Sunstone Hotel Investors(US:SHO)2021-11-05 22:16Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $167 million, a 43% increase from Q2 2021, driven by a nearly 10-point sequential increase in occupancy and a 13% increase in average daily rate (ADR) compared to Q2 2021 [16][43] - Adjusted EBITDAre for Q3 2021 was $35 million, marking a return to positive quarterly FFO for the first time since 2019, with FFO at $0.10 per diluted share [43] - Year-to-date, the company has eliminated nearly $11 million in costs from its hotels, which are expected to be lasting savings [21] Business Line Data and Key Metrics Changes - Comparable portfolio ADR was just over $248 in Q3 2021, higher than 2019 levels, with significant rate growth in markets like Key West, Orlando, New Orleans, and Wailea [17][29] - Hotel EBITDA margins for comparable hotels were 24.3%, below historical levels but a significant accomplishment given the occupancy rate of just below 55% [22] - Non-room revenue increased significantly, with food and beverage revenues up 79% compared to Q2 2021, contributing to a quarterly comparable RevPAR of $207, a 41% increase from Q2 2021 [20] Market Data and Key Metrics Changes - The company experienced strong leisure demand, particularly in July, with occupancy peaking at 84% during Labor Day weekend [23] - Group room nights increased marginally to 82,000 nights, with corporate group activity growing nearly 30% and association business more than five times higher than the previous quarter [24][25] - Transient demand accounted for roughly 75% of total room nights in Q3 2021, with special corporate room nights increasing by 103% from Q2 2021 [27] Company Strategy and Development Direction - The company plans to actively recycle capital and utilize leverage and tax attributes more effectively while maintaining a solid balance sheet [12] - Recent hotel transactions reflect a commitment to value creation through the sale of non-core assets and acquisition of long-term relevant real estate [11][39] - The company aims to enhance its portfolio quality and strengthen its balance sheet through strategic transactions [36][38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued growth in Q4 2021 and into 2022, despite challenges posed by the Delta variant [15][40] - The company expects strong demand for leisure travel to persist, with positive trends in group and business transient demand anticipated to accelerate [23][40] - Management is confident in the company's ability to achieve higher stabilized margins as demand normalizes [22] Other Important Information - The company has approximately $222 million in total cash and cash equivalents, with full availability on a $500 million revolving credit facility, equating to over $700 million in total liquidity [42] - The CEO search process is underway, with a commitment to finding a leader who can advance the company's strategy [13] Q&A Session Summary Question: Can you elaborate on the decision to terminate the previous CEO and what attributes the new CEO should have? - Management indicated that the board determined new leadership attributes were necessary to create more value, focusing on candidates with real estate and transaction backgrounds [55] Question: Is the company being marketed for sale during this leadership transition? - Management clarified that the board is focused on maximizing shareholder value and is actively searching for a new CEO to continue executing on growth plans [62] Question: How does the company underwrite pricing and ADR for leisure resorts? - Management noted that while current rates are high, they expect some stabilization in rates as occupancy grows, with a focus on long-term performance [64] Question: What is the current leisure versus corporate mix and future strategy? - The current mix is approximately 28% leisure and 36% business transient, with plans to increase the leisure component over time [72] Question: How has the company's view on NAV changed since recent transactions? - Management indicated that recent transactions have added value to NAV, and the overall growth of the portfolio is expected to continue to enhance NAV [76]