"Sunstone Hotel Investors" Q2 2026 Earnings Call - Raised 2026 Guidance and Recycles Sale Proceeds into Accretive Share Buybacks

Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors second quarter earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. I would like to remind everyone that the conference is being recorded today, August 6th, 2026, at 12:00 P.M. Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead.

Aaron Reyes, Chief Financial Officer, Sunstone Hotel Investors: Thank you, operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements. We also note that the commentary on this call will contain non-GAAP financial information, including adjusted EBITDAre, adjusted FFO, and hotel-adjusted EBITDAre. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings release and supplemental, which are available in the investor relations section of our website. With us on the call today are Bryan Giglia, Chief Executive Officer, and Robert Springer, President and Chief Investment Officer.

After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Brian. Please go ahead.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Thank you, Aaron. Good morning, everyone. We were pleased with our performance in the second quarter, which again exceeded our expectations. Our portfolio benefited from robust leisure demand as a result of increased summer travel and special events, which added to sustained strength in group and corporate demand. Overall, RevPAR in the quarter grew a solid 9.3%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 4.3%. This stronger than expected revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to deliver meaningful growth in earnings. The added benefit of our accretive common and preferred stock repurchase activity contributed to further growth in earnings per share with second quarter adjusted FFO over 14% higher than last year.

Our resorts once again led the portfolio with combined RevPAR growth of nearly 27%, including the benefit of Andaz Miami Beach. Wailea Beach Resort delivered impressive performance as RevPAR grew nearly 15% in the quarter. The resort continues to regain its market position, growing year-to-date occupancy by 10 points and increasing EBITDA by nearly 18% relative to the prior year. We are encouraged by the sustained momentum we are seeing in Maui with year-to-date group room night production for all future periods up 36% versus last year and group pace for 2027 up over 10%. Our Wine Country resorts generated RevPAR growth of 5% in the second quarter, driven by better group business. We continue to see strong growth at Andaz Miami Beach, even with less occupancy compression than we were expecting from the World Cup.

During the second quarter, the resort ran 72% occupancy at an average rate of $470 and produced $2.8 million in EBITDA. While the third quarter is seasonally the lowest in the market, our resort is gearing up for a solid fourth quarter, which should benefit from market compression following the temporary closure of the W Hotel and the opening of our signature restaurant, Bazaar Meat. The restaurant is now complete, we are waiting to open into the high season. Our renovated resort continues to gain traction with higher-end group business and leisure travelers, and the addition of Bazaar should bring additional momentum as we move into 2027. Our urban hotels benefited from strong group, corporate, and leisure demand during the quarter.

RevPAR at these hotels grew a combined 5.2%, driven primarily by rate, which drove a 50 basis point expansion in hotel margins. JW New Orleans benefited from robust group demand with strong out-of-room spend. We expect this trend to continue for the remainder of the year with second half group pace up double digits. At Boston Marriott Long Wharf, the quarterly performance benefited from strength across all demand segments. Going into the quarter, our hotel had a solid base of group business on the books, which allowed our operators to compress leisure rates, especially during the World Cup. While we were pleased to see summer events drive more demand than anticipated in Boston, the strength we are seeing in the market is broader based, with pace up meaningfully for the remainder of the year and into 2027 with the added benefit of a better citywide calendar.

Performance at our convention hotels reflected a continuation of the same themes we saw earlier in the year. San Francisco continued to perform well with rate compression in June from the World Cup, adding to what was already a strong setup for corporate transient demand throughout the quarter. RevPAR grew 16% in the quarter, which was impressive, down 11 points sequentially from the first quarter. Our expectation was that the pace of growth in San Francisco for the remainder of the year would continue to moderate, which is consistent with what we saw during our ownership period in July. Performance in Washington, D.C. came in better than expected, as incremental transient demand offset what has been a more subdued group backdrop in the market due to lower government-related activity.

As we noted at the start of the year, we expected that a weaker convention calendar in San Diego, along with our meeting space renovation, would present some headwinds for us, with the biggest impact happening in the second quarter, which saw total RevPAR decline 8.4%. While transient demand increased 19% in the quarter, given the importance of group business to this hotel and its associated out-of-room contribution, the increased transient business was only able to offset a portion of the group shortfall. Looking ahead, the hotel is already seeing the benefit of our new meeting space. The sales team had a fantastic booking quarter, achieving the hotel’s highest Q2 group revenue production on record with $26 million of business booked in the quarter. We expect to see sequential improvement in San Diego for the remainder of the year, with particular strength in the fourth quarter.

The setup in San Diego in 2027 is much better across the market, with increased citywide nights, and our hotel is also benefiting from better group patterns and our new meeting space, which is contributing to a double-digit increase in group pace for next year. On the expense side, we knew coming into the quarter that it would be our most challenging comparison of the year, given our anticipated mix of business and the benefit of favorable tax appeals that were received in the prior year. Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 4.4% on an absolute basis during the quarter, or 3.6% per occupied room, which led to 100 basis point headwind to margins.

Our cost and margin performance was impacted by a shift to a higher transient mix at a couple of our larger group hotels, which kept them from running at peak efficiency. This was particularly the case at the Hilton San Diego Bayfront, which, as I noted earlier, also had meeting space under renovation for part of the quarter and had a softer backdrop across the market. If we exclude San Diego, our expense growth per occupied room was 120 basis points lower and margins expanded by 10 basis points. We continue to focus on driving labor efficiencies where possible and working with operators to mitigate growth in energy expenses and property-level G&A costs. We have also been focused on minimizing expenses at the corporate level and ensuring that our G&A costs are aligned with the needs of the company.

In late July, we closed on the previously announced sale of the Hyatt Regency San Francisco, realizing an attractive private market value for a low-yielding asset. While we expect there will be incremental revenue growth at the hotel, we know that ongoing cost pressures in the market will elongate and create risk to the recovery and earnings. We took advantage of strong investor interest in the market and sold the hotel at an implied multiple that is well in excess of where we are trading and delivered to our shareholders the value of future growth today and with certainty. We have accretively deployed a portion of the sale proceeds into the discounted repurchase of common and preferred stock and expect to generate additional shareholder value and grow NAV per share through the redeployment of the remaining proceeds.

We have adjusted our full-year outlook to reflect the sale of our San Francisco hotel and the better-than-expected performance in the second quarter. While many of the factors that gave rise to macroeconomic uncertainty earlier in the year and warranted a cautious view have not abated, we believe that the strength of recent trends allows us to incorporate a modest amount of incremental revenue and profitability expectations for the second half of the year in our revised outlook. While we are optimistic that if trends continue, we can deliver stronger performance, we believe it remains prudent to retain a degree of caution. In terms of the transaction market, the interest we saw in our San Francisco sale process was encouraging and reflects continued momentum.

Aaron Reyes, Chief Financial Officer, Sunstone Hotel Investors: The environment looks to be more conducive to further executing our capital recycling strategy and continuing to demonstrate the value of our portfolio. In the interim, we delivered value to shareholders through an additional $70 million of accretive common and preferred stock repurchase activity so far this year. We expect to continue opportunistic repurchase activity as pricing allows while we focus on generating profitability growth from operations and realizing the benefits of our investment projects. With that, I’ll turn the call over to Robert to give some additional details on our capital investment activity.

Robert Springer, President and Chief Investment Officer, Sunstone Hotel Investors: Thanks, Bryan. As we head into the second half of 2026, we are pleased to be wrapping up a few of the larger projects we had slated for this year. In San Diego, we are now done with the renovation of the meeting space and are already seeing the benefits of that investment in our booking velocity and expect group activity to pick up in the latter part of this year and into 2027. At the Andaz Miami Beach, construction is complete at Bazaar Meat and the space looks great. We are starting training activities and remain on track to debut the restaurant in the fall to take advantage of the full high season in the market. We look forward to the incremental earnings and appeal that this dining destination will add to the resort.

On July 1st, we converted the Oceans Edge Resort to the Hilton Key West Resort & Marina. This change is intended to drive incremental earnings at the resort as the property benefits from Hilton’s stronger distribution channels, operating expertise, and lower customer acquisition costs compared to its prior independent operating model. As part of the conversion, the resort is undergoing a focused renovation, which includes a rooms refresh and some facade work. This work is being done in phases over the rest of 2026 and into 2027 and is being partially funded by the resort’s new operator. As we shared with you last quarter, Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and caused wind and water damage in some parts of the resort.

We are now substantially complete with most of the repair work on the guest rooms and public spaces. We’ll have some roof and exterior work that will be performed later this year. As Bryan noted earlier, demand at the resort has rebounded sharply this year. We have been navigating around peak periods to minimize disruption. To date, we have received approximately $6 million in reimbursements from our insurers, including $1.2 million in business interruption associated with lost income in March and April. We are working closely with our insurers to pursue additional cost recovery for the remaining repair work. With that, I’ll turn it over to Aaron. Please go ahead.

Aaron Reyes, Chief Financial Officer, Sunstone Hotel Investors: Thanks, Robert. As we noted at the top of the call, our earnings results for the second quarter came in ahead of expectations, driven by stronger leisure performance and sustained strength in corporate and group demand. Rooms RevPAR for the total portfolio grew an impressive 9.3% in the quarter, including a 500 basis point benefit from Andaz Miami Beach. Total RevPAR for all hotels increased 7.7%, including a 470 basis point benefit from Andaz. The stronger top-line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre in the second quarter of $77 million, an increase of 6% relative to last year. When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.32, an increase of 14% from last year.

Our balance sheet remains strong and has been further bolstered by the receipt of the sale proceeds from Hyatt Regency San Francisco. On a transaction-adjusted basis, our total cash balance as of Q2 was approximately $430 million, including restricted cash, and our net leverage stood at only 2.6x trailing earnings, or 3.6x including our preferred equity. We have no debt maturities prior to 2028, and we have restored full availability on our credit facility. Included in our press release this morning are the details of our updated outlook for 2026. As part of that information, we are providing an adjusted view of our prior guidance ranges, which reflect the July sale of the Hyatt Regency San Francisco.

These adjustments include the estimated gain from the sale and the net impact of the removal of the hotel’s earnings for the remainder of the year, which are partially offset by the estimated interest income we expect to generate, assuming the net sale proceeds are retained in our cash reserves. We have increased our expectations for the year to reflect the outperformance we saw in the second quarter, along with a modest increase from improved near-term trends, while still retaining a degree of caution for the balance of the year. Our updated guidance also includes the benefit of lower corporate G&A resulting from a management transition that occurred earlier in the year and the benefit of higher FFO and FFO per share created by our accretive common and preferred stock repurchase activity.

Based on what we see today, we now expect that RevPAR for all 13 hotels in the current portfolio will grow between 7% and 9%, or an increase of 175 basis points at the midpoint to a range of $239-$244. This reflects the full-year benefit of Andaz Miami Beach, which is expected to contribute approximately 450 basis points of growth at the midpoint. Total RevPAR is also expected to increase between 7% and 9% to a range of $404-$411, with a similar 450 basis point benefit from Andaz. As noted in our supplemental, our year-to-date RevPAR and total RevPAR growth for their current 13-hotel portfolio was a robust 10.5% and 9.7%, respectively. Based on the midpoint of our updated ranges, this would imply a mid-single-digit revenue growth expectation for the third and fourth quarters, with approximately 200 basis point benefit from Andaz.

This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $245 million-$255 million. Our FFO per diluted share also incorporates $1 million of lower preferred dividends as a result of our repurchase activity, and is now expected to range from $0.93-$0.98. In terms of the distribution of our EBITDA by quarter, based on the midpoint of our updated range, the first half of the year will account for roughly 58% of our full-year earnings, with the third quarter expected to contribute an additional 20%, and the balance coming in the fourth quarter. As we noted in the press release this morning, we also adjusted our estimate for full-year capital expenditures to a range of $105 million-$115 million.

This increase is the result of additional repair work at Wailea Beach Resort following the storms earlier this year, and is consistent with our commentary from last quarter in which we thought we were likely to end up in the upper end of our prior range once we had the opportunity to more fully assess the required repair work. We expect the vast majority of our additional spend will be reimbursed by our insurance programs. As Robert noted earlier, we have already received a portion of the expected proceeds. Moving to our return of capital. Since the start of the year up to this week, we have repurchased approximately $40 million of common stock at a blended price of $9.24 per share, a meaningful discount to consensus estimates of NAV.

In addition, we have also purchased nearly $30 million of our preferred stock at a blended price of $20.44 per share, or an 18% discount to its liquidation value. This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share. While we retain capacity and appetite for additional share repurchases, our revised 2026 outlook does not assume the benefit of additional buyback activity. In addition to our share repurchases, our board of directors has authorized a $0.09 per share common dividend for the third quarter, and has also declared the routine distributions for our Series H and I preferred securities. Before we conclude our prepared remarks, I’ll turn it back over to Bryan for some additional thoughts.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Before we open the call to questions, I want to provide an update on our 2026 objectives. The board and management remain focused on realizing the value of our portfolio. This was demonstrated by our recent sale of the Hyatt Regency San Francisco for a nearly 20 times trailing EBITDA multiple. As we have shared in the past, San Francisco had been and was expected to be one of our better growth markets, and that growth is reflected in the high purchase price multiple. While San Francisco represented a portion of our 2026 and 2027 growth, it was only a piece of it. We continue to see and expect further growth in Miami and Wailea, and between strong 2027 group pace and more constructive citywide demand in Washington, D.C., Boston, San Diego, and San Antonio, our focused portfolio is set to continue to deliver above industry average growth.

In addition, we have proceeds from the San Francisco sale to deploy in a manner that will deliver incremental value for our shareholders. We have established a track record of recycling capital at what have proven to be attractive valuations and redeploying proceeds into the most accretive option available at the time. Given the improving transaction market, we expect to continue to selectively take advantage of strong private market values for certain assets. This would then allow us to redeploy proceeds in the manner that would result in the best return to shareholders. To date, that has been common and preferred stock repurchases. The board and management remain committed to maximizing value for shareholders and are open to pursuing any alternative that would reasonably be expected to result in value creation. With that, we can now open the call to questions. Operator, please go ahead.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. The first question comes from the line of Smedes Rose with Citi. Your line is now open.

Smedes Rose, Analyst, Citi: Oh, hi. Thank you. Bryan, I realize it’s early, but I wanted to ask you a little bit on your thoughts around the pace of expense growth, I guess, through the balance of the year and how you’re thinking just early on about 2027, now that you have obviously more visibility around the union contracts and I think the wage hike for next year maybe is a little lower than what you saw this year. Maybe just kind of all in, can you just maybe give us some high-level thoughts around just kind of the pace of property-level expense growth?

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Sure. Good morning, Sneed. For 2026, we’re trending now somewhere between, for total expenses, somewhere between 3.5% and 4% total growth and call it 2.5% on a cost per occupied room basis. Our expenses and margin in the second quarter, some of the items we talked about on the call, having the lower group percentage and more transient in a large hotel like San Diego doesn’t optimize the productivity of that hotel. As we move into the second half and fourth quarter this year, as we start to see the growth in group contribution, and as we go into next year, which has good pace, we’ll start to see that normalize a little bit more, which should help a little bit on the cost side, on the efficiency side.

Looking into next year, you’re correct, we do have some of our labor agreements will start to normalize down to lower levels. Also looking at some of the larger expenses, insurance, we’ll see, at least for the first half of next year, some reduction. Property taxes, while we had some credits last year, seem to be a little bit more normalized. I could see, assuming our growth will probably come with at least half occupancy next year. We’ll continue to see some incremental variable costs rise, I would guess with labor being the biggest piece of it, we’ll start to see our expense moderate down to the lower end of that range and maybe even a little below that.

Smedes Rose, Analyst, Citi: Great. I just wanted to clarify something. You took your EBITDA up by $8 million for the year. Does that include about $4 million of business interruption insurance that was more than what your prior estimate was? I saw that you have a footnote there, just for the clarify.

Aaron Reyes, Chief Financial Officer, Sunstone Hotel Investors: Sure. This is Aaron. Thanks for the question. Our revision to the full-year number was, I think, three components. One was a portion of the outperformance that we saw in Q2 was fully carried through. We also had a modest amount of call it $1 million or so of an incremental outlook for the back half of the year that’s factored in. The third piece would be, as we noted in our press release, lower expected G&A for the year of about $1 million as well. Those three items would account for the $8 million in incremental EBITDA that we expect for this year. What’s in the numbers so far from a business interruption perspective is just the $1.2 million that we recognized in the quarter.

We’re continuing to work with our insurers to vet the remaining coverage for both property damage and any incremental business interruption, but there’s nothing further assumed in the number from that perspective.

Smedes Rose, Analyst, Citi: Thank you very much.

Operator: The next question comes from the line of Peter Laskey with Evercore ISI. Your line is now open.

Peter Laskey, Analyst, Evercore ISI: Yeah. Hi. Thanks for taking the question. Bryan, could you just talk about the out-of-room spend trends that you’re seeing? I guess in the first half, room revenue growth was higher than total revenue, but the guidance would imply that maybe that flips in the second half. What’s driving that and what have you maybe seen so far in the third quarter?

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Good morning. From an out-of-room spend, we’ve seen it throughout last year and into this year be very stable and growing in various hotels. The disconnect between RevPAR growth and total RevPAR growth this year or in the quarter is really back to San Diego. While we saw and we knew going into the year that we were going to have a weaker, especially first half group-wise in San Diego. Having a hotel that’s 1,200 rooms, that’s a very large group box, have a larger percentage of its business transient, where that transient spend is nowhere near what the group customer spend is. That’s where we’re seeing the flip, and as we get into the second half of this year, the strength really in San Diego is really fourth quarter. Looking into next year with good pace, we’ll see that flip.

Peter Laskey, Analyst, Evercore ISI: Got it. Appreciate that. Just quickly on the conversion in Key West, I know it’s only been a month, but maybe just walk us through how that conversion process went. If you’re seeing any early wins or any changing booking patterns, realizing it’s kind of the off-season there, but just things that you’ve learned thus far and kind of what to expect.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: You’re right. We are in early days, and we have some renovation going on at the same time, so we’re not going to see the optimal output yet. We have seen some very promising and interesting observations early on. One, we are seeing ADR lift, and we’re also seeing the booking window expand a little bit more, and we attribute that to the brand Hilton’s booking engine and more customers booking through brand.com than they would through a shorter-term window through an OTA. We’re seeing some very promising top-line benefits there. One other ancillary benefit we’re seeing is with having the brand and the purchasing platform of the brand. We are seeing some benefits on some of our costs and the purchasing power of the brand being able to acquire and procure things at a lower cost than we were with a smaller operator.

Peter Laskey, Analyst, Evercore ISI: Thank you.

Operator: The next question comes from the line of Patrick Scholes with Truist. Your line is now open.

Patrick Scholes, Analyst, Truist: Great. Thank you. Good morning, good afternoon, everyone. I have a bit of a three-part question here regarding the changes that some of the brands, Hilton with their Rise program and Marriott, whatever they’re calling it. One, are you currently seeing any financial impact on that, or what are your expectations around that? That’s the first part of the question. Second is, specifically within that, are you seeing differences between the two programs that the companies are rolling out, that being Hilton versus Marriott? Third, with your Montage and Four Seasons brands, I know they don’t have guest loyalty programs or credit cards, are they doing anything similar to what Hilton or Marriott are doing as far as fee relief? Thank you.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Okay. Thank you, Patrick.

Patrick Scholes, Analyst, Truist: A lot there. Yeah.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Let’s unpack it. From the brands, we are seeing various initiatives come out that are lessening either the percentage of the cost load. Not all of them necessarily would apply to our assets, and some of them are more limited service-based or focused. We are seeing some sales and marketing and some other costs that are benefiting us. Our expectation is that over the next several years, there should be a pretty steady increase in some of these savings that the brands are going to be able to recognize through various technology initiatives. We are expecting and hopeful that this is just the early stage of this. I think it’s not fair to compare one to the other on this.

I think both the brands that you mentioned are taking a very good first step towards finding efficiencies and then sharing them with the owners. As far as the luxury brands, I have not heard of any of those programs yet. Our focus really, especially in Wine Country, is just on maximizing the productivity and working with the brands to streamline operations, which we’ve been very successful at, and we think that there is more to do there.

Patrick Scholes, Analyst, Truist: Okay. I appreciate the call. Thank you.

Operator: The next question comes from the line of Michael Bellisario with Baird. Your line is now open.

Michael Bellisario, Analyst, Baird: Thanks. Good morning, guys.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Morning.

Michael Bellisario, Analyst, Baird: Bryan, it’s a two-parter here for you. It’s capital allocation and transactions. One, what are you seeing in terms of investment opportunities and where are deals maybe pricing relative to your expectations or underwriting? Second, you sort of addressed it in your closing remarks, but sort of how do you balance that potential capital deployment with maximizing value and continuing to close the valuation discount? Thanks.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Sure. On the transaction environment, we’re definitely seeing volume pick up. I think earlier in the year, it was more luxury-focused. I think that that is something that is starting to broaden out a little bit more, where we’re starting to see not just luxury or big, large supertanker hotels on the market. We’re seeing more in the, call it $75 million to $150 million range of full service in primary or secondary markets. More of that is on the market. I think that when we look at those type of hotels, there are definitely more bidders out there. From a pricing standpoint, we still see a bit of a disconnect of where things are getting done just because of the competitive nature of a marketed process. More interesting, but not where they need to be from our standpoint at this time.

We have been very active over the last several years of recycling capital and trying to find the best redeployment of that on a risk-adjusted return basis. When we look at the transaction market improving now, I think that this is a time where we really have to remain disciplined. As we look at having proceeds that have not been fully deployed from the sale of San Francisco, our focus still is to repurchase at a discount to NAV, because we believe that compared to redeploying into an asset at current pricing, that provides the best return to our shareholders, especially when we can monetize a low-yielding asset into the market and get paid for that future growth while eliminating the risk of getting there.

I think that we still trade into consensus and to where we believe is a discount to NAV, repurchase is our best alternative we see at this time. As stock prices change and valuations change, maybe more if the transaction market improves, maybe that changes, where we sit right now, we think that is somewhat of a continuation of what we’ve been doing, we think it’s the best spot for us.

Michael Bellisario, Analyst, Baird: Helpful. Thank you.

Operator: The next question comes from the line of Jack Armstrong with Wells Fargo. Your line is now open.

Jack Armstrong, Analyst, Wells Fargo: Hey, good afternoon, thanks for taking the question. You put a really strong group pace to the back half of the year and into 2027. Can you break out some of the markets where you’re seeing that strength and maybe provide that pace number externally as well?

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Sure. At the beginning of this year, it was always a story of the back half of this year from a group pace perspective. That was in our larger hotels. In our largest hotel in San Diego, it was the case. When we get into the fourth quarter and into 2027, we start to see really broad-based strength across the larger group boxes. It’s not just group. Transient pace is extremely strong for, it’s not as long of a window, but for the next six months is what we have a view on. Transient pace portfolio is up 22%, a combination of room nights and rate, compared to last year. It is across hotel types. Urban is up 25%, conventions are up 12%, resorts are up 27%. It really is broad-based.

When you layer on top of that the group side and important hotels to our portfolio like San Diego, those really start to contribute into the second half, specifically the fourth quarter. Into next year, while we haven’t given a full-year pace for 2027, we have positive pace in 2027 and into 2028. We have a more favorable citywide calendar going into next year, too, with several of our major markets, D.C., San Antonio, San Diego, and Boston, all having stronger citywide calendars also. You put all that together, and when you look at the specifics of our portfolio and the market that our hotels are in, not only is it the second half of this year, but it really is a multi-year story looking at strength.

Jack Armstrong, Analyst, Wells Fargo: Helpful. Thank you.

Operator: The next question comes from the line of Michael Hirsch with JP Morgan. Your line is now open.

Michael Hirsch, Analyst, JP Morgan: Hi. Thank you for taking my question. On your EBITDA guidance, you mentioned 22% of full-year EBITDA would be in the fourth quarter, while also noting Andaz and San Diego should have outsized fourth quarters. Would you view your second half or implied fourth quarter guidance as conservative here?

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Hey, Michael. Darren. I think if we look at the back half of the year, certainly what’s implied by our guidance is that the growth was somewhat front-half loaded. That’s what we’ve seen, certainly as you look through the double-digit RevPAR growth that we’ve seen year-to-date. Our expectation for the remainder of the year is that we move more into a mid-single digit RevPAR growth environment. We’ve been pleased with what we’ve seen relative to our actual performance to our expectations. I wouldn’t call our rest of the year guidance conservative. I would say based on everything that we’ve seen and then what we know, it’s a reasonable expectation. We’ll see how things play out. If we look at what we’ve seen so far in July, I would say we’ve been surprised a bit to the upside, which is good.

That is one of the months, we’ll see how the remaining five transpire. I think it’s our reasonable best guess of what we think is going to happen as of now. Hey, you have to look at the total amounts of business for each quarter, too. We have third quarter tends to be our lowest quarter and second quarter, first and second quarter. Second quarter is one of our largest. When you look at that, I think that if we see a continuation and we are absolutely seeing very strong production, for not only future years group bookings, but I think all but one of our hotels had more in the year for the year bookings in the second quarter than we had last year. We’re also seeing short-term pickup. From the transient side, that remains very strong.

If these trends continue, there’s definitely upside we can see. I think that what we saw in the second quarter and moving the guidance up to incorporate some additional earnings in the third and fourth quarter is a step forward that shows our confidence in our performance. Again, we want to make sure that with all of the external headwinds that can be out there, that we do remain cautious, too, and have some level of conservatism when we’re looking forward.

Michael Hirsch, Analyst, JP Morgan: Thank you.

Operator: The next question comes from the line of Chris Darling with Green Street. Your line is now open.

Chris Darling, Analyst, Green Street: Thanks. Good morning. Bryan, as you think about deploying your dry powder, what’s the latest thinking around the Montage preferred security, just given the rising coupon there?

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: It is a freely pre-payable option that we weigh against the other alternatives we have to deploy capital. You’re completely right. It does increase, and there will be a point in time, where the yield on it will make it more attractive than some other options. We have a menu of where we can deploy, and I think that we have, at least historically, proven to not only just repurchase common, but preferred and other securities. It’s out there as an option, and it’s something that we’ll evaluate. We do have-

Chris Darling, Analyst, Green Street: All right

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: flexibility on it. We can redeem a portion of it or all of it’s up to us the cadence of how much we want to redeem.

Chris Darling, Analyst, Green Street: Okay. Understood. Shifting gears back to D.C., I know you spoke about a better citywide calendar in the next year. Just putting that aside, what’s the opportunity in your mind for that property to continue to take share on a relative basis in the market? Just wondering, irrespective of the broader market movements, if there’s sort of relative upside there as well.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Yeah. D.C. has been a difficult group market this year. We have seen considerable pickup on the transient side. Transient pace is up 30% going forward. Even with it being a challenging group market, our group production was fantastic during the second quarter. We’re seeing future bookings from a group side. We’re seeing future transient bookings. The transient bookings I really attribute to the brand change or the flag going from the Renaissance to the Westin. Because if you just go back on a full year basis, so in 2019 as a Renaissance, the hotel’s transient rate index was 106. At the end of last year, the transient rate index was 123. The transient occupancy index went from 89 to 119.

If you look at just quarter-over-quarter and the total amounts will change quarter to quarter based on that. Each quarter, transient rate index was 117 to 100, and occupancy was 111 to 94. The answer is that transient business has been better in the market, and our share of that business continues to improve, based on the Westin flag and the renovation and everything that we’ve done to that hotel. It has the notoriety of the brand. It’s a great transient box. It’s a great location. It has probably one of the best gyms in the city, and it was always a really good group hotel, and now it’s a good complete hotel.

Chris Darling, Analyst, Green Street: Got it. Well, thank you for the time.

Operator: That is all the time we have for the Q&A period today. I will now turn the call back to Bryan Giglia for closing remarks.

Bryan Giglia, Chief Executive Officer, Sunstone Hotel Investors: Thank you, everyone, for your interest in the company, and we look forward to a very strong second half and meeting with many of you over the coming months at various conferences. Thank you.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.