Sunstone Hotel Investors Signals Confident 2026 Earnings Path

Sunstone Hotel Investors ((SHO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Sunstone Hotel Investors’ latest earnings call struck an upbeat tone as management detailed stronger-than-expected Q4 results, broad-based RevPAR gains and expanding margins. Executives balanced that optimism with clear acknowledgments of market pockets under pressure and one-time 2025 benefits, but stressed that balance sheet strength and Andaz Miami Beach momentum set a favorable backdrop for 2026.

RevPAR Upside Driven by Rooms and Ancillary Spend

Total RevPAR rose 7.4% in Q4 and 12.5% including the Andaz Miami Beach contribution, reflecting solid demand and higher guest spending. Rooms RevPAR climbed 9.6% with a 540 basis point lift from Andaz, while ancillary revenue outpaced room growth, underscoring stronger spend in areas such as food, beverage and other on-property services.

Resort and Luxury Assets Lead Portfolio Performance

Resorts remained the standout performers, with Wailea Beach Resort delivering an impressive 19% RevPAR increase in Q4. Montage Healdsburg also turned in robust numbers, posting 15% total RevPAR growth in the quarter and just over 9% for the full year, signaling healthy demand for higher-end leisure and group experiences.

Urban Markets Deliver Select Bright Spots

In the urban segment, performance was mixed but highlighted notable winners in select cities. Marriott Long Beach Downtown achieved 12% total RevPAR growth and the Bidwell Marriott in Portland nearly 13% in Q4, while San Francisco posted more than 12% total RevPAR growth for the year and Renaissance Orlando at SeaWorld delivered double‑digit gains.

Andaz Miami Beach Emerges as a Growth Engine

Andaz Miami Beach has quickly become a key driver, with year‑to‑date occupancy above 80% at a mid‑$500 average rate and YTD RevPAR near $475. The property has already booked nearly 8,000 group room nights, representing more than half of budgeted group demand, and management expects low‑ to mid‑teens EBITDA contribution from Miami by 2026.

Margin Expansion Supported by Cost Controls

Comparable portfolio margins expanded by roughly 40 basis points in 2025 on total RevPAR growth of 3.5%, reflecting solid cost discipline. Operators delivered better‑than‑expected productivity gains and expense management, allowing Sunstone to convert modest top‑line growth into incremental profitability across much of the portfolio.

Balance Sheet Flexibility and Ample Liquidity

The company emphasized its conservative leverage profile, with net leverage around 3.5x trailing earnings and 4.7x including preferred securities. Following the January payoff of its Series A notes, Sunstone holds more than $200 million in cash and over $700 million in total liquidity when including undrawn credit facility capacity.

Capital Returns and Opportunistic Share Repurchases

Sunstone returned over $170 million to shareholders in 2025 through dividends and buybacks, signaling confidence in intrinsic value. The company repurchased about $108 million of common stock at an average price of $8.83 and $3.1 million of preferred shares at a roughly 18% discount, while the board refreshed authorization for up to $500 million of additional repurchases.

Active Portfolio Investment and Renovation Progress

Management continued to recycle capital into high‑impact projects, including the launch of Andaz Miami Beach and completion of the Wailea room renovation. The company also finished the San Antonio meeting‑space renovation in Q4 and is nearing completion in San Diego, with all projects tracking to schedule and budget, positioning assets for future rate and mix improvements.

Market Headwinds in D.C., San Diego and San Antonio

Not all markets are firing, with Washington, D.C. lagging due to government spending cuts, policy shifts and a shutdown that weighed on demand and visibility into 2026. San Diego and San Antonio both experienced softer results amid transient demand pressure, international travel headwinds and renovation‑related displacement, creating modest near‑term earnings drag.

Softer Urban Hotels and Tough Comparisons

Some urban assets faced tougher year‑over‑year comparisons and weaker local fundamentals, particularly in Boston and New Orleans. These softer top‑line trends partially offset the stronger performance seen in resorts and select urban markets, highlighting the importance of market selection and demand mix in driving portfolio results.

Expense Pressures and Sustainability of Efficiencies

While 2025 margin expansion benefited from tight cost controls, management warned that certain efficiencies may be harder to repeat. Comparable portfolio expenses grew about 3% and, once the full‑year impact of Andaz is included, total expense growth is expected around 5%, which could introduce margin pressure in some hotels if revenue growth slows.

Non‑Recurring 2025 Benefits Complicate Comparisons

Roughly $10 million of one‑time items boosted 2025 earnings, including contributions from a previously sold hotel, a settlement recovery and elevated interest income from higher deposit rates. These tailwinds are not expected to recur in 2026, making year‑over‑year comparisons more challenging and prompting management to emphasize underlying growth metrics.

Reliance on Event‑Driven Upside and Deal‑Market Caution

Executives highlighted that wider industry upside could be influenced by large external events, such as major sports and national celebrations that are not fully baked into guidance. At the same time, the hotel transaction market remains relatively quiet with a thinner bidder pool for larger assets, leading Sunstone to signal continued discipline around asset sales and capital deployment.

Renovation Disruption and Near‑Term Earnings Impact

Ongoing renovation work, particularly in meeting spaces in San Diego and San Antonio, has caused temporary revenue displacement and modest earnings headwinds. San Diego’s renovation is also front‑loading capital spending into the first half of the year, contributing to higher near‑term capex and some pressure on Q1 and Q2 income.

Guidance and Outlook for 2026

For 2026, Sunstone projects rooms RevPAR growth of 4%–7% to $234–$241 and total RevPAR growth of 3.5%–6.5% to $385–$396, with Andaz Miami Beach contributing about 400 basis points at the midpoint. Adjusted EBITDAre is forecast at $225 million–$250 million and FFO per share at $0.81–$0.94, with management aiming to defend 2025 margin levels while investing $95 million–$115 million of largely front‑loaded capex.

Sunstone’s call painted the picture of a hotel REIT leaning into its resort and luxury strengths, while using a strong balance sheet to fund both renovations and shareholder returns. Investors are being asked to look through near‑term market and renovation noise toward a 2026 shaped by Andaz Miami Beach momentum, defended margins and disciplined capital allocation.