Following a tough fourth quarter in 2021, in which the company underperformed analysts' estimates, real estate investment trust Sunstone Hotel Investors achieved significant demand acceleration as the first quarter progressed.

These positive trends continued into April, said new Sunstone CEO Bryan Giglia, and executives believe the second quarter will prove to be another meaningful one for portfolio growth.

Giglia said not only do Sunstone executives expect continued strong demand at its resorts, they also anticipate to benefit from improved business volumes at the company's group and urban hotels.

Sunstone's comparable portfolio generated 123,000 total group room nights in the quarter, and the group segment comprised of roughly 36% of its total demand. Giglia said this group room-night volume represents a 33% increase from the previous quarter, and average rates that were 7% higher in comparison to 2019.

Transient business in the quarter amounted to roughly 55% of its total room nights and comparable transient rate was $314, about 14% higher than the same quarter of 2019.

"The lingering impact of the omicron variant in January and February led to lower levels of special corporate demand in the quarter, but we are seeing recent positive signs that should lead to acceleration in the remaining quarters of 2022 as companies increasingly return to the office and business travel becomes more widespread," he said.

Based on the strength of demand in March and April, Giglia said Sunstone is more encouraged about the outlook for 2022. The company's preliminary April results reflect comparable portfolio occupancy of 76% at an average rate of roughly $300. Revenue per available room for the month reached $225, down 3% from pre-pandemic.

Executives believe that growth will continue to be sustained by healthy leisure demand in spring and summer vacation months, increasing amounts of business travel, strong citywide calendars and the return of corporate group functions. Recent booking trends are indicative of this prediction, he said.

"Our group room nights for the second quarter through the fourth quarter of 2022 are pacing at approximately 80% of pre-pandemic levels at an average rate that is 4% higher than 2019," he added. "This would imply that our overall group revenue pace for this time period is only down 18% from the same time in 2019."

During the company's fourth quarter 2021 earnings call with analysts, HNN's Sean McCracken reported that the company's underperformance in 2021 was in part due to poor execution and not overall strategy issues, according to Douglas Pasquale, former interim CEO, who replaced former CEO John Arabia after he departed in September 2021.

Giglia was promoted from chief financial officer to CEO this March, while Pasquale has since assumed the role of executive chairman, which he will hold through this August.

Pasquale said Sunstone was ultimately looking for a CEO who had more experience with transactions and the willingness to recycle assets.

The search committee took about six months and looked nationwide, speaking with an extensive list of external candidates, he said. However, the committee realized the talent they were looking for was already in-house with Giglia and Chief Investment Officer Robert Springer. In March Springer was named the additional role of president.

"We believed the experience level and attributes [we needed] was right here in front of us," Pasquale added. "If we really just charged ahead with the strategy we have never wavered on, it would be the right choice.

"These talented executives, complemented by an excellent team, will lead Sunstone in what I expect will be an extended period of significant value creation for our shareholders," he said.

During the quarter, Sunstone sold three hotels in Chicago "that had limited future growth potential," Giglia said, and the company recycled a portion of the proceeds into share repurchases. The combined sale price of the trio of hotels was $197 million.

Two of the hotels included the 368-room Embassy Suites Chicago and the 361-room Hilton Garden Inn Chicago Downtown/Magnificent Mile.

Additionally, Sunstone announced on Wednesday that it has entered into a definitive agreement with an affiliate of Hyatt Hotels Corp. to purchase the 339-room The Confidante Miami Beach for $232 million, equating to $684,000 per key. Sunstone will fully transform the property and rebrand it to Andaz Miami Beach following the completion of the purchase.

"The acquisition of The Confidante Miami Beach allows us to recycle capital from our recent sales of three Chicago hotels into this higher growth and better NAV enhancing investment. This transaction draws upon our significant in-house expertise and proven track record of creating value through successful renovations and repositionings, and returns Sunstone to some of what it does best," Giglia said in the announcement of the deal.

In the quarter, the company also invested $30.3 million of capital into its portfolio, which will primarily go toward the renovation of its Renaissance Washington D.C., which will convert into a Westin brand in 2023. In addition to that, its Hyatt Regency San Francisco will undergo a rooms renovation by the end of this year.

All in all, Giglia said he's excited about the growth trajectory of Sunstone's portfolio and feels they have reached "a significant inflection point."

Sunstone repurchased 3,879,025 shares of its common stock during the first quarter, at an average price of $11.19 per share. In addition, the company in April bought 457,634 more shares of its common stock at about $10.95 per share.

Year to date, Sunstone repurchased a total of 4,336,659 shares of its common stock.

The real estate investment trust achieved a net income of $15.1 million in the quarter compared to a net loss of $55.3 million the year prior, according to a company news release.

In total, Sunstone's 14-hotel portfolio generated first quarter revenue per available room of $160, made up of a $301 average daily rate and 53% occupancy. A bright spot for the company's quarter was its non-room revenue; Sunstone achieved significant sequential growth in food and beverage revenue, increasing 16% from the fourth quarter in 2021.

During the quarter, the company earned $172 million in total revenues compared to $50 million in the same quarter in 2021. Adjusted earnings before interest, taxes, depreciation and amortization for real estate grew 285.3% to $27.2 million.

Aaron Reyes, Sunstone's chief financial officer, said the company ended the first quarter with $254 million of total cash and cash equivalents, including $39 million of restricted cash. Sunstone also ended the quarter with $576 million of total consolidated debt.

"We anticipate funding the purchase of The Confidante Miami Beach through a combination of existing cash and from proceeds received from our currently undrawn revolving credit facility," he said.

At press time, Sunstone's stock was trading at $11.47 per share, down 3.3% year to date. The NYSE Composite Index was down 9.3% for the same period.

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