Sunstone Hotel Investors(SHO) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDAre for Q1 was $55 million, and adjusted FFO was $0.18 per diluted share, with an estimated $3 million of earnings displacement at the Marriott Long Beach Downtown due to its conversion [26][27] - Full year adjusted EBITDAre is expected to range from $242 million to $263 million, with adjusted FFO per diluted share projected between $0.84 and $0.94 [48][49] - The company anticipates total portfolio full year RevPAR growth to range from 2.25% to 5.25% compared to 2023, with a range of 4.75% to 7.75% when excluding the Confidante Miami Beach [39] Business Line Data and Key Metrics Changes - Convention hotels led the portfolio with over 7% RevPAR growth in Q1, driven by the newly converted Westin Washington DC Downtown, which saw rooms RevPAR grow by 52% and total RevPAR by more than 77% [15] - Group room revenue pace for the remainder of the year is up approximately 9%, with strong performance expected across Boston, DC, Orlando, Long Beach, and Wailea [20] - The company experienced a decline in leisure demand, but comparable resorts still generated profitability well ahead of pre-pandemic levels [14] Market Data and Key Metrics Changes - The acquisition of the Hyatt Regency San Antonio Riverwalk for $230 million is expected to yield 8% in the current year, which is higher than the previous returns from Boston Park Plaza [32] - The San Antonio market is expected to benefit from a $500 million redevelopment of the Alamo and a multi-billion dollar airport expansion, which should drive additional visitation [71][77] - The convention center in San Antonio has recently undergone a multi-million dollar upgrade, with positive citywide pace expected for 2025 and 2026 [73] Company Strategy and Development Direction - The company continues to execute on three strategic objectives: recycling capital, investing in the portfolio, and returning capital to shareholders, which is expected to drive incremental earnings and value over the next several years [23] - The company is focused on internal investments, including the transformation of Andaz Miami Beach, which remains on schedule for completion by the end of the year [13] - The strategy includes evaluating additional acquisition opportunities and maintaining significant investment capacity for future growth [22][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the outlook for 2024, expecting the headwinds faced in Q1 to shift into tailwinds, particularly in the second half of the year [8][20] - The company noted that improved labor productivity helped offset lower group mix and decline in average rates during Q1 [18] - Management highlighted that the recent investments and acquisitions are paving the way for significant earnings growth into 2025 [24] Other Important Information - The board of directors declared a 29% increase in the quarterly dividend to $0.09 per share, reflecting the incremental income generated by the acquisition of the Hyatt Regency San Antonio [30] - The company maintains a strong balance sheet with over $240 million in total cash and cash equivalents, and nearly $740 million in total liquidity [40][41] Q&A Session Summary Question: April RevPAR trends and prospects for acceleration in Q2 - Management indicated that April was expected to be a transition quarter, with slightly down RevPAR but anticipated growth in May and June as comparisons ease [54][55] Question: Insights on the transactions market and competitive landscape - Management noted that while the near-term deal flow has slowed, being a cash buyer positions the company favorably in the current market [66][67] Question: Supply-demand dynamics in San Antonio and historical performance - Management highlighted the strong demand drivers in San Antonio, including leisure and convention business, and expressed confidence in the investment's growth potential [70][74] Question: Capital deployment strategy and focus segments - Management emphasized a balanced approach to capital deployment, targeting hotels with significant group components and immediate growth potential [82][84]