Sunstone Hotel Investors Q2 Earnings Call Highlights

Key Points

• Sunstone exceeded second-quarter expectations: Portfolio RevPAR rose 9.3% year over year, adjusted EBITDAre increased 6% to $77 million, and adjusted FFO per diluted share grew 14% to $0.32. Resorts and urban hotels led growth, particularly Wailea Beach Resort and Andaz Miami Beach.
• The company raised its 2026 outlook to 7%–9% RevPAR growth, adjusted EBITDAre of $245 million–$255 million, and FFO per diluted share of $0.93–$0.98. Higher capital spending of $105 million–$115 million reflects storm-related repairs at Wailea, which management expects insurance to largely cover.
• Sunstone sold the Hyatt Regency San Francisco at an implied multiple near 20 times trailing EBITDA and is deploying proceeds toward share repurchases, including about $40 million of common stock and nearly $30 million of preferred stock. Management said buybacks remain more attractive than acquisitions at current hotel valuations.

Sunstone Hotel Investors NYSE: SHO reported second-quarter results that exceeded its expectations, supported by summer leisure travel, special events, and continued strength in group and corporate demand. The company also raised elements of its full-year outlook after the quarter and the July sale of the Hyatt Regency San Francisco.

Chief Executive Officer Bryan Giglia said portfolio RevPAR increased 9.3% from a year earlier during the second quarter. Excluding the ramping Andaz Miami Beach property, RevPAR grew 4.3%. Adjusted EBITDAre rose 6% year over year to $77 million, while adjusted funds from operations per diluted share increased 14% to $0.32.

“Our portfolio benefited from robust leisure demand as a result of increased summer travel and special events, which added to sustained strength in group and corporate demand,” Giglia said.

Resorts and Urban Hotels Drive Growth

Sunstone’s resorts led portfolio performance, with combined RevPAR growth of nearly 27%, including the contribution from Andaz Miami Beach. Wailea Beach Resort posted nearly 15% RevPAR growth, while year-to-date occupancy rose 10 percentage points and EBITDA increased nearly 18% versus the prior year, according to Giglia.

The company said group room-night production at Wailea for future periods was up 36% year to date, while 2027 group pace was up more than 10%. Its Wine Country resorts recorded 5% RevPAR growth, driven by improved group business.

Andaz Miami Beach generated $2.8 million of EBITDA during the quarter on 72% occupancy and a $470 average rate. The company said it experienced less-than-expected occupancy compression from the World Cup, but expects a stronger fourth quarter as the local W Hotel is temporarily closed and Andaz prepares to open its Bazaar Meat restaurant during the fall high season.

Urban hotels recorded combined RevPAR growth of 5.2%, primarily driven by rate growth. JW Marriott New Orleans benefited from group demand and strong out-of-room spending, with second-half group pace up by double digits. Boston Marriott Long Wharf also benefited from demand across group, corporate and leisure segments, including stronger-than-anticipated demand surrounding World Cup events.

Convention Portfolio Shows Mixed Results

Among convention-oriented hotels, San Francisco continued to perform well, with RevPAR increasing 16% during the quarter. Giglia said World Cup-related rate compression in June added to an already favorable corporate transient demand environment, although he expects growth in the market to moderate through the remainder of the year.

Performance in Washington, D.C., exceeded the company’s expectations as transient demand helped offset subdued group activity tied to lower government-related demand. In response to an analyst question, Giglia said the company’s Washington property has benefited from its conversion from a Renaissance to a Westin, as well as renovation work. He said transient pace was up 30% going forward.

Hilton San Diego Bayfront remained a drag on results, with total RevPAR declining 8.4% as a weaker convention calendar and meeting-space renovation affected group demand. Although transient demand rose 19%, that business did not fully offset the loss of group revenue and associated out-of-room spending. The hotel booked a record $26 million of group revenue during the second quarter, however, and Sunstone expects sequential improvement through the rest of the year, particularly in the fourth quarter.

Comparable portfolio expenses, excluding Andaz Miami Beach, rose 4.4% in absolute terms and 3.6% per occupied room, resulting in a 100-basis-point margin headwind. Giglia attributed part of the pressure to a higher transient mix at larger group hotels, especially in San Diego. Excluding San Diego, expense growth per occupied room was 120 basis points lower and margins expanded 10 basis points.

San Francisco Sale and Capital Deployment

Sunstone closed the sale of the Hyatt Regency San Francisco in late July. Giglia described the property as a low-yielding asset and said the company sold it at an implied multiple of nearly 20 times trailing EBITDA. He said the transaction enabled Sunstone to realize future growth value immediately while reducing exposure to ongoing cost pressures in the San Francisco market.

The company has used a portion of the proceeds for stock repurchases. Through the week of the call, Sunstone had repurchased approximately $40 million of common stock at a blended price of $9.24 per share and nearly $30 million of preferred stock at a blended price of $20.44 per share, an 18% discount to liquidation value. Management said the repurchases were accretive to net asset value and earnings per share.

Giglia said the company expects to remain opportunistic with buybacks while considering other uses for the sale proceeds. While hotel transaction activity has picked up, he said pricing for potential acquisitions was not yet attractive enough relative to the returns available from repurchasing Sunstone securities at a discount to net asset value.

Updated Outlook and Investment Projects

Chief Financial Officer Aaron Reyes said Sunstone now expects RevPAR across its current 13-hotel portfolio to increase 7% to 9% in 2026, reaching a range of $239 to $244. Total RevPAR is also projected to increase 7% to 9%, to $404 to $411. Andaz Miami Beach is expected to contribute about 450 basis points to full-year growth at the midpoint of both ranges.

• Adjusted EBITDAre is projected to range from $245 million to $255 million.
• FFO per diluted share is expected to be between $0.93 and $0.98.
• Full-year capital expenditures are expected to total $105 million to $115 million.

Reyes said the increased capital expenditure outlook reflects additional repair work at Wailea Beach Resort following severe March storms. The company has received about $6 million in insurance reimbursements so far, including $1.2 million of business-interruption proceeds, and expects most additional spending to be covered by insurance.

President and Chief Investment Officer Robert Springer said Sunstone completed renovations to meeting space in San Diego and expects the project to support booking activity later this year and into 2027. The company also completed construction of Bazaar Meat at Andaz Miami Beach and plans to open the restaurant in the fall. In addition, Oceans Edge Resort was converted to Hilton Key West Resort & Marina on July 1, a change Sunstone expects will improve distribution, reduce customer acquisition costs and support incremental earnings.

About Sunstone Hotel Investors (NYSE:SHO)

Sunstone Hotel Investors, Inc NYSE: SHO is a publicly traded real estate investment trust (REIT) focused on acquiring, owning and asset‐managing upper‐upscale extended‐stay and premium‐branded hotel properties in the United States. The company's business model centers on generating stable, long‐term cash flows through franchise agreements and third‐party management contracts with established hotel operators.

As of the most recent reporting period, Sunstone's portfolio includes approximately 97 hotels and nearly 25,000 guest rooms across 19 states, with concentrations in major metropolitan and select high‐growth secondary markets.

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