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DATE

Tuesday, May 5, 2026 at 11 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Bryan Albert Giglia
  • President/Chief Investment Officer — Robert C. Springer
  • Chief Financial Officer/Executive Vice President — Aaron R. Reyes

TAKEAWAYS

  • Portfolio RevPAR Growth -- RevPAR increased 14.6%, with a 5.7% gain excluding Andaz Miami Beach, and 18% growth from resorts.
  • Andaz Miami Beach Performance -- Achieved 86% occupancy at a $564 average daily rate, generating $6.5 million of EBITDA, while competitor rates exceeded $900.
  • Wine Country Resorts -- Combined RevPAR climbed 34%, driven by group and transient business, and delivered a $4 million EBITDA improvement year over year.
  • Urban Hotel Trends -- Urban RevPAR decreased 9.3%, but total RevPAR for those hotels fell only 2.9% due to stronger out-of-room spend.
  • JW New Orleans Group Bookings -- Group bookings at this location surged more than 50%, pushing RevPAR index above 150% compared to its comp set.
  • San Francisco Events Impact -- Super Bowl-related compression contributed to RevPAR growth of over 27% for the San Francisco hotel, with January and March RevPAR up 14%.
  • Expense Management -- Comparable departmental expense per occupied room rose 1%, overall comparable portfolio expense (excluding Andaz) increased 3.4% in absolute terms or 2.4% per room, allowing a 140 basis point margin increase.
  • Adjusted Financial Results -- Adjusted EBITDAre was $68 million, up 18%. Adjusted FFO per diluted share reached $0.27, a nearly 29% increase.
  • Guidance Revision -- Full-year rooms RevPAR is forecast to rise 5%-7.5% to $236-$242; total RevPAR guidance is now 5%-7.5% higher to $390-$400, with Andaz Miami Beach expected to add roughly 400 basis points to growth.
  • EBITDAre & FFO Outlook -- Adjusted EBITDAre guidance set at $238 million-$252 million. FFO per diluted share expected to be $0.88-$0.96.
  • Capital Structure & Repurchases -- No debt maturities before 2028; net leverage is 3.5x trailing earnings (4.6x including preferred), and $35 million of common stock repurchased at a $9.11 average since year-end through April, with $14 million of preferred repurchased at a 21% discount.
  • Dividend Declaration -- Board authorized a $0.09/share common dividend for the second quarter and maintained routine preferred distributions.
  • Capital Projects Update -- Meeting space renovation in San Diego and restaurant buildout in Miami on schedule; Wailea Beach Resort repairs underway after March storms, likely resulting in capital expenditures at the upper end of 2026 guidance.

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RISKS

  • CEO Giglia warned, “an elongated period of heightened volatility or sustained increases in fuel prices could present headwinds.”
  • Repair work and disruption at Wailea Beach Resort from storms in March are expected to require additional incremental capital expenditure.

SUMMARY

Sunstone Hotel Investors (SHO +3.19%) delivered quarterly results ahead of expectations, driven by notable gains in resort and group business as well as disciplined cost controls. Management upgraded full-year RevPAR and earnings guidance to reflect current momentum but cautioned that the remaining quarters will trend toward the lower or midpoint of the forecast range. Transaction market activity for luxury and high-quality hotel assets has improved, supporting the company’s capital recycling focus. Management reiterated the intention to balance future capital deployment between continued stock repurchases and acquisitions should private market values remain attractive.

  • President Springer stated, “incremental capital expenditures needed at Wailea will likely mean we will be in the upper half of our existing CapEx guidance range for 2026.”
  • CFO Reyes noted recent preferred stock repurchases at a 21% discount, positively impacting NAV and earnings per share.
  • CEO Giglia explained, “Based on what we have seen so far, and based on the transient and group bookings going forward, we feel very comfortable with the range we have given and probably inching toward the higher side of that, with some opportunity to achieve that this year.”
  • Further upside in results may come from short-lead bookings and international demand around major events like the World Cup, but none of this potential is included in management’s current guidance.
  • The company continues to pursue opportunities to monetize low-yielding assets and redeploy proceeds, underscoring a capital allocation approach “focused on executing transactions that will result in the best risk-adjusted returns” for shareholders.

INDUSTRY GLOSSARY

  • RevPAR: Revenue per available room; a core industry metric calculated as room revenue divided by the number of available rooms.
  • Adjusted FFO: Adjusted funds from operations; REIT-specific earnings measure, adjusting FFO for nonrecurring and noncash items.
  • EBITDAre: Earnings before interest, taxes, depreciation, amortization, and real estate gains/losses; standard industry measure for REIT’s operating performance.
  • Net leverage: Ratio of net debt to EBITDAre, indicating leverage after subtracting cash balances.
  • CapEx: Capital expenditures; investment in property, plant, equipment, or renovations.

Full Conference Call Transcript

Bryan Albert Giglia: Thank you, Aaron, and good morning, everyone. We were pleased with our performance in the first quarter which came in ahead of our expectations even with some weather-related headwinds across a handful of our markets. The strength was broad based, with continued solid group results and transient performance that was better than anticipated. Overall, RevPAR in the quarter grew an impressive 14.6%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 5.7%. This strong revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to generate meaningful growth in earnings.

The added benefit of our accretive repurchase activity drove even greater growth in earnings per share, with first quarter adjusted FFO nearly 29% higher than last year. Our resorts once again led the portfolio with combined comparable RevPAR growth of over 18%. While the rebound at Wailea Beach Resort was expected, it has been impressive, where revenue grew 14% in the quarter even with significant cancellations from the two weather events that impacted the Hawaiian Islands in March. While we will need to navigate some repair work and disruption following the storms, the outperformance in January and February, and the trends that we are seeing for the remainder of the year, continue to point to a sustained recovery in Maui.

We were also quite pleased with performance at our wine country resorts, which turned in a combined 34% growth in RevPAR driven by better contributions from both group and transient business. As we shared with you on our last call, we were encouraged with how Andaz Miami Beach performed over the festive period and into the early weeks of this year. That trend has continued, with results exceeding expectations in the first quarter. We are seeing further strength into April, with second quarter benefiting from strong transient and group business with major events like the F1 race last weekend, and the World Cup coming this summer.

During the first quarter, the Andaz ran 86% occupancy at a $564 rate and produced $6.5 million of EBITDA. The comp set ran a similar occupancy but at a rate over $900 per night. Q1 was an absolute success for the Andaz, and we are encouraged with how much opportunity we have to continue to grow rate closer to its peers and build on our multiyear growth story. We have had a solid start to the year, and we are well positioned to deliver on our earnings expectations in 2026, and we look forward to the resort’s next phase of growth into 2027 and beyond.

Our urban hotels had a noisier quarter as we navigated a challenging Super Bowl comp in New Orleans and weather-related headwinds across the East Coast. RevPAR declined 9.3% in the first quarter across our urban portfolio, but out-of-room spend performed better and limited the decline in total RevPAR to only 2.9%. At JW New Orleans, revenue was lower given the benefit of the Super Bowl in the prior year, but despite the challenging comp, our hotel continued to gain share.

After picking up nearly 15 points of RevPAR index in 2025, the JW again outperformed the comp set in the first quarter, and now sits at over 150% relative to the group, demonstrating the strength of the hotel’s location, superior room product, and recently upgraded meeting space. In addition, our New Orleans hotel had one of its best first quarter production results in years, with group bookings growing over 50% relative to the prior year. In Boston, the quarterly performance was hampered by the severe winter weather that disrupted travel earlier in the year. Overall, we expect the first quarter to be the toughest quarter for our urban portfolio with sequential growth in RevPAR through the balance of the year.

Our convention hotels turned in better-than-expected performance with RevPAR growth of 5.2%. Performance varied widely, however, as we experienced the push and pull of a few large events. In Washington, D.C., we had a very challenging comp given the inauguration last year. After increasing over 24% in 2025, RevPAR at our Westin D.C. Downtown was 9.8% lower this year due to the tough comp and higher group attrition from the severe winter storms that occurred in the quarter. Despite this decline, our performance was better than expected as stronger transient demand helped to partially offset the sluggish group backdrop in the market.

Additionally, the Westin had a solid booking quarter with transient pace for the next six months up 11% relative to last year, pointing to a continuation of the current transient trend. On the flip side, RevPAR increased over 27% in San Francisco where the Super Bowl added compression to a market that was already on a positive trajectory. In fact, if you look only at January and March, RevPAR was still higher by 14% as the city benefited from an active event calendar and an increased level of commercial activity in the downtown area.

Performance at the Renaissance Orlando SeaWorld was impacted by isolated group cancellations earlier in the quarter and a shift in the mix of business, which led to a decline in rooms RevPAR but generally flat total RevPAR given the benefit of strong contribution from out-of-room spend. We expect the balance of the year to be more conducive to growth in Orlando with particular strength in Q3 and Q4, where second half group pace is up over 40% relative to last year. Lastly, in San Diego, we were pleased to see better transient performance in the market, which has given us a more optimistic outlook for the year.

We are in the final stages of our meeting space renovation at the [inaudible], and we expect that our second quarter will be the toughest comp of the year with sequential improvement through the third and fourth quarters as we benefit from better group patterns and our new meeting space. On the expense side, we were particularly pleased to see better productivity in the rooms department, which allowed us to keep comparable departmental expense growth on a per occupied room basis to only 1%. This better cost performance was partially offset by higher utility expenses, property G&A, and sales costs.

Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 3.4% on an absolute basis during the quarter, or 2.4% per occupied room. This was generally consistent with our expectations and allowed us to grow margins by 140 basis points. Given the cadence of our quarterly revenue growth, we expect that the first quarter will be our strongest margin growth performance of the year, but we are continuing to work with our operators to focus on cost controls and drive efficiencies wherever possible. As part of our last earnings call in February, we noted that we were encouraged by the trends we were seeing in recent operations, but that broader uncertainty gave us reasons to be cautious.

This remains the case today with recent events only reinforcing this view. We continue to monitor events that could impact costs and the demand for travel. While we did not see any measurable impact on our first quarter operations, an elongated period of heightened volatility or sustained increases in fuel prices could present headwinds. That said, performance in the first quarter was meaningfully ahead of our expectations, and based on what we see today, we are comfortable revising our full-year outlook higher to reflect these results. Given the elevated uncertainty, we will continue to be measured in our expectations for the rest of the year.

If more of the momentum from the first quarter carries into the balance of the year, or if some of the special events slated for later this year outperform our modest expectations, then we could be positioned to deliver stronger performance. We are encouraged by the increase in hotel transaction activity and believe the environment may be becoming more conducive to executing our capital recycling strategy and demonstrating the value of our portfolio. In the interim, we continue to deliver value to shareholders through an additional $50 million of accretive common and preferred stock repurchase activity so far this year.

We expect to continue opportunistic repurchase activity as pricing allows while we focus on generating profitability growth from our operations, and realizing the benefits of our investment projects. And with that, I will turn the call over to Robert to give some additional details on our capital investment activity.

Robert C. Springer: Thanks, Bryan. We have gotten off to a busy start on the operations and investment front. As we shared with you last quarter, our planned capital projects for 2026 were concentrated in the first half of the year, and I am pleased to report that we have made solid progress executing them on schedule and on budget. In San Diego, we are wrapping up the renovation of the meeting space. The finished product looks great and should help the hotel to maintain its leadership position in the market.

Recent trends in the city have been more encouraging, and based on what we see today, we expect better performance in the latter part of this year; the hotel is pacing ahead for 2027. In Miami, we are also finishing construction on Bazaar and we are very pleased with how the space is coming together. We expect to begin training activities in late summer with the restaurant opening in early fall to take advantage of the full high season in the market. As we shared earlier, our renovated resort is already attracting some great group business, but the addition of Bazaar will round out the property, further increasing its appeal with luxury travelers and higher-end groups.

We anticipate that Bazaar will not only help drive incremental room night demand at the hotel, but will be a dining destination for guests from nearby properties and local residents as well. Elsewhere across the portfolio, we will be starting some facade work and a rooms refresh at Ocean’s Edge Resort and Marina in the middle part of the year, as part of a broader effort we are working on to drive incremental revenue and earnings to this resort. We will also be completing some smaller routine projects across the rest of the portfolio.

As Bryan noted earlier, our Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and brought heavy winds and substantial rainfall. While our resort remained operational during the storms, we did sustain wind and water damage in some of the guest rooms, public spaces, and portions of the roofs. We are currently working to restore impacted areas and should have most of the public space and guest room related work completed in the coming weeks. We will, however, have some additional repair work to do on a few roofs which will not be done until later this year.

We are working closely with our insurers to pursue cost recovery for the repair work and lost business from the storms. It is too early to share any of those details. Based on what we see today, we expect that incremental capital expenditures needed at Wailea will likely mean we will be in the upper half of our existing CapEx guidance range for 2026. We are still working through the details of the approach and timing of the required spend, and cost recovery from our insurance policies, and will share additional information as part of our next call. With that, I will turn it over to Aaron. Please go ahead.

Aaron R. Reyes: Thanks, Robert. As we noted at the top of the call, our earnings results for the first quarter came in ahead of expectations, driven by broad-based strength across the portfolio. Rooms RevPAR increased 14.6% in the quarter, including an 890 basis point benefit from Andaz Miami Beach. Total RevPAR for all hotels increased 13.4%, including an 810 basis point benefit from Andaz. Given our mix of business, we anticipated that rooms revenue would grow faster than total revenue in the first quarter, which was the case, but ancillary spend performed better than we thought, and the guidance ranges that I will discuss shortly reflect a more optimistic outlook for out-of-room revenue growth than our prior expectation.

The stronger top line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre of $68 million, an increase of 18% relative to last year. When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.27, an increase of nearly 29% from last year. Our balance sheet remains strong. We have no debt maturities prior to 2028, and net leverage stands at only 3.5 times trailing earnings, or 4.6 times including our preferred equity. Since December, we have repurchased over $19 million in liquidation value of our traded preferred stock at a 21% discount, a positive impact on both FFO and NAV.

Included in our press release this morning are the details of our updated outlook for 2026. Our revised guidance ranges reflect the outperformance we saw in the first quarter but retain a degree of caution for the balance of the year given the uncertain backdrop. We now expect that rooms RevPAR for all hotels in the portfolio will increase between 5% and 7.5%, to a range of $236 to $242. This reflects the full-year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint.

Based on what we see today, we now expect total RevPAR to increase between 5% and 7.5%, an increase of 125 basis points at the midpoint, which captures our higher expectations for growth in ancillary spend. This would now imply a range of $390 to $400 with a similar 400 basis point benefit from Andaz. As we noted on our last call, the first quarter will be our strongest revenue growth quarter of the year, with the remaining quarters being between the lower end and the midpoint of our RevPAR and total RevPAR guidance ranges.

While Andaz will certainly provide a lift to our results all year, the impact will become less pronounced as we get further into the year and begin to lap more of last year’s operations, with the revenue growth benefit estimated at approximately 500 basis points in the second quarter and 150 to 200 basis points in each of the third and fourth quarters. This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $238 million to $252 million. Based on where we sit today, we expect our FFO per diluted share to now range from $0.88 to $0.96.

This updated earnings per share range reflects the benefit of better operations and our recent share repurchase activity. In terms of the distribution of our earnings by quarter, based on the midpoint of our updated range, the first quarter accounted for roughly 28% of our full-year earnings, with the second quarter expected to comprise approximately 28% to 29% and the balance split more or less evenly across the third and fourth quarters. Moving to our return of capital, since the start of the year up through April, we have repurchased $35 million of common stock at a blended price of $9.11 per share.

In addition, we have also purchased over $14 million of our preferred stock at a blended price of $19.84 per share, or a 21% discount to its liquidation value. This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share. While we retain capacity and appetite for additional share repurchases, our revised 2026 outlook does not assume the benefit of additional buy activity. In addition to our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the second quarter and has also declared the routine distributions for our Series G, H, and I preferred securities.

Before we conclude our prepared remarks, I will turn it back over to Bryan for some additional thoughts.

Bryan Albert Giglia: Before we open the call to questions, I want to provide an update on our 2026 objectives. The company remains focused on realizing the value of our portfolio. Over the past few years, we have sold hotels at what have proven to be attractive valuations and redeployed proceeds into the most accretive option available at the time. While most of the proceeds went to repurchase common or preferred stock at a discount, we also acquired assets when our cost of capital became more competitive. Given the improving transaction market, we expect to recycle capital in 2026 and take advantage of strong private market values for certain assets.

This would then allow us to redeploy proceeds into additional share repurchases at a discount to NAV or liquidation preference, or potential hotel acquisitions under the right circumstances. We remain focused on executing transactions that will result in the best risk-adjusted returns to our shareholders. The Board and management remain committed to maximizing the value for shareholders and are open to pursuing any alternative that would reasonably be expected to result in value creation. We will now open the call for questions.

Operator: To ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Thank you. Our first question comes from Peter Laskey from Evercore ISI.

Peter Laskey: Hi, this is Peter on for Duane. Thanks for taking the question. If we zoom out and think about the 14-hotel portfolio and that portfolio reaching some level of stabilization, what are some of the building blocks left to get there? And said differently, what are some of the growth drivers beyond what you have provided for 2026? And then you mentioned the transaction markets are getting more active. Could you just quickly expand on that? What sort of assets are you seeing being marketed, and what are brokers saying?

Bryan Albert Giglia: Good morning. Let me start, and then Aaron can provide some additional detail. When you look at the building blocks, there are several pieces. First, Andaz is a multiyear story. We had an excellent Q1. The resort is ramping up. We started to see this at the end of Q4 last year and into Q1 this year, and the group business has been very strong. The transient business continues to grow, and we are very happy with the performance so far. That said, when we look at Q1, and we look at our rate, which was in the mid-$500s, and we look at the comp set, we still have a lot of room to grow.

The comp set was running over $1,000. So that is a lot of room for us to expand into next year. Also, fourth quarter last year was roughly the same delta, and so in fourth quarter this year we have room to grow. Opening Bazaar at the end of this year into the high season, and the beach club just opened—which also serves as additional meeting space for the resort—gives Andaz a very good two-year-plus trajectory. Maui is also another asset where we have room to grow. We talked about this last year—having to have the island stabilize—and we saw that with Kaanapali reaching a stable 70% occupancy in the fourth quarter.

Our transient volume started to recapture our index and our share in the fourth quarter of last year and has continued into this year. Given where we are relative to prior EBITDA, there are still several millions of dollars of EBITDA growth that we will get into next year. San Francisco is another market for us that has grown and rebounded very well, but still has quite a ways to go. Everything we are seeing in that market—from the group demand, the transient demand, the citywide demand—has been very positive and will go into 2027 and beyond. As far as San Francisco’s strength, we have also seen that help wine country and the two resorts there.

As the citywides and the city of San Francisco do better, it then leads into additional leisure demand up in wine country. I think those are the big pieces that we will continue to see grow throughout the next few years. On transactions, we see additional equity capital coming into the markets and increasing the number of deals and potential transactions, which is good and healthy. Right now, you are seeing more luxury assets out there, given where the recovery has been and the demand and productivity of those assets. As the year goes on and some of those transactions are announced and closed, we will start to see more of the higher-quality, upper-upscale assets come to market too.

Aaron R. Reyes: I would add that on top of what Bryan highlighted across the portfolio, we have the added benefit of the capital allocation activity we have been doing. We have been thoughtful in how we have allocated capital both to our common stock and most recently to our preferred stock as well. When we think about not just EBITDA growth but growth on an earnings per share basis, we have capacity for significant accretion in FFO per share.

Operator: Our next question comes from Michael Bellisario from Baird. Please go ahead. Your line is open.

Michael Bellisario: Good morning. Bryan, just want to follow up on your acquisition commentary. Maybe high level, can you talk about the criteria that you are looking at for potential acquisitions in terms of markets, brands, initial yields, and the appetite for maybe buying a cash-flowing asset versus doing another deeper-turn renovation project?

Bryan Albert Giglia: Sure. With what we have done in the past and the way we have approached things, it is important—especially for a portfolio our size—to make sure that we have some degree of balance. We have a lot of deeper turns that are coming back online and/or ramping up assets, so we would have capacity for that. That said, as with everything we do, we have to look at what the options are available to us and what is the best allocation of capital—whether it be using our balance sheet or recycling an asset—on a risk-adjusted basis for our shareholders. Up until this point, that has absolutely been share repurchase and repurchasing our preferred at a meaningful discount to liquidation preference.

Going forward, that is a balance. As our cost of capital improves and our stock price improves, we look to balance that with potential acquisitions, mainly coming from recycling capital where we can take advantage of private market values in specific markets or asset types where there is a lot of demand right now. We can potentially realize a portion of the future upside today and then redeploy that into something that has good growth—maybe not quite as strong growth—but at a much more compelling initial yield that provides future opportunities. Where we stand right now, our common and preferred are still very compelling. As that changes, the preference would probably be more stabilized assets.

If you look at the types of hotels and resorts that we have, we like larger assets that have a good group component and then some secondary—whether it be leisure or business transient—demand. There can be varying degrees of rebranding activity, whether it be like the Westin D.C. or the Marriott Long Beach—different degrees of renovation but still the same game plan where we are able to capture more index through finding a brand that could do better. That is our focus. Today, our equity and preferred are very attractive, but as the space improves, that gives us more opportunity to deploy into assets.

Operator: Our next question comes from Smedes Rose from Citi. Please go ahead. Your line is open.

Smedes Rose: Hi, thanks. On Andaz, in the past you had talked about maybe mid- to low-teens EBITDA contribution this year. Are you still comfortable with that, and are you seeing any lift from the World Cup helping that property? And could you also comment on a couple of the larger group markets—New Orleans, Orlando, and San Diego?

Bryan Albert Giglia: Morning, Smedes. We feel based on where the asset has performed—and remembering the seasonality of the market—the asset will be a little bit skewed more towards the first quarter this year as it ramps, but first quarter through April is a big piece of the annual EBITDA. Based on what we have seen so far, and based on the transient and group bookings going forward, we feel very comfortable with the range we have given and probably inching toward the higher side of that, with some opportunity to achieve that this year. As far as the World Cup goes, we have had really good events in the market this year—the national championship, F1 last weekend was fantastic.

For World Cup, we continue to be measured in our various markets where we have matches. It is a good time in the year for Miami because summertime tends to be the lower season, so having additional international travel coming into the market will be good. As we get closer, we will have a better understanding of the ultimate impact, but right now we continue to be somewhat measured across our markets for the World Cup. On the larger group markets, transient has been the strongest segment across the board in Q1 and into Q2, and transient at some of our large group hotels has been better than anticipated.

Our group calendars laid out with the first half being the weaker of the two, with pace picking up in Q2, Q3, and Q4 depending on the asset. New Orleans pace is up significantly for the second half. Orlando also had a tougher first half comp, but has a really good second half. D.C. has stronger citywides and picks up, with some events that should be helpful. We have a great transient base of business for the next six months. We did not have the greatest group bookings in the first half, but in the second half that is where it picks up and where we start feeling pretty good about the setup.

That said, there are variables out there that could impact travel and fuel costs, so we will remain measured until we get a little more time to see what external impacts there could be.

Operator: Next question comes from JPMorgan. Please go ahead. Your line is open.

Analyst: Hi, this is Michael Hirsch on for Dan today. Thanks for taking my question. You mentioned seeing some group cancellations during the first quarter across the portfolio. Could you provide any additional color on attrition or overall group trends and pacing for this year or next? And as a follow-up on the World Cup across the broader portfolio, what is your outlook for RevPAR uplift, and what recent demand trends are leading to your more measured approach?

Bryan Albert Giglia: Overall attrition is probably down slightly from where we were last year. There were a lot of government cancels last year. We will always have cancellations and some attrition throughout the year. The storms on the East Coast impacted various groups; we had a couple of weeks where groups either could not get to the destination or had to cancel last minute based on storms. Those were specific to weather and not overall group patterns. On the group side, ancillary spend continues to be very strong. We continue to see corporate groups and associations both perform well, and our group pace picks up into the second half of this year.

It is a little early to start talking about future years, but 2027 pace looks good at this point. On World Cup, we started the year measured. It was too early to have bookings on the books, and without recent history it did not make sense to anticipate big rate increases or major demand. Recent data points from brands and others suggest a shorter booking window. We do have some groups—San Francisco and Miami—but if we see very strong international travel and last-minute bookings, that will be additive to our second and third quarters. None of that upside is in our guidance at this point.

Operator: Thank you. Our next question comes from Kenneth Billingsley from Compass Point. Please go ahead. Your line is open.

Kenneth Billingsley: Hi, this is Ken. Thank you for taking my question. I wanted to focus on out-of-room spending. Your total RevPAR guidance grew faster than rooms RevPAR. What is driving that? How much of it is fixed spending associated with the room and how much is discretionary? And away from just group-specific, is out-of-room spending not related to group also stronger?

Bryan Albert Giglia: Good morning, Ken. Even with groups, there is a portion that is discretionary. You have minimums and contracted amounts, but as you get closer to the event, you see groups adding things—A/V, food options, beverage options—and sometimes subtracting. What we saw in the first quarter, not just specific to corporate group but with associations too, was better spend above the contractual amounts. It was a strong quarter for that, and we do not see that slowing down. On non-group, it is also a function of occupancy pickup. At Wailea, transient customers have significant out-of-room spend; as we regain our occupancy share, those customers spend more at bars, restaurants, and other amenities.

We are seeing that on the transient side too—more at the resorts than at a business transient hotel where there are fewer options to spend. On the group side, we are spending more per occupied room. On the transient side, it will depend hotel by hotel. Maui is probably a mix of both. At the luxury resorts in wine country, there is generally more spend—spa, food—alongside occupancy that was up a bit in the quarter. We are seeing strong spend across.

Operator: Our next question comes from Chris Darling from Green Street. Please go ahead. Your line is open.

Chris Darling: Thanks. Good morning. Bryan, I understand guidance may prove conservative, but if I look at what is implied for the rest of the year, it would seem to suggest flattish, maybe even slightly declining, margins. Can you put that outlook into context and talk about how you see expenses trending? And could you also elaborate on recent operating performance at the wine country hotels and your outlook for the rest of the year there?

Bryan Albert Giglia: In general, we see our expenses increasing 3.25% to 3.5%. First quarter was our biggest RevPAR growth quarter, and we had margin expansion. As we go through the rest of the year, we are endeavoring and planning to maintain or improve productivity, especially in the rooms department. Depending on where RevPAR shakes out, margins could be positive to slightly up, or maybe neutral, for the rest of the year. If we are conservative on RevPAR, we will have better flow-through and margins will tick up. Given implied RevPAR and expenses growing in the low-to-mid 3%, we will revise when we have another quarter under our belt, but this is the most prudent stance today.

On wine country, first quarter is the low season and the most challenged on occupancy. The key to profitability—really trying to get to breakeven in Q1—is the right amount of group business, which we have focused on. That group base comes at a lower rate but with higher ancillary spend. Both resorts worked very hard to get as much Q1 group on the books as they could, and they both had great group on the books this year. Transient demand was better than expected. While we had bad weather on the East Coast and in Hawaii, in California and wine country they had great weather in Q1, which helped. Going forward, both hotels have very good transient demand.

Four Seasons has very good group pace for the second half of the year; Montage has decent group pace and is a little farther ahead in establishing group business. We are doing more group room nights this year than ever before—about 55% of total occupancy—and would like to see that in the 60% to 65% range, which would be ideal for that asset. Luxury is outperforming, and combined with the improving demand we are seeing from the Bay Area that feeds up there, our outlook for both is very strong for the rest of the year.

Operator: Our next question comes from Ladenburg. Please go ahead. Your line is open.

Analyst: Following up on wine country, performance was a $4 million improvement in EBITDA relative to Q1 last year, which is pretty meaningful. As you think about dispositions, are those potential candidates, particularly now that the luxury market seems to be thawing in terms of financing availability? And a follow-up: operations are trending the right way, but guidance remains cautious. What are the outliers in terms of World Cup impact that could provide upside versus your outlook today?

Bryan Albert Giglia: I do not know if Marco Island is a direct comp for these two, but we have been clear: when we look at potential dispositions, we want to capitalize on private market values. Certain types of assets—luxury being one of them, and certain markets where there is a lot of interest—fit that. We do not comment on transactions before we have something to publicly say, but based on our actions in the past and the criteria I just highlighted, we are clearly out there exploring opportunities at all times to recycle assets and redeploy proceeds either into our common, our preferred, or, as conditions improve, targeted acquisitions. Monetizing low-yielding assets could be achievable right now.

There are a lot of luxury assets in the market now, including older portfolios coming back, so there is a lot of supply. Recycling and redeployment is a core tenet of our strategy, and we are focused on it. On World Cup, if it comes in stronger, that will add significant compression. Q1 had great transient demand. The next six months of transient bookings are up significantly across convention, urban, and resort hotels. Second-half group pace is very strong. Hotels are booking significant current-year and future-year business. All of that is strong. If World Cup comes in stronger, that is additional compression and benefit that will accrete to our performance.

The caution remains because events out there could impact the cost and demand of travel. We, like most peers, will remain cautious until we see those potential impacts alleviated.

Operator: Our next question comes from Logan Shane Epstein from Wolfe Research. Please go ahead. Your line is open.

Logan Shane Epstein: Thanks for taking the question. Last quarter you talked about government-related transient coming back to San Diego in the first two months of the year. Did that trend continue into March and April, and how do you expect that to impact both San Diego and D.C. for the rest of the year?

Bryan Albert Giglia: We saw the largest increase in transient demand in Long Beach in Q1—there is defense and other government-related business there. San Diego transient picked up; it was more negotiated and some discount, and the negotiated piece could be government-related via consultants and contractors. In D.C., we saw a little less government-specific, but strong transient driven by the rebranding to a Westin. We are picking up more corporate and retail accounts. Looking at our rate and occupancy index compared to pre-Westin, we are gaining share. While some of that is government-related—everything in D.C. is to some degree—what we are really seeing is the benefit of the rebranding.

Operator: Our last question comes from Chris Jon Woronka from Deutsche Bank. Please go ahead. Your line is open.

Chris Jon Woronka: Good morning, thanks for taking the question. On Andaz Miami Beach, you have talked about the rate story, but is there also a group story and more ancillary to come—how much is strictly rate versus group and other things that still need to happen?

Bryan Albert Giglia: Our target for group is about 25% for the hotel. This year we will run roughly 20% of the business as group, which is better than we anticipated. We have seen not only group volume, but the quality of group, continue to improve as we move throughout the year. Miami is a repeat market for both transient and group customers. The quality of group—whether it be at the end of the year for Art Basel or other major events—is improving. We did not really participate in that last year; this year we will have groups in, and next year we will probably have even better groups.

So while there is still occupancy on the group side, it is also a rate story. When Bazaar opens at the end of the third quarter into the fourth quarter, it will bring a level of energy and notoriety that will be a big catalyst for the overall rate of the resort. Everything has accelerated in the first quarter—group pickup, demand, and quality. As we move into next year, it starts to become more of a rate story, and there is a lot of space between our current rate and the market rate, which will be very meaningful to the hotel’s cash flow.

Operator: We have no further questions. I would like to turn the call back over to Bryan Albert Giglia for closing remarks.

Bryan Albert Giglia: Thank you, everyone, for your interest, and we look forward to seeing many of you at upcoming conferences. We also look forward to anyone that we have a chance to get through the new Andaz. We have had many tours, but are always available to show off this really remarkable resort. Thank you.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.