Q2 2025 Sunstone Hotel Investors Inc Earnings Call
Speaker #3: 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.
Speaker #3: Later, we will conduct a question-and-answer session. An instruction will be given at that time. I would like to remind everyone that this conference is being recorded today.
Speaker #3: August 6th, 2025, at 11:00 AM Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.
Speaker #4: 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.
Speaker #4: Which could cause actual results to differ materially from those projected. We caution you 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 EBITDA RE, adjusted FFO, and hotel adjusted EBITDA RE.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Afterward, 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.
Speaker #4: 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.
Speaker #5: 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.
Speaker #5: While these cross-currents led to heightened certainty and negatively impacted all demand segments to some degree, we saw pockets of strength across our portfolio that offset these broader headwinds.
Speaker #5: 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 a creed capital recycling.
Speaker #5: 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 Ondoz, Miami Beach over the next few months.
Speaker #5: 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.
Speaker #5: That said, there are several encouraging signs especially with recent leisure bookings in Miami and Hualia that if they persist, could lead to a better-than-anticipated fourth quarter.
Speaker #5: 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.
Speaker #5: Marriott Long Beach Downtown turned in another solid quarter with RevPAR increasing nearly 70% as the property continues to benefit from our recent investment in brand conversion last year.
Speaker #5: In addition, the Bidwill Marriott Portland saw 10% growth in RevPAR as the hotel is more aggressively competing for business and the market continues to recover.
Speaker #5: 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 our hotel declined from last year, the performance was better than expected and allowed the hotel to gain market share.
Speaker #5: 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.
Speaker #5: This is the second consecutive quarter where performance has exceeded our expectations and the hotel has ample opportunity to further grow earnings as group pays for the second half of the year and into 2026 is very strong.
Speaker #5: In Washington, DC, 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.
Speaker #5: 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.
Speaker #5: 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 will better align it with the quality level of the already renovated guest rooms.
Speaker #5: This hotel has an ideal location within the market. 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: Out-of-room spend was particularly strong during the quarter, with most hotels in the portfolio generating ancillary spend above expectations. This resulted in total revenue growth coming in 150 basis points higher than room revenue growth in the quarter.
Speaker #5: Within our resort portfolio, we saw increased price sensitivity at our Oceanfront Resorts in Hualia and Key West that contributed to lower-than-expected growth. As we shared with you last quarter, we anticipated that Hualia 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.
Speaker #5: This continues to be our expectation and we remain of the view that this period of transition as the Kaunapali 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.
Speaker #5: Kaunapali is absolutely normalizing and its occupancy is approaching stabilized levels which will benefit the Hualia 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: Luxury group and transient travel remain 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.
Speaker #5: Over in Sonoma County, we had a solid quarter, with Montage growing occupancy by over 1,200 basis points, resulting in an 18% increase in RevPAR and a 23% increase in total RevPAR.
Speaker #5: 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.
Speaker #5: Year-to-date, our two 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.
Speaker #5: As we shared with you on our last call, we opened the Ondoz, Miami Beach, on May 3rd of this year. We had previously planned to open the resort in March.
Speaker #5: Allowing us to take advantage 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.
Speaker #5: 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 properties to be able to deliver on our expectations for 2026.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: And fully redeployed those proceeds, along with additional capital, into $100 million of share purchases 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: This is driven primarily by continued weakness in government and government-related demand in Washington, DC, further softness in Hualia in the third quarter, and a more gradual near-term ramp-up at Ondoz, Miami Beach.
Speaker #5: Hualia and DC 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 Hualia and we are seeing transient booking volumes supporting improvement going into the fourth quarter.
Speaker #5: DC 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.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: And with that, I'll the call over to Robert to give some additional details on our focus areas in Miami and near-term capital investments. Robert, please go head.
Speaker #5: Thanks, Bryan. While we are very pleased to have Ondoz, Miami Beach open, and thank the renovated resort looks fantastic, we continue to work on multiple fronts to make up for the late opening.
Speaker #5: 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.
Speaker #5: Prolonging ur 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 two most important quarters of the year for the market.
Speaker #5: Guest responses have 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.
Speaker #5: 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.
Speaker #5: 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 8 to 900 weekly bookings.
Speaker #5: 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.
Speaker #5: 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 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 nearby hotels.
Speaker #5: 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.
Speaker #5: 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.
Speaker #5: 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 will have more to share with you on that topic in the coming quarters.
Speaker #5: 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.
Speaker #5: Charles in June. The heightened certainty 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.
Speaker #5: 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.
Speaker #5: With that, I'll turn it over to Aaron. Please go head.
Speaker #6: 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.
Speaker #6: Even with only a partial quarter's contribution, from the Hilton New leans 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.
Speaker #6: Second quarter RevPAR increased 2.2% compared to last year and total RevPAR grew 3.7%. Adjusted EBITDA RE in the second quarter was 73 million dollars.
Speaker #6: And adjusted FFO 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.
Speaker #6: Or 4.8 times, 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.
Speaker #6: As of the end of the quarter, we had nearly 145 million dollars of total cash and cash equivalents including our restricted cash. Together with capacity on our credit facility, this equates to over 600 million dollars of total liquidity.
Speaker #6: 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.
Speaker #6: 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.
Speaker #6: Our projections have been adjusted for the mid-year sale of the Hilton New Orleans St. Charles. And as Bryan noted earlier, reflect a more cautious expectation for the remainder of the year.
Speaker #6: 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 Ondoz, Miami Beach including a moderated pace of ramp-up relative to what we assumed in our prior outlook.
Speaker #6: For the balance of the portfolio excluding Ondoz, 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 Ondoz, Miami Beach were 216 dollars and 86 cents and 225 dollars and 31 cents respectively.
Speaker #6: With these revised top-line growth projections, we now estimate that full-year adjusted EBITDA RE will range from 226 million dollars to 240 million dollars. And our adjusted FFO per diluted share will range from 80 cents to 87 cents.
Speaker #6: 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, slightly positive in the third quarter.
Speaker #6: Before increasing more meaningfully in the fourth quarter, driven by a greater contribution from Ondoz, Miami Beach, ongoing growth in Long Beach, and the easier comparison for the impact of the strike in San Diego.
Speaker #6: 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.
Speaker #6: And we expect the third quarter to contribute approximately 20% to 21% with a balance coming in the fourth quarter. Included in this distribution is the assumption that Ondoz, Miami Beach generates an EBITDA loss of 2 to 3 million dollars in the third quarter.
Speaker #6: As it remains the low season in the market. We'll profitability at the resort will begin to accelerate as we move into the higher demand fourth quarter.
Speaker #6: We expect that the EBITDA losses generated prior to the resort's opening in May and during the slower summer months since that time will cause us cumulative performance to be a slight headwind to full-year total portfolio earnings.
Speaker #6: 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.
Speaker #6: 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.
Speaker #6: On a full-year run-rate basis, this would equate more than 6% increase in earnings per share. While we retain capacity for additional share repurchases, our updated projections do not assume the benefit of additional buyback activity.
Speaker #6: Separate from our share repurchases, our board of directors has authorized a 9-cent per share common dividend for the third quarter. And has also declared the routine distributions for our Series H and I preferred securities.
Speaker #6: 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 you please limit yourself to one question.
Speaker #6: Operator, please go head.
Speaker #7: At this time, I would like to remind everybody in order to ask question, please press Start. Followed by the number one on your ephone keypad.
Speaker #7: As I would like to remind everybody, to limit themselves to one question, please. Your first question comes from the line of Dwayne Fenningworth. With Evercore ISI.
Speaker #7: Please go ahead.
Speaker #8: Yeah. Hi. This is Peter on for Dwayne. Thanks for taking the estion. so we appreciate kind the context you've ided about Maui and the different submarkets.
Speaker #8: 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.
Speaker #8: 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?
Speaker #8: And when that renovation will be wrapped up? Thanks.
Speaker #9: Good 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 submarkets.
Speaker #9: you look at Hualia where our Hualia Beach Resort is in, and then you look Kaunapali, the west side of the island. that has been recovering from the fires.
Speaker #9: when you our hotel competes in both markets. So we we compete with the highest end of the Kaunapali market and then we compete with the luxury of the Hualia.
Speaker #9: The submarket. Kaunapali has been recovering and as of recently, it's it's moved up from, call it 50-ish percent occupancy to closer to 70%. 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 to grow our our occupancy because we're no longer losing discounted rooms to that to that market.
Speaker #9: So when you look at Kaunapali, the success of Kaunapali is going to be translating into the success of Hualia. They have had we always new that we were going to lag that.
Speaker #9: And so as that market now reaches stabilization, it's our turn to grow. And so what we saw is as that as Kaunapali got closer to the 70-ish percent occupancy, our leisure and we look at this at a weekly leisure bookings, started to accelerate in, you ow, in the middle of July and going into August.
Speaker #9: So as we saw that those transient rooms booking into the next six months, our transient index recently has grown dramatically. So we're we were have gone from 102 index from an 84 index.
Speaker #9: And so also, against the luxury set in Hualia, we're rowing there too. And so as we you know 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, we are seeing that happening into Q4.
Speaker #9: and so when we look at the impact of of Hualia, a big piece of it was in Q3 where where we just did not get to the the transient volumes that we were expecting.
Speaker #9: Q4 has better group base in it. It's a better group quarter. And combining that with the with the additional, transient bookings, give us more confidence that, Q4 is is trending up.
Speaker #9: 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, you know, we're confident things are moving in the right direction.
Speaker #9: 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.
Speaker #9: And so not only are we are we benefiting from, you know, growth in the market, but now we have a product to sell also.
Speaker #8: Thank you.
Speaker #7: The next estion comes from the line of Dak Armstrong with Wells Fargo. Please go head.
Speaker #8: Your next question comes from the line of Danny Assad with Bank of America. Please go ahead.
Speaker #9: Hey, good morning. Good morning, guys. So if maybe just in our prepared remarks, Aaron, you were talking , you know, the change and the revision and outlook.
Speaker #9: Can you you know I think I believe last quarter we were looking at a nominal contribution from Ondoz, right? And now we're king about a moderate headwind.
Speaker #9: So can you just maybe bucket that change in outlook, the 12.5 million dollar EBITDA reduction, you know, how much how much of that is coming directly from, you know, the change in Ondoz, how much of that maybe is coming from DC, how much is coming from Hualia?
Speaker #9: And if there's any other moving pieces that would be really helpful. Thank ou. Yeah.
Speaker #4: Sure, Danny. This is Aaron. Thanks the estion. 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 Hualia as the other side of the island continues to normalize.
Speaker #4: You know, as Bryan alluded to, that is absolutely happening. And for this commentary that you may have heard from some of our peers that do, you know, own hotels over on the west side, it's evident in the in the trends that they're seeing.
Speaker #4: So, so that's a long-term good thing for the island, but it is causing some, you ow, some choppiness in the middle part of this year.
Speaker #4: And so that'll contribute to a portion of the revision, among the comparable portfolio of the other piece is is going to be DC and just what we're seeing on the the softer, direct government business and then also some of the what we call government-adjacent business.
Speaker #4: You know, relies on government funding, which is, you know, which was also been challenged here more recently. So if you put those two together, DC and Hualia, you know, they are larger contributors for us.
Speaker #4: And that's a third of the total guidance revision that contribution of those two hotels. the other part is the later start in the year at Ondoz, you know, which is causing the near-term ramp to be, you know, slower than our expectations.
Speaker #4: You know, as we alluded , 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 at the end of the year so that we have a successful 2026.
Speaker #4: but the expectation now for 2025 from Ondoz 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 of the change in the EBITDA FFO revision.
Speaker #4: across the rest of the portfolio, I know we've had some puts and takes, that kind of largely offset each other. You know, certainly some strength in San Francisco which has spilled over into the wine country, you know, which is looking for a a higher, full-year number than what we had before.
Speaker #4: And that's offsetting some of the, some of the other changes across the the balance of the portfolio.
Speaker #8: Very helpful. Thank you very ch.
Speaker #7: The next question comes from the line of David Katz with Jeffries. Please go head.
Speaker #10: Hi. Morning, everybody. Thanks for thanks for taking my question. you know, just just noting of the commentary about, repurchases. how do you sort of think about, you know, a a range of of comfortable leverage and, you know, how do you ink about kind of those buybacks ongoing?
Speaker #10: Right? I mean, in the context of, you know, not just your stock, but, you know, many of our peers are sort of below historical ranges.
Speaker #10: And I don't know that there's any valid argument that they're appropriately priced. I guess what I'm getting at is, you ow, how much what's your tolerance to buyback more?
Speaker #10: Than at you have?
Speaker #4: Sure. Morning, David. you know, look, we continue to to employ a balanced approach to to capital allocation and with that capital recycling. we have, you ow, repurchased and I think based on our market cap or our overall size, one of the larger amounts of of stock over the last several years.
Speaker #4: so we're we're absolutely, you ow, not shy about about doing that. And and your question on leverage is is the right way look at it is is that right now our leverage, you know, is 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 ow, we we believe is necessary.
Speaker #4: And I think over time we've said that's kind of four to five times, you know, debt to EBITDA to be able to withstand any sort of economics, you know, cyclical ups and downs that our space always has.
Speaker #4: So we feel the best way to to allocate capital going forward right now is to is through, recycling as we did with New Orleans and we took an asset that, you know, we sold at a, call it an eight-cap on 25 or eight-ish cap on 25.
Speaker #4: 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, our remaining portfolio is a is a much better quality.
Speaker #4: 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 isk-adjusted basis and, and you know, to our point, it 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.
Speaker #4: And and that spread the bid-ask spread has has come in a bit but probably has some more way to go before it is competitive with share repurchase where stock is right .
Speaker #4: and so, you know, that it it is it's always a balance of of leverage and and capacity and and other opportunities. But I think in the near term, you know, whether it's using our using our balance sheet or trying to recycle additional assets where we can arbitrage, private market valuations, right, we'll continue to do that.
Speaker #8: Okay. Fair enough. Thanks very much.
Speaker #7: The next question comes from the line of Daniel Hogan with Baird. Please go head.
Speaker #11: 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?
Speaker #4: Sure. hey, Dan. so we haven't given pace for '26 yet other than saying it's, you ow, it's up, you ow, at this point, kind of the low single-digit range.
Speaker #4: when we look at at city-wide activity for '26 and then also looking into '27, in '26, DC, Miami, and New Orleans are are the stronger markets.
Speaker #4: In the '27, Boston, San Diego, DC, and Portland are all up. so, ou know, again, looking at our our portfolio, you know, some of our larger assets have have some good head some good tailwinds going into the next couple years.
Speaker #4: San Francisco is also looking good. When we look at our own internal pace in San Francisco, because the hotel does a lot of just in-house business as opposed to city-wide, our pace is very strong for San Francisco.
Speaker #4: So, our expectation is that what we're seeing this year will continue to see growth in San Francisco. Additionally, moving a little bit north up into the wine country, we expect good growth in that market as well.
Speaker #11: Okay. Thank you very ch.
Speaker #7: Your next question comes from the line of Pitts Natives, Rose, with Citigroup. Please go ahead.
Speaker #12: Hi. Thanks. just to this quick ones here. Could you are you still comfortable that Ondoz can reach kind of high-teens to 20 million of EBITDA contribution for full-year '26?
Speaker #12: And then Bryan, could you just isolate what the impact what the positive impact that Montage was from the real estate or the tax refund that you ioned?
Speaker #4: Sure. Morning, Smeads. From Montage, it was about $1 million of the positive. So, even without that, the hotel is up materially about $1 per quarter over quarter.
Handle will be the is the next, um, where we have a, you know, we'll have a renovation and, 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. Um
And so those things are all in the works or, um, 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. Um, you know, look.
I guess you can look at it in a couple ways from a from a market cap perspective. We're you know, we're within the range of of our peers, um, on a hotel count, um, where at the lower end are there others with less hotels than us? Yes. But you know we have we have a concentrated portfolio. We have a concentrated portfolio with with great assets. Um, you know, you're going to be at the whims whim of of markets from here to there where we're seeing with DC. Um but you know as far as you know, looking long term do you want to have 20 plus acres in in WYA? Um, is that a concentration that you can, you know, be happy with I
I think so. Um,
But you know, to your point, can you sell assets and, and...
Repurchase shares forever. Um, I guess yes, you can, but you know, that would bring an end at some point. Um,
You know, I think our focus is more of just, you know,
benefiting from our, our
Being our ability to be nimble. And so, you know, does that require...
You know, multiple assets sales and multiple Acquisitions a year, or know. It could be, you know, 1 or 1 or 2 could be meaningful and so looking going forward, you know, we, we recycle New Orleans and that went into stock because that made the most sense at the time, I'm going forward, our next disposition. Um, we do will 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 at creatively until then uh, you know, this is why we have the balance sheet that we do. We can redeploy into our own um you know stock and you know create nav and ffo per share growth that way. So I I I think we have we have multiple Avenues, you know, at our disposal, we have the balance sheet to do it and we we have the size, right?
Right now, we can continue to go along this path and execute.
Great. Thank you.
Our last question comes from the line of Chris warona with Deutsche Bank.
Please go ahead.
Hey guys. Good morning. Thanks for taking the question. Um, if we could maybe revisit, uh, morning, Bryan, if we could maybe revisit, um,
Uh, and dogs in Miami Beach for a moment. You know, I assume you guys expect that's going to be a...
High Redemption hotel. And I'm, I'm just curious if the weather if there's any changes we need to think about, um, you know, in terms of if, if there are fewer or greater redemptions. Um you know, is that is that something that you 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, but redemptions are, you know, depending on the type of hotel, can be a very meaningful and important piece of.
The, you know, the segmentation and, quite frankly, the whole resort like this is why, you know, why loyalty programs exist. So, you know, the, you know,
Members can use them at these highly desirable locations um and that's why they store up points and get points. And so yeah we have a lot of, 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 Double Tree. But ya um
New Orleans, Boston Longworth, you know, is a big Redemption Hotel.
Ed this to be a a, you know, a strong Redemption hotel or Resort, uh, in in Florida, in, in the Hyatt system, it's 1 of the, you know, you know, Premiere options. So, uh, we expected early on and, and as and we saw early on, uh, very good redemptions. We expect redemptions to continue to be, you know, ongoing a major part of 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 changed 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. Um, 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 asked, question on how you guys are thinking about giving up rate to get occupants in the 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 of examples. So when we opened up in Q3 and in,
Miami Q3 is a seasonally low quarter. It's about produces about 8% of the ibida for the year on average for that market. And so
as you're trying to build,
Occupancy. Yes. You're going to have to, you're going to have to sacrifice some rate to do that. We we're catching up to the market. So that was expected. We were, you know,
We were hopeful to be opening in Spring during Spring Break, where it was a higher compression. That would have been an easier thing to do, but yes, you do that in other places where you could see rates going down, like Wine Country. Part of that is getting the segmentation of the resort right. You want more group business; group will tend to come in at a lower rate than transient but also comes with, you know, 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, whoa, like on dollars total RevPAR 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, and all the other services of the hotel and get you to a higher total rent bar. 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 Brian.
I will now turn the call over to Brian jilliya for closing remarks. Please go ahead.
Um, 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, um,
Look forward to uh walking uh many of you through the uh the on dolls Miami Beach. Uh 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.