Sunstone Hotel Investors, Inc. Stock Compensation Disclosure
12. Incentive Award Plan
The Company’s 2022 Incentive Award Plan (the “2022 Plan”) provides for granting discretionary awards to employees, consultants, and non-employee directors. The awards may be made in the form of options, restricted stock awards, dividend equivalents, stock payments, restricted stock units, other incentive awards, LTIP units, or share appreciation rights. In May 2025, the Company’s stockholders approved the first amendment to the 2022 Plan (the “Amended Plan” and together with the 2022 Plan, the “Plan”), which increased the number of shares of common stock available for issuance under the Plan from 3,750,000 common shares to 9,250,000 common shares. As of December 31, 2025, 6,247,280 shares remain available for future issuance under the Plan, and only shares of restricted stock were issued and outstanding under the Plan.
Should a stock grant be forfeited prior to its vesting, the shares covered by the stock grant are added back to the Plan and remain available for future issuance. Shares of common stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligations upon the vesting of a stock grant are not added back to the Plan.
Restricted shares and units are measured at fair value on the date of grant and amortized as compensation expense over the relevant requisite service period or derived service period. The Company has elected to account for forfeitures as they occur.
As of December 31, 2025, the Company’s issued and outstanding awards consisted of both time-based and performance-based restricted stock grants. The Company’s amortization expense, including forfeitures related to restricted shares was as follows (in thousands):
| 2025 | | 2024 | | 2023 |
| ||||
Amortization expense, including forfeitures | $ | 8,699 | $ | 10,456 | $ | 10,775 | ||||
Capitalized compensation cost (1) | $ | 703 | $ | 200 | $ | 467 | ||||
| (1) | The Company capitalizes compensation costs related to restricted shares granted to certain employees whose work is directly related to the Company’s capital investment in its hotels. |
As of December 31, 2025, $9.3 million in compensation expense related to non-vested restricted stock grants remained to be recognized over a weighted-average period of 20 months.
Restricted Stock Awards
The Company’s restricted stock awards are time-based restricted shares that generally vest over periods ranging from three years to five years from the date of grant. The following is a summary of non-vested restricted stock award activity:
2025 | 2024 | 2023 |
| |||||||||||||
| | Weighted | | | Weighted | | | Weighted |
| |||||||
Average | Average | Average |
| |||||||||||||
Shares | Price | Shares | Price | Shares | Price |
| ||||||||||
Outstanding at beginning of year |
| 688,288 | $ | 10.70 |
| 1,032,266 | $ | 11.11 |
| 1,289,146 | $ | 11.65 | ||||
Granted |
| 417,522 | $ | 10.55 |
| 444,077 | $ | 10.66 |
| 450,964 | $ | 10.58 | ||||
Vested |
| (419,884) | $ | 10.32 |
| (719,924) | $ | 11.25 |
| (699,652) | $ | 11.76 | ||||
Forfeited |
| (861) | $ | 11.27 |
| (68,131) | $ | 10.89 |
| (8,192) | $ | 11.12 | ||||
Outstanding at end of year |
| 685,065 | $ | 10.84 |
| 688,288 | $ | 10.70 |
| 1,032,266 | $ | 11.11 | ||||
Restricted Stock Units
In February 2025, 2024 and 2023, the Company granted restricted stock units that vest at the end of a three-year performance period and are subject to the achievement of a market condition based on a measure of the Company’s total shareholder return relative to the total shareholder return of the companies that comprise the FTSE Nareit Equity Lodging/Resorts Index who have a market capitalization in excess of $500 million as of the date specified in the applicable award agreement (the “RSR Three-Year Performance Period Shares”). The number of RSR Three-Year Performance Period Shares that may become vested ranges from zero to 200% of the number of related shares granted to the employee, based on the level of achievement of the foregoing performance measure.
In March 2022, the Company granted special awards that are subject to the achievement of five increasing levels of the Company’s closing common stock price per share, from $13.50 to $19.50, sustained over a 20 consecutive trading day period (the “Stock Price Target Five-Year Performance Period Shares”). The Stock Price Target Five-Year Performance Period Shares will vest on the later to occur of the date on which the stock price target is achieved and the anniversary of the grant date.
The following is a summary of non-vested restricted stock unit activity at target performance:
2025 | 2024 | 2023 | |||||||||||||
| | Weighted | | | Weighted | | | Weighted | |||||||
Average | Average | Average | |||||||||||||
Shares | Price | Shares | Price | Shares | Price | ||||||||||
Outstanding at beginning of year |
| 1,382,074 | $ | 10.90 |
| 1,076,160 | $ | 10.69 |
| 612,584 | $ | 10.40 | |||
Granted |
| 429,587 | $ | 11.48 |
| 475,746 | $ | 11.50 |
| 463,576 | $ | 11.07 | |||
Vested (1) |
| (257,911) | $ | 12.44 |
| (119,732) | $ | 11.21 |
| — | $ | — | |||
Forfeited | (118,018) | $ | 11.29 | (50,100) | $ | 11.21 | — | $ | — | ||||||
Outstanding at end of year |
| 1,435,732 | $ | 10.77 |
| 1,382,074 | $ | 10.90 |
| 1,076,160 | $ | 10.69 | |||
| (1) | Includes vested shares at target performance. In January 2025, the 2022 RSR Three-Year Performance Period restricted stock units vested between the target and maximum levels at 169.2% of target, resulting in the additional vesting of 176,286 shares of the Company’s common stock with a grant date fair value of $12.46. |
The grant date fair values of the performance awards were determined based on a Monte Carlo simulation method with the following assumptions:
Performance Award Grant Date | Expected Volatility | Dividend Yield (1) | Risk-Free Rate | Expected Term | |||||||
February 10, 2025 | |||||||||||
RSR Three-Year Performance Period Shares | 30.0 | % | — | 4.47 | % | 3 years | |||||
February 12, 2024 | |||||||||||
RSR Three-Year Performance Period Shares | 31.0 | % | — | 4.34 | % | 3 years | |||||
February 9, 2023 | |||||||||||
RSR Three-Year Performance Period Shares | 38.0 | % | — | 4.18 | % | 3 years | |||||
| (1) | Dividend equivalents are assumed to be reinvested in shares of the Company’s common stock and dividend equivalents will only be paid to the extent the award vests. |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 23, 2023 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.