, using one or more discounted cash flow analyses to estimate the fair value of the hotel, taking into account the hotel’s expected cash flow from operations, the Company’s estimate of how long it will own the hotel and the estimated proceeds from the disposition of the hotel. When multiple cash flow analyses are prepared, a probability is assigned to each cash flow analysis based upon the estimated likelihood of each scenario occurring. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and terminal capitalization rate. The Company’s judgment is required in determining the discount rate applied to estimated cash flows, the estimated growth of revenues and expenses, net operating income and margins, the need for capital expenditures, as well as specific market and economic conditions. Based on the Company’s review, no hotels were impaired during either the three or nine months ended September 30, 2022. In September 2021, the Company recognized a $1.0 million impairment loss on the Hilton New Orleans St. Charles due to Hurricane Ida-related damage at the hotel (see Note 12).

Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than a forced or liquidation sale. 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 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.

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. 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. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease obligations represent the Company’s obligation to make fixed lease payments as stipulated by the lease. The Company has elected to not separate lease components from nonlease components, resulting in the Company accounting for lease and nonlease components as one single lease component.

Leases are accounted for using a dual approach, classifying leases as either operating or financing based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the Company. This classification determines whether the lease expense is recognized on a straight-line basis over the term of the lease for operating leases or based on an effective interest method for finance leases.

Lease ROU assets are recognized at the lease commencement date and include the amount of the initial operating lease obligation, any lease payments made at or before the commencement date, excluding any lease incentives received, and any initial direct costs incurred. For leases that have extension options that the Company can exercise at its discretion, management uses judgment to determine if it is reasonably certain that the Company will in fact exercise such option. If the extension option is reasonably certain to occur, the Company includes the extended term’s lease payments in the calculation of the respective lease liability. None of the Company’s leases contain any material residual value guarantees or material restrictive covenants.

Lease obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (“IBR”) based on information available at the commencement date in determining the present value of lease payments over the lease term. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In order to estimate the Company’s IBR, the Company first looks to its own unsecured debt offerings, and adjusts the rate for both length of term and secured borrowing using available market data as well as consultations with leading national financial institutions that are active in the issuance of both secured and unsecured notes.

The Company reviews its right-of-use assets for indicators of impairment. If such assets are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Based on the Company’s review, no operating or finance lease ROU assets were impaired during either the three or nine months ended September 30, 2022 or 2021.

Noncontrolling Interest

In June 2022, the Company acquired the 25.0% outside equity interest in the Hilton San Diego Bayfront (see Note 3). Prior to this acquisition, the noncontrolling interest reported in the accompanying consolidated financial statements consisted of a third-party’s 25.0% ownership interest in the Hilton San Diego Bayfront. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interest is reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from the less-than-wholly owned subsidiary are reported at their consolidated amounts, including both the amounts attributable to the Company and the noncontrolling interest. Income or loss is allocated to the noncontrolling interest based on its weighted average ownership percentage for the applicable period. The consolidated statements of equity include beginning balances, activity for the period and ending balances for each component of stockholders’ equity, noncontrolling interest and total equity.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to hotel guests, which is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel’s services. Room revenue and other occupancy based fees are recognized over a guest’s stay at the previously agreed upon daily rate. Some of the Company’s hotel rooms are booked through independent internet travel intermediaries. If the guest pays the independent internet travel intermediary directly, revenue for the room is recognized by the Company at the price the Company sold the room to the independent internet travel intermediary, less any discount or commission paid. If the guest pays the Company directly, revenue for the room is recognized by the Company on a gross basis, with the related discount or commission recognized in room expense. A majority of the Company’s hotels participate in frequent guest programs sponsored by the hotel brand owners whereby the hotel allows guests to earn loyalty points during their hotel stay. The Company expenses charges associated with these programs as incurred, and recognizes revenue at the amount it will receive from the brand when a guest redeems their loyalty points by staying at one of the Company’s hotels. In addition, some contracts for rooms or food and beverage services require an advance deposit, which the Company records as deferred revenue (or a contract liability) and recognizes once the performance obligations are satisfied. Cancellation fees and attrition fees, which are charged to groups when they do not fulfill their contracted minimum number of room nights or minimum food and beverage spending requirements, are typically recognized as revenue in the period the Company determines it is probable that a significant reversal in the amount of revenue recognized will not occur, which is generally the period in which these fees are collected.

Food and beverage revenue and other ancillary services revenue are generated when a customer chooses to purchase goods or services separately from a hotel room. The revenue is recognized when the goods or services are provided to the customer at the amount the Company expects to be entitled to in exchange for those goods or services. For ancillary services provided by third parties, the Company assesses whether it is the principal or the agent. If the Company is the principal, revenue is recognized based upon the gross sales price. If the Company is the agent, revenue is recognized based upon the commission earned from the third party.

Additionally, the Company collects sales, use, occupancy and other similar taxes from customers at its hotels at the time of purchase, which are not included in revenue. The Company records a liability upon collection of such taxes from the customer, and relieves the liability when payments are remitted to the applicable governmental agency.

Trade receivables and contract liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Trade receivables, net (1)	$	28,487	$	16,055
Contract liabilities (2)	$	51,648	$	40,226

(1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets.

(2) Contract liabilities consist of advance deposits and are included in either other current liabilities or other liabilities on the accompanying consolidated balance sheets.

During the three months ended September 30, 2022 and 2021, the Company recognized approximately $3.0 million and $0.2 million, respectively, in revenue related to its outstanding contract liabilities. During the nine months ended September 30, 2022 and 2021, the Company recognized approximately $25.4 million and $1.3 million, respectively, in revenue related to its outstanding contract liabilities.

Segment Reporting

The Company considers each of its hotels to be an operating segment, and allocates resources and assesses the operating performance for each hotel. 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 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”). Contracts that meet the following criteria are eligible for relief from the modification accounting requirements in GAAP: the contract references LIBOR or another rate that is expected to be discontinued due to reference rate reform; the modified terms directly replace or have the potential to replace the reference rate that is expected to be discontinued due to reference rate reform; and any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the reference rate. For a contract that meets the criteria, the guidance generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. ASU No. 2020-04 is effective upon issuance, and is applied prospectively from any date beginning March 12, 2020. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022. In June 2022, the FASB proposed an accounting standards update to defer the sunset date from December 31, 2022 to December 31, 2024.

Under the terms of the Amended Credit Agreement (see Note 7), the Company’s credit facility, Term Loan 1 and Term Loan 2 are now subject to SOFR rather than LIBOR. The Company’s two interest rate swap derivatives on its term loans either expired in September 2022 or will expire in January 2023. Currently, the Company’s $220.0 million loan secured by the Hilton San Diego Bayfront and its related interest rate cap derivative are subject to LIBOR. The loan matures in December 2022; however, the Company has notified the lenders of its election to exercise its remaining one-year option to extend the loan’s maturity to December 2023. The interest rate cap derivative expires in December 2022, and the Company will be required to obtain a new interest rate cap derivative in order to secure the one-year extension on the loan. The adoption of ASU No. 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.

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Investment in Hotel Properties

9 Months Ended

Sep. 30, 2022

Investment in Hotel Properties

Investment in Hotel Properties

3. Investment in Hotel Properties

Investment in hotel properties, net consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Land	$	672,531	$	604,692
Buildings and improvements		2,780,117		2,729,461
Furniture, fixtures and equipment		423,546		431,780
Intangible assets		42,408		43,117
Construction in progress		65,121		41,260
Investment in hotel properties, gross		3,983,723		3,850,310
Accumulated depreciation and amortization		(1,133,498)		(1,130,294)
Investment in hotel properties, net	$	2,850,225	$	2,720,016

In June 2022, the Company purchased the fee-simple interest in the 339-room The Confidante Miami Beach, Florida for a contractual purchase price of $232.0 million. The acquisition was funded from available cash and with $140.0 million of proceeds received from the Company’s revolving credit facility (see Note 7). As part of the purchase price allocation for The Confidante Miami Beach, the Company allocated $0.5 million to intangible assets related to an in-place lease agreement. The $0.5 million will be amortized over the remaining five-year life of the lease.

In June 2022, the Company acquired the 25.0% noncontrolling partner’s ownership interest in the Hilton San Diego Bayfront for a contractual purchase price of $102.0 million plus 25.0% of closing date working capital and cash. The Company paid a preliminary purchase price of $101.3 million on the closing date based on estimated working capital and cash amounts, with the actual amounts to be determined in the fourth quarter of 2022. Following this acquisition, the Company owns 100% of the hotel. The acquisition was funded from available cash and with $90.0 million of proceeds received from the Company’s revolving credit facility (see Note 7). The transaction was accounted for as an equity transaction. The acquisition date noncontrolling interest balance of $38.8 million was reclassified to additional paid in capital. In addition, the $62.5 million of excess cash paid to acquire the 25.0% noncontrolling partner’s ownership interest was classified as additional paid in capital. No gain or loss was recognized in the accompanying consolidated statements of operations for either the three or nine months ended September 30, 2022 related to the acquisition.

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Disposals

9 Months Ended

Sep. 30, 2022

Disposal Group, Not Including Discontinued Operations

Disposals

4. Disposals

In February 2022, the Company sold the Hyatt Centric Chicago Magnificent Mile for net proceeds of $67.2 million, including a $4.0 million deposit received from the buyer of the hotel in December 2021, and recorded a gain of $11.3 million. In March 2022, the Company sold the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile for combined net proceeds of $128.1 million and recorded a combined gain of $11.6 million. None of these sales represented a strategic shift that had a major impact on the Company’s business plan or its primary markets; therefore none of the hotels qualified as a discontinued operation.

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Fair Value Measurements and Interest Rate Derivatives

9 Months Ended

Sep. 30, 2022

Fair Value Measurements and Interest Rate Derivatives

Fair Value Measurements and Interest Rate Derivatives

5. Fair Value Measurements and Interest Rate Derivatives

Fair Value Measurements

As of September 30, 2022 and December 31, 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. The hierarchy for inputs used in measuring fair value is as follows:

Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2	Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

As of both September 30, 2022 and December 31, 2021, the Company measured its interest rate derivatives at fair value on a recurring basis. The Company estimated the fair value of its interest rate derivatives using Level 2 measurements based on quotes obtained from the counterparties, which are based upon the consideration that would be required to terminate the agreements.

Fair Value of Debt

As of September 30, 2022 and December 31, 2021, 42.4% and 64.0%, respectively, of the Company’s outstanding debt had fixed interest rates, including the effects of interest rate swap agreements. The Company uses Level 3 measurements to estimate the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates.

The Company’s principal balances and fair market values of its consolidated debt as of September 30, 2022 (unaudited) and December 31, 2021 were as follows (in thousands):

	September 30, 2022				December 31, 2021
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	816,647	$	798,323	$	611,437	$	590,359

(1) The principal balance of debt is presented before any unamortized deferred financing costs.

(2) Due to prevailing market conditions and the uncertain economic environment caused by the COVID-19 pandemic, actual interest rates could vary materially from those estimated, which would result in variances in the Company’s calculations of the fair market value of its debt.

Interest Rate Derivatives

The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at September 30, 2022 (unaudited) and December 31, 2021 (in thousands):

									Estimated Fair Value of Assets (Liabilities) (1)
		Strike / Capped			Effective	Maturity	Notional		September 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2022		2021
Hilton San Diego Bayfront	Cap	6.000	%	1-Month LIBOR	December 9, 2021	December 15, 2022	$	220,000	$	—	$	3
Term Loan 1	Swap	1.591	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000		N/A		(744)
Term Loan 2	Swap	1.853	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000		679		(1,484)
									$	679	$	(2,225)

(1) The fair values of the cap derivative are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets as of both September 30, 2022 and December 31, 2021. The Term Loan 1 swap derivative expired in September 2022. The fair value of the Term Loan 2 swap derivative is included in prepaid expenses and other current assets on the accompanying consolidated balance sheet as of September 30, 2022. As of December 31, 2021, the fair values of both swap derivatives are included in other current liabilities and other liabilities, respectively, on the accompanying consolidated balance sheet.

Noncash changes in the fair values of the Company’s interest rate derivatives resulted in decreases to interest expense for the three and nine months ended September 30, 2022 and 2021 as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Noncash interest on derivatives, net	$	(39)	$	(616)	$	(2,904)	$	(2,194)

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Other Assets

9 Months Ended

Sep. 30, 2022

Other Assets.

Other Assets

6. Other Assets

Other assets, net consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Property and equipment, net	$	5,113	$	5,912
Deferred rent on straight-lined third-party tenant leases		2,103		2,455
Liquor licenses		928		826
Other receivables		715		3,914
Other		86		89
Total other assets, net	$	8,945	$	13,196

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Notes Payable

9 Months Ended

Sep. 30, 2022

Debt Disclosures

Notes Payable

7. Notes Payable

Notes payable consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points, resulting in effective interest rates of 3.824% and 1.140% at September 30, 2022 and December 31, 2021, respectively; matures on December 9, 2022 with notice provided to the lenders of intent to exercise remaining one-year option to extend (subject to a 25 basis point increase in the LIBOR spread). The note is collateralized by a first deed of trust on one hotel property.	$	220,000	$	220,000
Note payable requiring payments of interest and principal, with a fixed rate of 4.15%; matures on December 11, 2024. The note is collateralized by a first deed of trust on one hotel property.		76,647		78,137
Unsecured Term Loan 1 requiring payments of interest only with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points, depending on the Company's leverage ratios, plus SOFR and 10 basis points, resulting in an effective interest rate of 4.597% at September 30, 2022, and a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points as of December 31, 2021. LIBOR was swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 3.941% at December 31, 2021. Matures on July 25, 2027.		175,000		19,400
Unsecured Term Loan 2 requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points, depending on the Company's leverage ratios, plus SOFR and 10 basis points as of September 30, 2022, and a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points as of December 31, 2021. LIBOR was swapped to a fixed rate of 1.853%, resulting in effective interest rates of 3.628% and 4.203% at September 30, 2022 and December 31, 2021, respectively. Matures on January 25, 2028.		175,000		88,900
Unsecured Series A Senior Notes requiring semi-annual payments of interest only, bearing interest at 5.94%. Matures on January 10, 2026.		65,000		90,000
Unsecured Series B Senior Notes requiring semi-annual payments of interest only, bearing interest at 6.04%. Matures on January 10, 2028.		105,000		115,000
Total notes payable	$	816,647	$	611,437
Current portion of notes payable	$	2,145	$	21,401
Less: current portion of deferred financing costs		(57)		(707)
Carrying value of current portion of notes payable	$	2,088	$	20,694
Notes payable, less current portion	$	814,502	$	590,036
Less: long-term portion of deferred financing costs		(3,593)		(1,295)
Carrying value of notes payable, less current portion	$	810,909	$	588,741

In February 2022, the Company used a portion of the proceeds received from the disposition of the Hyatt Centric Chicago Magnificent Mile to repay $25.0 million of its unsecured Series A Senior Notes and $10.0 million of its unsecured Series B Senior Notes, resulting in remaining balances of $65.0 million and $105.0 million, respectively, as of September 30, 2022. In conjunction with the repayments, the Company recorded a $0.2 million loss on extinguishment of debt related to the write-off of deferred financing costs.

In March 2022, the Company elected to early terminate the covenant relief period related to its unsecured debt, having satisfied the financial covenants stipulated in the 2020 and 2021 amendments to its unsecured debt agreements (the “Unsecured Debt Amendments”) for the quarter ended December 31, 2021. The Unsecured Debt Amendments were scheduled to provide covenant relief through the end of the third quarter of 2022, with quarterly testing resuming for the period ending September 30, 2022. Following the Company’s early termination of the covenant relief period in March 2022, the original financial covenants on its unsecured debt agreements were to be phased-in over the following five quarters to ease compliance. By exiting the covenant relief period, the Company is no longer subject to the additional restrictions on debt issuance and repayment, capital investment, share repurchases and dividend distributions that were imposed as part of the Unsecured Debt Amendments.

In June 2022, the Company drew a total of $230.0 million under the revolving portion of its credit facility to fund the acquisitions of The Confidante Miami Beach and the 25.0% noncontrolling interest in the Hilton San Diego Bayfront (see Note 3).

In July 2022, the Company entered into a Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”) which expanded its unsecured borrowing capacity and extended the maturity of the Company’s two unsecured term loans. The Amended Credit Agreement increased the balances of both Term Loan 1 and Term Loan 2 to $175.0 million each from $19.4 million and $88.9 million, respectively. In addition, the maturity dates were extended to July 2027 and January 2028 for Term Loan 1 and Term Loan 2, respectively. Under the Amended Credit Agreement, the term loans bear interest pursuant to a leverage-based pricing grid ranging from 135 basis points to 220 basis points over the applicable adjusted term SOFR.

In July 2022, the Company utilized the proceeds received from the incremental borrowing on the term loans to fully repay the $230.0 million that was outstanding on its revolving credit facility. The Amended Credit Agreement continues to provide for a $500.0 million revolving credit facility, with two six-month extension options, which would result in an extended maturity of July 2027. Under the Amended Credit Agreement, the revolving credit facility bears interest pursuant to a leverage-based pricing grid ranging from 140 basis points to 225 basis points over the applicable adjusted term SOFR. As of September 30, 2022, the Company had no amount outstanding on its credit facility, with $500.0 million of capacity available for borrowing under the facility. The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various financial covenants.

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. These provisions were triggered in January 2021 for the loan secured by the JW Marriott New Orleans and in May 2021 for the loan secured by the Hilton San Diego Bayfront. In April 2022, the loan secured by the Hilton San Diego Bayfront exited the cash trap, and in October 2022, the Company notified the lender for the loan secured by the JW Marriott New Orleans that it had met the criteria to exit the cash trap. As of September 30, 2022, no excess cash generated by the JW Marriott New Orleans was held in a lockbox account for the benefit of the lender.

Interest Expense

Total interest incurred and expensed on the notes payable and finance lease obligation was as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest expense on debt and finance lease obligation	$	8,719	$	7,864	$	21,252	$	23,684
Noncash interest on derivatives, net		(39)		(616)		(2,904)		(2,194)
Amortization of deferred financing costs		589		735		1,940		2,207
Total interest expense	$	9,269	$	7,983	$	20,288	$	23,697

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Other Current Liabilities and Other Liabilities

9 Months Ended

Sep. 30, 2022

Other Current Liabilities and Other Liabilities

Other Current Liabilities and Other Liabilities

8. Other Current Liabilities and Other Liabilities

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Property, sales and use taxes payable	$	14,538	$	12,591
Accrued interest		3,832		6,858
Advance deposits		44,673		33,750
Interest rate swap derivative		—		744
Management fees payable		1,297		1,691
Other		4,580		3,250
Total other current liabilities	$	68,920	$	58,884

Other Liabilities

Other liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Deferred revenue	$	7,076	$	6,598
Interest rate swap derivative		—		1,484
Other		2,499		3,574
Total other liabilities	$	9,575	$	11,656

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Leases

9 Months Ended

Sep. 30, 2022

Leases

Leases

9. Leases

As of both September 30, 2022 and December 31, 2021, the Company had operating leases for ground, office, equipment and airspace leases with maturity dates ranging from 2024 through 2097, excluding renewal options. Including renewal options available to the Company, the lease maturity date extends to 2147.

Operating leases were included on the Company’s consolidated balance sheets as follows (in thousands):

	September 30,			December 31,
	2022			2021
	(unaudited)
Right-of-use assets, net	$	17,866		$	23,161
Accounts payable and accrued expenses	$	5,678		$	5,586
Lease obligations, less current portion		18,349			25,120
Total lease obligations	$	24,027		$	30,706
Weighted average remaining lease term		33 years
Weighted average discount rate		5.0	%

As of December 31, 2021, the Company had an operating lease related to certain office and parking space at the Hilton Garden Inn Chicago Downtown/Magnificent Mile. Upon the hotel’s sale in March 2022 (see Note 4), the Company was no longer obligated under the operating lease and the related $2.3 million right-of-use asset, net and $2.6 million lease obligation were removed from the Company’s consolidated balance sheet.

As of December 31, 2021, the Company also had a finance lease related to the building occupied by the Hyatt Centric Chicago Magnificent Mile. The related lease obligation and right-of-use asset, net were classified as held for sale on the accompanying consolidated balance sheet as of December 31, 2021. Upon the hotel’s sale in February 2022 (see Note 4), the Company was no longer

obligated under the building lease and the related $44.7 million right-of-use asset, net and $15.6 million finance lease obligation were removed from the Company’s consolidated balance sheet.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Finance lease cost (1):
Amortization of right-of-use asset	$	—	$	368	$	—	$	1,103
Interest on lease obligation		—		351		117		1,053
Operating lease cost		1,325		1,382		4,041		4,068
Variable lease cost (2)		2,241		—		5,100		13
Total lease cost	$	3,566	$	2,101	$	9,258	$	6,237

(1) Finance lease cost for the nine months ended September 30, 2022 and the three and nine months ended September 30, 2021 included expenses for the Hyatt Centric Chicago Magnificent Mile’s finance lease obligation before the hotel’s sale in February 2022 (see Note 4).

(2) Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Stockholders' Equity

10. Stockholders’ Equity

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 Cumulative Redeemable Preferred Stock (“Series G preferred stock”) to the hotel’s seller as partial payment of the hotel. The Series G preferred stock, which is callable at its $25.00 redemption price plus accrued and unpaid dividends by the Company at any time, accrues dividends at an initial rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s investment in the resort. The annual dividend rate is expected to increase in 2023 to the greater of 3.0% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort. The Series G preferred stock is not convertible into any other security.

Series H Cumulative Redeemable Preferred Stock

In May 2021, the Company issued 4,600,000 shares of its 6.125% Series H Cumulative Redeemable Preferred Stock (“Series H preferred stock”) with a liquidation preference of $25.00. On or after May 24, 2026, the Series H preferred stock will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series H preferred stock, the Company may at its option redeem the Series H preferred stock for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. If the Company chooses not to redeem the Series H preferred stock upon the occurrence of a change of control, holders of the Series H preferred stock may convert their preferred shares into shares of the Company’s common stock.

Series I Cumulative Redeemable Preferred Stock

In July 2021, the Company issued 4,000,000 shares of its 5.70% Series I Cumulative Redeemable Preferred Stock (“Series I preferred stock”) with a liquidation preference of $25.00. On or after July 16, 2026, the Series I preferred stock will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series I preferred stock, the Company may at its option redeem the Series I preferred stock for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. If the Company chooses not to redeem the Series I preferred stock upon the occurrence of a change of control, holders of the Series I preferred stock may convert their preferred shares into shares of the Company’s common stock.

Common Stock

Stock Repurchase Program. In February 2021, the Company’s board of directors reauthorized the Company’s existing stock repurchase program, allowing the Company to acquire up to $500.0 million of the Company’s common and preferred stock. The stock repurchase program has no stated expiration date. During the third quarter and first nine months of 2022, the Company repurchased

880,577 shares and 7,995,560 shares of its common stock, respectively, for $8.7 million and $86.6 million, respectively, including fees and commissions, leaving $413.5 million remaining for repurchase under the program. Future repurchases will depend on various factors, including the Company’s capital needs and restrictions under its various financing agreements, as well as the price of the Company’s common and preferred stock.

ATM Agreements. In February 2017, the Company entered into separate “At the Market” Agreements (the “ATM Agreements”) with each of BofA Securities, Inc., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC. 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 February 2022, the Company’s board of directors reauthorized the $300.0 million ATM Agreements, or new similar agreements. No common stock was issued under the ATM Agreements during the first nine months of 2022, leaving $300.0 million available for sale.

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Long-Term Incentive Plan

9 Months Ended

Sep. 30, 2022

Long-Term Incentive Plan

Long-Term Incentive Plan

11. Long-Term Incentive Plan

The Company’s Long-Term Incentive Plan (“LTIP”) provides for granting awards to directors, officers and eligible employees. The awards may be in the form of incentive or nonqualified stock options, restricted shares or units, performance shares or units, share appreciation rights, or any combination thereof. As of September 30, 2022, the Company’s issued and outstanding awards consist of both time-based and performance-based restricted stock grants. Time-based restricted shares generally vest over periods ranging from three years to five years from the date of grant. Performance-based restricted shares generally vest based on the Company’s total relative shareholder return and achievement of pre-determined stock price targets during performance periods ranging from two years to five years.

Should a stock grant be forfeited prior to its vesting, the shares covered by the stock grant are added back to the LTIP and remain available for future issuance. Shares of common stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligations upon the vesting of a stock grant are not added back to the LTIP.

Compensation expense related to awards of restricted shares are measured at fair value on the date of grant and amortized over the relevant requisite service period or derived service period. The Company has elected to account for forfeitures as they occur.

The Company’s amortization expense, including forfeitures related to restricted shares was as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Amortization expense, including forfeitures	$	2,230	$	3,165	$	8,661	$	10,576
Capitalized compensation cost (1)	$	120	$	124	$	361	$	366

(1) The Company capitalizes compensation costs related to restricted shares granted to certain employees whose work is directly related to the Company’s capital investment in its hotels.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies

Commitments and Contingencies

12. Commitments and Contingencies

Management Agreements

Management agreements with the Company’s third-party hotel managers currently require the Company to pay between 2.0% and 3.0% of total revenue of the managed hotels to the third-party managers each month as a basic management fee. In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers.

Total basic and incentive management fees were included in other property-level expenses on the Company’s consolidated statements of operations as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic management fees	$	6,695	$	4,391	$	18,310	$	8,767
Incentive management fees		736		687		5,361		687
Total basic and incentive management fees	$	7,431	$	5,078	$	23,671	$	9,454

License and Franchise Agreements

The Company has entered into license and franchise agreements related to certain of its hotels. The license and franchise agreements require the Company to, among other things, pay monthly fees that are calculated based on specified percentages of certain revenues. The license and franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with such standards may from time to time require the Company to make significant expenditures for capital improvements.

Total license and franchise fees were included in franchise costs on the Company’s consolidated statements of operations as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Franchise assessments (1)	$	3,877	$	3,241	$	10,564	$	5,961
Franchise royalties (2)		268		940		865		1,507
Total franchise costs	$	4,145	$	4,181	$	11,429	$	7,468

(1) Includes advertising, reservation and frequent guest program assessments.

(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 September 30, 2022, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotel properties. The remaining commitments under these contracts at September 30, 2022 totaled $66.7 million.

Concentration of Risk

The concentration of the Company’s hotels in California, Florida, Hawaii and Massachusetts exposes the Company’s business to economic and severe weather conditions, competition and real and personal property tax rates unique to these locales.

As of September 30, 2022, 11 of the 15 Hotels were geographically concentrated as follows (unaudited):

				Trailing 12-Month
		Percentage of		Total Consolidated
	Number of Hotels	Total Rooms		Revenue
California	5	34	%	39	%
Florida	3	17	%	14	%
Hawaii	1	7	%	19	%
Massachusetts	2	19	%	16	%

Hurricanes Ida and Ian

During the third quarter of 2021, the Company’s two New Orleans hotels were impacted to varying degrees by Hurricane Ida. While both hotels remained open during the storm, they sustained wind-driven damage, rain infiltration and water damage. The Company maintains customary property, casualty, environmental, flood and business interruption insurance at all of its hotels, the coverage of which is subject to certain limitations including higher deductibles in the event of a named storm. The Company is working with its insurers to identify and settle a property damage claim and a business interruption claim at the Hilton New Orleans St. Charles for portions of the costs related to Hurricane Ida. The Company has concluded that the cost to restore damages at the JW Marriott New Orleans will not exceed the hotel’s deductible.

During the first nine months of 2022, the Company incurred Hurricane Ida-related restoration expenses of $1.5 million and $0.1 million at the Hilton New Orleans St. Charles and the JW Marriott New Orleans, respectively, with only a nominal amount incurred at the Hilton New Orleans St. Charles during the third quarter of 2022. During the three and nine months ended September 30, 2021, the Company incurred Hurricane Ida-related restoration expenses of $1.2 million and $0.4 million at the Hilton New Orleans St. Charles

and the JW Marriott New Orleans, respectively. All restoration expenses are included in repairs and maintenance expense in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021. Through September 30, 2022, the Company has incurred total Hurricane Ida-related restoration expenses of $4.5 million at the Hilton New Orleans St. Charles and $1.4 million at the JW Marriott New Orleans. In addition, in the third quarter of 2021, the Company wrote-off $1.0 million in assets at the Hilton New Orleans St. Charles due to Hurricane Ida-related damage, which is included in impairment losses in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2021. Though the property damage claim has not been finalized, the Company recognized an advance payment of $4.4 million from its insurers in the first nine months of 2022 for Hurricane Ida-related property damage expenses previously incurred, which is included in interest and other income (loss) on the accompanying consolidated statement of operations for the nine months ended September 30, 2022. During the first nine months of 2022, the Company also recognized an advance payment of $1.0 million from its insurers related to its ongoing business interruption claim at the Hilton New Orleans St. Charles, which is included in other operating revenue on the accompanying consolidated statement of operations for the nine months ended September 30, 2022.

In late September 2022, two of the Company’s Florida hotels, the Oceans Edge Resort & Marina and the Renaissance Orlando at SeaWorld® were immaterially impacted by Hurricane Ian. The Company expects to incur approximately $0.6 million in Hurricane Ian-related restoration expenses at the two Florida hotels in the fourth quarter of 2022, and anticipates that the costs to restore the damages will not exceed either of the hotel’s property insurance deductible.

The Company may incur additional expenses related to Hurricane Ida and Hurricane Ian at the New Orleans and Florida hotels in the future. Any additional expenses will be recognized as incurred, and any additional property damage or business interruption recoveries will not be recognized until final settlements have been reached with the Company’s insurers.

Other

In accordance with the assignment-in-lieu agreement executed in December 2020 between the Company and the mortgage holder of the Hilton Times Square, the Company was required to retain approximately $11.6 million related to certain current and potential employee-related obligations (the “potential obligation”). As of September 30, 2022, $0.9 million of the potential obligation has been paid to the hotel’s employees, including $0.1 million paid during the first nine months of 2022. In addition, the potential obligation is reassessed at the end of every quarter, resulting in nominal gains on extinguishment of debt included on the accompanying consolidated statements of operations for the three and nine months ended September 30, 2022, and gains on extinguishment of debt of $0.1 million and $0.4 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022 and December 31, 2021, restricted cash on the accompanying consolidated balance sheets included $10.3 million and $10.4 million, respectively, which will continue to be held in escrow until the potential obligation is resolved. Other current liabilities on the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021, included the potential obligation balances of $10.3 million and $10.5 million, respectively.

Coterminous with the Company’s acquisition of the Four Seasons Resort Napa Valley in 2021, the Company was required to deposit $3.1 million into a restricted bank account owned by the Company, but to which the hotel’s management company, Four Seasons, has sole and unrestricted access to withdraw funds for the purpose of satisfying any potential employee-related obligations that arise in connection with the termination of hotel personnel and any employment claim by hotel personnel (“severance obligations”). Prior to Four Seasons withdrawing funds from the restricted account, the Company has the option to pay the severance obligations using its cash on hand. Should amounts in the restricted bank account be used to fund the severance obligations, the Company will be required to deposit additional funds into the restricted bank account so that the amount in the account totals any estimated future severance obligations. Currently, the estimated future severance obligations total $3.1 million, which is included in restricted cash on the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021; however, the estimated future severance obligations may increase up to a maximum of $5.0 million.

The Company has provided customary unsecured indemnities to certain lenders, including in particular, environmental indemnities. The Company has performed due diligence on the potential environmental risks, including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate the Company to reimburse the indemnified parties for damages related to certain environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners or a claim against its environmental insurance policies.

At September 30, 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. 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 September 30, 2022. The letters of credit are collateralized with $0.2 million held in a restricted bank account owned by the Company, which is included in restricted cash on the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021.

The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of its hotels, its managers and other Company matters. While it is not possible to ascertain the ultimate outcome of such matters, the Company believes that the aggregate identifiable amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on its financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings, including any potential COVID-19-related litigation, brought against the Company, however, is subject to significant uncertainties.

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Subsequent Events

9 Months Ended

Sep. 30, 2022

Subsequent Events

Subsequent Events

13. Subsequent Events

Subsequent to the end of the third quarter of 2022 and through the date of issuance of these financial statements, the Company repurchased 1,170,791 shares of its common stock for $11.3 million, including fees and commissions, increasing the year to date amount repurchased to 9,166,351 shares of its common stock for $98.0 million, including fees and commissions, and leaving $402.2 million remaining for repurchase under the program.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements as of September 30, 2022 and December 31, 2021, and for the three and nine months ended September 30, 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. If the Company determines that it has an interest in a variable interest entity, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity.

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission. In the Company’s opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. These financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 23, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The Company does not have any comprehensive income other than what is included in net income. If the Company has any comprehensive income in the future such that a statement of comprehensive income would be necessary, the Company will include such statement in one continuous consolidated statement of operations.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Earnings Per Share

Earnings Per Share

The Company applies the two-class method when computing its earnings per share. Net income per share for each class of stock is calculated assuming all of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid), which include the Company’s time-based restricted stock awards, are considered participating securities and are included in the computation of earnings per share.

Basic earnings (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. 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. Potential common shares consist of unvested restricted stock awards and units, using the more dilutive of either the two-class method or the treasury stock method.

The following table sets forth the computation of basic and diluted earnings (loss) per common share (unaudited and in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income (loss)	$	20,488	$	(22,124)	$	73,303	$	(105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Preferred stock dividends and redemption charges		(3,351)		(6,287)		(10,897)		(17,289)
Distributions paid to participating securities		(64)		—		(64)		—
Undistributed income allocated to participating securities		(40)		—		(301)		—
Numerator for basic and diluted income (loss) attributable to common stockholders	$	17,033	$	(29,344)	$	58,564	$	(120,980)
Denominator:
Weighted average basic common shares outstanding		211,010		217,709		213,799		215,765
Unvested restricted stock units		279		—		70		—
Weighted average diluted common shares outstanding		211,289		217,709		213,869		215,765
Basic income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)
Diluted income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)

At September 30, 2022 and 2021, the Company excluded 1,289,146 and 1,463,315 anti-dilutive unvested time-based restricted stock awards, respectively, from its calculation of diluted earnings per share. The unvested time-based restricted stock awards generally vest over periods ranging from three years to five years.

The Company also had unvested performance-based restricted stock units as of September 30, 2022 that were granted based on target market condition thresholds as follows: 169,832 shares that vest based on the achievement of the Company’s total relative shareholder return following a two year performance period (the “Two Year Performance Period Shares”); 254,748 shares that vest based on the achievement of the Company’s total relative shareholder return following a three year performance period (the “Three Year Performance Period Shares”); and 188,004 shares that vest based on the achievement of pre-determined stock price targets during a five year performance period (the “Five Year Performance Period Shares”). Based on the Company’s common stock performance during the nine months ended September 30, 2022, the Company excluded the Five Year Performance Period Shares from its September 30, 2022 calculations of diluted earnings per share because their effect would have been anti-dilutive.

Restricted Cash

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 times, restricted cash also includes hotel acquisition or disposition-related earnest money held in escrow reserves pending completion of the associated transaction. In addition, restricted cash as of September 30, 2022 and December 31, 2021 included $10.3 million and $10.4 million, respectively, held in escrow related to certain current and potential employee-related obligations of one of the Company’s former hotels, $3.1 million held in escrow as of both September 30, 2022 and December 31, 2021 for the purpose of satisfying any potential employee-related obligations that arise in connection with the termination of hotel personnel and any employment claim by hotel personnel at the Four Seasons Resort Napa Valley and $0.2 million held as collateral for certain letters of credit as of both September 30, 2022 and December 31, 2021 (see Note 12).

Investments in Hotel Properties

Investments in Hotel Properties

Investments in hotel properties, including land, buildings, furniture, fixtures and equipment (“FF&E”) and identifiable intangible assets are recorded at their respective relative fair values for an asset acquisition or at their estimated fair values for a business acquisition. Property and equipment purchased after the hotel acquisition date is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset,

the cost and related accumulated depreciation is removed from the Company’s accounts and any resulting gain or loss is included in the consolidated statements of operations.

Depreciation expense is based on the estimated life of the Company’s assets. The life of the assets is based on a number of assumptions, including the cost and timing of capital expenditures to maintain and refurbish the Company’s hotels, as well as specific market and economic conditions. Hotel properties are depreciated using the straight-line method over estimated useful lives primarily ranging from five to 40 years for buildings and improvements and three to 12 years for FF&E. Finance lease right-of-use assets other than land are depreciated using the straight-line method over the shorter of either their estimated useful life or the life of the related finance lease obligation. 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 to 20 years. All other franchise fees that are based on the Company’s results of operations are expensed as incurred.

While the Company believes its estimates are reasonable, a change in the estimated lives could affect depreciation expense and net income or the gain or loss on the sale of any of the Company’s hotels. The Company has not changed the useful lives of any of its assets during the periods discussed.

Impairment losses are recorded on long-lived assets to be held and used by the Company when indicators of impairment are present and the future undiscounted net cash flows, including potential sale proceeds, expected to be generated by those assets based on the Company’s anticipated investment horizon, are less than the assets’ carrying amount. The Company evaluates its long-lived assets to determine if there are indicators of impairment on a quarterly basis. No single indicator would necessarily result in the Company preparing an estimate to determine if a hotel’s future undiscounted cash flows are less than the book value of the hotel. The Company uses judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity that when combined, would result in an indication that a hotel requires an estimate of the undiscounted cash flows to determine if an impairment has occurred. If a hotel is considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The Company performs a fair value assessment, using one or more discounted cash flow analyses to estimate the fair value of the hotel, taking into account the hotel’s expected cash flow from operations, the Company’s estimate of how long it will own the hotel and the estimated proceeds from the disposition of the hotel. When multiple cash flow analyses are prepared, a probability is assigned to each cash flow analysis based upon the estimated likelihood of each scenario occurring. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and terminal capitalization rate. The Company’s judgment is required in determining the discount rate applied to estimated cash flows, the estimated growth of revenues and expenses, net operating income and margins, the need for capital expenditures, as well as specific market and economic conditions. Based on the Company’s review, no hotels were impaired during either the three or nine months ended September 30, 2022. In September 2021, the Company recognized a $1.0 million impairment loss on the Hilton New Orleans St. Charles due to Hurricane Ida-related damage at the hotel (see Note 12).

Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than a forced or liquidation sale. 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 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.

Leases

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. 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. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease obligations represent the Company’s obligation to make fixed lease payments as stipulated by the lease. The Company has elected to not separate lease components from nonlease components, resulting in the Company accounting for lease and nonlease components as one single lease component.

Leases are accounted for using a dual approach, classifying leases as either operating or financing based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the Company. This classification determines whether the lease expense is recognized on a straight-line basis over the term of the lease for operating leases or based on an effective interest method for finance leases.

Lease ROU assets are recognized at the lease commencement date and include the amount of the initial operating lease obligation, any lease payments made at or before the commencement date, excluding any lease incentives received, and any initial direct costs incurred. For leases that have extension options that the Company can exercise at its discretion, management uses judgment to determine if it is reasonably certain that the Company will in fact exercise such option. If the extension option is reasonably certain to occur, the Company includes the extended term’s lease payments in the calculation of the respective lease liability. None of the Company’s leases contain any material residual value guarantees or material restrictive covenants.

Lease obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (“IBR”) based on information available at the commencement date in determining the present value of lease payments over the lease term. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In order to estimate the Company’s IBR, the Company first looks to its own unsecured debt offerings, and adjusts the rate for both length of term and secured borrowing using available market data as well as consultations with leading national financial institutions that are active in the issuance of both secured and unsecured notes.

The Company reviews its right-of-use assets for indicators of impairment. If such assets are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Based on the Company’s review, no operating or finance lease ROU assets were impaired during either the three or nine months ended September 30, 2022 or 2021.

Noncontrolling Interest

Noncontrolling Interest

In June 2022, the Company acquired the 25.0% outside equity interest in the Hilton San Diego Bayfront (see Note 3). Prior to this acquisition, the noncontrolling interest reported in the accompanying consolidated financial statements consisted of a third-party’s 25.0% ownership interest in the Hilton San Diego Bayfront. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interest is reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from the less-than-wholly owned subsidiary are reported at their consolidated amounts, including both the amounts attributable to the Company and the noncontrolling interest. Income or loss is allocated to the noncontrolling interest based on its weighted average ownership percentage for the applicable period. The consolidated statements of equity include beginning balances, activity for the period and ending balances for each component of stockholders’ equity, noncontrolling interest and total equity.

Revenue Recognition

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to hotel guests, which is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel’s services. Room revenue and other occupancy based fees are recognized over a guest’s stay at the previously agreed upon daily rate. Some of the Company’s hotel rooms are booked through independent internet travel intermediaries. If the guest pays the independent internet travel intermediary directly, revenue for the room is recognized by the Company at the price the Company sold the room to the independent internet travel intermediary, less any discount or commission paid. If the guest pays the Company directly, revenue for the room is recognized by the Company on a gross basis, with the related discount or commission recognized in room expense. A majority of the Company’s hotels participate in frequent guest programs sponsored by the hotel brand owners whereby the hotel allows guests to earn loyalty points during their hotel stay. The Company expenses charges associated with these programs as incurred, and recognizes revenue at the amount it will receive from the brand when a guest redeems their loyalty points by staying at one of the Company’s hotels. In addition, some contracts for rooms or food and beverage services require an advance deposit, which the Company records as deferred revenue (or a contract liability) and recognizes once the performance obligations are satisfied. Cancellation fees and attrition fees, which are charged to groups when they do not fulfill their contracted minimum number of room nights or minimum food and beverage spending requirements, are typically recognized as revenue in the period the Company determines it is probable that a significant reversal in the amount of revenue recognized will not occur, which is generally the period in which these fees are collected.

Food and beverage revenue and other ancillary services revenue are generated when a customer chooses to purchase goods or services separately from a hotel room. The revenue is recognized when the goods or services are provided to the customer at the amount the Company expects to be entitled to in exchange for those goods or services. For ancillary services provided by third parties, the Company assesses whether it is the principal or the agent. If the Company is the principal, revenue is recognized based upon the gross sales price. If the Company is the agent, revenue is recognized based upon the commission earned from the third party.

Additionally, the Company collects sales, use, occupancy and other similar taxes from customers at its hotels at the time of purchase, which are not included in revenue. The Company records a liability upon collection of such taxes from the customer, and relieves the liability when payments are remitted to the applicable governmental agency.

Trade receivables and contract liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Trade receivables, net (1)	$	28,487	$	16,055
Contract liabilities (2)	$	51,648	$	40,226

(1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets.

(2) Contract liabilities consist of advance deposits and are included in either other current liabilities or other liabilities on the accompanying consolidated balance sheets.

During the three months ended September 30, 2022 and 2021, the Company recognized approximately $3.0 million and $0.2 million, respectively, in revenue related to its outstanding contract liabilities. During the nine months ended September 30, 2022 and 2021, the Company recognized approximately $25.4 million and $1.3 million, respectively, in revenue related to its outstanding contract liabilities.

Segment Reporting

Segment Reporting

The Company considers each of its hotels to be an operating segment, and allocates resources and assesses the operating performance for each hotel. 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

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”). Contracts that meet the following criteria are eligible for relief from the modification accounting requirements in GAAP: the contract references LIBOR or another rate that is expected to be discontinued due to reference rate reform; the modified terms directly replace or have the potential to replace the reference rate that is expected to be discontinued due to reference rate reform; and any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the reference rate. For a contract that meets the criteria, the guidance generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. ASU No. 2020-04 is effective upon issuance, and is applied prospectively from any date beginning March 12, 2020. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022. In June 2022, the FASB proposed an accounting standards update to defer the sunset date from December 31, 2022 to December 31, 2024.

Under the terms of the Amended Credit Agreement (see Note 7), the Company’s credit facility, Term Loan 1 and Term Loan 2 are now subject to SOFR rather than LIBOR. The Company’s two interest rate swap derivatives on its term loans either expired in September 2022 or will expire in January 2023. Currently, the Company’s $220.0 million loan secured by the Hilton San Diego Bayfront and its related interest rate cap derivative are subject to LIBOR. The loan matures in December 2022; however, the Company has notified the lenders of its election to exercise its remaining one-year option to extend the loan’s maturity to December 2023. The interest rate cap derivative expires in December 2022, and the Company will be required to obtain a new interest rate cap derivative in order to secure the one-year extension on the loan. The adoption of ASU No. 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.

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Organization and Description of Business (Tables)

9 Months Ended

Sep. 30, 2022

Organization and Description of Business

Schedule of number of hotels managed by each third-party manager

As of September 30, 2022, the Company owned 15 hotels (the “15 Hotels”) currently held for investment. The Company’s third-party managers included the following:

	Number of Hotels
Subsidiaries of Marriott International, Inc. or Marriott Hotel Services, Inc. (collectively, “Marriott”)	6
Hyatt Hotels Corporation	2
Interstate Hotels & Resorts, Inc.	2	(1)
Four Seasons Hotels Limited	1
Highgate Hotels L.P. and an affiliate	1
Hilton Worldwide	1
Montage North America, LLC	1
Singh Hospitality, LLC	1
Total hotels owned as of September 30, 2022	15

(1) In October 2022, Sage Hospitality Group commenced management of The Bidwell Portland Marriott.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Schedule of computation of basic and diluted earnings (loss) per common share

The following table sets forth the computation of basic and diluted earnings (loss) per common share (unaudited and in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income (loss)	$	20,488	$	(22,124)	$	73,303	$	(105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest		—		(933)		(3,477)		1,638
Preferred stock dividends and redemption charges		(3,351)		(6,287)		(10,897)		(17,289)
Distributions paid to participating securities		(64)		—		(64)		—
Undistributed income allocated to participating securities		(40)		—		(301)		—
Numerator for basic and diluted income (loss) attributable to common stockholders	$	17,033	$	(29,344)	$	58,564	$	(120,980)
Denominator:
Weighted average basic common shares outstanding		211,010		217,709		213,799		215,765
Unvested restricted stock units		279		—		70		—
Weighted average diluted common shares outstanding		211,289		217,709		213,869		215,765
Basic income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)
Diluted income (loss) attributable to common stockholders per common share	$	0.08	$	(0.13)	$	0.27	$	(0.56)

Schedule of contract assets and liabilities

Trade receivables and contract liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Trade receivables, net (1)	$	28,487	$	16,055
Contract liabilities (2)	$	51,648	$	40,226

(1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets.

(2) Contract liabilities consist of advance deposits and are included in either other current liabilities or other liabilities on the accompanying consolidated balance sheets.

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Investment in Hotel Properties (Tables)

9 Months Ended

Sep. 30, 2022

Investment in Hotel Properties

Schedule of investment in hotel properties

Investment in hotel properties, net consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Land	$	672,531	$	604,692
Buildings and improvements		2,780,117		2,729,461
Furniture, fixtures and equipment		423,546		431,780
Intangible assets		42,408		43,117
Construction in progress		65,121		41,260
Investment in hotel properties, gross		3,983,723		3,850,310
Accumulated depreciation and amortization		(1,133,498)		(1,130,294)
Investment in hotel properties, net	$	2,850,225	$	2,720,016

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Fair Value Measurements and Interest Rate Derivatives (Tables)

9 Months Ended

Sep. 30, 2022

Fair Value Measurements and Interest Rate Derivatives

Schedule of principal values and estimated fair values of debt

The Company’s principal balances and fair market values of its consolidated debt as of September 30, 2022 (unaudited) and December 31, 2021 were as follows (in thousands):

	September 30, 2022				December 31, 2021
	Carrying Amount (1)		Fair Value (2)		Carrying Amount (1)		Fair Value (2)
Debt	$	816,647	$	798,323	$	611,437	$	590,359

(1) The principal balance of debt is presented before any unamortized deferred financing costs.

(2) Due to prevailing market conditions and the uncertain economic environment caused by the COVID-19 pandemic, actual interest rates could vary materially from those estimated, which would result in variances in the Company’s calculations of the fair market value of its debt.

Schedule of interest rate derivatives

The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at September 30, 2022 (unaudited) and December 31, 2021 (in thousands):

									Estimated Fair Value of Assets (Liabilities) (1)
		Strike / Capped			Effective	Maturity	Notional		September 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2022		2021
Hilton San Diego Bayfront	Cap	6.000	%	1-Month LIBOR	December 9, 2021	December 15, 2022	$	220,000	$	—	$	3
Term Loan 1	Swap	1.591	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000		N/A		(744)
Term Loan 2	Swap	1.853	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000		679		(1,484)
									$	679	$	(2,225)

(1) The fair values of the cap derivative are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets as of both September 30, 2022 and December 31, 2021. The Term Loan 1 swap derivative expired in September 2022. The fair value of the Term Loan 2 swap derivative is included in prepaid expenses and other current assets on the accompanying consolidated balance sheet as of September 30, 2022. As of December 31, 2021, the fair values of both swap derivatives are included in other current liabilities and other liabilities, respectively, on the accompanying consolidated balance sheet.

Schedule of changes in fair value of interest rate derivatives

Noncash changes in the fair values of the Company’s interest rate derivatives resulted in decreases to interest expense for the three and nine months ended September 30, 2022 and 2021 as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Noncash interest on derivatives, net	$	(39)	$	(616)	$	(2,904)	$	(2,194)

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Other Assets (Tables)

9 Months Ended

Sep. 30, 2022

Other Assets.

Schedule of other assets

Other assets, net consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Property and equipment, net	$	5,113	$	5,912
Deferred rent on straight-lined third-party tenant leases		2,103		2,455
Liquor licenses		928		826
Other receivables		715		3,914
Other		86		89
Total other assets, net	$	8,945	$	13,196

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Notes Payable (Tables)

9 Months Ended

Sep. 30, 2022

Debt Disclosures

Schedule of notes payable

Notes payable consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points, resulting in effective interest rates of 3.824% and 1.140% at September 30, 2022 and December 31, 2021, respectively; matures on December 9, 2022 with notice provided to the lenders of intent to exercise remaining one-year option to extend (subject to a 25 basis point increase in the LIBOR spread). The note is collateralized by a first deed of trust on one hotel property.	$	220,000	$	220,000
Note payable requiring payments of interest and principal, with a fixed rate of 4.15%; matures on December 11, 2024. The note is collateralized by a first deed of trust on one hotel property.		76,647		78,137
Unsecured Term Loan 1 requiring payments of interest only with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points, depending on the Company's leverage ratios, plus SOFR and 10 basis points, resulting in an effective interest rate of 4.597% at September 30, 2022, and a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points as of December 31, 2021. LIBOR was swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 3.941% at December 31, 2021. Matures on July 25, 2027.		175,000		19,400
Unsecured Term Loan 2 requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points, depending on the Company's leverage ratios, plus SOFR and 10 basis points as of September 30, 2022, and a range of 135 to 235 basis points, depending on the Company's leverage ratios, plus the greater of one-month LIBOR or 25 basis points as of December 31, 2021. LIBOR was swapped to a fixed rate of 1.853%, resulting in effective interest rates of 3.628% and 4.203% at September 30, 2022 and December 31, 2021, respectively. Matures on January 25, 2028.		175,000		88,900
Unsecured Series A Senior Notes requiring semi-annual payments of interest only, bearing interest at 5.94%. Matures on January 10, 2026.		65,000		90,000
Unsecured Series B Senior Notes requiring semi-annual payments of interest only, bearing interest at 6.04%. Matures on January 10, 2028.		105,000		115,000
Total notes payable	$	816,647	$	611,437
Current portion of notes payable	$	2,145	$	21,401
Less: current portion of deferred financing costs		(57)		(707)
Carrying value of current portion of notes payable	$	2,088	$	20,694
Notes payable, less current portion	$	814,502	$	590,036
Less: long-term portion of deferred financing costs		(3,593)		(1,295)
Carrying value of notes payable, less current portion	$	810,909	$	588,741

Schedule of interest expense

Total interest incurred and expensed on the notes payable and finance lease obligation was as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest expense on debt and finance lease obligation	$	8,719	$	7,864	$	21,252	$	23,684
Noncash interest on derivatives, net		(39)		(616)		(2,904)		(2,194)
Amortization of deferred financing costs		589		735		1,940		2,207
Total interest expense	$	9,269	$	7,983	$	20,288	$	23,697

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Other Current Liabilities and Other Liabilities (Tables)

9 Months Ended

Sep. 30, 2022

Other Current Liabilities and Other Liabilities

Schedule of other current liabilities

Other current liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Property, sales and use taxes payable	$	14,538	$	12,591
Accrued interest		3,832		6,858
Advance deposits		44,673		33,750
Interest rate swap derivative		—		744
Management fees payable		1,297		1,691
Other		4,580		3,250
Total other current liabilities	$	68,920	$	58,884

Schedule of other liabilities

Other liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2022		2021
	(unaudited)
Deferred revenue	$	7,076	$	6,598
Interest rate swap derivative		—		1,484
Other		2,499		3,574
Total other liabilities	$	9,575	$	11,656

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Leases (Tables)

9 Months Ended

Sep. 30, 2022

Leases

Schedule of supplemental balance sheet information related to leases

Operating leases were included on the Company’s consolidated balance sheets as follows (in thousands):

	September 30,			December 31,
	2022			2021
	(unaudited)
Right-of-use assets, net	$	17,866		$	23,161
Accounts payable and accrued expenses	$	5,678		$	5,586
Lease obligations, less current portion		18,349			25,120
Total lease obligations	$	24,027		$	30,706
Weighted average remaining lease term		33 years
Weighted average discount rate		5.0	%

Lease costs

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Finance lease cost (1):
Amortization of right-of-use asset	$	—	$	368	$	—	$	1,103
Interest on lease obligation		—		351		117		1,053
Operating lease cost		1,325		1,382		4,041		4,068
Variable lease cost (2)		2,241		—		5,100		13
Total lease cost	$	3,566	$	2,101	$	9,258	$	6,237

(1) Finance lease cost for the nine months ended September 30, 2022 and the three and nine months ended September 30, 2021 included expenses for the Hyatt Centric Chicago Magnificent Mile’s finance lease obligation before the hotel’s sale in February 2022 (see Note 4).

(2) Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds.

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Long-Term Incentive Plan (Tables)

9 Months Ended

Sep. 30, 2022

Long-Term Incentive Plan

Schedule of amortization expense and forfeitures related to restricted shares

The Company’s amortization expense, including forfeitures related to restricted shares was as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Amortization expense, including forfeitures	$	2,230	$	3,165	$	8,661	$	10,576
Capitalized compensation cost (1)	$	120	$	124	$	361	$	366

(1) The Company capitalizes compensation costs related to restricted shares granted to certain employees whose work is directly related to the Company’s capital investment in its hotels.

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies

Schedule of basic and incentive management fees

Total basic and incentive management fees were included in other property-level expenses on the Company’s consolidated statements of operations as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic management fees	$	6,695	$	4,391	$	18,310	$	8,767
Incentive management fees		736		687		5,361		687
Total basic and incentive management fees	$	7,431	$	5,078	$	23,671	$	9,454

Schedule of license and franchise costs

Total license and franchise fees were included in franchise costs on the Company’s consolidated statements of operations as follows (unaudited and in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Franchise assessments (1)	$	3,877	$	3,241	$	10,564	$	5,961
Franchise royalties (2)		268		940		865		1,507
Total franchise costs	$	4,145	$	4,181	$	11,429	$	7,468

(1) Includes advertising, reservation and frequent guest program assessments.

(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.

Schedule of hotel geographic concentration of risk

As of September 30, 2022, 11 of the 15 Hotels were geographically concentrated as follows (unaudited):

				Trailing 12-Month
		Percentage of		Total Consolidated
	Number of Hotels	Total Rooms		Revenue
California	5	34	%	39	%
Florida	3	17	%	14	%
Hawaii	1	7	%	19	%
Massachusetts	2	19	%	16	%

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Organization and Description of Business (Details)	9 Months Ended
	Sep. 30, 2022 property
Organization and Description of Business
Number of hotels owned by the Company	15
Sunstone Hotel Partnership, LLC
Organization and Description of Business
Controlling interest owned (as a percent)	100.00%
Marriott
Organization and Description of Business
Number of hotels owned by the Company	6
Hyatt Corporation
Organization and Description of Business
Number of hotels owned by the Company	2
Interstate Hotels & Resorts, Inc
Organization and Description of Business
Number of hotels owned by the Company	2
Four Seasons Hotels Limited
Organization and Description of Business
Number of hotels owned by the Company	1
Highgate Hotels L.P. and an affiliate
Organization and Description of Business
Number of hotels owned by the Company	1
Hilton Worldwide
Organization and Description of Business
Number of hotels owned by the Company	1
Montage North America, LLC
Organization and Description of Business
Number of hotels owned by the Company	1
Singh Hospitality, LLC
Organization and Description of Business
Number of hotels owned by the Company	1

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Summary of Significant Accounting Policies - (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) property	Sep. 30, 2021 USD ($) property	Jun. 30, 2022	May 31, 2022	Dec. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Investments in Hotel Properties
Impairment losses		$ 1,014,000		$ 1,014,000
Number of hotels impaired | property			0
Leases
Leases Initial Maximum Term Not Recorded On Balance Sheet			12 months
Leases Initial Minimum Term Recorded Right Of Use Assets			12 months
Number of hotels with operating lease right-of-use asset impairment | property			0	0
Revenue Recognition
Trade receivables, net	$ 28,487,000		$ 28,487,000				$ 16,055,000
Contract liabilities	51,648,000		51,648,000				40,226,000
Deferred revenue recognized	3,000,000.0	$ 200,000	$ 25,400,000	$ 1,300,000
Segment Reporting
Number of operating segments			1	1
Financial standby letter of credit
Restricted Cash
Restricted Cash	200,000		$ 200,000				$ 200,000
Hilton San Diego Bayfront [Member]
Stockholders' Equity Attributable to Noncontrolling Interest
Noncontrolling interest percentage acquired					25.00%
Noncontrolling interest percentage in Hilton San Diego Bayfront						25.00%	25.00%
Franchise fees | Minimum
Investments in Hotel Properties
Estimated useful life			15 years
Franchise fees | Maximum
Investments in Hotel Properties
Estimated useful life			20 years
Buildings and improvements | Minimum
Investments in Hotel Properties
Estimated useful life for property, plant and equipment			5 years
Buildings and improvements | Maximum
Investments in Hotel Properties
Estimated useful life for property, plant and equipment			40 years
Furniture, fixtures and equipment | Minimum
Investments in Hotel Properties
Estimated useful life for property, plant and equipment			3 years
Furniture, fixtures and equipment | Maximum
Investments in Hotel Properties
Estimated useful life for property, plant and equipment			12 years
Hilton New Orleans St. Charles
Investments in Hotel Properties
Impairment losses				$ 1,000,000.0
Hilton San Diego Bayfront [Member]
Accounting Standards Update and Change in Accounting Principle [Abstract]
Outstanding balance of secured debt	220,000,000.0		$ 220,000,000.0
Term of extension period for secured debt			1 year
Hilton Times Square
Restricted Cash
Restricted Cash	10,300,000		$ 10,300,000				$ 10,400,000	$ 11,600,000
Four Seasons Resort Napa Valley
Restricted Cash
Restricted Cash	$ 3,100,000		$ 3,100,000				$ 3,100,000

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Summary of Significant Accounting Policies - Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended						9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2022	Sep. 30, 2021
Numerator:
Net income (loss)			$ 20,488	$ 37,692	$ 15,123	$ (22,124)	$ (27,918)	$ (55,287)	$ 73,303	$ (105,329)
(Income) loss from consolidated joint venture attributable to noncontrolling interest						(933)			(3,477)	1,638
Preferred stock dividends and redemption charges			(3,351)			(6,287)			(10,897)	(17,289)
Distributions paid to participating securities			(64)						(64)
Undistributed income allocated to participating securities			(40)						(301)
Numerator for basic and diluted income (loss) attributable to common stockholders			$ 17,033			$ (29,344)			$ 58,564	$ (120,980)
Denominator:
Weighted average basic common shares outstanding (in shares)			211,010,000			217,709,000			213,799,000	215,765,000
Unvested restricted stock units			279,000						70,000
Weighted average diluted common shares outstanding (in shares)			211,289,000			217,709,000			213,869,000	215,765,000
Basic income (loss) attributable to common stockholders per common share (in dollars per share)			$ 0.08			$ (0.13)			$ 0.27	$ (0.56)
Diluted income (loss) attributable to common stockholders per common share (in dollars per share)			$ 0.08			$ (0.13)			$ 0.27	$ (0.56)
Restricted Stock [Member]
Denominator:
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,289,146	1,463,315
Performance Shares [Member] | Total Relative Shareholder Return Two Year Vest
Denominator:
Outstanding at the end of the period (in shares)	169,832		169,832						169,832
Vesting period									2 years
Performance Shares [Member] | Total Relative Shareholder Return Three Year Vest
Denominator:
Outstanding at the end of the period (in shares)	254,748		254,748						254,748
Vesting period									3 years
Performance Shares [Member] | Stock Price Targets Five Year Vest [Member]
Denominator:
Outstanding at the end of the period (in shares)	188,004		188,004						188,004
Vesting period									5 years
Minimum | Restricted Stock [Member]
Denominator:
Vesting period									3 years	3 years
Maximum | Restricted Stock [Member]
Denominator:
Vesting period									5 years	5 years

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Investment in Hotel Properties (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Investment in Hotel Properties
Land	$ 672,531	$ 604,692
Buildings and improvements	2,780,117	2,729,461
Furniture, fixtures and equipment	423,546	431,780
Intangible assets	42,408	43,117
Construction in progress	65,121	41,260
Investment in hotel properties, gross	3,983,723	3,850,310
Accumulated depreciation and amortization	(1,133,498)	(1,130,294)
Investment in hotel properties, net	$ 2,850,225	$ 2,720,016

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Investment in Hotel Properties - Acquisitions (Details) $ in Thousands	1 Months Ended	3 Months Ended	9 Months Ended
	Jun. 30, 2022 USD ($) room	Jun. 30, 2022 USD ($) room	Sep. 30, 2022 USD ($)
Asset Acquisition [Line Items]
Acquisition of noncontrolling interest, including transaction costs			$ 101,348
Acquisition of noncontrolling interest		$ 101,348
Hilton San Diego Bayfront Outside Equity Interest [Member]
Asset Acquisition [Line Items]
Asset Acquisition, Price of Acquisition, Expected	$ 102,000
Additional Paid In Capital
Asset Acquisition [Line Items]
Acquisition of noncontrolling interest		62,564
Non-Controlling Interest in Consolidated Joint Venture
Asset Acquisition [Line Items]
Acquisition of noncontrolling interest		$ 38,784
Senior unsecured revolving credit facility
Asset Acquisition [Line Items]
Proceeds from draw on revolving credit facility	$ 230,000
Hilton San Diego Bayfront [Member]
Asset Acquisition [Line Items]
Noncontrolling interest percentage acquired	25.00%	25.00%
Noncontrolling interest, ownership percentage by parent	100.00%	100.00%
The Confidante Miami Beach [Member]
Asset Acquisition [Line Items]
Number of rooms in acquired hotel | room	339	339
Asset acquisition, consideration transferred	$ 232,000
Finite-Lived Intangible Asset, Acquired-in-Place Leases	$ 500	$ 500
Estimated useful life for finite-lived intangible assets	5 years
The Confidante Miami Beach [Member] | Senior unsecured revolving credit facility
Asset Acquisition [Line Items]
Proceeds from draw on revolving credit facility	$ 140,000
Hilton San Diego Bayfront Outside Equity Interest [Member]
Asset Acquisition [Line Items]
Noncontrolling interest percentage acquired	25.00%	25.00%
Asset acquisition, consideration transferred, percentage of working capital and cash	25.00%
Acquisition of noncontrolling interest, including transaction costs	$ 101,300
Hilton San Diego Bayfront Outside Equity Interest [Member] | Additional Paid In Capital
Asset Acquisition [Line Items]
Acquisition of noncontrolling interest	62,500
Hilton San Diego Bayfront Outside Equity Interest [Member] | Non-Controlling Interest in Consolidated Joint Venture
Asset Acquisition [Line Items]
Acquisition of noncontrolling interest	38,800
Hilton San Diego Bayfront Outside Equity Interest [Member] | Senior unsecured revolving credit facility
Asset Acquisition [Line Items]
Proceeds from draw on revolving credit facility	$ 90,000

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Disposals (Details) - USD ($) $ in Thousands	1 Months Ended		9 Months Ended
	Mar. 31, 2022	Feb. 28, 2022	Sep. 30, 2022	Dec. 31, 2021
Detail of Disposals
Gain on sale of assets			$ 22,946
Sold, not considered a discontinued operation | Hyatt Centric Chicago Magnificent Mile
Detail of Disposals
Net proceeds received from sale		$ 67,200
Earnest money deposits				$ 4,000
Gain on sale of assets		$ 11,300
Sold, not considered a discontinued operation | Chicago Two Pack
Detail of Disposals
Net proceeds received from sale	$ 128,100
Gain on sale of assets	$ 11,600

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Fair Value Measurements and Interest Rate Derivatives - Fair Value of Debt (Details) - USD ($) $ in Thousands		Sep. 30, 2022	Dec. 31, 2021
Percentage of Debt Bearing Fixed Interest Rates		42.40%	64.00%
Total notes payable	[1]	$ 816,647	$ 611,437
Level 3
Fair value of debt	[2]	$ 798,323	$ 590,359

[1] The principal balance of debt is presented before any unamortized deferred financing costs.

[2] Due to prevailing market conditions and the uncertain economic environment caused by the COVID-19 pandemic, actual interest rates could vary materially from those estimated, which would result in variances in the Company’s calculations of the fair market value of its debt.

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Fair Value Measurements and Interest Rate Derivatives - Interest Rate Derivatives (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Interest Rate Derivatives
Fair value of interest rate derivatives, net	$ 679		$ 679		$ (2,225)
Noncash interest on derivatives, net	$ (39)	$ (616)	$ (2,904)	$ (2,194)
Interest Rate Cap Derivative | Not designated as hedging instrument | Entity that owns the Hilton San Diego Bayfront Mortgage Payable
Interest Rate Derivatives
Strike rate under interest rate cap agreement	6.00%		6.00%		6.00%
Interest rate, description of reference rate			one-month LIBOR		one-month LIBOR
Interest rate derivative effective date			Dec. 09, 2021		Dec. 09, 2021
Interest rate derivative maturity date			Dec. 15, 2022		Dec. 15, 2022
Notional amount	$ 220,000		$ 220,000		$ 220,000
Fair values of derivative assets					$ 3
Interest Rate Swap Derivative | Term loan #1
Interest Rate Derivatives
Fixed rate under interest rate swap agreement					1.591%
Interest Rate Swap Derivative | Term loan #2
Interest Rate Derivatives
Fixed rate under interest rate swap agreement	1.853%		1.853%		1.853%
Interest Rate Swap Derivative | Not designated as hedging instrument | Term loan #1
Interest Rate Derivatives
Fixed rate under interest rate swap agreement	1.591%		1.591%		1.591%
Interest rate, description of reference rate			one-month LIBOR		one-month LIBOR
Interest rate derivative effective date			Oct. 29, 2015		Oct. 29, 2015
Interest rate derivative maturity date			Sep. 02, 2022		Sep. 02, 2022
Notional amount	$ 85,000		$ 85,000		$ 85,000
Fair values of derivative liabilities					$ (744)
Interest Rate Swap Derivative | Not designated as hedging instrument | Term loan #2
Interest Rate Derivatives
Fixed rate under interest rate swap agreement	1.853%		1.853%		1.853%
Interest rate, description of reference rate			one-month LIBOR		one-month LIBOR
Interest rate derivative effective date			Jan. 29, 2016		Jan. 29, 2016
Interest rate derivative maturity date			Jan. 31, 2023		Jan. 31, 2023
Notional amount	$ 100,000		$ 100,000		$ 100,000
Fair values of derivative liabilities					$ (1,484)
Fair values of derivative assets	$ 679		$ 679
London Interbank Offered Rate (LIBOR) | Entity that owns the Hilton San Diego Bayfront Mortgage Payable
Interest Rate Derivatives
Interest rate, description of reference rate			one-month LIBOR plus 105 basis points		one-month LIBOR plus 105 basis points
London Interbank Offered Rate (LIBOR) | Term loan #1
Interest Rate Derivatives
Interest rate, description of reference rate					one-month LIBOR
London Interbank Offered Rate (LIBOR) | Term loan #2
Interest Rate Derivatives
Interest rate, description of reference rate					one-month LIBOR

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Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Other assets, net
Property and equipment, net	$ 5,113	$ 5,912
Deferred rent on straight-lined third-party tenant leases	2,103	2,455
Liquor license	928	826
Other receivables	715	3,914
Other	86	89
Total other assets, net	$ 8,945	$ 13,196

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Notes Payable (Details) $ in Thousands			9 Months Ended	12 Months Ended
		Jul. 27, 2022 USD ($)	Sep. 30, 2022 USD ($) property	Dec. 31, 2023	Dec. 31, 2021 USD ($) property
Notes Payable
Total notes payable	[1]		$ 816,647		$ 611,437
Current portion of notes payable			2,145		21,401
Less: current portion of deferred financing costs			(57)		(707)
Current portion of notes payable, net			2,088		20,694
Notes payable, less current portion			814,502		590,036
Less: long-term portion of deferred financing costs			(3,593)		(1,295)
Carrying value of notes payable, less current portion			810,909		588,741
Hilton San Diego Bayfront mortgage
Notes Payable
Outstanding balance of secured debt			$ 220,000		$ 220,000
Interest rate added to base rate (as a percent)			1.05%		1.05%
Total interest rate, including effect of derivative			3.824%		1.14%
Debt maturity date			Dec. 09, 2022		Dec. 09, 2022
Debt instrument increase in spread on variable rate				0.25%
Number of hotels provided as collateral | property			1		1
Term of extension period for secured debt			1 year		1 year
Hilton San Diego Bayfront mortgage | London Interbank Offered Rate (LIBOR)
Notes Payable
Interest rate, description of reference rate			one-month LIBOR plus 105 basis points		one-month LIBOR plus 105 basis points
Hilton San Diego Bayfront mortgage | Not designated as hedging instrument | Interest Rate Cap Derivative
Notes Payable
Interest rate, description of reference rate			one-month LIBOR		one-month LIBOR
JW Marriott New Orleans Mortgage
Notes Payable
Outstanding balance of secured debt			$ 76,647		$ 78,137
Debt maturity date			Dec. 11, 2024		Dec. 11, 2024
Number of hotels provided as collateral | property			1		1
Fixed interest rate (as a percent)			4.15%		4.15%
Unsecured Term Loans | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]
Notes Payable
Interest rate, description of reference rate		adjusted term SOFR
Unsecured Term Loans | Minimum
Notes Payable
Interest rate added to base rate (as a percent)		1.35%
Unsecured Term Loans | Maximum
Notes Payable
Interest rate added to base rate (as a percent)		2.20%
Term loan #1
Notes Payable
Debt maturity date			Jul. 25, 2027		Jul. 25, 2027
Outstanding balance of unsecured debt		$ 175,000	$ 175,000		$ 19,400
Line of Credit Facility, Interest Rate at Period End			4.597%		3.941%
Term loan #1 | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]
Notes Payable
Interest rate added to base rate (as a percent)			0.10%
Interest rate, description of reference rate			SOFR and 10 basis points
Term loan #1 | London Interbank Offered Rate (LIBOR)
Notes Payable
Interest rate, description of reference rate					one-month LIBOR
Debt instrument variable rate floor					0.25%
Term loan #1 | Interest Rate Swap Derivative
Notes Payable
Fixed rate under interest rate swap agreement					1.591%
Term loan #1 | Not designated as hedging instrument | Interest Rate Swap Derivative
Notes Payable
Interest rate, description of reference rate			one-month LIBOR		one-month LIBOR
Fixed rate under interest rate swap agreement			1.591%		1.591%
Term loan #1 | Minimum
Notes Payable
Interest rate added to base rate (as a percent)			1.35%		1.35%
Term loan #1 | Maximum
Notes Payable
Interest rate added to base rate (as a percent)			2.20%		2.35%
Term loan #2
Notes Payable
Debt maturity date			Jan. 25, 2028		Jan. 25, 2028
Outstanding balance of unsecured debt		$ 175,000	$ 175,000		$ 88,900
Line of Credit Facility, Interest Rate at Period End			3.628%		4.203%
Term loan #2 | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]
Notes Payable
Interest rate added to base rate (as a percent)			0.10%
Interest rate, description of reference rate			SOFR and 10 basis points
Term loan #2 | London Interbank Offered Rate (LIBOR)
Notes Payable
Interest rate, description of reference rate					one-month LIBOR
Debt instrument variable rate floor					0.25%
Term loan #2 | Interest Rate Swap Derivative
Notes Payable
Fixed rate under interest rate swap agreement			1.853%		1.853%
Term loan #2 | Not designated as hedging instrument | Interest Rate Swap Derivative
Notes Payable
Interest rate, description of reference rate			one-month LIBOR		one-month LIBOR
Fixed rate under interest rate swap agreement			1.853%		1.853%
Term loan #2 | Minimum
Notes Payable
Interest rate added to base rate (as a percent)			1.35%		1.35%
Term loan #2 | Maximum
Notes Payable
Interest rate added to base rate (as a percent)			2.20%		2.35%
Series A Senior Notes
Notes Payable
Debt maturity date			Jan. 10, 2026		Jan. 10, 2026
Fixed interest rate (as a percent)			5.94%		5.94%
Outstanding balance of unsecured debt			$ 65,000		$ 90,000
Series B Senior Notes
Notes Payable
Debt maturity date			Jan. 10, 2028		Jan. 10, 2028
Fixed interest rate (as a percent)			6.04%		6.04%
Outstanding balance of unsecured debt			$ 105,000		$ 115,000
Senior unsecured revolving credit facility
Notes Payable
Interest rate, description of reference rate		adjusted term SOFR
Repayment of revolving credit facility		$ 230,000
Senior unsecured revolving credit facility | Minimum
Notes Payable
Interest rate added to base rate (as a percent)		1.40%
Senior unsecured revolving credit facility | Maximum
Notes Payable
Interest rate added to base rate (as a percent)		2.25%

[1] The principal balance of debt is presented before any unamortized deferred financing costs.

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Notes Payable - 2022 Transactions (Details)		1 Months Ended		9 Months Ended		12 Months Ended
	Jul. 27, 2022 USD ($) loan item	Jun. 30, 2022 USD ($)	Feb. 28, 2022 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Debt Instruments [Line Items]
Payment for interest rate derivative					$ 80,000
Unsecured Debt
Number of unsecured term loans | loan	2
Excess cash generated				$ 0
Term loan #1
Unsecured Debt
Outstanding balance of unsecured debt	$ 175,000,000			$ 175,000,000		$ 19,400,000
Line of credit facility
Debt maturity date				Jul. 25, 2027		Jul. 25, 2027
Term loan #2
Unsecured Debt
Outstanding balance of unsecured debt	$ 175,000,000.0			$ 175,000,000		$ 88,900,000
Line of credit facility
Debt maturity date				Jan. 25, 2028		Jan. 25, 2028
Senior Notes
Unsecured Debt
Write-off of deferred financing costs			$ 200,000
Series A Senior Notes
Unsecured Debt
Payments on unsecured debt			25,000,000.0
Outstanding balance of unsecured debt				$ 65,000,000		$ 90,000,000
Line of credit facility
Debt maturity date				Jan. 10, 2026		Jan. 10, 2026
Series B Senior Notes
Unsecured Debt
Payments on unsecured debt			$ 10,000,000.0
Outstanding balance of unsecured debt				$ 105,000,000		$ 115,000,000
Line of credit facility
Debt maturity date				Jan. 10, 2028		Jan. 10, 2028
Hilton San Diego Bayfront Outside Equity Interest [Member]
Asset Acquisition Abstract
Noncontrolling interest percentage acquired		25.00%
Minimum | Unsecured Term Loans
Unsecured Debt
Interest rate added to base rate (as a percent)	1.35%
Minimum | Term loan #1
Unsecured Debt
Interest rate added to base rate (as a percent)				1.35%		1.35%
Minimum | Term loan #2
Unsecured Debt
Interest rate added to base rate (as a percent)				1.35%		1.35%
Maximum | Unsecured Term Loans
Unsecured Debt
Interest rate added to base rate (as a percent)	2.20%
Maximum | Term loan #1
Unsecured Debt
Interest rate added to base rate (as a percent)				2.20%		2.35%
Maximum | Term loan #2
Unsecured Debt
Interest rate added to base rate (as a percent)				2.20%		2.35%
Senior unsecured revolving credit facility
Unsecured Debt
Interest rate, description of reference rate	adjusted term SOFR
Line of credit facility
Proceeds from draw on revolving credit facility		$ 230,000,000.0
Repayment of revolving credit facility	$ 230,000,000.0
Maximum borrowing capacity for unsecured revolving credit facility	$ 500,000,000.0			$ 500,000,000.0
Number of extension periods for unsecured debt | item	2
Term of extension period for unsecured debt	6 months
Credit facility expiration date after extensions	Jul. 01, 2027
Outstanding indebtedness under credit facility				$ 0
Senior unsecured revolving credit facility | The Confidante Miami Beach [Member]
Line of credit facility
Proceeds from draw on revolving credit facility		140,000,000.0
Senior unsecured revolving credit facility | Hilton San Diego Bayfront Outside Equity Interest [Member]
Line of credit facility
Proceeds from draw on revolving credit facility		$ 90,000,000.0
Senior unsecured revolving credit facility | Minimum
Unsecured Debt
Interest rate added to base rate (as a percent)	1.40%
Senior unsecured revolving credit facility | Maximum
Unsecured Debt
Interest rate added to base rate (as a percent)	2.25%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Unsecured Term Loans
Unsecured Debt
Interest rate, description of reference rate	adjusted term SOFR
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Term loan #1
Unsecured Debt
Interest rate added to base rate (as a percent)				0.10%
Interest rate, description of reference rate				SOFR and 10 basis points
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Term loan #2
Unsecured Debt
Interest rate added to base rate (as a percent)				0.10%
Interest rate, description of reference rate				SOFR and 10 basis points

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Notes Payable - Interest Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Interest Expense
Interest expense on debt and finance lease obligation	$ 8,719	$ 7,864	$ 21,252	$ 23,684
Noncash interest on derivatives, net	(39)	(616)	(2,904)	(2,194)
Amortization of deferred financing costs	589	735	1,940	2,207
Total interest expense	$ 9,269	$ 7,983	$ 20,288	$ 23,697

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Other Current Liabilities and Other Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Other Current Liabilities
Property, sales and use taxes payable	$ 14,538	$ 12,591
Accrued interest	3,832	6,858
Advance deposits	44,673	33,750
Interest rate swap derivatives, current		744
Management fees payable	1,297	1,691
Other	4,580	3,250
Total other current liabilities	68,920	58,884
Other Liabilities
Deferred revenue	7,076	6,598
Interest rate swap derivative, noncurrent		1,484
Other	2,499	3,574
Total other liabilities	$ 9,575	$ 11,656

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Leases - Supplemental Balance Sheet Information Related to Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Mar. 31, 2022	Feb. 28, 2022	Dec. 31, 2021
Operating Leases
Operating lease right-of-use assets, net	$ 17,866			$ 23,161
Operating lease obligations, current	$ 5,678			$ 5,586
Accounts payable and accrued expenses	Accounts payable and accrued expenses			Accounts payable and accrued expenses
Operating lease obligations, less current portion	$ 18,349			$ 25,120
Total operating lease obligations	$ 24,027			$ 30,706
Weighted average remaining operating lease term	33 years
Weighted average operating lease discount rate	5.00%
Hilton Garden Inn Chicago Downtown/Magnificent Mile
Operating Leases
Assignment of operating lease right-of-use asset in connection with sale of hotel	$ 2,275
Assignment of operating lease obligation in connection with sale of hotel	2,609
Hyatt Centric Chicago Magnificent Mile
Finance Lease
Assignment of finance lease right-of-use asset in connection with sale of hotel	44,712
Assignment of finance lease obligation in connection with sale of hotel	$ 15,569
Operating lease | Hilton Garden Inn Chicago Downtown/Magnificent Mile
Operating Leases
Assignment of operating lease right-of-use asset in connection with sale of hotel		$ 2,300
Assignment of operating lease obligation in connection with sale of hotel		$ 2,600
Finance lease | Hyatt Centric Chicago Magnificent Mile
Finance Lease
Assignment of finance lease right-of-use asset in connection with sale of hotel			$ 44,700
Assignment of finance lease obligation in connection with sale of hotel			$ 15,600

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Leases - Components of Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Lease Cost
Amortization of right-of-use asset		$ 368		$ 1,103
Interest on lease obligation		351	$ 117	1,053
Operating lease cost	$ 1,325	1,382	4,041	4,068
Variable lease cost	2,241		5,100	13
Total lease cost	$ 3,566	$ 2,101	$ 9,258	$ 6,237

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Stockholders' Equity - Preferred Stock (Details) - $ / shares			1 Months Ended			3 Months Ended		12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021	Jul. 31, 2021	May 31, 2021	Apr. 30, 2021	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2023
Series G Cumulative Redeemable Preferred Stock
Stockholders' equity
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares)	2,650,000	2,650,000
Liquidation preference (in dollars per share)	$ 25.00	$ 25.00
Series G Cumulative Redeemable Preferred Stock | Montage Healdsburg
Stockholders' equity
Redemption price (in dollars per share)					$ 25.00
Number of shares of preferred stock issued (in shares)					2,650,000
Series G Cumulative Redeemable Preferred Stock | Maximum | Montage Healdsburg
Stockholders' equity
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent)								3.00%
Series H Cumulative Redeemable Preferred Stock
Stockholders' equity
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent)	6.125%	6.125%		6.125%
Redemption price (in dollars per share)				$ 25.00
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares)	4,600,000	4,600,000
Number of shares of preferred stock issued (in shares)				4,600,000
Liquidation preference (in dollars per share)	$ 25.00	$ 25.00		$ 25.00
Preferred stock redemption date				May 24, 2026
Series I Cumulative Redeemable Preferred Stock
Stockholders' equity
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent)	5.70%	5.70%	5.70%
Redemption price (in dollars per share)			$ 25.00
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares)	4,000,000	4,000,000
Number of shares of preferred stock issued (in shares)			4,000,000
Liquidation preference (in dollars per share)	$ 25.00	$ 25.00	$ 25.00
Preferred stock redemption date			Jul. 16, 2026
Preferred Stock | Series H Cumulative Redeemable Preferred Stock
Stockholders' equity
Number of shares of preferred stock issued (in shares)							4,600,000
Preferred Stock | Series I Cumulative Redeemable Preferred Stock
Stockholders' equity
Number of shares of preferred stock issued (in shares)						4,000,000

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Stockholders' Equity - Common Stock (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2022	Feb. 28, 2022	Feb. 28, 2021	Feb. 28, 2017
Share Repurchase Program
Stockholders' equity
Repurchase Program, number of shares repurchased (in shares)	880,577	7,995,560
Repurchase Program, value of shares repurchased	$ 8.7	$ 86.6
Repurchase Program, remaining authorized capacity	413.5	$ 413.5
Maximum | Share Repurchase Program
Stockholders' equity
Stock Repurchase Program, maximum amount authorized for repurchase				$ 500.0
Common Stock | At The Market
Stockholders' equity
ATM Program, number of shares sold or issued (in shares)		0
ATM Program, remaining amount authorized for issuance	$ 300.0	$ 300.0
Common Stock | Maximum | At The Market
Stockholders' equity
ATM Program, maximum amount authorized for issuance			$ 300.0		$ 300.0

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Long-Term Incentive Plan (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Compensation Expense and Forfeitures
Capitalized compensation cost			$ 361	$ 366
Restricted Stock [Member] | Minimum
Long-Term Incentive Plan
Vesting period			3 years
Restricted Stock [Member] | Maximum
Long-Term Incentive Plan
Vesting period			5 years
Performance Shares [Member] | Minimum
Long-Term Incentive Plan
Vesting period			2 years
Performance Shares [Member] | Maximum
Long-Term Incentive Plan
Vesting period			5 years
Restricted Shares and Performance awards
Compensation Expense and Forfeitures
Amortization expense, including forfeitures	$ 2,230	$ 3,165	$ 8,661	10,576
Capitalized compensation cost	$ 120	$ 124	$ 361	$ 366

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Commitments and Contingencies - Management Fees, Franchise Costs and Renovation Commitments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Basic and incentive management fees incurred
Other property-level expenses	$ 29,032	$ 21,633	$ 83,333	$ 48,177
License and Franchise Agreements
Franchise assessments	3,877	3,241	10,564	5,961
Franchise royalties	268	940	865	1,507
Franchise costs	4,145	4,181	11,429	7,468
Basic management fees
Basic and incentive management fees incurred
Other property-level expenses	6,695	4,391	18,310	8,767
Incentive management fees
Basic and incentive management fees incurred
Other property-level expenses	736	687	5,361	687
Total basic and incentive management fees
Basic and incentive management fees incurred
Other property-level expenses	7,431	$ 5,078	$ 23,671	$ 9,454
Minimum
Management Agreements
Basic management fees (as a percent)			2.00%
Maximum
Management Agreements
Basic management fees (as a percent)			3.00%
Renovation and Construction Commitments
Renovation and Construction Commitments
Remaining construction commitments	$ 66,700		$ 66,700

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Commitments and Contingencies - Other Commitments and Concentration of Risk (Details) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	15 Months Ended	22 Months Ended
	Dec. 31, 2021 USD ($)	Sep. 30, 2022 USD ($) property	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) property	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) property	Sep. 30, 2022 USD ($) property	Sep. 30, 2022 USD ($) property	Dec. 31, 2020 USD ($)
Concentration of Risk
Number of hotels owned by the Company | property		15		15		15	15	15
Loss Contingencies
Proceeds from property insurance				$ 4,369
Impairment losses			$ 1,014		$ 1,014
Gain on extinguishment of debt		$ (770)	61	$ (962)	371
Term of unsecured environmental indemnities				0 years
Damage limitation of unsecured environmental indemnities				$ 0
Payments on credit facility				230,000
Hilton New Orleans St. Charles
Loss Contingencies
Impairment losses					1,000
Hilton Times Square
Loss Contingencies
Loss contingency accrued balance	$ 10,500	10,300		10,300		$ 10,300	$ 10,300	$ 10,300
Loss contingency payment				100				900
Restricted Cash	10,400	10,300		10,300		10,300	10,300	10,300	$ 11,600
Gain on extinguishment of debt			100		$ 400
Four Seasons Resort Napa Valley
Loss Contingencies
Loss contingency accrued balance	3,100	3,100		3,100		3,100	3,100	3,100
Loss contingency increase (decrease)	3,100
Restricted Cash	3,100	3,100		3,100		3,100	3,100	3,100
Four Seasons Resort Napa Valley | Maximum
Loss Contingencies
Estimated liability		5,000		5,000		5,000	5,000	5,000
Maximum estimated future severance obligations		5,000		$ 5,000		$ 5,000	5,000	5,000
Number of rooms | Geographic Concentration Risk [Member] | California
Concentration of Risk
Concentration risk (as a percent)				34.00%
Number of rooms | Geographic Concentration Risk [Member] | Florida
Concentration of Risk
Concentration risk (as a percent)				17.00%
Number of rooms | Geographic Concentration Risk [Member] | Hawaii
Concentration of Risk
Concentration risk (as a percent)				7.00%
Number of rooms | Geographic Concentration Risk [Member] | Massachusetts
Concentration of Risk
Concentration risk (as a percent)				19.00%
Revenue generated by hotels | Geographic Concentration Risk [Member] | California
Concentration of Risk
Concentration risk (as a percent)						39.00%
Revenue generated by hotels | Geographic Concentration Risk [Member] | Florida
Concentration of Risk
Concentration risk (as a percent)						14.00%
Revenue generated by hotels | Geographic Concentration Risk [Member] | Hawaii
Concentration of Risk
Concentration risk (as a percent)						19.00%
Revenue generated by hotels | Geographic Concentration Risk [Member] | Massachusetts
Concentration of Risk
Concentration risk (as a percent)						16.00%
Financial standby letter of credit
Loss Contingencies
Restricted Cash	$ 200	200		$ 200		$ 200	200	200
Outstanding irrevocable letters of credit		200		200		200	200	200
Payments on credit facility				0
Hurricane | Hilton New Orleans St. Charles
Loss Contingencies
Hurricane-related restoration expenses			1,200	1,500			4,500
Impairment losses			1,000
Hurricane | JW Marriott New Orleans
Loss Contingencies
Hurricane-related restoration expenses			$ 400	100			1,400
Hurricane | Florida Hotels
Loss Contingencies
Estimated liability		600		600		600	600	600
Maximum estimated future severance obligations		$ 600		600		$ 600	$ 600	$ 600
Hurricane | Insurance Claims [Member] | Hilton New Orleans St. Charles
Loss Contingencies
Proceeds from property insurance				4,400
Insurance Recoveries				$ 1,000
Hotel owned by the Company | Geographic Concentration Risk [Member] | California
Concentration of Risk
Number of hotels owned by the Company | property		5		5		5	5	5
Hotel owned by the Company | Geographic Concentration Risk [Member] | Florida
Concentration of Risk
Number of hotels owned by the Company | property		3		3		3	3	3
Hotel owned by the Company | Geographic Concentration Risk [Member] | Hawaii
Concentration of Risk
Number of hotels owned by the Company | property		1		1		1	1	1
Hotel owned by the Company | Geographic Concentration Risk [Member] | Massachusetts
Concentration of Risk
Number of hotels owned by the Company | property		2		2		2	2	2

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Subsequent Events (Details) - Share Repurchase Program - USD ($) $ in Millions	1 Months Ended	3 Months Ended	9 Months Ended	10 Months Ended
	Oct. 31, 2022	Sep. 30, 2022	Sep. 30, 2022	Oct. 31, 2022
Stockholders' equity
Repurchase Program, number of shares repurchased (in shares)		880,577	7,995,560
Repurchase Program, value of shares repurchased		$ 8.7	$ 86.6
Repurchase Program, remaining authorized capacity		$ 413.5	$ 413.5
Subsequent Event [Member]
Stockholders' equity
Repurchase Program, number of shares repurchased (in shares)	1,170,791			9,166,351
Repurchase Program, value of shares repurchased	$ 11.3			$ 98.0
Repurchase Program, remaining authorized capacity	$ 402.2			$ 402.2