Thermon Group Holdings, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Second Quarter 2024 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 7, 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 EBIT.RE, adjusted FFO, and property level adjusted EBIT.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 release and supplemental which are available in the investor relations section of our website. With us on the call today are Brian Giglia, Chief Executive Officer, Robert Springer, President and Chief Investment Officer, and Krzysztof Stepowicz, Chief Operating Officer. Brian will start us off with some highlights from our second quarter, including commentary on operations and recent trends. Afterward, Robert will discuss our capital investment activity. And finally, I will provide a summary of our second 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. Overall, it was a productive quarter at Sunstone. As we executed on all aspects of our strategy, recycling capital and closing on the previously announced acquisition of the Hyatt Regency San Antonio Riverwalk. Further investing in our portfolio, completing work on one value creating brand conversion and making further progress on the next and returning capital to our shareholders through increased dividend and share repurchases. Our second quarter earnings were in line with expectations as stronger ancillary revenues and successful cost controls offset softer leisure room revenue growth. While the near-term outlook for industry revenue growth has moderated, we believe that many of the primary drivers of the lowered expectations are isolated or short-term in nature and that the Sunstone growth story remains intact. We continue to be optimistic about our earnings potential as we move into 2025, which is largely driven by the contribution of our recently completed and in-progress investment activity and less dependent on moving solely with market rev par trends. Later in the call, we will share some additional commentary on the various growth drivers we have across the portfolio, but before that, Let's review some of the additional details on our second quarter performance. During the quarter, we saw continued strength in group activity and further recovery in business transient demand. While the backdrop for leisure travel was more mixed, there has been some encouraging signs at our wine country resorts. These are the result of our work to redefine the cost model while providing a world-class luxury experience, and our efforts to increase the group mix to drive incremental business at both resorts. Our convention hotels once again led the portfolio this quarter, driven by the continued benefit from our newly converted Westin, Washington, D.C. downtown, which grew RevPar by 33% and total rev par by 42%. The post conversion performance of this new flagship property continues to exceed our expectations as it is attracting higher quality groups and appealing to a broader range of transient customers. The West in Washington DC increased total transient room nights by 28% year over year, and at an average daily rate that was 34% higher than what was achieved as a Renaissance in 2019. Our convention portfolio also benefited from the addition of the Hyatt Regency San Antonio Riverwalk, which exceeded our underwriting in the initial months of our ownership and grew total rev par by 20% in the quarter as a result of robust group and local food and beverage contribution. The strong performance at these two hotels more than offset the challenge performance in the San Francisco and Orlando markets, which were expected to have tougher comps given their lighter convention calendars. In total, second quarter convention Hotel Red Park was nearly 7% higher As compared to the second quarter of last year. As we look into the third quarter, we expect our convention hotels to once again lead in Red Park growth with further outsized increases in Washington DC, combined with more favorable booking patterns in Orlando, San Francisco and San Diego. Our group pays for the second half of the year is up 17%. And while it remains early, we are encouraged by our group booking activity for 2025, which is trending up high single digits. We continue to monitor trends in business travel and are encouraged by what we saw in the second quarter. The Marriott Boston Long Wharf exceeded our expectations, growing rev par by 8% from increases in both rate and occupancy. San Francisco also performed better, driven by higher midweek transient demand as the market benefits from growing commercial activity in the downtown area, driven not only by AI and other tech-related businesses, but also from increased bookings from legal and financial accounts. As has been widely discussed, leisure demand continued to moderate in the second quarter, although the trends varied across our markets. We have experienced some ongoing normalization in pricing, particularly in Key West, where rates grew to very robust levels following the pandemic. During the quarter, Ocean's Edge grew occupancy by nearly four points, but at a lower rate than the prior year. To be clear, pricing at our resorts remains very robust, with comparable ADR up nearly 45% in the second quarter relative to the same period in 2019. The demand environment on Maui has been softer than expected, with both rates and occupancy lighter than projected in the second quarter, resulting from more subdued vacation travel to the island. While we expect some of these softer trends in Waialea to extend into the third quarter, which is reflected in our updated outlook, bookings for the festive period remain healthy and above last year. There are incremental efforts underway or soon to be underway by local tourism authorities and other stakeholders, including the brands, to spur incremental travel to the area, which we anticipate will help bolster demand in the coming months. The island of Maui and Waialea in particular is an unmatched and spectacular destination. We fully expect demand will rebound as we mark the first anniversary of the tragic fires last year, and the island welcomes visitors to enjoy and celebrate all that the island and Waialea have to offer. Looking forward, Waialea's group pace is up 18% next year, and we are currently renovating guest rooms in the lobby to provide an enhanced guest experience. In other parts of our portfolio, the second quarter provided some more encouraging data points. In wine country, the Four Seasons Resort Napa Valley grew total rev par by over 22% as our operator was able to more effectively leverage group business and drive out of room spend. The Four Seasons residences are also outperforming 2023 with revenue pace up 93%. At Montage-Hedelsberg, we saw the benefit of productivity measures we have been implementing, which drove 470 basis points of margin expansion in the quarter. These two resorts remain a key focus area for us, and based on what we see today, We expect both properties to grow total revenue and earnings in 2024 relative to the prior year, which should continue into 2025 given the encouraging pace data we are seeing. Four Seasons has 2025 group room nights pacing up 11%, which will add additional out-of-room spend and help to compress transient rates. Our second quarter results were impacted by the remaining renovation work at the recently converted Marriott Long Beach downtown. As we noted on our last call, the project encountered some permitting delays that were out of our control and which lingered throughout the second quarter and into July. This extended our completion date and led to some incremental displacement. While this resulted in lower expectations for the current year, The finished product looks great and the hotel is well positioned to grow earnings from this point forward. Consistent with the success we have seen at our DC conversion, the Marriott Long Beach downtown is already gaining transient share with fourth quarter transient pace at 96% relative to its performance as a renaissance in the same period of 2019. Group pace for Q3 and Q4 are up over 100% to last year and 2025 pace is trending strong with rate and occupancy growth. In Miami, the transformation of the Ondas Miami Beach remains on schedule to debut by the end of the year. We were recently on site and it's exciting to see the reimagined property starting to come together. The first phases of the construction will begin to wrap up in early fall and we are looking forward to the resort's earnings contribution that is now just a couple of quarters away. While our outlook for 2024 has moderated, it is being impacted by some short-term factors and we remain encouraged about the growth potential we have embedded in our portfolio. The guidance that Aaron will discuss shortly assumes that REVPAR growth will be 300 basis points lower and adjusted EBITDA will be 5.5 million lower at the midpoint than our prior estimates. What is important to note here is that nearly half of the REVPAR decline and nearly all of the EBITDA decline is associated with the permitting delays in Long Beach and the slower to recover Maui market. This means that apart from these two hotels, the profitability outlook for the balance of the portfolio remains solid as our operators are able to drive incremental group and business transient demand while effectively managing costs. As we look forward, we continue to believe that our setup for 2025 is among the most attractive in the sector. Our group production was healthy during the second quarter, and up 2% to 2023. Layering on top of this are markets with better citywide calendars, the Super Bowl in New Orleans, strong group pace in wine country, and growth at Ondas and Long Beach should all lead to an impressive 2025. In the meantime, we continue to thoughtfully execute on our three strategic objectives, recycling capital, investing in our portfolio, and returning capital to shareholders. And we expect the combined impact of these to drive incremental earnings and value over the next several years. 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. Thanks, Brian. Early in the quarter, we closed on our previously announced acquisition of the Hyatt Regency San Antonio Riverwalk, and we are very pleased with the hotel's initial performance. The market is healthy, and we are already seeing the results of our asset management initiatives at the property. In fact, we now expect the first year yield on our net purchase price will be closer to 9%, which is incredibly attractive for an asset of this quality. This higher projection is 100 basis points ahead of our underwriting, and represents meaningful accretion on the recycling of capital from the disposition of Boston Park Plaza. We retain the remaining proceeds from the sale that we can use to create further shareholder value, either through additional hotel acquisitions or the repurchase of our stock. During the quarter, we also made additional progress on several other investments across the portfolio. As Brian noted already, The renovation is in full swing at the soon-to-debut Ondas Miami Beach. As the first phases of the construction are nearing completion, we are now also working with the hotel team to prepare for the opening. We are pleased with the 2025 group booking activity we have completed to date and will soon be opening up transient reservation channels for stays beginning in December. We continue to be pleased with the progress being made on what is a very comprehensive reimagining of the resort. While the recent softer demand environment in Wailea has been disappointing, we are using the opportunity to move more efficiently through the soft goods rooms renovation we have underway at the resort. As you can see from the property level data we make available, our upper upscale property achieves robust rates and competes very effectively with its nearby luxury peers and so a refreshed room product will allow it to continue to do so. We will be performing the remaining work around peak periods and do not anticipate any meaningful disruption at the hotel. Elsewhere across the portfolio, we will be completing a few other projects, including a meeting space renovation at our JW Marriott New Orleans, which is underway now and will be completed in October in order to take advantage of robust group business during the fourth quarter. At Montage Healdsburg, we added a small event facility at the resort's showcase vineyard venue that will allow us to generate incremental sales while also driving staffing efficiencies and contributing to higher margins. While these are smaller projects, they will add to the earnings potential and value of our portfolio. As we have shared with you before, capital recycling is a primary component of our strategy. And while we are actively evaluating additional acquisition opportunities, we remain mindful of all capital allocation opportunities available to us and the relative returns offered from each at various points in time. We will be disciplined and balanced in our approach. With that, I'll turn it over to Aaron.