Hospitality real estate investment trust Sunstone Hotel Investors posted mixed results during the second quarter, and it's a case of markets and segments performing very differently, CEO Bryan Giglia said.
Despite failing to meet performance expectations on several metrics, Sunstone's revenue outperformed projections. The year's "noisy start" due to the early April tariff announcement and decrease in government demand has affected the company in some markets more than others, Giglia added.
"While these cross currents 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," Giglia said.
Market by market
Hotels in Sunstone's urban markets outperformed the rest of its portfolio, growing revenue per available room last quarter by over 9%. Giglia pointed to healthy corporate group and business travel demand, highlighting the Marriott Long Beach Downtown, which saw a year-over-year increase in revenue by nearly 70%, and Bidwell Marriott Portland, which saw 10% year-over-year growth in RevPAR.
The San Francisco hotel market results surprised Sunstone executives with 6.5% RevPAR growth in the second quarter and total RevPAR growth of more than 16%, Giglia said.
Renaissance Orlando at SeaWorld is also doing well, with year-to-date production up 16% in room nights and over 30% in revenue. Giglia credited both the opening of the new Universal Park — which is about two miles from the hotel — and the Renaissance Orlando's new strategy in targeting business transient travelers.
Meanwhile, Washington, D.C.'s performance was greatly affected by additional government-related booking cancellations and from several citywide events.
"The third quarter is expected to be more challenging than initially anticipated as the market and our hotels continue to feel the impact of weaker contribution from government business and from affiliated events that rely on government funding," Giglia said.
The Hyatt Regency San Antonio Riverwalk "faced a difficult comparison to last year when we had very strong contribution from in-house group business that did not repeat this year," Giglia said, and performance will be even more challenged due to ongoing meeting space renovations.
Sunstone's resort portfolio continues to be challenged by the slow leisure segment. Giglia said its two oceanfront resorts — the Wailea Beach Resort in Maui and Oceans Edge Resort & Marina in Key West — experienced "increased price sensitivity." For the Wailea property, Giglia said Sunstone expected "choppier" second and third quarters as the Maui market continues to recover from the 2024 wildfires.
"There are several positives that support an accelerating growth story in the fourth quarter and into 2026," Giglia said of the Maui market. He said the state of Hawaii is allocating marketing funds to drive tourism and airline capacity has improved.
Sunstone's two wine country hotels — Montage Healdsburg and Four Seasons Napa Valley — grew revenue and earnings and "increased occupancy by over 700 basis points and [have] grown total RevPAR by over 9%, driven by a combination of more resilient luxury demand and our efforts to better optimize the business mix," Giglia said.
Lastly, from the individual properties' perspective, Giglia addressed the Andaz Miami Beach, which opened in May after its renovations took longer than expected. The hotel was originally set to open in March, and missing spring break and early summer season resulted in an earnings before interest, taxes, depreciation and amortization of several million dollars across the second and third quarters. Bookings are also affected by the lag in online ratings and presence on third-party booking channels, Giglia said.
"Following the resort’s 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," said Robert Springer, president and chief investment officer for Sunstone. "Now that we have addressed these issues, we have a fully functional resort that is gaining momentum into Q4 2025 and Q1 2026, the two most important quarters of the year for the market."
Adjusted outlook
Despite some of the "pockets of strength" on a market-by-market basis and the company overall falling in line with prior expectations, Sunstone is modifying its outlook for the rest of the year, Giglia said. He pointed to some of the aforementioned struggling markets, softer leisure and government demands and the slower-than-expected ramp-up at the Andaz Miami Beach.
"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," Giglia said. "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."
The adjusted outlook for 2025 also accounts for the midyear sale of the Hilton New Orleans St. Charles.
"Based on what we see today, we expect that our total portfolio RevPAR growth will range from 3% to 5% as compared to 2024," said Aaron Reyes, executive vice president and chief financial officer at Sunstone. "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."
In its first-quarter earnings call, Sunstone dropped its net income projections by $9 million. This time around, the REIT lowered it again by $15 million, and net income guidance for the full year is expected to be between $14 million to $28 million.
When asked whether or not the REIT would look at adding to or subtracting from its hotel portfolio, Giglia said it depends. While the transaction market is slow, he wouldn't rule out either buying or selling hotels.
"I think our focus is more of just benefiting from our ability to be nimble," Giglia said.
By the numbers
In the second quarter, Sunstone reported net income of $10.8 million, a 58.8% year-over-year decrease compared to $26.1 million in the second quarter of 2024, according to the company's earnings release. The company reported $0.03 earnings per share, which is below the forecast of $0.09.
Sunstone's total portfolio RevPAR for the quarter increased 2.2% to $241.22, average daily rate was $323.35 and occupancy was 74.6%. When factoring out the Andaz Miami Beach, RevPAR increased 1.4%.
During the first quarter of 2025, Sunstone repurchased 10.3 million shares of its common stock at an average purchase price of $8.76 per share for a total repurchase amount before expenses of $90.2 million. The company currently has $327.5 million remaining under its existing stock repurchase program authorization.
As of publication time, Sunstone's stock was trading at $8.76 per share, down 24.8% compared to last year. The NYSE Composite was up 7.3% for the same period.