Sunstone Hotel Investors, Inc. Stock

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Second Quarter Earnings Call.

[Operator Instructions]

I would like to remind everyone that the conference is being recorded today, August 6, 2026, at 12:00 p.m. Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead.

Thank you, operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected.

We caution you to consider these factors in evaluating our forward-looking statements.

We also note that the commentary on this call will contain non-GAAP financial information, including adjusted EBITDAre, adjusted FFO and hotel adjusted EBITDAre.

We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings release and supplemental, which are available in the Investor Relations section of our website.

With us on the call today are Bryan Giglia, Chief Executive Officer; and Robert Springer, President and Chief Investment Officer.

After our remarks, the team will be available to answer your questions.

With that, I would like to turn the call over to Bryan. Please go ahead.

Thank you, Aaron, and good morning, everyone. We were pleased with our performance in the second quarter, which again exceeded our expectations.

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.

Overall, RevPAR in the quarter grew a solid 9.3%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 4.3%.

This stronger-than-expected revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to deliver meaningful growth in earnings.

The added benefit of our accretive common and preferred stock repurchase activity contributed to further growth in earnings per share, with second quarter adjusted FFO over 14% higher than last year.

Our resorts once again led the portfolio with combined RevPAR growth of nearly 27%, including the benefit of Andaz Miami Beach. Wailea Beach Resort delivered impressive performance as RevPAR grew nearly 15% in the quarter.

The resort continues to regain its market position, growing year-to-date occupancy by 10 points and increasing EBITDA by nearly 18% relative to the prior year.

We are encouraged by the sustained momentum we are seeing in Maui with year-to-date group room night production for all future periods up 36% versus last year and group pace for 2027 up over 10%.

Our Wine Country resorts generated RevPAR growth of 5% in the second quarter, driven by better group business. We continue to see strong growth at Andaz Miami Beach, even with less occupancy compression than we were expecting from the World Cup.

During the second quarter, the resort ran 72% occupancy at an average rate of $470 and produced $2.8 million in EBITDA.

While the third quarter is seasonally the lowest in the market, our resort is gearing up for a solid fourth quarter, which should benefit from market compression following the temporary closure of the W Hotel and the opening of our signature restaurant Bazar Meat.

The restaurant is now complete, but we are waiting to open in the high season.

Our renovated resort continues to gain traction with higher-end group business and leisure travelers, and the addition of Bazar should bring additional momentum as we move into 2027.

Our urban hotels benefited from strong group, corporate, and leisure demand during the quarter. RevPAR at these hotels grew a combined 5.2%, driven primarily by rate, which drove a 50 basis point expansion in hotel margins.

JW New Orleans benefited from robust group demand with strong out-of-room spend. We expect this trend to continue for the remainder of the year with second-half group pace up double digits.

At Marriott Boston Long Wharf, the quarterly performance benefited from strength across all demand segments. Going into the quarter, our hotel had a solid base of group business on the books, which then allowed our operators to compress leisure rates, especially during the World Cup.

While we were pleased to see summer events drive more demand than anticipated in Boston, the strength we are seeing in the market is broader-based, with pace up meaningfully for the remainder of the year and into 2027 with the added benefit of a better citywide calendar.

Performance at our convention hotels reflected a continuation of the same themes we saw earlier in the year. San Francisco continued to perform well with rate compression in June from the World Cup, adding to what was already a strong setup for corporate transient demand throughout the quarter.

RevPAR grew 16% in the quarter, which was impressive, but down 11 points sequentially from the first quarter. Our expectation was that the pace of growth in San Francisco for the remainder of the year would continue to moderate, which is consistent with what we saw during our ownership period in July.

Performance in Washington, D.C. came in better than expected as incremental transient demand offset what has been a more subdued group backdrop in the market due to lower government-related activity.

As we noted at the start of the year, we expected that a weaker convention calendar in San Diego, along with our meeting space renovation, would present some headwinds for us, with the biggest impact happening in the second quarter, which saw total RevPAR decline 8.4%.

While transient demand increased 19% in the quarter, given the importance of group business to this hotel and its associated out-of-room contribution, the increased transient business was only able to offset a portion of the group shortfall.

Looking ahead, the hotel is already seeing the benefit of our new meeting space. The sales team had a fantastic booking quarter, achieving the hotel's highest Q2 group revenue production on record with $26 million of business booked in the quarter.

We expect to see sequential improvement in San Diego for the remainder of the year with particular strength in the fourth quarter.

The setup in San Diego in 2027 is much better across the market with increased citywide nights, and our hotel is also benefiting from better group patterns and our new meeting space, which is contributing to a double-digit increase in group pace for next year.

On the expense side, we knew coming into the quarter that it would be our most challenging comparison of the year given our anticipated mix of business and the benefit of favorable tax appeals that were received in the prior year.

Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 4.4% on an absolute basis during the quarter or 3.6% per occupied room, which led to a 100 basis point headwind to margins.

Our cost and margin performance was impacted by a shift to a higher transient mix at a couple of our larger group hotels, which kept them from running at peak efficiency.

This was particularly the case at the Hilton San Diego Bayfront, which, as I noted earlier, also had meeting space under renovation for part of the quarter and had a softer backdrop across the market.

If we exclude San Diego, our expense growth per occupied room was 120 basis points lower and margins expanded by 10 basis points.

We continue to focus on driving labor efficiencies where possible and working with operators to mitigate growth in energy expenses and property-level G&A costs.

We have also been focused on minimizing expenses at the corporate level and ensuring that our G&A costs are aligned with the needs of the company.

In late July, we closed on the previously announced sale of the Hyatt Regency San Francisco, realizing an attractive private market value for a low-yielding asset.

While we expect there will be incremental revenue growth at the hotel, we know that ongoing cost pressures in the market will elongate and create risk to the recovery in earnings.

So we took advantage of strong investor interest in the market and sold the hotel at an implied multiple that is well in excess of where we are trading and delivered to our shareholders the value of future growth today and with certainty.

We have accretively deployed a portion of the sale proceeds into the discounted repurchase of common and preferred stock and expect to generate additional shareholder value and grow NAV per share through the redeployment of the remaining proceeds.

We have adjusted our full-year outlook to reflect the sale of our San Francisco hotel and the better-than-expected performance in the second quarter.

While many of the factors that gave rise to macroeconomic uncertainty earlier in the year and warranted a cautious view have not abated, we believe that the strength of recent trends allows us to incorporate a modest amount of incremental revenue and profitability expectations for the second half of the year in our revised outlook.

While we are optimistic that if trends continue, we can deliver stronger performance, we believe it remains prudent to retain a degree of caution.

In terms of the transaction market, the interest we saw in our San Francisco sale process was encouraging and reflects continued momentum. The environment looks to be more conducive to further executing our capital recycling strategy and continuing to demonstrate the value of our portfolio.

In the interim, we delivered value to shareholders through an additional $70 million of accretive common and preferred stock repurchase activity so far this year.

We expect to continue opportunistic repurchase activity as pricing allows, while we focus on generating profitability growth from operations and realizing the benefits of our investment projects.

And with that, I'll turn the call over to Robert to give some additional details on our capital investment activity.

Thanks, Bryan. As we head into the second half of 2026, we are pleased to be wrapping up a few of the larger projects we have slated for this year.

In San Diego, we are now done with the renovation of the meeting space and are already seeing the benefits of that investment in our booking velocity, and expect group activity to pick up in the latter part of this year and into 2027.

At the Andaz Miami Beach, construction is complete at Bizaar Meat, and the space looks great. We are starting training activities and remain on track to debut the restaurant in the fall to take advantage of the full high season in the market.

We look forward to the incremental earnings and appeal that this dining destination will add to the resort.

On July 1, we converted the Oceans Edge Resort to the Hilton Key West Resort and Marina. This change is intended to drive incremental earnings at the resort as the property benefits from Hilton's stronger distribution channels, operating expertise, and lower customer acquisition costs compared to its prior independent operating model.

As part of the conversion, the resort is undergoing a focused renovation, which includes a rooms refresh and some facade work. This work is being done in phases over the rest of 2026 and into 2027 and is being partially funded by the resort's new operator.

As we shared with you last quarter, Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and caused wind and water damage in some parts of the resort.

We are now substantially complete with most of the repair work on the guest rooms and public spaces, but we'll have some roof and exterior work that will be performed later this year.

As Bryan noted earlier, demand at the resort has rebounded sharply this year, so we have been navigating around peak periods to minimize disruption.

To date, we have received approximately $6 million in reimbursements from our insurers, including $1.2 million in business interruption associated with lost income in March and April.

We are working closely with our insurers to pursue additional cost recovery for the remaining repair work.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As I noted at the top of the call, our earnings results for the second quarter came in ahead of expectations, driven by stronger leisure performance and sustained strength in corporate and group demand.

Rooms RevPAR for the total portfolio grew an impressive 9.3% in the quarter, including a 500 basis point benefit from Andaz Miami Beach.

Total RevPAR for all hotels increased 7.7%, including a 470 basis point benefit from Andaz. The stronger top line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre in the second quarter of $77 million, an increase of 6% relative to last year.

When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.32, an increase of 14% from last year.

Our balance sheet remains strong and has been further bolstered by the receipt of the sale proceeds from Hyatt Regency San Francisco.

On a transaction-adjusted basis, our total cash balance as of Q2 was approximately $430 million, including restricted cash, and our net leverage stood at only 2.6x trailing earnings or 3.6x, including our preferred equity.

We have no debt maturities prior to 2028, and we have restored full availability on our credit facility.

Included in our press release this morning are the details of our updated outlook for 2026. As part of that information, we are providing an adjusted view of our prior guidance ranges, which reflect the July sale of the Hyatt Regency San Francisco.

These adjustments include the estimated gain from the sale and the net impact of the removal of the hotel's earnings for the remainder of the year, which are partially offset by the estimated interest income we expect to generate, assuming the net sale proceeds are retained in our cash reserves.

From here, we have increased our expectations for the year to reflect the outperformance we saw in the second quarter, along with a modest increase from improved near-term trends while still retaining a degree of caution for the balance of the year.

Our updated guidance also includes the benefit of lower corporate G&A resulting from a management transition that occurred earlier in the year and the benefit of higher FFO and FFO per share created by our accretive common and preferred stock repurchase activity.

Based on what we see today, we now expect that RevPAR for all 13 hotels in the current portfolio will grow between 7% and 9%, or an increase of 175 basis points at the midpoint, to a range of $239 to $244.

This reflects the full year benefit of Andaz Miami Beach, which is expected to contribute approximately 450 basis points of growth at the midpoint.

Total RevPAR is also expected to increase between 7% and 9% to a range of $404 to $411 with a similar 450 basis point benefit from Andaz.

As noted in our supplemental, our year-to-date RevPAR and total RevPAR growth for the current 13-hotel portfolio was a robust 10.5% and 9.7%, respectively.

Based on the midpoint of our updated ranges, this would imply a mid-single-digit revenue growth expectation for the third and fourth quarters with approximately a 200 basis point benefit to Andaz.

This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $245 million to $255 million.

Our FFO per diluted share also incorporates $1 million of lower preferred dividends as a result of our repurchase activity and is now expected to range from $0.93 to $0.98.

In terms of the distribution of our EBITDA by quarter, based on the midpoint of our updated range, the first half of the year will account for roughly 58% of our full-year earnings, with the third quarter expected to contribute an additional 20% and the balance coming in the fourth quarter.

As we noted in the press release this morning, we also adjusted our estimate for full-year capital expenditures to a range of $105 million to $115 million.

This increase is the result of additional repair work at Wailea Beach Resort following the storms earlier this year and is consistent with our commentary from last quarter in which we thought we were likely to end up in the upper end of our prior range once we have the opportunity to more fully assess the required repair work.

We expect the vast majority of our additional spend will be reimbursed by our insurance programs. And as Robert noted earlier, we have already received a portion of the expected proceeds.

Moving to our return of capital. Since the start of the year up to this week, we have repurchased approximately $40 million of common stock at a blended price of $9.24 per share, a meaningful discount to consensus estimates of NAV.

In addition, we have also purchased nearly $30 million of our preferred stock at a blended price of $20.44 per share or an 18% discount to its liquidation value.

This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share. And while we retain capacity and appetite for additional share repurchases, our revised 2026 outlook does not assume the benefit of additional buyback activity.

In addition to our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the third quarter and has also declared the routine distributions for our Series H and I preferred securities.

Before we conclude our prepared remarks, I'll turn it back over to Bryan for some additional thoughts.

Before we open the call to questions, I want to provide an update on our 2026 objectives.

The Board and management remain focused on realizing the value of our portfolio. This was demonstrated by our recent sale of the Hyatt Regency San Francisco for a nearly 20x trailing EBITDA multiple.

As we have shared in the past, San Francisco had been and was expected to be one of our better growth markets, and that growth is reflected in the high purchase price multiple.

While San Francisco represented a portion of our 2026 and 2027 growth, it was only a piece of it.

We continue to see and expect further growth in Miami and Wailea, and between strong 2027 group pace and more constructive citywide demand in Washington, D.C., Boston, San Diego and San Antonio, our focused portfolio is set to continue to deliver above-industry average growth.

In addition, we have proceeds from the San Francisco sale to deploy in a manner that will deliver incremental value to our shareholders. We have established a track record of recycling capital at what have proven to be attractive valuations and redeploying proceeds into the most accretive option available at the time.

Given the improving transaction market, we expect to continue to selectively take advantage of strong private market values for certain assets. This would then allow us to redeploy proceeds in the manner that would result in the best return to shareholders.

To date, that has been common and preferred stock repurchases. The Board and management remain committed to maximizing value for shareholders and are open to pursuing any alternative that would reasonably be expected to result in value creation.

With that, we can now open the call to questions. Operator, please go ahead.

[Operator Instructions]

The first question comes from the line of Smedes Rose with Citibank.

Bryan, I realize it's early, but I wanted to ask you a little bit on your thoughts around the pace of expense growth, I guess, through the balance of the year and how you're thinking just early on about 2027 now that you have obviously more visibility around the union contracts and I think the wage hike for next year maybe is a little lower than what you saw this year.

But maybe just kind of all in, can you just maybe give us some high-level thoughts around just the pace of property-level expense growth?

Sure. So for 2026, we're trending now for total expenses somewhere between 3.5% and 4% total growth and, call it, 2.5% on a cost per occupied room basis.

Our expenses and margin in the second quarter- some of the items we talked about on the call- having the lower group percentage and more transient in a large hotel like San Diego doesn't optimize the productivity of that hotel.

And so as we move into the fourth quarter, second half and fourth quarter of this year, we start to get to see the growth in group contribution. And as we go into next year, which has a good pace, we'll start to see that normalize a little bit more, which should help a little bit on the cost side and on the efficiency side.

Looking into next year, you're correct. We do have some of our labor agreements that will start to normalize down to lower levels.

And then also looking at some of the larger expenses, insurance, we'll see at least for the first half of next year some reduction; property taxes, while we had some credits last year, seem to be a little bit more normalized.

So I could see, assuming our growth will probably come with at least half occupancy next year. We'll continue to see some incremental variable costs rise.

But I would guess with labor being the biggest piece of it, we'll start to see our expense moderate down to the lower end of that range and maybe even a little below that.

And I just wanted to clarify something. You took your EBITDA up by $8 million for the year. So does that include about $4 million of business interruption insurance that was more than what your prior estimate was?

This is Aaron. Thanks for the question. So our revision to the full year number was, I think, 3 components.

One was a portion of the outperformance that we saw in Q2 was fully carried through. And then we also had a modest amount of, call it, $1 million or so of incremental outlook for the back half of the year that's factored in.

And then the third piece would be, as we noted in our press release, lower expected G&A for the year of about $1 million as well. So those 3 items account for the $8 million in incremental EBITDA that we expect for this year.

What's in the number so far from a business interruption perspective is just the $1.2 million that we recognized in the quarter.

We're continuing to work with our insurers to vet the remaining coverage for both property damage and any incremental business interruption, but there's nothing further assumed in the number from that perspective.

The next question comes from the line of Peter Lasky with Evercore ISI.

Bryan, could you just talk about the out-of-room spend trends that you're seeing? And I guess, in the first half, room revenue growth was higher than total revenue, but the guidance would imply that maybe that flips in the second half.

So what's driving that? And what have you maybe seen so far in the third quarter?

Yes. From an out-of-room spend, we've seen that throughout last year and into this year be very stable and growing in various hotels.

The disconnect between RevPAR growth and total RevPAR growth this year or in the quarter is really back to San Diego. And we knew going into the year that we were going to have a weaker, especially first half group-wise in San Diego.

So having a hotel that's 1,200 rooms, that's a very large group box, has a larger percentage of its business transient, where that transient spend is nowhere near what the group customer spend is; that's where we're seeing the flip.

And as we get into the second half of this year, the strength really in San Diego starts is really fourth quarter. And then looking into next year with good pace, we'll see that flip.

And then just quickly on the conversion in Key West.

I know it's only been a month, but maybe just walk us through how that conversion process went, if you're seeing any early wins or any changing booking patterns, realizing it's the off-season there, but just things that you've learned thus far and what you expect?

Yes, you're right. We are in early days, and we have some renovation going on at the same time. So we're not going to see the optimal output yet.

But we have seen some actually some very promising and interesting observations early on. One, we're also seeing the booking window expand a little bit more, and we attribute that to the brand Hilton's booking engine and more customers booking through brand.com than they would through a shorter-term window through an OTA.

So we're seeing some very promising top line benefits there.

And then one other ancillary benefit we're seeing is with having the brand and the purchasing platform of the brand, we are seeing some benefits on some of our costs and the purchasing power of the brand being able to acquire and procure things at a lower cost than we were with a smaller operator.

The next question comes from the line of Patrick Scholes with Truist.

I have a bit of a 3-part question here regarding the changes that some of the brands Hilton with their RISE program and Marriott, whatever they're calling it.

One, are you currently seeing any financial impact on that? Or what are your expectations around that? That's the first part of the question.

Second is, specifically within that, are you seeing differences between the 2 programs that the companies are rolling out, that being Hilton versus Marriott?

And then third, with your Montage and Four Seasons brands, and I know they don't have guest loyalty programs or credit cards, but are they doing anything similar to what Hilton or Marriott are doing as far as fee relief?

Thank you, Patrick. A lot there, but let's unpack it. From the brands, we are seeing various initiatives come out that are lessening either the percentage or the cost load.

Not all of them necessarily would apply to our assets and some of them are more limited service focused. But we are seeing some sales and marketing and some other costs that are benefiting us.

Our expectation is that over the next several years, there should be a pretty steady increase in some of these savings that the brands are going to be able to recognize through various technology initiatives.

So we are expecting and hopeful that this is just the early stage of this. It's not fair to compare one to the other on this. But I think both the brands that you mentioned are taking a very good first step towards finding efficiencies and then sharing them with the owners.

As far as the luxury brands, I have not heard of any of those programs yet. Our focus really, especially in Wine Country is just on maximizing the productivity and working with the brands to streamline operations, which we've been very successful at, and we think that there is more to do there.

The next question comes from the line of Michael Bellisario with Baird.

Bryan, 2-parter here for you: capital allocation and transactions. One, what are you seeing in terms of investment opportunities and where are deals maybe pricing relative to your expectations or underwriting?

And then second, you addressed it in your closing remarks, but how do you balance that potential capital deployment with maximizing value and continuing to close the valuation discount?

Sure. On the transaction environment, we're definitely seeing volume pick up. I think earlier in the year, it was more luxury focused.

So I think that, that is something that is starting to broaden out a little bit more, where we're starting to see not just luxury or big, large super tanker hotels on the market.

So we're seeing more in the, call it, $75 million to $150 million range of full service in primary or secondary markets. So more of that is on the market.

I think that when we look at those types of hotels, there are definitely more bidders out there, and we from a pricing standpoint, we still see a bit of a disconnect of where things are getting done just because of the competitive nature of a marketed process.

So more interesting, but not where they need to be from our standpoint at this time. And we have been very active over the last several years of recycling capital and trying to find the best redeployment of that on a risk-adjusted return basis.

When we look at the transaction market improving now, I think that this is a time where we really have to remain disciplined.

And so as we look at having proceeds that have not been fully deployed from the sale of San Francisco, our focus still is to repurchase at a discount to NAV because we believe that compared to redeploying into an asset at current pricing, that provides the best return to our shareholders, especially when we can monetize a low-yielding asset into the market and get paid for that future growth while eliminating the risk of getting there.

So I think that we believe that to consensus and to where we believe is a discount to NAV, and repurchase is our best alternative we see at this time. As stock prices change and valuations change that and maybe if the transaction market improves, maybe that changes.

But where we sit right now, we think that, that is somewhat of a continuation of what we've been doing, but we think it's the best spot for us.

The next question comes from the line of Jack Armstrong with Wells Fargo.

You pointed a really strong group pace in the back half of the year and into 2027. Can you break out some of the markets where you're seeing that strength and maybe provide that pace number externally as well?

Sure. So at the beginning of this year, it was always a story of the back half of this year from a group pace perspective, and that was in our larger hotels; in our largest hotel, San Diego, it was the case.

When we get into the fourth quarter and into 2027, we start to see really broad-based strength across the larger group boxes. And it's not just group; transient pace is extremely strong. It's not as long of a window, but for the next 6 months is what we have a view on.

The transient pace portfolio is up 22%, a combination of room nights and rate compared to last year. And it is across hotel types. Urban is up 25%, conventions are up 12%, resorts are up 27%.

So it really is broad-based. And then when you layer on top of that, the group side and important hotels to our portfolio like San Diego, those really start to contribute into the second half, specifically the fourth quarter.

And then into next year, while we haven't given a full year pace for '27, we have positive pace in '27 and into '28. So we have a more favorable citywide calendar going into next year, too, with several of our major markets, D.C., San Antonio, San Diego and Boston, all having stronger citywide calendars also.

So you put all of that together. And when you look at the specifics of our portfolio and the market that our portfolio, our hotels are in, not only is it the second half of this year, but it really is a multiyear story looking at strength.

The next question comes from the line of Michael Hirsch with JPMorgan.

On your EBITDA guidance, you mentioned 22% of full-year EBITDA would be in the fourth quarter, while also noting Andaz and San Diego should have outsized fourth quarters.

So would you view your second half or implied fourth quarter guidance as conservative here?

Michael, I think as we look at the back half of the year, certainly, what's implied by our guidance is that the growth was somewhat front-half-loaded.

And so that's what we've seen, certainly, as you look through the double-digit RevPAR growth that we've seen year-to-date.

Our expectation for the remainder of the year is that we move more into a mid-single-digit RevPAR growth environment. We've been pleased with what we've seen relative to actual performance to our expectations.

I wouldn't call our rest of the year guidance conservative. I would say, based on everything that we've seen and what we know, it's a reasonable expectation.

But we'll see how things play out. If we look at what we've seen so far in July, I would say we've been surprised a bit to the upside, which is good. So that is one of the months, but we'll see how the remaining 5 transpire.

But I think it's a reasonable best guess of what we think is going to happen as of now.

You have to look at the total amount of business for each quarter or 2. And so we have the third quarter tends to be our lowest quarter; the first and second quarters are one of our largest.

So when you look at that, I think that if we see a continuation, and we are absolutely seeing very strong production for not only future years group bookings, but I think all but one of our hotels had more in the year for the year bookings in the second quarter than we had last year.

And so we're also seeing short-term pickup. And then from the transient side, that remains very strong. If these trends continue, there's definitely upside we can see.

I think that what we saw in the second quarter and moving the guidance up to incorporate some additional earnings in the third and fourth quarter shows a step forward that shows our confidence in our performance.

And again, we want to make sure that with all of the external headwinds that can be out there, that we do remain cautious too and have some level of conservatism when we're looking forward.

The next question comes from the line of Chris Darling with Green Street.

Bryan, as you think about deploying your dry powder, what's the latest thinking around the Montage preferred security, just given the rising coupon there?

It is a freely prepayable option that we weigh against the other alternatives we have to deploy capital. So you're completely right. It does increase.

And so there will be a point in time where the yield on it will make it more attractive than some other options. So we have a menu of where we can deploy.

I think that we have at least historically proven to not only just repurchase common, but preferred and other securities. So it's out there as an option, and it's something that we'll evaluate.

But we do have flexibility on it, and we can redeem a portion of it or all of it. And it's up to us the cadence that we want -- how much we want to redeem.

And then shifting gears back to D.C. I know you spoke about a better citywide calendar into next year.

Just putting that aside, what's the opportunity in your mind for that property to continue to take share on a relative basis in the market? I'm just wondering, irrespective of the broader market movements, if there's relative upside there as well.

Yes. I mean, D.C. has been a difficult group market this year. But we have seen considerable pickup on the transient side.

Transient pace is up 30% going forward. And even with it being a challenging group market, our group production was fantastic during the second quarter.

So we're seeing future bookings from a group side; we're seeing future transient bookings. And the transient bookings, I really attribute to the brand change or, yes, going from the Renaissance to the Westin because if you just go back on a full year basis, so in 2019 as a Renaissance, the hotel's transient rate index was 106.

At the end of last year, the transient rate index was 123. The transient occupancy index went from 89 to 119. If you look at just quarter-over-quarter, and the total amounts will change quarter-to-quarter based on that each quarter, the transient rate index was 117 to 100, and occupancy was 111 to 94%.

So the answer is that transient business has been better in the market, and our share of that business continues to improve based on the Westin flag and the renovation and everything that we've done to that hotel.

It has the notoriety of the brand. It's a great transient box. It's a great location. It has probably one of the best gyms in the city. And it was always a really good group hotel, and now it's a good complete hotel.

That is all the time we have for the Q&A period today. I will now turn the call back to Bryan Giglia for closing remarks.

Thank you, everyone, for your interest in the company, and we look forward to a very strong second half and meeting with many of you over the coming months at various conferences. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors' first quarter earnings call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, May 5, 2026, at 11:00 a.m. Eastern Time.

I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements. We also note that the commentary on this call will contain non-GAAP financial information, including adjusted EBITDAre, adjusted FFO and hotel adjusted EBITDAre. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings release and supplemental, which are available in the Investor Relations section of our website.

With us on the call today are Bryan Giglia, Chief Executive Officer; and Robert Springer, President and Chief Investment Officer. After our remarks, the team will be available to answer your questions.

With that, I would like to turn the call over to Bryan. Please go ahead.

Thank you, Aaron, and good morning, everyone. We were pleased with our performance in the first quarter, which came in ahead of our expectations, even with some weather-related headwinds across a handful of our markets. The strength was broad-based with continued solid group results and transient performance that was better than anticipated.

Overall, RevPAR in the quarter grew an impressive 14.6%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 5.7%. This strong revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to generate meaningful growth in earnings. The added benefit of our accretive repurchase activity drove even greater growth in earnings per share with first quarter adjusted FFO nearly 29% higher than last year.

Our resorts once again led the portfolio with combined comparable RevPAR growth of over 18%. While the rebound at Wailea Beach Resort was expected, it has been impressive, where revenue grew 14% in the quarter, even with significant cancellations from the 2 weather events that impacted the Hawaiian Islands in March. While we will need to navigate some repair work and disruption following the storms, the outperformance in January and February and the trends that we are seeing for the remainder of the year continue to point to a sustained recovery in Maui.

We were also quite pleased with performance at our Wine Country resorts, which turned in a combined 34% growth in RevPAR, driven by better contributions from both group and transient business. As we shared with you on our last call, we were encouraged with how Andaz Miami Beach performed over the festive period and into the early weeks of this year. That trend has continued with results exceeding expectations in the first quarter. We are seeing further strength into April with second quarter benefiting from strong transient and group business with major events like the F1 race last weekend and the World Cup coming this summer.

During the first quarter, the Andaz ran 86% occupancy at a $564 rate and produced $6.5 million of EBITDA. The comp set ran a similar occupancy, but at a rate over $900 per night. Q1 was an absolute success for the Andaz, and we are encouraged with how much opportunity we have to continue to grow rate closer to its peers and build on our multi-year growth story. We've had a solid start to the year, and we are well positioned to deliver on our earnings expectations in 2026, and we look forward to the resort's next phase of growth into 2027 and beyond.

Our urban hotels had a noisier quarter as we navigated a challenging Super Bowl comp in New Orleans and weather-related headwinds across the East Coast. RevPAR declined 9.3% in the first quarter across our urban portfolio, but out-of-room spend performed better and limited the decline in total RevPAR to only 2.9%.

At JW New Orleans, revenue was lower given the benefit of the Super Bowl in the prior year. But despite the challenging comp, our hotel continued to gain share. After picking up nearly 15 points of RevPAR index in 2025, the JW again outperformed the comp set in the first quarter and now sits at over 150% relative to the group, demonstrating the strength of the hotel's location, superior room product, and recently upgraded meeting space. In addition, our New Orleans hotel had one of its best first quarter production results in years with group bookings growing over 50% relative to the prior year.

In Boston, the quarterly performance was hampered by the severe winter weather that disrupted travel earlier in the year. Overall, we expect the first quarter to be the toughest quarter for our urban portfolio with sequential growth in RevPAR through the balance of the year. Our convention hotels turned in better-than-expected performance with RevPAR growth of 5.2%. Performance varied widely, however, as we experienced the push and pull of a few large events. In Washington, D.C., we had a very challenging comp given the inauguration last year. After increasing over 24% in the first quarter of 2025, RevPAR at our Westin D.C. Downtown was 9.8% lower this year due to the tough comp and higher group attrition from the severe winter storms that occurred in the quarter. Despite this decline, our performance was better than expected as stronger transient demand helped to partially offset the sluggish group backdrop in the market.

Additionally, the Westin had a solid booking quarter with transient pace for the next 6 months up 11% relative to last year, pointing to a continuation of the current transient trend. On the flip side, RevPAR increased over 27% in San Francisco, where the Super Bowl added compression to a market that was already on a positive trajectory. In fact, if you look only at January and March, RevPAR was still higher by 14% as the city benefited from an active event calendar and an increased level of commercial activity in the downtown area.

Performance at the Renaissance Orlando at SeaWorld was impacted by isolated group cancellations earlier in the quarter and a shift in the mix of business, which led to a decline in rooms RevPAR, but generally flat total RevPAR given the benefit of strong contribution from out-of-room spend. We expect the balance of the year to be more conducive to growth in Orlando with particular strength in Q3 and Q4, where second half group pace is up over 40% relative to last year.

Lastly, in San Diego, we were pleased to see better transient performance in the market, which has given us a more optimistic outlook for the year. We are in the final stages of our meeting space renovation at the hotel, and we expect that our second quarter will be the toughest comp of the year with sequential improvement through the third and fourth quarters as we benefit from better group patterns and our new meeting space.

On the expense side, we were particularly pleased to see better productivity in the rooms department, which allowed us to keep comparable departmental expense growth on a per occupied room basis to only 1%. This better cost performance was partially offset by higher utility expenses, property G&A, and sales costs. Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 3.4% on an absolute basis during the quarter or 2.4% per occupied room. This was generally consistent with our expectations and allowed us to grow margins by 140 basis points.

Given the cadence of our quarterly revenue growth, we expect that the first quarter will be our strongest margin growth performance of the year, but we are continuing to work with our operators to focus on cost controls and drive efficiencies wherever possible. As part of our last earnings call in February, we noted that we were encouraged by the trends we were seeing in recent operations, but that broader uncertainty gave us reasons to be cautious. This remains the case today with recent events only reinforcing this view. We continue to monitor events that could impact costs and the demand for travel. While we did not see any measurable impact on our first quarter operations, an elongated period of heightened volatility or sustained increases in fuel prices could present headwinds.

That said, performance in the first quarter was meaningfully ahead of our expectations. And based on what we see today, we are comfortable revising our full year outlook higher to reflect these results. Given the elevated uncertainty, we will continue to be measured in our expectations for the rest of the year. If more of the momentum from the first quarter carries into the balance of the year or if some of the special events slated for later this year outperform our modest expectations, then we could be positioned to deliver stronger performance.

We are encouraged by the increase in hotel transaction activity and believe the environment may be becoming more conducive to executing our capital recycling strategy and demonstrating the value of our portfolio. In the interim, we continue to deliver value to shareholders through an additional $50 million of accretive common and preferred stock repurchase activity so far this year. We expect to continue opportunistic repurchase activity as pricing allows, while we focus on generating profitability growth from our operations and realizing the benefits of our investment projects.

And with that, I'll turn the call over to Robert to give some additional details on our capital investment activity.

Thanks, Bryan. We've gotten off to a busy start on the operations and investment front. As we shared with you last quarter, our planned capital projects for 2026 were concentrated in the first half of the year, and I'm pleased to report that we have made solid progress executing them on schedule and on budget. In San Diego, we are wrapping up the renovation of the meeting space. The finished product looks great and should help the hotel to maintain its leadership position in the market.

Recent trends in the city have been more encouraging. And based on what we see today, we expect better performance in the latter part of this year, and the hotel is pacing ahead for 2027. In Miami, we are also finishing construction on Bazaar, and we are very pleased with how the space is coming together. We expect to begin training activities in late summer with the restaurant opening in early fall to take advantage of the full high season in the market. As we shared earlier, our renovated resort is already attracting some great group business, but the addition of Bazaar will round out the property, further increasing its appeal with luxury travelers and higher-end groups.

We anticipate that Bazaar will not only help drive incremental room night demand at the hotel, but will be a dining destination for guests from nearby properties and local residents as well. Elsewhere across the portfolio, we will be starting some facade work and a rooms refresh at Oceans Edge Resort and Marina in the middle part of the year as part of a broader effort we are working on to drive incremental revenue and earnings to this resort. We will also be completing some smaller routine projects across the rest of the portfolio.

As Bryan noted earlier, our Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and brought heavy winds and substantial rainfall. While our resort remained operational during the storms, we did sustain wind and water damage in some of the guest rooms, public spaces, and portions of the roofs. We are currently working to restore impacted areas and should have most of the public space and guestroom-related work completed in the coming weeks. We will, however, have some additional repair work to do on a few roofs, which will not be done until later this year. We are working closely with our insurers to pursue cost recovery for the repair work and lost business from the storms, but it is too early to share any of those details.

Based on what we see today, we expect that incremental capital expenditures needed at Wailea will likely mean that we will be in the upper half of our existing CapEx guidance range for 2026. We are still working through the details of the approach and timing, the required spend, and cost recovery from our insurance policies and we'll share additional information as part of our next call.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As we noted at the top of the call, our earnings results for the first quarter came in ahead of expectations, driven by broad-based strength across the portfolio. Rooms RevPAR grew an impressive 14.6% in the quarter, including an 890 basis point benefit from Andaz Miami Beach. Total RevPAR for all hotels increased 13.4%, including an 810 basis point benefit from Andaz.

Given our mix of business, we anticipated that rooms revenue would grow faster than total revenue in the first quarter, which was the case. But ancillary spend performed better than we thought and the guidance ranges that I will discuss shortly reflect a more optimistic outlook for out-of-room revenue growth than our prior expectations. The stronger top line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre of $68 million, an increase of 18% relative to last year.

When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.27, an increase of nearly 29% from last year. Our balance sheet remains strong. We have no debt maturities prior to 2028 and net leverage stands at only 3.5x trailing earnings or 4.6x, including our preferred equity. Since December of last year, we have repurchased over $19 million in liquidation value of our traded preferred stock at a 21% discount, a positive impact on both FFO and NAV. Included in our press release this morning are the details of our updated outlook for 2026. Our revised guidance ranges reflect the outperformance we saw in the first quarter, but retain a degree of caution for the balance of the year given the uncertain backdrop.

We now expect that rooms RevPAR for all hotels in the portfolio will increase between 5% and 7.5% to a range of $236 to $242. This reflects the full year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint. Based on what we see today, we now expect total RevPAR to increase between 5% to 7.5%, an increase of 125 basis points at the midpoint, which captures our higher expectations for growth in ancillary spend. This would now imply a range of $390 to $400 with a similar 400 basis point benefit from Andaz. As we noted on our last call, the first quarter will be our strongest revenue growth quarter of the year with the remaining growth quarters being between the lower end and the midpoint of our RevPAR and total RevPAR guidance ranges.

While Andaz will certainly provide a lift to our results all year, the impact will become less pronounced as we get further into the year and begin to lap more of last year's operations, with the revenue growth benefit estimated at approximately 500 basis points in the second quarter and 150 to 200 basis points in each of the third and fourth quarters. This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $238 million to $252 million. Based on where we sit today, we expect our FFO per diluted share to now range from $0.88 to $0.96. This updated earnings per share range reflects the benefit of better operations and our recent share repurchase activity.

In terms of the distribution of our earnings by quarter, based on the midpoint of our updated range, the first quarter accounted for roughly 28% of our full year earnings, with the second quarter expected to comprise approximately 28% to 29% and the balance split more or less evenly across the third and fourth quarters.

Moving to our return of capital. Since the start of the year up to the end of April, we have repurchased $35 million of common stock at a blended price of $9.11 per share. In addition, we have also purchased over $14 million of our preferred stock at a blended price of $19.84 per share or a 21% discount to its liquidation value. This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share. And while we retain capacity and appetite for additional share repurchases, our revised 2026 outlook does not assume the benefit of additional buyback activity. In addition to our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the second quarter and has also declared the routine distributions for our Series G, H, and I preferred securities.

Before we conclude our prepared remarks, I'll turn it back over to Bryan for some additional thoughts.

Before we open the call to questions, I want to provide an update on our 2026 objectives. The company remains focused on realizing the value of our portfolio. Over the past few years, we have sold hotels at what have proven to be attractive valuations and redeployed proceeds into the most accretive option available at the time. While most of the proceeds went to repurchase common or preferred stock at a discount, we also acquired assets when our cost of capital became more competitive.

Given the improving transaction market, we expect to recycle capital in 2026 and take advantage of strong private market values for certain assets. This would then allow us to redeploy proceeds into additional share repurchases at a discount to NAV or liquidation preference or potential hotel acquisitions under the right circumstances. We remain focused on executing transactions that will result in the best risk-adjusted returns to our shareholders. The Board and management remain committed to maximizing the value for shareholders and are open to pursuing any alternative that would reasonably be expected to result in value creation.

With that, we can now open the call to questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from Duane Pfennigwerth from Evercore ISI.

This is Peter on for Duane. So I guess if we zoom out and think about the 14 hotel portfolio and that portfolio reaching some level of stabilization, what are some of the building blocks left to get there? And I guess, said differently, what are some of the growth drivers beyond what you've provided for 2026?

Sure. Let me start and then Aaron can provide some more additional detail. When you look at the building blocks, there are several pieces. First, Andaz is a multi-year story. We had an excellent Q1. The resort is ramping up. We started to see this at the end of Q4 last year and into Q1 this year, and it's ramping and the group business has been very strong. The transient business continues to grow, and we're very happy with the performance so far.

That said, when we look at Q1 and we look at our rate, which was in the mid-500s, and we look at the comp set, we still have a lot of room to grow. And so we are -- the comp set was running kind of plus 1,000. So that's a lot of room for us to expand into next year. Also, fourth quarter last year was kind of the same delta. And so fourth quarter this year, we have room to grow, opening the Bazaar at the end of this year into the high season. The Beach Club just opened, which also serves as additional meeting space for the resort. So Andaz has a very good 2-year plus trajectory on that.

Maui is also another asset where we had room to grow. We talked about this last year of having to have the island stabilize, and we saw that with Kaanapali reaching of a stable 70% occupancy in the fourth quarter. Our transient volume started to recapture our index and our share in the fourth quarter of last year has gone into this year. And given where we are relative to prior EBITDA, there's still several millions of dollars of EBITDA growth that we will get into next year.

San Francisco is another market for us that is -- has grown and rebounded very well, but still has quite a ways to go. And everything we're seeing in that market from the group demand, from the transient demand, from the citywide demand, that's all been very positive and will go into '27 and beyond. And then as far as San Francisco strength, we've also seen that help Wine Country and the 2 resorts there, where as the citywides and the city of San Francisco does better, it then leads into additional leisure demand up in Wine Country. So I think that those are the big pieces that we will continue to see grow throughout the next few years.

Yes. And what I might add, I think Bryan hit certainly the broader point of what we have going on across the portfolio. I think on top of that, we have the added benefit of the repurchase activity that we've been doing. So we've been thoughtful in how we've allocated capital, both to our common stock and most recently to our preferred stock as well. So as we think about just the potential for not just EBITDA growth but growth on an earnings per share basis, certainly, we have capacity for significant accretion in FFO per share.

And then I guess you mentioned the transaction markets are getting more active. Could you just quickly expand on that? And what sort of assets are you seeing being marketed? What are brokers saying, so on and so forth?

Sure. We see additional equity capital coming into the markets and into increasing the number of deals out there and potential transactions, which is good and healthy for that market. Right now, you're seeing more luxury assets out there. And so I think that, that is -- given where the recovery has been and given where the demand and the productivity of those assets, there's a lot more on the luxury side. I guess that as the year goes on and some of those transactions are announced and closed, we'll start to see more of the higher quality upper upscale assets come to market, too.

Our next question comes from Michael Bellisario from Baird.

Bryan, I just want to follow-up on your acquisition commentary. Maybe high level, can you talk about the criteria that you're looking at for potential acquisitions just in terms of markets, brands, initial yields, and then also just the appetite for maybe buying a cash flowing asset versus doing a little deep return renovation project?

Sure. I think with what we've done in the past and the way we've approached things in the past, I think it's important, especially for a hotel -- for a portfolio our size is to make sure that we have some degree of balance. And so we have a lot of deeper turns that are coming back online and/or ramping up assets. So would we have capacity for that? Yes. That said like, look, anything -- everything we do, we have to look at what the options are available to us and what is the best allocation of capital, whether it be using our balance sheet or recycling an asset on a risk-adjusted basis, what makes the most sense for our shareholders.

And up into this point, that has absolutely been share repurchase and repurchasing our preferred at a meaningful discount to liquidation preference. Going forward, that's a balance. That's something that as our cost of capital improves and our stock price improves, then we look to balance that with potential acquisitions or -- and mainly coming from recycling capital where we can take advantage of private market values and maybe specific markets where -- or specific asset types where there is a lot of demand right now, and we can potentially realize a portion or a good portion of the future upside today and then we go redeploy that at something that has good growth, maybe not quite as good growth, but at a much more compelling initial yield that maybe provides some future opportunities.

So again, it's -- it depends. Every day, we make the decision of how we're going to allocate additional capital. And I think where we stand right now, it's our stock and preferred is still very compelling. But as that changes, I think that the preference would probably be more stabilized. If you look at the types of hotels and resorts that we have, we like assets usually slightly larger assets that have a good group component to it and then some secondary, whether it be leisure or business transient, varying degrees of rebranding activity, whether it be like the Westin D.C. or the Marriott Long Beach, where different degrees of renovation, but still same game plan where we're able to capture more index through finding a brand that could do better or something else.

So that's our focus. I think where we are today, it's still -- our equity and preferred are very attractive. But as things -- as the space improves, I think that gives us more opportunity to deploy into assets.

Our next question comes from Smedes Rose from Citi.

Maybe just switching to a couple of market questions. I wanted to ask you on the Andaz. I think in the past, you had talked about maybe mid to low teens EBITDA contribution this year. Are you still comfortable with that? And are you seeing any kind of lift from the World Cup helping that property?

Sure. Yes, we feel based on where the asset has performed. And remember, there's -- when you look at the seasonality of the market, the asset will be a little bit skewed more towards the first quarter this year just as it's ramping up. But first quarter in through kind of April is a big piece of the annual EBITDA. So based on what we've seen so far, based on the transient bookings going forward, based on our group bookings going forward, we feel very comfortable with the range we've given and probably inching towards the higher side of that and with some opportunity to achieve that this year.

As far as the World Cup goes, we've had really good events in the market this year, National Championship. F1 last weekend was fantastic. I think World Cup, we continue to be measured in our various markets where we have matches. And at this point, it's a good time in the year for Miami because the summertime is -- tends to be the lower season. So having additional international travel coming into the market will be good for the market. Again, as we get closer, we'll have a better understanding of the ultimate impact. But right now, we continue to be somewhat measured across our markets for World Cup.

And then I just was hoping you can maybe comment on a couple of the larger group markets where you operate. You mentioned a lot of strength, I think, at the JW in New Orleans. Are you seeing strength overall in that market? It seems like it's been kind of weak maybe on the group side. I'm just wondering what you're seeing bigger picture. And maybe just kind of touch on -- if you could touch on Orlando and San Diego as well.

Yes. And so our -- when we look at first quarter and second quarter too, transient has been the strongest segment across the board and transient at some of our large group hotels have been better than anticipated. The way our group calendars and group bookings laid out this year was always the first half was sort of the weaker of the 2 and that our pace picked up in -- depending on the asset, Q2, Q3, Q4. And so when we look at like who has group -- good group pace in the second half of the year, that's where we're talking about New Orleans, where pace is up significantly for the second half.

Orlando also had a tougher first half comp. We'll have a tougher first half comp first quarter and first half, but has a really good second half. D.C. has stronger citywides and does pick up. And then there's some events in D.C. that should be helpful. So when we look forward, we have a great transient base of business for the next 6 months that is looking very strong. We didn't have the greatest group bookings in the first half.

But when we look at the second half of the year, that's where it really picks up, and that's where we get -- we start feeling pretty good about what the setup is for the second half. Now there's also some other variables out there that could impact travel that could impact fuel costs. And so again, we like what we see. We like the setup. We are going to remain, I think, like others, measured until we get a little bit more time to see what other external impacts there could be.

Our next question comes from Daniel Politzer from JPMorgan.

This is [ Michael Hirsch ] on for Dan today. Sort of on that last answer there. In the prepared remarks, you had mentioned seeing some group cancellations during the first quarter across the portfolio. Could you provide any additional color on attrition or overall group trends and pacing for this year and next?

Yes. I mean overall attrition is probably down slightly from where we were last year. I mean there were some talk about other external forces, there was a lot of government cancels last year. So attrition is down across the board. That's -- we're always going to have cancellations throughout the year, and there's always parts -- there's always some attrition throughout the year. Some of the storms on the East Coast did impact various groups. And so that -- there's probably 2 different weeks of that where we had some groups that either couldn't get to the destination or had to cancel last minute based on some storms.

So again, I don't think -- I think those were more specific to the weather or specific events and not overall group patterns. I think what we are seeing on the group side is we're seeing the ancillary spend continue to be very strong. We continue to see corporate groups and associations, both perform well. And as I said before, our group pace does pick up into the second half of this year, and we have -- it's a little early to start talking about future years, but '27 pace looks good at this point.

And then for my follow-up, you touched on World Cup in Miami. But for your broader portfolio, could you remind us what your outlook is for the RevPAR uplift? And what about recent World Cup demand trends are leading to your more measured approach?

Well, I think our measured approach is how we started the year. We were -- we didn't have -- it was too early to have bookings. There was the expectation that things would be very strong. But again, not having a recent history and not having the business on the books, we felt it didn't make sense to get out over our skis and start anticipating rate increases and major demand. So I think that, that -- we started the year measured.

As we get closer, we've seen different data points and other either through the brands or others saying that it is going to be a shorter-term booking window. We do have some group business on -- I think -- but it's limited. There's a group in San Francisco, a group in Miami. And so there is some. But if we see international travel very strong during that time period and last-minute bookings pick up, then that will just -- that will be additive to our third quarter, but not -- second and third quarter, but not in any of our guidance at this point.

Our next question comes from Ken Billingsley from Compass Point.

I wanted to follow-up on out-of-room spending. Your total RevPAR guidance grew faster than the RevPAR. And I'd like to make -- could you talk about what's driving some of that? How much of it is the fixed spending and what you have with -- associated with the room? And how much of it is discretionary?

So I think even with -- even with groups, there's a portion of it is discretionary. You have your minimums, you have your contracted amounts. But as you get closer to the event, you see people buying up and groups buying up different things, adding things and in certain times, they subtract things. What we've seen in the first quarter and not just specific to corporate group, we've seen it with association too, is we've just seen a better spend in those -- the contractual amount is there, but the additional add-ons or upgrades, whether it be through AV, through food options, beverage options, what have you, is that we have -- it was a strong quarter for that. And we don't see that slowing down at this time.

And away from just the group specific and out-of-room spending not related to group, I would imagine you're seeing that being stronger as well?

Yes. It's also -- it's a function of occupancy pickup, too, right? So in Wailea, that's a market where have a significant out-of-room spend for your transient customer as we regain our occupancy share that was happening during the quarter and will continue throughout the rest of the year. Those customers spend more money at the bars, at the restaurants, at the other events and amenities at the hotel. So yes, absolutely, we're seeing that on the transient side to more at the resorts than at your -- at a business transient hotel where there's less options to spend.

So a lot of the uplift there is on the occupancy side, not so much that they're necessarily spending more per room?

Well, on the group side, we're spending more per occupied room. On the occupancy -- on the transient side, it's going to depend hotel by hotel, Maui, I would say it's probably a mix of both, and that's at some of the more luxury resorts in Wine Country, there's just generally more spend, whether it be spa, food, occupancy that hasn't -- was up a little bit over the -- in the quarter, but we're seeing strong spend across.

Our next question comes from Chris Darling from Green Street.

Bryan, I understand guidance may prove conservative. But if I sort of look at what's implied for the rest of the year, it would seem to suggest sort of flattish, maybe even slightly declining margins for the rest of the year. Hoping you could put that outlook in context and also talk about just generally how you see expenses trending through the rest of the year.

I mean, in general, we see our expenses are increasing 3.25% to 3.5%. And so if you look at the RevPAR gain distribution quarter-to-quarter, first quarter was our biggest growth and it will be our biggest growth quarter. And so our margins, obviously, we had margin expansion during the first quarter. As we go throughout the rest of the year, look, we saw good productivity in the first quarter. We are endeavoring and planning on having -- maintaining productivity or increasing our productivity, especially in the rooms department because that's the most valuable.

And so depending on where RevPAR shakes out for the rest of the year, we can be possibly positive to slightly up to, I think -- or maybe neutral for the rest of the year. So it will depend on -- if we're conservative on the RevPAR side, then we'll absolutely have better flow-through and margins will tick up. But right now, given where the implied RevPAR guidance is for the remainder of the year and that expenses are growing in that low-ish to mid-3%, we'll revise it when we have another quarter or so under our belt. But right now, we figured that that was the most prudent thing to do.

And I may have missed this earlier, but could you elaborate on some of the recent operating performance at the Wine Country hotels and just your outlook for the rest of the year there?

Yes. The first quarter is the low season there. And so it's the most challenged on occupancy side. And so the key to that profitability or trying to get to breakeven in the first quarter is really making sure you have the right amount of group business. And that's something we've been talking about for a couple of years now and really having the resorts focus on is try to get that right group base in there. And that group base comes at a lower rate, but comes with a higher ancillary spend. And so the hotels and the resorts have worked very hard to get as much group on the books as they can.

And quite honestly, they both had great group on the books this year. I mean this has been in the works for a while, but they've been able to get that good first quarter group pace. Transient demand has been better than expected. So that benefited both. And then while we had bad weather on the East Coast and in Hawaii also, in California and in Wine Country, they had great weather for the first quarter this year. And so that helped also. So all of those factors kind of came together and gave us a first quarter we're very pleased with.

Going forward, both hotels have continued to have very good transient demand. Four Seasons has very good group pace for the second half of the year. Montage has decent group pace. Montage is maybe a little farther ahead of Four Seasons as far as establishing its group business, which is something that we're doing more group room nights this year than we've ever done before. It's probably about 55% of total occupancy. We'd like to see that inch up to about 60%, 65%. That would be ideal for that asset. But both -- whether it be luxury is outperforming and combine that with the demand we're seeing and the improvements we're seeing from the Bay Area that feeds up there. Our outlook for both is very strong for the rest of the year.

Our next question comes from Floris Van Dijkum from Ladenburg.

Just maybe following up on the Wine Country hotels. I mean the performance was -- even though it's still a loss, it's $4 million improvement in terms of EBITDA relative to the first quarter of last year, which is pretty meaningful. As you think about your disposition plans, do you have -- are those potential sale candidates in your view, particularly now that the JW Marriott in Marco Island has sold and the luxury market seems to be unthawing in terms of financing availability?

Yes. I don't know if Marco Island is a direct comp for these 2. But look, I think we've been very clear. We're looking -- when we look at our portfolio and we look at potential dispositions, we want to capitalize on private market values. And that there are certain types of assets right now and luxury absolutely being one of them and markets where there's a lot of interest. We're not -- we don't comment on transactions before we have something to publicly say. But based on our actions in the past and based on the criteria I just highlighted, we're clearly out there exploring various opportunities really at all times, but to make sure that we can have assets that we can recycle and redeploy those proceeds either into our common, our preferred or as I said earlier, if things improve, different acquisition targets.

But monetizing low-yielding assets is something that could be achievable right now in the current market, and we'll look at doing what we can. There are a lot of luxury assets out in the market right now. I mean there are older portfolios that are coming back that -- so there is a lot of supply out there, but this is a core tenet of our strategy of redeploying and recycling assets. So it's something that we're focused on doing.

Maybe a follow-up. I mean there -- obviously, operations are definitely trending the right way right now. But your guidance is -- again, like everybody else and all your peers, everybody is staying very cautious. What are the -- maybe touch on are there outliers in terms of the World Cup impact that it could have based on what your outlook is today? I mean, what's the upside if the World Cup does turn out to be better than what you're expecting in your view?

Yes. I mean that will add significant compression. Look, when we look at the state of the industry or at least what we're seeing in our portfolio, Q1 had great transient demand. The next 6 months bookings is -- the next 6 months of transient bookings are up significantly, and they're not just up at resorts. They're up at our convention hotels. They're up at our urban hotels, and they're also up at our resorts. So transient is very strong. Our second half group pace is very strong. And so group business is strong. Group contribution is strong. We're -- we see the hotels booking significant current year and future year business. So all of that is strong.

So all these positive points, if World Cup comes in stronger, then that's just -- that's additional compression and additional benefit that will accrete to our performance. The conservatism and the caution is that there are events out there that could impact the cost and demand of travel. And so because of that, we and I think most of our peers in the industry will remain cautious until we see those potential impacts alleviated.

Our next question comes from Logan Epstein from Wolfe Research.

Maybe just one for me. Last quarter, you guys talked about staying on the topic of transient demand. You guys talked about government-related was coming back to San Diego in the first 2 months of the year. Just curious if you saw that trend continue into March and April and then how you expect that to impact both San Diego and D.C. for the rest of the year?

So we saw really the largest increase in transient demand was in Long Beach in the first quarter, and there's defense and other businesses in their government-related businesses. So we saw a good pickup in Long Beach. San Diego, we saw transient pickup. It was more negotiated and then some discount also, which the negotiated piece of it could be government related because it could be consultants and contractors in that work.

In D.C., I think we saw a little bit less in D.C., but we saw strong transient and what the transient in D.C. is really coming from is the rebranding to Westin. We're picking up more corporate accounts, more retail accounts. And so when you look at our rate and our occupancy index compared to pre-Westin, we're definitely gaining share on the market. And so while some of that is -- everything in D.C. will be government-related, what we're really seeing there is the benefit of the rebranding that we did.

Our last question comes from Chris Woronka from Deutsche Bank.

Bryan, you covered a lot of ground on Miami and Andaz and kind of what still needs to happen to get fully ramped up and it seems like you had a good start in Q1. But can you maybe just flesh out a few more details on -- I know there's still obviously a rate story, but is there also kind of a group story to this? And I guess, more ancillary, I don't know how much like Beach Club you mentioned before will factor in. So just trying to get a sense for how much is strictly rate, which should have obviously nice flow-through versus kind of group and other things that still need to happen.

Sure. Our target for group is probably about 25% for the hotel. And this year, we'll run 20-ish percent of the business group, which is better than we anticipated going into the year. We've actually seen not only group volume, but the quality of the group continue to improve as we move throughout the year. Miami is a repeat market, both for the transient customer and the group customer. So that quality of group, whether it be at the end of the year for Art Basel or other major events is that we didn't really participate in that last year. And so we'll have groups in this year and next year we'll probably have even better groups in. And so while we have some occupancy on the group side, we also -- the group side is also -- will be a rate story.

And then also at the end -- in the end of the third quarter, fourth quarter, when Bazaar opens, that's going to bring a level of energy and notoriety into the hotel where that's going to be a big catalyst when it comes to the overall rate of the hotel -- the resort also. So everything has accelerated in the first quarter where we've seen the group pick up, the group demand, the quality of the group increase. And so while there's still occupancy there, there's still ancillary spend there. As we move into next year, it starts to become more of the rate story, and we have a lot of space between our current rate and the market rate where that will be very meaningfully -- very meaningful to the cash flow of the hotel.

We have no further questions. I would like to turn the call back over to Bryan Giglia for closing remarks.

Thank you, everyone, for your interest, and we look forward to seeing many of you at upcoming conferences and look forward to also anyone that we have the chance to get through the new Andaz. We've had many tours, but are always available to show off this really remarkable resort. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Fourth Quarter Earnings Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, February 27, 2026, at 12:00 p.m. Eastern Time.

I will now turn the call over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected.

We caution you to consider these factors in evaluating our forward-looking statements. We also note that the commentary on this call will contain non-GAAP financial information, including adjusted EBITDAre, adjusted FFO and hotel adjusted EBITDAre. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles.

Additional details on our quarterly results have been provided in our earnings release and supplemental, which are available in the Investor Relations section of our website. With us on the call today are Bryan Giglia, Chief Executive Officer; and Robert Springer, President and Chief Investment Officer.

After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Bryan. Please go ahead.

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, where we made further progress on our 3 strategic objectives, which include recycling capital, investing in our portfolio and returning capital to our shareholders.

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. We will share additional details on our outlook and our expectations for 2026 shortly, but I'll 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.

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. 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. 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 managed 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 2 hotels, our convention hotel RevPAR growth was 5.3% during the quarter.

San Francisco was once again a standout performer, which added to solid top line results in the first 3 quarters 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 at SeaWorld also had a solid quarter with total RevPAR growth of more than 10% on a better mix of business. 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, D.C. 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. 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. 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.

The property is building momentum, which 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 Biolea 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 D.C., 2 of our larger markets, which will offset some growth. 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 have been disappointed by various headwinds over the past 2 years, making us more cautious.

That said, we are excited about our prospects this year. And if costs remain controlled and some of these events produce more than our modest expectations, we could be positioned to see performance accelerate as the year progresses.

The guidance that Aaron will share with you later attempts to balance these factors and reflect an outlook that we believe is reasonable and achievable based on how we see things today. As we move through 2026, we will continue to execute on the 3 components of our strategy: recycling capital, investing in our portfolio and returning capital to shareholders.

While the transaction market has been quiet the last couple of years, we are clearly seeing some incremental activity, and we are looking for ways to thoughtfully demonstrate the value of our portfolio. In the meantime, we are focused on delivering profitability growth from operations and realizing the benefits of our investment projects. We expect these actions will support our capital return objectives in the coming year.

And with that, I'll turn the call over to Robert to give some additional details on recent capital investment activity and our plans for 2026.

Thanks, Bryan. 2025 was a busy year for us on the operations and investment front. We debuted Andaz Miami Beach in the second quarter and the fully renovated resort looks great and is gaining traction. We have been pleased with recent transient booking velocity and the progress we have made attracting high-quality group business. We will round out the resort this year with the addition of the Beach Club and the introduction of Bazaar Meat, the resort's signature dining destination.

Performance in the initial weeks of 2026 has been encouraging with year-to-date RevPAR of nearly $475 and the resort is well positioned to deliver earnings growth this year and into 2027. Earlier in 2025, we completed a rooms renovation at Wailea Beach Resort and are happy to see the demand backdrop turning a corner on the island. We have the opportunity for meaningful growth at the property as occupancy rebounds and we benefit from our recent investment.

We are seeing good progress with RevPAR index increasing 17 points sequentially into the fourth quarter as the market normalizes and the resort reestablishes its competitive positioning. In the fourth quarter, we completed a renovation of the meeting space in San Antonio, which complements the room renovation done just prior to our acquisition, and the hotel now looks great from top to bottom.

In San Diego, we are putting the finishing touches on a renovation of the meeting space there as well, which should allow the hotel to maintain its leading position in this premier group event destination. We are completing this work in phases to minimize disruption, but will have a modest amount of earnings headwinds in the first quarter.

The project remains on schedule and on budget. This year, we will also be performing some maintenance projects at our Renaissance Orlando, facade work and a rooms refresh at Oceans Edge, Resort and Marina as well as some smaller routine projects across the rest of the portfolio.

As Bryan alluded to earlier, we are seeing some incremental signs of life in the transaction market. While we are hopeful this will provide a more constructive backdrop to execute on our capital recycling strategy, we expect to remain disciplined in our approach and mindful of other capital allocation opportunities available to us.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As we noted at the top of the call, our earnings results for the fourth quarter came in ahead of expectations as stronger leisure performance at our resorts added to modestly better performance across most other hotels in the portfolio.

Rooms RevPAR grew an impressive 9.6% in the quarter, including a 540 basis point benefit from Andaz Miami Beach. In a continuation of the trends we saw earlier this year, growth in ancillary spend outpaced rooms and contributed to total RevPAR growth of 12.5%, including a 510 basis point benefit from Andaz.

This stronger top line performance and ongoing cost controls contributed to full year earnings that were ahead of the midpoint of our guidance range, including adjusted EBITDAre in the fourth quarter of $57 million and adjusted FFO of $0.20 per diluted share. We continue to benefit from a strong balance sheet with net leverage of only 3.5x trailing earnings or 4.7x, including our preferred equity.

In early January, we drew the remaining $90 million balance from a previously arranged term loan and used the majority of the proceeds to repay our Series A notes at their scheduled maturity. Following this repayment, we have addressed all debt maturities through 2028. As of the end of the quarter and pro forma for the January payoff, we had over $200 million of total cash and cash equivalents, including our restricted cash.

Together with full capacity available on our credit facility, this equates to over $700 million of total liquidity. Included in our press release this morning are the details of our outlook for 2026. As Bryan noted earlier, while we see reasons to be optimistic about the year ahead, we remain cautious, while still in these initial months. Based on what we see today, we expect that rooms RevPAR for all hotels in the portfolio will increase between 4% and 7% to a range of $234 to $241.

This reflects the full year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint. For 2026, we are also introducing guidance for total RevPAR, which is expected to increase between 3.5% to 6.5% and which would imply a range of $385 to $396 with a similar 400 basis point benefit from Andaz.

We anticipate that our first quarter will be our strongest growth quarter of the year as the contribution from Onda and better performance in Maui will more than offset the challenging comp in D.C. from the inauguration and in New Orleans from the Super Bowl last year. This should result in first quarter RevPAR and total RevPAR growth being above the high end of the full year ranges just discussed and then the subsequent quarters being between the lower end and the midpoint. This revenue growth is expected to translate into adjusted EBITDAre in the range of $225 million to $250 million.

Excluding onetime items and an asset sale, which together contributed approximately $10 million to our 2025 results, the midpoint of our 2026 EBITDA range reflects 5% growth in earnings over last year. Based on where we sit today, we expect our FFO per diluted share to range from $0.81 to $0.94. Adjusting for the same onetime items in the prior year, the midpoint of our FFO range reflects growth of 8% relative to 2025 as the benefit of our share repurchase activity adds to the growth in hotel earnings.

In terms of the distribution of our earnings by quarter, we anticipate that the first quarter will represent approximately 25% of our full year projections at the midpoint. This is a bit higher than our historical run rate, but reflects the added contribution from Andaz Miami Beach. As is typical for our portfolio, the second quarter is expected to be our largest contributor at approximately 30%, with the balance split more or less evenly across the third and fourth quarters.

Moving to our return of capital. Since the start of 2025 up to the middle of this week, we have repurchased approximately $108 million of common stock at a blended price of $8.83 per share. In addition, we have also purchased $3.1 million of our preferred stock at a blended price of $20.46 per share or an 18% discount to its liquidation value.

This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share. As we noted in our press release this morning, our Board of Directors has reauthorized our repurchase program back up to $500 million. And while we retain capacity and appetite for additional share repurchases, our 2026 outlook does not assume the benefit of additional common stock buyback activity.

In addition to our share repurchases, our Board of Directors has also authorized a $0.09 per share common dividend for the first quarter and has also declared the routine distributions for our Series HNI preferred securities. Before we conclude our prepared remarks, I'll turn it back over to Bryan for some additional thoughts.

Before we open the call to questions, I want to highlight our 2026 objectives. The management team and Board are focused on realizing the value of our portfolio. Over the past few years, we have actively sold hotels at what have proven to be attractive valuations and redeployed proceeds into the most accretive option available at the time. While most of the proceeds went to repurchase common or preferred stock at a discount, we also acquired assets when our cost of capital became more competitive.

We will continue this practice in 2026 while evaluating other potential transactions to realize and return the value of this portfolio to our shareholders. As I mentioned last quarter, the Board and management remain committed to maximizing value for shareholders and are open to any alternative that would reasonably be expected to result in value creation.

With that, we can now open the call to questions. Operator, please go ahead.

And your first question comes from the line of Cooper Clark with Wells Fargo.

Curious if you could walk through some of the puts and takes as we think about the 1.5% midpoint of '26 RevPAR growth ex-Andaz within the context of 2.1% growth last year and what should be a continued recovery in markets like Hawaii?

Sure. Cooper, when you look at the remainder of the portfolio ex Andaz, you're absolutely right. Maui is a market where we are seeing growth. We talked about it last year where we mentioned that for the hotel to get back to where it needs to be, the Kaanapali market needed to stabilize, which is something that we saw happening in kind of the late third quarter, fourth quarter of last year.

And that continues to happen going forward. We went from the high -- mid- to high 90s occupancy index to at the end of the year, over 100%. We should stabilize around 110%. So that is absolutely moving in the right direction. As I said earlier, we're seeing continued transient demand as we recapture that index.

And so far, the first 2 months of the year have been a pleasant surprise to see that continue. The group business in Maui is -- the pace is down a little bit this year. We do have this one piece of business that is on for a couple of years and then off and it's off island this year. But we are seeing a transient pace is up about 53%, and that will help cover that shortfall.

When we look at the rest of the portfolio, continued strength in San Francisco in wine country, other markets and one that we highlighted on the call, D.C. is a market that we faced a lot of headwinds last year, not only with government shutdown at the end of the year, but then also cutbacks and impacted a lot of the group business there. Our -- the amount, the percentage where groups would actually actualize as compared to their blocks was down to historic averages.

And so while we anniversary that coming up shortly, and so the year-over-year comp will get easier, we do -- we are cautious. And then we are also seeing in D.C. a pickup in transient business that we were not seeing in the middle part of last year. And so some of the government transient, we're starting to see that come back. Again, with what the impacts and the headwinds that we saw last year, we're approaching the D.C. market with as cautious.

And if we continue to see these trends, we would expect that we could be in a position where that midpoint would move up a little bit. But D.C. is one of the markets right now that we're keeping an eye on and is pulling that average back.

Okay. Great. That's helpful. And then could you talk through the expense growth implied in guide, both including and excluding the Andaz and what are some of the key drivers there?

Sure. I mean I think roughly, we're on expenses, we're right around 3% total. Labor over the last couple of years has been sort of in that 4-ish range. It's coming down a little bit this year into the 3s. Energy prices are up a bit this year. And then there are a couple of the larger fixed expenses that will unfold as the year goes on.

Our insurance renews in June, and that's something that we had good renewals with last year. There were not any major cat hits in our portfolio. So that should be helpful. But we go into the year, and we expect there to be some growth in those rates.

And so if that -- if we get a year like last year, that could be a benefit. And then property taxes have been down over the last few years, we're kind of assuming that those are going to normalize. And then on the Andaz side, overall, I don't think it's going to make a material difference in that overall percentage.

Cooper, it's Aaron. And just maybe to add to what Bryan was saying. So as we move through last year, as we noted in the prepared remarks, we were much more successful in managing costs relative to where we thought that they would be at the beginning of the year. And so we ended up with margin expansion to the tune of about 40 basis points on RevPAR growth of about 3.5%. From a cost growth perspective for the comparable portfolio, so the 13 hotels ex Andaz, expense growth is in that kind of that 3-ish percent or so area.

What we'll feel a bit differently this year is just that, as you noted, the blended RevPAR growth rate for that comp set is -- for that set of hotels is a bit lower. So we'll expect some margin headwind for the comp portfolio in '26. If we add in Andaz, things obviously do get a little bit noisier given that it was only open part of the year last year will be open all of the year this year.

We'd look at probably a total overall expense growth rate of around 5% or so, which starts then align with where the midpoint of the RevPAR range is for the total portfolio. So a good chance of margin being able to defend margins as we move from '25 to '26 for the total portfolio, and then we'll be hopeful that we have an outcome like we had last year, whereas the year went on, we were a bit more successful on the cost side.

Your next question comes from the line of Duane Pfennigwerth with Evercore ISI.

A call earlier today talked about the expectation for being a net seller of assets. I wonder if that's your expectation as well. And if you have any update on the marketing process around the Wine Country assets.

Sure. In the fourth quarter, we started to see a pickup in transactions, either closed transactions or announced transactions. And I think as we have more clarity into this year and debt markets continue to be strong. I think that we'll continue to see an uptick in transactions. I think thematically, it will be similar. I think that there is a lot of demand for luxury assets. I think there's a lot of demand for cash flowing assets.

And so those obviously can support the highest debt balance. And we're still seeing for midsized transactions, enough equity out there as you start to get to a larger assets, the bidder pool is still thinner. I do think we're seeing that improve. And so our view is really no different than what we were doing last year and when we sold New Orleans at a very attractive cap rate and then redeployed those proceeds into our common stock.

We're going to look to realize private market values for where we can for those -- for hotels and resorts that we have, where we see the biggest gap between the public and private market values. And basically, we'll continue to try to unlock value where we can and then go and deploy that in the most accretive manner.

We don't comment on transactions prior to announcement. But we have been clear and I think our actions have been very clear is that our major pillar of our strategy is recycling assets. So there's always going to be a point in time where we'll have one or more assets that in some form of marketing or discussion with potential buyers. And we don't think that this year will be any different.

The question then comes is what is that most accretive allocation of that redeployment of that capital. And that depends on a lot of factors. It depends on where the stock is, where our cost of capital is, where our stock is trading, what -- and on a risk-adjusted basis, what is make more sense to repurchase stock or preferred? Does it make more sense to acquire an asset?

And over the last few years, I think we've demonstrated that we've been able to pivot between those sometimes in shorter time periods, but we've been able to effectively deploy that capital, whether it be through the acquisitions of [indiscernible] or buying back stock.

Your next question comes from the line of Smedes Rose with Citi.

I just had another question about your guidance, just in terms of total RevPAR being a little bit lower than your RevPAR outlook. Usually, they're sort of at least in line or maybe total RevPAR would be a little bit higher. So I was just wondering if you could just speak to that for a moment.

Sure, Smedes. Having a focused portfolio with some larger assets, D.C. being one of them I spoke about and then San Diego also that had a -- we finished up a pretty substantial meeting space renovation or we finished a portion of it, and we'll finish the rest of it in the quarter that's impacted on those 2 big hotels. On the group side, that's going to impact some of our ancillary spend, getting some of that back in Andaz.

And quite honestly, I would expect an increase in our total RevPAR, if we continue to see the transient trends in D.C. somewhat, but more importantly, the transient trends we're seeing in Wailea with the additional spend that comes from the transient rooms, that will help buoy our total RevPAR. But right now, it's more a function of some of the limited displacement in the first quarter in San Diego and then a slower group pace in D.C. it's more that.

Okay. And then I was just wondering if you could talk a little bit more. You mentioned in your opening remarks some transient weakness in San Diego. Is that specifically to your hotel? Are you seeing that kind of market-wide? And maybe just if you could just speak to kind of just the broader market in San Diego, what you're seeing just maybe on the group side, what's happening with the convention calendar there, et cetera?

Yes. In San Diego, we saw some ups and downs last year. Some of it government related. There's a lot of defense contractors. So we saw it slow down last year. We've seen that pick up. Towards the end of the year, the leisure time period, whether it's some international travel not coming in, some Canadian markets come to that area.

What we're seeing now, the first 2 months have been pretty promising in San Diego, DC2, we mentioned. And so I think we're starting to see government transient come back. And part of that might just be certain segments and what San Diego pulls from is the defense contractors. And so that can be a positive for the market.

And so we'll see over the next few months, but we are seeing positive signs as the year goes on right now in San Diego on the transient side.

Your next question comes from the line of Michael Bellisario with Baird.

First one for Aaron. Just on this Ohana preferred, can you just remind us like what are the mechanisms there for you to take that out? When and by how much is that coupon ratchet? And then just on capital allocation, is this a potential use of capital if you were successful with dispositions?

Yes, Mike, thanks for the question. So the Ohana is referring to is our Series G preferred, which is issued in connection with our acquisition of Montage. That one does have a mechanism where the yield there is tied to a greater of the hotel yields or a fixed rate, which is currently now 6.5%.

So overall, it came in at $66 million in size, so it's a manageable amount of capital. We kind of view our preferred, I would say, as a total bucket. So all in the $280 million at a pretty attractive blended price of just around 5% or so. But as you saw in our results for our fourth quarter, we did take the opportunity to look at some buyback on the preferred side, and we'll continue to do that as a way to kind of just manage the overall preferred dividend exposure and ensure that we're mindful of that -- of the mechanism on the Series C, which does step up.

So I think as we think about this year, I wouldn't expect that our preferred dividend would increase in '26 relative to where it was in '25, even with the escalation on the Series C, just given that we'll manage the overall outstanding balance. So we'll take another look at it as we move through the year.

I mean, certainly, as we noted, we have $200 million of cash that we could readily put to use to address that Series G. And the function there is it's callable solely in our discretion.

And it doesn't have to be in the total amount either. So we can take out pieces of it at a time.

That's helpful. And then just 2 little modeling follow-ups, maybe I missed them. What's your EBITDA expectation for Miami this year? And then what are some of those onetime items that you mentioned that's impacting the year-over-year growth rate? I think it's like $7 million net of the New Orleans sale, if my math is right?

Okay. I'll start with -- so in Miami, our expectation is consistent with where we were before. We think it's low to mid-teens EBITDA this year. And our what we've seen starting in kind of really in December and December, we hit close to 70% occupancy. The comp set was right around 70%. Our rate granted was lower than the -- than our luxury set.

We were in the 500s. They were in the 900 plus. So we have plenty of room to grow. We're building a very good base. Our group room nights have doubled quarter-over-quarter. We've got a lot of good momentum going into F1 and FIFA later in the summer, which is a great time for that piece of business to be there. So our expectations are consistent with where we were last quarter with Miami.

And if we have a strong summer, my expectation is that we are at the upper end of that.

And then, Mike, just on the second part of your question as it relates to the onetime items that we called out for '25. It's a total of around $10 million or so, and the components would be about $3 million contribution from the Hilton New Orleans, which we sold last year, so won't repeat this year, a cost recovery that we had in connection with one of a settlement at one of our properties and then just some incremental interest income that we generated last year given where deposit rates were and where our cash balance was at the time that we wouldn't expect to repeat in '26.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

So I understood everything you said, Bryan, about any potential transactions in Wine Country. My question on it is kind of do you think any sale process is having any kind of impact on operations right now? It looks like in '25, you had pretty good results at the Montage, both big Four Seasons, maybe a little bit less so. So is there anything to draw from that? And what's kind of embedded in your guidance as to how those perform this year?

Yes. I mean both resorts were on pace to have very good years. As you probably remember, there was a fire close to Four Seasons that impacted the third quarter last year and a little bit trickled into the fourth quarter. So adjusting for that, that was probably about $1 million of EBITDA.

So adjusting for that, one, your question, not commenting on a sale process, but typically for a managed hotel. The management contracts are long term and stay in place, so that doesn't really impact the day-to-day operations of the hotel.

Four Seasons has fantastic group pace for this year. I think group pace is up about 22%. And so we have really great expectations for that. Again, the San Francisco market has been doing better, which then leads to more weekend trips or extensions of convention trips out to Wine Country. The high-end luxury traveler continues to be very strong and spend quite a bit. And then on the other side of the valley, we -- we've had great success with group at Montage.

Group is not as strong as Four Seasons this year, but they're moving from a much larger base. And our transient demand over at Montage has been phenomenal. So I think transient pace is up 25% year-over-year. So just like San Francisco, a lot to look forward to in the Bay Area and Wine Country. And so there, again, with the impact of the fire last year was sort of a unique impact to Four Seasons, both hotels should have very good years.

Okay. Appreciate all that color, Bryan. Maybe to kind of keep it in the San Francisco area at the Hyatt. I know there was probably a Super Bowl benefit back in January. This hotel is running single-digit margin in '24 and '25. Is there any expectation this year that whether it's, again, outside of Super Bowl, but with AI and back to office and other group things that are happening in San Francisco, is there a hope or an expectation on your part that, that hotel starts meaningfully improving margins?

Yes. I mean our location in that market has become the primary location. And so our basic -- with the office that surrounds it, the inflows of new tenants, AI-based, but really, the center of San Francisco has moved into the Embarcadero financial area. And so we have -- we're benefiting from a recently renovated hotel that while it still has quite a ways to go to get back to where we were, we finished '25 at 78% occupancy, which is 10 points of occupancy down from where we were. We have a $300 rate. There's still quite a bit of room in the rate.

And so we have great pace this year. Transient pace continues to grow. The market had a great Super Bowl. World Cup is -- we're just starting to see bookings for that, and that's something that will help compress the summer as we get into it. So look, I think that given the continuing increase in health of the San Francisco market, our location, our product, our meeting space, we still have a very good run ahead of us and are very -- are looking forward to the next several years in this market.

Your next question comes from the line of Daniel Politzer with JPMorgan.

This is [ Michael Harris ] on for Dan today. Congrats on a nice quarter. For my question, you noted in the press release that the operating environment could be impacted both positively or negatively by events outside of your control. Could you speak to some of those events or macro environment that you contemplated for this year, when putting together your guidance?

Yes. Look, I mean, if you look over the last few years, starting each of the years, expectations were higher and then there were various headwinds that popped up and went away and came back throughout that time frame. I think D.C. is a good example of what is our -- what are our expectations in D.C.

Like I said, they're cautious this year. There was -- we did not expect the impact to government business, government shutdown, those things for a large 800-room hotel in our portfolio. Those were things that were not fully -- we weren't expecting last year and impacted operations. Could elements of that happen again? Sure. If we look at '26 in D.C., it's just starting off. It's a tough comp.

You had inauguration the year before. We had storms in January and you have midterms later in the year, which means Congress won't be in session a lot as much. So those are things that keep us cautious, especially from the framework of the prior year's experience. But then on the other side, you look at the positives there. You've got the America 250 celebrations. You have an Indie race that was just scheduled for August that's happening.

Our transient pickup for January and February has been stronger than we thought. The negotiated transient demand for the next 6 months is up 11%. Part of that is still the benefit we're seeing from the conversion to Westin. Some of it is business that's coming back to the market. When you look at our transient demand for January and February and you put it against the backdrop of we had weather issues this January. We didn't have an inauguration this year, but yet our transient demand is greater than what we had last year. That points to strength. And so that makes us very optimistic. The question is we probably need to see a few more months of this before our -- before we can have our outlook reflect that for the rest of the year.

And then for my follow-up, more modeling related. On your CapEx guidance for $95 million to $115 million, could you speak to the timing and allocation of those dollars between the different projects?

Yes. Let me start with that, and then Aaron can go through some more specifics. We are working through and finishing the meeting space in San Diego. Keep in mind that it's a 1,200-room hotel. It's a lot of meeting space. So there's $25 million of that number right there.

A portion of that does come from the FF&E reserve. And so that's a big piece of it. There's some additional bills that are being paid and finish up work from Andaz. And then throughout the portfolio, we have various other projects, some HVAC projects, some roofing projects, some elevator modernizations. Those are spread out more throughout the year. The biggest chunk -- single chunk will come from the San Diego piece, which will be in the first and second quarter as it gets paid out in. Aaron?

Yes. Bryan basically got the punchline there. The largest projects will be front-loaded. So I'd expect about 1/3 of it happens in Q1, but -- and then Q2 will be the second largest contributor and the rest will trickle into the back half. But work largely performed in Q1 and then the payments in Q1 and Q2.

There are no further questions at this time. I will now turn the call over to Bryan Giglia for closing remarks.

Thank you, everyone, for your time and interest in the company. We look forward to seeing many of you in -- at upcoming conferences and property tours that we have in our portfolio. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Third Quarter Earnings Call. [Operator Instructions]. I would like to remind everyone that this conference is being recorded today, November 7, 2025, at 11:00 a.m. Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements.

We also note that the commentary on this call will contain non-GAAP financial information, including adjusted EBITDAre, adjusted FFO and hotel adjusted EBITDAre. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings release and supplemental, which are available in the Investor Relations section of our website.

With us on the call today are Bryan Giglia, Chief Executive Officer; and Robert Springer, President and Chief Investment Officer. After our remarks, the team will be available to answer your questions.

With that, I would like to turn the call over to Bryan. Please go ahead.

Thank you, Aaron, and good morning, everyone. Operating results in the third quarter reflected many of the same trends we saw earlier in the year with continued strength in San Francisco, helping to offset a more price-sensitive leisure traveler and subdued government-related demand across other parts of the portfolio. Despite these cross currents and disruption from the fire near our Four Seasons Resort in Napa Valley, our earnings for the quarter were in line with our expectations as stronger ancillary spend and better cost controls offset softer room revenue growth.

At our urban hotels, RevPAR growth was generally flat during the quarter with our Marriott Long Beach downtown continuing to deliver outsized growth following our brand conversion last year, which helped to balance a tougher comparison at our JW Marriott New Orleans. As we have noted previously, the New Orleans market was expected to experience some very tough comps after the first quarter, and so while third quarter RevPAR at our hotel declined from last year, the performance was better than expected as the hotel continued to gain market share.

Despite effectively flat RevPAR at our urban hotels, we managed to deliver 140 basis points of margin growth as our operators were able to effectively control costs. In fact, Marriott Boston Long Wharf delivered a 47% EBITDA margin in the quarter, an increase of over 100 basis points relative to the prior year, a very solid performance for an urban full-service hotel, especially considering recent cost pressures.

Our convention hotels turned in better-than-expected performance with RevPAR growth of 3.5% on generally healthy trends in group business. San Francisco was once again a standout performer with more than 15% RevPAR growth, and we continue to be encouraged by how the market and our hotel are setting up for additional growth into next year.

In Washington, D.C., performance across the market continued to be hampered by weaker government and government-related demand, although results at our recently converted Westin were consistent with our most recent expectations. In San Antonio, we were renovating our meeting space during the quarter, which caused some disruption, but that work is now complete and should position us for growth in 2026.

Across the portfolio, we had solid production in the third quarter, booking 6% more rooms than the prior year and posting our strongest third quarter booking volume since prior to the pandemic. We have positive group pace as we head into 2026 with particular strength in Orlando, Boston, Miami, San Francisco and Wine Country.

Performance across our resort portfolio was softer than expected as a weaker demand environment in South Florida and the Keys added to what has been a more challenging market this year in Maui. I think we are beginning to round the corner in Maui as September marked the first month of positive RevPAR growth for our resort this year and October is also positive and slightly better than expected.

In Wine Country, we continue to be encouraged by a better demand backdrop this year, although Q3 was expected to be our toughest comp quarter of the year, and we also experienced headwinds at the Four Seasons from the Pickett Fire in Napa County in late August and early September. While the fire was not close enough to cause any physical damage to the resort, we did experience cancellations and overall lower business volumes in the weeks after.

At Andaz Miami Beach, overall profitability in the third quarter was consistent with the range we shared with you last quarter. We continue to see an acceleration in our booking patterns and are pacing well to deliver strong growth next year. Occupancy continues to build, and we are well positioned with meaningful group bookings in the first quarter of 2026, the most important quarter for profitability. Robert will share some additional details on our progress at the resort shortly.

While the operating environment remains choppy and additional uncertainty has been introduced from the government shutdown, based on what we see today, we are maintaining our outlook for the year and are continuing to work with our operators to drive incremental revenue and control costs. We are working through our budgeting for 2026, and while that process is just beginning, we see reasons to be optimistic that we will benefit from our recent investments and be able to deliver above-market growth next year. We will have more details to share with you on our next call.

With that, I'd like to turn the call over to Robert to give some additional details on our progress in Miami and our capital investment activity.

Thanks, Bryan. It's been a productive few months for us on the operations and investment front. We continue to make headway at Andaz Miami Beach. Guest response and lead volume at the renovated resort continues to be positive. The resort is currently #8 on TripAdvisor for Miami Beach Hotels, a significant improvement over where we were 90 days ago.

As we shared with you last quarter, we need to book approximately 1,000 transient room nights per week in order to achieve our desired occupancy goals. I'm happy to report that we have recently been pacing ahead of that number as we continue to build momentum post opening. We are pleased with our business on the books for early 2026, which should support a solid first quarter of next year.

Additionally, a constructive event calendar next year, including the College Football National Championship in January and the World Cup in the middle part of the year should help add further compression. While we got off to a choppy start this year, we look forward to meaningful earnings growth next year and into 2027.

On the capital front, we completed a renovation of the meeting space in San Antonio on schedule and on budget. This investment should allow the hotel to better sell group business, and we will begin to see the benefits of that next year. In San Diego, we are just about to begin a renovation of the meeting space at our Hilton Bayfront. This hotel is consistently ranked as the top-performing large group hotel in the market and a refresh of the meeting space will ensure it is able to maintain its competitive positioning. We will complete this work in phases to minimize disruption. Separate from these projects, we are continuing to work through the planning and budgeting process for our capital investments for next year, and we'll have more to share with you next quarter.

The transaction market continues to be quiet, although we are seeing some incremental signs of life. While the debt financing markets remain open and conducive to transaction activity, a more tepid buy side has left some would-be sellers opting to refinance. Despite this more subdued backdrop, we continue to seek out opportunities where we can drive growth and create value through accretive transaction activity.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As we noted at the top of the call, our earnings results for the third quarter were generally in line with our prior expectations, even with the disruption we experienced at Four Seasons Napa Valley, which created a 50 basis point drag on RevPAR growth and a $1 million headwind to earnings. Stronger ancillary spend and ongoing efforts to contain costs helped to mitigate margin pressure.

Overall, third quarter RevPAR increased 2% compared to last year and total RevPAR grew 2.4%. Adjusted EBITDAre in the third quarter was $50 million, and adjusted FFO was $0.17 per diluted share. We have been working with our operators to reduce costs wherever possible and are seeing the benefits of this in our results.

Through the first 9 months of the year, our comparable portfolio total RevPAR growth has been 2.3%, and we have been able to hold margins to within 20 basis points of where they were in the prior year. This means that we have been able to contain our expense growth more effectively than expected at the start of the year.

We continue to benefit from a strong balance sheet with net leverage of only 3.5x trailing earnings or 4.8x, including our preferred equity. As of the end of the quarter, we had nearly $200 million of total cash and cash equivalents, including our restricted cash. Together with full capacity available on our credit facility, this equates to $700 million of total liquidity.

As previously disclosed, we completed an amendment and restatement of our bank debt in the third quarter, which extended our average maturity by 3 years and lowered our overall borrowing costs. We will be utilizing a portion of the proceeds from one of our newly amended term loans on a delayed draw basis to repay our Series A senior notes at their scheduled maturity in January 2026. After which, we will not have any debt maturities until 2028. We have a very strong bank group, and we appreciate their ongoing support and partnership as part of our recent recast.

While the operating environment remains challenging and the government shutdown has added to already heightened uncertainty, we are maintaining our full-year earnings outlook. Based on what we see today, we expect that stronger out-of-room spend will help make up for more moderate rooms RevPAR growth that is likely to be in the lower half of our existing range and allow us to generate EBITDA and FFO that is at or near the midpoint.

Note that this reflects actual activity so far in the quarter and current trends as we sit today, but these estimates could be negatively impacted if the government shutdown or its lingering effects cause additional disruption to travel and hotel demand.

The fourth quarter is projected to be our strongest RevPAR growth quarter of the year, with total portfolio RevPAR growth expected to be in the mid-single-digit range with Andaz Miami Beach contributing 400 basis points to 500 basis points. As a point of reference, our prior year fourth quarter RevPAR for the current portfolio, including and excluding Andaz, was $201 and $209, respectively, and for the prior full-year, it was $217 and $225.

Now shifting to our return of capital. We have repurchased a modest amount of stock so far in the fourth quarter, and our current year-to-date total stands at 11.4 million shares at an average price of $8.83 per share for a total deployment of $101 million. This repurchase activity has been accretive to both NAV and earnings per share. While we retain capacity for additional share repurchases, our projections do not assume the benefit of additional buyback activity. Separate from our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the fourth quarter and has also declared the routine distributions for our Series G, H and I preferred securities.

Before we conclude our prepared remarks, I'd like to turn it back over to Bryan to share some additional thoughts.

Thanks, Aaron. We will open it to questions shortly. But first, I want to address investor feedback related to the letter Tarsadia sent to our Board and recent market speculation and misconceptions. While as a matter of policy, we do not comment on rumors, we also believe in corporate transparency and healthy dialogue with our shareholders.

In March 2022, upon my appointment as CEO, the Board provided a straightforward mandate, close the valuation discount, improve absolute and relative total shareholder returns and drive growth in NAV per share. It was my view that generating superior returns from the ownership of hotel and resort real estate requires more purposeful asset recycling in order to capture the value created through capital investment, repositioning and asset management before it is eroded by an extended hold period and incremental defensive capital spend. I still believe this to be true.

That said, the last few years have been a challenging time for lodging transactions, and our pace has been slower than what we would have liked. However, even despite a depressed transaction market, we were still one of the most active in this space, disposing of lower quality, lower growth assets and using proceeds to acquire better real estate, including the remaining interest in one of the premier group hotels in San Diego, prime beachfront land in Miami with meaningful long-term growth potential and a solid hotel in San Antonio with a fantastic location and an attractive yield.

In total, we sold over $600 million of assets and acquired roughly $600 million of assets and recycled more capital than our peers on a relative basis. In addition, we have repurchased nearly $300 million of stock or 14% of our outstanding shares at a significant discount to NAV, generating meaningful value for our shareholders.

During this time period, we remain nimble, allowing us to take advantage of market conditions and effectively allocating capital through dispositions, acquisitions, investment in our portfolio and share repurchases. Despite these accretive allocations of capital, the last several years have been a challenging time for the lodging REIT sector and the group's total return performance has been disappointing.

The Board and management remain committed to taking every step possible to maximize value for shareholders and are open to any alternative that would reasonably be expected to result in value creation, which is why we have, from time-to-time, formally engaged with parties who have expressed an interest in acquiring subsets of our portfolio or the entire company.

This is evidenced by what was speculated in the press last year, but despite management and the Board going to great lengths to work with one of those parties to accommodate a sale of the company, they were not able to raise the equity capital needed to complete a transaction, and so there was no deal to do in the end and contrary to what you may have read, no offer to accept or reject. It seems almost an obligatory response in the face of rumored deal speculation to default assumptions of management and Board entrenchment.

I would encourage you to consider the facts I have shared with you. The actions we have taken in the year since my appointment as CEO have been consistent with preserving full strategic optionality and prioritizing the interest of shareholders. We have been deliberate in the construction of an exceptional portfolio, encumbrance-free balance sheet and shareholder-friendly governance. We have not done anything that would diminish the value or likelihood of realizing the company's value through a potential sale and in fact, have done the opposite and endeavored to engage in conversations related to a transaction when the Board believed they had an opportunity to better realize value for shareholders.

Where does that leave us today? We continue to execute our strategy and are working to recycle more assets. The transaction market remains depressed and equity capital, especially for larger deals, remains tight. We regularly meet with financial and other advisers to discuss market conditions and potential alternatives available to the company.

Our directors, most of whom have significant transactional experience, an important attribute that was considered as part of their election to the Board, provide management with guidance and support on evaluating and executing transactions to maximize value to shareholders.

As we have done in the past, the Board has and will continue to engage with credible and capitalized counterparties for the company. We have a great portfolio with meaningful embedded growth, and we have a well-informed and realistic view of the market and the value of our portfolio today and what we expect it to be in the future.

At the same time, we also understand the lack of depth and liquidity in the current transaction environment. We are also well aware that market conditions can change quickly, so we will remain nimble and ready to pursue any alternative that will create value for our shareholders. As evidenced by our excellent governance ratings, we take the fiduciary responsibility that we have been entrusted with seriously and are committed to finding the most expedited path to realizing the value of our portfolio.

With that, we can now open the call to questions. Operator, please go ahead.

[Operator Instructions] Your first question comes from the line of Duane Pfennigwerth with Evercore ISI.

This is Peter on for Duane. Could you just go back to the -- your thoughts on 4Q for us real quickly and tease that out the mid-single-digit total RevPAR range. How has that changed over the last 90 days? It would be helpful to maybe hear your thoughts on if we separate out Miami and San Diego, what's embedded for the rest of the portfolio?

Sure, Peter. Thank for the question. This is Aaron. I'll take the first part of that. Q4, even from the start of the year was always expected to be our strongest quarter from a RevPAR growth perspective. As you noted, we expected top line to grow in the mid-single-digit range. The underlying drivers are really obviously a meaningful contribution from Andaz Miami Beach, which as we noted at the midpoint accounts for about 450 basis points of the growth. The growth is really broad-based, right? We're seeing strong performance in Wine Country. Orlando is expected to have a good quarter.

Then as Bryan noted in the prepared remarks, Wile is starting to turn a corner and be a contributor there. Then we'll see some contribution from Bayfront as well given the lapping of the labor activity from last year, which is helping to balance out what we expected to be some softer growth markets all along in New Orleans, just given the calendar and the activity that happened last year and then D.C., just given some of the headwinds from the current environment that we're seeing now. All-in, when you take that together, we were focused, as we noted, on the midpoint of our EBITDA and FFO range, which would result in about EBITDA in the low $50 million area.

Then, Bryan, thank you for the extensive detail about the transaction markets. A question for you or for Robert would be just how do you think that changes in 2026? What could be the catalyst from here? In case there are further dispositions within the portfolio, do you see opportunities on the acquisition side?

Yes. I mean, look, I think when we look at, compared to last quarter as going back a quarter before that, I think the transaction market continues to slightly improve. I think that we have started to see maybe a little bit more rationalization in pricing. It's still not robust. Especially not for larger assets. As we look into '26, I think that the expectation is that things will continue to improve. The debt markets are absolutely there and supportive of deals of all sizes, obviously, more for cash flowing assets, it makes it easier to get the debt amounts for that.

I think really, when you look at the outlook for '26 right now, it's not overly inspiring. I think what we'll need to move things forward will be a slightly more positive outlook or additional adjustment in pricing expectations to be able to account for what will be a modest growth year.

Your next question comes from the line of Cooper Clark with Wells Fargo.

I guess just sort of sticking on the transaction market front. I'm just curious if you're seeing any large buyers willing to acquire and scale and if it's a bid-ask spread issue or there just isn't capital demand for the sector? If there is any disposition pipeline you could speak to either on a single asset or a larger piece of your portfolio?

On the disposition front, I mean, we have -- despite a more challenging transaction market, we have and will continue to look to recycle assets. Especially for our size, we've been extremely active over the last few years and been able to exit hotels where we thought the growth was lower or there was capital that was needed and those transactions were done at attractive cap rates and have been able to redeploy that into various different sources, including Beachfront in Miami, which we had a major repositioning, a more stable but still fantastic located asset in San Antonio and then being able to pivot very quickly to repurchase shares, which we have over the last several years of over 14% of our float. We will look to continue to do that.

It works. The current market is more supportive of assets on the smaller side. I think when you get into scale above a couple of hundred million dollars, I think the buyer pool is more limited. I think really what will change that is as the forward outlook improves at whatever point that is, as we have seen over time, you'll see capital quickly come back into the space.

Then I guess just switching over to the Andaz. Just curious, any thoughts about how we should be thinking about the EBITDA ramp into '26. Do you think that lower end of $12 million to $16 million is achievable next year with stabilization in '27 in the high teens to low 20 range?

Yes. I think the next year outlook is definitely achievable within that range. Q3 ended where we were expecting it to. Q4 is ramping up well, and we're getting to that December high 60%, 70% occupancy. Our transient bookings have accelerated. We talked about last call that we needed roughly 1,000 transient rooms booked a week, and we are right around that in several weeks well above that. While the market has softened a little bit, the rate in the market and the rate for our comp set is still well above where we underwrote.

We are seeing very strong bookings going into 2026, mainly Q1. The city has a good setup for next year. National Championship game, FIFA, F1. Not only do we have a ramping resort, we have good business on the books in Q1, and we have a strong market. Remember that Q1 makes up a large portion of the profitability for the entire year.

Your next question comes from the line of Smedes Rose with Citi.

Bryan, you mentioned in your opening remarks some group strength. You kind of called out 4 markets there. I'm just wondering, can you talk about just overall pace for group that you're seeing for your portfolio for '26? I guess, what percent of rooms sort of on the books at this point for next year?

Yes. We'll cross over the year at roughly right around 80% of the room nights on the books, which is relative -- basically consistent with the prior year, too. Crossover, we're on track there. Especially in Q3, we saw really good group production. Now that is for current year '26, '27, '28. We've actually seen a lot of corporate demand going into '27 and '28, and that tells us they're trying to secure the prime gates at this point.

When we look at pace, overall pace is up low mid-single digit for next year. The hotels and resorts that are strongest for us, Andaz, San Francisco, the Bay Area and Wine Country all have very strong pace for next year. Orlando had a phenomenal booking quarter in the third quarter, has a very strong pace as does Long Wharf, which is a hotel that we -- about 2 years ago started. It had always been a wonderful transient hotel, but started to be more strategic in where we are placing group business, which has allowed us to not only grow occupancy on shoulder periods, but also compress transient rate during that time -- during periods where we have -- we placed group.

Then also with San Antonio next year, you have a market -- market is a little stronger, and we're coming off of renovation of the meeting space, which was completed in Q3.

Your next question comes from the line of Michael Bellisario with Baird.

Bryan, thanks for all those comments at the end that color was helpful. First question, just you guys didn't buy back much stock in the quarter. Sort of one, why was that? Were you restricted at all that would have precluded you from repurchasing stock?

We were not restricted at all. When we look at share repurchase, we look to match fund a lot. Sometimes it depends on when we have transactions happening. Now when we sold New Orleans, we did acquire more, and so there is a piece of it that is more price sensitive. When we believe that we have an adequate discount to NAV, that is always a good capital allocation option for us.

We also weigh liquidity and other factors, and so if you looked over the last few years, you've seen some sort of -- you'll see ups and downs in the velocity and volume of repurchase. I think it's been over that time period, generally pretty consistent and about 14% of our overall float. Quarter-to-quarter, it's going to vary, but I think we -- as far as having it as an allocation tool, it's been one that we've used consistently.

Then just switching gears, can we dig into Wailea a little bit more about what you saw performance-wise, September, October, how those actualized versus expectations? Then what you're seeing in terms of pace into year-end, especially for the holiday period? That would be helpful.

As we talked on the last call, because of our positioning in the market, we knew that we were going to lag Kā'anapali and lag some of the luxury in Wailea also. A good sign, and I think we've heard in other company peer reports is that there's been great growth in Kā’anapali. We believe Kā’anapali is just about stabilizing at in the 60% to 70% occupancy, so that's a very positive sign for us. Some of the luxury in Wailea, although some of it was -- is comping off a displacement is also doing -- is also improving. We saw that in -- starting in September and into October, where our RevPAR turned positive.

As the market grew, we're now able to grow back into our place. Our index over that time period has also improved from the mid-90s RevPAR index to it should be stabilized around 110. We're working our way back up there and into the low 100s now. We had a great group booking or we had very strong group bookings in the quarter. Our Q4 group is very solid and up significantly. When we look into the festive time period, our revenue is in line with prior year.

I think everything that we were hoping to see, we have seen and we're continuing to see now, and so as we look into next year, we'll get the full advantage of our newly renovated product. We're having great booking trends right now, and we will continue to regain our transient share.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

I think, Bryan, again, helpful commentary. I had a question on Wailea. Not really talking about selling the company, but I think there's always been a perspective that there's a big value-add opportunity at that asset. I'm confident you guys have looked at all the options many times over. Can you maybe just give us an update on what is -- what your current perspective there is in terms of what value might be extracting longer term?

Yes. I mean, our perspective is that Wailea is a premier, if not the premier luxury beachfront resort in the U.S. I mean, it's a phenomenal location. It is an irreplaceable stretch of beach. It has the Maui market taken some time to recover a little bit? Yes. We're seeing all the positive signs and seeing groups and leisure travelers come back to that market. Long term, it's phenomenal.

We have talked over time about having some additional future development opportunities there. One thing about beachfront resorts is that development takes a while, and so while the market has had its -- has had a little bit of an up and down time period right now, we still work through that process and are far along in it, but still have a ways to go to be able to secure the ability to add additional keys to the resort.

Our belief is by the time we finish that, which is probably another year plus, the market will be where it needs to be, and then we'll be able to evaluate the returns on that. A little far out, the important thing is that we have a phenomenal piece of land in an irreplaceable market, and we will have the ability at some point in the future to add to that if it makes sense, and we'll address that and talk returns in that once we get to that point. We're working on it, and we're well along in the process, and we're still ways to go, though.

Just a quick follow-up on Orlando on the Renaissance. understanding you said next year, there's a lot of positive momentum there. Can you just remind us when the franchise or management contract is up there and whether you have thought about making changes when that happens?

It's subject to a long-term agreement with Marriott. We've had other hotels that are subject to long-term agreements with Marriott. When we can figure out something that works for both of us, we won't keep us from reevaluating brands or as we've done in Long Beach in D.C. We're really excited about the pace going into next year and the bookings that the hotel has been able to do. We'll evaluate any opportunities, whether it be through renovation or any repositioning in the future. Right now, we're really excited about what's on the books for next year.

Your next question comes from the line of Dan Politzer with JPMorgan.

First, it sounds like there's a lot of the CapEx stuff has been winding down, but there's still a good amount going on. Is there any way kind of broad strokes just to better frame how we should be thinking about CapEx on a go-forward basis in the coming years?

I think as we get into next year, it's definitely going to tail off from the heightened amount this year. That said, we'll always have some form of a cyclical rooms renovation, meeting space renovation at various usually 1 or 2 hotels throughout the portfolio. As far as our bigger hotels go, we don't have any of that next year, but as we get into -- we're doing meeting space in San Diego that's starting in the fourth quarter. That will go into the first quarter a little bit, but we're kind of strategic in how we're layering that and placing it.

I would expect it to normalize a bit down. Then depending on in out years, what hotel is coming up for renovation, it will adjust accordingly. I think going forward, somewhere in the 80-ish range is the standard amount that accounts for these cyclical renovations.

Then just in terms of the remarks, which were helpful in addressing some of those concerns that are out there. I think you noted that you would pursue any alternative that could create value for shareholders, which is obviously the right thing to say. I don't know what are -- are there options that you view as most viable versus any that are complete non-starters or off the table?

No, I don't think. I think when the Board evaluates these options and when you look at the space and given the persistent discounts to NAV that lodging REITs trade at, any Board, Sunstone or other would not really be upholding their fiduciary duty if they weren't considering options to somehow realize a value at or close to NAV, and so I think because of that, it's a -- and maybe it's just a little bit more specific to this space, but it really is like -- it's just an ongoing process that's good governance that on a -- it's not really even on an episodic basis. It's on a quarterly basis, Board -- or at least our Board works with our advisers to understand value, to understand liquidity in the market. We'll then use that to evaluate what is available now, what transactions are available today and what is our expectation for future value, and that's the basis to decide how to realize value for shareholders.

Your next question comes from the line of Kenneth Billingsley with Compass Point.

I wanted to ask about the -- you made a couple of comments about ancillary spending being stronger. Looking at the other line item for revenue, that was up pretty strong. My question is, what are you including in there? What is the increase? Is the expense -- are you able to control the expenses on that better where a lot of that flows to the bottom line?

Ken, it's Aaron. I'll address that. Certainly, we have seen as the year has went on, that our out-of-room revenue growth has outpaced that, that we've derived from revenues, and that has just been part and parcel with just the strength that we've seen in the group business, where whether it's banquet, AV, F&B has been -- has come in stronger and frankly, has helped to offset from a total revenue RevPAR growth perspective, a bit of the softness that we saw on the RevPAR side. That's been good to see. We anticipate for a full-year basis that total RevPAR actually exceeds RevPAR growth by 50 to 75 basis points. Good solid trend there.

Then on the other income line, that will grab all of our -- whether it is destination and resort fees, our spa, our parking, etc., that will all come in there, which has just been a source of strength this year, particularly as we've seen better growth in our luxury resorts in the wine country.

It really speaks to the strength that we've seen when you look at the different group components. The corporate group for us, which is a lot of the -- what our hotels will cater to remains strong. The out-of-room spend continues to pace at levels up to last year and significantly up to 2019, and so when you look at the composition of our group, our group, less government, less association, those tend to be a little bit more price sensitive, and we continue to see strong performance from the corporate group.

Then the other question I had is G&A as a percent of revenues was lower as a percentage. Anything particular in the quarter? Or is this something to extrapolate going forward?

Yes. G&A for the quarter, it gets a bit lumpy as you look at it just among the 4 quarters of the year. From a full-year perspective, our guidance is $20 million to $21 million. That's a bit higher than where we were last year just based on where the comp formulas came out for 2024. If you look back and compare that to where -- and it's effectively where we were at 2019, so from a long-term growth perspective, that feels pretty darn good to us given what we all know of inflationary pressures over the last few years.

That concludes our question-and-answer session. I will now turn the conference back over to Bryan Giglia for closing comments.

Thank you, everyone, for the interest in the company, and we look forward to meeting with many of you at upcoming conferences. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.