Sunstone Hotel Investors, Inc. Commitments Disclosure

15. Commitments and Contingencies

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Management Agreements

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Management agreements with the Company’s third-party hotel managers currently require the Company to pay between 2.5% and 3.0% of total revenue of the managed hotels to the third-party managers each month as a basic management fee. In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers.

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

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License and Franchise Agreements

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

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

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Renovation and Construction Commitments

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At December 31, 2025, the Company had various contracts outstanding with third parties in connection with the ongoing renovations of certain of its hotel properties. The remaining commitments under these contracts at December 31, 2025 totaled $38.9 million.

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401(k) Savings and Retirement Plan

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The Company’s corporate employees may participate, subject to eligibility, in the Company’s 401(k) Savings and Retirement Plan (the “401(k) Plan”). Qualified employees are eligible to participate in the 401(k) Plan after attaining 21 years of age and after the first of the month following the completion of six calendar months of employment. Three percent of eligible employee annual base earnings are contributed by the Company as a Safe Harbor elective contribution. Safe Harbor contributions made by the Company totaled $0.2 million in each of the years 2025, 2024, and 2023, and were included in corporate overhead expense on the Company’s consolidated statements of operations.

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The Company is also responsible for funding various retirement plans at certain hotels operated by its management companies. Other property-level expenses on the Company’s consolidated statements of operations includes matching contributions into these various retirement plans of $2.5 million, $2.0 million, and $1.6 million in 2025, 2024, and 2023, respectively.

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Collective Bargaining Agreements

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The Company is subject to exposure to collective bargaining agreements at certain hotels operated by its management companies. At December 31, 2025, approximately 25.7% of workers employed by the Company’s third-party managers were covered by such collective bargaining agreements.

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Concentration of Risk

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

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As of December 31, 2025, the Company’s hotels were geographically concentrated as follows:

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Other

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

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