Sunstone Hotel Investors Lifts Outlook After Strong Q1

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

Sunstone Hotel Investors’ latest earnings call struck a notably upbeat tone despite lingering macro and weather risks. Management emphasized strong demand at its resort and lifestyle assets, particularly in wine country and Miami, alongside disciplined cost controls and accretive share repurchases. While Hawaii storm damage and urban softness weighed on parts of the portfolio, the company framed these as manageable against robust cash flow growth.

Broad-Based RevPAR Momentum Across the Portfolio

Sunstone reported total RevPAR up 13.4% in the first quarter and rooms RevPAR up 14.6%, highlighting a strong start to the year. Even excluding the outsized contribution from Andaz Miami Beach, RevPAR still climbed 5.7%, signaling that revenue gains are not solely dependent on a single marquee property.

Resort and Wine Country Assets Drive Outperformance

Resorts again proved to be the growth engine, with combined comparable RevPAR up more than 18% in the quarter. Wine country properties were standouts, posting a striking 34% RevPAR increase that translated into meaningful EBITDA upside and underscored the appeal of experiential, leisure-driven travel.

Andaz Miami Beach Delivers Early Scale and Profitability

The newly ramped Andaz Miami Beach posted 86% occupancy at a $564 average daily rate, generating about $6.5 million of EBITDA in the quarter. Management views this as the beginning of a multiyear earnings story and expects the hotel to add roughly 400 basis points to full-year RevPAR at the midpoint of guidance.

Earnings and Cash Flow Climb at a Double-Digit Pace

Adjusted EBITDAre rose to $68 million in the first quarter, an 18% year-over-year increase that tracked ahead of revenue growth. Adjusted FFO per diluted share climbed to $0.27, nearly 29% higher than a year ago, underscoring the operating leverage in the portfolio and the benefit of recent capital allocation moves.

Margin Expansion Supported by Tight Cost Discipline

Cost control remained a bright spot, with comparable rooms departmental expense per occupied room up just 1% in the quarter. Across the portfolio, excluding Andaz, total expenses rose 3.4% on an absolute basis, or 2.4% per occupied room, enabling a 140 basis point expansion in comparable hotel margins.

Balance Sheet Flexibility and Accretive Buybacks

The company highlighted a conservative balance sheet with no debt maturities until 2028 and net leverage at about 3.5 times trailing earnings, or 4.6 times including preferred. Sunstone also repurchased roughly $50 million of common and preferred stock this year, including common at an average $9.11 and preferred at a near 21% discount to par, boosting both FFO per share and estimated NAV.

Capital Projects Progressing On Time and On Budget

Management pointed to solid execution on key capital projects, with a major meeting-space renovation in San Diego nearing completion to support group demand. Additional upgrades, including the Miami Bazaar opening in late summer or early fall and targeted refreshes such as at Ocean’s Edge, are expected to enhance guest experience and drive future revenue growth.

Hawaii Storm Damage Adds Cost and Timing Uncertainty

Severe March storms hit the Wailea Beach Resort in Hawaii, causing wind and water damage to guestrooms, public areas and roofs even as revenue there grew around 14%. The company expects incremental repair capital spending to push 2026 CapEx toward the upper end of prior plans, while the timing and magnitude of potential insurance recoveries remain unclear.

Urban Hotels Face Weak Demand and Tough Comparisons

Urban properties underperformed, with urban RevPAR down 9.3% in the first quarter and total RevPAR off 2.9% after accounting for out-of-room spending. Markets such as Boston and New Orleans were pressured by harsh winter weather and difficult event comparisons, including last year’s Super Bowl-related strength in New Orleans.

Market-Specific Headwinds and Event-Driven Volatility

Certain hotels faced unique headwinds, including the Westin D.C. Downtown, where RevPAR fell 9.8% against a tough prior-year inauguration comparison and winter storm-related group attrition. The JW Marriott New Orleans also reported lower revenue without last year’s Super Bowl boost, despite continuing to gain market share in its competitive set.

Group Cancellations and Mixed Business Segmentation

Isolated group cancellations, such as at Renaissance Orlando SeaWorld, weighed on results and highlighted the ongoing lumpiness in group demand. Management noted that weather-driven attrition and uneven group mix contrasted with stronger-than-expected transient demand, reinforcing the value of a balanced segmentation strategy.

Managing Through Select Cost Inflation

While room-level productivity improved, certain operating costs moved higher, including utilities, property general and administrative expenses and sales-related spending. The company now expects overall expenses to trend in the low-to-mid 3% range for the year, with guidance reflecting approximately 3.25% to 3.5% growth as Sunstone seeks to balance service levels with margin preservation.

Exposure to External Travel and Macro Risks

Management cautioned that an extended period of travel volatility or a sustained rise in fuel prices could pressure future demand and spending patterns. The company also highlighted uncertainty around major events such as the World Cup and chose not to embed material upside from such international demand into its current outlook, framing any benefits as incremental.

Upgraded Guidance Signals Confidence but Stays Conservative

Sunstone raised its full-year outlook, now projecting total RevPAR growth of 5.0% to 7.5%, implying total RevPAR of roughly $390 to $400 and rooms RevPAR in the $236 to $242 range, with Andaz Miami Beach adding about 400 basis points at the midpoint. The company now expects adjusted EBITDAre of $238 million to $252 million and FFO per diluted share of $0.88 to $0.96, with first-quarter results already representing about 28% of the full-year earnings midpoint.

Sunstone’s earnings call painted the picture of a company leaning into its resort and lifestyle strengths while keeping a tight grip on costs and leverage. Despite weather events, urban softness and persistent macro uncertainty, management’s raised guidance, early success at Andaz Miami Beach and ongoing buybacks suggest a constructive outlook for shareholders focused on cash flow growth and capital returns.