SHO earnings call transcript, November 6, 2026

Hotel investors third quarter earnings call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. I would like to remind everyone that this conference call is being recorded today, November 6, 2026 at 12pm Eastern Time. I'll now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator.

Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC. which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements. We also note that the commentary on this call will contain non-GAAP financial information, including Adjusted EBIT.RE, Adjusted FFO, and Hotel Adjusted EBIT.RE. We are providing this information as a supplement. to information prepared 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 Brian Giglia, Chief Executive Officer, and Robert Springer, President and Chief Investment Officer. After our remarks, the team will begin to begin to begin to begin to begin to begin to begin to begin to begin to begin to begin to begin to Again, the team will be available to answer your questions. With that, I would like to turn the call over to Brian, please go ahead.

Thank you, Aaron, and good morning everyone. The third quarter saw solid performance all around as better than expected industry fundamentals added to earnings growth generated from discipline cost controls at the corporate level and from our meaningful share repurchase activity. Our well-located portfolio benefited from broad-based strength across all segments and contributed to total portfolio REVPAR growth of 11.4%. Excluding Onda's Miami Beach, comparable REVPAR still increased by a very impressive 10.3%. The stronger-than-expected revenue performance allowed us to deliver nearly 9% growth in adjusted EBITDA compared to last year. Since the start of the third quarter, we repurchased an additional $130 million of common and preferred stock, bringing our year-to-date total to nearly $200 million of accretive buyback activity. This has not only helped to grow NAV, but also contributed to a nearly 18% increase in adjusted FFO per share this quarter and lays the groundwork for additional growth in per share earnings in 2027. I will share some additional thoughts on our capital allocation strategy shortly, but first, let's review some highlights from Q3 operations. For the fourth quarter in a row, our resorts led the portfolio with combined REVPAR growth of over 22%, including the benefit of Onda's Miami Beach. Wyolea Beach Resort delivered another impressive performance. as REVPAR grew nearly 27% in the quarter and total REVPAR increased almost 31%.

Thanks, Brian.

We've made solid progress on our 2026 capital plan delivering several key projects that should. position us for future growth. In San Diego, we completed a meeting space renovation earlier this year and are already seeing the benefits of that investment in our booking velocity. We expect to see significant revenue growth as we move into the. fourth quarter of this year and our 2027 group revenue pace is more than 10% higher compared to the same time last year. At Andaz Miami Beach, the properties transformation is now complete with the resort signature. dining destination bizarre me now open. We will conduct a formal grand opening celebration early next year to coincide with peak season, but initial response has been great with a variety of press and media coverage, bringing additional energy and awareness to the. Work is also underway on a room refresh and facade restoration at our recently converted Hilton Key West Resort and Marina. We are scheduling the work in phases through mid 2027 to minimize disruption and take advantage of. Peak demand periods this renovation work and the resorts new brand and manager affiliation are intended to drive incremental earnings as the property benefits from Hilton stronger distribution channels operating expertise and lower customer acquisition costs. Compared to its prior independent operating model. And last, we are moving into the final phase of remediation work at Wailea Beach Resort following the damage incurred from the storms that impacted the Hawaiian Islands.

Earlier this year. Work in the guest rooms and public spaces is complete and the roof and facade repairs are underway now so that we can have them done by the busy festive season. Well, this was not a project. That was on our to do list at the start of the year. Our team mobilized quickly to complete significant repair work while not disrupting the strong demand recovery we are seeing at the resort this year. While this work. Added several million dollars to our total capital investment in 2026. Nearly all of this incremental spend is being reimbursed by our insurance programs. We're working through our capital planning for 2027 and. We'll have more to share with you next quarter. As it stands now, we expect a significant portion of our capital spend for next year to be funded from existing FF&E reserves with a smaller contribution of owner capital relative. to prior years. With that, I'll turn it over to Aaron. Please go ahead.

Thanks, Robert.

or share moving forward. Before we conclude our prepared remarks, I'll turn it back over to Brian for some additional thoughts. Before we open the call to questions, I want to provide an update on our 2026 objectives and our progress towards them.

In July, we sold the Hyatt Regency San Francisco at attractive pricing of nearly 20 times trailing EBITDA, realizing a private market value that far exceeded its valuation inside our portfolio and a appropriately capturing the present value of its future growth. Importantly, we promptly redeployed most of the proceeds into the repurchase of common stock at a discount to both NAV and our current trading price and into the repurchase of performance. preferred stock at a 10 to 20% discount to redemption value. Our combined repurchases increased value in FFO per share while maintaining a leverage neutral balance sheet. At the same time, we retain additional capital and balance sheet capacity to deploy into the most compelling opportunities available to us. Looking ahead to 2027, the combination of embedded growth in our portfolio, reduced corporate GNA, lower fixed charges from preferred stock repurchases, a lower share count, and the remaining proceeds we have to deploy has increased our expected distributable income per share despite the earnings we forego from selling San Francisco. Take care. Taking all of that into account, we expect our 2027 quarterly dividend distribution requirement to be between 11 and 12 cents per share or approximately 20 to 30% above our 2026 quarterly distribution. This is based on what we see today, and we will revisit our 2027 dividend payout approach early next year.

superior long-term value for our shareholders. With that, we can now open the call to questions. Operator, please go ahead.

Hi.

Good morning, Brian.

Thanks for providing all that detail. I guess I wanted to ask my first question. Just a little more, if you could just discuss group pace, I guess, portfolio-wide for 27. I know you mentioned it for a couple of your assets, but what are you seeing so far for the whole group?

Yeah, we're up, morning speeds, we are up right now mid to, you know, high single digits right now. But when you look at the big components of that, and you look at especially one of the hotels that has, you know, struggled this year on the group side, which we knew going into it is San Diego is one of the big ones that has, you know, meaningful. over, you know, 10% growth while a also has significant growth and then also San Antonio and DC. So when you look at our largest hotels from both a top line and. And then the the ancillary spend and the margin impact you'll get, those are those are big movers for the portfolio and will benefit the portfolio next year.

Thanks. And then I guess. Wanted to ask sort of along the same lines, I feel like a focus on this quarter's cause has been kind of issues or expectations run flow through. And some of the feedback has been that higher transient driven occupant. These have driven up variable costs and maybe impacted some of the flow through. It sounds like in your remarks, you anticipated kind of a more normal segmentation for next year. But could you maybe talk about that a little bit and maybe what some of the margin implications? are for the portfolio? Sure. So for starting with the group hotels first, both San Diego and D.C. that had a weaker group pace for this year, 2026. We were able to partially backfill a good portion of that with transient demand because short-term transient demand year to date and looking forward for the next six months continue. It used to be very strong. That was able to backfill some of that demand, but then hotels that typically do larger group percentages of their overall revenue, San Diego and D.C. specifically, they become less efficient. And so, you know, banquets is a big piece of that, meeting room rental, AV, and those are all more profitable than what the transient guests will spend. So that was a portion of the flow through. That we will see both San Diego and DC revert back to their normal, more normalized segmentation next year. So that's a tailwind for margins. And then for this year also,

there were some tougher comps to 2025. So we had some real estate tax credits. We also had a lot more cancellation and attrition in 2025, which has a better flow through. So that is something we won't have to compare to next year. And then we had across the portfolio, you know, you look at YLA specifically, large pickups and occupancy. And so as we look at transients. And bookings going forward and even some of the group bookings going forward. While this year occupancy was a bigger component of it, next year rate will be a bigger component. So that will also benefit. And then last, even though YLA is having a phenomenal year and the year we talked about and expected with regaining its position on the island, you know, third quarter. They didn't do damage to the hotel like we had in the second quarter, but there were several storms that moved through Maui. And so each one of those has its own level of disruption. And then on the repairs and maintenance, landscaping, clean. Not there. There's a lot of costs running through the PNL that we won't, hopefully will not have next year.

Thank you. Appreciate it.

Your next question comes from Connor Peaks with Wells Fargo.

Your next question comes from Dwayne Fenningworth with Evercore ISI. Your line is open. Please go ahead.

your next question comes from david katz with jeffries your line is open please go ahead

uh hi good morning afternoon everyone where you're sitting uh i think you've talked about this a bit and so if i'm triple clicking on it i think it's it's worthwhile you made a mention about orlando and booking pace i believe plus 40. and broadly on the portfolio group booking pace um was it 10 right can you just go back through what the drivers of that are and and and just make sure that we're getting that right group revenue pace is more than 10% higher I think is um what you said and and and we're specifically in the portfolio that is you know that we can sort of point to thanks. And so for total group pace we said mid to high single digits for the entire portfolio. The 10% you referenced I believe was San Diego. So let's just why don't we start with the building blocks for next. And then double back and good morning David. So when we look at where the how the portfolio is positioned next year both from a top line and a margin standpoint we can start with where the most. That comes from and that would be our large group hotels. So like I said the our our group pace is up mid to high mid single digits. Looking at the specific hotels. San Diego is up 10 percent in in group pace while is up in the 20s and then our larger group hotels in San Antonio and D.C. are both up meaningfully. So those, you know, looking at the EBITDA generation just between those hotels, that's that is a a big plus to not only top line growth next year, but at the group.

hotels, San Diego and DC specifically to really get that ancillary revenue and right size their their margin performance. When we look at transient pace, transient paces up and this is transients a shorter window. So it's the next six months. Transient pace is up 9% for the portfolio. That is pretty much all rate. And it's it's really across the board. You know, certain hotel. House maybe are have, you know, if they have a lot of group on like San Diego, the transient pace might be down a little bit, but really that's building on the occupancy that we built in 2026 going to rate in 2027 that should be. very beneficial for our margin growth also, and we've seen, and probably the biggest surprise this year has been that transient demand and how broad based it is. It's not just the leisure. It's business transient. And it's throughout the portfolio. Then one-offs for next year is for growth. You have OnDoz. So OnDoz. We expect significant growth. We have significant growth this year. As it ramps up, it will continue to provide additional growth to the portfolio next year. So I think those are the major building blocks. And then, you know, on top of that, our market. markets are, you know, have a great supply picture for the next several years, you know, at or around historically low levels of supply in the majority of all of our markets. And then from a, from a. earnings perspective, you've got the full year benefit of our share repurchase, which will will be fully annualized next year, which will help. And then also our balance sheet capacity and additional liquidity we.

the San Francisco sale to go to redeploy. So I think all those together, you look at, you know, we're pretty well positioned for 2027, you know, and having. Our largest hotels with the best growth is a is a good formula for the next 12 months. Okay, I appreciate every bit of that. I just want to just want to confirm one. I thought what I heard on Orlando was group pacing plus 40. Is that the right? Did I hear that right?

Hey, David.

It's Aaron. The metric that we're referring to is quarterly group. A new production. And so you did hear that right at 40%, which is a great indicator of booking velocity there. Just to note that quarterly booking patterns can fluctuate as you move from year to year. But it's certainly nonetheless a good story of what we were seeing in Orlando. But beyond Orlando. Year to date, we're having our best. We're having the best production year we've had in in a decade. And so all like, you know, all of the group hotels are our booking business. Part of that into 27, part of it beyond 27. But as far as when you look at all the different, you know, different segments, transient has is great pace. Booking into into the next six months. Group is booking into the out years and booking at a rate more than we've seen in the last several years.

Your next question comes.

Thanks.

Good morning, guys.

Morning. Two parts here. I'll hit the first part here. In terms of the buybacks and the step-up there, how much of that was due to fundamentals getting better and you getting ahead of that versus you not seeing attractive enough acquisition opportunities? What are the puts and takes that you were thinking about there?

Good morning, Mike.

I think it's the, you know, when we look at our, we have, you know, we have proceeds from San Francisco and while we need to make the best capital allocation decision with those and we don't have to, you know, do something immediately. We also, we are also aware of the cost of that. that cash sitting on the balance sheet for an extended period of time. And quite honestly, when we looked at our portfolio and we looked at where we saw things going and mine with where we've guided things going is that we felt that. The value in our own shares compared to what was available and where current pricing was in the market was just too big of a discount that it would be very difficult to make that up through it. A hotel acquisition. And so I think we were measured and still didn't deploy everything, but between the combination of common and preferred and then having some capital left to deploy, we were able to, you know, on a stabilized basis buy back our stock, probably, you know, close to a, you know, mid eights to nine cap. um, for the stabilized portfolio and, and do that on a leverage neutral basis that we believe that that was the superior allocation of capital got it understood and then just one more on transactions. Sounds like maybe volume might not have been the best, but, but perhaps getting directionally better. What did you see in terms of pricing expectations, underwriting returns, how have those been trending?

And if you're seeing any changes in seller expectations or the bid asks. Thank you. Yeah, I think you're seeing a little bit of a convergence on the bid ask, right? But I, you know, it depends. And some of the larger deals we've seen, the pricing seems a little bit, you know. More reasonable, but sometimes that's for specific reasons, whether it's a structural, you know, issue with the hotel or some reason. There's usually always a reason for the pricing. You know, I think as we see in that, call it $50 million to $200 million range, there were very few deals. And I think that those were more of a seller's market for that type of hotel, if you could. If something that's, you know, relatively, you know, needs not a lot of capital, is in a good market, is in a, you know, a good labor market. Those are, were highly desirable and for, you know, for whether it be REIT or private equity, those were bite-sized deals that I think investors wanted and were willing to do. And then so those were a little bit fewer and far between in the quarter. My hope and what I think we've seen a little bit now is we're trying to see more of those. And as there's more capital out to deploy, that should bring more of these to the market and, you know, call it in that, you know, a cap range.

Your next question comes from Chris Waronka with.

Hey guys.

Good morning.

Thanks for taking the question.

Um, I was hoping we could circle back for just a minute on kind of the mix dynamic that I think affected you in Q3, where you. Uh, had more transient and it may have been at a pretty good rate, but you didn't get the group with, with all the higher margin ancillary. Is that something you contemplated at the beginning of the year or was this more of the. Shorter in kind of groups that, that didn't fill in just trying to square it all up. Cause it, it, um, you're not the only effect that all your peers as well, it just seems like a little bit of an odd dynamic that unfolded. Thanks. Um, morning, Chris. Yeah, I mean, this is something with, you know, with San Diego, you know, one, two years out where your group sits. So that was something that we were, we were aware of DC also, um, aware of it going. Into the year, I think where we were a little bit surprised. I mean, we were a little bit more concerned and where we were, we were pleasantly surprised is that the transient demand, um, was greater than we thought, but you're, you're exactly right. When that transient customer does not spend with the group customer. does at those hotels. And so I, while I don't know if this was a, um, you know, other markets had strong group quarters and strong citywide. So I don't know if it was, this is an industry thing or what we'll, what we obviously focus more. is our specifics of our portfolio. And so for us, this was something we knew going in, um, and we knew that it would be, it would be a tougher year on the margin front of these larger hotels. I think on, on Yalea, we were a little bit surprised.

uh, at the amount of, of shorter term transient demand. So that, that's a plus. And, and that, that's something that was, um, you know, it came up in the year. Uh, the other thing in YLA is we weren't expecting the number. storms we had. And, you know, typically during the hurricane season, you're focused more on the Atlantic than the Pacific, but that was the opposite this year. And so that cost associated with each one of those that came through is, you know. Even with little damage or no damage, it's still a couple hundred thousand dollars each time of cleanup and other work. So, you know, I think to answer your question, most of it we expected, and most of it is our expectation is that it will reverse itself next year. So I think that we're in a good position going forward. Okay. Okay. Fair enough.

Thanks for all the detail, Brian. Just quick follow up on Miami. I'm looking out a little bit here now. I think the Grand Hyatt Convention Center opens in the fall of 27, I believe. Do you guys anticipate any impact, good or bad, from having a, you know, I know it's in a different neighborhood and it's convention oriented, but it's a, you know, it's a Hyatt family. Is there anything to think about? Or do you guys expect any, I would think, benefit from having another distribution there? Yeah, I mean, the distribution, the distribution is absolutely beneficial. I think that it's. It's a very different product. So from a, you know, from a redemption and the Hyatt system from the world of Hyatt, it's a very, that's a very different stay. So I don't see a lot of impact from there. You know, look, is there a chance that, you know, for a convention that some of the higher, you know, rated guests might want to stay at the beach? Absolutely. So that's, I think that that's a plus and having that in the market is a plus. And then hopefully, you know, while it's not done and we're not at this point yet, but hopefully from the cost side, there'll be some, you know, some complexing and some other things that we can do with Hyatt too. To help on the cost front. So overall, I think it'll be a positive.

Your next question comes from Michael Herring with Green Street. Your line is open. Please go ahead.

The last question this afternoon comes from Michael Hirsch with J.P. Morgan. Your line is open. Please go ahead.

Hi, thank you for taking my question. Regarding expense growth, are there any specific markets you'd call out as seeing above average cost pressures? And what is your early view on 2020? 7 wage and expense growth? Okay, on the cost side, your urban markets are going to have higher wage. and benefits cost, typically. You know, looking at salaries and wages for next year, it should moderate a bit. from where we are this year. Um, I don't think there's going to be as much pressure on it. Um, and so, you know, if we're labor, this year's kind of running at the four to 5%, uh, um, you know, we should, you know, my expectation would be at the lower end of that. Um, and then I think where we can pick up on that is, is on the productivity side. And while we are in the very early stages and our, our, our managers have been. Investing, you know, I do think that there is a chance that we start to see the beginnings of some, of some of their AI investment help in probably the early stages that will be productivity. Scheduling, you know, that is probably one of the first steps. So hopefully next year we should be able to start to see some offsetting of some of these costs. By making sure that things are scheduled and we get more productivity out of the different departments. Looking at other costs, I mean, probably the biggest cost that's, you know, has been a bigger expense this year than anticipated is energy.

So energy is something that is a little bit, you know, out of our control. You know, we've, we've made improvements where we, we can with solar in, in Wailea. But we, you know, that's something that we'll, you know, we'll have to manage going forward, but is, is somewhat out of our control. Insurance property taxes are. We're all kind of stabilized at this point. Um, so those, those shouldn't be really, um, an impact on next year. Yeah, what I might just add to that is maybe just to pick up on something. Uh, hey, Michael, Terry, I'm gonna give you a little, a little more color. Particularly on the property tax side, you know, we had, um, a number of favorable outcomes that benefited us in 2025, you know, we'll have property tax appeals and process and pretty much every municipality and jurisdiction that we operate in. It's just hard to pick the timing, um, and. And the velocity, which with those will come. And so 2026 was that with a quieter year for us on the, on the appeal front. Um, but I think that sets us up a little bit better as we move, um, into 2027 that we have an easier comp and hopefully we, we get a couple of. appeals across the line as well. So I think that that should overall be, be helpful for a, uh, from a flow through perspective as we move into next year.

Yeah, that's helpful context. Appreciate that. And just a quick follow up on a key West, I believe rep. was down like 10% in the quarter. So just quickly your expectations on this, uh, asset going forward would be helpful. We're rebranding and renovating right now. So there's displacement there. Um, you know, we, we put the, um, we rebranded it to Hilton Key West. Hilton is in as the manager. Uh, we have, and the assets is several buildings. Um, so we've, we're working through the renovation right now. Um, you know, so the, the REVPAR is a reflection of that displacement. Uh, our expectations with the Hilton reservation system and what we've seen on the rate side so far, uh, we think that, you know, we'll start to see some of that recover as we get into next year. Uh, but the renovation will run, there'll be some, some renovation running into next year. Um, but we're, our expectations is then that will, will normalize back to, um, you know, where.

There are no further questions at this time. I'll now turn the call back to Brian Gillia for closing remarks.

Uh, thank you everyone for your, uh, your. Time and interest, and we look forward to seeing many of you at upcoming, uh, conferences and, uh, property tours. Thank you.

This concludes today's call.

Thank you for attending.

You may now disconnect.