Sunstone Hotel Investors, Inc.: Form 10-Q for the period ended Jun 30, 2025

Overview

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

We own hotels in convention, urban, and resort destinations that benefit from significant barriers to entry by competitors and diverse economic drivers. As of June 30, 2025, we owned 14 hotels (the “14 Hotels”), which average 500 rooms in size. All of our hotels are operated under nationally recognized brands, except the Oceans Edge Resort & Marina, which operates independently.

Operating Activities

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

• Room revenue, which is comprised of revenue realized from the sale of rooms at our hotels;
• Food and beverage revenue, which is comprised of revenue realized in the hotel food and beverage outlets as well as banquet and catering events; and
• Other operating revenue, which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone/internet, parking, spa, destination and resort fees, entertainment, and other guest services. Additionally, this category includes, among other things, attrition and cancellation revenue, tenant revenue derived from hotel space and marina slips leased by third parties, winery revenue, any business interruption proceeds and any performance guarantee 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 taxes assessed on commercial rents by San Francisco and Texas;
• Other property-level expenses, which includes our property-level general and administrative expenses, such as payroll, benefits, and other employee-related expenses, contract and professional fees, credit and collection expenses, employee recruitment, relocation and training expenses, labor dispute expenses, consulting fees, management fees, and other expenses;
• Corporate overhead expense, which includes our corporate-level expenses, such as payroll, benefits, and other employee-related expenses, amortization of deferred stock compensation, business acquisition and due diligence expenses, legal expenses, contract and professional fees, board of director expenses, entity-level state franchise and minimum taxes, travel expenses, office rent, and other customary expenses; and
• Depreciation and amortization expense, which includes depreciation on our hotel buildings, improvements, furniture, fixtures and equipment (“FF&E”), along with amortization on our franchise fees and certain intangibles. Additionally, this category includes depreciation and amortization related to FF&E for our corporate office.

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

• Interest and other income, which includes interest we have earned on our restricted and unrestricted cash accounts, as well as any energy or other rebates, property insurance proceeds we have received, miscellaneous income, and any gains or losses we have recognized on sales or redemptions of assets other than real estate investments;
• Interest expense, which includes interest expense incurred on our outstanding fixed and variable rate debt, gains or losses on interest rate derivatives, amortization of deferred financing costs, and any loan fees incurred on our debt, net of any capitalized interest;
• Gain (loss) on sale of assets, net, which includes the gains or losses we recognized on our hotel sales, including the net gains related to the resolution of contingencies, that do not qualify as discontinued operations;
• Gain (loss) on extinguishment of debt, net, which includes gains related to the resolution of contingencies on extinguished debt and losses recognized on amendments or early repayments of mortgages or other debt obligations from the accelerated amortization of deferred financing costs, along with any other costs;
• Income tax (provision) benefit, net, which includes federal and state income taxes 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; and
• Preferred stock dividends, which includes dividends accrued on our Series G Cumulative Redeemable Preferred Stock (“Series G preferred stock”), Series H Cumulative Redeemable Preferred Stock (“Series H preferred stock”) and Series I Cumulative Redeemable Preferred Stock (“Series I preferred stock”).

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

• Occupancy, which is the quotient of total rooms sold divided by total rooms available;
• Average daily room rate, or ADR, which is the quotient of room revenue divided by total rooms sold;
• Revenue per available room, or RevPAR, which is the product of occupancy and ADR, and does not include food and beverage revenue, or other operating revenue;
• RevPAR index, which is the quotient of a hotel’s RevPAR divided by the average RevPAR of its competitors, multiplied by 100. A RevPAR index in excess of 100 indicates a hotel is achieving higher RevPAR than the average of its competitors. In addition to absolute RevPAR index, we monitor changes in RevPAR index;
• EBITDAre, which is net income excluding: interest expense; benefit or provision for income taxes, including any changes to deferred tax assets, liabilities or valuation allowances and income taxes applicable to the sale of assets; depreciation and amortization; gains or losses on disposition of depreciated property (including gains or losses on change in control); and any impairment write-downs of depreciated property;
• Adjusted EBITDAre, which is EBITDAre adjusted to exclude: amortization of deferred stock compensation; amortization of contract intangibles; amortization of right-of-use assets and obligations; the impact of any gain or loss from undepreciated asset sales or property damage from natural disasters; any lawsuit settlement costs; the write-off of development costs associated with abandoned projects; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects such as the work performed at Andaz Miami Beach; debt resolution costs; and any other nonrecurring identified adjustments;
• Funds from operations (“FFO”) attributable to common stockholders, which is net income and preferred stock dividends 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); and any real estate-related impairment losses; and
• Adjusted FFO attributable to common stockholders, which is FFO attributable to common stockholders adjusted to exclude: amortization of deferred stock compensation; amortization of contract intangibles; real estate-related amortization of right-of-use assets and obligations; noncash interest on our derivatives; income tax benefits or provisions associated with any changes to deferred tax assets, liabilities or valuation allowances, the application of net operating loss carryforwards, uncertain tax positions or with the sale of assets; gains or losses due to property damage from natural disasters; any lawsuit settlement costs; the write-off of development costs associated with abandoned projects; non-real estate-related impairment losses; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects such as the work performed at Andaz Miami Beach; debt resolution costs; preferred stock redemption charges; and any other nonrecurring identified adjustments.

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

• Demand. The demand for lodging has traditionally been closely linked with the performance of the general economy. Our hotels are classified as either upper upscale or luxury hotels. In periods of economic difficulties, including those caused by inflation or recession, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates in part because upper upscale and luxury hotels generally target business and leisure travelers at higher price points, and these groups may seek to curtail spending in periods of economic decline. In addition, operating results at our hotels in resort markets may be negatively affected by reduced demand from domestic travelers and by changes in the value of the U.S. dollar in relation to other currencies, which may make international travel more affordable; whereas operating results at our hotels in gateway markets may be negatively affected by reduced demand from international travelers due to uncertainty in connection with certain international and political relationships, including political disputes and the imposition of tariffs, financial conditions in their home countries or a material strengthening of the U.S. dollar in relation to other currencies which makes travel to the U.S. less affordable. Also, volatility in transportation fuel costs, increases in air and ground travel costs, decreases in airline capacity, and prolonged periods of inclement weather in our markets may reduce the demand for our hotels.
• Supply. The addition of new competitive hotels affects the ability of existing hotels to 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, the cost and availability of financing, and the expected performance of existing hotels. In the years since the COVID-19 pandemic, U.S. hotel supply growth has been below historic levels in most markets as the cost of construction and the cost and availability of financing have not been conducive to the development of new hotels. More recently, the imposition of tariffs is expected to increase the commodity costs associated with the development of new hotels. Separate from the development of new hotels, an increase in the supply of vacation rental or sharing services such as Airbnb may negatively affect the ability of existing hotels to generate growth in RevPAR and profits.
• Revenues and expenses. We believe that marginal improvements in RevPAR index, even in the face of declining revenues, are 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 the three months ended June 30, 2025 and 2024, including the amount and percentage change in the results between the two periods.

(in thousands, except statistical data)

The following table presents our unaudited operating results for the six months ended June 30, 2025 and 2024, including the amount and percentage change in the results between the two periods.

(in thousands, except statistical data)

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

• Hotel Acquisition: In April 2024, we acquired the Hyatt Regency San Antonio Riverwalk. As a result, our revenues, operating expenses, and depreciation expense in the second quarter and first six months of 2025 are not comparable to the same periods in 2024.
• Hotel Renovations: During 2024, operations at The Confidante Miami Beach and the Renaissance Long Beach (the “Two Renovation Hotels”) were negatively impacted by renovations as they transitioned to Andaz Miami Beach and the Marriott Long Beach Downtown, respectively. In March 2024, we closed The Confidante Miami Beach to allow the extensive renovation work to be performed more efficiently. The resort reopened as Andaz Miami Beach in May 2025. The Renaissance Long Beach converted to Marriott Long Beach Downtown in March 2024. Renovation work at the hotel continued through the end of the second quarter of 2024, and the hotel began to ramp-up operations in the third quarter of 2024. As a result of these two renovations, our revenues and operating expenses in the second quarter and first six months of 2025 are not comparable to the same periods in 2024.
• Hotel Disposition: In June 2025, we sold the Hilton New Orleans St. Charles. As a result, our revenues, operating expenses, and depreciation expense in the second quarter and first six months of 2025 are not comparable to the same periods in 2024.

Room revenue. Room revenue increased $4.8 million, or 3.1%, in the second quarter of 2025 as compared to the second quarter of 2024 as follows:

• The Two Renovation Hotels caused room revenue to increase by $4.0 million. Occupancy increased 2,350 basis points and the average daily room rate increased 8.7%, resulting in a 99.6% increase in RevPAR.

• The acquisition of the Hyatt Regency San Antonio Riverwalk caused room revenue to increase by $1.4 million. During the second quarter of 2025, occupancy was 68.8% and the average daily rate was $200.40, resulting in RevPAR of $137.88.
• Room revenue at the 11 hotels we owned during the entirety of the second quarters of both 2025 and 2024, excluding the Two Renovation Hotels (the “Comparable Portfolio”) increased $0.4 million. Occupancy increased 130 basis points and the average daily room rate decreased 1.4%, resulting in a 0.3% increase in RevPAR. The Comparable Portfolio’s room revenue was positively impacted by continued strength in group activity, primarily at the Hyatt Regency San Francisco and Wailea Beach Resort, as well as strong second quarter group performance at the Hilton San Diego Bayfront, Renaissance Orlando at SeaWorld®, and Montage Healdsburg. These positive impacts were partially reduced by weaker leisure demand in Maui combined with the return to capacity of several hotels previously impacted by the Wailea fires. The second quarter was also negatively impacted by a decrease in group demand at JW Marriott New Orleans and a reduction in government groups at The Westin Washington, DC Downtown. We expect government-related travel may continue to decline in 2025 due to the government’s cost controlling initiatives.

• The sale of the Hilton New Orleans St. Charles caused room revenue to decrease by $1.0 million.

For the six months ended June 30, 2025, room revenue increased $13.9 million, or 4.8%, as compared to the six months ended June 30, 2024 as follows:

• The acquisition of the Hyatt Regency San Antonio Riverwalk caused room revenue to increase by $9.1 million. For the first six months of 2025, occupancy was 68.7% and the average daily rate was $198.69, resulting in RevPAR of $136.50.
• The Two Renovation Hotels caused room revenue to increase by $4.1 million. Occupancy increased 1,500 basis points and the average daily room rate increased 1.4%, resulting in a 48.2% increase in RevPAR.

• Room revenue at the Comparable Portfolio increased $0.8 million. Occupancy increased 110 basis points and the average daily room rate decreased 0.7%, resulting in a 0.8% increase in RevPAR. The Comparable Portfolio’s room revenue was positively impacted by continued strength in group activity, primarily at the Hyatt Regency San Francisco, Wailea Beach Resort, and The Bidwell Marriott Portland, as well as increased group activity at Montage Healdsburg and inauguration-related demand at The Westin Washington, DC Downtown. These positive impacts were partially reduced by the negative effects of an island-wide moderation in leisure demand in Maui combined with a soft goods renovation at the Wailea Beach Resort (completed in the second quarter of 2025), both of which negatively affected transient demand. In addition, both the Hilton San Diego Bayfront and The Westin Washington, DC Downtown were negatively impacted by a reduction in government-related travel, including organizations whose conferences are partially funded by the government. We expect government-related travel may continue to decline in 2025 due to the government’s cost controlling initiatives.

• The sale of the Hilton New Orleans St. Charles caused room revenue to decrease by $0.2 million.

Food and beverage revenue. Food and beverage revenue increased $6.7 million, or 9.3%, in the second quarter of 2025 as compared to the second quarter of 2024, as follows:

• Food and beverage revenue at the Comparable Portfolio increased $5.0 million due to increased banquet and outlet revenues. Banquet revenue increased at a majority of the Comparable Portfolio due to increased group occupancy. In addition, banquet revenue increased at the Hilton San Diego Bayfront and Hyatt Regency San Francisco due to increases in the spend per group, along with increases in audio-visual equipment and banquet room rental fees. The increase in outlet revenue was primarily due to increases in both transient occupancy and average check at the Renaissance Orlando at SeaWorld®, and due to groups buying out the restaurant at Montage Healdsburg for some of their events. These increases were partially offset by decreased outlet revenue at the Marriott Boston Long Wharf due to the conversion of a hotel-operated restaurant to a leased outlet.
• The Two Renovation Hotels caused food and beverage revenue to increase by $1.6 million.
• The acquisition of the Hyatt Regency San Antonio Riverwalk caused food and beverage revenue to increase by $0.1 million.
• The sale of the Hilton New Orleans St. Charles caused a nominal decrease in food and beverage revenue.

For the first six months of 2025, food and beverage revenue increased $12.4 million, or 9.4%, as compared to the first six months of 2024 as follows:

• Food and beverage revenue at the Comparable Portfolio increased $6.2 million due to increased banquet revenues, partially offset by decreased outlet revenues. The increase in banquet revenue was primarily due to increases in the number of groups and spend per group, along with increases in audio-visual equipment and banquet room rental fees primarily at the Hilton San Diego Bayfront, Hyatt Regency San Francisco, Montage Healdsburg, and Wailea Beach Resort. In addition, banquet revenue increased at the JW Marriott New Orleans due to the Super Bowl in February 2025. These increases in banquet revenue were partially offset by decreased banquet revenue at the Renaissance Orlando at SeaWorld® as either groups did not repeat from last year or they decreased their spending. The decrease in outlet revenue was primarily due to lower transient occupancy at the Hilton San Diego Bayfront and the Wailea Beach Resort.
• The acquisition of the Hyatt Regency San Antonio Riverwalk caused food and beverage revenue to increase by $3.5 million.
• The Two Renovation Hotels caused food and beverage revenue to increase by $2.8 million.
• Hilton New Orleans St. Charles caused a nominal increase in food and beverage revenue.

Other operating revenue. Other operating revenue increased $0.9 million, or 3.5%, in the second quarter of 2025 as compared to the second quarter of 2024 as follows:

• The acquisition of the Hyatt Regency San Antonio Riverwalk caused other operating revenue to increase by $0.7 million.
• The Two Renovation Hotels caused other operating revenue to increase by $0.5 million.
• Other operating revenue at the Comparable Portfolio decreased $0.3 million, primarily due to decreased cancellation and attrition fees and parking revenues. These decreases were partially offset by increased destination and resort fees, tenant rent, spa revenues, and residential-related housekeeping and maintenance revenues at Montage Healdsburg.
• The sale of the Hilton New Orleans St. Charles caused other operating revenue to decrease by $0.1 million.

For the first six months of 2025, other operating revenue increased $2.9 million, or 6.4%, as compared to the first six months of 2024 as follows:

• The acquisition of the Hyatt Regency San Antonio Riverwalk caused other operating revenue to increase by $2.4 million.
• The Two Renovation Hotels caused other operating revenue to increase by $0.5 million.
• The sale of the Hilton New Orleans St. Charles caused other operating revenue to decrease by $0.1 million.
• Other operating revenue at the Comparable Portfolio decreased by a nominal amount as decreased parking revenues and cancellation and attrition fees, were mostly offset by increased contract commissions, tenant rent, residential-related housekeeping and maintenance revenues at the Montage Healdsburg, destination and resort fees, and retail revenues.

Hotel operating expenses. Hotel operating expenses, which are comprised of room, food and beverage, advertising and promotion, repairs and maintenance, utilities, franchise costs, property tax, ground lease and insurance, and other hotel operating expenses increased $10.8 million, or 7.5%, in the second quarter of 2025 as compared to the second quarter of 2024 as follows:

• The Two Renovation Hotels caused hotel operating expenses to increase by $6.8 million.
• Hotel operating expenses at the Comparable Portfolio increased $3.2 million, primarily corresponding to the increases in the Comparable Portfolio’s revenues and occupancy rates, along with increased liability insurance. These increases were partially offset by decreased property insurance due to successful policy renewals in the third quarter of 2024, as well as decreased property taxes due positive appeals and reassessments at several hotels and decreased general excise tax assessed by Hawaii due to the decline in revenue at the Wailea Beach Resort.
• The acquisition of the Hyatt Regency San Antonio Riverwalk caused hotel operating expenses to increase by $1.6 million.
• The sale of the Hilton New Orleans St. Charles caused hotel operating expenses to decrease by $0.7 million.

For the first six months of 2025, hotel operating expenses increased $21.8 million, or 7.8%, as compared to the first six months of 2024 as follows:

• The acquisition of the Hyatt Regency San Antonio Riverwalk caused hotel operating expenses to increase by $8.3 million.
• The Two Renovation Hotels caused hotel operating expenses to increase by $7.4 million.
• Hotel operating expenses at the Comparable Portfolio increased $6.6 million, primarily corresponding to the increases in the Comparable Portfolio’s revenues and occupancy rates, along with increased liability insurance. These increases were partially offset by decreased property insurance due to successful policy renewals in the third quarter of 2024, as well as decreased property taxes due positive appeals and reassessments at several hotels and decreased general excise tax assessed by Hawaii due to the decline in revenue at the Wailea Beach Resort.
• The sale of the Hilton New Orleans St. Charles caused hotel operating expenses to decrease by $0.6 million.

Other property-level expenses. Other property-level expenses increased $3.4 million, or 12.1%, in the second quarter of 2025 as compared to the second quarter of 2024 as follows:

• Other property-level expenses at the Comparable Portfolio increased $2.2 million, primarily due to increased management fees, payroll and related expenses, and credit card commissions.
• The Two Renovation Hotels caused other property-level expenses to increase by $0.8 million.
• The acquisition of the Hyatt Regency San Antonio Riverwalk caused other property-level expenses to increase by $0.4 million.
• The sale of the Hilton New Orleans St. Charles caused other property-level expenses to decrease by $0.1 million.

For the first six months of 2025, other property-level expenses increased $5.5 million, or 9.9%, as compared to the first six months of 2024 as follows:

• Other property-level expenses at the Comparable Portfolio increased $2.6 million, primarily due to increases in payroll and related expenses, management fees, and supply expenses. The increase in payroll and related expenses was primarily due to a $1.3 million COVID-19 relief grant received in the first quarter of 2024 at the Marriott Boston Long Wharf with no corresponding grant received in 2025. These increased expenses were partially offset by decreases in contract and professional fees and credit card commissions.
• The acquisition of the Hyatt Regency San Antonio Riverwalk caused other property-level expenses to increase by $1.9 million.
• The Two Renovation Hotels caused other property-level expenses to increase by $1.1 million.
• The sale of the Hilton New Orleans St. Charles caused other property-level expenses to decrease by $0.1 million.

Corporate overhead expense. Corporate overhead expense increased $0.2 million, or 2.2%, in the second quarter of 2025 as compared to the second quarter of 2024, primarily due to increased professional fees, due diligence fees, board of director expenses, and travel expenses. These increased expenses were partially offset by decreased payroll and related expenses and deferred stock amortization expense.

For the first six months of 2025, corporate overhead increased $1.6 million, or 10.0%, as compared to the first six months of 2024, primarily due to increased payroll and related expenses resulting from a severance payment related to the elimination of the Chief Operating Officer position in the first quarter of 2025 in connection with the restructuring of our executive team. The increase in corporate overhead expense was also due to increased professional fees, due diligence fees, entity-level state franchise and minimum taxes, and board of director expenses. These increased expenses were partially offset by decreased deferred stock amortization expense.

Depreciation and amortization expense. Depreciation and amortization expense increased $3.0 million, or 9.7%, in the second quarter of 2025 as compared to the second quarter of 2024 as follows:

• The Two Renovation Hotels caused a $2.4 million increase in depreciation and amortization expense.
• Depreciation and amortization expense related to the Comparable Portfolio increased $0.7 million as increased expense at our newly renovated hotels was partially offset by reduced expense due to fully depreciated assets.
• The acquisition of the Hyatt Regency San Antonio Riverwalk resulted in an increase in depreciation and amortization expense of $0.1 million.
• The sale of the Hilton New Orleans St. Charles caused depreciation and amortization expense to decrease by $0.2 million.

For the first six months of 2025, depreciation and amortization expense increased $6.2 million, or 10.4%, as compared to the first six months of 2024 as follows:

• The Two Renovation Hotels caused a $3.2 million increase in depreciation and amortization expense.
• The acquisition of the Hyatt Regency San Antonio Riverwalk resulted in an increase in depreciation and amortization expense of $2.2 million.
• Depreciation and amortization expense related to the Comparable Portfolio increased $1.0 million as increased expense at our newly renovated hotels was partially offset by reduced expense due to fully depreciated assets.
• The sale of the Hilton New Orleans St. Charles caused depreciation and amortization expense to decrease by $0.2 million.

Interest and other income. Interest and other income totaled $2.3 million and $3.5 million in the second quarters of 2025 and 2024, respectively, and $3.9 million and $9.0 million in the first six months of 2025 and 2024, respectively.

During the second quarters of 2025 and 2024, we recognized interest income of $1.4 million and $3.2 million, respectively. Interest income decreased in the second quarter of 2025 as compared to the second quarter of 2024 due to decreases in our cash balances following our acquisition of the Hyatt Regency San Antonio Riverwalk in April 2024. In addition, during the second quarter of 2025, we recognized a $0.9 million settlement for certain property-related claims at the Oceans Edge Resort & Marina, and during the second quarter of 2024 we recognized property insurance recoveries of $0.3 million related to 2023 fire damage at the Hilton San Diego Bayfront.

During the first six months of 2025 and 2024, we recognized interest income of $2.8 million and $8.6 million, respectively. Interest income decreased in the first six months of 2025 as compared to the same period in 2024 due to decreases in our cash balances following our acquisition of the Hyatt Regency San Antonio Riverwalk in April 2024. In addition, during the first six months of 2025, we recognized a $0.9 million settlement for certain property-related claims at the Oceans Edge Resort & Marina, and during the first six months of 2025 and 2024, we recognized property insurance recoveries of $0.1 million and $0.3 million, respectively, related to 2023 fire damage at the Hilton San Diego Bayfront.

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

Interest expense increased $0.5 million, or 3.7%, in the second quarter of 2025 as compared to the same period in 2024, and $2.1 million, or 9.0%, in the first six months of 2025 as compared to the same period in 2024.

The increases in interest expense during the second quarter and first six months of 2025 as compared to the same periods in 2024 were primarily due to $0.4 million and $3.4 million noncash changes in the fair market value of our derivatives, respectively, and increases of $0.2 million and $0.3 million, respectively, in the amortization of deferred financing costs due to costs incurred to extend the maturity of Term Loan 3 and on the issuance of Term Loan 4. These increases to interest expense were partially offset by increases of $0.2 million and $1.2 million of interest capitalized in the second quarter and first six months of 2025, respectively, as compared to the same periods in 2024, related to the extensive renovation work at The Confidante Miami Beach as it transitioned to Andaz Miami Beach. In addition, interest incurred on our debt increased $0.1 million and decreased $0.3 million during the second quarter and first six months of 2025, respectively, as compared to the same periods in 2024, primarily due to our $27.0 million draw on our credit facility in April 2025, fluctuations in our variable rate debt, our December 2024 repayment of the $72.1 million loan secured by the JW Marriott New Orleans, and our draw of the $100.0 million available under Term Loan 4 in December 2024.

Our weighted average interest rate per annum, including our variable rate debt obligations and excluding capitalized interest, was approximately 5.5% and 5.8% at June 30, 2025 and 2024, respectively. Approximately 51.0% and 51.1% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates at June 30, 2025 and 2024, respectively.

(Loss) gain on sale of assets, net. (Loss) gain on sale of assets, net totaled a loss of $8.8 million for both the second quarter and first six months of 2025, and zero and a net gain $0.5 million for the second quarter and first six months of 2024, respectively. In the second quarter and first six months of 2025, we recognized an $8.8 million loss on our sale of the Hilton New Orleans St. Charles. In the first six months of 2024, we recognized an additional $0.5 million net gain related to a contingency resolution at a hotel sold in a prior year.

Gain on extinguishment of debt. Gain on extinguishment of debt totaled zero for both the second quarter and first six months of 2025, and nominal amounts for the second quarter and first six months of 2024. In the second quarter and first six months of 2024, we recorded nominal gains associated with reassessments of the remaining potential employee-related obligations held in escrow associated with our assignment of a hotel to the hotel’s mortgage holder in 2020.

Income tax (provision) benefit, 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.

In the second quarter and first six months of 2025, we recognized net current income tax provisions of $37,000 and $0.1 million, respectively, resulting from current state and federal income tax expenses.

In the second quarter and first six months of 2024, we recognized a current income tax provision of $0.3 million and a net current income tax benefit of $0.6 million, respectively, resulting from current state and federal income tax expenses, net of any refunds.

Preferred stock dividends. Preferred stock dividends were incurred as follows (in thousands):

The annual dividend rate on the Series G preferred stock for the second quarter and first six months of 2025 was the greater of 4.5% or the rate equal to the Montage Healdsburg’s annual net operating income yield on our total investment in the resort. For the second quarter and first six months of 2024, the annual dividend rate on the Series G preferred stock was 3.0% or the rate equal to the Montage Healdsburg’s annual net operating yield on our total investment in the resort. In the third quarter of 2025, the dividend rate will increase to the greater of 6.5% or the rate equal to the Montage Healdsburg’s annual net operating income yield on the Company’s total investment in the resort.

Non-GAAP Financial Measures. We use the following “non-GAAP financial measures” that we believe are useful to investors as key supplemental measures of our operating performance: EBITDAre; Adjusted EBITDAre; FFO attributable to common stockholders; and Adjusted FFO attributable to common stockholders. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with accounting principles generally accepted in the United States (“GAAP”). In addition, our calculation of these measures may not be comparable to other companies that do not define such terms exactly the same as 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, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s complete understanding of our operating performance. In addition, we use both EBITDAre and Adjusted EBITDAre as measures in determining the value of hotel acquisitions and dispositions.

We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:

• Amortization of deferred stock compensation: we exclude the noncash expense incurred with the amortization of deferred stock compensation as this expense is based on historical stock prices at the date of grant to our corporate employees and does not reflect the underlying performance of our hotels.
• 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.
• Undepreciated asset transactions: we exclude the effect of gains and losses on the disposition of undepreciated assets because we believe that including them in Adjusted EBITDAre is not consistent with reflecting the ongoing performance of our assets.
• Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired because, like interest expense, their removal helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure.
• Cumulative effect of a change in accounting principle: from time to time, the Financial Accounting Standards Board (“FASB”) promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.
• 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; the write-off of development costs associated with abandoned projects; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects such as the work performed at Andaz Miami Beach; debt resolution costs; lease terminations; property insurance restoration proceeds or uninsured losses; and other nonrecurring identified adjustments.

The following table reconciles our unaudited net income to EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2025 and 2024 (in thousands):

Adjusted EBITDAre decreased $0.8 million, or 1.1%, in the second quarter of 2025 as compared to the second quarter of 2024, and increased $1.9 million, or 1.5%, in the first six months of 2025 as compared to the first six months of 2024 primarily due to the following:

• The Hyatt Regency San Antonio Riverwalk recorded Adjusted EBITDAre of $4.9 million and $9.5 million in the second quarter and first six months of 2025, respectively, and $4.6 million in the second quarter and first six months of 2024.
• Adjusted EBITDAre at the Two Renovation Hotels increased $1.1 million, or 227.6%, and $4.8 million, or 175.3%, in the second quarter and first six months of 2025, respectively, as compared to the same periods in 2024 primarily due to the changes in the Two Renovation Hotels’ revenues and expenses included in the discussion above regarding the operating results for the second quarter and first six months of 2025.
• Adjusted EBITDAre at the Comparable Portfolio decreased $0.2 million, or 0.3%, and $0.8 million, or 0.7%, in the second quarter and first six months of 2025, respectively, as compared to the same periods in 2024 primarily due to the changes in the Comparable Portfolio’s revenues and expenses included in the discussion above regarding the operating results for the second quarter and first six months of 2025.
• The Hilton New Orleans St. Charles recorded Adjusted EBITDAre of $0.6 million and $3.0 million in the second quarter and first six months of 2025, respectively, and $1.1 million and $2.7 million in the second quarter and first six months of 2024, respectively.
• Corporate-level Adjusted EBITDAre decreased $1.6 million in the second quarter of 2025 as compared to the same period in 2024 primarily due to a $1.2 million decrease in interest and other income and a $0.2 million increase in corporate overhead expense. For the first six months of 2025, corporate-level Adjusted EBITDAre decreased $7.3

million as compared to the same period in 2024 primarily due to a $5.1 million decrease in interest and other income and a $1.6 million increase in corporate overhead expense.

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

We also present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and may facilitate comparisons of operating performance between periods and our peer companies.

We adjust FFO attributable to common stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to common stockholders:

• Amortization of 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 (with the exception of our corporate operating lease) as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels.
• Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired, as well as the noncash interest on our derivatives. We believe that these items are not reflective of our ongoing finance costs.
• Cumulative effect of a change in accounting principle: from time to time, the FASB promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.
• Other adjustments: we exclude other adjustments that we believe are outside the ordinary course of business because we do not believe these costs reflect our actual performance for that period and/or the ongoing operations of our hotels. Such items may include: lawsuit settlement costs; the write-off of development costs associated with abandoned projects; changes to deferred tax assets, liabilities or valuation allowances; property-level restructuring, severance, and management transition costs; pre-opening costs associated with extensive renovation projects such as the work performed at Andaz Miami Beach; 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; and other nonrecurring identified adjustments.

The following table reconciles our unaudited net income to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the three and six months ended June 30, 2025 and 2024 (in thousands):

Adjusted FFO attributable to common stockholders decreased $0.9 million, or 1.6%, and increased $3.1 million, or 3.3%, in the second quarter and first six months of 2025, respectively, as compared to the same periods in 2024 primarily due to the same reasons noted in the discussion above regarding Adjusted EBITDAre.

Liquidity and Capital Resources

During the periods presented, our sources of cash included our operating activities and working capital, as well as proceeds from a hotel disposition, our credit facility, key money, and property insurance. Our primary uses of cash were for capital expenditures for hotels and other assets, the acquisition of a hotel, operating expenses, repurchases of our common stock, repayments of notes payable, payment of deferred financing costs, and dividends and distributions on our preferred and common stock. We cannot be certain that the sources of funds we have relied on in the past will be available in the future.

Operating activities. Our net cash provided by or used in operating activities fluctuates primarily as a result of changes in the net cash generated by our hotels, offset by the cash paid for corporate expenses. Our net cash provided by or used in operating activities may also be affected by changes in our portfolio resulting from hotel acquisitions, dispositions or renovations. Net cash provided by operating activities was $90.8 million in the first six months of 2025 as compared to $93.3 million in the first six months of 2024. The net decrease in cash provided by operating activities during the first six months of 2025 as compared to the same period in 2024 was primarily due to decreases in interest income resulting from our lower cash balances and increases in corporate-level expenses, partially offset by additional operating cash provided by the increase in travel demand benefiting our hotels as well as the acquisition of the Hyatt Regency San Antonio Riverwalk and the post-renovation ramp-up of the Marriott Long Beach Downtown.

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 six months of 2025 as compared to the first six months of 2024 was as follows (in thousands):

During the first six months of 2025, we invested $56.0 million for renovations and additions to our portfolio and other assets. This cash outflow was partially offset by $46.3 million of proceeds received from the sale of the Hilton New Orleans St. Charles, $4.0 million in key money received from the manager of one of our hotels pursuant to the hotel’s management agreement, and $0.1 million in property insurance proceeds received related to 2023 fire damage at the Hilton San Diego Bayfront.

During the first six months of 2024, we paid $229.3 million to acquire the Hyatt Regency San Antonio Riverwalk, including closing costs and prorations and we invested $68.7 million for renovations and additions to our portfolio and other assets. These cash outflows were slightly offset by $0.2 million in property insurance proceeds received related to 2023 fire damage at 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 debt, including draws on our credit facility and term loans, and issuance and redemption of other forms of capital, including preferred equity. Net cash used in financing activities during the first six months of 2025 as compared to the first six months of 2024 was as follows (in thousands):

During the first six months of 2025, we paid $98.5 million to repurchase 11,122,861 shares of our outstanding common stock, $4.3 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $0.5 million in deferred financing costs related to the extension of Term Loan 3’s maturity, and $44.3 million in dividends and distributions to our preferred and common stockholders. These cash outflows were partially offset by a $27.0 million draw on our credit facility.

During the first six months of 2024, we paid $3.6 million to repurchase 359,008 shares of our common stock, $3.2 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $1.1 million in scheduled principal payments on the loan secured by the JW Marriott New Orleans, and $47.2 million in dividends and distributions to our preferred and common stockholders.

Future. We expect our primary sources of cash will continue to be our operating activities, working capital, borrowing under our credit facility, additional issuances of debt, dispositions of hotel properties and proceeds from offerings of common and preferred stock. However, there can be no assurance that our future asset sales, debt issuances or equity offerings will be successfully completed. As a result of potential increases in inflation rates and interest rates, as well as possible recessionary periods in the future, certain sources of capital may not be as readily available to us as they have in the past or may only be available at higher costs.

We expect our primary uses of cash to be for operating expenses, capital investments in our hotels, repayment of principal on our debt and credit facility, interest expense, repurchases of our common and preferred stock, distributions on our common stock, dividends on our preferred stock, and acquisitions of hotels or interests in hotels.

While inflation began to decrease in 2024, the recent uncertainty in the market in connection with certain international economic and political relationships, including political disputes and the imposition of tariffs affecting commodity costs, has had a negative effect on our operations. Prior to the recently announced tariffs, we experienced increases in wages, employee-related benefits, food costs, commodity costs, including those used to renovate or reposition our hotels, property taxes, liability insurance, utilities, and borrowing costs. The imposition of recently announced tariffs could exacerbate existing cost pressures and create additional inflationary pressures that could further impact our results of operations. The ability of our hotel operators to adjust rates has historically mitigated the impact of increased operating costs on our financial position and results of operations. In addition, any increases in interest rates by the Federal Reserve Board in response to increases in inflation will negatively affect our variable rate debt, resulting in increased interest payments.

Cash Balance. As of June 30, 2025, our unrestricted cash balance was $73.6 million. We believe that our current unrestricted cash balance and our ability to draw the $473.0 million capacity available for borrowing under the unsecured revolving credit facility will enable us to successfully manage our Company.

Debt. As of June 30, 2025, we had $872.0 million of debt, $144.9 million of cash and cash equivalents, including restricted cash, and total assets of $3.0 billion. We believe that by maintaining appropriate debt levels, staggering maturity dates, and maintaining a highly flexible structure, we will have lower capital costs than more highly leveraged companies, or companies with limited flexibility due to restrictive covenants.

In January 2025, we entered into an interest rate swap on Term Loan 4, which is effective January 31, 2025, expires November 7, 2026, and fixes the SOFR rate at 4.02%.

In April 2025, we exercised our option to extend the maturity date of Term Loan 3 from May 2025 to May 2026. In addition, in April 2025, we drew down $27.0 million on our credit facility, and used the proceeds for general corporate purposes.

As of June 30, 2025, 51.0% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates, including our unsecured corporate-level Term Loan 1 and Term Loan 4, which totaled $275.0 million, and our two unsecured corporate-level senior notes, which totaled $170.0 million.

Our floating rate debt as of June 30, 2025 included our unsecured corporate-level Term Loan 2 and Term Loan 3, which totaled $400.0 million, and the $27.0 million draw on our credit facility.

In July 2025, we drew down an additional $23.0 million on our credit facility. We intend to use the proceeds for general corporate purposes.

Contractual Obligations. The following table summarizes our payment obligations and commitments as of June 30, 2025 (in thousands):

(1) Debt and interest obligations on debt include the $100.0 million unsecured Term Loan 4 assuming we have exercised our two available options to extend the loan’s maturity from November 2025 to November 2026, upon payment of applicable fees and the satisfaction of certain customary conditions. We expect to refinance or extend all of our near-term maturities prior to their maturity dates.

(2) Interest is calculated based on the loan balances and variable rates, as applicable, at June 30, 2025, and includes the effect of our interest rate derivatives.

(3) Operating lease obligations include the lease on our current corporate headquarters and the sublease on our former corporate headquarters. In addition, 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.

We may in the future seek to obtain mortgages on one or more of our 14 unencumbered hotels (subject to certain provisions under our unsecured term loans and senior notes), all of which were held by subsidiaries whose interests were pledged to our credit facilities as of June 30, 2025. 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.

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 $56.0 million and $68.7 million in our portfolio and other assets during the first six months of 2025 and 2024, respectively. As of June 30, 2025, we have contractual construction commitments totaling $53.9 million for ongoing renovations. If we renovate additional hotels in the future, our capital expenditures will likely increase.

With respect to our hotels that are operated under management or franchise agreements with certain hotel brands, 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 and franchise agreements for each of the respective hotels, ranging between 3.0% and 5.5% of the respective hotel’s applicable annual revenue. As of June 30, 2025, our balance sheet includes restricted cash of $71.2 million, which was held in FF&E reserve accounts for future capital expenditures at the majority of our hotels. According to certain management agreements, reserve funds are to be held by the managers in restricted cash accounts, and we are not required to spend the entire amount in such reserve accounts each year.

Inflation

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

Seasonality and Volatility

As is typical of the lodging industry, we experience seasonality in our business. Demand at certain of our hotels is affected by seasonal business patterns that can cause quarterly fluctuations in our revenues.

Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as economic and business conditions, including a U.S. recession or increased inflation, trade conflicts and tariffs, changes impacting global travel, regional or global economic slowdowns, any flu or disease-related pandemic that impacts travel or the ability to travel, weather patterns, the adverse effects of climate change, the threat of terrorism, terrorist events, civil unrest, government shutdowns, events that reduce the capacity or availability of air travel, increased competition from other hotels in our markets, new hotel supply or alternative lodging options and unexpected changes in commercial or leisure travel.

Critical Accounting Estimates

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

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

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

Recoverability of assets that will continue to be used is measured by comparing the carrying amount of the asset to the related total future undiscounted net cash flows. If an asset’s carrying value is not recoverable through those cash flows, the asset is considered to be impaired. The impairment is measured by the difference between the asset’s carrying amount and its fair value. We perform a fair value assessment using valuation techniques such as discounted cash flows and comparable sales transactions in the market to estimate the fair value of the hotel and, if appropriate and available, current estimated net sales proceeds from pending offers. Our judgment is required in determining the discount rate, terminal capitalization rate, the estimated growth of revenues and expenses, revenue per available room and margins, as well as specific market and economic conditions.

• 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.

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

As of June 30, 2025, 51.0% of our debt obligations were fixed in nature or were subject to interest rate swap derivatives, which mitigates the effect of changes in interest rates on our cash interest payments. If the market rate of interest on our variable rate debt increases or decreases by 50 basis points, interest expense on an annualized basis would increase or decrease, respectively, by approximately $2.1 million based on the amount of variable rate debt outstanding at June 30, 2025.

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

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

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