Sunstone Hotel Investors, Inc. Q1 FY2025 earnings call

• Bryan noted an eventful quarter with stronger performance in Jan-Feb due to Super Bowl and inauguration, but March saw pullback in demand. First quarter EBITDA and FFO above expectations due to out-of-room spend, cost controls, and corporate savings.
• Debut of Andaz Miami Beach, which had permitting delays but is now open.
• Robert discussed capital investments: rooms renovation and lobby refresh at Wailea Beach Resort, meeting space renovation in San Antonio and San Diego, and capital investment activity range of $80M-$100M.
• Aaron reviewed first quarter earnings: adjusted EBITDA $57M, adjusted FFO $0.21 per diluted share, strong balance sheet with net leverage 4.5x trailing EBITDA.

In the first quarter, Washington D.C. saw a 24% RevPAR increase driven by the inauguration. New Orleans' 2 hotels had a combined 25% RevPAR growth from the Super Bowl, offset by a snowstorm in January. San Francisco had 9% RevPAR growth. Boston's Marriott Long Wharf performed strongly. San Diego had subdued transient demand in Q1 but improved outlook. Wailea had softer performance as Kaanapali reopens, but group production was up nearly 20% Y/Y. Marriott Long Beach Downtown had a 145% RevPAR increase. The Andaz Miami Beach opened on May 3 and will contribute growth in the second half of 2025 and beyond.

• Total portfolio RevPAR growth expected to range 4%-7% vs 2024.
• Adjusted EBITDAre range $235M-$260M, adjusted FFO per diluted share range $0.82-$0.94.
• Andaz Miami Beach opening shifted to early May, causing $2M revision in forecast.
• Wailea and San Diego contributed $4M and $2M forecast revisions respectively.

• Macroeconomic uncertainty and mixed macroeconomic outlook impacting lodging demand.
• Variability in economic outcomes affecting forward visibility.
• Potential cost inflation in capital projects.
• Challenging transaction market making deal execution difficult.

Q: David Katz asked about the underwriting trajectory of the Andaz Miami Beach compared to earlier expectations.

A: Bryan Giglia said the Andaz Miami Beach revised expectation is $6M-$7M, about $2M less than original opening date expectation. It will ramp up with high teens to 20-ish EBITDA range in 2026 and beyond.

Q: Dany Asad asked about the updated outlook buckets.

A: Aaron Reyes said revisions discretely fall into 3 buckets: Andaz revision of $2M, Wailea $4M challenge, and San Diego $2M headwind.

Q: Duane Pfennigwerth asked about Hawaii's Wailea performance and San Francisco outlook.

A: Bryan Giglia said Wailea's growing pain will continue for a quarter or so but will recover, and San Francisco has strong pace growth for coming quarters into 2027.

Q: Michael Bellisario asked about strategy and value creation, including asset sales.

A: Bryan Giglia said they are focused on recycling capital, looking at spot market value vs internal NAV, and will repurchase shares with proceeds.

Q: Smedes Rose asked about Napa assets and luxury asset conversations.

A: Bryan Giglia said Napa's first quarter is seasonal, they continue to fine-tune, and luxury assets have a focused buyer group with considerations of debt markets.

Q: Chris Woronka asked about Andaz Miami's visibility and booking window.

A: Bryan Giglia said booking window is opening, the hotel is booking weddings and corporate events, and will have strong performance in Q4 and beyond.