Sunstone Hotel Investors, Inc. (SHO) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sunstone Hotel Investors, Inc.'s 10-K for fiscal year 2024. Filing date: 2025-02-21. Report date: 2024-12-31. Accession: 0001558370-25-001297.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: SHO · All MD&A years: index · Previous year: FY 2023 · Next year: FY 2025

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read together with the consolidated financial statements and related notes included elsewhere in this report. This discussion focuses on our financial condition and results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023. A discussion and analysis of the year ended December 31, 2023 as compared to the year ended December 31, 2022 is included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2024, under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

Sunstone Hotel Investors, Inc. 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.

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We own hotels in convention, urban, and resort destinations that benefit from significant barriers to entry by competitors and diverse economic drivers. As of December 31, 2024, we owned 15 hotels (the “15 Hotels”). All of our hotels are operated under nationally recognized brands, except the Oceans Edge Resort & Marina, which has established itself in a resort destination market.

The following tables summarize our total portfolio and room data from January 1, 2023 through December 31, 2024:


	2024	2023
Portfolio Data—Hotels
Number of hotels—beginning of year	14	15
Add: Acquisitions	1	—
Less: Dispositions	—	(1)
Number of hotels—end of year	15	14


	2024		2023
Portfolio Data—Rooms
Number of rooms—beginning of year	6,675		7,735
Add: Acquisitions	630		—
Less: Dispositions	—		(1,060)
Less: Renovation adjustments, net	(52)	(1)	—
Number of rooms—end of year	7,253		6,675
Average rooms per hotel—end of year	484		477

Column 1	Column 2
(1)	Concurrent with our renovations, we removed fifty-two rooms at The Confidante Miami Beach in order to increase the number of suites and premium room types and two rooms at the Wailea Beach Resort to form two residential-style suites, and added two rooms at the Marriott Long Beach Downtown.

2024 Summary

Demand. Excluding The Confidante Miami Beach and the Renaissance Long Beach (the “Two Renovation Hotels”) due to their significant renovations as they transitioned to Andaz Miami Beach and the Marriott Long Beach Downtown, respectively, occupancy at the 12 hotels we owned during the entirety of 2023 and 2024 (the “Comparable Portfolio”) improved as follows:


	Quarters Ended		Year Ended
	March 31	June 30	September 30	December 31		December 31
2024	72.5	%	76.4	%	72.3	%	67.2	%	72.1	%
2023	69.5	%	75.1	%	69.8	%	66.5	%	70.2	%

During 2024, we saw improved group and leisure demand at Marriott Boston Long Wharf, as the hotel took advantage of strong corporate demand and a solid base of group business, The Westin Washington, DC Downtown, as the hotel is attracting higher quality groups post-rebranding from a Renaissance to a Westin, and at our Northern California wine country hotels, Four Seasons Resort Napa Valley and Montage Healdsburg, as the hotels are attracting more leisure customers and higher-quality group events. In addition, leisure and business transient demand improved at Hilton San Diego Bayfront, Hyatt Regency San Francisco, and The Bidwell Marriott Portland. These improvements were partially offset by labor activity at the Hilton San Diego Bayfront during the third and fourth quarters of 2024, which led to the cancellation of certain group events and overall lower business volume at the hotel, severe weather at Renaissance Orlando at SeaWorld® during the third and fourth quarters of 2024, and continued market-wide weakness at Wailea Beach Resort.

Acquisition. In April 2024, we acquired the fee-simple interest in the 630-room Hyatt Regency San Antonio Riverwalk, located in San Antonio, Texas, for a contractual purchase price of $230.0 million, excluding closing costs.

Significant Renovations. During 2024, our significant renovations primarily occurred at the Two Renovation Hotels. In March 2024, we temporarily suspended operations at The Confidante Miami Beach to allow the extensive renovation work to be performed more efficiently. We expect the resort to resume operations as Andaz Miami Beach in the first quarter of 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. In addition, during 2024 we began a soft goods renovation at Wailea Beach Resort.

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Debt Transactions. In November 2024, we entered into a delayed draw term loan agreement (“Term Loan 4”) and drew a total of $100.0 million in December 2024. Term Loan 4’s variable interest rate is based on a pricing grid with a range of 1.35% to 2.20%, depending on our leverage ratios, plus SOFR and a 0.10% adjustment. Term Loan 4 matures in November 2025, with two six-month extension options at the Company’s election, resulting in an extended maturity of November 2026.

In December 2024, we repaid the $72.1 million mortgage secured by the JW Marriott New Orleans, using proceeds received from Term Loan 4.

For more details on our 2024 debt transactions, see “Liquidity and Capital Resources” below.

Capital Transactions. During 2024, we repurchased 2,764,837 shares of our common stock under our stock repurchase program at an average purchase price of $9.83 per share. As of December 31, 2024, approximately $427.5 million of authorized capacity remained 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:

Column 1	Column 2	Column 3
	●	Room revenue, which is comprised of revenue realized from the sale of rooms at our hotels;

Column 1	Column 2	Column 3
	●	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

Column 1	Column 2	Column 3
	●	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:

Column 1	Column 2	Column 3
	●	Room expense, which is primarily driven by occupancy and, therefore, has a significant correlation with room revenue;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	Other operating expense, which includes the corresponding expense of other operating revenue, advertising and promotion, repairs and maintenance, utilities and franchise costs;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	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

Column 1	Column 2	Column 3
	●	Depreciation and amortization expense, which includes depreciation on our hotel buildings, improvements and 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.

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

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	Gain on sale of assets, net, which includes the gains we recognized on our hotel sales, including the net gains related to the resolution of contingencies, that do not qualify as discontinued operations;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	Income tax benefit (provision), 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

Column 1	Column 2	Column 3
	●	Preferred stock dividends, which includes dividends accrued on our Series G Cumulative Redeemable Preferred Stock (the “Series G preferred stock”), Series H Cumulative Redeemable Preferred Stock (the “Series H preferred stock”) and Series I Cumulative Redeemable Preferred Stock (the “Series I preferred stock”).

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

Column 1	Column 2	Column 3
	●	Occupancy, which is the quotient of total rooms sold divided by total rooms available;

Column 1	Column 2	Column 3
	●	Average daily room rate, or ADR, which is the quotient of room revenue divided by total rooms sold;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	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 being performed at The Confidante Miami Beach; debt resolution costs; and any other nonrecurring identified adjustments;

Column 1	Column 2	Column 3
	●	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

Column 1	Column 2	Column 3
	●	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 being performed at The Confidante Miami Beach; debt resolution costs; preferred stock redemption charges; and any other nonrecurring identified adjustments.

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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.

Column 1	Column 2	Column 3
	●	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 pandemics, 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, and these groups may reduce travel costs by limiting travel or by using lower cost accommodations. 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 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.

Column 1	Column 2	Column 3
	●	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. Prior to the COVID-19 pandemic, U.S. hotel supply continued to increase, and some markets experienced new hotel room openings at or greater than historical levels. In the years since the COVID-19 pandemic, U.S. hotel supply growth has been at or below historical 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. 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.

Column 1	Column 2	Column 3
	●	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.

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Operating Results. The following table presents our operating results for the years ended December 31, 2024 and 2023, including the amount and percentage change in the results between the two periods.


	2024		2023		Change $	Change %
	(in thousands, except statistical data)
REVENUES
Room	$	559,061		$	619,277	$	(60,216)	(9.7)	%
Food and beverage		256,222			277,514		(21,292)	(7.7)	%
Other operating		90,526			89,689		837	0.9	%
Total revenues		905,809			986,480		(80,671)	(8.2)	%
OPERATING EXPENSES
Hotel operating		562,827			589,103		(26,276)	(4.5)	%
Other property-level expenses		110,833			120,247		(9,414)	(7.8)	%
Corporate overhead		29,050			31,412		(2,362)	(7.5)	%
Depreciation and amortization		124,507			127,062		(2,555)	(2.0)	%
Total operating expenses		827,217			867,824		(40,607)	(4.7)	%

Interest and other income		13,179			10,535		2,644	25.1	%
Interest expense		(50,125)			(51,679)		1,554	3.0	%
Gain on sale of assets, net		457			123,820		(123,363)	(99.6)	%
Gain on extinguishment of debt		59			9,938		(9,879)	(99.4)	%
Income before income taxes		42,162			211,270		(169,108)	(80.0)	%
Income tax benefit (provision), net		1,100			(4,562)		5,662	124.1	%
NET INCOME		43,262			206,708		(163,446)	(79.1)	%
Preferred stock dividends		(15,228)			(13,988)		(1,240)	(8.9)	%
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	28,034		$	192,720	$	(164,686)	(85.5)	%

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

Column 1	Column 2	Column 3
	●	Hotel Disposition: In October 2023, we sold the Boston Park Plaza. As a result, our 2024 revenues, operating expenses, and depreciation expense are not comparable to 2023.

Column 1	Column 2	Column 3
	●	Hotel Acquisition: In April 2024, we acquired the Hyatt Regency San Antonio Riverwalk. As a result, our 2024 revenues, operating expenses, and depreciation expense are not comparable to 2023.

Column 1	Column 2	Column 3
	●	Hotel Renovations: Due to the significant renovations at the Two Renovation Hotels, our 2024 revenues and operating expenses are not comparable to 2023.

Room Revenue. Room revenue decreased $60.2 million, or 9.7%, in 2024 as compared to 2023 as follows:

Column 1	Column 2	Column 3
	●	The sale of the Boston Park Plaza caused room revenue to decrease by $66.6 million.

Column 1	Column 2	Column 3
	●	The acquisition of the Hyatt Regency San Antonio Riverwalk caused room revenue to increase $21.8 million. Occupancy was 71.8% and the average daily room rate was $190.38, resulting in RevPAR of $136.69.

Column 1	Column 2	Column 3
	●	Room Revenue at the Comparable Portfolio increased $6.7 million. Occupancy increased 190 basis points and the average daily room rate decreased 1.7%, resulting in a 1.0% increase in RevPAR. The Comparable Portfolio’s room revenue was positively impacted by an increase in transient room nights sold, as well as an acceleration in business travel. These positive impacts were partially reduced by the negative effects of market-wide moderations in leisure and group travel in Maui and business travel in San Francisco, as well as labor activity at the Hilton San Diego Bayfront, which led to the cancellation of certain group events and overall lower business volume at the hotel.


	2024		2023		Change
	Occ%		ADR		RevPAR		Occ%	ADR		RevPAR		Occ%		ADR	RevPAR
Comparable Portfolio	72.1	%	$	327.83		$	236.37	70.2	%	$	333.37		$	234.03	190	bps	(1.7)	%	1.0	%

Column 1	Column 2	Column 3
	●	The Two Renovation Hotels caused room revenue to decrease by $22.1 million. Occupancy decreased 3,040 basis points and the average daily room rate decreased 6.8%, resulting in a 49.5% decrease in RevPAR.


	2024		2023		Change
	Occ%		ADR		RevPAR		Occ%	ADR		RevPAR		Occ%		ADR	RevPAR
Two Renovation Hotels	35.9	%	$	229.82		$	82.51	66.3	%	$	246.56		$	163.47	(3,040)	bps	(6.8)	%	(49.5)	%

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Food and Beverage Revenue. Food and beverage revenue decreased $21.3 million, or 7.7%, in 2024 as compared to 2023 as follows:

Column 1	Column 2	Column 3
	●	The sale of the Boston Park Plaza caused food and beverage revenue to decrease by $23.3 million.

Column 1	Column 2	Column 3
	●	The acquisition of the Hyatt Regency San Antonio Riverwalk caused food and beverage to increase by $10.8 million.

Column 1	Column 2	Column 3
	●	Food and beverage revenue at the Comparable Portfolio decreased $0.2 million due to lower banquet revenue, partially offset by increased outlet revenue. Banquet revenue decreased primarily at the Hilton San Diego Bayfront due to labor activity at the hotel during the third and fourth quarters of 2024, which led to the cancellation of certain group events and overall lower business volume at the hotel. In addition, banquet revenue decreased due to declines in group occupancy at the Hyatt Regency San Francisco, Renaissance Orlando at SeaWorld®, and Wailea Beach Resort, as well as softer group performance at the JW Marriott New Orleans. Outlet revenue increased primarily due to increased transient occupancy. In addition, outlet revenue increased at the Four Seasons Resort Napa Valley and Montage Healdsburg due to increased capture rates and higher average check rates and at The Westin Washington, DC Downtown, which was under renovation in the prior year.

Column 1	Column 2	Column 3
	●	The Two Renovation Hotels caused food and beverage revenue to decrease by $8.6 million.

Other Operating Revenue. Other operating revenue increased $0.8 million, or 0.9%, in 2024 as compared to 2023 as follows:

Column 1	Column 2	Column 3
	●	The sale of the Boston Park Plaza caused other operating revenue to decrease by $6.9 million.

Column 1	Column 2	Column 3
	●	The acquisition of the Hyatt Regency San Antonio Riverwalk caused other operating revenue to increase by $5.0 million.

Column 1	Column 2	Column 3
	●	Other operating revenue at the Comparable Portfolio increased $5.9 million, primarily due to the increase in occupancy, which resulted in increased revenue from destination and resort fees, parking revenue, and retail revenue. These increases were partially offset as other operating revenue in 2023 included $0.5 million in business interruption proceeds at the Hilton New Orleans St. Charles related to Hurricane Ida disruption, with no corresponding revenue recognized in 2024. In addition, the Comparable Portfolio’s other operating revenue decreased due to declines in internet usage fees, marina revenue, cancellation revenue, and spa revenue.

Column 1	Column 2	Column 3
	●	The Two Renovation Hotels caused other operating revenue to decrease by $3.2 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 operating expenses decreased $26.3 million, or 4.5%, in 2024 as compared to 2023 as follows:

Column 1	Column 2	Column 3
	●	The sale of the Boston Park Plaza caused hotel operating expenses to decrease by $54.8 million.

Column 1	Column 2	Column 3
	●	The acquisition of the Hyatt Regency San Antonio Riverwalk caused hotel operating expenses to increase by $19.0 million.

Column 1	Column 2	Column 3
	●	Hotel operating expenses at the Comparable Portfolio increased $23.6 million, primarily corresponding to the increases in the Comparable Portfolio’s revenues and occupancy rates, along with increased property taxes and insurance.

Column 1	Column 2	Column 3
	●	The Two Renovation Hotels caused hotel operating expenses to decrease by $14.1 million.

Other Property-Level Expenses. Other property-level expenses decreased $9.4 million, or 7.8%, in 2024 as compared to 2023 as follows:

Column 1	Column 2	Column 3
	●	The sale of the Boston Park Plaza caused other property-level expenses to decrease by $10.0 million.

Column 1	Column 2	Column 3
	●	The acquisition of the Hyatt Regency San Antonio Riverwalk caused other property-level expenses to increase by $4.0 million.

Column 1	Column 2	Column 3
	●	Other property-level expenses at the Comparable Portfolio decreased $1.0 million, primarily due to a $1.3 million COVID-19 relief grant received in 2024 at the Marriott Boston Long Wharf, with no corresponding grant received in 2023. Additional decreases in other property-level expenses at the Comparable Portfolio included management fees and supply expenses. These decreased expenses were partially offset by increased payroll and related expenses, contract and professional fees, and credit card commissions.

Column 1	Column 2	Column 3
	●	The Two Renovation Hotels caused other property-level expenses to decrease by $2.5 million.

Corporate Overhead Expense. Corporate overhead expense decreased $2.4 million, or 7.5%, in 2024 as compared to 2023, primarily due to decreased payroll and related expenses, entity-level state franchise and minimum taxes, deferred stock amortization expense, and due diligence expenses. These decreased expenses were partially offset by increased professional fees.

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Depreciation and Amortization Expense. Depreciation and amortization expense decreased $2.6 million, or 2.0%, in 2024 as compared to 2023 as follows:

Column 1	Column 2	Column 3
	●	The sale of the Boston Park Plaza resulted in a decrease in depreciation and amortization expense of $12.8 million.

Column 1	Column 2	Column 3
	●	The acquisition of the Hyatt Regency San Antonio Riverwalk resulted in an increase in depreciation and amortization expense of $6.4 million.

Column 1	Column 2	Column 3
	●	Depreciation and amortization expense related to the Comparable Portfolio increased $2.6 million due to increased expense at our newly renovated hotels, partially offset by decreased expense due to fully depreciated assets.

Column 1	Column 2	Column 3
	●	The Two Renovation Hotels caused depreciation and amortization expense to increase by $1.2 million.

Interest and Other Income. Interest and other income totaled $13.2 million and $10.5 million in 2024 and 2023, respectively. During 2024 and 2023, we recognized interest income of $12.6 million and $6.8 million, respectively. Interest income increased in 2024 as compared to 2023 due to increases in our cash balances as well as increased interest rates. In addition, we recognized property insurance recoveries of $0.4 million in 2024 related to fire damage at the Hilton San Diego Bayfront and wind-driven rain damage at Wailea Beach Resort and $3.7 million in 2023 related to property damage caused by Hurricane Ida at the Hilton New Orleans St. Charles. During 2024, we also recognized other miscellaneous income of $0.1 million.

We expect our interest income will decrease in 2025 in accordance with our lower cash balances following our acquisition of the Hyatt Regency San Antonio Riverwalk in April 2024 and expected lower interest rates on our cash deposits relative to 2024.

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


	2024		2023
Interest expense on debt	$	49,003		$	48,727
Noncash interest on derivatives, net		(540)			252
Amortization of deferred financing costs		3,047			2,700
Capitalized interest		(1,385)			—
Total interest expense	$	50,125		$	51,679

Interest expense decreased $1.6 million, or 3.0%, in 2024 as compared to 2023 as follows:

The decrease in interest expense in 2024 as compared to 2023 was primarily due to $1.4 million of interest capitalized in 2024 related to the extensive renovation work at The Confidante Miami Beach as it transitions to Andaz Miami Beach, with no corresponding credit to interest expense in 2023. In addition, interest expense decreased due to a $0.8 million noncash change in the fair market value of our derivatives. These decreases were partially offset by a $0.3 million increase in interest expense incurred on our debt primarily due to increased interest on our variable rate debt and our draws of the $100.0 million available under Term Loan 4 in December 2024 and the $225.0 million available under our third term loan (“Term Loan 3”) in May 2023, partially offset by decreased interest due to our repayments of the $72.1 million loan secured by the JW Marriott New Orleans in December 2024 and the $220.0 million loan secured by the Hilton San Diego Bayfront in May 2023. The amortization of deferred financing costs caused interest expense to increase $0.3 million in 2024 as compared to 2023 due to costs incurred on Term Loan 4 and Term Loan 3.

Our weighted average interest rate per annum, including our variable rate debt obligations and excluding capitalized interest, was approximately 5.6% and 5.8% at December 31, 2024 and 2023, respectively. Approximately 40.8% and 51.2% of our outstanding notes payable had fixed interest rates or had been swapped to fixed interest rates at December 31, 2024 and 2023, respectively. Following our purchase of an interest rate swap for Term Loan 4 in January 2025, 52.7% of our outstanding debt will have fixed interest rates or will have been swapped to fixed interest rates.

Gain on Sale of Assets, net. Gain on sale of assets, net totaled $0.5 million and $123.8 million in 2024 and 2023, respectively, both of which related to the Boston Park Plaza. In 2024, we recognized an additional $0.5 million net gain related to a contingency resolution at the hotel, and in 2023, we recognized a $123.8 million gain on the sale of the hotel.

Gain on Extinguishment of Debt. Gain on extinguishment of debt totaled $0.1 million and $9.9 million in 2024 and 2023, respectively, both of which were related to the remaining potential employee obligations held in escrow associated with our assignment of a hotel to the hotel’s mortgage holder in 2020. During 2024, we recognized $21,000 due to reassessments of the remaining potential obligations and $38,000 due to the release of the remaining potential obligations in conjunction with the termination of the escrow agreement during the second quarter of 2024.

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During 2023, we recognized a gain of $9.9 million, comprised of $9.8 million from the relief of the majority of the potential obligations, with the funds released to us from escrow, and $0.1 million due to reassessments of the remaining potential obligations 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.

In 2024, we recognized a net current income tax benefit of $1.1 million resulting from current state and federal income tax expenses, net of any refunds.

In 2023, we recognized a net current income tax provision of $4.6 million resulting from current state and federal income tax expenses, of which $3.7 million related to the gain we recognized on the sale of the Boston Park Plaza.

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


	2024		2023
Series G preferred stock	$	2,484		$	1,244
Series H preferred stock		7,044			7,044
Series I preferred stock		5,700			5,700
	$	15,228		$	13,988

The Series G preferred stock initially accrued dividends at a rate equal to the Montage Healdsburg’s annual net operating income yield on our total investment in the resort. In the first and third quarters of 2024, the annual dividend rate increased to the greater of 3.0% and 4.5%, respectively, or the rate equal to the Montage Healdsburg’s annual net operating income 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.

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

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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 being performed at The Confidante Miami Beach; debt resolution costs; lease terminations; property insurance restoration proceeds or uninsured losses; and other non-recurring identified adjustments.

The following table reconciles our net income to EBITDAre and Adjusted EBITDAre for the years ended December 31, 2024 and 2023 (in thousands):


	2024		2023
Net income	$	43,262		$	206,708
Depreciation and amortization		124,507			127,062
Interest expense		50,125			51,679
Income tax (benefit) provision, net		(1,100)			4,562
Gain on sale of assets, net		(457)			(123,820)
EBITDAre		216,337			266,191

Amortization of deferred stock compensation		10,456			10,775
Amortization of right-of-use assets and obligations		(425)			(102)
Amortization of contract intangibles, net		—			(55)
Gain on extinguishment of debt		(59)			(9,938)
Gain on insurance recoveries		(430)			(3,722)
Pre-opening costs		2,633			—
Property-level legal settlement costs		1,182			—
Property-level severance		—			297
Adjustments to EBITDAre, net		13,357			(2,745)
Adjusted EBITDAre	$	229,694		$	263,446

Adjusted EBITDAre decreased $33.8 million, or 12.8%, in 2024 as compared to 2023 primarily due to the following:

Column 1	Column 2	Column 3
	●	The Boston Park Plaza recorded Adjusted EBITDAre of $32.0 million in 2023.

Column 1	Column 2	Column 3
	●	The Hyatt Regency San Antonio Riverwalk recorded Adjusted EBITDAre of $15.0 million in 2024.

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Column 1	Column 2	Column 3
	●	Adjusted EBITDAre at the Comparable Portfolio decreased $10.7 million, or 4.6%, in 2024 as compared to 2023, primarily due to the changes in the Comparable Portfolio’s revenues and expenses included in the discussion above regarding the operating results for 2024.

Column 1	Column 2	Column 3
	●	Adjusted EBITDAre at the Two Renovation Hotels decreased $15.0 million, or 115.3 %, in 2024 as compared to 2023.

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:

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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.

Column 1	Column 2	Column 3
	●	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 being performed at The Confidante 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.

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The following table reconciles our net income to FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the years ended December 31, 2024 and 2023 (in thousands):


	2024		2023
Net income	$	43,262		$	206,708
Preferred stock dividends		(15,228)			(13,988)
Real estate depreciation and amortization		123,096			126,435
Gain on sale of assets, net		(457)			(123,820)
FFO attributable to common stockholders		150,673			195,335

Amortization of deferred stock compensation		10,456			10,775
Real estate amortization of right-of-use assets and obligations		(517)			(505)
Amortization of contract intangibles, net		1,147			357
Noncash interest on derivatives, net		(540)			252
Gain on extinguishment of debt		(59)			(9,938)
Gain on insurance recoveries		(430)			(3,722)
Pre-opening costs		2,633			—
Property-level legal settlement costs		1,182			—
Property-level severance		—			297
Prior year income tax (benefit) provision, net		(1,530)			3,662
Adjustments to FFO attributable to common stockholders, net		12,342			1,178
Adjusted FFO attributable to common stockholders	$	163,015		$	196,513

Adjusted FFO attributable to common stockholders decreased $33.5 million, or 17.0%, in 2024 as compared to 2023 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 term loans, and property insurance. Our primary uses of cash were for capital expenditures for hotels and other assets, an acquisition of a hotel, operating expenses, repurchases of our common stock, repayments of notes payable, 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 $170.4 million in 2024 as compared to $198.1 million in 2023. The net decrease in cash provided by operating activities in 2024 as compared to 2023 was primarily due to decreases in operating cash at the Two Renovation Hotels, as well as decreases caused by our sale of the Boston Park Plaza, and higher interest payments on our variable rate debt. These decreases were partially offset by additional operating cash provided by the newly-acquired Hyatt Regency San Antonio Riverwalk, as well additional operating cash provided by the increase in travel demand benefiting our 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) provided by investing activities in 2024 and 2023 was as follows (in thousands):


	2024		2023
Proceeds from sales of assets	$	—		$	364,491
Acquisitions of hotel properties and other assets		(229,330)			—
Proceeds from property insurance		430			3,722
Renovations and additions to hotel properties and other assets		(157,378)			(110,131)
Net cash (used in) provided by investing activities	$	(386,278)		$	258,082

In 2024, we paid $229.3 million to acquire the Hyatt Regency San Antonio Riverwalk, including closing costs and prorations, and we invested $157.4 million for renovations and additions to our portfolio and other assets. These cash outflows were slightly offset by $0.4 million in property insurance proceeds received related to fire damage at the Hilton San Diego Bayfront and wind-driven rain damage at Wailea Beach Resort.

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In 2023, we received proceeds of $364.5 million from the sale of the Boston Park Plaza and insurance proceeds of $3.7 million for hurricane-related property damage at the Hilton New Orleans St. Charles. These cash inflows were partially offset by $110.1 million invested for renovations and additions to our portfolio and other assets.

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, including draws on our term loans, and issuance and redemption of other forms of capital, including preferred equity. Net cash used in financing activities in 2024 and 2023 was as follows (in thousands):


	2024		2023
Acquisition of noncontrolling interest, including transaction costs	$	—		$	(299)
Payment of common stock offering costs		—			(428)
Repurchases of outstanding common stock		(27,238)			(56,403)
Repurchases of common stock for employee tax obligations		(4,160)			(3,348)
Proceeds from notes payable		100,000			225,000
Payments on notes payable		(74,050)			(222,086)
Payments of deferred financing costs		(1,105)			(2,332)
Dividends and distributions paid		(90,966)			(59,825)
Net cash used in financing activities	$	(97,519)		$	(119,721)

During 2024, we paid $27.2 million to repurchase 2,764,837 shares of our outstanding common stock, $4.2 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, $74.1 million in principal payments on our loan secured by the JW Marriott New Orleans, including $2.0 million in scheduled principal payments and $72.1 million to repay the loan, and $91.0 million in dividends and distributions to our common and preferred stockholders. We also entered into Term Loan 4, receiving $100.0 million in proceeds and paying $1.1 million in related deferred financing costs. We utilized the proceeds received from Term Loan 4 to repay the loan secured by the JW Marriott New Orleans.

During 2023, we paid an additional $0.3 million to true-up the total acquisition cost of the outside 25.0% equity interest in the entity that owns the Hilton San Diego Bayfront and $0.4 million in common stock offering costs related to our shelf registration statement. In addition, we paid $56.4 million to acquire 5,971,192 shares of our outstanding common stock, $3.3 million to repurchase common stock to satisfy the tax obligations in connection with the vesting of restricted common stock issued to employees, and $59.8 million in dividends and distributions to our preferred and common stockholders. We also entered into Term Loan 3, receiving $225.0 million in proceeds and paying $2.3 million in related deferred financing costs. We utilized the proceeds received from Term Loan 3 to repay the $220.0 million loan secured by the Hilton San Diego Bayfront. We also paid $2.1 million in scheduled principal payments on our notes payable.

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 notes payable, 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 stock, distributions on our common stock, dividends on our preferred stock and acquisitions of hotels or interests in hotels.

While both inflation and interest rates began to decrease in the third quarter of 2024, the recent increases in inflation and interest rates have had a negative effect on our operations. We have experienced increases in wages, employee-related benefits, food costs, commodity costs, including those used to renovate or reposition our hotels, property taxes, property and liability insurance, utilities and borrowing costs. The ability of our hotel operators to adjust rates has mitigated the impact of increased operating costs on our financial position and results of operations. However, the increases in interest rates negatively affected our variable rate debt, resulting in increased interest payments.

Cash Balance. As of December 31, 2024, our unrestricted cash balance was $107.2 million. We believe that our current unrestricted cash balance and our ability to draw the $500.0 million capacity available for borrowing under the unsecured revolving credit facility will enable us to successfully manage our Company.

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Debt. As of December 31, 2024, we had $845.0 million of debt, $180.3 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 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 November 2024, we entered into delayed-draw Term Loan 4 and drew a total of $100.0 million in December 2024. Term Loan 4’s variable interest rate is based on a pricing grid with a range of 1.35% to 2.20%, depending on our leverage ratios, plus SOFR and a 0.10% adjustment. 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%. Term Loan 4 has an initial term of one year with two six-month extension options at the Company’s election, resulting in an extended maturity of November 2026, upon the payment of applicable fees and the satisfaction of certain customary conditions.

In December 2024, we repaid the $72.1 million mortgage secured by the JW Marriott New Orleans, using proceeds received from Term Loan 4.

As of December 31, 2024, 40.8% of our outstanding debt had fixed interest rates or had been swapped to fixed interest rates, including our $175.0 million unsecured corporate-level Term Loan 1 and two unsecured corporate-level senior notes, which total $170.0 million. Following our purchase of an interest rate swap for Term Loan 4 in January 2025, 52.7% of our outstanding debt will have fixed interest rates or will have been swapped to fixed interest rates.

The Company’s floating rate debt as of December 31, 2024 included the $175.0 million, $225.0 million, and $100.0 million unsecured corporate-level Term Loan 2, Term Loan 3, and Term Loan 4, respectively.

We may in the future seek to obtain mortgages on one or more of our 15 unencumbered hotels (subject to certain stipulations under our unsecured term loans and senior notes), all of which were held by subsidiaries whose interests were pledged to our credit facilities as of December 31, 2024. Should we obtain secured financing on any or all of our unencumbered hotels, the amount of capital available through our credit facilities or future unsecured borrowings may be reduced.

Contractual Obligations

The following table summarizes our payment obligations and commitments as of December 31, 2024 (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)	$	845,000		$	—		$	565,000		$	280,000	$	—
Interest obligations on notes payable (1) (2)		112,636			46,745			61,766			4,125		—
Operating lease obligations, including imputed interest (3)		13,813			5,926			4,740			2,166		981
Construction commitments		58,142			58,142			—			—		—
Total	$	1,029,591		$	110,813		$	631,506		$	286,291	$	981

Column 1

Column 2

(1)

Notes payable and interest obligations on notes payable include the $225.0 million unsecured Term Loan 3 and the $100.0 million unsecured Term Loan 4 assuming the Company has exercised its available options to extend the maturities of the loans from May 1, 2025 to May 1, 2026 and November 7, 2025 to November 7, 2026, respectively, upon payment of applicable fees and the satisfaction of certain customary conditions.

Column 1	Column 2
(2)	Interest is calculated based on the loan balances and variable rates, as applicable, at December 31, 2024, and includes the effect of our interest rate derivatives.

Column 1

Column 2

(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.

Capital Expenditures and Reserve Funds

We believe we maintain all of our hotels in good repair and condition and in general conformity with applicable franchise and management agreements, ground lease, laws, and regulations. 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 $157.4 million in our portfolio and other assets during 2024

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and $110.1 million in 2023. As of December 31, 2024, we have contractual construction commitments totaling $58.1 million for ongoing renovations. During the first quarter of 2025, we will continue to incur significant capital expenditures as we complete the substantial renovation and rebranding of The Confidante Miami Beach to Andaz Miami Beach. If we renovate additional hotels in the future, our capital expenditures will likely increase.

With respect to our hotels that are operated under management or franchise agreements with major national hotel brands, 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 2.0% and 5.5% of the respective hotel’s applicable annual revenue. As of December 31, 2024, our balance sheet includes restricted cash of $72.9 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 business, commercial travel, leisure travel and tourism.

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 the 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.

Column 1	Column 2	Column 3
	●	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,

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terminal capitalization rate, the estimated growth of revenues and expenses, revenue per available room and margins, as well as specific market and economic conditions.

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	●	Acquisition-related assets and liabilities. 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 consolidated statements of operations. Also, 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; whereas asset acquisitions are not subject to a measurement period.

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.

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	●	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.

New Accounting Standards and Accounting Changes

See Note 2 to the accompanying consolidated financial statements for additional information relating to recently issued accounting pronouncements.

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