Sunstone Hotel Investors executives addressed outside noise to pursue a sale of some assets or the entire company during its third-quarter earnings call.
Sunstone CEO Bryan Giglia said the board of directors and management remain committed to maximizing the value of the company for shareholders.
Tarsadia Capital, a 3.4% economic interest holder of Sunstone, called on Sunstone in September to either sell the entire company or procure a plan of sale and liquidation of its assets.
Giglia acknowledged that Sunstone's transactions pace has been slower than executives would've liked, but said they've still been more active than its peers in the space during a depressed transaction market. Giglia referred to Sunstone's acquisitions in 2022 of the remaining 25% interest in the Hilton San Diego Bayfront and Andaz Miami Beach and its 2024 acquisition of the Hyatt Regency San Antonio Riverwalk to showcase the company's activity over the past few years.
"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," he said.
Although the company is committed to sticking to its strategy of taking advantage of market conditions and allocating capital through dispositions, acquisitions, investments in its portfolio and share repurchases, Giglia said Sunstone has formally engaged with parties who have been interested in acquiring assets or the entirety of the company. If there was an offer on the table that increased its value for the company's shareholders, executives would've had to consider it.
But there was no such deal.
"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," he said.
Even though there's a "lack of depth and liquidity in the current transaction environment," it could change quickly, so Sunstone is remaining nimble and ready to pursue any opportunities that present themselves, Giglia said.
"We have a great portfolio with 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 of it in the future," he said.
Third-quarter performance
Continued strength in the San Francisco market helped to subside Sunstone's losses in demand from leisure travelers and government-related travel in the third quarter, Giglia said.
There were ups and downs throughout the company's portfolio, with revenue per available room growth remaining flat in the quarter.
On the positive end, the company's repositioning of the Marriott Long Beach Downtown last year delivered outsize growth this year, and its Marriott Boston Long Wharf had a 47% earnings before interest, taxes, depreciation and amortization margin in the quarter, an increase of more than 100 basis points year over year, Giglia said.
The Andaz Miami Beach property reopened in May after a renovation, and demand at the hotel started to pick up in the third quarter. Robert Marcavage, chief information officer at Sunstone, said the hotel has been pacing ahead of its goal of 1,000 transient room nights per week. Miami will host the College Football Playoff National Championship game and a handful of FIFA World Cup matches in 2026, which should add some additional demand to the hotel.
San Francisco had a year-over-year RevPAR growth of more than 15%, with Giglia calling the maligned market "a standout performer."
Demand in Washington, D.C., however, was hampered by a cutback in government-related travel. Sunstone's Hyatt Regency San Antonio Riverwalk property underwent a renovation to its meeting space during the quarter, causing some short-term disruptions.
Performance at Sunstone's resort properties was "softer than anticipated," as Giglia said there was a weaker demand environment in South Florida and Maui. A fire close to the company's Four Seasons Resort Napa Valley didn't cause any physical damage to the property, but it caused cancellations and lower business volume in the weeks following.
By the numbers
In the third quarter, Sunstone reported net income of $1.3 million, compared to $3.2 million in the third quarter of 2024, according to the company's earnings release.
Sunstone's total portfolio RevPAR for the quarter increased 2% to $216.12. The company's average daily rate in the quarter remained nearly flat at $307.43 and occupancy increased 110 basis points to 70.3%.
In September, Sunstone completed a $1.35 billion amended and restated credit agreement that extended its average maturity by three years and lowered the company's overall borrowing costs, Executive Vice President and Chief Financial Officer Aaron Reyes said.
During the third quarter, Sunstone repurchased 258,870 shares of its common stock at an average purchase price of $8.70 per share for a total repurchase amount before expenses of $2.3 million. Year-to-date through Nov. 6, the company has repurchased nearly 11.4 million shares of its common stock at an average purchase price of $8.83 per share for a total repurchase amount before expenses of $100.6 million.
As of the end of the third quarter, Sunstone had $197.6 million of cash and cash equivalents, including restricted cash of $76.4 million and total assets of $3 billion, which includes $2.8 billion of net investments in hotel properties, total debt of $930 million and stockholders' equity of $2 billion.
As of publication time, Sunstone's stock was trading at $9.48 per share, down 18.7% year to date. The NYSE Composite was up 11.9% for the same period.