Sunstone Hotel Investors(SHO) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDAre for Q2 2024 was approximately $74 million, and adjusted FFO was $0.28 per diluted share [20] - Full-year adjusted EBITDA is now estimated to range from $242 million to $252 million, with adjusted FFO per diluted share projected to be between $0.85 and $0.90 [22] - The company expects total portfolio full-year RevPAR growth to range from a decline of 25 basis points to an increase of 1.75% compared to 2023 [21] Business Line Data and Key Metrics Changes - Convention hotel RevPAR was nearly 7% higher compared to Q2 2023, driven by strong performance from the newly converted Westin Washington, D.C. Downtown, which grew RevPAR by 33% [8][6] - The Hyatt Regency San Antonio Riverwalk exceeded initial underwriting expectations, growing total RevPAR by 20% in the quarter [7] - The Four Seasons Resort Napa Valley grew total RevPAR by over 22%, while Montage Healdsburg saw a 470 basis points margin expansion [11] Market Data and Key Metrics Changes - Group pace for the second half of the year is up 17%, with 2025 Group booking activity trending up in high single digits [8] - The demand environment in Maui has been softer than expected, with both rates and occupancy lighter than projected [10] - In San Francisco, performance improved due to higher midweek transient demand driven by commercial activity [9] Company Strategy and Development Direction - The company is focused on three strategic objectives: recycling capital, investing in the portfolio, and returning capital to shareholders [15] - The company is optimistic about earnings potential moving into 2025, driven by completed and in-progress investment activities [5] - The company plans to enhance guest experiences through renovations and strategic investments in properties like Andaz Miami Beach and Marriott Long Beach Downtown [12][17] Management's Comments on Operating Environment and Future Outlook - Management noted that while the near-term outlook for industry revenue growth has moderated, many drivers of lowered expectations are seen as isolated or short-term [5] - The company remains encouraged by Group booking activity and anticipates a rebound in demand for Maui as tourism authorities promote the area [10][36] - Management expects the profitability outlook for the balance of the portfolio remains solid, despite challenges in specific markets [14] Other Important Information - The company has over $230 million in cash and cash equivalents, with total liquidity nearing $730 million [23] - The Board of Directors has authorized a base quarterly common dividend of $0.09 per share and has repurchased approximately $7 million of shares since the start of Q2 [24] Q&A Session Summary Question: Overview of value and path to close valuation gap - Management reviews value from multiple perspectives, including cash flow and relative multiples, and has been actively repurchasing shares to address valuation gaps [26][29] Question: Price sensitivity in leisure pricing - Key West has shown more price sensitivity, while Napa has successfully rationalized pricing to capture additional Group business [31][32] Question: Changes in assumptions for Maui in the back half of the year - Management noted that leisure demand moderated in Q2, but Group business is expected to pick up in September, with strong bookings for the festive period [34][36] Question: Mix of business for Andaz Miami Beach - The expected mix for Andaz is around 25% Group, with a focus on transient leisure bookings during the high-demand period [40][41] Question: Performance of Napa assets - Both Montage and Four Seasons in Napa are performing well, with strong Group booking activity and increased ancillary revenues [44][47] Question: Outlook for Orlando asset - The Renaissance in Orlando is expected to benefit from the new Universal Gate opening, with a focus on enhancing leisure offerings [53][55] Question: Transaction market and potential acquisitions - Management expressed disappointment in the pace of transactions but remains flexible with a strong balance sheet to pursue opportunities as they arise [57][59]