Sunstone Hotel ( SHO ) Q4 2025 Earnings Transcript

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<h2>DATE</h2>
<p>Friday, Feb. 27, 2026 at 12 p.m. ET</p>
<h2>CALL PARTICIPANTS</h2>
<ul>
<li>Chief Executive Officer — Bryan Giglia</li>
<li>President and Chief Investment Officer — Robert Springer</li>
<li>Executive Vice President and Chief Financial Officer — Aaron Reyes</li>
</ul>
<h2>TAKEAWAYS</h2>
<ul>
<li>Rooms RevPAR Growth -- 9.6% increase, with a 540 basis point benefit from Andaz Miami Beach.</li>
<li>Total RevPAR -- Up 7.4%, or 12.5% including Andaz Miami Beach.</li>
<li>Resort Segment RevPAR -- Wailea Beach Resort posted 19% RevPAR growth; Montage Healdsburg increased 15% in the quarter and just over 9% for the year.</li>
<li>Urban Hotel Performance -- Marriott Long Beach Downtown delivered 12% total RevPAR growth; The Bidwell Marriott saw nearly 13% growth.</li>
<li>Convention Hotels -- Generated 2.8% RevPAR growth overall; excluding San Antonio and San Diego (with renovations), RevPAR increased 5.3%.</li>
<li>San Francisco Hotel -- Produced over 12% total RevPAR growth for the year, with group pace up in the low-double-digit range for 2026.</li>
<li>Renaissance Orlando SeaWorld -- Achieved more than 10% total RevPAR growth; group revenue production rose over 10% last year.</li>
<li>Comparable Portfolio Margin -- Margin grew 40 basis points on 3.5% total RevPAR growth for the year.</li>
<li>Adjusted EBITDAre -- $57 million reported for the fourth quarter.</li>
<li>Adjusted FFO -- $0.20 per diluted share for the quarter.</li>
<li>Net Leverage Ratio -- 3.5x trailing earnings, or 4.7x including preferred equity; all debt maturities addressed through 2028.</li>
<li>Liquidity -- Over $200 million in total cash and cash equivalents and more than $700 million in total liquidity (including undrawn credit).</li>
<li>Capital Returned to Shareholders -- Over $170 million distributed in 2025 via dividends and share repurchases.</li>
<li>Common Stock Repurchase -- About $108 million repurchased at a blended price of $8.83 per share; preferred stock repurchases totaled $3.1 million at $20.46 per share.</li>
<li>2026 Guidance: Rooms RevPAR -- Expected increase of 4%-7% to a range of $234-$241, with Andaz Miami Beach contributing approximately 400 basis points to growth at the midpoint.</li>
<li>2026 Guidance: Total RevPAR -- Anticipated 3.5%-6.5% growth, expected range of $385-$396, with a similar 400 basis point contribution from Andaz Miami Beach.</li>
<li>2026 Adjusted EBITDAre Range -- Projected at $225 million to $250 million, with a midpoint representing 5% growth versus the prior year, excluding $10 million in one-time items and asset sale benefit in 2025.</li>
<li>2026 FFO per Diluted Share -- Company projects a range of $0.81–$0.94; the midpoint represents 8% growth after normalizing for 2025 one-time items.</li>
<li>Dividend Authorization -- Board approved a first-quarter dividend of $0.09 per share and routine preferred distributions.</li>
<li>Share Repurchase Authorization -- Board reauthorized repurchase program to $500 million; outlook assumes no incremental repurchases.</li>
<li>2026 Capital Expenditure Guidance -- Budget set at $95 million–$115 million, with the majority front-loaded in Q1 and Q2; $25 million allocated to San Diego meeting space renovation.</li>
<li>Expense Growth Outlook -- Company expects roughly 3% total expense growth for the core portfolio excluding Andaz, and around 5% overall with Andaz included.</li>
<li>Andaz Miami Beach Operating Metrics -- Year-to-date occupancy above 80% at a mid-$500 ADR; nearly 8,000 group room nights booked represents over half of annual budgeted group nights.</li>
<li>Wailea Beach Resort RevPAR Index -- Rose 17 points sequentially into the fourth quarter post-room renovation.</li>
</ul>
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<h2>RISKS</h2>
<ul>
<li>CEO Giglia cited continued headwinds from "softer transient demand in San Diego and continued uncertainty in DC," which are expected to offset some portfolio growth.</li>
<li>Management explicitly warned, "2025 would be particularly tough on margins, as contractual cost escalations at certain of our larger hotels were adding to general inflationary pressures across the portfolio."</li>
<li>Company remains cautious for 2026 due to potential negative impacts from "events outside of your control," including possible government shutdowns, political events, or market-specific disruptions.</li>
<li>Aaron Reyes pointed to expected "margin headwinds for the comp portfolio in 2026" for core hotels, given lower blended RevPAR growth rates compared to overall expense growth in that subset.</li>
</ul>
<h2>SUMMARY</h2>
<p>Management emphasized a multi-pronged capital allocation strategy, noting ongoing efforts to recycle assets, invest in property upgrades, and return capital to shareholders. The company highlighted increased transactional activity in the hotel real estate market, suggesting potential for future dispositions but maintained strict discipline on capital redeployment based on market conditions. Board and management indicated openness to alternative strategies that could maximize shareholder value, including continued buybacks, asset sales, or acquisitions consistent with historical practice. The company reported $200 million in cash and over $700 million total liquidity, providing flexibility to execute capital strategies and manage near-term obligations. Early 2026 operating trends at recently renovated properties, including Andaz Miami Beach and Wailea Beach Resort, signaled momentum for above-average portfolio performance, although management tempered expectations with caution stemming from recent years’ unpredictable market conditions.</p>
<ul>
<li>CEO Giglia said, "We will continue this practice in 2026 while evaluating other potential transactions to realize and return the value of this portfolio to our shareholders."</li>
<li>Management confirmed ongoing monitoring of the DC market with a cautious outlook due to past government shutdowns and policy changes affecting hotel group business.</li>
<li>Aaron Reyes indicated, regarding preferred stock management, "I would not expect that our preferred dividend would increase in 2026 relative to where it was in 2025, even with the escalation on the Series C."</li>
<li>The Board reauthorized the share repurchase program to $500 million and signaled continued appetite for opportunistic buybacks, though 2026 guidance assumes no further repurchases.</li>
</ul>
<h2>INDUSTRY GLOSSARY</h2>
<ul>
<li>RevPAR: Revenue per available room, a key metric for hotel operating performance reflecting both occupancy and pricing.</li>
<li>FFO: Funds from Operations, a standard REIT performance metric indicating cash generated by operations, adjusted from net income for real estate activities.</li>
<li>EBITDAre: Earnings Before Interest, Taxes, Depreciation, Amortization, and restructuring costs; an adjusted non-GAAP measure common for REITs to compare core operating results.</li>
<li>FF&amp;E Reserve: Reserve for furniture, fixtures, and equipment expenditures, typically required under hotel management agreements to fund property upkeep and refurbishments.</li>
</ul>
<h2>Full Conference Call Transcript</h2>
<p>Bryan Giglia: Thank you, Aaron, and good morning, everyone. Despite the various headwinds that impacted our industry in 2025, our portfolio finished the year on a high note with fourth quarter operating results that exceeded our expectations, driven by broad-based strength across the portfolio. The fourth quarter capped off a productive year at Sunstone Hotel Investors, Inc., where we made further progress on our three strategic objectives, which include recycling capital, investing in our portfolio, and returning capital to our shareholders.</p>
<p>Earlier in the year, we completed the sale of the Hilton New Orleans at a mid-6% cap rate inclusive of required near-term capital, and fully recycled the proceeds into the repurchase of our stock at a compelling discount and a higher implied yield. In addition, we completed several capital projects, including the debut of the Andaz Miami Beach, which, despite its later opening, had a solid festive period and good momentum heading into this year. Lastly, we returned more than $170 million of capital to our shareholders through a well-covered dividend and accretive share repurchases. These strategic accomplishments will drive growth in per-share earnings and NAV in the years to come.</p>
<p>We will share additional details on our outlook and our expectations for 2026 shortly, but I will start with a quick recap on the fourth quarter results. As I noted at the top of the call, our results came in better than expected with total RevPAR growth of 7.4% in the quarter, or 12.5% including the contribution from Andaz. Our resorts led the portfolio, driven by solid performance at the Wailea Beach Resort. As we shared with you on our recent calls, our results in Maui were hampered through much of last year as market demand normalized.</p>
<p>We were pleased to see the green shoots we witnessed at the resort in the fall continue into year-end, leading to 19% RevPAR growth in the quarter. On the opposite side of the country, Andaz Miami Beach delivered year-end results that were ahead of expectations, and the outperformance has carried into the early parts of this year, positioning the resort well to deliver on our expectations for 2026. We are pleased with the demand our renovated resort is attracting, including high-profile business around some key events in the market that should help the resort further build awareness.</p>
<p>Performance at our wine country resorts was also stronger than expected, with Montage Healdsburg capping off a better year with 15% total RevPAR growth in the quarter and just over 9% for the year. Overall, our resorts were our strongest performing segment in Q4, and we expect that to continue into 2026, but now with the added benefit of a full-year contribution from Andaz Miami Beach. At our urban hotels, we were pleased with our quarterly performance at Marriott Long Beach Downtown, which continued to benefit from its brand conversion in 2024 and generated total RevPAR growth of 12%. Similarly, the Portland market continues to recover, with The Bidwell Marriott turning in nearly 13% growth.</p>
<p>This strength was partially offset by a softer market and tougher comps in Boston and New Orleans. While top-line growth was less robust at our urban hotels, we continue to work with our operators to control costs and manage to grow margins during the quarter. Our convention hotels turned in better than expected performance with RevPAR growth of 2.8%, even with some headwinds from the meeting space renovations that we had underway in San Antonio and San Diego. Excluding these two hotels, our convention hotel RevPAR growth was 5.3% during the quarter.</p>
<p>San Francisco was once again a standout performer, which added to solid top-line results in the first months of the year to generate more than 12% total RevPAR growth for the year. We continue to be encouraged by how the market and our hotel are setting up for additional growth this year, with group pace up in the low-double-digit range and a strong start with good group activity in January and the Super Bowl in February. The Renaissance Orlando SeaWorld also had a solid quarter with total RevPAR growth of more than 10% on a better mix of business.</p>
<p>Group revenue production for the current and future periods in Orlando increased over 10% last year, and the hotel is pacing for better performance in 2026. Operating results in San Antonio were softer in 2025 on a lighter group event calendar and some displacement from our completed meeting space renovation, but 2026 should benefit from increased production and the renovation. As we shared with you on prior calls, performance last year in Washington, DC was less robust than initially anticipated and was impacted by government spending cuts, changes in policies, and the government shutdown. Similarly, our results in San Diego were hampered by softer transient demand and a less constructive backdrop for international travel.</p>
<p>On the expense side, we were pleased with our operators’ ability to drive efficiencies in response to continued cost pressures. We knew coming into the year that 2025 would be particularly tough on margins, as contractual cost escalations at certain of our larger hotels were adding to general inflationary pressures across the portfolio. I am pleased to report that we made significant progress in managing costs and delivered comparable portfolio margin growth of 40 basis points during the year on total RevPAR growth of 3.5%. This was a much better cost management outcome than we expected at the start of the year.</p>
<p>While some of the efficiency measures that were additive in 2025 will be harder to sustain as we move into this year, we will continue to work with our hotel teams to manage costs, increase productivity, and defend margins. As we look into 2026, we see some reasons to be optimistic about the year ahead. Andaz Miami Beach is starting off well, with impressive year-to-date occupancy above 80% at a mid-$500 rate. In addition, the resort has nearly 8,000 group room nights already on the books, representing more than half of our budgeted room nights for the year, which is very strong for a market with a shorter-term booking window.</p>
<p>The property’s building momentum will continue this year with the opening of Bazaar Meat and our membership beach club. We are seeing additional positive signs as market recovery continues in Northern California, fundamentals in Wailea are more constructive, and there is the potential for industry-wide lift from special events such as F1 in Miami, which we missed last year, America 250 celebrations, and the World Cup. At the same time, our focused portfolio will experience headwinds from softer transient demand in San Diego and continued uncertainty in DC, two of our larger markets, which will offset some growth.</p>
<p>That said, both hotels had better than anticipated transient demand in January and February, which, if current trends continue, could result in a better than anticipated year. While there are many encouraging signs, the industry and Sunstone Hotel Investors, Inc. have been disappointed by various headwinds over the past two years, making us more cautious. That said, we are excited about our prospects this year, and if costs remain controlled and some of these