Sunstone targets mid-single-digit Q4 RevPAR growth as group bookings accelerate for 2026

Earnings Call Insights: Sunstone Hotel Investors (SHO) Q3 2025

MANAGEMENT VIEW

* CEO Bryan Giglia highlighted that third quarter operating results reflected continued strength in San Francisco, helping to offset softer leisure demand and subdued government-related demand in other portfolio segments. Giglia stated, "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."
* Giglia also emphasized margin improvements at urban hotels, noting, "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." He cited Marriott Boston Long Wharf's 47% EBITDA margin for the quarter, up over 100 basis points year-over-year.
* The CEO addressed investor concerns regarding company strategy, saying, "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."
* CFO Aaron Reyes reported, "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."
* President Robert Springer noted progress at Andaz Miami Beach, stating guest response and booking momentum remain positive, with the resort currently ranked #8 on TripAdvisor for Miami Beach Hotels.

OUTLOOK

* Reyes stated, "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."
* The company projects fourth quarter portfolio RevPAR growth in the mid-single-digit range, with Andaz Miami Beach contributing 400 to 500 basis points. Reyes referenced prior year fourth quarter RevPAR of $201 and $209 for the current portfolio, including and excluding Andaz, respectively.

FINANCIAL RESULTS

* The quarter’s adjusted EBITDAre was reported at $50 million and adjusted FFO at $0.17 per diluted share. Reyes stated, “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.”
* Sunstone ended the quarter with nearly $200 million in total cash and cash equivalents and $700 million of total liquidity. An amendment and restatement of bank debt extended average maturity by 3 years and lowered borrowing costs.
* Year-to-date, 11.4 million shares have been repurchased at an average price of $8.83 per share for a total deployment of $101 million.
* A $0.09 per share common dividend was authorized for the fourth quarter.

Q&A

* Peter Laskey asked about Q4 expectations and RevPAR drivers; Reyes answered that Q4 was always expected to be the strongest quarter, driven by broad-based performance and a meaningful contribution from Andaz Miami Beach. Laskey also inquired about transaction market catalysts; Giglia said the market is improving slightly, but “what we'll need to move things forward will be a slightly more positive outlook or additional adjustment in pricing expectations."
* Cooper Clark asked if large buyers are active and about the disposition pipeline. Giglia responded Sunstone will continue to recycle assets and sees more support for smaller assets, noting, "I think the buyer pool is more limited" for larger transactions.
* Clark also questioned Andaz Miami Beach's EBITDA ramp. Giglia replied, "The next year outlook is definitely achievable within that range," referencing occupancy and transient bookings momentum.
* Bennett Rose inquired about group pace for 2026. Giglia said, "We'll cross over the year at roughly right around 80% of the room nights on the books, which is...basically consistent with the prior year, too."
* Michael Bellisario questioned limited share repurchases. Giglia indicated it is driven by opportunity and price sensitivity, stating, “as far as having it as an allocation tool, it's been one that we've used consistently.”
* Bellisario also asked about Wailea’s performance; Giglia said, "We saw that in -- starting in September and into October, where our RevPAR turned positive."
* Chris Woronka asked about long-term value creation at Wailea; Giglia emphasized development potential and market recovery, saying, "Our belief is by the time we finish that, which is probably another year plus, the market will be where it needs to be."
* Daniel Politzer questioned CapEx trends; Giglia expects it to "normalize a bit down" and guided for “somewhere in the 80-ish range” for cyclical renovations.
* Kenneth Billingsley asked about ancillary revenue; Reyes explained, “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.”

SENTIMENT ANALYSIS

* Analysts were generally neutral to slightly positive, with questions focused on RevPAR outlook, transaction markets, and group bookings. There was pressing for details on transaction strategy and CapEx, but no overt skepticism or negative tone.
* Management maintained a confident and measured tone in both prepared remarks and responses, using phrases such as "we are maintaining our outlook" and “we are well positioned.” Giglia was defensive but transparent when addressing shareholder concerns and rumors.
* Compared to the previous quarter, both analysts and management appeared incrementally more optimistic about booking trends and market recovery, especially in Miami and San Francisco.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language remained stable, with the current quarter maintaining the full-year outlook and emphasizing margin containment, whereas the previous quarter reflected a more cautious approach and revised guidance downward due to softness in Wailea and D.C.
* Strategic focus has shifted more toward capitalizing on recent investments and portfolio optimization, with continued asset recycling and share repurchases.
* Management’s tone was more confident this quarter, highlighting improved group booking trends and an optimistic setup for 2026, versus a more cautious sentiment last quarter related to macro uncertainty and slower ramp-up at Andaz Miami Beach.
* Analysts in both quarters focused on RevPAR, capital allocation, and asset sales, but this quarter’s questions showed greater interest in the recovery trajectory and specific asset performance.

RISKS AND CONCERNS

* Challenges noted included the impact from the Pickett Fire near Four Seasons Napa Valley, subdued government-related demand in Washington, D.C., and a weaker leisure environment in South Florida and the Keys.
* Management cited ongoing uncertainty from a potential government shutdown as a risk to travel and hotel demand.
* Reyes stated, "these estimates could be negatively impacted if the government shutdown or its lingering effects cause additional disruption."
* The transaction market remains depressed, with limited equity capital for large deals, as discussed by Giglia.

FINAL TAKEAWAY

Management reiterated its commitment to maintaining strategic flexibility and maximizing shareholder value through disciplined capital allocation, portfolio optimization, and robust cost controls. With improved group booking pace heading into 2026, persistent margin gains, and a strong liquidity position, Sunstone signals confidence in delivering growth despite ongoing macroeconomic and sector-specific headwinds.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/sho/earnings/transcripts]

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