Sunstone Hotel Investors(US:SHO)2022-02-23 21:26Financial Data and Key Metrics Changes - Total revenue for Q4 2021 was $174 million, a 3.9% increase from the prior quarter, marking the highest quarterly revenue since the pandemic began [20][58] - Adjusted EBITDAre for Q4 was $31 million, while adjusted FFO was $0.08 per diluted share; for the full year, adjusted EBITDAre was $67 million and adjusted FFO was $0.04 per diluted share [59] - Comparable portfolio occupancy was 55.6%, a 150 basis point increase from the prior quarter [20] Business Line Data and Key Metrics Changes - Resort hotels in Wailea and Key West achieved record profitability due to strong leisure demand, while urban hotels faced challenges [11][12] - Comparable portfolio ADR (Average Daily Rate) was $246, 50% higher than Q4 2020 and just above Q4 2019 levels [21] - Food and beverage revenue increased by 33% from Q3 2021, with banquet sales per group room rising 45% from the prior quarter [26][27] Market Data and Key Metrics Changes - Group segment accounted for roughly 25% of total demand, with nearly 100,000 total group room nights in Q4, a 32% increase from Q3 [36] - Group room nights for Q1 2022 are pacing nearly 20% higher sequentially from the prior quarter, despite some cancellations due to the Omicron variant [40] - Transient activity accounted for approximately 70% of total room nights in Q4, with comparable transient rate at $253, reflecting a 3.3% increase from pre-pandemic levels [42] Company Strategy and Development Direction - The company is focused on capital recycling and has completed nearly $500 million in transactions recently to enhance portfolio quality [12][52] - Plans to invest between $130 million and $150 million into hotels in 2022, focusing on enhancing value and future earnings potential [50] - The CEO search process is in the final stages, with a focus on identifying candidates who can advance the company's strategy and create shareholder value [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about significant earnings growth in 2022, driven by a recovery in group demand and business travel [53][54] - The company anticipates that group demand will become a more meaningful component of total room nights, returning to pre-pandemic distribution levels [41] - Despite challenges from the Omicron variant, management noted improvements in booking activity and a positive outlook for the recovery of hotel demand [47][48] Other Important Information - The company has eliminated nearly $14 million in annual costs since the pandemic began, which are expected to be sustainable even as business levels increase [29] - The company recognized $2.6 million in restoration expenses and a $1.7 million impairment charge due to hurricane damage at two hotels [60] - The company ended Q4 2021 with approximately $230 million in cash and cash equivalents, with significant capacity for additional capital allocation [57] Q&A Session Summary Question: Update on CEO search process and potential strategic alternatives - Management indicated that the CEO search is in the final phases, with a conclusion expected within two months [65][66] - The board is continuously evaluating how to create shareholder value and is confident in the company's positive trajectory [67][68] Question: Thoughts on aggressive disposition of assets - Management is evaluating the portfolio asset-by-asset and is committed to holding meetings at hotels to understand market conditions better [71][72] - Several assets are currently under consideration for disposition, with plans to maximize cash flows and value [73][74] Question: Optimism on acquisitions and redevelopment - Management remains optimistic about finding good acquisition opportunities despite a higher cost of equity [89] - The focus will be on balancing internal investment opportunities and potential acquisitions [95][96] Question: Expectations for multiple acquisitions and share repurchases by year-end - Management indicated that while they cannot predict specific outcomes, they are positioned to execute on acquisitions if opportunities arise [101][102] - The company is actively looking at both on-market and off-market transactions [104] Question: Clarification on RevPAR expectations for 2022 - Management acknowledged that January saw a decline in RevPAR but expects a rebound as group contributions increase in the coming months [109][110] Question: Wage costs and inflationary pressures - Management noted that the ability to pass on wage increases to guests will depend on hotel type and occupancy levels, but rates remain strong [112][114]