Sunstone Hotel Investors, Inc.

good morning ladies and gentlemen and thank you for standing by welcome to the sunstone hotel investors second quarter 2022 earnings call at this time all participants are in a listen-only mode later we will conduct a question and answer session and instructions will be given at that time i would like to remind everyone that this conference is being recorded today august 3rd 2022 at 12 o'clock pm eastern time i will now turn the presentation over to mr aaron reyes chief financial officer Please go ahead, sir.

Thank you, operator, and good morning, everyone. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our prospectuses, 10Qs, 10Ks, and other filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements. We also note that this call may contain non-GAAP financial information, including adjusted EBIT.RE, adjusted FFO, and property level adjusted EBIT.RE. We are providing that information as a supplement to information prepared in accordance with generally accepted accounting principles. On today's call, references to our comparable portfolio will mean our 13 hotel portfolio, which includes the confidant Miami Beach, but excludes Montage Hillsburg and Four Seasons Resort Napa Valley. Additional details on our second quarter performance have been provided in our earnings release and supplemental, which are available on our website. With us on the call today are Brian Gillia, Chief Executive Officer, Robert Springer, President and Chief Investment Officer, and Chris Ostapovich, Chief Operating Officer. Brian will start us off with some commentary on our second quarter operations and recent trends. Afterward, Robert will discuss the transaction activity we completed in the second quarter. And last, I'll provide a summary of our current liquidity position, recent refinancing activity, and a recap of our second quarter earnings results. After our remarks, the team will be available to answer your questions. With that, I'd like to turn the call over to Brian. Please go ahead.

Thank you, Aaron, and good morning, everyone. Overall, we are pleased with our performance in the second quarter as the growth that began in mid-February continued into the spring and early summer months. With accelerated corporate and group demand and continuing strong leisure travel, our portfolio generated its highest monthly occupancy since the onset of the pandemic. On the pricing side, our operators have remained disciplined in the revenue management approach and have maintained strong rates with nearly every hotel at or above 2019 levels in the second quarter. Our comparable portfolio achieved a second quarter average daily rate of $295, a 14% increase as compared with 2019. This is the highest quarterly ADR ever achieved for these hotels, driven in part by meaningful growth at our resort assets and by growing demand at our urban and group-oriented hotels. Our two wine country assets generated a combined second quarter ADR of nearly $1,350. We continue to be pleased with how these market-leading hotels are ramping up and the recognition they have received from numerous travel sites and publications. Including these two hotels, Our total portfolio generated a second quarter rev par of $237, made up of a $320 ADR at 74% occupancy. Non-room revenue continued to be a bright spot during the second quarter. We once again saw significant sequential growth in food and beverage revenue, which increased 74% from the first quarter for our comparable portfolio and is within 3% of 2019 levels. While our second quarter outlet spend continued to grow, the primary driver of the higher out-of-room spend in the quarter was increased banquet contribution from the group activity at our hotels. Banquet and AV sales per group room was $212 for the comparable portfolio in Q2 and surpassed the prior high water mark for this metric from Q4 2019. We also saw meaningful increase in destination and facility fee revenue as these programs have now been rolled out to most hotels. Including the out-of-room spend, our total portfolio generated an additional $134 of revenue per available room in the quarter for total rev par of approximately $372. Turning to costs, while the property teams have been successful in reducing certain operating expenses and achieving permanent cost savings, our operators have not been immune from the labor and other cost pressures that have been impacting our industry. We are seeing some moderation in wage growth, and we continue to support our managers in their efforts to benchmark best practices and drive efficiencies where possible. In addition to labor, other items such as food costs have also been rising, and we are in close coordination with our operators to ensure they are adjusting menu offerings and prices accordingly. Despite these cost pressures, our comparable hotels generated a combined EBITDA margin of 35% during the quarter, which is in a similar range to that achieved for the same quarter in 2019. If we exclude the two hotels in our portfolio with significant renovation activity in the quarter, our pro forma comparable hotel EBITDA margin was a very strong 36.8 percent. While we are very pleased with our operator's ability to deliver this level of profitability, Our focus is increasingly shifting to maximize portfolio EBITDA as the hotels return to normalized occupancy levels. Now shifting to segmentation. Our comparable portfolio generated 214,000 total group room nights in the quarter, and the group segment comprised roughly 42% of our total demand. This group room night volume represents a 66% increase from the prior quarter with average rates that were 7% higher than the same quarter in 2019. Group production for all current and future periods in Q2 was 197,000 room nights, which is consistent with the volume we put on the books in Q2 2021, but at a 40% higher rate. In terms of transient business, which accounted for roughly 51% of our total room nights in the quarter, comparable rate came in at $338 and was 24% higher than the pre-pandemic levels that we saw in the same quarter of 2019. Based on our second quarter performance and what we are seeing in July, we remain encouraged about the outlook for the remainder of 2022. Our recent trends reflect increasing lead volumes and strength in short-term booking activity with a higher contribution from corporate group events. Our group pickup in Q2 for the third and fourth quarters was nearly 170% of what was booked for the same time period in 2019. Group room nights for the third and fourth quarter 2022 are pacing at approximately 82% of pre-pandemic levels at an average rate that is 5% higher than 2019. This would imply that our overall group revenue pace for this time period is down only 15% from the same time in 2019. We have seen strong group booking activity in Boston and San Diego where active citywide calendars should allow us to take advantage of compression in those markets. The group outlook at our Hilton Bayfront has improved as the year progressed, and the second half of the year is down only 5% as compared to 2019, and the hotel's full-year EBITDA should finish higher than 2019. Boston has also shown solid growth on the transient side with increased demand from both leisure and corporate travelers. While San Francisco has been slower to recover, we are encouraged by positive recent trends in the market as well. Our second quarter occupancy at the Hyatt Regency San Francisco more than doubled year over year with rates higher by nearly 40%. Our newly renovated rooms are generating great guest feedback as they continue to come online. the city remains a supply-constrained, desirable long-term lodging market, and we expect it will continue on its positive trajectory as it catches up to the other major gateway markets. While the strength of the recovery has not been uniform across all markets and segments, we are increasingly seeing signs that travel patterns are normalizing. While leisure has led all segments, we expect increasing amounts of corporate and group travel to become a larger portion of demand as we head into the fall and that traditional seasonal patterns will increasingly reemerge. This is consistent with what we experienced in the second quarter with group and business transient strength in certain markets, as well as a higher degree of seasonality in the quarter as our recent wine country acquisitions moved into their peak seasons. our wine country resorts continue to ramp up nicely. And for the current year, we expect that they will generate approximately 80% of their combined full year earnings in Q2 and Q3 with a balance coming in Q4. As travel demand normalizes, we would anticipate the cadence of our quarterly profitability to also more closely resemble historical patterns with some adjustments needed for the current composition of our portfolio. Later, Aaron will provide some additional information on the historical distribution of our quarterly EBITDA to help put this into context. Based on what we see today, we expect that our comparable portfolios, percent growth, and average daily rate for full year 2022 as compared to 2019 could be in the high single digits. with full-year occupancy about 15 to 16 points lower than 2019, which is weighed down by the Omicron impact earlier in the year. Moving to our transaction activity, following the sale of three non-core hotels in the first quarter, we redeployed those proceeds plus additional capital in the second quarter into the purchase of the Confidant Miami Beach and the remaining 25% interest in the Hilton San Diego Bayfront. We are excited about these transactions and believe they will provide a combination of near-term cash flow from the Hilton San Diego Bayfront and long-term growth potential from the conversion of the confidant into the Andaz Miami Beach. We continue to employ a balanced approach to capital allocation and returning capital to our shareholders. In addition to deploying capital into hotel acquisitions, which we believe will create long-term earnings growth, we also deployed an additional $34 million into the accretive repurchase of our own shares during the quarter, which brings our total year-to-date repurchase activity to nearly $80 million at an average price of $10.92 per share, a meaningful discount to published estimates of NAV. Additionally, our board of directors approved a five cent per share common dividend for the third quarter. The reinstatement of our quarterly dividend is a product of our hotel earnings continuing to recover and the strength provided by our prudently levered balance sheet. While future dividends are always subject to expectations of earnings and liquidity, we believe we are well positioned to resume the same quarterly based dividend we had in place prior to the pandemic. To sum things up, as we move into the third quarter of 2022, we are encouraged by the recent trends we are seeing across our portfolio. We expect that our well-located urban and group-oriented assets will see continued growth in the coming quarters as demand for business travel and corporate events continues to catch up with the already robust leisure demand at our resort properties. Additionally, Sunstone continues to actively allocate capital, investing in our portfolio, recycling sales proceeds into new growth opportunities, and returning capital to our shareholders through share repurchase and dividends. We believe this is a winning formula that will provide long-term value to our owners. And with that, I'll turn it over to Robert to give some additional thoughts on our recent hotel transactions. Thanks, Brian. We are very pleased to have closed on two hotel transactions during the quarter, which further enhanced the quality and value of our portfolio. Starting with our value-add acquisition of the Confidant Miami Beach, this off-market transaction represents a compelling opportunity to acquire well-located, fee-simple, oceanfront real estate at an attractive purchase price and to utilize our in-house expertise and prior experience to renovate and reposition it as a premier beachfront resort under Hyatt's luxury lifestyle Andaz brand. The 339-room hotel sits on 1.5 acres and has a generous backyard. There is significant potential to enhance the property and transform its earnings potential. Post-repositioning, we expect the hotel to generate a very attractive 8% to 9% yield on our total investment and we will own a fully renovated oceanfront luxury resort at an all-in basis of $900,000 per key in a market where per-key valuations for similar assets are well in excess of $1 million. This is a type of investment we know well and have had great success with in the past. On the opposite coast, we also completed the acquisition of the remaining 25% interest in the Hilton San Diego Bayfront. This is a great group hotel in a premier convention market, and consolidating our ownership of this asset makes a lot of sense for us. The hotel continues to perform well, and with the addition of a redesigned restaurant and marketplace combined with a new 6,000 square foot waterfront meeting venue, we expect this hotel to continue to grow earnings as corporate meetings return. Our other two major renovation projects remain on schedule. The full rooms renovation at the 821 room Hyatt Regency San Francisco is slated to finish up in the fourth quarter. We have already begun selling new rooms and they look great. Work is also progressing on the conversion of the Renaissance Washington DC to the Westin brand. The meeting space has been completed and we are now in the process on the rooms renovation and lobby upgrade which are on schedule to wrap up during the second quarter of next year. While we will experience some displacement during the third and fourth quarters of 2022, these projects should provide meaningful growth next year, especially during the first quarter of 2023 when these large group hotels will be comping off of the Omicron impact from earlier this year. We are finalizing our next round of internal investments that will help to drive continued growth in the portfolio, and we will have more to share with you in the coming quarters. With that, I'll turn it over to Aaron.