Sunstone Hotel Investors(US:SHO)2022-11-08 20:32Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 was $64 million, and adjusted FFO was $0.24 per diluted share, reflecting continued strength in leisure travel and growing corporate and group demand [50] - The comparable hotel portfolio generated an EBITDA margin of 30.4%, only 140 basis points below the same quarter in 2019, despite 13 points lower occupancy [22] - Year-to-date rate growth for the comparable portfolio was at 14% relative to the same period in 2019, indicating strong pricing power [53] Business Line Data and Key Metrics Changes - Comparable average daily rate (ADR) was $288, an 11% increase from last year and a 16% increase compared to 2019 [11] - Non-room revenues were strong, with food and beverage revenue exceeding 2019 levels, and banquet and AV sales per group room increased by 17% compared to 2019 [14] - The group segment comprised roughly 35% of total demand, with group room nights volume at approximately 85% of historical amounts [23] Market Data and Key Metrics Changes - San Francisco led the portfolio in rate growth, with a 69% RevPAR increase compared to 2021, indicating a positive recovery trend [12] - The total portfolio generated a RevPAR of approximately $343, with the comparable portfolio achieving a total RevPAR of $317, exceeding 2019 levels for the first time since the pandemic [18] - Business transient travel is returning, with corporate negotiated revenue up 36% at Renaissance Long Beach compared to 2019 [25] Company Strategy and Development Direction - The company is focusing on maximizing portfolio EBITDA as hotels return to normalized occupancy levels and is actively allocating capital for growth opportunities [22][35] - Strategic investments include renovations and repositioning of properties, such as the Confidante Miami Beach, which is set to be transformed into the Andaz Miami Beach [38] - The company plans to continue share repurchases and dividends, returning over $120 million to shareholders this year [34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery trends across the portfolio, particularly in urban and group-oriented assets, as demand for business travel continues to grow [35] - The company anticipates that the comparable portfolio occupancy will likely finish the year down 15 to 16 points compared to 2019, skewed by the Omicron impact in Q1 [52] - Despite cost pressures, management remains confident in achieving higher-end performance expectations for the remainder of the year [32] Other Important Information - The company incurred approximately $600,000 in expenses related to restoration work from Hurricane Ian, with an estimated $2 million in displaced revenue due to cancellations [30][55] - The company has approximately $168 million in cash and cash equivalents, with total liquidity nearing $670 million [48] Q&A Session Summary Question: When do the wine country properties start to yield meaningful returns? - Management expects the wine country resorts to achieve a 6% to 7% NOI yield by 2025-2026, with significant group business growth anticipated [68] Question: What is the renovation timeline for the Confidante? - Major construction for the Confidante is expected to start in the second half of next year, with the hotel projected to breakeven during the high season [75] Question: Update on capital allocation strategy? - The company aims for a balanced approach between internal capital investment, capital recycling, and returning capital to shareholders, with a focus on share repurchases [81] Question: How does leverage relate to capital returns? - The company is currently at a leverage level of approximately 3.5x, which provides capacity for share repurchases and acquisitions while maintaining a conservative profile [86] Question: Any plans for dispositions in the portfolio? - Management indicated that any asset could be disposed of if it no longer meets investment criteria, but the current portfolio is solid and provides optionality [92]