Sunstone Hotel Investors(SHO) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The portfolio finished 2024 strong with full-year adjusted EBITDA at $230 million and adjusted FFO per diluted share at $0.80, both at the high end of guidance [33][36] - The company expects total portfolio RevPAR growth to range from 7% to 10% in 2025 compared to 2024, with adjusted EBITDAre projected between $245 million to $270 million and adjusted FFO per diluted share between $0.86 to $0.98 [36][37] Business Line Data and Key Metrics Changes - Group business performed well, with the Westin Washington D.C. Downtown achieving 30% RevPAR growth driven by an 18% increase in group room nights [16] - The recently acquired Hyatt Regency San Antonio Riverwalk saw group room nights grow nearly 7% in the quarter, with an 18% increase in banquet contribution [17] - The Marriott Long Beach Downtown showed solid early performance post-renovation, reinforcing the value created from better brand alignment [19] Market Data and Key Metrics Changes - Urban markets showed strength, with New Orleans hotels experiencing a 23% increase in group room nights, leading to nearly 20% combined RevPAR growth [18] - Boston hotels reported a 39% increase in group room nights, focusing on filling open patterns and driving occupancy [19] Company Strategy and Development Direction - The company is focused on three strategic objectives: recycling capital, investing in the portfolio, and returning capital to shareholders [8] - In 2024, nearly $100 million was returned to shareholders through dividends and share repurchases, with a disciplined approach to capital allocation expected to continue in 2025 [14][24] - The company plans to enhance its capital returns and continue investing in high-quality assets while maintaining a strong balance sheet and liquidity position [25][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2025, citing a compelling setup for total revenue growth and improved margins compared to the previous year [22] - The company anticipates a balanced distribution of quarterly growth in 2025, with expectations for RevPAR growth to accelerate in the second half of the year [38] - Management acknowledged challenges in the transaction market in 2024 but remains committed to disciplined capital allocation and exploring new opportunities [24][32] Other Important Information - The company invested $157 million into its portfolio in 2024, with ongoing renovations expected to yield earnings benefits [27][30] - The Andaz Miami Beach is set to open in mid-March 2025, expected to contribute $8 million to $9 million in EBITDA for the year [39] Q&A Session Summary Question: Demand segment assumptions within the 7% to 10% RevPAR guide - Management indicated that group performance is expected to remain solid, pacing above 10% for the year, with business transient strength and slight improvement anticipated [46][47] Question: Pace of wages and benefits increase in 2024 - Wages and benefits increased in the mid-fours in 2024, with expectations to be closer to the higher end of the 4% to 6% range in 2025 due to collective bargaining agreements [54][55] Question: Andaz EBITDA ramp in 2026 - The ramp for Andaz Miami Beach is expected to start at around 20% in March 2025, potentially doubling EBITDA in 2026 as occupancy increases [60] Question: Update on Napa assets and operational improvements - Management reported good EBITDA growth at Napa hotels, with ongoing efforts to optimize group mix and cost management [66][71] Question: Recovery in Maui and guidance range - Management expects solid group demand in Maui, with a potential lift in leisure in the second half of the year as recovery progresses [75][78] Question: Renaissance Orlando's future plans - Management noted that while Renaissance Orlando is not in the 2025 capital plan, they are open to exploring rebranding opportunities in the future [90][91] Question: Total expense growth baked into guidance - Total expense growth is expected to be in the 4% to 4.5% range, with higher wage growth anticipated [108][109]