Sunstone Hotel Investors’ Earnings Call: Mixed Sentiments and Strategic Moves

Sunstone Hotel Investors ((SHO)) has held its Q1 earnings call. Read on for the main highlights of the call.

Sunstone Hotel Investors’ recent earnings call conveyed a mixed sentiment, balancing strong performances in certain markets and successful hotel conversions with challenges in other areas and macroeconomic uncertainties. The company emphasized its robust share repurchase strategy, yet faced tempered outlooks due to specific regional challenges and a delayed hotel opening.

Strong Performance in Specific Markets

Sunstone Hotel Investors reported notable successes in several key markets. The inauguration in Washington D.C. led to a 24% increase in RevPAR, while New Orleans hotels saw a 25% growth in RevPAR, largely due to the Super Bowl. San Francisco also experienced a 9% RevPAR growth, driven by an improved citywide calendar.

Successful Hotel Conversions and Openings

The company celebrated the opening of the Andaz Miami Beach on May 3, which is expected to contribute to future growth. Additionally, the Marriott Long Beach Downtown posted an impressive 145% increase in RevPAR. Sunstone expressed optimism about the long-term potential of the Andaz Miami Beach, particularly from 2026 onwards.

Robust Share Repurchase and Strong Balance Sheet

Sunstone demonstrated financial strength through a robust share repurchase strategy, buying back $21 million of stock at $8.90 per share. The company maintains a strong balance sheet, with net leverage, including preferred equity, at 4.5x trailing EBITDA, and total liquidity nearing $650 million.

Positive Outlook for San Francisco and Wailea

San Francisco showed promising business transient demand, with expectations of strong pace growth in the coming years. Wailea Beach Resort’s group production increased by nearly 20% in the first quarter compared to the previous year, indicating a positive outlook for these markets.

Challenges in Wailea and San Diego Markets

Despite positive trends, Sunstone faced challenges in Wailea and San Diego. Wailea’s performance was softer than expected due to recovery efforts from fires and the reopening of Kaanapali. San Diego experienced weaker transient demand, affecting first-quarter results.

Macroeconomic Uncertainty and Limited Forward Visibility

The company acknowledged the impact of macroeconomic uncertainties on its operations, with moderated operating fundamentals and declining business and consumer confidence leading to a cautious adjustment of their full-year outlook.

Delayed Opening of Andaz Miami Beach

The delayed opening of the Andaz Miami Beach affected the expected EBITDA contributions for the year, with revised projections estimating $6-7 million in EBITDA. Despite this, the company remains optimistic about its long-term potential.

Forward-Looking Guidance

Sunstone Hotel Investors provided updated guidance for the year, projecting total portfolio RevPAR growth between 4% and 7% compared to 2024. Adjusted EBITDAre is expected to range from $235 million to $260 million, with adjusted FFO per diluted share forecasted between $0.82 and $0.94. The company anticipates significant contributions from the Andaz Miami Beach in the fourth quarter and plans to continue its capital recycling strategy, including potential asset sales to fund further share repurchases.

In summary, Sunstone Hotel Investors’ earnings call presented a balanced view of strong market performances and strategic financial maneuvers against the backdrop of regional challenges and economic uncertainties. The company’s forward-looking guidance reflects cautious optimism, with expectations of continued growth and strategic asset management.