Good morning ladies and gentlemen and thank you for standing by. Welcome to the Sunstone Hotel Investors second quarter earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. I would like to remind everyone that this conference is being recorded today August 6, at 11 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 EBIT.RE, Adjusted FFO, and Hotel Adjusted EBIT.RE. We are providing this information as a supplement to information prepared. Additional details on our quarterly results have been provided in our earnings release and supplemental, which are available in the investor relations section. With us on the call today are Brian Julia, Chief Executive Officer, and Robert Springer, President and Chief Investment Officer, Capital Investment Act. I will review our second quarter earnings results and provide the details of our... After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Brian.

Thank you, Aaron, and good morning, everyone. the second quarter got off to a noisy start with a 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 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. 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 Onda's 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, J.W. 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 percent 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 guest rooms. 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 combined 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 sea world 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 Kanapali sub-market 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. Kanapali is absolutely normalizing, and its occupancy is approaching stabilized levels, which will benefit the Waialea 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 in 2026 at one of the largest EBITDA-producing properties in our portfolio. In wine country, we were pleased with the performance of Montage Hedelsberg 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 percent, 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 two wine country resorts increased occupancy by over 700 basis points and grown total rev par by over nine percent 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 on gos miami beach on may 3rd 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 number 200 out of 212 hotels in Miami Beach to 26 in just three 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 a 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 multi-year 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 YLA in the third quarter, and a more gradual, near-term ramp-up at Onda's Miami Beach. Wyolea and D.C. are two 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 Wyolea, and we are seeing transient booking volumes supporting improvement going into the fourth 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 their 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, Brian. While we are very pleased to have Onda's 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'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 timelines 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 two 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 Cesar, by Jose Andres 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 were 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 a creative 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.

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 even with only a partial quarters contribution from the hilton new orleans st charles stronger ancillary spend more than offset and help to mitigate margin pressure second quarter red part increased 2.2 percent adjusted eba.re in the second quarter with 73 million dollars and adjusted sfo was 28 cents per diluted share we continue to benefit from a strong balance sheet with net leverage of only 3.5 times trailing earnings or 4.8 times including our preferred our outlook has moderated we still expect our leverage as we benefit from as at the end of the quarter we had nearly 145 million dollars of total including our restricted together with capacity on our credit facility this equates to over 600 million dollars 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 have more details to share with you in the coming months as those details included in this morning's earnings release are the details of our updated outlook for 2025 our projections have been adjusted for the mid-year sale of the hilton new orleans st charles and as brian noted earlier reflect a more cautious expectation for the remainder of the year based on what we see today from 3% of Miami Beach, including a moderated pace of ramp up relative to what we assumed in our prior hour. For the balance of the portfolio excluding OnDOS, we now anticipate that REVPAR will increase. As a point of reference for these updated guidance ranges, the 2024 REVPAR study excluding OnDOS Miami Beach for $216.86 and $225.31. With these revised top-line growth projections, we now estimate that full-year adjusted EBITDA RE will range from $226 million to $240 million, range from $0.80 to $0.87. If it relates to some of the quarterly, we would expect to be flat, 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 a balance coming in. Included in this distribution is the assumption that On-Dot Miami Beach generates an EBITDA loss of two to three million dollars in the third quarter. Profitability at the resort will begin to accelerate as we move into the higher demand. The fact that the EBITDA losses generated prior to the resort's opening in May and during the slower summer months will cause its cumulative performance to be a slight headwind to full-year total. As we noted in the 2025 outlook, the remaining components of our full-year projections remain generally consistent with our expectations. 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, we'll 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. While we retain capacity for additional share repurchases, our updated projections do not assume the benefit of additional buyback activities, a $0.09 per share common dividend for the third quarter, and is also declared the routine distributions for our Series H and I preferred security. And with that, we can now open the call to questions. We are able to speak with as many participants as possible. We ask that you please limit yourself to one question. Please go ahead.

At this time, I would like to remind everybody, in order to ask a question, please press start, followed by the number 1 on your telephone keypad. As I would like to remind everybody to limit themselves to one question, please. Your first question comes from the line of Dwayne Feningworth with EveryCore ISI. Please go ahead.

This is Peter on for Dwayne. Thanks for taking the question. So we appreciate kind of the context you provided about Maui and the different sub markets. 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, you know, 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?

Morning, 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 sub-market. So you look at Waialea, where our Waialea Beach Resort is in, and then you look at kanapali the west side of the island that has been recovering from the fires when you our hotel competes in both markets so we we compete with the highest end of the kanapali market and then we compete with the luxury of the wailea sub market But Kanapali has been recovering, and as of recently, it's moved up from, call it, 50-ish percent occupancy to closer to 70 percent. 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 Conapoli, the success of Conapoli is going to be translating into the success of Wailea. 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 kind of probably got closer to the 70-ish percent occupancy, our leisure, and we look at this at our 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 six months, our transient index recently has grown dramatically. So we have gone from 102 index from an 84 index. And so also against the luxury set in YLA, 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, you know, growth in the market, but now we have a new product to sell also.

Thank you.

Your next question comes from the line of Doc Armstrong with Wells Fargo. Please go ahead. Your next question comes from the line of Danny Assad with Bank of America. Please go ahead.

Hey, good morning. Good morning, guys. So if maybe just in your prepared remarks, Aaron, you were talking about, you know, the change and the revision and outlook. Can you, you know, I think 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 and a half million dollar EBITDA reduction? You know, how much how much of that is coming directly from, you know, the change in Andaz? how much of that maybe is coming from D.C., how much is coming from Waialeah, and if there's any other moving pieces, that would be really helpful.

Thanks for the question. Yeah, so as we think about just the evolution of the midpoint of the guidance range from last quarter to this quarter, you know, based on what we shared in the prepared commentary, you know, certainly a piece of that is the softness that we're seeing in Waialeah and used to normalize. And as Brian 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'll 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 on the the softer direct government business and then also some of it what we call government adjacent business now which relies on government funding which is you know so if you put those two together DC and YLA you know they are larger contributors for us the other part is the later start in the year at on does now which is causing the near-term ramp to be you know slower than our expectations now as we alluded to we're certainly starting to see the momentum and attraction that we want to see to position us to to get to where we need to be at the end of the year, so that we have a successful 2026. But the expectation now for 2025 from Ondaat is that it will be a slight headwind from an overall earnings perspective this year, and that makes up about the other two-thirds or so of the change in the EBITDA and FFO revision. Across the rest of the portfolio, we've had some puts and takes to 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.

Thank you very much.

The next question comes from the line of David Katz with Jeffries. Please go ahead.

Hi, morning, everybody. Thanks for taking my question. Just noting some of the commentary about repurchases, is how do you sort of think about, you know, a range of comfortable leverage? And, you know, how do you think about kind of those buybacks ongoing, right? I mean, in the context of, you know, not just your stock, but, you know, 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, what's your tolerance to buy back more than what you have?

Sure. Morning, David. 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 for 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 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, you know, we believe is necessary. And I think over time we've said this kind of four to five times, you know, debt to EBITDA to be able to, you know, withstand any sort of economic, you know, cyclical ups and downs that our space always sees. So we feel the best way to allocate capital going forward right now is through recycling, as we did with New Orleans. And we took an asset that we sold at an 8-cap on 25 or 8-ish cap on 25 without any of the capital that we needed to put into it in a much lower cap rate with that capital and redeployed it into our our stock which was trading at a higher cap rate and quite frankly you know while new orleans was a fine hotel the our remaining portfolio is a is a much better quality um and so we'll we'll continue to to do that and every time that there is capital to deploy we we look at what the options are on a risk-adjusted basis. And, you know, 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, you know, So 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.

Okay.

Fair enough. Thanks very much.

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

Hi, good morning. Thanks for taking my question. Just quickly, more broadly on group, for 26, what's the total pace? And then aside from the positive comments for the DC outlook, are there any other markets that are looking incrementally better or worse for next year?

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

Thank you very much.

Your next question comes from the line of Smedes Rose with Citigroup, please go ahead.

Hi, thanks. Just to this 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 Brian, could you just isolate what the impact, what the positive impact the montage was from the real estate or the tax refund that you mentioned?

Sure, Mornings Meads. From Montage, it is about a million dollars of the positive. So even without that, the hotel is up materially about a million dollars 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 two the more meaningful group house had a fantastic reporter so you know both both hotels both resorts have you know are growing continuing to grow EBITDA this year and have room to can continue to grow as we move forward and and we're you know we're very optimistic of next year with on does uh you know looking at you know 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 in the seasonally low third quarter um you know has led us to a slightly lower rate for the for the fourth quarter so that is you know while we're we're going to expect to hit the occupancy we were we were planning on the rate will be lower uh the market rate is actually higher than what we were expecting and what we had underwritten so um you know moving forward yes we think that there is absolutely you know, while fourth quarter will be, you know, solid for us this year, next year we expect a lot more growth. Fourth quarter is typically, you know, 20 to 25 percent of the annual EBITDA. First quarter is about 40 percent of the EBITDA. So looking at our EBITDA expectations for the fourth quarter, you know, I think, you know, 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 million to hit stabilization, yes, we are confident of our growth next 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. Thank you.

The next question comes from the line of Dan Pulitzer with J.P. Morgan. Please go ahead.

Hey, good morning, everyone. Thanks for taking my question. Just a quick one. On San Francisco, you guys mentioned that, you know, things seem to be getting better. I think you said it was the second consecutive quarter to meet 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 thanks um you know i i think we're definitely coming i mean we've definitely come off the bottom there's a long way to go in san francisco and so some of the things that our hotel is benefiting from is one is 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 sub-markets. 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, city-wides 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, you know, surrounding and safety, and that is definitely improving, you know, maybe more so in Embarcadero than in Union Square early on. But but that's something that I think long term the city is is pointed in the right direction and has, you know, has made some major steps, especially, you know, securing some of the larger city wise than the past. It had lost others. So, you know, I think there's a lot of positives in San Francisco. But to your point, it you know, it has it was one of the markets that had fallen the most and has the longest way to go. but we definitely see a multi-year 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. Thank you. 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 that's a different way. You sold 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 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, you know, 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, you know, 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 the following that we evaluate what the opportunities are out there. And in the spot market right now, yeah, it's hard to imagine an acquisition would be a meaningful – 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, you know, 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, you know, 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.

Got it. Thank you so much. And your next question comes from the line of Chris Darling with Green Street. Please go ahead.

Thank you. Brian, I believe you mentioned relative strengths 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. Yeah, you know, look, our location has improved recently with the opening of the new Universal Park, which is a mile and a half, two miles from the hotel. And so while we sit directly across from SeaWorld, the other two generators of leisure traffic in the market were kind of equal distant from those, which makes us not as convenient for any of, you know, either Universal or Disney. having the new universal park close to us is a major plus and and when the hotel is looking to you know when they looked at their strategy this year one of one of those you know one of the opportunities was to increase transient uh bookings and this is a hotel that has always done well on the group side uh has you know 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 the focus on on transient and we've also looked at other other you know segments of group not just corporate but 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, you know, this year, next year, and following years than it had in, you know, the last five or six years. And so I think, you know, part of it is just looking and looking at different, you know, types of group business to go after.

And then I think the other part of it is is leveraging its improving location uh for more leisure transient i appreciate the thoughts the next question comes from the line of jack armstrong with wells fargo please go ahead hey good morning thanks for checking the question 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? How should we be thinking about CapEx in 2026?

Okay, great. So first is where can, you know, 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. Wialeo, we updated the rooms last year and the beginning of this year and so now is that it's our turn for growth and and the hotel the resort has a as a you know good path ahead of it uh we're able to capitalize on on that investment uh dc a challenge market right now uh but when you look at the repositioning we did and where that where that hotel is is performing on a relative basis to its market in transient occupancy and rate the reflagging of that absolutely you know is paying off and made a big difference and then some of the existing portfolio that has lag like San Francisco will should continue to give us growth going forward and then on will be kicking in and you know into the third mainly fourth quarter and then into next year so there you know there is growth already there that will that will create to us into 26 into 27 you know we have invested in our portfolio when you look at where the cyclical rooms renovations are coming up orlando will be the is the next um where we have a you know we'll have a renovation and we'll evaluate that and as we get into next year we'll we'll have more information on the timing of that but even like smaller renovations that we that robert talked about and you know the meeting space in in san diego which is a you know very big group box um 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, you know, we have queued up or have already put in to be able to produce future growth. As far as the size of the company, you know, look, I guess you can look at it a couple ways. From a market cap perspective, we're, you know, 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 DC. But looking long-term, do you want to have 20-plus acres in Wailea? Is that a concentration that you can, you know, be happy with? I think so. But, you know, to your point, you know, can you sell assets and repurchase shares forever? I guess, yes, you can, but, you know, that would bring an end at some point. You know, I think our focus is more of just, you know, benefiting from our ability to be nimble. And so, you know, does that require, you know, multiple asset sales and multiple acquisitions a year or no? It could be, you know, one or two could be meaningful. And so looking going forward, you know, 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, you know, 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.

Great.

Thank you. Our last question comes from the line of Chris Wuronka with Deutsche Bank.

Please go ahead. Hey, guys. Good morning. Thanks for taking the question. If we could maybe revisit, morning, Brian, 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 um you know in terms of if there are fewer or greater redemptions um you know is that is that something that could ultimately impact your your underwriting or your you know your expectations for for even thought generation thanks no i mean morning chris um so redemptions are are you know depending on the type of hotel can be a very meaningful and important piece of the segmentation and quite frankly

a resort like this is why loyalty programs exist so 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, you know, our days with the Doubletree, but Wailea, you know, New Orleans, Boston, Long Wharf, you know, is a big redemption hotel, especially for, you know, it's leisure traveler. So we always expected this to be a, you know, a strong redemption hotel or resort. In Florida, in the Hyatt system, it's one of the, you know, premier options. So we expected early on, and as we saw early on, very good redemptions. We expect redemptions to continue to be, you know, ongoing, a major part the segmentation of this hotel and and with that you you manage around it based on the the rules and and and the redemption the way the redemptions work within the system which quite frankly change year over year over year um and so we use it as a as a as a piece of the segmentation um and it it's something that you know 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 okay gotcha thanks brian our last question comes from the line of logan epstein with wolf research please go ahead yeah thanks for taking the question i was going to talk 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 yeah morning logan um the answer is it depends on the hotel and so i'll give you a couple examples so when we opened up in in q3 in

In Miami, Q3 is a seasonally low quarter. It 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 during spring break where it was 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. A 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, you know, in resorts like that, like Wailea, like Onda's, total rev par is very important. So you can give up some rates to bring in better, you know, group business that, you know, uses your banquets and all the other services of the hotel and get you to a higher total rev par. So, you know, you have to balance that at each hotel and and that's you know you know that's why you'll see at certain times occupancy going up and rate going down it's usually a shift in the in the segmentation thanks ron i will now turn the call over to brian jillia for closing remarks please go ahead uh thank you everyone for uh 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.