Sunstone Hotel Investors (SHO) Q2 FY26 earnings call: guidance and Q&A

Sunstone Hotel Investors reported strong second-quarter performance, exceeding expectations with overall RevPAR growth of 9.3%. Excluding Andaz Miami Beach, RevPAR still grew a solid 4.3%. This revenue strength, combined with cost controls, led to a 14% year-over-year increase in adjusted FFO per diluted share. Resorts, including Wailea Beach Resort and Andaz Miami Beach, were key drivers of this growth, with Wailea showing a nearly 15% RevPAR increase and Andaz Miami Beach producing $2.8 million in EBITDA.

The resort portfolio demonstrated significant strength, with combined RevPAR growth of nearly 27%. Wailea Beach Resort continued its impressive recovery, increasing year-to-date occupancy by 10 points and EBITDA by nearly 18% year-over-year. Wine Country resorts saw 5% RevPAR growth, primarily from improved group business. Andaz Miami Beach achieved 72% occupancy at an average rate of $470, generating $2.8 million in EBITDA, and is preparing for the opening of its signature restaurant, Bazar Meat, in Q4.

Urban hotels experienced a combined RevPAR growth of 5.2%, driven by strong group, corporate, and leisure demand, leading to a 50 basis point margin expansion. JW New Orleans benefited from robust group demand, expected to continue with double-digit group pace in H2. Marriott Boston Long Wharf saw broad-based strength, with significant pace increases for the remainder of 2026 and into 2027. San Francisco's RevPAR grew 16% in Q2, though growth is expected to moderate^📎. Washington D.C. outperformed expectations due to incremental transient^📎 demand, while San Diego faced headwinds from a weaker convention calendar and renovations, resulting in an 8.4% RevPAR decline.

The comparable portfolio, excluding Andaz, saw total expense growth of 4.4% (3.6% per occupied room), resulting in a 100 basis point margin headwind. This was primarily due to a shift to a higher transient^📎 mix at large group hotels like Hilton San Diego Bayfront, which impacted efficiency. Excluding San Diego, expense growth per occupied room was 120 basis points lower, and margins expanded by 10 basis points. Management is focused on labor efficiencies and mitigating energy and property-level G&A costs, as well as minimizing corporate G&A.

The company completed the sale of the Hyatt Regency San Francisco in late July at a nearly 20x trailing EBITDA multiple. Proceeds from this sale have been partially deployed into accretive common and preferred stock repurchases, totaling $40 million for common stock at $9.24 per share and $30 million for preferred stock at an 18% discount to liquidation value. Management intends to continue opportunistic repurchases and other capital recycling activities to maximize NAV per share and shareholder value.

Several key capital projects are nearing completion or underway. The San Diego meeting space renovation is finished, already boosting booking velocity. Bazar Meat at Andaz Miami Beach is complete and set to open in the fall. The Oceans Edge Resort in Key West was converted to the Hilton Key West Resort and Marina on July 1, with a phased renovation underway to leverage Hilton's distribution and operating expertise. Wailea Beach Resort's storm repair work is substantially complete, with $6 million in insurance reimbursements received to date.

The full-year outlook for 2026 has been adjusted upwards to reflect Q2 outperformance and improved near-term trends, despite persistent macroeconomic uncertainty^🌐. The transaction market is showing increased momentum, with more full-service hotels in the $75 million to $150 million range coming to market. While more interesting, management notes a disconnect in pricing due to competitive bidding, reinforcing their current preference for share repurchases as the most accretive capital deployment option.