Sunstone Hotel Investors(SHO) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The fourth quarter operating results exceeded expectations, with total RevPAR growth of 7.4% in the quarter, or 12.5% including the contribution from Andaz Miami Beach [5][21] - Adjusted EBITDAre for the fourth quarter was reported at $57 million, with Adjusted FFO of $0.20 per diluted share [21] - The company maintained a strong balance sheet with net leverage of 3.5 times trailing earnings, or 4.7 times including preferred equity [22] Business Line Data and Key Metrics Changes - Resorts led the portfolio with a 19% RevPAR growth in Maui, while Andaz Miami Beach outperformed expectations [6][7] - Urban hotels showed mixed results, with Marriott Long Beach Downtown achieving 12% RevPAR growth, but Boston and New Orleans faced softer markets [8][9] - Convention hotels experienced RevPAR growth of 2.8%, with San Francisco being a standout performer [9] Market Data and Key Metrics Changes - The company noted a recovery in the Northern California market and positive signs in Wailea, with expectations for industry-wide lift from upcoming events [12][13] - The D.C. market faced challenges due to government spending cuts and a shutdown, impacting performance [11][76] - Transient demand in San Diego showed improvement, with early signs of recovery noted in January and February [13][55] Company Strategy and Development Direction - The company is focused on three strategic objectives: recycling capital, investing in the portfolio, and returning capital to shareholders [4][14] - Plans for 2026 include continued investment in properties and potential asset sales to realize value [29][45] - The company aims to manage costs effectively while pursuing growth opportunities in a cautious market environment [11][14] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2026, expecting rooms RevPAR to increase between 4% and 7% [23] - The company anticipates a strong first quarter due to contributions from Andaz and improved performance in Maui [24] - Management highlighted the importance of controlling costs and managing margins amid inflationary pressures [11][40] Other Important Information - The company returned over $170 million to shareholders through dividends and share repurchases [5] - A common dividend of $0.09 per share was authorized for the first quarter, alongside routine distributions for preferred securities [27] - The board reauthorized a share repurchase program of up to $500 million [27] Q&A Session Summary Question: Can you discuss the 1.5% midpoint of 2026 RevPAR growth excluding Andaz? - Management noted that Maui is seeing growth, and transient demand is improving, which should help cover shortfalls in group business [32][35] Question: What are the key drivers of expense growth in guidance? - Expense growth is expected around 3%, with labor costs decreasing slightly and energy prices increasing [38][40] Question: Is the company expecting to be a net seller of assets? - Management indicated a pickup in transactions and a focus on realizing private market values for assets [45][46] Question: Why is total RevPAR guidance lower than RevPAR outlook? - The company cited challenges in larger assets and group business impacting ancillary spend [50][51] Question: What external events could impact guidance? - Management highlighted potential headwinds from government-related events and positive signs from upcoming celebrations [76][78] Question: Can you elaborate on CapEx guidance? - The largest projects will be front-loaded, with significant spending on meeting space renovations and other maintenance projects [80][81]