With major renovations at a handful of hotels expected to deliver in 2025, Sunstone Hotel Investors CEO Bryan Giglia said he plans to continue recycling capital.
"The fourth quarter caps off a productive year at Sunstone in which we made further progress on our three strategic objectives, which included recycling capital, investing in our portfolio and returning capital to our shareholders," Giglia said on the company's fourth quarter and year-end earnings call. "All of these benefited the company and its shareholders in 2024 and will provide additional growth in 2025."
These goals are the guiding principles for Sunstone, Giglia said when asked about the near future of the portfolio.
"I think the way we look at the portfolio and one of our main focuses in our strategy is to recycle capital. And 2024 was a challenging year to do that," he said.
Giglia pointed to one 2024 transaction in particular that demonstrates the success of this strategy. In April, Sunstone used the profit from the sale of its Boston Park Plaza to buy the Hyatt Regency San Antonio Riverwalk for a net purchase price of $222 million after incentives, reflecting a 9% capitalization rate on 2024 earnings, Giglia said.
For 2024, the Hyatt Regency San Antonio Riverwalk's group room nights were up 3%, rates were up 2% and out-of-room spend was up 20%. This year, Sunstone is making major renovations to its 40,000-square-feet of meeting space, which should wrap up by the end of the year, Giglia said, and is needed to better align with the already renovated guest rooms.
"Going forward, we would like to accelerate recycling capital," he said.
"At the end of the day though, we're not afraid of concentration, especially if it's in fantastic locations," he said, adding that it's "something that we think we should be doing on an ongoing basis and given the market and a cost of capital that makes sense, that's what we'll look to do."
Coming soon
Giglia shared a bit about another one of Sunstone's investments that should be paying off this year. The Andaz Miami Beach, formerly the Confidante Miami Beach, is expected to open in a few weeks. The reopening includes significant renovations, which were waylaid by challenges with permitting and storms that hit the region last year.
"The debut of Andaz Miami Beach is expected to add nearly four points of growth this year. But even if we exclude this resort, our remaining portfolio RevPAR is still projected to grow a healthy 3% to 6%," said Aaron Reyes, chief financial officer at Sunstone.
Sunstone spotlighted a few of its other properties that also have bigger opportunities this year compared to 2024.
"In San Diego, we are in the planning stages for a renovation of the meeting space at our Hilton Bayfront," Giglia said. "While we are still finalizing the details, we would not expect it to begin until late in the fourth quarter."
The Hilton San Diego Bayfront was affected by labor strikes in 2024. Sunstone's Wailea Beach Resort on Maui is also in the process of rebounding amid a renovation in the wake of the wildfires.
"[W]e are nearing completion on a rooms renovation and lobby refresh at the Wailea Beach Resort and have been performing the work around peak periods to minimize displacement," Robert Springer, president and chief investment officer at Sunstone, said. "As part of the scope, we are combining a few rooms to create four residential style oceanfront villa units with a kitchen, generous living area and the ability to sell them in multiple configurations ranging from one to four bedrooms."
When asked about the opportunity to sell some of these assets as a part of Sunstone's plans to recycle capital, Giglia said he's keeping an open mind.
"I think all of our hotels are always up for evaluation, and I don't see anything being off the table," he said.
By the numbers
For the fourth quarter, Sunstone reported a net income of $800,000 as compared to $127 million in the fourth quarter of 2023. However, if the gain on the hotel sold during the fourth quarter 2023 was excluded, net income would have been $3.2 million.
Meanwhile, total revenue for the fourth quarter was $214.8 million, which is essentially flat when compared to $219.2 million in the fourth quarter of 2023.
Comparable hotel total revenue per available room decreased 1.1% to $199.07 year over year in the fourth quarter. Adjusted earnings before interest, taxes, depreciation and amortization for real estate decreased 12% to $48.1 million.
Throughout last year, the company repurchased more than 2.7 million shares of its common stock at an average purchase price of $9.83 per share for a total repurchase amount before expenses of $27.2 million. Sunstone now currently has $427.5 million remaining under its existing stock repurchase program authorization.
When zooming out on 2024 as a whole, Sunstone’s net income was $43.3 million as compared to $206.7 million in 2023. If the gain on the hotel sold during 2023 was excluded, net income would have been $82.9 million.
Comparable RevPAR decreased 2.4% to $214.06 in 2024. If the Andaz Miami Beach is factored out of 2024 RevPAR, that figure would be slightly higher at $221.73.
Adjusted EBITDAre for the year decreased 12.8% to $229.7 million.
Sunstone closed out 2024 with $180.3 million of cash and cash equivalents, including restricted cash of $73.1 million, total assets of $3.1 billion, including $2.9 billion of net investments in hotel properties, total debt of $845 million and stockholders' equity of $2.1 billion.
As of publication time, Sunstone stock was trading at $10.65 per share, down 3.3% year over year. The NYSE Composite Index was up 14.4% for the same period.