Sunstone Hotel Investors (SHO) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We own upper upscale and luxury hotels located in urban and resort destinations in an industry that is highly competitive
2. 02Events beyond our control, including economic slowdowns or recessions, pandemics, natural disasters, civil unrest and terrorism may harm the operating performance of the hotel industry generally and the performance of our hotels
3. 03Inflation may adversely affect our financial condition and results of operations
4. 04A significant portion of our hotels are geographically concentrated and, accordingly, we could be disproportionately harmed by economic conditions, competition, new hotel supply, real and personal property tax rates, or natural disasters in these areas of the country
5. 05We face possible risks associated with the physical and transitional effects of climate change
6. 06Uninsured or underinsured losses could harm our financial condition, results of operations and ability to make distributions to our stockholders
7. 07The operating results of some of our hotels are significantly reliant upon group and transient business generated by large corporate customers, and the loss of such customers for any reason could harm our operating results
8. 08The increased use of virtual meetings and other similar technologies could lessen the need for business-related travel, and, therefore, demand for rooms in our hotels may be adversely affected
9. 09Delays in the acquisition, renovation or repositioning of hotel properties may have adverse effects on our results of operations and returns to our stockholders
10. 10Accounting for the acquisition of a hotel property or other entity involves assumptions and estimations to determine fair value that could differ materially from the actual results achieved in future periods
11. 11Volatility in the debt and equity markets may adversely affect our ability to acquire, renovate, refinance or sell our hotels
12. 12We may pursue joint venture investments that could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturer
13. 13We may be subject to unknown or contingent liabilities related to recently sold or acquired hotels, as well as hotels we may sell or acquire in the future
14. 14We may seek to acquire a portfolio of hotels or a company, which could present more risks to our business and financial results than the acquisition of a single hotel
15. 15The sale of a hotel or portfolio of hotels is typically subject to contingencies, risks and uncertainties, any of which may cause us to be unsuccessful in completing the disposition
16. 16The illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our hotels and harm our financial condition
17. 17substantial capital expenditures and may give rise to substantial payments to our franchisors, management companies and other parties
18. 18We may issue or invest in hotel loans, including subordinated or mezzanine loans, which could involve greater risks of loss than senior loans secured by income-producing real properties
19. 19If we make or invest in mortgage loans with the intent of gaining ownership of the hotel secured by or pledged to the loan, our ability to perfect an ownership interest in the hotel is subject to the sponsor’s willingness to forfeit the property in lieu of the debt
20. 20One of our hotels is subject to a ground lease with an unaffiliated party, the termination of which by the lessor for any reason, including due to our default on the lease, could cause us to lose the ability to operate the hotel altogether and may adversely affect our results of operations
21. 21Any pledge of our interest in the ground lease requires the consent of the lessor. As a result, in the future, we may not be able to sell, assign, transfer or convey our lessee’s interest in the hotel absent the lessor’s consent even if the transaction may be in the best interest of our stockholders
22. 22Because we are a REIT, we depend on third parties to operate our hotels, which could harm our results of operations
23. 23If a management company violates the terms of its applicable management agreement or fails to meet performance objectives set forth in the applicable management agreement, we can seek redress but our remedies may be limited by the terms of the management agreement
24. 24We are subject to risks associated with our operator’s employment of hotel personnel, which could increase our expenses or expose us to additional liabilities
25. 25Most of our hotels operate under a brand owned by Marriott, Hyatt, Hilton, Four Seasons or Montage. Should any of these brands experience a negative event, or receive negative publicity, our operating results may be harmed
26. 26Our franchisors and brand managers may adopt new policies or change existing policies, which could result in increased costs that could negatively impact our hotels
27. 27Future adverse litigation judgments or settlements resulting from legal proceedings could have an adverse effect on our financial condition
28. 28Claims by persons regarding our properties could affect the attractiveness of our hotels or cause us to incur additional expenses
29. 29The hotel business is seasonal and seasonal variations in business volume at our hotels will cause quarterly fluctuations in our revenue and operating results
30. 30Changes in the debt and equity markets may adversely affect the value of our hotels
31. 31Certain of our hotels have in the past become impaired and additional hotels may become impaired in the future
32. 32Laws and governmental regulations may restrict the ways in which we use our hotel properties and increase the cost of compliance with such regulations. Noncompliance with such regulations could subject us to penalties, loss of value of our properties or civil damages
33. 33Corporate responsibility, specifically related to ESG factors and commitments, may impose additional costs and expose us to new risks that could adversely affect our results of operations, financial condition and cash flows
34. 34Because all but one of our hotels are operated under franchise agreements or are brand managed, termination of these franchise, management or operating lease agreements could cause us to lose business at our hotels
35. 35The growth of alternative reservation channels could adversely affect our business and profitability
36. 36The failure of tenants in our hotels to make rent payments or otherwise comply with the material terms of our retail and restaurant leases may adversely affect our results of operations
37. 37We rely on our corporate and hotel senior management teams, the loss of whom may cause us to incur costs and harm our business
38. 38We could be harmed by inadvertent errors, misconduct or fraud that is difficult to detect
39. 39If we fail to maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or identify and prevent fraud

Risks Related to Our Debt and Financing

1. 40As of December 31, 2024, we had $845.0 million of outstanding debt and carrying such debt may restrict our financial flexibility or harm our business and financial results by imposing requirements on our business
2. 41Certain of our unsecured term loans are subject to variable interest rates, which creates uncertainty in the amount of interest expense we will incur in the future and may negatively impact our operating results
3. 42We need to refinance our indebtedness from time to time, and our inability to refinance on favorable terms, or at all, could impact our financial condition
4. 43Our organizational documents contain no limitations on the amount of debt we can incur, so we may become too highly leveraged

Risks Related to Our Status as a REIT

1. 44If we fail to qualify as a REIT, our distributions will not be deductible by us and our income will be subject to federal and state taxation
2. 45Even as a REIT, we may become subject to federal, state or local taxes on our income or property
3. 46Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends
4. 47If the leases between our hotels and the TRS Lessee are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT
5. 48We may be subject to taxes in the event our operating leases are not held to be on an arm’s-length basis
6. 49The TRS Lessee is subject to special rules that may result in increased taxes
7. 50Because we are a REIT, we depend on the TRS Lessee and its subsidiaries to make rent payments to us, and their inability to do so could harm our revenue and our ability to make distributions to our stockholders
8. 51We may be required to pay a penalty tax upon the sale of a hotel
9. 52We may be subject to corporate income tax on certain built-in gains
10. 53If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis
11. 54Legislative or other actions affecting REITs could have a negative effect on us

Risks Related to Our Common Stock and Corporate Structure

1. 55The market price of our equity securities may vary substantially
2. 56Distributions to our common stockholders may vary
3. 57Distributions on our common stock may be made in the form of cash, stock, or a combination of both
4. 58The IRS may disallow our use of stock dividends to satisfy our distribution requirements
5. 59Shares of our common stock that are or become available for sale could affect the stock price
6. 60Our earnings and cash distributions may affect the market price of our common stock
7. 61Our stock repurchase program may not enhance long-term stockholder value, could cause volatility in the price of our common and preferred stock and could diminish our cash reserves
8. 62Provisions of Maryland law and our organizational documents may limit the ability of a third party to acquire control of the Company and may serve to limit our stock price
9. 63Our board of directors may change our significant corporate policies without the consent of our stockholders