Sunstone Hotel Investors, Inc. Aktie

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors' first quarter earnings call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, May 5, 2026, at 11:00 a.m. Eastern Time.

I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

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 Bryan. Please go ahead.

Thank you, Aaron, and good morning, everyone. We were pleased with our performance in the first quarter, which came in ahead of our expectations, even with some weather-related headwinds across a handful of our markets. The strength was broad-based with continued solid group results and transient performance that was better than anticipated.

Overall, RevPAR in the quarter grew an impressive 14.6%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 5.7%. This strong revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to generate meaningful growth in earnings. The added benefit of our accretive repurchase activity drove even greater growth in earnings per share with first quarter adjusted FFO nearly 29% higher than last year.

Our resorts once again led the portfolio with combined comparable RevPAR growth of over 18%. While the rebound at Wailea Beach Resort was expected, it has been impressive, where revenue grew 14% in the quarter, even with significant cancellations from the 2 weather events that impacted the Hawaiian Islands in March. While we will need to navigate some repair work and disruption following the storms, the outperformance in January and February and the trends that we are seeing for the remainder of the year continue to point to a sustained recovery in Maui.

We were also quite pleased with performance at our Wine Country resorts, which turned in a combined 34% growth in RevPAR, driven by better contributions from both group and transient business. As we shared with you on our last call, we were encouraged with how Andaz Miami Beach performed over the festive period and into the early weeks of this year. That trend has continued with results exceeding expectations in the first quarter. We are seeing further strength into April with second quarter benefiting from strong transient and group business with major events like the F1 race last weekend and the World Cup coming this summer.

During the first quarter, the Andaz ran 86% occupancy at a $564 rate and produced $6.5 million of EBITDA. The comp set ran a similar occupancy, but at a rate over $900 per night. Q1 was an absolute success for the Andaz, and we are encouraged with how much opportunity we have to continue to grow rate closer to its peers and build on our multi-year growth story. We've had a solid start to the year, and we are well positioned to deliver on our earnings expectations in 2026, and we look forward to the resort's next phase of growth into 2027 and beyond.

Our urban hotels had a noisier quarter as we navigated a challenging Super Bowl comp in New Orleans and weather-related headwinds across the East Coast. RevPAR declined 9.3% in the first quarter across our urban portfolio, but out-of-room spend performed better and limited the decline in total RevPAR to only 2.9%.

At JW New Orleans, revenue was lower given the benefit of the Super Bowl in the prior year. But despite the challenging comp, our hotel continued to gain share. After picking up nearly 15 points of RevPAR index in 2025, the JW again outperformed the comp set in the first quarter and now sits at over 150% relative to the group, demonstrating the strength of the hotel's location, superior room product, and recently upgraded meeting space. In addition, our New Orleans hotel had one of its best first quarter production results in years with group bookings growing over 50% relative to the prior year.

In Boston, the quarterly performance was hampered by the severe winter weather that disrupted travel earlier in the year. Overall, we expect the first quarter to be the toughest quarter for our urban portfolio with sequential growth in RevPAR through the balance of the year. Our convention hotels turned in better-than-expected performance with RevPAR growth of 5.2%. Performance varied widely, however, as we experienced the push and pull of a few large events. In Washington, D.C., we had a very challenging comp given the inauguration last year. After increasing over 24% in the first quarter of 2025, RevPAR at our Westin D.C. Downtown was 9.8% lower this year due to the tough comp and higher group attrition from the severe winter storms that occurred in the quarter. Despite this decline, our performance was better than expected as stronger transient demand helped to partially offset the sluggish group backdrop in the market.

Additionally, the Westin had a solid booking quarter with transient pace for the next 6 months up 11% relative to last year, pointing to a continuation of the current transient trend. On the flip side, RevPAR increased over 27% in San Francisco, where the Super Bowl added compression to a market that was already on a positive trajectory. In fact, if you look only at January and March, RevPAR was still higher by 14% as the city benefited from an active event calendar and an increased level of commercial activity in the downtown area.

Performance at the Renaissance Orlando at SeaWorld was impacted by isolated group cancellations earlier in the quarter and a shift in the mix of business, which led to a decline in rooms RevPAR, but generally flat total RevPAR given the benefit of strong contribution from out-of-room spend. We expect the balance of the year to be more conducive to growth in Orlando with particular strength in Q3 and Q4, where second half group pace is up over 40% relative to last year.

Lastly, in San Diego, we were pleased to see better transient performance in the market, which has given us a more optimistic outlook for the year. We are in the final stages of our meeting space renovation at the hotel, and we expect that our second quarter will be the toughest comp of the year with sequential improvement through the third and fourth quarters as we benefit from better group patterns and our new meeting space.

On the expense side, we were particularly pleased to see better productivity in the rooms department, which allowed us to keep comparable departmental expense growth on a per occupied room basis to only 1%. This better cost performance was partially offset by higher utility expenses, property G&A, and sales costs. Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 3.4% on an absolute basis during the quarter or 2.4% per occupied room. This was generally consistent with our expectations and allowed us to grow margins by 140 basis points.

Given the cadence of our quarterly revenue growth, we expect that the first quarter will be our strongest margin growth performance of the year, but we are continuing to work with our operators to focus on cost controls and drive efficiencies wherever possible. As part of our last earnings call in February, we noted that we were encouraged by the trends we were seeing in recent operations, but that broader uncertainty gave us reasons to be cautious. This remains the case today with recent events only reinforcing this view. We continue to monitor events that could impact costs and the demand for travel. While we did not see any measurable impact on our first quarter operations, an elongated period of heightened volatility or sustained increases in fuel prices could present headwinds.

That said, performance in the first quarter was meaningfully ahead of our expectations. And based on what we see today, we are comfortable revising our full year outlook higher to reflect these results. Given the elevated uncertainty, we will continue to be measured in our expectations for the rest of the year. If more of the momentum from the first quarter carries into the balance of the year or if some of the special events slated for later this year outperform our modest expectations, then we could be positioned to deliver stronger performance.

We are encouraged by the increase in hotel transaction activity and believe the environment may be becoming more conducive to executing our capital recycling strategy and demonstrating the value of our portfolio. In the interim, we continue to deliver value to shareholders through an additional $50 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 our operations and realizing the benefits of our investment projects.

And with that, I'll turn the call over to Robert to give some additional details on our capital investment activity.

Thanks, Bryan. We've gotten off to a busy start on the operations and investment front. As we shared with you last quarter, our planned capital projects for 2026 were concentrated in the first half of the year, and I'm pleased to report that we have made solid progress executing them on schedule and on budget. In San Diego, we are wrapping up the renovation of the meeting space. The finished product looks great and should help the hotel to maintain its leadership position in the market.

Recent trends in the city have been more encouraging. And based on what we see today, we expect better performance in the latter part of this year, and the hotel is pacing ahead for 2027. In Miami, we are also finishing construction on Bazaar, and we are very pleased with how the space is coming together. We expect to begin training activities in late summer with the restaurant opening in early fall to take advantage of the full high season in the market. As we shared earlier, our renovated resort is already attracting some great group business, but the addition of Bazaar will round out the property, further increasing its appeal with luxury travelers and higher-end groups.

We anticipate that Bazaar will not only help drive incremental room night demand at the hotel, but will be a dining destination for guests from nearby properties and local residents as well. Elsewhere across the portfolio, we will be starting some facade work and a rooms refresh at Oceans Edge Resort and Marina in the middle part of the year as part of a broader effort we are working on to drive incremental revenue and earnings to this resort. We will also be completing some smaller routine projects across the rest of the portfolio.

As Bryan noted earlier, our Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and brought heavy winds and substantial rainfall. While our resort remained operational during the storms, we did sustain wind and water damage in some of the guest rooms, public spaces, and portions of the roofs. We are currently working to restore impacted areas and should have most of the public space and guestroom-related work completed in the coming weeks. We will, however, have some additional repair work to do on a few roofs, which will not be done until later this year. We are working closely with our insurers to pursue cost recovery for the repair work and lost business from the storms, but it is too early to share any of those details.

Based on what we see today, we expect that incremental capital expenditures needed at Wailea will likely mean that we will be in the upper half of our existing CapEx guidance range for 2026. We are still working through the details of the approach and timing, the required spend, and cost recovery from our insurance policies and we'll share additional information as part of our next call.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As we noted at the top of the call, our earnings results for the first quarter came in ahead of expectations, driven by broad-based strength across the portfolio. Rooms RevPAR grew an impressive 14.6% in the quarter, including an 890 basis point benefit from Andaz Miami Beach. Total RevPAR for all hotels increased 13.4%, including an 810 basis point benefit from Andaz.

Given our mix of business, we anticipated that rooms revenue would grow faster than total revenue in the first quarter, which was the case. But ancillary spend performed better than we thought and the guidance ranges that I will discuss shortly reflect a more optimistic outlook for out-of-room revenue growth than our prior expectations. The stronger top line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre of $68 million, an increase of 18% relative to last year.

When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.27, an increase of nearly 29% from last year. Our balance sheet remains strong. We have no debt maturities prior to 2028 and net leverage stands at only 3.5x trailing earnings or 4.6x, including our preferred equity. Since December of last year, we have repurchased over $19 million in liquidation value of our traded preferred stock at a 21% discount, a positive impact on both FFO and NAV. Included in our press release this morning are the details of our updated outlook for 2026. Our revised guidance ranges reflect the outperformance we saw in the first quarter, but retain a degree of caution for the balance of the year given the uncertain backdrop.

We now expect that rooms RevPAR for all hotels in the portfolio will increase between 5% and 7.5% to a range of $236 to $242. This reflects the full year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint. Based on what we see today, we now expect total RevPAR to increase between 5% to 7.5%, an increase of 125 basis points at the midpoint, which captures our higher expectations for growth in ancillary spend. This would now imply a range of $390 to $400 with a similar 400 basis point benefit from Andaz. As we noted on our last call, the first quarter will be our strongest revenue growth quarter of the year with the remaining growth quarters being between the lower end and the midpoint of our RevPAR and total RevPAR guidance ranges.

While Andaz will certainly provide a lift to our results all year, the impact will become less pronounced as we get further into the year and begin to lap more of last year's operations, with the revenue growth benefit estimated at approximately 500 basis points in the second quarter and 150 to 200 basis points in each of the third and fourth quarters. This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $238 million to $252 million. Based on where we sit today, we expect our FFO per diluted share to now range from $0.88 to $0.96. This updated earnings per share range reflects the benefit of better operations and our recent share repurchase activity.

In terms of the distribution of our earnings by quarter, based on the midpoint of our updated range, the first quarter accounted for roughly 28% of our full year earnings, with the second quarter expected to comprise approximately 28% to 29% and the balance split more or less evenly across the third and fourth quarters.

Moving to our return of capital. Since the start of the year up to the end of April, we have repurchased $35 million of common stock at a blended price of $9.11 per share. In addition, we have also purchased over $14 million of our preferred stock at a blended price of $19.84 per share or a 21% discount to its liquidation value. This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share. And 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 second quarter and has also declared the routine distributions for our Series G, H, and I preferred securities.

Before we conclude our prepared remarks, I'll turn it back over to Bryan for some additional thoughts.

Before we open the call to questions, I want to provide an update on our 2026 objectives. The company remains focused on realizing the value of our portfolio. Over the past few years, we have 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.

Given the improving transaction market, we expect to recycle capital in 2026 and take advantage of strong private market values for certain assets. This would then allow us to redeploy proceeds into additional share repurchases at a discount to NAV or liquidation preference or potential hotel acquisitions under the right circumstances. We remain focused on executing transactions that will result in the best risk-adjusted returns to our shareholders. The Board and management remain committed to maximizing the 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 Instructions] Our first question comes from Duane Pfennigwerth from Evercore ISI.

This is Peter on for Duane. So I guess if we zoom out and think about the 14 hotel portfolio and that portfolio reaching some level of stabilization, what are some of the building blocks left to get there? And I guess, said differently, what are some of the growth drivers beyond what you've provided for 2026?

Sure. Let me start and then Aaron can provide some more additional detail. When you look at the building blocks, there are several pieces. First, Andaz is a multi-year story. We had an excellent Q1. The resort is ramping up. We started to see this at the end of Q4 last year and into Q1 this year, and it's ramping and the group business has been very strong. The transient business continues to grow, and we're very happy with the performance so far.

That said, when we look at Q1 and we look at our rate, which was in the mid-500s, and we look at the comp set, we still have a lot of room to grow. And so we are -- the comp set was running kind of plus 1,000. So that's a lot of room for us to expand into next year. Also, fourth quarter last year was kind of the same delta. And so fourth quarter this year, we have room to grow, opening the Bazaar at the end of this year into the high season. The Beach Club just opened, which also serves as additional meeting space for the resort. So Andaz has a very good 2-year plus trajectory on that.

Maui is also another asset where we had room to grow. We talked about this last year of having to have the island stabilize, and we saw that with Kaanapali reaching of a stable 70% occupancy in the fourth quarter. Our transient volume started to recapture our index and our share in the fourth quarter of last year has gone into this year. And given where we are relative to prior EBITDA, there's still several millions of dollars of EBITDA growth that we will get into next year.

San Francisco is another market for us that is -- has grown and rebounded very well, but still has quite a ways to go. And everything we're seeing in that market from the group demand, from the transient demand, from the citywide demand, that's all been very positive and will go into '27 and beyond. And then as far as San Francisco strength, we've also seen that help Wine Country and the 2 resorts there, where as the citywides and the city of San Francisco does better, it then leads into additional leisure demand up in Wine Country. So I think that those are the big pieces that we will continue to see grow throughout the next few years.

Yes. And what I might add, I think Bryan hit certainly the broader point of what we have going on across the portfolio. I think on top of that, we have the added benefit of the repurchase activity that we've been doing. So we've been thoughtful in how we've allocated capital, both to our common stock and most recently to our preferred stock as well. So as we think about just the potential for not just EBITDA growth but growth on an earnings per share basis, certainly, we have capacity for significant accretion in FFO per share.

And then I guess you mentioned the transaction markets are getting more active. Could you just quickly expand on that? And what sort of assets are you seeing being marketed? What are brokers saying, so on and so forth?

Sure. We see additional equity capital coming into the markets and into increasing the number of deals out there and potential transactions, which is good and healthy for that market. Right now, you're seeing more luxury assets out there. And so I think that, that is -- given where the recovery has been and given where the demand and the productivity of those assets, there's a lot more on the luxury side. I guess that as the year goes on and some of those transactions are announced and closed, we'll start to see more of the higher quality upper upscale assets come to market, too.

Our next question comes from Michael Bellisario from Baird.

Bryan, I just want to follow-up on your acquisition commentary. Maybe high level, can you talk about the criteria that you're looking at for potential acquisitions just in terms of markets, brands, initial yields, and then also just the appetite for maybe buying a cash flowing asset versus doing a little deep return renovation project?

Sure. I think with what we've done in the past and the way we've approached things in the past, I think it's important, especially for a hotel -- for a portfolio our size is to make sure that we have some degree of balance. And so we have a lot of deeper turns that are coming back online and/or ramping up assets. So would we have capacity for that? Yes. That said like, look, anything -- everything we do, we have to look at what the options are available to us and what is the best allocation of capital, whether it be using our balance sheet or recycling an asset on a risk-adjusted basis, what makes the most sense for our shareholders.

And up into this point, that has absolutely been share repurchase and repurchasing our preferred at a meaningful discount to liquidation preference. Going forward, that's a balance. That's something that as our cost of capital improves and our stock price improves, then we look to balance that with potential acquisitions or -- and mainly coming from recycling capital where we can take advantage of private market values and maybe specific markets where -- or specific asset types where there is a lot of demand right now, and we can potentially realize a portion or a good portion of the future upside today and then we go redeploy that at something that has good growth, maybe not quite as good growth, but at a much more compelling initial yield that maybe provides some future opportunities.

So again, it's -- it depends. Every day, we make the decision of how we're going to allocate additional capital. And I think where we stand right now, it's our stock and preferred is still very compelling. But as that changes, I think that the preference would probably be more stabilized. If you look at the types of hotels and resorts that we have, we like assets usually slightly larger assets that have a good group component to it and then some secondary, whether it be leisure or business transient, varying degrees of rebranding activity, whether it be like the Westin D.C. or the Marriott Long Beach, where different degrees of renovation, but still same game plan where we're able to capture more index through finding a brand that could do better or something else.

So that's our focus. I think where we are today, it's still -- our equity and preferred are very attractive. But as things -- as the space improves, I think that gives us more opportunity to deploy into assets.

Our next question comes from Smedes Rose from Citi.

Maybe just switching to a couple of market questions. I wanted to ask you on the Andaz. I think in the past, you had talked about maybe mid to low teens EBITDA contribution this year. Are you still comfortable with that? And are you seeing any kind of lift from the World Cup helping that property?

Sure. Yes, we feel based on where the asset has performed. And remember, there's -- when you look at the seasonality of the market, the asset will be a little bit skewed more towards the first quarter this year just as it's ramping up. But first quarter in through kind of April is a big piece of the annual EBITDA. So based on what we've seen so far, based on the transient bookings going forward, based on our group bookings going forward, we feel very comfortable with the range we've given and probably inching towards the higher side of that and with some opportunity to achieve that this year.

As far as the World Cup goes, we've had really good events in the market this year, National Championship. F1 last weekend was fantastic. I think World Cup, we continue to be measured in our various markets where we have matches. And at this point, it's a good time in the year for Miami because the summertime is -- tends to be the lower season. So having additional international travel coming into the market will be good for the market. Again, as we get closer, we'll have a better understanding of the ultimate impact. But right now, we continue to be somewhat measured across our markets for World Cup.

And then I just was hoping you can maybe comment on a couple of the larger group markets where you operate. You mentioned a lot of strength, I think, at the JW in New Orleans. Are you seeing strength overall in that market? It seems like it's been kind of weak maybe on the group side. I'm just wondering what you're seeing bigger picture. And maybe just kind of touch on -- if you could touch on Orlando and San Diego as well.

Yes. And so our -- when we look at first quarter and second quarter too, transient has been the strongest segment across the board and transient at some of our large group hotels have been better than anticipated. The way our group calendars and group bookings laid out this year was always the first half was sort of the weaker of the 2 and that our pace picked up in -- depending on the asset, Q2, Q3, Q4. And so when we look at like who has group -- good group pace in the second half of the year, that's where we're talking about New Orleans, where pace is up significantly for the second half.

Orlando also had a tougher first half comp. We'll have a tougher first half comp first quarter and first half, but has a really good second half. D.C. has stronger citywides and does pick up. And then there's some events in D.C. that should be helpful. So when we look forward, we have a great transient base of business for the next 6 months that is looking very strong. We didn't have the greatest group bookings in the first half.

But when we look at the second half of the year, that's where it really picks up, and that's where we get -- we start feeling pretty good about what the setup is for the second half. Now there's also some other variables out there that could impact travel that could impact fuel costs. And so again, we like what we see. We like the setup. We are going to remain, I think, like others, measured until we get a little bit more time to see what other external impacts there could be.

Our next question comes from Daniel Politzer from JPMorgan.

This is [ Michael Hirsch ] on for Dan today. Sort of on that last answer there. In the prepared remarks, you had mentioned seeing some group cancellations during the first quarter across the portfolio. Could you provide any additional color on attrition or overall group trends and pacing for this year and next?

Yes. I mean overall attrition is probably down slightly from where we were last year. I mean there were some talk about other external forces, there was a lot of government cancels last year. So attrition is down across the board. That's -- we're always going to have cancellations throughout the year, and there's always parts -- there's always some attrition throughout the year. Some of the storms on the East Coast did impact various groups. And so that -- there's probably 2 different weeks of that where we had some groups that either couldn't get to the destination or had to cancel last minute based on some storms.

So again, I don't think -- I think those were more specific to the weather or specific events and not overall group patterns. I think what we are seeing on the group side is we're seeing the ancillary spend continue to be very strong. We continue to see corporate groups and associations, both perform well. And as I said before, our group pace does pick up into the second half of this year, and we have -- it's a little early to start talking about future years, but '27 pace looks good at this point.

And then for my follow-up, you touched on World Cup in Miami. But for your broader portfolio, could you remind us what your outlook is for the RevPAR uplift? And what about recent World Cup demand trends are leading to your more measured approach?

Well, I think our measured approach is how we started the year. We were -- we didn't have -- it was too early to have bookings. There was the expectation that things would be very strong. But again, not having a recent history and not having the business on the books, we felt it didn't make sense to get out over our skis and start anticipating rate increases and major demand. So I think that, that -- we started the year measured.

As we get closer, we've seen different data points and other either through the brands or others saying that it is going to be a shorter-term booking window. We do have some group business on -- I think -- but it's limited. There's a group in San Francisco, a group in Miami. And so there is some. But if we see international travel very strong during that time period and last-minute bookings pick up, then that will just -- that will be additive to our third quarter, but not -- second and third quarter, but not in any of our guidance at this point.

Our next question comes from Ken Billingsley from Compass Point.

I wanted to follow-up on out-of-room spending. Your total RevPAR guidance grew faster than the RevPAR. And I'd like to make -- could you talk about what's driving some of that? How much of it is the fixed spending and what you have with -- associated with the room? And how much of it is discretionary?

So I think even with -- even with groups, there's a portion of it is discretionary. You have your minimums, you have your contracted amounts. But as you get closer to the event, you see people buying up and groups buying up different things, adding things and in certain times, they subtract things. What we've seen in the first quarter and not just specific to corporate group, we've seen it with association too, is we've just seen a better spend in those -- the contractual amount is there, but the additional add-ons or upgrades, whether it be through AV, through food options, beverage options, what have you, is that we have -- it was a strong quarter for that. And we don't see that slowing down at this time.

And away from just the group specific and out-of-room spending not related to group, I would imagine you're seeing that being stronger as well?

Yes. It's also -- it's a function of occupancy pickup, too, right? So in Wailea, that's a market where have a significant out-of-room spend for your transient customer as we regain our occupancy share that was happening during the quarter and will continue throughout the rest of the year. Those customers spend more money at the bars, at the restaurants, at the other events and amenities at the hotel. So yes, absolutely, we're seeing that on the transient side to more at the resorts than at your -- at a business transient hotel where there's less options to spend.

So a lot of the uplift there is on the occupancy side, not so much that they're necessarily spending more per room?

Well, on the group side, we're spending more per occupied room. On the occupancy -- on the transient side, it's going to depend hotel by hotel, Maui, I would say it's probably a mix of both, and that's at some of the more luxury resorts in Wine Country, there's just generally more spend, whether it be spa, food, occupancy that hasn't -- was up a little bit over the -- in the quarter, but we're seeing strong spend across.

Our next question comes from Chris Darling from Green Street.

Bryan, I understand guidance may prove conservative. But if I sort of look at what's implied for the rest of the year, it would seem to suggest sort of flattish, maybe even slightly declining margins for the rest of the year. Hoping you could put that outlook in context and also talk about just generally how you see expenses trending through the rest of the year.

I mean, in general, we see our expenses are increasing 3.25% to 3.5%. And so if you look at the RevPAR gain distribution quarter-to-quarter, first quarter was our biggest growth and it will be our biggest growth quarter. And so our margins, obviously, we had margin expansion during the first quarter. As we go throughout the rest of the year, look, we saw good productivity in the first quarter. We are endeavoring and planning on having -- maintaining productivity or increasing our productivity, especially in the rooms department because that's the most valuable.

And so depending on where RevPAR shakes out for the rest of the year, we can be possibly positive to slightly up to, I think -- or maybe neutral for the rest of the year. So it will depend on -- if we're conservative on the RevPAR side, then we'll absolutely have better flow-through and margins will tick up. But right now, given where the implied RevPAR guidance is for the remainder of the year and that expenses are growing in that low-ish to mid-3%, we'll revise it when we have another quarter or so under our belt. But right now, we figured that that was the most prudent thing to do.

And I may have missed this earlier, but could you elaborate on some of the recent operating performance at the Wine Country hotels and just your outlook for the rest of the year there?

Yes. The first quarter is the low season there. And so it's the most challenged on occupancy side. And so the key to that profitability or trying to get to breakeven in the first quarter is really making sure you have the right amount of group business. And that's something we've been talking about for a couple of years now and really having the resorts focus on is try to get that right group base in there. And that group base comes at a lower rate, but comes with a higher ancillary spend. And so the hotels and the resorts have worked very hard to get as much group on the books as they can.

And quite honestly, they both had great group on the books this year. I mean this has been in the works for a while, but they've been able to get that good first quarter group pace. Transient demand has been better than expected. So that benefited both. And then while we had bad weather on the East Coast and in Hawaii also, in California and in Wine Country, they had great weather for the first quarter this year. And so that helped also. So all of those factors kind of came together and gave us a first quarter we're very pleased with.

Going forward, both hotels have continued to have very good transient demand. Four Seasons has very good group pace for the second half of the year. Montage has decent group pace. Montage is maybe a little farther ahead of Four Seasons as far as establishing its group business, which is something that we're doing more group room nights this year than we've ever done before. It's probably about 55% of total occupancy. We'd like to see that inch up to about 60%, 65%. That would be ideal for that asset. But both -- whether it be luxury is outperforming and combine that with the demand we're seeing and the improvements we're seeing from the Bay Area that feeds up there. Our outlook for both is very strong for the rest of the year.

Our next question comes from Floris Van Dijkum from Ladenburg.

Just maybe following up on the Wine Country hotels. I mean the performance was -- even though it's still a loss, it's $4 million improvement in terms of EBITDA relative to the first quarter of last year, which is pretty meaningful. As you think about your disposition plans, do you have -- are those potential sale candidates in your view, particularly now that the JW Marriott in Marco Island has sold and the luxury market seems to be unthawing in terms of financing availability?

Yes. I don't know if Marco Island is a direct comp for these 2. But look, I think we've been very clear. We're looking -- when we look at our portfolio and we look at potential dispositions, we want to capitalize on private market values. And that there are certain types of assets right now and luxury absolutely being one of them and markets where there's a lot of interest. We're not -- we don't comment on transactions before we have something to publicly say. But based on our actions in the past and based on the criteria I just highlighted, we're clearly out there exploring various opportunities really at all times, but to make sure that we can have assets that we can recycle and redeploy those proceeds either into our common, our preferred or as I said earlier, if things improve, different acquisition targets.

But monetizing low-yielding assets is something that could be achievable right now in the current market, and we'll look at doing what we can. There are a lot of luxury assets out in the market right now. I mean there are older portfolios that are coming back that -- so there is a lot of supply out there, but this is a core tenet of our strategy of redeploying and recycling assets. So it's something that we're focused on doing.

Maybe a follow-up. I mean there -- obviously, operations are definitely trending the right way right now. But your guidance is -- again, like everybody else and all your peers, everybody is staying very cautious. What are the -- maybe touch on are there outliers in terms of the World Cup impact that it could have based on what your outlook is today? I mean, what's the upside if the World Cup does turn out to be better than what you're expecting in your view?

Yes. I mean that will add significant compression. Look, when we look at the state of the industry or at least what we're seeing in our portfolio, Q1 had great transient demand. The next 6 months bookings is -- the next 6 months of transient bookings are up significantly, and they're not just up at resorts. They're up at our convention hotels. They're up at our urban hotels, and they're also up at our resorts. So transient is very strong. Our second half group pace is very strong. And so group business is strong. Group contribution is strong. We're -- we see the hotels booking significant current year and future year business. So all of that is strong.

So all these positive points, if World Cup comes in stronger, then that's just -- that's additional compression and additional benefit that will accrete to our performance. The conservatism and the caution is that there are events out there that could impact the cost and demand of travel. And so because of that, we and I think most of our peers in the industry will remain cautious until we see those potential impacts alleviated.

Our next question comes from Logan Epstein from Wolfe Research.

Maybe just one for me. Last quarter, you guys talked about staying on the topic of transient demand. You guys talked about government-related was coming back to San Diego in the first 2 months of the year. Just curious if you saw that trend continue into March and April and then how you expect that to impact both San Diego and D.C. for the rest of the year?

So we saw really the largest increase in transient demand was in Long Beach in the first quarter, and there's defense and other businesses in their government-related businesses. So we saw a good pickup in Long Beach. San Diego, we saw transient pickup. It was more negotiated and then some discount also, which the negotiated piece of it could be government related because it could be consultants and contractors in that work.

In D.C., I think we saw a little bit less in D.C., but we saw strong transient and what the transient in D.C. is really coming from is the rebranding to Westin. We're picking up more corporate accounts, more retail accounts. And so when you look at our rate and our occupancy index compared to pre-Westin, we're definitely gaining share on the market. And so while some of that is -- everything in D.C. will be government-related, what we're really seeing there is the benefit of the rebranding that we did.

Our last question comes from Chris Woronka from Deutsche Bank.

Bryan, you covered a lot of ground on Miami and Andaz and kind of what still needs to happen to get fully ramped up and it seems like you had a good start in Q1. But can you maybe just flesh out a few more details on -- I know there's still obviously a rate story, but is there also kind of a group story to this? And I guess, more ancillary, I don't know how much like Beach Club you mentioned before will factor in. So just trying to get a sense for how much is strictly rate, which should have obviously nice flow-through versus kind of group and other things that still need to happen.

Sure. Our target for group is probably about 25% for the hotel. And this year, we'll run 20-ish percent of the business group, which is better than we anticipated going into the year. We've actually seen not only group volume, but the quality of the group continue to improve as we move throughout the year. Miami is a repeat market, both for the transient customer and the group customer. So that quality of group, whether it be at the end of the year for Art Basel or other major events is that we didn't really participate in that last year. And so we'll have groups in this year and next year we'll probably have even better groups in. And so while we have some occupancy on the group side, we also -- the group side is also -- will be a rate story.

And then also at the end -- in the end of the third quarter, fourth quarter, when Bazaar opens, that's going to bring a level of energy and notoriety into the hotel where that's going to be a big catalyst when it comes to the overall rate of the hotel -- the resort also. So everything has accelerated in the first quarter where we've seen the group pick up, the group demand, the quality of the group increase. And so while there's still occupancy there, there's still ancillary spend there. As we move into next year, it starts to become more of the rate story, and we have a lot of space between our current rate and the market rate where that will be very meaningfully -- very meaningful to the cash flow of the hotel.

We have no further questions. I would like to turn the call back over to Bryan Giglia for closing remarks.

Thank you, everyone, for your interest, and we look forward to seeing many of you at upcoming conferences and look forward to also anyone that we have the chance to get through the new Andaz. We've had many tours, but are always available to show off this really remarkable resort. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Fourth Quarter Earnings Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, February 27, 2026, at 12:00 p.m. Eastern Time.

I will now turn the call over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

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 Bryan. Please go ahead.

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, where we made further progress on our 3 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'll 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 managed 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 2 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 3 quarters 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 at 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, D.C. 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 is building momentum, which 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 Biolea 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 D.C., 2 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 have been disappointed by various headwinds over the past 2 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 execute on the 3 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.

And with that, I'll turn the call over to Robert to give some additional details on recent capital investment activity and our plans for 2026.

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 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'll turn it over to Aaron. Please go ahead.

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. In 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 the 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 and 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% and 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 Onda and better performance in Maui will more than offset the challenging comp in D.C. 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 onetime items and an asset sale, which together contributed approximately $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 onetime 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, but 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 repurchases, 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 HNI preferred securities. Before we conclude our prepared remarks, I'll turn it back over to Bryan for some additional thoughts.

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 our 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.

And your first question comes from the line of Cooper Clark with Wells Fargo.

Curious if you could walk through some of the puts and takes as we think about the 1.5% midpoint of '26 RevPAR growth ex-Andaz within the context of 2.1% growth last year and what should be a continued recovery in markets like Hawaii?

Sure. Cooper, when you look at the remainder of the portfolio ex Andaz, you're 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 needed to stabilize, which is something that we saw happening in kind of the late third quarter, fourth quarter of last year.

And that continues to happen going forward. We went from the high -- 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're seeing continued transient demand as we recapture that index.

And so far, the first 2 months of the year have been a pleasant surprise to see that continue. The group business in Maui is -- the pace is down a little bit this year. We do have this one piece of business that is on for a couple of years and then off and it's off island this year. But we are seeing a transient pace is up about 53%, and that will help cover that shortfall.

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

And so while we anniversary that coming up shortly, and so the year-over-year comp will get easier, we do -- we are cautious. And then we are also seeing in D.C. a pickup in transient business that we were not seeing in the middle part of last year. And so some of the government transient, we're starting to see that come back. Again, with what the impacts and the headwinds that we saw last year, we're approaching the D.C. market with as 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 D.C. is one of the markets right now that we're keeping an eye on and is pulling that average back.

Okay. Great. That's 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?

Sure. I mean I think roughly, we're on expenses, we're right around 3% total. Labor over the last couple of years has been sort of in that 4-ish range. It's 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's something that we had good renewals with last year. There were not any major cat 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.

And so if that -- 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're kind of assuming that those are going to normalize. And then on the Andaz side, overall, I don't think it's going to make a material difference in that overall percentage.

Cooper, it's Aaron. And just maybe to add to what Bryan was saying. So as we move 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 comparable portfolio, so the 13 hotels ex Andaz, expense growth is in that kind of that 3-ish percent or so area.

What we'll feel a bit differently this year is just that, as you noted, the blended RevPAR growth rate for that comp set is -- for that set of hotels is a bit lower. So we'll expect some margin headwind for the comp portfolio in '26. If we add in Andaz, things obviously do get a little bit noisier given that it was only open part of the year last year will be open all of the year this year.

We'd look at probably a total overall expense growth rate of around 5% or so, which starts then align with where the midpoint of the RevPAR range is for the total portfolio. So a good chance of margin being able to defend margins as we move from '25 to '26 for the total portfolio, and then we'll be hopeful that we have an outcome like we had last year, whereas the year went on, we were a bit more successful on the cost side.

Your next question comes from the line of Duane Pfennigwerth with Evercore ISI.

A call earlier today talked about the expectation for being a net seller of assets. I wonder if that's your expectation as well. And if you have any update on the marketing process around the Wine Country assets.

Sure. 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'll 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's a lot of demand for cash flowing assets.

And so those obviously can support the highest debt balance. And we're still seeing for midsized transactions, enough equity out there as you start to get to a larger assets, the bidder pool is still thinner. I do think we're seeing that improve. And so our view is really no different than what we were doing last year and when we sold New Orleans at a very attractive cap rate and then redeployed those proceeds into our common stock.

We're going to look to realize private market values for where we can for those -- for hotels and resorts that we have, where we see the biggest gap between the public and private market values. And basically, we'll continue to try to unlock value where we can and then go and deploy that in the most accretive manner.

We don't comment on transactions prior to announcement. But we have been clear and I think our actions have been very clear is that our major pillar of our strategy is recycling assets. So there's always going to be a point in time where we'll have one or more assets that in some form of marketing or discussion with potential buyers. And we don't think that this year will be any different.

The question then comes is what is that most accretive allocation of that 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, what -- and on a risk-adjusted basis, what is make more sense to repurchase stock or preferred? Does it make more sense to acquire an asset?

And over the last few years, I think we've demonstrated that we've been able to pivot between those sometimes in shorter time periods, but we've been able to effectively deploy that capital, whether it be through the acquisitions of [indiscernible] or buying back stock.

Your next question comes from the line of Smedes Rose with Citi.

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're sort of at least in line or maybe total RevPAR would be a little bit higher. So I was just wondering if you could just speak to that for a moment.

Sure, Smedes. Having a focused portfolio with some larger assets, D.C. being one of them I spoke about and then San Diego also that had a -- we finished up a pretty substantial meeting space renovation or we finished a portion of it, and we'll finish the rest of it in the quarter that's impacted on those 2 big hotels. On the group side, that's going to impact some of our ancillary spend, 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 D.C. somewhat, but more importantly, the transient trends we're seeing in Wailea with the additional spend that comes from the transient rooms, that will help buoy our total RevPAR. But right now, it's more a function of some of the limited displacement in the first quarter in San Diego and then a slower group pace in D.C. it's more that.

Okay. And then I was just wondering if you could talk a little bit more. You mentioned in your opening remarks some transient weakness in San Diego. Is that specifically to your hotel? Are you seeing that kind of market-wide? And maybe just if you could just speak to kind of just the broader market in San Diego, what you're seeing just maybe on the group side, what's happening with the convention calendar there, et cetera?

Yes. In San Diego, we saw some ups and downs last year. Some of it government related. There's a lot of defense contractors. So we saw it slow down last year. We've seen that pick up. Towards the end of the year, the leisure time period, whether it's some international travel not coming in, some Canadian markets come to that area.

What we're seeing now, the first 2 months have been pretty promising in San Diego, DC2, we mentioned. And so I think we're 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.

And so we'll 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.

Your next question comes from the line of Michael Bellisario with Baird.

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

Yes, Mike, thanks for the question. So the Ohana is referring to is our Series G preferred, which is issued in connection with our acquisition of Montage. That one does have a mechanism where the yield there is tied to a greater of the hotel yields or a fixed rate, which is currently now 6.5%.

So overall, it came in at $66 million in size, so it's a manageable amount of capital. We kind of view our preferred, I would say, as a total bucket. So all in the $280 million at a pretty attractive blended price of just around 5% or so. But as you saw in our results for our fourth quarter, we did take the opportunity to look at some buyback on the preferred side, and we'll continue to do that as a way to kind of just manage the overall preferred dividend exposure and ensure that we're mindful of that -- of the mechanism on the Series C, which does step up.

So I think as we think about this year, I wouldn't expect that our preferred dividend would increase in '26 relative to where it was in '25, even with the escalation on the Series C, just given that we'll manage the overall outstanding balance. So we'll take another look at it as we move through the year.

I mean, certainly, as we noted, we have $200 million of cash that we could readily put to use to address that Series G. And the function there is it's callable solely in our discretion.

And it doesn't have to be in the total amount either. So we can take out pieces of it at a time.

That's helpful. And then just 2 little modeling follow-ups, maybe I missed them. What's your EBITDA expectation for Miami this year? And then what are some of those onetime items that you mentioned that's impacting the year-over-year growth rate? I think it's like $7 million net of the New Orleans sale, if my math is right?

Okay. I'll start with -- so in Miami, our expectation is consistent with where we were before. We think it's low to mid-teens EBITDA this year. And our what we've seen starting in kind of really in December and December, we hit close to 70% occupancy. The comp set was right around 70%. Our rate granted was lower than the -- than our luxury set.

We were in the 500s. They were in the 900 plus. So we have plenty of room to grow. We're building a very good base. Our group room nights have doubled quarter-over-quarter. We've 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.

And then, Mike, just on the second part of your question as it relates to the onetime items that we called out for '25. It's 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 won't repeat this year, a cost recovery that we had in connection with one of 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 wouldn't expect to repeat in '26.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

So I understood everything you said, Bryan, about any potential transactions in Wine Country. My question on it is kind of do you think any sale process is having any kind of impact on operations right now? It looks like in '25, you had pretty good results at the Montage, both big Four Seasons, maybe a little bit less so. So is there anything to draw from that? And what's kind of embedded in your guidance as to how those perform this year?

Yes. I mean 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. So adjusting for that, that was probably about $1 million of EBITDA.

So adjusting for that, one, 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 doesn't 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 so 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 -- we've had great success with group at Montage.

Group is not as strong as Four Seasons this year, but they're moving from a much larger base. And our transient demand over at Montage has been phenomenal. So I think transient pace is up 25% year-over-year. So just like San Francisco, a lot to look forward to in the Bay Area and Wine Country. And so there, again, with the impact of the fire last year was sort of a unique impact to Four Seasons, both hotels should have very good years.

Okay. Appreciate all that color, Bryan. Maybe to kind of keep it in the San Francisco area at the Hyatt. I know there was probably a Super Bowl benefit back in January. This hotel is running single-digit margin in '24 and '25. Is there any expectation this year that whether it's, again, outside of Super Bowl, but with AI and back to office and other group things that are happening in San Francisco, is there a hope or an expectation on your part that, that hotel starts meaningfully improving margins?

Yes. I mean our location in that market has become the primary location. And so our basic -- 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. And so we have -- we're 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 '25 at 78% occupancy, which is 10 points of occupancy down from where we were. We have a $300 rate. There's still quite a bit of room in the rate.

And so we have great pace this year. Transient pace continues to grow. The market had a great Super Bowl. World Cup is -- we're just starting to see bookings for that, and that's something that will help compress the summer as we get into it. So look, I think that 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 very -- are looking forward to the next several years in this market.

Your next question comes from the line of Daniel Politzer with JPMorgan.

This is [ Michael Harris ] 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?

Yes. Look, I mean, if you look over 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 time frame. I think D.C. is a good example of what is our -- what are our expectations in D.C.

Like I said, they're cautious this year. There was -- 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 -- we weren't expecting last year and impacted operations. Could elements of that happen again? Sure. If we look at '26 in D.C., it's just starting off. It's a tough comp.

You had inauguration the year before. We had storms in January and you have midterms later in the year, which means Congress won't be in session a lot as much. So those are things that keep us cautious, especially from the framework of the prior year's experience. But then on the other side, you look at the positives there. You've got the America 250 celebrations. You have an Indie race that was just scheduled for August that's happening.

Our transient pickup for January and February has been stronger than we thought. The negotiated transient demand for the next 6 months is up 11%. Part of that is still the benefit we're seeing from the conversion to Westin. Some of it is business that's coming back to the market. When you look at our transient demand for January and February and you put it against the backdrop of we had weather issues this January. We didn't have an inauguration this year, but yet our transient demand is greater than what we had last year. That points to strength. And so that makes us very optimistic. The question is we probably need to see a few more months of this before our -- before we can have our outlook reflect that for the rest of the year.

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?

Yes. Let me start with that, and 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's a 1,200-room hotel. It's a lot of meeting space. So there's $25 million of that number right there.

A portion of that does come from the FF&E reserve. And so that's a big piece of it. There's 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 chunk -- single chunk will come from the San Diego piece, which will be in the first and second quarter as it gets paid out in. Aaron?

Yes. Bryan basically got the punchline there. The largest projects will be front-loaded. So I'd expect about 1/3 of it happens in Q1, but -- and then Q2 will be the second largest contributor and the rest will trickle into the back half. But work largely performed in Q1 and then the payments in Q1 and Q2.

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

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

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

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Third Quarter Earnings Call. [Operator Instructions]. I would like to remind everyone that this conference is being recorded today, November 7, 2025, at 11:00 a.m. Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

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 Bryan. Please go ahead.

Thank you, Aaron, and good morning, everyone. Operating results in the third quarter reflected many of the same trends we saw earlier in the year with continued strength in San Francisco, helping to offset a more price-sensitive leisure traveler and subdued government-related demand across other parts of the portfolio. Despite these cross currents and disruption from the fire near our Four Seasons Resort in Napa Valley, our earnings for the quarter were in line with our expectations as stronger ancillary spend and better cost controls offset softer room revenue growth.

At our urban hotels, RevPAR growth was generally flat during the quarter with our Marriott Long Beach downtown continuing to deliver outsized growth following our brand conversion last year, which helped to balance a tougher comparison at our JW Marriott New Orleans. As we have noted previously, the New Orleans market was expected to experience some very tough comps after the first quarter, and so while third quarter RevPAR at our hotel declined from last year, the performance was better than expected as the hotel continued to gain market share.

Despite effectively flat RevPAR at our urban hotels, we managed to deliver 140 basis points of margin growth as our operators were able to effectively control costs. In fact, Marriott Boston Long Wharf delivered a 47% EBITDA margin in the quarter, an increase of over 100 basis points relative to the prior year, a very solid performance for an urban full-service hotel, especially considering recent cost pressures.

Our convention hotels turned in better-than-expected performance with RevPAR growth of 3.5% on generally healthy trends in group business. San Francisco was once again a standout performer with more than 15% RevPAR growth, and we continue to be encouraged by how the market and our hotel are setting up for additional growth into next year.

In Washington, D.C., performance across the market continued to be hampered by weaker government and government-related demand, although results at our recently converted Westin were consistent with our most recent expectations. In San Antonio, we were renovating our meeting space during the quarter, which caused some disruption, but that work is now complete and should position us for growth in 2026.

Across the portfolio, we had solid production in the third quarter, booking 6% more rooms than the prior year and posting our strongest third quarter booking volume since prior to the pandemic. We have positive group pace as we head into 2026 with particular strength in Orlando, Boston, Miami, San Francisco and Wine Country.

Performance across our resort portfolio was softer than expected as a weaker demand environment in South Florida and the Keys added to what has been a more challenging market this year in Maui. I think we are beginning to round the corner in Maui as September marked the first month of positive RevPAR growth for our resort this year and October is also positive and slightly better than expected.

In Wine Country, we continue to be encouraged by a better demand backdrop this year, although Q3 was expected to be our toughest comp quarter of the year, and we also experienced headwinds at the Four Seasons from the Pickett Fire in Napa County in late August and early September. While the fire was not close enough to cause any physical damage to the resort, we did experience cancellations and overall lower business volumes in the weeks after.

At Andaz Miami Beach, overall profitability in the third quarter was consistent with the range we shared with you last quarter. We continue to see an acceleration in our booking patterns and are pacing well to deliver strong growth next year. Occupancy continues to build, and we are well positioned with meaningful group bookings in the first quarter of 2026, the most important quarter for profitability. Robert will share some additional details on our progress at the resort shortly.

While the operating environment remains choppy and additional uncertainty has been introduced from the government shutdown, based on what we see today, we are maintaining our outlook for the year and are continuing to work with our operators to drive incremental revenue and control costs. We are working through our budgeting for 2026, and while that process is just beginning, we see reasons to be optimistic that we will benefit from our recent investments and be able to deliver above-market growth next year. We will have more details to share with you on our next call.

With that, I'd like to turn the call over to Robert to give some additional details on our progress in Miami and our capital investment activity.

Thanks, Bryan. It's been a productive few months for us on the operations and investment front. We continue to make headway at Andaz Miami Beach. Guest response and lead volume at the renovated resort continues to be positive. The resort is currently #8 on TripAdvisor for Miami Beach Hotels, a significant improvement over where we were 90 days ago.

As we shared with you last quarter, we need to book approximately 1,000 transient room nights per week in order to achieve our desired occupancy goals. I'm happy to report that we have recently been pacing ahead of that number as we continue to build momentum post opening. We are pleased with our business on the books for early 2026, which should support a solid first quarter of next year.

Additionally, a constructive event calendar next year, including the College Football National Championship in January and the World Cup in the middle part of the year should help add further compression. While we got off to a choppy start this year, we look forward to meaningful earnings growth next year and into 2027.

On the capital front, we completed a renovation of the meeting space in San Antonio on schedule and on budget. This investment should allow the hotel to better sell group business, and we will begin to see the benefits of that next year. In San Diego, we are just about to begin a renovation of the meeting space at our Hilton Bayfront. This hotel is consistently ranked as the top-performing large group hotel in the market and a refresh of the meeting space will ensure it is able to maintain its competitive positioning. We will complete this work in phases to minimize disruption. Separate from these projects, we are continuing to work through the planning and budgeting process for our capital investments for next year, and we'll have more to share with you next quarter.

The transaction market continues to be quiet, although we are seeing some incremental signs of life. While the debt financing markets remain open and conducive to transaction activity, a more tepid buy side has left some would-be sellers opting to refinance. Despite this more subdued backdrop, we continue to seek out opportunities where we can drive growth and create value through accretive transaction activity.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As we noted at the top of the call, our earnings results for the third quarter were generally in line with our prior expectations, even with the disruption we experienced at Four Seasons Napa Valley, which created a 50 basis point drag on RevPAR growth and a $1 million headwind to earnings. Stronger ancillary spend and ongoing efforts to contain costs helped to mitigate margin pressure.

Overall, third quarter RevPAR increased 2% compared to last year and total RevPAR grew 2.4%. Adjusted EBITDAre in the third quarter was $50 million, and adjusted FFO was $0.17 per diluted share. We have been working with our operators to reduce costs wherever possible and are seeing the benefits of this in our results.

Through the first 9 months of the year, our comparable portfolio total RevPAR growth has been 2.3%, and we have been able to hold margins to within 20 basis points of where they were in the prior year. This means that we have been able to contain our expense growth more effectively than expected at the start of the year.

We continue to benefit from a strong balance sheet with net leverage of only 3.5x trailing earnings or 4.8x, including our preferred equity. As of the end of the quarter, we had nearly $200 million of total cash and cash equivalents, including our restricted cash. Together with full capacity available on our credit facility, this equates to $700 million of total liquidity.

As previously disclosed, we completed an amendment and restatement of our bank debt in the third quarter, which extended our average maturity by 3 years and lowered our overall borrowing costs. We will be utilizing a portion of the proceeds from one of our newly amended term loans on a delayed draw basis to repay our Series A senior notes at their scheduled maturity in January 2026. After which, we will not have any debt maturities until 2028. We have a very strong bank group, and we appreciate their ongoing support and partnership as part of our recent recast.

While the operating environment remains challenging and the government shutdown has added to already heightened uncertainty, we are maintaining our full-year earnings outlook. Based on what we see today, we expect that stronger out-of-room spend will help make up for more moderate rooms RevPAR growth that is likely to be in the lower half of our existing range and allow us to generate EBITDA and FFO that is at or near the midpoint.

Note that this reflects actual activity so far in the quarter and current trends as we sit today, but these estimates could be negatively impacted if the government shutdown or its lingering effects cause additional disruption to travel and hotel demand.

The fourth quarter is projected to be our strongest RevPAR growth quarter of the year, with total portfolio RevPAR growth expected to be in the mid-single-digit range with Andaz Miami Beach contributing 400 basis points to 500 basis points. As a point of reference, our prior year fourth quarter RevPAR for the current portfolio, including and excluding Andaz, was $201 and $209, respectively, and for the prior full-year, it was $217 and $225.

Now shifting to our return of capital. We have repurchased a modest amount of stock so far in the fourth quarter, and our current year-to-date total stands at 11.4 million shares at an average price of $8.83 per share for a total deployment of $101 million. This repurchase activity has been accretive to both NAV and earnings per share. While we retain capacity for additional share repurchases, our projections do not assume the benefit of additional buyback activity. Separate from our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the fourth quarter and has also declared the routine distributions for our Series G, H and I preferred securities.

Before we conclude our prepared remarks, I'd like to turn it back over to Bryan to share some additional thoughts.

Thanks, Aaron. We will open it to questions shortly. But first, I want to address investor feedback related to the letter Tarsadia sent to our Board and recent market speculation and misconceptions. While as a matter of policy, we do not comment on rumors, we also believe in corporate transparency and healthy dialogue with our shareholders.

In March 2022, upon my appointment as CEO, the Board provided a straightforward mandate, close the valuation discount, improve absolute and relative total shareholder returns and drive growth in NAV per share. It was my view that generating superior returns from the ownership of hotel and resort real estate requires more purposeful asset recycling in order to capture the value created through capital investment, repositioning and asset management before it is eroded by an extended hold period and incremental defensive capital spend. I still believe this to be true.

That said, the last few years have been a challenging time for lodging transactions, and our pace has been slower than what we would have liked. However, even despite a depressed transaction market, we were still one of the most active in this space, disposing of lower quality, lower growth assets and using proceeds to acquire better real estate, including the remaining interest in one of the premier group hotels in San Diego, prime beachfront land in Miami with meaningful long-term growth potential and a solid hotel in San Antonio with a fantastic location and an attractive yield.

In total, we sold over $600 million of assets and acquired roughly $600 million of assets and recycled more capital than our peers on a relative basis. In addition, we have repurchased nearly $300 million of stock or 14% of our outstanding shares at a significant discount to NAV, generating meaningful value for our shareholders.

During this time period, we remain nimble, allowing us to take advantage of market conditions and effectively allocating capital through dispositions, acquisitions, investment in our portfolio and share repurchases. Despite these accretive allocations of capital, the last several years have been a challenging time for the lodging REIT sector and the group's total return performance has been disappointing.

The Board and management remain committed to taking every step possible to maximize value for shareholders and are open to any alternative that would reasonably be expected to result in value creation, which is why we have, from time-to-time, formally engaged with parties who have expressed an interest in acquiring subsets of our portfolio or the entire company.

This is evidenced by what was speculated in the press last year, but despite management and the Board going to great lengths to work with one of those parties to accommodate a sale of the company, they were not able to raise the equity capital needed to complete a transaction, and so there was no deal to do in the end and contrary to what you may have read, no offer to accept or reject. It seems almost an obligatory response in the face of rumored deal speculation to default assumptions of management and Board entrenchment.

I would encourage you to consider the facts I have shared with you. The actions we have taken in the year since my appointment as CEO have been consistent with preserving full strategic optionality and prioritizing the interest of shareholders. We have been deliberate in the construction of an exceptional portfolio, encumbrance-free balance sheet and shareholder-friendly governance. We have not done anything that would diminish the value or likelihood of realizing the company's value through a potential sale and in fact, have done the opposite and endeavored to engage in conversations related to a transaction when the Board believed they had an opportunity to better realize value for shareholders.

Where does that leave us today? We continue to execute our strategy and are working to recycle more assets. The transaction market remains depressed and equity capital, especially for larger deals, remains tight. We regularly meet with financial and other advisers to discuss market conditions and potential alternatives available to the company.

Our directors, most of whom have significant transactional experience, an important attribute that was considered as part of their election to the Board, provide management with guidance and support on evaluating and executing transactions to maximize value to shareholders.

As we have done in the past, the Board has and will continue to engage with credible and capitalized counterparties for the company. We have a great portfolio with meaningful embedded growth, and we have a well-informed and realistic view of the market and the value of our portfolio today and what we expect it to be in the future.

At the same time, we also understand the lack of depth and liquidity in the current transaction environment. We are also well aware that market conditions can change quickly, so we will remain nimble and ready to pursue any alternative that will create value for our shareholders. As evidenced by our excellent governance ratings, we take the fiduciary responsibility that we have been entrusted with seriously and are committed to finding the most expedited path to realizing the value of our portfolio.

With that, we can now open the call to questions. Operator, please go ahead.

[Operator Instructions] Your first question comes from the line of Duane Pfennigwerth with Evercore ISI.

This is Peter on for Duane. Could you just go back to the -- your thoughts on 4Q for us real quickly and tease that out the mid-single-digit total RevPAR range. How has that changed over the last 90 days? It would be helpful to maybe hear your thoughts on if we separate out Miami and San Diego, what's embedded for the rest of the portfolio?

Sure, Peter. Thank for the question. This is Aaron. I'll take the first part of that. Q4, even from the start of the year was always expected to be our strongest quarter from a RevPAR growth perspective. As you noted, we expected top line to grow in the mid-single-digit range. The underlying drivers are really obviously a meaningful contribution from Andaz Miami Beach, which as we noted at the midpoint accounts for about 450 basis points of the growth. The growth is really broad-based, right? We're seeing strong performance in Wine Country. Orlando is expected to have a good quarter.

Then as Bryan noted in the prepared remarks, Wile is starting to turn a corner and be a contributor there. Then we'll see some contribution from Bayfront as well given the lapping of the labor activity from last year, which is helping to balance out what we expected to be some softer growth markets all along in New Orleans, just given the calendar and the activity that happened last year and then D.C., just given some of the headwinds from the current environment that we're seeing now. All-in, when you take that together, we were focused, as we noted, on the midpoint of our EBITDA and FFO range, which would result in about EBITDA in the low $50 million area.

Then, Bryan, thank you for the extensive detail about the transaction markets. A question for you or for Robert would be just how do you think that changes in 2026? What could be the catalyst from here? In case there are further dispositions within the portfolio, do you see opportunities on the acquisition side?

Yes. I mean, look, I think when we look at, compared to last quarter as going back a quarter before that, I think the transaction market continues to slightly improve. I think that we have started to see maybe a little bit more rationalization in pricing. It's still not robust. Especially not for larger assets. As we look into '26, I think that the expectation is that things will continue to improve. The debt markets are absolutely there and supportive of deals of all sizes, obviously, more for cash flowing assets, it makes it easier to get the debt amounts for that.

I think really, when you look at the outlook for '26 right now, it's not overly inspiring. I think what we'll need to move things forward will be a slightly more positive outlook or additional adjustment in pricing expectations to be able to account for what will be a modest growth year.

Your next question comes from the line of Cooper Clark with Wells Fargo.

I guess just sort of sticking on the transaction market front. I'm just curious if you're seeing any large buyers willing to acquire and scale and if it's a bid-ask spread issue or there just isn't capital demand for the sector? If there is any disposition pipeline you could speak to either on a single asset or a larger piece of your portfolio?

On the disposition front, I mean, we have -- despite a more challenging transaction market, we have and will continue to look to recycle assets. Especially for our size, we've been extremely active over the last few years and been able to exit hotels where we thought the growth was lower or there was capital that was needed and those transactions were done at attractive cap rates and have been able to redeploy that into various different sources, including Beachfront in Miami, which we had a major repositioning, a more stable but still fantastic located asset in San Antonio and then being able to pivot very quickly to repurchase shares, which we have over the last several years of over 14% of our float. We will look to continue to do that.

It works. The current market is more supportive of assets on the smaller side. I think when you get into scale above a couple of hundred million dollars, I think the buyer pool is more limited. I think really what will change that is as the forward outlook improves at whatever point that is, as we have seen over time, you'll see capital quickly come back into the space.

Then I guess just switching over to the Andaz. Just curious, any thoughts about how we should be thinking about the EBITDA ramp into '26. Do you think that lower end of $12 million to $16 million is achievable next year with stabilization in '27 in the high teens to low 20 range?

Yes. I think the next year outlook is definitely achievable within that range. Q3 ended where we were expecting it to. Q4 is ramping up well, and we're getting to that December high 60%, 70% occupancy. Our transient bookings have accelerated. We talked about last call that we needed roughly 1,000 transient rooms booked a week, and we are right around that in several weeks well above that. While the market has softened a little bit, the rate in the market and the rate for our comp set is still well above where we underwrote.

We are seeing very strong bookings going into 2026, mainly Q1. The city has a good setup for next year. National Championship game, FIFA, F1. Not only do we have a ramping resort, we have good business on the books in Q1, and we have a strong market. Remember that Q1 makes up a large portion of the profitability for the entire year.

Your next question comes from the line of Smedes Rose with Citi.

Bryan, you mentioned in your opening remarks some group strength. You kind of called out 4 markets there. I'm just wondering, can you talk about just overall pace for group that you're seeing for your portfolio for '26? I guess, what percent of rooms sort of on the books at this point for next year?

Yes. We'll cross over the year at roughly right around 80% of the room nights on the books, which is relative -- basically consistent with the prior year, too. Crossover, we're on track there. Especially in Q3, we saw really good group production. Now that is for current year '26, '27, '28. We've actually seen a lot of corporate demand going into '27 and '28, and that tells us they're trying to secure the prime gates at this point.

When we look at pace, overall pace is up low mid-single digit for next year. The hotels and resorts that are strongest for us, Andaz, San Francisco, the Bay Area and Wine Country all have very strong pace for next year. Orlando had a phenomenal booking quarter in the third quarter, has a very strong pace as does Long Wharf, which is a hotel that we -- about 2 years ago started. It had always been a wonderful transient hotel, but started to be more strategic in where we are placing group business, which has allowed us to not only grow occupancy on shoulder periods, but also compress transient rate during that time -- during periods where we have -- we placed group.

Then also with San Antonio next year, you have a market -- market is a little stronger, and we're coming off of renovation of the meeting space, which was completed in Q3.

Your next question comes from the line of Michael Bellisario with Baird.

Bryan, thanks for all those comments at the end that color was helpful. First question, just you guys didn't buy back much stock in the quarter. Sort of one, why was that? Were you restricted at all that would have precluded you from repurchasing stock?

We were not restricted at all. When we look at share repurchase, we look to match fund a lot. Sometimes it depends on when we have transactions happening. Now when we sold New Orleans, we did acquire more, and so there is a piece of it that is more price sensitive. When we believe that we have an adequate discount to NAV, that is always a good capital allocation option for us.

We also weigh liquidity and other factors, and so if you looked over the last few years, you've seen some sort of -- you'll see ups and downs in the velocity and volume of repurchase. I think it's been over that time period, generally pretty consistent and about 14% of our overall float. Quarter-to-quarter, it's going to vary, but I think we -- as far as having it as an allocation tool, it's been one that we've used consistently.

Then just switching gears, can we dig into Wailea a little bit more about what you saw performance-wise, September, October, how those actualized versus expectations? Then what you're seeing in terms of pace into year-end, especially for the holiday period? That would be helpful.

As we talked on the last call, because of our positioning in the market, we knew that we were going to lag Kā'anapali and lag some of the luxury in Wailea also. A good sign, and I think we've heard in other company peer reports is that there's been great growth in Kā’anapali. We believe Kā’anapali is just about stabilizing at in the 60% to 70% occupancy, so that's a very positive sign for us. Some of the luxury in Wailea, although some of it was -- is comping off a displacement is also doing -- is also improving. We saw that in -- starting in September and into October, where our RevPAR turned positive.

As the market grew, we're now able to grow back into our place. Our index over that time period has also improved from the mid-90s RevPAR index to it should be stabilized around 110. We're working our way back up there and into the low 100s now. We had a great group booking or we had very strong group bookings in the quarter. Our Q4 group is very solid and up significantly. When we look into the festive time period, our revenue is in line with prior year.

I think everything that we were hoping to see, we have seen and we're continuing to see now, and so as we look into next year, we'll get the full advantage of our newly renovated product. We're having great booking trends right now, and we will continue to regain our transient share.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

I think, Bryan, again, helpful commentary. I had a question on Wailea. Not really talking about selling the company, but I think there's always been a perspective that there's a big value-add opportunity at that asset. I'm confident you guys have looked at all the options many times over. Can you maybe just give us an update on what is -- what your current perspective there is in terms of what value might be extracting longer term?

Yes. I mean, our perspective is that Wailea is a premier, if not the premier luxury beachfront resort in the U.S. I mean, it's a phenomenal location. It is an irreplaceable stretch of beach. It has the Maui market taken some time to recover a little bit? Yes. We're seeing all the positive signs and seeing groups and leisure travelers come back to that market. Long term, it's phenomenal.

We have talked over time about having some additional future development opportunities there. One thing about beachfront resorts is that development takes a while, and so while the market has had its -- has had a little bit of an up and down time period right now, we still work through that process and are far along in it, but still have a ways to go to be able to secure the ability to add additional keys to the resort.

Our belief is by the time we finish that, which is probably another year plus, the market will be where it needs to be, and then we'll be able to evaluate the returns on that. A little far out, the important thing is that we have a phenomenal piece of land in an irreplaceable market, and we will have the ability at some point in the future to add to that if it makes sense, and we'll address that and talk returns in that once we get to that point. We're working on it, and we're well along in the process, and we're still ways to go, though.

Just a quick follow-up on Orlando on the Renaissance. understanding you said next year, there's a lot of positive momentum there. Can you just remind us when the franchise or management contract is up there and whether you have thought about making changes when that happens?

It's subject to a long-term agreement with Marriott. We've had other hotels that are subject to long-term agreements with Marriott. When we can figure out something that works for both of us, we won't keep us from reevaluating brands or as we've done in Long Beach in D.C. We're really excited about the pace going into next year and the bookings that the hotel has been able to do. We'll evaluate any opportunities, whether it be through renovation or any repositioning in the future. Right now, we're really excited about what's on the books for next year.

Your next question comes from the line of Dan Politzer with JPMorgan.

First, it sounds like there's a lot of the CapEx stuff has been winding down, but there's still a good amount going on. Is there any way kind of broad strokes just to better frame how we should be thinking about CapEx on a go-forward basis in the coming years?

I think as we get into next year, it's definitely going to tail off from the heightened amount this year. That said, we'll always have some form of a cyclical rooms renovation, meeting space renovation at various usually 1 or 2 hotels throughout the portfolio. As far as our bigger hotels go, we don't have any of that next year, but as we get into -- we're doing meeting space in San Diego that's starting in the fourth quarter. That will go into the first quarter a little bit, but we're kind of strategic in how we're layering that and placing it.

I would expect it to normalize a bit down. Then depending on in out years, what hotel is coming up for renovation, it will adjust accordingly. I think going forward, somewhere in the 80-ish range is the standard amount that accounts for these cyclical renovations.

Then just in terms of the remarks, which were helpful in addressing some of those concerns that are out there. I think you noted that you would pursue any alternative that could create value for shareholders, which is obviously the right thing to say. I don't know what are -- are there options that you view as most viable versus any that are complete non-starters or off the table?

No, I don't think. I think when the Board evaluates these options and when you look at the space and given the persistent discounts to NAV that lodging REITs trade at, any Board, Sunstone or other would not really be upholding their fiduciary duty if they weren't considering options to somehow realize a value at or close to NAV, and so I think because of that, it's a -- and maybe it's just a little bit more specific to this space, but it really is like -- it's just an ongoing process that's good governance that on a -- it's not really even on an episodic basis. It's on a quarterly basis, Board -- or at least our Board works with our advisers to understand value, to understand liquidity in the market. We'll then use that to evaluate what is available now, what transactions are available today and what is our expectation for future value, and that's the basis to decide how to realize value for shareholders.

Your next question comes from the line of Kenneth Billingsley with Compass Point.

I wanted to ask about the -- you made a couple of comments about ancillary spending being stronger. Looking at the other line item for revenue, that was up pretty strong. My question is, what are you including in there? What is the increase? Is the expense -- are you able to control the expenses on that better where a lot of that flows to the bottom line?

Ken, it's Aaron. I'll address that. Certainly, we have seen as the year has went on, that our out-of-room revenue growth has outpaced that, that we've derived from revenues, and that has just been part and parcel with just the strength that we've seen in the group business, where whether it's banquet, AV, F&B has been -- has come in stronger and frankly, has helped to offset from a total revenue RevPAR growth perspective, a bit of the softness that we saw on the RevPAR side. That's been good to see. We anticipate for a full-year basis that total RevPAR actually exceeds RevPAR growth by 50 to 75 basis points. Good solid trend there.

Then on the other income line, that will grab all of our -- whether it is destination and resort fees, our spa, our parking, etc., that will all come in there, which has just been a source of strength this year, particularly as we've seen better growth in our luxury resorts in the wine country.

It really speaks to the strength that we've seen when you look at the different group components. The corporate group for us, which is a lot of the -- what our hotels will cater to remains strong. The out-of-room spend continues to pace at levels up to last year and significantly up to 2019, and so when you look at the composition of our group, our group, less government, less association, those tend to be a little bit more price sensitive, and we continue to see strong performance from the corporate group.

Then the other question I had is G&A as a percent of revenues was lower as a percentage. Anything particular in the quarter? Or is this something to extrapolate going forward?

Yes. G&A for the quarter, it gets a bit lumpy as you look at it just among the 4 quarters of the year. From a full-year perspective, our guidance is $20 million to $21 million. That's a bit higher than where we were last year just based on where the comp formulas came out for 2024. If you look back and compare that to where -- and it's effectively where we were at 2019, so from a long-term growth perspective, that feels pretty darn good to us given what we all know of inflationary pressures over the last few years.

That concludes our question-and-answer session. I will now turn the conference back over to Bryan Giglia for closing comments.

Thank you, everyone, for the interest in the company, and we look forward to meeting with many of you at upcoming conferences. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Second Quarter Earnings Call. [Operator Instructions]. I would like to remind everyone that this conference is being recorded today, August 6, 2025, at 11:00 a.m. Eastern Time.

I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

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. Bryan will start us off by providing some commentary on second quarter operations and recent trends. Afterwards, Robert will discuss our capital investment activity. And finally, I will review our second quarter earnings results and provide the details of our updated outlook for 2025. After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Bryan. Please go ahead.

Thank you, Aaron, and good morning, everyone. The second quarter got off to a noisy start with the tariff announcement in early April coming on the heels of the slowdown in government demand in response to the cost-cutting initiatives enacted earlier in the year. While these crosscurrents led to heightened uncertainty and negatively impacted all demand segments to some degree, we saw pockets of strength across our portfolio that offset these broader headwinds and generated second quarter total portfolio results that were in line to slightly ahead of expectations, albeit with broad variation by market.

I'll start by sharing some additional details on our second quarter operations and accretive capital recycling. I'll then discuss the key assumptions underlying our updated outlook for the year, which includes some additional headwinds from a softer leisure demand environment, lower government volumes and a moderated pace of ramp-up at Andaz Miami Beach over the next few months. While we are seeing recent signs that give us reasons to be optimistic, we are taking a more cautious approach with fourth quarter expectations given the heightened uncertainty and limited visibility. That said, there are several encouraging signs, especially with recent leisure bookings in Miami and Wailea that if they persist, could lead to a better-than-anticipated fourth quarter.

So starting with our quarterly results. Our urban hotels led the portfolio, growing RevPAR by more than 9%, driven by healthy corporate group and business travel demand. Marriott Long Beach Downtown turned in another solid quarter with RevPAR increasing nearly 70% as the property continues to benefit from our recent investment and brand conversion last year. In addition, the Bidwell Marriott Portland saw 10% growth in RevPAR as the hotel is more aggressively competing for business and the market continues to recover. Following a very strong first quarter, JW Marriott New Orleans turned in a sequentially softer but better-than-expected second quarter. We knew coming into the year that the New Orleans market would have a strong first quarter, aided by the Super Bowl and an active citywide calendar, but that the remaining quarters of the year would experience very tough comps. And so while the second quarter RevPAR at our hotel declined from last year, the performance was better than expected and allowed the hotel to gain market share.

At our convention hotels, corporate demand remained healthy, but we saw more mixed performance of citywide events across our markets.

San Francisco once again surprised to the upside with RevPAR growth of 6.5% and total RevPAR growth of over 16%, driven by a better citywide calendar and increased levels of commercial activity in the downtown area. This is the second consecutive quarter where performance has exceeded our expectations and the hotel has ample opportunity to further grow earnings as group pace for the second half of the year and into 2026 is very strong. In Washington, D.C., our performance was hampered by additional government and government-related cancellations and from several citywide events that underperformed across the market. The third quarter is expected to be more challenging than initially anticipated as the market and our hotel continue to feel the impact of weaker contribution from government business and from affiliated events that rely on government funding.

In San Antonio, we faced a difficult comparison to last year when we had very strong contribution from in-house group business that did not repeat this year. As we move into the third and fourth quarters, we will be completing a renovation of the meeting space, which will cause some short-term disruption, but which will better align it with the quality level of the already renovated guestrooms.

This hotel has an ideal location within the market and the combination of the updated meeting space, the completion of the Alamo Visitor Center next door and our ability to reprogram the Riverwalk level to drive additional tenant revenue, all combine to create a compelling opportunity to grow earnings at this hotel in the coming years. In San Diego, occupancy was in line with expectations, but we saw softer conversion of group ancillary spend and some transient rate sensitivity, which contributed to lower top line performance. Alternatively, the Renaissance Orlando at SeaWorld had a strong quarter with good group contribution and solid production. In fact, year-to-date production is up 16% in room nights and over 30% in revenue as the hotel sales team has been deploying multiple new strategies to book future business.

Out-of-room spend was particularly strong during the quarter with most hotels in the portfolio generating ancillary spend above expectations, resulting in total revenue growth coming in 150 basis points higher than room revenue growth in the quarter. Within our resort portfolio, we saw increased price sensitivity at our oceanfront resorts in Wailea and Key West that contributed to lower-than-expected growth. As we shared with you last quarter, we anticipated that Wailea Beach Resort would have a choppier Q2 and Q3 as all inventory comes back online on the West side and the island further recovers following the fires.

This continues to be our expectation, and we remain of the view that this period of transition as the Kaanapali submarket reopens is a needed step and will be a long-term positive for the island as it will ultimately bring the return of more guests and drive additional airlift into Maui. Kaanapali is absolutely normalizing and its occupancy is approaching stabilized levels, which will benefit the Wailea Beach Resort. Our updated outlook assumes we face some incremental headwinds in the third quarter with some moderation in the fourth quarter relative to our prior estimates. There are several positives that support an accelerating growth story in the fourth quarter and into 2026.

First, the state has allocated marketing funds that will support current and future business. Second, airline capacity is improving, increasing total visitors to the island by 11% compared to 2024. These factors are driving recent increases in weekly transient bookings, which, if it continues, should position us better for Q4 and 2026 at one of the largest EBITDA-producing properties in our portfolio.

In Wine Country, we were pleased with the performance of Montage Healdsburg and Four Seasons Napa Valley, both of which grew revenues and earnings more than expected. Luxury group and transient travel remained strong at our high-end resorts. At Four Seasons, the resort grew occupancy by over 500 basis points and RevPAR by 3.5% despite comping over a strong quarter last year, which benefited from strong buyout activity. Over in Sonoma County, we had a solid quarter with Montage growing occupancy by over 1,200 basis points with a corresponding 18% increase in RevPAR and a 23% increase in total RevPAR. While results at Montage benefited from a favorable tax appeal outcome, even without this impact, the resort grew earnings and margin ahead of our expectations. Year-to-date, our 2 Wine Country resorts increased occupancy by over 700 basis points and grown total RevPAR by over 9%, driven by a combination of more resilient luxury demand and our efforts to better optimize the business mix.

As we shared with you on our last call, we opened the Andaz Miami Beach on May 3 of this year. We had previously planned to open the resort in March, allowing us to take advantage of the high demand spring break period, which would have supported strong occupancy from the outset. Missing spring break and opening in the beginning of the low summer season resulted in an EBITDA swing of several million dollars in the second and third quarters as it will take longer to build occupancy, move up in the online ratings and most importantly, advance our placement on third-party booking channels, which is driven by the number of bookings and reviews. While the later opening has also caused us to trim our expectations for the early part of the fourth quarter, the resort is now generating transient bookings near the levels needed to achieve our desired occupancy at year-end, which positions the property to be able to deliver on our expectations for 2026.

The reviews of the resort have been overwhelmingly positive with Tripadvisor ranking increasing from #200 out of 212 hotels in Miami Beach to 26 in just 3 months. Group business is growing quickly with over 1,800 definite room nights on the books for 2026 at a $600 rate and over 2,000 tentative bookings at over $600. 2026 will be a good year in the market with the College Football National Championship game, F1 and the FIFA World Cup. Robert will share some of the additional steps we are taking to increase the ramp-up pace in the interim. While our updated guidance range assumes we will have a noisier next few months leading up to the festive period at year-end, we remain confident in our investment thesis and our full focus is on delivering the meaningful multiyear earnings growth that this renovated oceanfront resort can produce.

On the capital recycling front, during the quarter, we sold the Hilton New Orleans St. Charles at a mid-8% cap rate on last year's earnings or a mid-6% cap rate, including near-term CapEx and fully redeployed those proceeds along with additional capital into $100 million of share repurchases this year. The hotel was going to require additional capital investment to maintain its current level of earnings, and we anticipated that the resulting yield would be inferior to what we could achieve by reinvesting in our own stock at a compelling discount. So we sold the hotel at an attractive price and did just that. This was a good trade, and it brings the total amount of share repurchases since the start of 2022 to nearly $300 million or nearly 14% of shares outstanding. We recognize that current trading levels would allow for additional accretive share repurchases, and we expect to be thoughtful as we evaluate additional repurchase activity, balancing leverage, diversification, optionality and the evolving return profiles of other potential allocation opportunities.

While we saw pockets of strength in the portfolio during the second quarter and earnings came in generally in line with our prior expectations, we are moderating our outlook for the remainder of the year.

This is driven primarily by continued weakness in government and government-related demand in Washington, D.C., further softness in Wailea in the third quarter and a more gradual near-term ramp-up at Andaz Miami Beach. Wailea and D.C. are 2 of our largest hotels and given the concentrated nature of our portfolio, the short-term impact weighs on the company. Looking forward, we believe we have reached the occupancy inflection point in Wailea, and we are seeing transient booking volumes supporting improvement going into the fourth quarter. D.C. has strong group pace next year that should help lift performance compared to 2025. Miami was slow to get out of the gate, but recent booking velocity, guest reception and group bookings point to this remarkable resort having a strong 2026.

That said, sustained heightened macroeconomic uncertainty, volatility related to recent policy changes and increasingly limited forward visibility have caused many of our operators to take a more conservative view for the second half of the year. While we have reasons to be optimistic that we can work with our hotel teams to drive earnings above the revised projections, we believe it is prudent to recalibrate our outlook based on what we see today.

And with that, I'll turn the call over to Robert to give some additional details on our focus areas in Miami and near-term capital investments. Robert, please go ahead.

Thanks, Bryan. While we are very pleased to have Andaz Miami Beach open and think the renovated resort looks fantastic, we continue to work on multiple fronts to make up for the late opening. Following the resort debut in early May, there were a few operational items that needed to be addressed, which limited the inventory of available rooms, prolonging our opening time line and slowing the ramp in the initial months. Now that we have addressed these issues, we have a fully functional resort that is gaining momentum into Q4 2025 and Q1 2026, the 2 most important quarters of the year for the market. Guest response has been phenomenal with the resort's Tripadvisor rating increasing meaningfully in the first 90 days. The positive reviews are contributing to a significant increase in transient bookings.

To achieve our desired occupancy goals, we need to book approximately 1,000 transient room nights per week. Between May and July, we were averaging around 200 to 300 transient bookings per week. This makes sense given some of the final work that was going on during the initial weeks after opening. Over the past several weeks, we have been averaging 800 to 900 weekly bookings, clearly moving much closer to our desired transient levels. Group has also been a bright spot with premium business booking into Q4 and Q1 next year. Additionally, the College Football National Championship game and the FIFA World Cup will add compression and boost demand next year. In addition, we now plan to debut our signature dining experience, The Bazaar by José Andrés in early 2026, which should give us further momentum for next year as we expect the restaurant will serve as a dining destination for local residents and guests from nearby hotels.

Elsewhere across the portfolio, we have begun a renovation of the meeting space in San Antonio. We expect to complete this project by year-end and that we will have some headwinds in the third quarter while work is performed, which is included in our outlook. In San Diego, we are in the final planning stages for a renovation of the meeting space of our Hilton Bayfront and expect to begin work late in the year. We will complete the meeting space update in phases to minimize disruption. We are starting the planning and budgeting process for our capital investments for next year, and we'll have more to share with you on that topic in the coming quarters. While the transaction market has been more muted this year, we were pleased with what we were able to achieve on our sale of the Hilton New Orleans St. Charles in June. The heightened uncertainty that has permeated the operating environment since the start of the year has weighed on deal volume, but we are seeing some signs that the bid-ask spread is narrowing, which could give way to some additional activity.

We continue to seek out opportunities to drive growth and create value through accretive transaction activity, but remain mindful of the returns offered by other capital allocation opportunities.

With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert. As we noted at the top of the call, our earnings results for the second quarter were generally in line to slightly ahead of our prior expectations, even with only a partial quarter's contribution from the Hilton New Orleans St. Charles, which we sold at the start of June. Stronger ancillary spend more than offset lighter rooms revenue growth and helped to mitigate margin pressure. Second quarter RevPAR increased 2.2% compared to last year, and total RevPAR grew 3.7%. Adjusted EBITDAre in the second quarter was $73 million and adjusted FFO was $0.28 per diluted share.

We continue to benefit from a strong balance sheet with net leverage of only 3.5x trailing earnings or 4.8x, including our preferred equity. While our outlook has moderated, we still expect our leverage and balance sheet capacity to improve as we benefit from the embedded growth in the portfolio. As of the end of the quarter, we had nearly $145 million of total cash and cash equivalents, including our restricted cash. Together with capacity on our credit facility, this equates to over $600 million of total liquidity. Inclusive of the extension options available to us, we don't have any debt maturities for the remainder of the year, but we are in discussions with our bank group to address our 2026 maturities and extend the majority of our in-place debt.

We will have more details to share with you in the coming months as those details are finalized. Included in this morning's earnings release are the details of our updated outlook for 2025. Our projections have been adjusted for the midyear sale of the Hilton New Orleans St. Charles. And as Bryan noted earlier, reflect a more cautious expectation for the remainder of the year. Based on what we see today, we expect that our total portfolio RevPAR growth will range from 3% to 5% as compared to 2024. This range reflects our revised outlook for Andaz Miami Beach, including a moderated pace of ramp-up relative to what we assumed in our prior outlook. For the balance of the portfolio, excluding Andaz, we now anticipate that RevPAR will increase between 1% and 3%. As a point of reference for these updated guidance ranges, the 2024 RevPAR statistics for the total portfolio and for the comparable portfolio, excluding Andaz Miami Beach, were $216.86 and $225.31, respectively.

With these revised top line growth projections, we now estimate that full year adjusted EBITDAre will range from $226 million to $240 million, and our adjusted FFO per diluted share will range from $0.80 to $0.87. As it relates to some of the quarterly assumptions that comprise our updated full year outlook, we would expect our total portfolio RevPAR growth to be flat to slightly positive in the third quarter before increasing more meaningfully in the fourth quarter, driven by greater contribution from Andaz Miami Beach, ongoing growth in Long Beach and the easier comparison for the impact of the strike in San Diego. In terms of the distribution of our EBITDA by quarter, based on the midpoint of our revised outlook, the first half of the year contributed approximately 56% of our expected full year total, and we expect the third quarter to contribute approximately 20% to 21% with the balance coming in the fourth quarter.

Included in this distribution is the assumption that Andaz Miami Beach generates an EBITDA loss of $2 million to $3 million in the third quarter as it remains a low season in the market. While profitability at the resort will begin to accelerate as we move into the higher demand fourth quarter, we expect that the EBITDA losses generated prior to the resorts opening in May and during the slower summer months since that time will cause its cumulative performance to be a slight headwind to full year total portfolio earnings. As we noted in the 2025 outlook section of our press release, the remaining components of our full year projections remain generally consistent with our expectations from the prior quarter.

Now shifting to our return of capital. So far this year, we have repurchased more than 11 million shares. Based on the midpoint of our updated range, our share repurchase activity will contribute $0.03 per share of additional FFO this year. On a full year run rate basis, this would equate to more than 6% accretion in earnings per share. While we retain capacity for additional share repurchases, our updated projections do not assume the benefit of additional buyback activity. Separate from 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.

And with that, we can now open the call to questions. So that we are able to speak with as many participants as possible, we ask that you please limit yourself to one question. Operator, please go ahead.

[Operator Instructions]. Your first question comes from the line of Duane Pfennigwerth with Evercore ISI.

This is Peter on for Duane. So we appreciate kind of the context you provided about Maui and the different submarkets. But could you just elaborate on what you're seeing regarding the recent booking trends? You said maybe it has ticked up a little bit recently. And what could be driving that? And then just to add on, have you quantified what the room renovation impact is at the hotel and when that renovation will be wrapped up?

Peter Okay. So starting with the market recovery in Maui. And as you've heard on some of the other calls, when you look -- you have to look at the submarkets. So you look at Wailea where our Wailea Beach Resort is in and then you look at Kaanapali, the west side of the island that has been recovering from the fires.

When you -- our hotel competes in both markets. So we compete with the highest end of the Kaanapali market, and then we compete with the luxury of the Wailea submarket. Kaanapali has been recovering. And as of recently, it's moved up from, call it, 50-ish percent occupancy to closer to 70%. And so with the success of that market, then brings stability in their rate, which then brings the differential between their rate and our rate closer, which then allows us to grow our occupancy because we're no longer losing discounted rooms to that market. So when you look at Kaanapali, the success of Kaanapali is going to be translating into the success of Wailea. They have had -- we always knew that we were going to lag that. And so as that market now reaches stabilization, it's our turn to grow.

And so what we saw is as that as Kaanapali got closer to the 70-ish percent occupancy, our leisure -- and we look at this sort of weekly leisure bookings started to accelerate in the middle of July and going into August. So as we saw those transient rooms booking into the next 6 months, our transient index recently has grown dramatically. So we were -- have gone from 102 index from an 84 index. And so also against the luxury stent in Wailea, we're growing there, too. And so as we -- because the lead time booking into Hawaii is a bit longer than other markets, we're just -- Q3 won't see a lot of that, but we are seeing that happening into Q4. And so when we look at the impact of Wailea, a big piece of it was in Q3 where we just did not get to the transient volumes that we were expecting. Q4 has better group base in it. It's a better group quarter and combining that with the additional transient bookings give us more confidence that Q4 is trending up.

Now if the bookings we see right now for the last few weeks continue, there could be some upside there. But until we get a couple more weeks of that under our belt, I think that we're confident things are moving in the right direction. And hopefully, we'll continue to see that growth. The renovation is complete. It was done towards the end of last year and into the beginning of this year. And so not only are we benefiting from growth in the market, but now we have a new product to sell also.

Your next question comes from the line of Jack Armstrong with Wells Fargo.

Your next question comes from the line of Dany Asad with Bank of America.

So maybe just in your prepared remarks, Aaron, you were talking about the change and the revision in outlook. Can you -- I believe last quarter, we were looking at a nominal contribution from Andaz, right? And now we're talking about a moderate headwind. So can you just maybe bucket that change in outlook, the $12.5 million EBITDA reduction? How much of that is coming directly from the change in Andaz? How much of that maybe is coming from DC? How much is coming from Wailea? And if there's any other moving pieces, that would be really helpful.

Yes, sure, Dany. This is Aaron. Thanks for the question. Yes. So as we think about just the evolution of the midpoint of the guidance range from last quarter to this quarter, based on what we shared in the prepared commentary, certainly, a piece of that is the softness that we're seeing in Wailea as the other side of the island continues to normalize. As Bryan alluded to, that is absolutely happening. And for this commentary that you may have heard from some of our peers that do own hotels over on the West side, it's evident in the trends that they're seeing.

So that's a long-term good thing for the island, but it is causing some choppiness in the middle part of this year. And so that will contribute to a portion of the revision. Among the comparable portfolio, the other piece is going to be D.C. and just what we're seeing on the softer direct government business and then also some of the what we call government adjacent business, which relies on government funding, which has also been challenged here more recently. So if you put those 2 together, D.C. and Wailea, they are larger contributors for us, and that's about 1/3 of the total guidance revision and the contribution of those 2 hotels. The other part is the later start in the year at Andaz, which is causing the near-term ramp to be slower than our expectations.

As we alluded to, we're certainly starting to see the momentum and the traction that we want to see to position us to get to where we need to be at the year -- at the end of the year so that we have a successful 2026. But the expectation now for 2025 from Andaz is that it will be a slight headwind from an overall earnings perspective this year, and that makes up about the other 2/3 or so of the change in the EBITDA and FFO revision. Across the rest of the portfolio, we've had some puts and takes that kind of largely offset each other, certainly some strength in San Francisco, which has spilled over into the Wine Country, which is looking for a higher full year number than what we had before, and that's offsetting some of the other changes across the balance of the portfolio.

The next question comes from the line of David Katz with Jefferies.

Just noting some of the commentary about repurchases, how do you sort of think about a range of comfortable leverage? And how do you think about kind of those buybacks ongoing, right? I mean in the context of not just your stock, but many of your peers are sort of below historical ranges. And I don't know that there's any valid argument that they're appropriately priced. I guess what I'm getting at is how much -- what's your tolerance to buy back more than what you have?

Sure. David. Look, we continue to employ a balanced approach to capital allocation and with that capital recycling. We have repurchased, I think, based on our market cap or our overall size, one of the larger amounts of stock over the last several years. So we're absolutely not shy about doing that. And your question on leverage is the right way to look at it is that right now, our leverage is -- gives us ample capacity and ample room to increase leverage, and we could probably increase leverage a turn and still stay within our range that we believe is necessary.

And I think over time, we've said that kind of 4 to 5x debt-to-EBITDA to be able to withstand any sort of economic cyclical ups and downs that our space always sees. So we feel the best way to allocate capital going forward right now is to -- is through recycling as we did with New Orleans, and we took an asset that we sold at a, call it, an 8 cap on '25 or 8-ish cap on '25 without any of the capital that we needed to put into it and a much lower cap rate with that capital and redeployed it into our stock, which was trading at a higher cap rate. And quite frankly, while New Orleans was a fine hotel, our remaining portfolio is a much better quality. And so we'll continue to do that. And every time that there is capital to deploy, we look at what the options are on a risk-adjusted basis. And to your point, it's a pretty clear choice right now where assets -- the limited number of assets that are trading, where they're trading in the market.

And that spread, that bid-ask spread has come in a bit, but probably has some more way to go before it is competitive with share repurchase where stock is right now. And so that -- it's always a balance of leverage and capacity and other opportunities. But I think in the near term, whether it's using our balance sheet or trying to recycle additional assets where we can arbitrage private market valuations, we'll continue to do that.

Your next question comes from the line of Daniel Hogan with Baird.

Just quickly more broadly on group. For '26, what's the total pace? And then aside from the positive comments for the D.C. outlook, are there any other markets that are looking incrementally better or worse for next year?

Sure. Dan, so we haven't given pace for '26 yet other than saying it's up at this point, kind of low single-digit range. When we look at citywide activity for '26 and then also looking into '27, in '26, D.C., Miami and New Orleans are the stronger markets. Into '27, Boston, San Diego, D.C. and Portland are all up. So again, looking at our portfolio, some of our larger assets have some good tailwinds going into the next couple of years.

San Francisco is also looking good. And when we look at our own internal pace in San Francisco because the hotel does do a lot of just in-house business as opposed to citywide, our pace is very strong for San Francisco. So our expectation is what we're seeing this year, we'll continue to see that growth in San Francisco and then also moving a little bit north up into the Wine Country, we expect good growth in that market also.

Your next question comes from the line of Smedes Rose with Citigroup.

Just 2 quick ones here. Could you -- are you still comfortable that Andaz can reach kind of high teens to $20 million of EBITDA contribution for full year '26? And then Bryan, could you just isolate what the impact -- the positive impact that Montage was from the real estate or the tax refund that you mentioned?

Sure. Smedes, for Montage, it was about $1 million of the positive. So even without that, the hotel was up materially about $1 million quarter-over-quarter. And that really points to when you look at both Wine Country assets, luxury leisure traveler is still very strong. Four Seasons had an excellent quarter on the transient side. Montage, which is the -- of the 2, the more meaningful group house, had a fantastic group quarter. So both hotels, both resorts have -- are growing -- continuing to grow EBITDA this year and have room to continue to grow as we move forward, and we're very optimistic of next year. With Andaz, looking at -- just kind of looking at the fourth quarter, our expectations and knowing that we are hitting or expect to hit the occupancies that we were planning on for the fourth quarter, although starting off later in the year and having to ramp-up in the seasonally low third quarter has led us to a slightly lower rate for the fourth quarter.

So that is -- while we're going to expect to hit the occupancy we were planning on, the rate will be lower. The market rate is actually higher than what we were expecting and what we had underwritten. So moving forward, yes, we think that there is absolutely -- while fourth quarter will be solid for us this year. Next year, we expect a lot more growth. Fourth quarter is typically 20% to 25% of the annual EBITDA. First quarter is about 40% of the EBITDA. So looking at our EBITDA expectations for the fourth quarter, I think our original expectation that we had was that the hotel would do $6 million to $8 million of EBITDA this year and then growing next year, doubling and then moving into '27 to hit stabilization.

Yes, we are confident of our growth next year. Given the start and some of the challenges we've had leading up to that, we're expecting to be at the lower end of that, but still within that range.

Your next question comes from the line of Dan Politzer with JPMorgan.

Just a quick one on San Francisco, you guys mentioned that things seem to be getting better. I think you said it was the second consecutive quarter to exceed your expectations. I mean I recognize that this is coming off a pretty low base here, but what is it that you're seeing there? And do you feel like there's more substance to this or more of a glide path going forward? Or are we really just still kind of bumping along the bottom there?

I think we're definitely coming -- I mean we've definitely come off the bottom. There is a long way to go in San Francisco. And so some of the things that our hotel is benefiting from is, one, is the ability to do in-house group and have meaningful meeting space.

That's been an important way that the hotel has been able to grow and outpace different submarkets. I think that the location of the hotel, while in the past, Union Square would have been the first choice even for midweek business travel, Embarcadero is definitely up there and the first choice now going forward. And so looking at the office space proximate to us, technology and AI and other investment is continuing to grow in that market, our ability to place in-house group to be able to layer the demands of the hotel and then also having a newly renovated guest room and having that in a market where some capital has been deferred and delayed over the last few years, it positions the hotel well.

And then when you look at the greater San Francisco market, citywides have a long way to go, but they are growing. The administration and the local government is focused on fixing a lot of the issues from the past. And when you look at the overall surrounding and safety, and that is definitely improving, maybe more so in Embarcadero than in Union Square early on, but that's something that I think long term, the city is pointed in the right direction and has made some major steps, especially securing some of the larger citywides than in the past, it had lost others.

So I think there's a lot of positives in San Francisco. But to your point, it had -- it was one of the markets that had fallen the most and has the longest way to go. But we definitely see a multiyear lift in this market and think that our hotel has the right composition of meeting space and the right location and the right room product to be able to grow with it and have several years of additional earnings and top line growth.

Got it. And then maybe just for my follow-up, a more high-level question. I think you touched on your capital allocation priorities or strategy there. I guess asked a different way, you sold the Hilton St. Charles, you redeployed that to buying back your stock. As we think about the next 12 to, call it, 24 months, do you see yourself as more likely a buyer or a seller of assets, hard assets and along with that, more likely or less likely to be a big buyer of your stock here?

Sure. The answer is it depends. First of all, in the transaction market, there have not been a lot of transactions. Transaction volume is down considerably. And while refinancing and debt capacity is definitely there, whether it's the REITs or the private buyers, the equity has been a little bit more scarce. And so New Orleans was the right size of an asset and a transaction, and it was a good opportunity for us to redeploy into our own stock and use a little bit of our balance sheet, too, to redeploy into our own stock. Going forward, I think given the current environment, it's probably more likely that we would be a seller than a buyer, but things can move really quickly.

And our view is that we will look to capital recycle. So if we look to sell a hotel, then it's following that, we evaluate what the opportunities are out there. And in the spot market right now, yes, it's hard to imagine an acquisition would be a meaningful -- would -- on a risk-adjusted basis, we would provide a meaningful return over the repurchase of our stock. But things change. I mean you go back in time and we were buying back shares and then stocks moved and we were able to find a good deal in the market, and we acquired San Antonio and then things changed again, and we went back and repurchased shares. So when you have a smaller concentrated portfolio like ours, it gives you the ability to pivot and move in and out pretty quickly, which I think we've demonstrated over time.

Your next question comes from the line of Chris Darling with Green Street.

Bryan, I believe you mentioned relative strength in Orlando in your prepared remarks. Can you elaborate on what you're seeing there, the outlook for that property through the rest of this year? And then do you have any updated thoughts on repositioning or perhaps densifying that property over time?

Sure. Yes. Look, our location has improved recently with the opening of the new Universal Park, which is 1.5 miles, 2 miles from the hotel. And so while we sit directly across from SeaWorld, the other 2 generators of leisure traffic in the market were kind of equal distant from those, which makes us not as convenient for any of either Universal or Disney. Having the new Universal Park close to us is a major plus. And when the hotel is looking to -- when they looked at their strategy this year, one of those -- one of the opportunities was to increase transient bookings. And this is a hotel that has always done well on the group side, has very good meeting space per available room and has always just been a very, very strong group house.

And so when we -- we've expanded the focus on transient, and we've also looked at other segments of group, not just corporate, but other segments to fill shoulder time periods. And I think that, that's one area where the hotel has been very successful. It has had a phenomenal production year so far, where it's put more group room nights on the books for this year, next year and the following years than it had in the last 5 or 6 years. And so I think part of it is just looking and looking at different types of group business to go after. And then I think the other part of it is leveraging its improving location for more leisure transient.

The next question comes from the line of Jack Armstrong with Wells Fargo.

In your view, at what point does the size of the company become a hurdle for potential investors? As we're thinking about your ability to set yourself up for earnings growth with acquisitions seemingly off the table at this point, where can you invest in the existing portfolio? And how should we be thinking about CapEx in 2026?

Okay. Great. So first, is where -- let me start with the second one, and then I'll move to the first. So where can we invest in the portfolio for earnings growth? The good news is we've already been investing in the portfolio. And so the growth we're seeing this year in the repositioning of Long Beach, while it's a market that does do some government business and has been maybe hampered by that a little bit, its year-over-year growth is still fantastic and growth prior to renovation indexes, all those are moving in the right direction.

So there's a place where we've invested in. Wailea, we updated the rooms last year and the beginning of this year. And so now that is our turn for growth and the hotel -- the resort has a good path ahead of it, we're able to capitalize on that investment. D.C., a challenged market right now. But when you look at the repositioning we did and where that hotel is performing on a relative basis to its market in transient occupancy and rate, the reflagging of that absolutely is paying off and made a big difference. And then some of the existing portfolio that has lagged like San Francisco will -- should continue to give us growth going forward. And then Andaz will be kicking in into the third, mainly fourth quarter and then into next year.

So there is growth already there that will accrete to us into '26 into '27. We have invested in our portfolio. When you look at where the cyclical rooms renovations are coming up, Orlando will be -- is the next where we'll have a renovation, and we'll evaluate that. And as we get into next year, we'll have more information on the timing of that. But even like smaller renovations that Robert talked about, the meeting space in San Diego, which is a very big group box. So updating that meeting space is something that's very important to the success and growth of that hotel. And so those things are all in the works or we have queued up or have already put in to be able to produce future growth. As far as the size of the company, look, I guess you can look at it a couple of ways. From a market cap perspective, we're within the range of our peers. On a hotel count, we're at the lower end. Are there others with less hotels than us? Yes.

But we have a concentrated portfolio. We have a concentrated portfolio with great assets. You're going to be at the whim of markets from here to there where we're seeing with D.C. But as far -- looking long term, do you want to have 20-plus acres in Wailea? Is that a concentration that you can be happy with? I think so. But to your point, can you sell assets and repurchase shares forever? I guess, yes, you can, but that would bring an end at some point. I think our focus is more of just benefiting from our ability to be nimble. And so does that require multiple asset sales and multiple acquisitions a year? No. It could be 1 or 2 could be meaningful. And so looking -- going forward, we recycled New Orleans and that went into stock because that made the most sense at the time.

Going forward, our next disposition, we do, we'll evaluate. And at some point, it will -- at least if history repeats itself at some point, it will make sense to acquire assets, and we'll look to do that accretively. Until then, this is why we have the balance sheet that we do. We can redeploy into our own stock and create NAV and FFO per share growth that way. So I think we have multiple avenues at our disposal. We have the balance sheet to do it. And we have the size right now where we can continue to go along this path and execute.

Our last question comes from the line of Chris Woronka with Deutsche Bank.

Bryan, if we could maybe revisit Andaz Miami Beach for a moment. I assume you guys expect that's going to be a high redemption hotel. And I'm just curious as to whether there's any changes we need to think about in terms of if there are fewer or greater redemptions, is that something that could ultimately impact your underwriting or your expectations for EBITDA generation?

No. I mean Chris, so look, redemptions are -- depending on the type of hotel can be a very meaningful and important piece of segmentation. And quite frankly, a resort like this is why loyalty programs exist. So the members can use them at these highly desirable locations.

And that's why they store up points and get points. And so we have a lot of experience and a lot of history with some high redemption hotels going all the way back to our days with the DoubleTree, with Wailea, New Orleans, Boston Long Wharf is a big redemption hotel, especially for its leisure traveler. So we always expected this to be a strong redemption hotel or resort in Florida, in the Hyatt system, it's one of the premier option. So we expected early on and as we saw early on, very good redemptions. We expect redemptions to continue to be ongoing, a major part of the segmentation of this hotel. And with that, you manage around it based on the rules and the redemption -- the way the redemptions work within the system, which, quite frankly, change year-over-year over year.

And so we use it as a piece of the segmentation, and it's something that helps at times compress the hotel and drive rate higher, especially in high demand periods. But it's something that we expected, maybe we're seeing a little bit more than we thought. And I think that just speaks to the quality of the hotel.

Our last question comes from the line of Logan Epstein with Wolfe Research.

I was going to ask a question on how you guys are thinking about giving up rate to get occupancy in the door, given several of the top-performing assets in the quarter were on weaker rate, but much stronger occupancy?

Yes, Logan, the answer is it depends on the hotel. And so I'll give you a couple of examples. So when we opened up in Q3 in Miami, Q3 is a seasonally low quarter. It's about -- produces about 8% of the EBITDA for the year on average for that market. And so as you're trying to build occupancy, yes, you're going to have to sacrifice some rate to do that.

We were catching up to the market. So that was expected. We were hopeful to be opening in spring -- during spring break where it was a higher compression. That would have been an easier thing to do. But yes, you do that. Other places where you could see rate going down, Wine Country, part of that is getting the segmentation of the resort right. So you want more group business. Our group will tend to come in at a lower rate than transient, but also comes with between the Montage and the Four Seasons, $800 to $1,000 a night, per night per room of ancillary spend. So in resorts like that, like Wailea, like Andaz, total RevPAR is very important. So you can give up some rate to bring in better group business that uses your banquets and all the other services of the hotel and gets you to a higher total RevPAR.

So you have to balance that at each hotel, and that's why you'll see at certain times, occupancy going up and rate going down. It's usually a shift in the segmentation.

I will now turn the call over to Bryan Giglia for closing remarks. Please go ahead.

Thank you, everyone, for your time and interest in the company. We look forward to meeting with many of you at upcoming conferences and look forward to walking many of you through the Andaz Miami Beach when we have the opportunity over the coming months. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.