Sign in
SH

Sunstone Hotel Investors, Inc. (SHO)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was mixed: revenue beat but EPS missed Street; management cut full‑year guidance citing softer leisure (Maui), slower near‑term ramp at Andaz Miami Beach, and subdued government demand in Washington, DC .
  • Revenue of $259.77M beat S&P Global consensus ($256.19M)* while Primary EPS of $0.05 (S&P basis) missed the $0.088 estimate; company‑reported diluted EPS was $0.03* .
  • Adjusted EBITDAre was $72.7M and Adjusted FFO/share was $0.28, flat YoY, with hotel margins pressured by renovation and mix .
  • Capital recycling remains a key catalyst: Hilton New Orleans St. Charles sold and proceeds redeployed into $100M YTD buybacks; management highlighted sale cap rate and opportunistic repurchases on the call .

What Went Well and What Went Wrong

What Went Well

  • Corporate group and business travel demand supported results; San Francisco, Wine Country, and Long Beach outperformed expectations .
  • Strong capital allocation: sold Hilton New Orleans St. Charles for $47.0M and repurchased ~10.3M shares in Q2 at $8.76 (YTD $100M, $8.83 avg) .
  • CEO tone on Maui bookings turning positive: “Recent booking trends at Wailea Beach Resort have been encouraging and give us reason to be optimistic that the Maui market is recovering and our resort is recapturing market share” .

What Went Wrong

  • Guidance reduced across Net Income, RevPAR growth, Adjusted EBITDAre, and AFFO/share; midpoints cut by $12–$15M for EBITDA/AFFO and 150 bps for RevPAR growth .
  • Leisure price sensitivity and weak government volumes pressured results; Andaz Miami Beach opened later than expected (post high‑season), slowing near‑term ramp .
  • Hotel margin compression: Total Portfolio hotel Adjusted EBITDAre margin fell to 29.2% from 30.7% YoY, reflecting renovation drag and mix .

Financial Results

Sequential and Prior Quarter Comparison

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$214.77 $234.07 $259.77
Diluted EPS ($USD, GAAP)$(0.02) $0.01 $0.03
Adjusted EBITDAre ($USD Millions)$48.09 $57.26 $72.68
Adjusted FFO per diluted share ($USD)$0.16 $0.21 $0.28
Hotel Adjusted EBITDAre Margin (%)23.3 (Comparable) 26.0 (Total Portfolio) 29.2 (Total Portfolio)

Year-over-Year (Q2)

MetricQ2 2024Q2 2025
Revenue ($USD Millions)$247.48 $259.77
Diluted EPS ($USD, GAAP)$0.11 $0.03
Adjusted EBITDAre ($USD Millions)$73.52 $72.68
Adjusted FFO per diluted share ($USD)$0.28 $0.28
Hotel Adjusted EBITDAre Margin (%)30.7 (Total Portfolio) 29.2 (Total Portfolio)

Operating KPIs

KPIQ1 2025Q2 2025Q2 2024
Total Portfolio RevPAR ($)$221.63 $241.22 $235.97
Occupancy (%)70.1 74.6 72.0
ADR ($)$316.16 $323.35 $327.73

Estimates vs Actual (S&P Global)

MetricConsensusActualSurprise
Primary EPS ($USD)0.088*0.05*Miss (‑0.038)*
Revenue ($USD Millions)256.19*259.77 Beat (+3.58)*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (May 6, 2025)Current Guidance (Aug 6, 2025)Change
Net Income ($USD Millions)FY 2025$33–$58 $14–$28 Lowered (midpoint ‑$15)
Total Portfolio RevPAR Growth (%)FY 2025+4.0% to +7.0% +3.0% to +5.0% Lowered (‑150 bps)
RevPAR Growth ex Andaz Miami Beach (%)FY 2025+1.0% to +4.0% +1.0% to +3.0% Lowered (‑50 bps)
Adjusted EBITDAre ($USD Millions)FY 2025$235–$260 $226–$240 Lowered (midpoint ‑$13)
Adjusted FFO ($USD Millions)FY 2025$165–$190 $156–$170 Lowered (midpoint ‑$12)
Adjusted FFO per diluted share ($USD)FY 2025$0.82–$0.94 $0.80–$0.87 Lowered (‑$0.04 midpoint)
Diluted weighted avg shares (Millions)FY 2025201 195 Lower (‑6M) reflects buybacks
Interest & other income ($USD Millions)FY 2025$4–$5 $5–$6 Raised (+$1M)
Corporate overhead (ex-stock & transition) ($USD Millions)FY 2025$20–$21 $20–$21 Maintained
Interest expense ($USD Millions)FY 2025$51–$54 (incl. non‑cash) $51–$54 (incl. non‑cash) Maintained
Preferred dividends ($USD Millions)FY 2025$16–$17 $16–$17 Maintained
Common dividend ($/share)Q3 2025$0.09 (authorized) $0.09 (authorized) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Leisure demandPrice sensitivity and labor headwinds at certain assets Softer revenue growth; elevated uncertainty Weaker leisure (esp. Maui) pressuring H2 outlook Deteriorated
Government demand (DC)Westin DC strong; broader mixed Mixed outlookContinued subdued government business in DC Weaker
Corporate/group demandStrong group/transient in Boston/San Antonio Slightly ahead of expectations; driving total revenue Solid corporate group/business travel supported Q2 Stable/Supportive
Andaz Miami Beach rampTransformation in progress; debut expected Q1’25 Opened May; significant milestone Opened post high‑season; slower initial ramp, bookings accelerating Improving into 2026
Capital recycling & buybacksNew term loan; repaid mortgage; $27.2M ’24 buybacks $8.0M Q1 buybacks; $20.8M YTD $90.2M Q2 buybacks; $100.0M YTD; sale at mid‑8% cap; opportunistic repurchases Accelerated
Maui/Wailea bookingsLimited colorHeightened uncertainty“Recent booking trends … encouraging”; market recovering Improving
2026 PaceN/AN/A“Up … in the low‑single digit range” (early view) Modestly positive

Management Commentary

  • Prepared remarks (CEO): “Our portfolio performed in-line with expectations… solid corporate group and business travel demand partially offsetting a more price sensitive leisure traveler and weaker government volume… better than expected performance in San Francisco and Wine Country.”
  • On outlook and Maui/Andaz: “We now expect that weaker leisure demand in Maui, a slower near-term ramp at Andaz Miami Beach and continued subdued government business in Washington, DC, will further pressure our performance in the second half of the year.”
  • Capital recycling: “We accretively recycled capital, divesting the Hilton New Orleans St. Charles… redeploying the proceeds… into $100 million of share repurchases so far this year at… $8.83 per share.”
  • Call detail on sale economics: “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.”

Q&A Highlights

  • Maui/Wailea trajectory: Analysts probed recent booking trends and renovation impact; management noted bookings have “ticked up,” supporting cautious optimism on recovery and pacing .
  • Asset strategy vs buybacks: Management emphasized transaction market softness and disciplined capital recycling; opportunistic buybacks continue at discounts to NAV .
  • 2026 preliminary view: Pace “up … low‑single digit range,” suggesting a modestly constructive backdrop into next year .

Estimates Context

  • Q2 2025 outcomes vs S&P Global consensus: Revenue beat (+$3.6M); Primary EPS missed (‑$0.038). The EPS miss and broad guidance reductions are likely to drive near‑term estimate cuts, especially for H2 metrics tied to Maui/Andaz ramp and DC government demand*.
  • Street coverage density: 4 EPS estimates and 8 revenue estimates for Q2 2025, indicating moderate coverage for a lodging REIT*.

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near‑term headwinds: Expect estimate cuts and possible multiple compression on guidance reset; watch Maui leisure, DC government demand, and Andaz ramp as key variables .
  • Capital returns support downside: Aggressive buybacks (195M diluted FY share assumption) and dividend consistency ($0.09 authorized) provide return of capital amid softer fundamentals .
  • Portfolio mix matters: Outperformance in Long Beach, San Francisco, Wine Country offsets pockets of weakness; asset‑level dispersion remains elevated .
  • Margin trajectory: Renovation and mix are compressing hotel margins YoY; margin normalization hinges on Andaz contribution and leisure recovery .
  • Balance sheet flexibility: $872M unsecured debt, ~1.7‑year weighted average maturity post extensions; ability to recycle assets and repurchase equity opportunistically .
  • Stock reaction catalyst: The combination of an EPS miss and lowered FY guidance is the primary overhang; subsequent progress on bookings and Andaz pacing could catalyze relief .
  • Monitor H2 execution: Track RevPAR progression vs lowered +3–5% guidance, AFFO/share vs $0.80–$0.87, and pre‑opening cost roll‑off to gauge upside potential .

Additional Documents Reviewed

  • Q2 2025 press release and attached supplemental (EX‑99.1/99.2) .
  • Q2 2025 Form 8‑K Item 2.02 and exhibits .
  • Q1 2025 press release for prior-quarter context .
  • Q4 2024 press release for two‑quarter trend analysis .
  • Earnings call transcript (third‑party hosts) .
  • Q2 earnings release scheduling press release (context) .