Sunstone Hotel (SHO) Q4 2025 Earnings Transcript

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DATE

Friday, Feb. 27, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Bryan Giglia
• President and Chief Investment Officer — Robert Springer
• Executive Vice President and Chief Financial Officer — Aaron Reyes

TAKEAWAYS

• Rooms RevPAR Growth -- 9.6% increase, with a 540 basis point benefit from Andaz Miami Beach.
• Total RevPAR -- Up 7.4%, or 12.5% including Andaz Miami Beach.
• Resort Segment RevPAR -- Wailea Beach Resort posted 19% RevPAR growth; Montage Healdsburg increased 15% in the quarter and just over 9% for the year.
• Urban Hotel Performance -- Marriott Long Beach Downtown delivered 12% total RevPAR growth; The Bidwell Marriott saw nearly 13% growth.
• Convention Hotels -- Generated 2.8% RevPAR growth overall; excluding San Antonio and San Diego (with renovations), RevPAR increased 5.3%.
• San Francisco Hotel -- Produced over 12% total RevPAR growth for the year, with group pace up in the low-double-digit range for 2026.
• Renaissance Orlando SeaWorld -- Achieved more than 10% total RevPAR growth; group revenue production rose over 10% last year.
• Comparable Portfolio Margin -- Margin grew 40 basis points on 3.5% total RevPAR growth for the year.
• Adjusted EBITDAre -- $57 million reported for the fourth quarter.
• Adjusted FFO -- $0.20 per diluted share for the quarter.
• Net Leverage Ratio -- 3.5x trailing earnings, or 4.7x including preferred equity; all debt maturities addressed through 2028.
• Liquidity -- Over $200 million in total cash and cash equivalents and more than $700 million in total liquidity (including undrawn credit).
• Capital Returned to Shareholders -- Over $170 million distributed in 2025 via dividends and share repurchases.
• Common Stock Repurchase -- About $108 million repurchased at a blended price of $8.83 per share; preferred stock repurchases totaled $3.1 million at $20.46 per share.
• 2026 Guidance: Rooms RevPAR -- Expected increase of 4%-7% to a range of $234-$241, with Andaz Miami Beach contributing approximately 400 basis points to growth at the midpoint.
• 2026 Guidance: Total RevPAR -- Anticipated 3.5%-6.5% growth, expected range of $385-$396, with a similar 400 basis point contribution from Andaz Miami Beach.
• 2026 Adjusted EBITDAre Range -- Projected at $225 million to $250 million, with a midpoint representing 5% growth versus the prior year, excluding $10 million in one-time items and asset sale benefit in 2025.
• 2026 FFO per Diluted Share -- Company projects a range of $0.81–$0.94; the midpoint represents 8% growth after normalizing for 2025 one-time items.
• Dividend Authorization -- Board approved a first-quarter dividend of $0.09 per share and routine preferred distributions.
• Share Repurchase Authorization -- Board reauthorized repurchase program to $500 million; outlook assumes no incremental repurchases.
• 2026 Capital Expenditure Guidance -- Budget set at $95 million–$115 million, with the majority front-loaded in Q1 and Q2; $25 million allocated to San Diego meeting space renovation.
• Expense Growth Outlook -- Company expects roughly 3% total expense growth for the core portfolio excluding Andaz, and around 5% overall with Andaz included.
• Andaz Miami Beach Operating Metrics -- Year-to-date occupancy above 80% at a mid-$500 ADR; nearly 8,000 group room nights booked represents over half of annual budgeted group nights.
• Wailea Beach Resort RevPAR Index -- Rose 17 points sequentially into the fourth quarter post-room renovation.

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RISKS

• CEO Giglia cited continued headwinds from "softer transient demand in San Diego and continued uncertainty in DC," which are expected to offset some portfolio growth.
• Management explicitly warned, "2025 would be particularly tough on margins, as contractual cost escalations at certain of our larger hotels were adding to general inflationary pressures across the portfolio."
• Company remains cautious for 2026 due to potential negative impacts from "events outside of your control," including possible government shutdowns, political events, or market-specific disruptions.
• Aaron Reyes pointed to expected "margin headwinds for the comp portfolio in 2026" for core hotels, given lower blended RevPAR growth rates compared to overall expense growth in that subset.

SUMMARY

Management emphasized a multi-pronged capital allocation strategy, noting ongoing efforts to recycle assets, invest in property upgrades, and return capital to shareholders. The company highlighted increased transactional activity in the hotel real estate market, suggesting potential for future dispositions but maintained strict discipline on capital redeployment based on market conditions. Board and management indicated openness to alternative strategies that could maximize shareholder value, including continued buybacks, asset sales, or acquisitions consistent with historical practice. The company reported $200 million in cash and over $700 million total liquidity, providing flexibility to execute capital strategies and manage near-term obligations. Early 2026 operating trends at recently renovated properties, including Andaz Miami Beach and Wailea Beach Resort, signaled momentum for above-average portfolio performance, although management tempered expectations with caution stemming from recent years’ unpredictable market conditions.

• CEO Giglia said, "We will continue this practice in 2026 while evaluating other potential transactions to realize and return the value of this portfolio to our shareholders."
• Management confirmed ongoing monitoring of the DC market with a cautious outlook due to past government shutdowns and policy changes affecting hotel group business.
• Aaron Reyes indicated, regarding preferred stock management, "I would not expect that our preferred dividend would increase in 2026 relative to where it was in 2025, even with the escalation on the Series C."
• The Board reauthorized the share repurchase program to $500 million and signaled continued appetite for opportunistic buybacks, though 2026 guidance assumes no further repurchases.

INDUSTRY GLOSSARY

• RevPAR: Revenue per available room, a key metric for hotel operating performance reflecting both occupancy and pricing.
• FFO: Funds from Operations, a standard REIT performance metric indicating cash generated by operations, adjusted from net income for real estate activities.
• EBITDAre: Earnings Before Interest, Taxes, Depreciation, Amortization, and restructuring costs; an adjusted non-GAAP measure common for REITs to compare core operating results.
• FF&E Reserve: Reserve for furniture, fixtures, and equipment expenditures, typically required under hotel management agreements to fund property upkeep and refurbishments.

Full Conference Call Transcript

Bryan Giglia: Thank you, Aaron, and good morning, everyone. Despite the various headwinds that impacted our industry in 2025, our portfolio finished the year on a high note with fourth quarter operating results that exceeded our expectations, driven by broad-based strength across the portfolio. The fourth quarter capped off a productive year at Sunstone Hotel Investors, Inc., where we made further progress on our three strategic objectives, which include recycling capital, investing in our portfolio, and returning capital to our shareholders.

Earlier in the year, we completed the sale of the Hilton New Orleans at a mid-6% cap rate inclusive of required near-term capital, and fully recycled the proceeds into the repurchase of our stock at a compelling discount and a higher implied yield. In addition, we completed several capital projects, including the debut of the Andaz Miami Beach, which, despite its later opening, had a solid festive period and good momentum heading into this year. Lastly, we returned more than $170 million of capital to our shareholders through a well-covered dividend and accretive share repurchases. These strategic accomplishments will drive growth in per-share earnings and NAV in the years to come.

We will share additional details on our outlook and our expectations for 2026 shortly, but I will start with a quick recap on the fourth quarter results. As I noted at the top of the call, our results came in better than expected with total RevPAR growth of 7.4% in the quarter, or 12.5% including the contribution from Andaz. Our resorts led the portfolio, driven by solid performance at the Wailea Beach Resort. As we shared with you on our recent calls, our results in Maui were hampered through much of last year as market demand normalized.

We were pleased to see the green shoots we witnessed at the resort in the fall continue into year-end, leading to 19% RevPAR growth in the quarter. On the opposite side of the country, Andaz Miami Beach delivered year-end results that were ahead of expectations, and the outperformance has carried into the early parts of this year, positioning the resort well to deliver on our expectations for 2026. We are pleased with the demand our renovated resort is attracting, including high-profile business around some key events in the market that should help the resort further build awareness.

Performance at our wine country resorts was also stronger than expected, with Montage Healdsburg capping off a better year with 15% total RevPAR growth in the quarter and just over 9% for the year. Overall, our resorts were our strongest performing segment in Q4, and we expect that to continue into 2026, but now with the added benefit of a full-year contribution from Andaz Miami Beach. At our urban hotels, we were pleased with our quarterly performance at Marriott Long Beach Downtown, which continued to benefit from its brand conversion in 2024 and generated total RevPAR growth of 12%. Similarly, the Portland market continues to recover, with The Bidwell Marriott turning in nearly 13% growth.

This strength was partially offset by a softer market and tougher comps in Boston and New Orleans. While top-line growth was less robust at our urban hotels, we continue to work with our operators to control costs and manage to grow margins during the quarter. Our convention hotels turned in better than expected performance with RevPAR growth of 2.8%, even with some headwinds from the meeting space renovations that we had underway in San Antonio and San Diego. Excluding these two hotels, our convention hotel RevPAR growth was 5.3% during the quarter.

San Francisco was once again a standout performer, which added to solid top-line results in the first months of the year to generate more than 12% total RevPAR growth for the year. We continue to be encouraged by how the market and our hotel are setting up for additional growth this year, with group pace up in the low-double-digit range and a strong start with good group activity in January and the Super Bowl in February. The Renaissance Orlando SeaWorld also had a solid quarter with total RevPAR growth of more than 10% on a better mix of business.

Group revenue production for the current and future periods in Orlando increased over 10% last year, and the hotel is pacing for better performance in 2026. Operating results in San Antonio were softer in 2025 on a lighter group event calendar and some displacement from our completed meeting space renovation, but 2026 should benefit from increased production and the renovation. As we shared with you on prior calls, performance last year in Washington, DC was less robust than initially anticipated and was impacted by government spending cuts, changes in policies, and the government shutdown. Similarly, our results in San Diego were hampered by softer transient demand and a less constructive backdrop for international travel.

On the expense side, we were pleased with our operators’ ability to drive efficiencies in response to continued cost pressures. We knew coming into the year that 2025 would be particularly tough on margins, as contractual cost escalations at certain of our larger hotels were adding to general inflationary pressures across the portfolio. I am pleased to report that we made significant progress in managing costs and delivered comparable portfolio margin growth of 40 basis points during the year on total RevPAR growth of 3.5%. This was a much better cost management outcome than we expected at the start of the year.

While some of the efficiency measures that were additive in 2025 will be harder to sustain as we move into this year, we will continue to work with our hotel teams to manage costs, increase productivity, and defend margins. As we look into 2026, we see some reasons to be optimistic about the year ahead. Andaz Miami Beach is starting off well, with impressive year-to-date occupancy above 80% at a mid-$500 rate. In addition, the resort has nearly 8,000 group room nights already on the books, representing more than half of our budgeted room nights for the year, which is very strong for a market with a shorter-term booking window.

The property’s building momentum will continue this year with the opening of Bazaar Meat and our membership beach club. We are seeing additional positive signs as market recovery continues in Northern California, fundamentals in Wailea are more constructive, and there is the potential for industry-wide lift from special events such as F1 in Miami, which we missed last year, America 250 celebrations, and the World Cup. At the same time, our focused portfolio will experience headwinds from softer transient demand in San Diego and continued uncertainty in DC, two of our larger markets, which will offset some growth.

That said, both hotels had better than anticipated transient demand in January and February, which, if current trends continue, could result in a better than anticipated year. While there are many encouraging signs, the industry and Sunstone Hotel Investors, Inc. have been disappointed by various headwinds over the past two years, making us more cautious. That said, we are excited about our prospects this year, and if costs remain controlled and some of these events produce more than our modest expectations, we could be positioned to see performance accelerate as the year progresses.

The guidance that Aaron will share with you later attempts to balance these factors and reflect an outlook that we believe is reasonable and achievable based on how we see things today. As we move through 2026, we will continue to focus on the three components of our strategy: recycling capital, investing in our portfolio, and returning capital to shareholders. While the transaction market has been quiet the last couple of years, we are clearly seeing some incremental activity, and we are looking for ways to thoughtfully demonstrate the value of our portfolio. In the meantime, we are focused on delivering profitability growth from operations and realizing the benefits of our investment projects.

We expect these actions will support our capital return objectives in the coming year. I will now turn the call over to Robert to give some additional details on recent capital investment activity and our plans for 2026.

Robert Springer: Thanks, Bryan. 2025 was a busy year for us on the operations and investment front. We debuted Andaz Miami Beach in the second quarter, and the fully renovated resort looks great and is gaining traction. We have been pleased with recent transient booking velocity and the progress we have made attracting high-quality group business. We will round out the resort this year with the addition of the beach club and the introduction of Bazaar Meat, the resort’s signature dining destination. Performance in the initial weeks of 2026 has been encouraging, with year-to-date RevPAR of nearly $475, and the resort is well positioned to deliver earnings growth this year and into 2027.

Earlier in 2025, we completed a rooms renovation at Wailea Beach Resort and are happy to see the demand backdrop turning a corner on the island. We have the opportunity for meaningful growth at the property as occupancy rebounds and we benefit from our recent investment. We are seeing good progress, with RevPAR index increasing 17 points sequentially into the fourth quarter as the market normalizes and the resort reestablishes its competitive positioning. In the fourth quarter, we completed a renovation of the meeting space in San Antonio, which complements the room renovation done just prior to our acquisition, and the hotel now looks great from top to bottom.

In San Diego, we are putting the finishing touches on a renovation of the meeting space there as well, which should allow the hotel to maintain its leading position in this premier group event destination. We are completing this work in phases to minimize disruption, but we will have a modest amount of earnings headwinds in the first quarter. The project remains on schedule and on budget. This year, we will also be performing some maintenance projects at our Renaissance Orlando facade work and a rooms refresh at Oceans Edge Resort and Marina, as well as some smaller routine projects across the rest of the portfolio.

As Bryan alluded to earlier, we are seeing some incremental signs of life in the transaction market. While we are hopeful this will provide a more constructive backdrop to execute on our capital recycling strategy, we expect to remain disciplined in our approach and mindful of other capital allocation opportunities available to us. With that, I will turn it over to Aaron. Please go ahead.

Aaron Reyes: Thanks, Robert. As we noted at the top of the call, our earnings results for the fourth quarter came in ahead of expectations, as stronger leisure performance at our resorts added to modestly better performance across most other hotels in the portfolio. Rooms RevPAR grew an impressive 9.6% in the quarter, including a 540 basis point benefit from Andaz Miami Beach. And a continuation of the trends we saw earlier this year, growth in ancillary spend outpaced rooms and contributed to total RevPAR growth of 12.5%, including a 510 basis point benefit from Andaz.

This stronger top-line performance and ongoing cost controls contributed to full-year earnings that were ahead of the midpoint of our guidance range, including Adjusted EBITDAre in the fourth quarter of $57 million and Adjusted FFO of $0.20 per diluted share. We continue to benefit from a strong balance sheet with net leverage of only 3.5x trailing earnings, or 4.7x including our preferred equity. In early January, we drew the remaining $90 million balance from a previously arranged term loan and used a majority of the proceeds to repay our Series A notes at their scheduled maturity. Following this repayment, we have addressed all debt maturities through 2028.

As of the end of the quarter, pro forma for the January payoff, we had over $200 million of total cash and cash equivalents, including our restricted cash. Together with full capacity available on our credit facility, this equates to over $700 million of total liquidity. Included in our press release this morning are the details of our outlook for 2026. As Bryan noted earlier, while we see reasons to be optimistic about the year ahead, we remain cautious while still in these initial months. Based on what we see today, we expect that Rooms RevPAR for all hotels in the portfolio will increase between 4% to 7% to a range of $234 to $241.

This reflects the full-year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint. For 2026, we are also introducing guidance for total RevPAR, which is expected to increase between 3.5% to 6.5% and which would imply a range of $385 to $396, with a similar 400 basis point benefit from Andaz. We anticipate that our first quarter will be our strongest growth quarter of the year, as the contribution from Andaz and better performance in Maui will more than offset the challenging comp in DC from the inauguration and in New Orleans from the Super Bowl last year.

This should result in first quarter RevPAR and total RevPAR growth being above the high end of the full-year ranges just discussed, and then the subsequent quarters being between the lower end and the midpoint. This revenue growth is expected to translate into Adjusted EBITDAre in the range of $225 million to $250 million. Excluding one-time items and an asset sale, which together contributed $10 million to our 2025 results, the midpoint of our 2026 EBITDA range reflects 5% growth in earnings over last year. Based on where we sit today, we expect our FFO per diluted share to range from $0.81 to $0.94.

Adjusting for the same one-time items in the prior year, the midpoint of our FFO range reflects growth of 8% relative to 2025, as the benefit of our share repurchase activity adds to the growth in hotel earnings. In terms of the distribution of our earnings by quarter, we anticipate that the first quarter will represent approximately 25% of our full-year projections at the midpoint. This is a bit higher than our historical run rate and reflects the added contribution from Andaz Miami Beach. As is typical for our portfolio, the second quarter is expected to be our largest contributor at approximately 30%, with the balance split more or less evenly across the third and fourth quarters.

Moving to our return of capital, since the start of 2025 up to the middle of this week, we have repurchased approximately $108 million of common stock at a blended price of $8.83 per share. In addition, we have also purchased $3.1 million of our preferred stock at a blended price of $20.46 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. As we noted in our press release this morning, our Board of Directors has reauthorized our repurchase program back up to $500 million.

And while we retain capacity and appetite for additional share repurchases, our 2026 outlook does not assume the benefit of additional common stock buyback activity. In addition to our share repurchase, our Board of Directors has also authorized a $0.09 per share common dividend for the first quarter, and has also declared the routine distributions for our Series H and I preferred securities. Before we conclude our prepared remarks, I will turn it back over to Bryan for some additional thoughts.

Bryan Giglia: Before we open the call to questions, I want to highlight our 2026 objectives. The management team and Board are focused on realizing the value of the portfolio. Over the past few years, we have actively sold hotels at what have proven to be attractive valuations and redeployed proceeds into the most accretive option available at the time. While most of the proceeds went to repurchase common or preferred stock at a discount, we also acquired assets when our cost of capital became more competitive. We will continue this practice in 2026 while evaluating other potential transactions to realize and return the value of this portfolio to our shareholders.

As I mentioned last quarter, the Board and management remain committed to maximizing value for shareholders and are open to 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: In order to ask a question at this time, we do ask you to limit yourself to one question and one follow-up. Your first question comes from the line of Cooper Clark with Wells Fargo. Please go ahead.

Cooper Clark: Great. Thanks for taking the question. Curious if you could walk through some of the puts and takes as we think about 1.5% midpoint of 2026 RevPAR growth ex-Andaz within the context of 2.1% growth last year and what should be a continued recovery in markets like Hawaii?

Bryan Giglia: Sure. Good morning, Cooper. When you look at the remainder of the portfolio ex-Andaz, you are absolutely right. Maui is a market where we are seeing growth. We talked about it last year, where we mentioned that, for the hotel to get back to where it needs to be, the Kaanapali market needs to stabilize, which is something that we saw happening in the late fourth quarter of last year, and that continues to happen going forward. We went from the mid- to high-90s occupancy index to, at the end of the year, over 100%. We should stabilize around 110. So that is absolutely moving in the right direction.

As I said earlier, we are seeing continued transient demand as we recapture that index, and so far, the first two months of the year have been a pleasant surprise to see that continue. The group business in Maui, the pace is down a little bit this year. We do have this one piece of business that is on for a couple years and then off, and it is off-island this year. But we are seeing transient pace up about 53%, and that will help cover that shortfall.

When we look at the rest of the portfolio, continued strength in San Francisco and wine country, other markets, and one that we highlighted on the call, DC is a market where we faced a lot of headwinds last year, not only with the government shutdown at the end of the year, but then also cutbacks that impacted a lot of the group business there. The percentage where groups would actually actualize as compared to their blocks was down to historic averages.

So while we anniversary that coming up shortly, and so the year-over-year comp will get easier, we are cautious, and we are also seeing in DC a pickup in transient business that we were not seeing in the middle part of last year. Some of the government transient, we are starting to see that come back. Again, with the impacts and the headwinds that we saw last year, in the DC market we are cautious, and if we continue to see these trends, we would expect that we could be in a position where that midpoint would move up a little bit.

But DC is one of the markets right now that we are keeping an eye on and is pulling that average back.

Cooper Clark: Okay. Great. That is helpful. And then could you talk through the expense growth implied in guide both including and excluding the Andaz? And what are some of the key drivers there?

Bryan Giglia: I think, roughly, we are on expenses right around 3% total. Labor over the last couple years has been in the 4% range. It is coming down a little bit this year into the 3s. Energy prices are up a bit this year. And then there are a couple of the larger fixed expenses that will unfold as the year goes on. Our insurance renews in June, and that is something that we had good renewals with last year. There were not any major catastrophe hits in our portfolio, so that should be helpful, but we go into the year and we expect there to be some growth in those rates.

If we get a year like last year, that could be a benefit. And then property taxes have been down over the last few years; we are kind of assuming that those are going to normalize. And on the Andaz side, overall, I do not think it is going to make a material difference in that overall percentage.

Aaron Reyes: Hey, Cooper. It is Aaron, and just to add to what Bryan was saying, as we moved through last year, as we noted in the prepared remarks, we were much more successful in managing costs relative to where we thought that they would be at the beginning of the year, and so we ended up with margin expansion to the tune of about 40 basis points on RevPAR growth of about 3.5%. From a cost growth perspective for the portfolio, so that 13 hotels ex-Andaz, expense growth is in that 3% or so area.

What we will feel a bit differently this year is just that, as you noted, the blended RevPAR growth rate for that set of hotels is a bit lower, so we will expect some margin headwinds for the comp portfolio in 2026. If we add in Andaz, things do actually get a little bit noisier given that it was only open part of the year last year and will be open all of the year this year. We would look at probably a total overall expense growth rate of around 5% or so, which starts to then be in line with where the midpoint of the RevPAR range is for the total portfolio.

So there is a good chance of being able to defend margins as we move from 2025 to 2026 for the total portfolio, and we will be hopeful that we have an outcome like we had last year where, as the year went on, we were a bit more successful on the cost side.

Cooper Clark: Great. Thank you. Appreciate the color.

Operator: Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Please go ahead.

Duane Pfennigwerth: Hey. Thank you. Good morning. You know, a call earlier today talked about the expectation for being a net seller of assets. I wonder if that is your expectation as well, and if you have any update on the marketing process around the wine country assets.

Bryan Giglia: Sure, Duane. In the fourth quarter, we started to see a pickup in transactions, either closed transactions or announced transactions, and I think as we have more clarity into this year, and debt markets continue to be strong, I think that we will continue to see an uptick in transactions. I think thematically it will be similar. I think that there is a lot of demand for luxury assets. I think there is a lot of demand for cash-flowing assets, and so those obviously can support the highest debt balance, and we are still seeing, for mid-sized transactions, enough equity out there. As you start to get to larger assets, the bidder pool is still thinner.

I do think we are seeing that improve. Our view is really no different than what we were doing last year when we sold New Orleans at a very attractive cap rate and then redeployed those proceeds into our common stock. We are going to look to realize private market values where we can for hotels and resorts that we have where we see the biggest gap between the public and private market values, and we will continue to try to unlock value where we can and then go and deploy that in the most accretive manner.

We do not comment on transactions prior to announcement, but we have been clear, and I think our actions have been very clear, that a major pillar of our strategy is recycling assets. So there is always going to be a point in time where we will have one or more assets that are in some form of marketing or discussion with potential buyers, and we do not think that this year will be any different. The question then becomes, what is the most accretive allocation or redeployment of that capital, and that depends on a lot of factors.

It depends on where the stock is, where our cost of capital is, where our stock is trading, and on a risk-adjusted basis, does it make more sense to repurchase stock or preferred, or does it make more sense to acquire an asset? Over the last few years, I think we have demonstrated that we have been able to pivot between those, sometimes in shorter time periods, but we have been able to effectively deploy that capital, whether it be through the acquisition of San Antonio or buying back stock.

Operator: Next question comes from the line of Smedes Rose with Citi. Please go ahead.

Smedes Rose: I just had another question about your guidance, just in terms of total RevPAR being a little bit lower than your RevPAR outlook. Usually, they are at least in line or maybe total RevPAR would be a little bit higher. So I was just wondering if you could speak to that for a moment.

Bryan Giglia: Sure, Smedes. Good morning or good afternoon. Having a focused portfolio with some larger assets, DC being one of them I spoke about, and then San Diego also, where we finish up a pretty substantial meeting space renovation—or we finished a portion of it; we will finish the rest of it in the quarter—that has impacted those two big hotels on the group side. That is going to impact some of our ancillary spend. We are getting some of that back in Andaz, and quite honestly, I would expect an increase in our total RevPAR if we continue to see the transient trends in DC somewhat, but more importantly, the transient trends we are seeing in Wailea.

With the additional spend that comes from the transient rooms, that will help buoy our total RevPAR. But right now, it is more a function of the limited displacement in the first quarter in San Diego and then a slower group pace in DC. It is more of that mix shift than anything.

Smedes Rose: Okay. And then I was just wondering if you could talk a little bit more—you mentioned in your opening remarks transient weakness in San Diego. Is that specifically to your hotel, or are you seeing that kind of market-wide? And maybe just if you could speak to the broader market in San Diego, what you are seeing—maybe on the group side, what is happening with the convention calendar there, etc.

Bryan Giglia: In San Diego, we saw some ups and downs last year, some of it government-related. There are a lot of defense contractors, so we saw it slow down last year. We have seen that tick up. Towards the end of the year, the leisure time period—whether it is some international travel not coming in, some of the Canadian markets come to that area. What we are seeing now, the first two months have been pretty promising in San Diego. DC too, we mentioned.

I think we are starting to see government transient come back, and part of that might just be certain segments and what San Diego pulls from is the defense contractors, and so that can be a positive for the market. We will see over the next few months, but we are seeing positive signs as the year goes on right now in San Diego on the transient side.

Smedes Rose: Great. Thank you. Thank you.

Operator: Your next question comes from the line of Michael Bellisario with Baird. Please go ahead.

Michael Bellisario: Good morning, guys.

Bryan Giglia: Good morning. Thanks very much.

Michael Bellisario: First one for Aaron. Just on this Ohana preferred, just remind us what are the mechanisms there for you to take that out, when, and by how much does that coupon ratchet? And then just on capital allocation, is this a potential use of capital if you were successful with dispositions?

Aaron Reyes: Yes, Mike. Thanks for the question. So the “Ohana” you are referring to is our Series C preferred, which was issued in connection with our acquisition of Montage. That one does have a mechanism where the yield there is tied to the greater of the hotel yield or a fixed rate, which is currently now 6.5%. Overall, it is $66 million in size, so it is a manageable amount of capital. We kind of view our preferred, I would say, as a total bucket. So they all end at $280 million at a pretty attractive blended price of just around 5% or so.

But as you saw in our results for the quarter, we did take the opportunity to look at some buyback on the preferred side, and we will continue to do that as a way to manage the overall preferred dividend exposure and ensure that we are mindful of the mechanism on the Series C which does step up. So I think as we think about this year, I would not expect that our preferred dividend would increase in 2026 relative to where it was in 2025, even with the escalation on the Series C, just given that we will manage the overall outstanding balance. We will take another look at it as we move through the year.

Certainly, as we noted, we have $200 million of cash that we could readily put to use to address that Series C. The function there is it is callable solely at our discretion, and it does not have to be in the total amount either, so we can take out pieces of it at a time.

Michael Bellisario: That is helpful. And then just two little follow-ups, and maybe I missed them. What is your EBITDA expectation for Miami this year? And then what are some of those one-time items that you mentioned that are impacting the year-over-year growth rate? I think it is about $7 million net of the New Orleans sale, if my math is right?

Bryan Giglia: On Miami, our expectation is consistent with where we were before. We think it is low- to mid-teens EBITDA this year. What we have seen starting really in December—December, we hit close to 70% occupancy. The comp set was right around 70%. Our rate, granted, was lower than the comp than our luxury set. We were in the $500s; they were in the $900-plus. So we have plenty of room to grow. We are building a very good base. Our group room nights have doubled quarter over quarter. We have got a lot of good momentum going into F1 and FIFA later in the summer, which is a great time for that piece of business to be there.

So our expectations are consistent with where we were last quarter with Miami, and if we have a strong summer, my expectation is that we are at the upper end of that.

Aaron Reyes: And then, Mike, just on the second part of your question as it relates to the one-time items that we called out for 2025, it is a total of around $10 million or so, and the components would be about $3 million contribution from the Hilton New Orleans, which we sold last year, so it will not repeat this year; a cost recovery that we had in connection with a settlement at one of our properties; and then just some incremental interest income that we generated last year given where deposit rates were and where our cash balance was at the time that we would not expect to repeat in 2026.

Michael Bellisario: Got it. Understood. Thank you.

Operator: Your next question comes from the line of Chris Woronka with Deutsche Bank. Please go ahead.

Chris Woronka: Hey, guys. Good morning. Thanks for taking the question. So I understood everything you said, Bryan, about any potential transactions in wine country. My question on it is, do you think any sale process is having any kind of impact on operations right now? It looks like in 2025, you had pretty good results at the Montage; the Four Seasons maybe a little bit less so. So is there anything to draw from that in what is kind of embedded in your guidance as to how those perform this year?

Bryan Giglia: Both resorts were on pace to have very good years. As you probably remember, there was a fire close to Four Seasons that impacted the third quarter last year and a little bit trickled into the fourth quarter. For that, that was probably about $1 million of EBITDA. So adjusting for that, to your question—not commenting on a sale process—but typically for a managed hotel, the management contracts are long term and stay in place, so that does not really impact the day-to-day operations of the hotel. Four Seasons has fantastic group pace for this year. I think group pace is up about 22%, and we have really great expectations for that.

Again, the San Francisco market has been doing better, which then leads to more weekend trips or extensions of convention trips out to wine country. The high-end luxury traveler continues to be very strong and spend quite a bit. And then on the other side of the valley, we have had great success with group at Montage. Group is not as strong as Four Seasons this year, but they are moving from a much larger base, and our transient demand over at Montage has been phenomenal. I think transient pace is up 25% year over year. So, like San Francisco, there is a lot to look forward to in the Bay Area and wine country.

With the impact of the fire last year being a unique impact to Four Seasons, both hotels should have very good years.

Chris Woronka: Okay. Appreciate all that color, Bryan. Maybe to keep it in the San Francisco area, I know there was probably a Super Bowl benefit back in January. This hotel was running a single-digit margin in 2024 to 2025. Is there any expectation this year that—outside of Super Bowl—but with AI and the return to office and other group things that are happening in San Francisco, is there hope or an expectation on your part that hotel starts meaningfully improving margins?

Bryan Giglia: Our location in that market has become the primary location. With the office that surrounds it, the inflows of new tenants—AI-based—but really the center of San Francisco has moved into the Embarcadero Financial Area. We are benefiting from a recently renovated hotel that, while it still has quite a ways to go to get back to where we were, we finished 2025 at 78% occupancy, which is 10 points of occupancy down from where we were. We have a $300 rate. There is still quite a bit of room in the rate. We have great pace this year. Transient pace continues to grow. The market had a great Super Bowl.

World Cup—we are just starting to see that book, and that is something that will help compress the summer as we get into it. Given the continuing increase in health of the San Francisco market, our location, our product, our meeting space, we still have a very good run ahead of us and are looking forward to the next several years in this market.

Chris Woronka: Okay. Very good. Thanks. Thanks, guys. Appreciate it.

Operator: Your next question comes from the line of Daniel Politzer with JPMorgan. Please go ahead.

Michael Hirsch: Hi. This is Michael Hirsch on for Dan today. Congrats on a nice quarter. For my question, you noted in the press release that the operating environment could be impacted both positively or negatively by events outside of your control. Could you speak to some of those events or macro environment that you contemplated for this year when putting together your guidance?

Bryan Giglia: I look at the last few years: starting each of the years, expectations were higher, and then there were various headwinds that popped up and went away and came back throughout that timeframe. I think DC is a good example of what our expectations in DC are. Like I said, they are cautious this year. We did not expect the impact to government business, government shutdown—those things—for a large 800-room hotel in our portfolio. Those were things that were not fully expected last year and impacted operations. Could elements of that happen again? Sure. If we look at 2026 in DC, starting off it is a tough comp. You had an inauguration the year before. We had storms in January.

You have midterms later in the year, which means Congress will not be in session as much. Those are things that keep us cautious, especially from the framework of the prior years’ experience. But then on the other side, you look at the positives there. You have the America 250 celebrations. You have an Indy race that was just scheduled for August that is happening. Our transient pickup for January and February has been stronger than we thought. The negotiated transient demand for the next six months is up 11%. Part of that is still the benefit we are seeing from the conversion to Westin; some of it is business that is coming back to the market.

When you look at our transient demand for January and February and you put it against the backdrop of weather issues this year and no inauguration this year, but yet our transient demand is greater than what we had last year, that points to strength, and that makes us very optimistic. The question is, we probably need to see a few more months of this before our outlook can reflect that for the rest of the year.

Michael Hirsch: Thank you. And then for my follow-up, more modeling-related, on your CapEx guidance for $95 million to $115 million, could you speak to the timing and allocation of those dollars between the different projects?

Bryan Giglia: Let me start with that, then Aaron can go through some more specifics. We are working through and finishing the meeting space in San Diego. Keep in mind that it is a 1,200-room hotel. It is a lot of meeting space, so there is $25 million of that number right there. A portion of that does come from the FF&E reserve, and so that is a big piece of it. There are some additional bills that are being paid and finish-up work from Andaz. And then throughout the portfolio, we have various other projects—some HVAC projects, some roofing projects, some elevator modernizations. Those are spread out more throughout the year.

The biggest single chunk will come from the San Diego piece, which will be in the first and second quarter as it gets paid out. Aaron, do you have—

Aaron Reyes: Yes, and Bryan basically got the punch line there. The largest projects will be front-loaded, so I would expect about a third of it happens in Q1. Q2 will be the second-largest contributor, and then the rest will trickle into the back half, but work is largely performed in Q1 and then the payments in Q1 and Q2.

Michael Hirsch: Thank you.

Operator: There are no further questions at this time. I will now turn the call over to Bryan Giglia for closing remarks.

Bryan Giglia: Thank you, everyone, for your time and interest in the company. We look forward to seeing many of you at upcoming conferences and property tours that we have in our portfolio. Thank you.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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