Sunstone Hotel Investors, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors' first quarter 2024 earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at the time. I would like to remind everyone that this conference is being recorded today, May 6, 2024, at 12 p.m. Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer, please go ahead, sir.

Thank you, operator. 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 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 the commentary on this call will contain non-GAAP financial information, including adjusted EVA.RE, adjusted FFO, and property level adjusted EVA.RE. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings relief and supplemental, which are available in the investor relations section of our website. With us on the call today are Brian Giulia, Chief Executive Officer, Robert Springer, President and Chief Investment Officer, and Chris Ostakovich, Chief Operating Officer. Brian will start us off with some highlights from our first quarter, including commentary on operations and recent trends. Afterwards, Robert will discuss our capital investment activity. And finally, I will provide a summary of our first quarter earnings results and share the details of our updated outlook for 2024. After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Brian. Please go ahead.

Thank you, Aaron, and good morning, everyone. We knew coming into the year that Q1 was going to be the industry's most difficult year-over-year comparison. Despite this, our portfolio performed in line with expectations driven by solid out of room spend and strong cost controls, both at our hotels and at the corporate level. As the year progresses, we expect the quarterly comparisons to become more favorable and combined with our strong group pace for the remainder of the year, the first quarter headwinds should shift into a tailwind, especially the second half of the year. During the quarter, We executed our strategy of recycling capital and announced the acquisition of the 630-room Hyatt Regency San Antonio Riverwalk, redeploying a portion of the proceeds from the sale of Boston Park Plaza into a more productive investment that will provide superior near-term growth without the disruption or capital costs we would have incurred with continued ownership of Park Plaza. The Hyatt Regency is one of the best located hotels in the city, situated in the heart of the Riverwalk, at the front door of the Alamo, and steps away from the Convention Center. Our premier location allows the hotel to benefit from an attractive combination of group and transient demand in a market that continues to experience positive demographic shifts, increasing hotel demand, and a business-friendly backdrop. The acquisition fits squarely within the investment parameters we had previously identified and will immediately contribute to our earnings, diversify our cash flow, and provide additional growth opportunities in the future. The acquisition will add to the growth generated by the second component of our strategy, which is the internal investment we have made and continue to make in the portfolio. During the first quarter, we benefited from the ongoing ramp-up at the newly converted Westin Washington DC downtown. First quarter EBITDA at the hotel was over $4 million higher than the same period in 2023, and we expect to see continued outsized growth for the remainder of the year, albeit at a more moderate pace, especially when the hotel comps over its conversion during the fourth quarter. we are very pleased with our initial performance in DC. Our investment thesis was that the incremental spend to convert our former Renaissance to a Westin would generate positive returns by capturing a better share of transient customers and attracting higher quality groups. And this is exactly what we are seeing in the initial quarters and in our forward booking patterns. We are looking to replicate this same performance on the other coast where our latest conversion officially became the Marriott Long Beach downtown at the end of March. Because of permitting and other delays, we incurred some incremental displacement, but this is behind us now and the project should be wrapped up next month. The hotel is receiving a positive response from travelers and meeting planners which has added to our confidence that the Marriott flag will deliver superior returns by allowing the hotel to better compete in the market. Looking to our next phase of internal growth, the transformation of Onda's Miami Beach remains on schedule to be delivered at the end of the year. As planned, we temporarily suspended operations at the resort in late March to facilitate the fastest construction schedule possible. Even at this accelerated pace, comprehensive value-creating projects like these result in short-term earnings disruption. We are looking forward to having the disruption in our rearview mirror, which is now only a few short months away. As we look forward, we believe the ONDAS Miami Beach will provide a significant layer of incremental growth on top of the contribution from the recently acquired Hyatt Regency San Antonio and the embedded earnings potential of our newly converted Westin in Washington, D.C. and our new Marriott in Long Beach. The combination of internal and external investment will provide additional layers of growth as we move into 2025 and beyond. The last component of our strategy is the return of capital to our shareholders. our board of directors declared a 29% increase in our quarterly dividend to $0.09 per share. The increase reflects the incremental income generated by the acquisition of the Hyatt Regency San Antonio and the anticipated contribution from our repositioned hotels that should generate incremental funds for distribution over the coming quarters. Now shifting to our quarterly results, As I noted at the top of the call, we were pleased with how the portfolio performed in the first quarter relative to our expectations, especially given the challenging industry-wide comparison. Similar to what we saw in the last few quarters, group business performed well, corporate travel continued to recover, and leisure demand further moderated, although our comparable resorts still generated profitability well ahead of pre-pandemic levels. Our convention hotels led the portfolio with over 7% rev par growth in the quarter, driven by our newly converted Westin Washington DC downtown, which grew rooms rev par by 52% and total rev par by more than 77%. We continue to be encouraged by the trends at our urban hotels, which excluding Long Beach due to its renovation, grew REVPAR by nearly 4% and benefited from occupancy gains as business travel continues to move higher. Marriott Boston Long Wharf turned in another solid quarter, growing total REVPAR by nearly 15%, driven by strong corporate demand and a solid mix of group business. Leisure trends continue to moderate in the quarter with comparable occupancy up marginally, but with rates down from the very robust level seen in recent years. Our performance at Waialea also reflects the rotation of a large group event that was out of the market this year, but will be returning in 2025. Wine country was also impacted by a particularly cold and wet first quarter which contributed to further market-wide softness. We are focused on driving group business and generating ancillary revenues at both montage and four seasons, which is reflected in their total rev par performance in the quarter, and that partially offsets their lower rooms revenue, resulting from weaker leisure demand in the market. While we cannot control when leisure demand will accelerate, We can continue to work with the resorts to build a base of group business and control costs so that we can maximize profitability when it does. Our efforts are showing in stronger bookings at these resorts, with group room nights pacing nearly 13% higher for the remaining quarters of 2024. We knew coming into the year that the first few months would have challenged top-line growth and so we have been working with our managers to mitigate costs and offset inflationary pressures. Improved labor productivity in the first quarter relative to the prior year helped to offset the lower group mix and decline in average rates. Our margin performance during the quarter was impacted by our renovation activity in Miami and Long Beach. Excluding these two hotels, our margin was down only 170 basis points, even with minimal top line growth and the impact of our higher property insurance costs, which speaks to the efforts of our operators to be disciplined in their cost management efforts and to drive efficiencies where possible. As we look ahead into 2024, we are encouraged about the outlook for the year, which benefits from our recent investments and begins to pave the way for the next layer of growth in the portfolio. Comparable portfolio group room revenue pace for the rest of the year is up approximately 9% with broad-based strength across Boston, D.C., Orlando, Long Beach, and Waialea. Transient booking patterns remain short-term, but the recent week-over-week pickup for May and June is exceeding that of last year. While it remains early, We are encouraged by what we are seeing in our group booking activity for 2025 with improving convention and citywide calendars in many of our markets. As Robert will elaborate on shortly, we were very pleased to close our acquisition in San Antonio last month. We continue to evaluate opportunities for the remaining proceeds from the sale of Boston Park Plaza, and we maintain significant additional investment capacity that we can use to create value through a combination of additional hotel acquisitions and the repurchase of our own stock on an opportunistic basis. To sum things up, we continue to execute on our three strategic objectives, recycling capital, investing in our portfolio, and returning capital to shareholders, which has and should continue to results in multiple layers of embedded growth to drive incremental earnings and value over the next several years. To put a finer point on this, as we move further into the year, we are putting the pieces in place to drive significant earnings growth into 2025 from a combination of our recent conversions in Washington, D.C. and Long Beach the full-year contribution from the Hyatt San Antonio, and the debut of the Andaz Miami Beach, the combined impact of which, assuming a relatively steady macro backdrop, should drive double-digit EBITDA growth for the portfolio next year. And with that, I'll turn the call over to Robert to give some additional thoughts on our recent acquisition activity and renovation progress. Robert, please go ahead.