Sunstone Hotel Investors is doubling down on its three key objectives of recycling capital, investing in its portfolio and returning capital to shareholders.
Speaking during the real estate investment trust's first-quarter 2024 earnings call with analysts, CEO Bryan Giglia said his team continues to evaluate opportunities to spend proceeds from its $370 million Boston Park Plaza sale.
Giglia said in its fourth-quarter and full-year 2023 earnings call in February that it was chasing the acquisition of a group-centric hotel with limited near-term capital needs.
The 630-room Hyatt Regency San Antonio Riverwalk, which it just purchased in April for $230 million with a portion of the proceeds, fit the bill.
The hotel's "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," he said. "The acquisition fits squarely within the investment parameters we had previously identified and will immediately contribute our earnings, diversify our cash flow and provide additional opportunities in the future."
Giglia said when Sunstone was looking to recycle the capital from the Boston Park Plaza sale in the third and fourth quarters of 2023, transactions were scarce. At that time, the debt markets were more restrictive than they are today.
"We were going to relationships, people we've done deals with before, to see if there were deals possible. Being a cash buyer at that time made us a much more attractive and reliable counter-party. The off-market deal process tends to take a longer time than a marketed process; we had the advantage of being one of the only acquirers, or looking to acquire, at that time.
"We spent third, fourth quarter last year building out that pipeline. Where we're looking now is there is more on the market. Our direct deals pipeline that we developed is serving us well now, and may continue to source our future deals, but we're also seeing additional assets out there being marketed and new opportunities are coming up every day," he said.
Giglia said Sunstone still has some proceeds remaining from the Boston Park Plaza sale.
It's money that "may go into a hotel acquisition if we find something attractive, it could go into share repurchase also. It's keeping that balance. At the same time, selling Boston was a large asset, so we want to make sure that we also provide the right balance to the portfolio," he added.
Developments
In addition to acquisitions and dispositions, Sunstone has been active reinvesting in its existing assets through renovations and repositionings.
During the first quarter, the REIT invested $27.7 million into its portfolio. The company expects to invest roughly $135 million to $155 million in its portfolio by the end of 2024.
Projects underway include the conversion of The Confidante Miami Beach into the Andaz Miami Beach and the conversion of the Renaissance Long Beach to the Marriott Long Beach Downtown.
The Andaz is expected to be complete in fourth quarter 2024 and Marriott Long Beach Downtown is expected to be complete in the second quarter this year.
"Once we get Andaz done, could we do some more value-add? I think that's where we add the most value, that's where we create. It opens that door, but right now the focus is ramping San Antonio up and getting that to where we need it to be. Our asset managers are all over it and they see a lot of opportunity," Giglia said.
Developments that have already contributed to first quarter earnings performance include its newly converted Westin Washington, DC Downtown.
It grew rooms revenue per available room by 52% and total RevPAR by more than 77%, Giglia said.
By the Numbers
Aaron Reyes, executive vice president and chief financial officer, said the REIT finished the quarter mostly in line with expectations.
In the first quarter, Sunstone reported net income of $13 million compared to $21.1 million in 2023, according to the company's earnings release.
Adjusted earnings before interest, taxes, depreciation and amortization for real estate fell 9.2% to $54.5 million and adjusted funds from operations attributable to common stockholders per diluted share dropped 14.3% to $0.18.
Comparable revenue per available room for the quarter was $223.06 while occupancy was 68.6% and average daily rate was $325.16.
Reyes said the mid-point of Sunstone's guidance ranges remain unchanged, except to incorporate the impact of the Hyatt San Antonio Riverwalk acquisition.
"We expect the hotel to generate $12 million to $13 million of EBITDA during our ownership period in 2024," he said. "These incremental hotel earnings will be partially offset by lower projected interest income as a result of deploying the extra cash."
As of publication time, Sunstone's stock was trading at $10.32 per share, up 1.3% year to date. The NYSE composite was up 1% for the same period.