Release Date: May 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sunstone Hotel Investors Inc (SHO, Financial) reported solid out-of-room spend and strong cost controls, aligning with expectations despite challenging industry comparisons.
- The acquisition of the 630-room Hyatt Regency San Antonio Riverwalk is expected to provide superior near-term growth and diversify cash flow without significant disruption or capital costs.
- The newly converted Westin Washington, D.C. downtown showed significant growth, with first quarter EBITDA $4 million higher than the same period in 2023.
- The Board of Directors declared a 29% increase in the quarterly dividend to $0.09 per share, reflecting the incremental income generated by recent acquisitions and repositioned hotels.
- Sunstone Hotel Investors Inc (SHO) maintains a strong balance sheet with over $240 million in total cash and cash equivalents, providing significant liquidity and investment capacity.
Negative Points
- The first quarter faced challenging industry-wide comparisons, making it difficult to achieve top-line growth.
- Ongoing renovations at Andaz Miami Beach and Mariana Long Beach downtown led to earnings disruptions and displacement costs, impacting short-term profitability.
- Leisure demand moderated during the quarter, with comparable occupancy up marginally but with rates down from previous robust levels.
- The company incurred $3 million of earnings displacement at the Marriott Long Beach downtown due to conversion-related disruptions.
- Full year earnings disruption estimated between $13 million to $15 million due to significant transformation projects, impacting short-term financial performance.
Q & A Highlights
Q: Can you comment on April RevPAR trends and any prospects for acceleration in Q2, especially considering the weather challenges?
A: Aaron Reyes, CFO, noted that Q2 is expected to be a transition quarter with easier comparisons as the year progresses. April ended the period of tougher comparisons from early 2023, with RevPAR slightly down but in line with expectations. Bryan Giglia, CEO, added that Q3 and Q4 are expected to see significant growth with strong group business and improving transient booking patterns.
Q: What are your expectations for longer-term CapEx beyond 2024?
A: Bryan Giglia, CEO, mentioned a move towards a more normalized level of capital expenditure, including routine renovations. This approach aims to minimize disruption while maintaining the quality and competitiveness of their properties.
Q: Could you discuss the transaction market dynamics as you assessed opportunities, particularly your decision to acquire from Hyatt again?
A: Bryan Giglia, CEO, explained that the transaction market was quiet when they decided to redeploy capital from the Boston Park Plaza sale, leading them to work with known partners like Hyatt. The market has since picked up, but they benefited from being a cash buyer during a less competitive period.
Q: How has the marketed transaction market changed recently, and what are your expectations moving forward?
A: Bryan Giglia, CEO, observed that the marketed transaction market accelerated at the beginning of the year but has faced recent slowdowns due to Treasury movements. However, Sunstone's position as a cash buyer continues to provide advantageous opportunities in this fluctuating market.
Q: Can you provide insights into the supply and demand dynamics in San Antonio, especially concerning your recent acquisition?
A: Bryan Giglia, CEO, and Robert Springer, President and CIO, discussed the strong location of the Hyatt Regency San Antonio, its proximity to major attractions like the Alamo and the Riverwalk, and positive citywide convention pace. They expect the hotel to benefit from regional dynamics and ongoing developments, contributing positively to their portfolio.
Q: What are your capital allocation strategies, particularly regarding the balance between acquisitions and share repurchases?
A: Bryan Giglia, CEO, emphasized a balanced approach to capital deployment, focusing on acquisitions that offer better returns and maintaining portfolio balance. While share repurchases remain an option, the primary goal is to enhance portfolio quality and earnings potential through strategic acquisitions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
