Earnings Call Transcript - SHO Q2 2025

Operator, Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Second Quarter Earnings Call. 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.

Aaron R. Reyes, CFO

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.

Bryan Albert Giglia, CEO

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.

Robert C. Springer, President and CIO

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 timeline 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.

Aaron R. Reyes, CFO

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.

Unidentified Analyst, Analyst

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?

Bryan Albert Giglia, CEO

Starting with the market recovery in Maui, we need to consider the different submarkets. For instance, there's Wailea, where our Wailea Beach Resort is located, and Kaanapali on the west side of the island, which has been recovering from the fires. Our hotel competes in both areas, targeting the high-end market in Kaanapali and the luxury segment in Wailea. Kaanapali has shown recovery, with occupancy increasing from around 50% to closer to 70%. This improvement in Kaanapali creates stability in their pricing, which minimizes the rate difference between them and us, allowing us to grow our occupancy since we are not losing discounted rooms to that market. The success of Kaanapali will positively impact Wailea. We anticipated that there would be a lag for us due to their recovery. Now that Kaanapali is stabilizing, it’s our opportunity to grow. As Kaanapali approached 70% occupancy, we noticed an acceleration in our leisure bookings starting in mid-July and continuing into August. Our transient index has also seen substantial growth, rising from 84 to 102. Additionally, we're seeing a rise in luxury demand in Wailea. Since the lead time for booking in Hawaii is longer than in other markets, we might not see much of that demand in Q3, but it is emerging in Q4. If our current booking trends continue over the next few weeks, there could be positive developments ahead. The renovation is completed, having been finalized at the end of last year and early this year. We are not only benefiting from market growth but also from a new product to offer.

Operator, Operator

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

Unidentified Analyst, Analyst

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

Dany Asad, Analyst

So maybe just in your prepared remarks, Aaron, you were talking about the change and the revision in outlook. Can you clarify? 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 D.C.? How much is coming from Wailea? And if there's any other moving pieces, that would be really helpful.

Aaron R. Reyes, CFO

Yes, sure, Dany. This is Aaron. Thanks for the question. As we think about just the evolution of the midpoint of the guidance range from last quarter to this quarter, 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. For this commentary that you may have heard from some of our peers that 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. This will contribute to a portion of the revision. Among the comparable portfolio, the other piece is going to be D.C. and what we're seeing on the softer direct government business and also some of the government-adjacent business, which relies on government funding and has also been challenged here more recently. If you put those 2 together, D.C. and Wailea, they are larger contributors for us, and that's about a third 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. We're certainly starting to see the momentum and traction we want to get to where we need to be by the end of the year for a successful 2026. But the expectation for 2025 from Andaz is that it will be a slight headwind from an overall earnings perspective this year, which makes up about the other two-thirds of the change in the EBITDA and FFO revision. Across the rest of the portfolio, we've had some puts and takes that 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.

Operator, Operator

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

David Brian Katz, Analyst

Could you share your thoughts on the comfortable leverage range and how ongoing buybacks fit into that context? Given that not only your stock but also many peers are trading below historical levels, it raises questions about their pricing. What is your willingness to increase buybacks beyond your current levels?

Bryan Albert Giglia, CEO

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. Your question on leverage is the right way to look at it. Right now, our leverage gives us ample capacity and room to increase leverage, and we could probably increase leverage a turn and still stay within our range that we believe is necessary. Over time, we've said that kind of 4 to 5 times debt-to-EBITDA would allow us to withstand any sort of economic cyclical ups and downs that our space always sees. We feel the best way to allocate capital going forward is through recycling, as we did with New Orleans. We took an asset we sold at around an 8 cap on '25 or 8-ish cap without any of the capital that we needed to put into it and looked to redeploy it into our stock, trading at a higher cap rate. While New Orleans was a fine hotel, our remaining portfolio is of much better quality. We'll continue to do that. Every time there's capital to deploy, we assess our options on a risk-adjusted basis. To your point, it's a clear choice right now with where assets are trading in the market. That bid-ask spread has come in a bit, but probably still has some way to go before it is competitive with share repurchase where stock is right now. It's always a balance of leverage, capacity, and other opportunities. In the near term, whether it's using our balance sheet or trying to recycle additional assets where we can gain from private market valuations, we'll continue to do that.

Operator, Operator

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

Daniel Patrick Hogan, Analyst

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

Bryan Albert Giglia, CEO

Sure, Dan. We haven't given pace for '26 yet, other than to say 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. For '27, Boston, San Diego, D.C., and Portland are all up. Looking at our portfolio, some of our larger assets have good tailwinds going into the next couple of years. San Francisco is also looking good. When we analyze our own internal pace in San Francisco, since the hotel does a lot of just in-house business rather than citywide, our pace is very strong. Our expectation is that the growth we are experiencing this year will continue to grow in San Francisco and then a little bit north in the Wine Country; we expect good growth in that market as well.

Operator, Operator

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

Smedes Rose, Analyst

Just a couple of quick questions here. Are you still confident that Andaz can achieve an EBITDA contribution of the high teens to $20 million for the full year '26? And then Bryan, could you clarify the positive impact that Montage had from the real estate or the tax refund you mentioned?

Bryan Albert Giglia, CEO

Sure, Smedes. For Montage, it was about $1 million of the positive impact. Even without that, the hotel was up materially about $1 million quarter-over-quarter. This indicates that both Wine Country assets are still very strong for luxury leisure travelers. Four Seasons had an excellent quarter on the transient side. Montage, which is a more meaningful group house of the 2, had a fantastic group quarter. Both hotels and resorts have grown EBITDA this year and have room to continue growing moving forward, and we're very optimistic about next year. With Andaz, looking at the fourth quarter, we expect to hit occupancy levels that we planned at for the fourth quarter, although the start was later in the year, which has led to a slightly lower rate for the fourth quarter. We anticipate the market rate will actually be higher than what we were expecting and what we had underwritten. So yes, we think there is absolutely room for growth next year. Fourth quarter typically contributes 20% to 25% of the annual EBITDA. First quarter is about 40% of EBITDA. Examining our expectations for the fourth quarter, we originally thought the hotel would do $6 million to $8 million of EBITDA this year, and then we expect it to double next year, moving into '27 to hit stabilization. While we are confident in our growth next year, we anticipate being at the lower end of that, but still within the range.

Operator, Operator

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

Daniel Brian Politzer, Analyst

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?

Bryan Albert Giglia, CEO

I think we're definitely coming off the bottom. There is a long way to go in San Francisco. Some of the things that our hotel is benefiting from is, one, the ability to do in-house group and have meaningful meeting space. That's been significant for the hotel to grow and outpace different submarkets. The location of the hotel, while in the past Union Square would have been the first choice for midweek business travel, Embarcadero is certainly now among the first choices. Looking at the office space around us, technology and AI investments are increasing in that market, which supports our ability to place in-house group to manage the demands of the hotel. The hotel also has recently renovated guest rooms, and having that in a market where some capital has been deferred and delayed over the last few years positions the hotel well. When you analyze the greater San Francisco market, citywide events still have a long way to go but are showing growth. The administration and local government is focusing on addressing many past issues. When you consider safety overall, that is definitely improving, especially in Embarcadero compared to Union Square early on. Long term, the city is heading in the right direction and has made substantial progress in securing larger citywide events that were previously lost. There are many positives in San Francisco; while it has had the greatest decline, it also has the longest way to recover, but we're seeing a multiyear lift in this market. Our hotel has the right composition of meeting space, location, and room product to grow with this recovery and enjoy several years of additional earnings and top-line growth.

Daniel Brian Politzer, Analyst

Got it. And then maybe just for my follow-up, a high-level question. I think you touched on your capital allocation priorities or strategy. You sold the Hilton St. Charles, and you redeployed that to buy 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 significant buyer of your stock here?

Bryan Albert Giglia, CEO

The answer is it depends. In the transaction market, there have not been many transactions. Transaction volume is down considerably, and the equity is a bit scarcer. New Orleans was a suitable size for an asset sale and a good opportunity for us to redeploy into our own stock. Looking ahead, given the current environment, it's probably more likely that we would be a seller than a buyer, but conditions can change quickly. Our view is to focus on capital recycling, and if we sell a hotel, we'll evaluate subsequent opportunities. It's hard to imagine right now that an acquisition would yield meaningful risk-adjusted returns over our stock repurchase. But the market can shift. We've demonstrated a willingness to buy back shares, buy hotels, and adapt our actions based on the conditions we face. We maintain a concentrated portfolio, providing agility to shift quickly between asset sales and stock repurchases.

Operator, Operator

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

Chris Darling, Analyst

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

Bryan Albert Giglia, CEO

Sure. Yes. Our location has improved with the opening of the new Universal Park, which is 1.5 to 2 miles from the hotel. Although we are directly across from SeaWorld, the other 2 major generators of leisure traffic were equally distant, which reduced convenience for focusing on Universal or Disney. Having the new Universal Park close to us is a significant advantage. When the hotel has looked into its strategy this year, one opportunity was to increase transient bookings. The hotel has performed very well on the group side, with great meeting space, and has always been a strong group house. This year, we focused on transient bookings and explored diverse segments for group business to fill shoulder periods. The hotel has achieved an impressive production year thus far, securing more group room nights on the books for this year, next year, and following years than it had in the past 5 to 6 years. Part of this is attributable to targeting different types of group business, and the hotel has seen substantial success in this area.

Operator, Operator

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

Jackson G. Armstrong, Analyst

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?

Bryan Albert Giglia, CEO

Okay, great. First, let me start with where we can invest in the portfolio for earnings growth. The good news is we've already begun investing in the portfolio. The growth we are realizing this year in the repositioning of Long Beach is a market that performs some government business, which has impacted it, but it is still growing both year-over-year and in terms of prior renovations. Another future investment opportunity lies in Wailea, which we've updated. So now that is our turn for growth. The resort has a promising growth path as it capitalizes on investment. D.C. is a challenging market currently, but the repositioning we did has proven effective, positioning our hotel relative to its market in terms of transient occupancy and revenue. Some hotels have lagged like San Francisco, but we anticipate continued growth there. And then Andaz will be kicking into gear in the third quarter, mainly the fourth quarter, and then into next year. So there is growth poised within our existing portfolio. As far as the company size, our market cap is in line with our peers. On hotel count, we are on the lower end. While there are others with fewer hotels, our concentrated portfolio is strong. The premium assets we hold are valuable. You might consider whether you want to own large properties in Wailea, as you have a focused portfolio. Can share repurchases continue indefinitely? Technically, yes, but that approach will eventually not work. Looking forward, we aim to benefit from our agility. Does this need multiple asset sales and acquisitions each year? Not necessarily; one or two meaningful transactions could suffice. In the past, we bought back shares effectively, leading to opportunity in acquiring assets when the time was right. Given our concentrated portfolio, we can pivot and act quickly based on market conditions.

Operator, Operator

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

Chris Jon Woronka, Analyst

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. I'm curious whether there are 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 expectations for EBITDA generation?

Bryan Albert Giglia, CEO

No. I mean Chris, redemptions can be a very meaningful piece of segmentation depending on the hotel, and quite frankly, a resort like this is why loyalty programs exist. Members use points for these highly desirable locations. A considerable number of guests accumulate points and utilize them. We have substantial experience with high redemption hotels, ranging back to our days with DoubleTree, Wailea, New Orleans, and Boston Long Wharf, which is a prominent redemption hotel for leisure travelers. Initially, we anticipated strong redemptions for Andaz Miami Beach and early feedback supports good redemption activity. We expect redemptions to remain robust and be a significant part of the segmentation for this hotel. Managing around redemptions based on system rules and policies is crucial for us, and although we are witnessing more redemptions than anticipated, this simply reflects the hotel's quality.

Operator, Operator

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

Bryan Albert Giglia, CEO

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 Andaz Miami Beach when we have the opportunity over the coming months. Thank you.

Operator, Operator

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