Sunstone Hotel Investors : Fourth Quarter 2023 Transcript

Corrected Transcript

23-Feb-2024

Sunstone Hotel Investors, Inc. (SHO)

Q4 2023 Earnings Call

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

CORPORATE PARTICIPANTS

Aaron R. Reyes	Robert C. Springer
Executive Vice President & Chief Financial Officer, Sunstone Hotel	President & Chief Investment Officer, Sunstone Hotel Investors, Inc.
Investors, Inc.
Bryan Albert Giglia
Chief Executive Officer, Sunstone Hotel Investors, Inc.

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OTHER PARTICIPANTS

Christopher Lee Darling	Chris Woronka
Analyst, Green Street Advisors LLC	Analyst, Deutsche Bank Securities, Inc.
Duane Pfennigwerth	Floris van Dijkum
Analyst, Evercore ISI	Analyst, Compass Point Research & Trading LLC
Smedes Rose
Analyst, Citigroup Global Markets, Inc.

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MANAGEMENT DISCUSSION SECTION

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sunstone Hotel Investors Fourth Quarter 2023 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, February 23, 2024, at 1:00 PM Eastern Time. I will now turn the presentation to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

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Aaron R. Reyes

Executive Vice President & Chief Financial Officer, Sunstone Hotel Investors, Inc.

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 EBITDAre, adjusted FFO, and property level adjusted EBITDAre. 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; Bryan Giglia, Chief Executive Officer; Robert Springer, President and Chief Investment Officer; and Chris Ostapovicz, Chief Operating Officer. Bryan will start us off with some highlights from

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

last year, followed by commentary on our fourth quarter operations and recent trends. Afterwards, Robert will discuss our capital investment activity. And finally, I will provide a summary of our fourth quarter earnings results, review our current liquidity position and provide the details of our 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 Bryan. Please go ahead.

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Bryan Albert Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

Thank you, Aaron, and good morning, everyone. We were encouraged by our execution in the fourth quarter, as better than expected top line performance and strong cost controls allowed us to deliver earnings above the high end of our guidance range. The fourth quarter caps off a productive year at Sunstone, in which we made further progress on our three strategic objectives, which include capital recycling, investing in our portfolio and returning capital to our shareholders.

On the recycling front, we completed the sale of Boston Park Plaza in the fourth quarter in a solid execution. While the hotel performed very well for us, it had reached its maximum return potential and needed significant additional investment, much of which would be defensive and would result in meaningful earnings disruption. So consistent with our investment lifecycle approach, we sold the hotel at an attractive valuation in an all-cash deal and are actively pursuing opportunities to redeploy the proceeds into assets that have a more compelling future return profile.

As we have previously discussed, given the composition of our portfolio, we are targeting a group-centric hotel that has an attractive going-in yield with limited near-term capital needs but with longer-termvalue-add opportunities. While this sounds like an ambitious wish list, we are confident that we can execute in the near term. We look forward to further updating you on our progress soon.

During 2023, we also executed on our second strategic objective, which is investing in our portfolio and we are already seeing the benefits of some of those projects. In October, we launched The Westin Washington, DC. The fully renovated flagship property has been very well-received, with 2024 group pace up almost 20% as compared to 2023. While the hotel has always been a productive group house, the conversion to a Westin brand is already driving incremental transient demand at higher rates.

Looking forward, work is now also underway on another value-add conversion of our soon to be Marriott Long Beach Downtown, which should contribute to earnings growth starting in the second quarter of the year. In late 2023, we completed the demolition of the backyard of The Confidante Miami Beach and the room renovation is now underway. Shortly, Robert will share some additional details on these exciting projects that will drive growth in 2024 and beyond.

The last element of our strategy is the return of capital to our shareholders. In 2023, we returned nearly $120 million to shareholders through an increased quarterly base dividend and through share repurchases at a meaningful discount to NAV. While our share repurchase activity will remain opportunistic, our common dividend will continue to provide a more consistent return of capital. That said, in 2023 we repurchased $56 million of our common stock at $9.43 per share. Additionally, over the last two years, we have repurchased $165 million of common stock at $10.15 per share. Our strong balance sheet and liquidity position gives us the ability to further enhance our capital return into 2024.

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

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 fourth quarter relative to our expectations. Similar to what we saw earlier in the year, group business performed well, corporate travel continued to move higher and leisure demand further moderated, although still generating comparable profitability well ahead of pre-pandemic levels. Our convention hotels led the portfolio with nearly 8% RevPAR growth in the quarter, driven by our newly converted Westin Washington, DC, which grew RevPAR more than 50% in the quarter and should continue to generate outsized growth into 2024 as it benefits from our recent investment.

Elsewhere across the portfolio, we also saw strength in our urban markets, including San Francisco and Portland, which have been our slowest to recover but showed meaningful improvement as the year progressed. The Marriott Boston Long Wharf also continues to provide solid growth, with RevPAR up 8.4% during the quarter. As has been widely discussed, leisure travel continues to moderate and has been impacted by the imbalance of the increased number of Americans going abroad, while inbound international visitation remains below historical averages. This trend is evident in Wine Country, as market wide softness has continued to hamper results. We are focused on driving group business and generating ancillary revenues at these resorts, which partially mitigated the depressed leisure volumes in 2023. 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, all while maintaining a world-class guest experience.

On the cost side, we remain focused on working with our managers to find ways to offset inflationary pressures. While labor availability has improved, wage growth continues to hover near the high end of historical averages in most markets. We were able to mitigate labor cost increases through enhanced productivity, better staff management and driving efficiencies where possible. Food and beverage profitability improved in the quarter, driven by further menu optimization and a better mix of business. Our margin performance during the quarter was impacted by the renovation activity at The Confidante Miami Beach and the Renaissance Long Beach. Excluding these two hotels, our margin was down only 100 basis points, even with minimal top line growth, and the impact of higher property insurance costs, which speaks to the efforts of our operators to be disciplined in their cost management.

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. Group pace for the comparable portfolio is up approximately 6%, with DC sustaining the portfolio in the near term, while the second half of the year benefits from broad-based strength, including outsized growth in Long Beach, San Diego and Boston. In a testament to the market's desirability, Wailea has bounced back very well from the tragic fires last summer, as our well-located resort has attracted additional group and leisure business and looks to generate year-over-year growth in ADR and earnings. We appreciate the hard work and dedication of the resorts associates that continue to do an outstanding job welcoming guests, providing unparalleled service, and making the Wailea Beach Resort the premier destination that it is.

We continue to evaluate opportunities for the proceeds from the sale of Boston Park Plaza. While a portion of the proceeds were utilized for additional share repurchase activity last quarter, we maintain significant investment capacity that we are looking to accretively redeploy into a superior growth opportunity than what would have been achieved through the continued ownership of Boston Park Plaza. As I noted earlier, our investment parameters include a compelling going-in yield, limited near-term capital needs and opportunities where we can add value either through asset management initiatives or through capital investment later in the course of our ownership.

Considering the significant embedded growth we already have in our portfolio from our in-process transformation of Andaz Miami Beach and the ramping resorts in Wine Country, a well-priced cash flowing investment now will

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

bring more balance to our earnings, sustain our strong credit metrics and still provide us with the opportunity to create value. We expect to balance this with incremental share repurchases when our stock price warrants it. We look forward to sharing additional updates on our progress redeploying these funds in the near term.

To sum things up, we executed on all three of our strategic objectives in 2023, but we know that we have more work to do in the current year. We are focused on delivering profitability growth from our operations and realizing the benefits of our investment projects. We will further advance our capital recycling strategy through the redeployment of our excess cash and further utilizing balance sheet capacity to thoughtfully grow the portfolio. These actions should further support our capital return objectives in the coming year. The entire Sunstone team remains committed to delivering strong returns and creating value for our shareholders.

And with that, I'll turn the call over to Robert to give some additional thoughts on our renovation progress and upcoming capital investments.

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Robert C. Springer

President & Chief Investment Officer, Sunstone Hotel Investors, Inc.

Thanks, Bryan. During 2023, we invested over $110 million into our portfolio, as we completed and relaunched The Westin Washington, DC Downtown; began the renovation and conversion of the Renaissance Long Beach to a Marriott; and commenced the transformation of The Confidante to the Andaz Miami Beach. In 2024, we expect to invest between $135 million and $155 million into our portfolio. The majority of the investment will be in Miami, as work is now underway on both the exterior and interior areas of the hotel. In order to most efficiently complete the renovation, we will be suspending operations at the hotel starting in late March through the fall. We expect to debut the fully renovated hotel in the fourth quarter and remain confident in our business plan and our underwriting approach. We look forward to updating our progress on our next call as we get that much closer to the completion of this transformational project.

In Long Beach, we expect to finish and launch our converted Marriott Long Beach Downtown in the spring, which should contribute to earnings growth for the balance of the year. Elsewhere across the portfolio, work is underway to renovate the meeting space at our JW Marriott New Orleans and to convert an underutilized area of the hotel into new meeting space, which should allow us to better compete in the market. In addition, we are also adding a market concept in the lobby of the Renaissance Orlando, which has the combined benefit of delivering a better guest experience while also contributing to higher food and beverage profitability.

In DC, we are delivering the last piece of our comprehensive renovation of the property with the addition of 4,000 square feet of new meeting space that has abundant natural light and an exterior patio and makes better use of an underutilized former restaurant space. Later in the year, we will be completing a soft goods renovation in Wailea to keep the room product fresh and able to compete with its nearby luxury peers. While we will have several projects underway during the year on balance, we expect that the renovation activity we have planned for 2024 will be marginally less disruptive to earnings than what we experienced in the prior year.

As we have shared with you before, capital recycling is a primary component of our strategy, and we are encouraged by the incremental activity we are seeing in the transaction market. We have considerable investment capacity and are actively looking for ways to redeploy these proceeds into new growth opportunities. We look forward to sharing additional information on our progress in the near term.

With that, I'll turn it over to Aaron. Please go ahead.

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

Aaron R. Reyes

Executive Vice President & Chief Financial Officer, Sunstone Hotel Investors, Inc.

Thanks, Robert. We are pleased with our financial results for the fourth quarter, as RevPAR growth, EBITDA and FFO were all above the high end of our guidance ranges. Adjusted EBITDAre for the fourth quarter was $55 million or 8% above the midpoint of our outlook, driven by better top line performance, stronger expense management across the portfolio and lower corporate level costs. Adjusted FFO for the fourth quarter was $0.19 per diluted share, nearly 20% above the midpoint of our outlook and $0.02 above the high end of the range, as lower than expected financing costs combined with the benefit of stronger operating performance.

While forward visibility remains challenging, we are seeing more stability in booking behaviors and travel patterns. As a result, we are providing a full-year outlook for 2024. Based on what we see today, we expect that our total portfolio RevPAR growth will range from 2.5% to 5.5% as compared to 2023. This range includes all hotels in the portfolio. If we exclude The Confidante Miami Beach, which will be under construction for most of the year, our full year RevPAR growth is projected to range from 5% to 8%. We estimate that full year adjusted EBITDAre will range from $230 million to $255 million, and our adjusted FFO per diluted share will range from $0.78 to $0.90.

Given how travel patterns evolved over the course of 2023 and the expected timing of citywide events and other major demand drivers in 2024, we expect that overall industry growth for this year will be more heavily concentrated in the second half of the year. The same will be true of our portfolio, which will also have the added impact of the renovation activity in Miami and Long Beach and which will likely lead to modest RevPAR growth, excluding the impact of our renovation activity, and lower year-over-year portfolio earnings in the first quarter before resuming a positive trajectory for the balance of the year.

In the 2024 Outlook section of our press release, we have included the key assumptions that support our full-year guidance numbers. And I'll share a couple of the key points here as well. Our outlook for 2024 does not assume the reinvestment of the proceeds received from the sale of Boston Park Plaza. As we have noted, we are actively evaluating an opportunity to deploy those proceeds and would expect to update our guidance ranges as appropriate as those funds are put back to work this year.

As Robert noted earlier, we will be suspending operations at The Confidante Miami Beach in late March to allow for the renovation work to be performed more quickly. A portion of the cost incurred at the hotel during this time will be capitalized in accordance with generally accepted accounting principles or adjusted for in our reconciliations of adjusted EBITDAre and adjusted FFO, consistent with industry practice. We expect the resort to open in Q4 as Andaz Miami Beach. And for the full year, we estimate that the resort will generate an EBITDA loss of $3 million to $5 million, with the majority of the loss spread across the second quarter through the early part of the fourth quarter while the hotel is offline.

As we noted in our press release this morning, our capital investment activity in 2023 was $110 million and was $30 million lower than the midpoint of our estimate at the start of the prior year, as a portion of that spend will now be incurred in the current year. Inclusive of this carried-over balance, we estimate that we will invest between $135 million to $155 million into our portfolio this year. Based on the renovation timeline, we expect to incur a total of $11 million to $13 million of earnings disruption in 2024, which is approximately $1 million less relative to the prior year.

Our balance sheet remains strong, and as of the end of the year, we had nearly $500 million of total cash and cash equivalents, including our restricted cash. We retain full capacity on our credit facility, which, together with cash on hand, equates to nearly $1 billion of total liquidity. As of the end of the year, our net debt and preferred equity to EBITDA stood at 2.9 times, and our net debt to EBITDA was only 1.7 times. Adjusting for the

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

redeployment of a portion of the Boston Park Plaza sale proceeds, we would expect our pro forma leverage metrics to increase by approximately one turn, but to remain in the low end of our longer-term target range. We have one piece of debt coming due at the end of the year and we expect that the modest principal balance of the maturing loan, combined with our low overall leverage, strong liquidity position and an improving financing market, will give us sufficient optionality to address the refinancing before year-end.

Now, shifting to our return of capital. Our board of directors has declared a $0.07 per share quarterly common dividend and has also declared the routine distributions for our Series H and I preferred securities. While we retain ample capacity for additional capital return, the full-year outlook that was discussed earlier does not assume the impact of any additional share repurchase activity.

And with that, we can now open the call to questions. So that we are able to speak with as many participants as possible, we ask that you please limit yourself to one question. Operator, please go ahead.

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QUESTION AND ANSWER SECTION

Operator: The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Chris Darling with Green Street. Please go ahead.

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Christopher Lee Darling

Analyst, Green Street Advisors LLC

Thanks. Good morning.

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Bryan Albert Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

Good morning, Chris.

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Aaron R. Reyes

Executive Vice President & Chief Financial Officer, Sunstone Hotel Investors, Inc.

Good morning, Chris.

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Christopher Lee Darling

Analyst, Green Street Advisors LLC

Q

A

A

Q

Bryan, you mentioned in your prepared remarks a handful of properties that you'd expect to grow in excess of the 5% to 8% RevPAR growth range that you provided, at least when you exclude The Confidante. Can you talk through which properties might fall below that range? And then, similarly, what's - what does the midpoint of your guidance range imply for leisure transient RevPAR growth this year? Thank you.

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Bryan Albert Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

A

Okay. Good morning, Chris. I'll start with the first part. So when we look at 2024, the above market or above portfolio growth, obviously, Westin DC, Long Wharf, Long Beach coming out of renovation, San Diego and Portland are our larger growth assets. When you look at the ones that will be below that or below the midpoint, the New Orleans market, while a decent pace this year, it's backend-loaded, so the citywides and the

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

demand is coming in the second and third quarter I'm sorry, in the third and fourth quarter, which doesn't have the transient compression that the first and second do. So, New Orleans will be slightly below.

San Francisco is a market where we had great growth in 2023. Looking into 2024, there are components of growth that are really good. The business transient demand continues to be strong. The hotels group business that it really focuses on is the smaller, call it, 50 to 100-room night business. That's about 40% of the business. That's been pretty robust. The hotel is continuing to book and booking short term that's kind of 90 days out. That remains strong.

The one concern in San Francisco are the citywides are weak this year. And so, that could result in some ADR pressure coming from the other submarkets that maybe are not as strong as the financial and embarcadero market area, where we are with good business demand. Some of the wild cards in that market, too, are what happens with AI. We have seen some increase office getting filled up around us with some of that business, and we expect that to grow. And then, the international inbound is supposed to grow this year. So, if that does, it will obviously help that market.

I think looking elsewhere, Orlando had a big first quarter of last year. From a leisure standpoint, the Universal Park is opening next year. And so, we expect some transient softness in that market also for the second half of the year.

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Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Please go ahead.

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Duane Pfennigwerth	Q
Analyst, Evercore ISI

Hey. Thanks. Just wanted to ask a follow-up there. On the 5% to 8% ex-Miami, can you talk about what that growth rate was ex-Miami in the fourth quarter, and maybe how you would - how we should be thinking about that in the first half of the year, 1Q, 2Q?

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Bryan A. Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

As far as - I'm sorry, Duane. As far as the cadence?

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Duane Pfennigwerth

Analyst, Evercore ISI

A

Q

And so, the - yeah, the 5% to 8% outlook that you're providing ex-Miami, what did ex-Miami RevPAR look like in the fourth quarter? And maybe you already indicated, it's probably going to be more second half weighted, but I'm wondering if you could put a finer point on the first half of the year.

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Aaron R. Reyes

Executive Vice President & Chief Financial Officer, Sunstone Hotel Investors, Inc.

A

Sure. So Duane, just to hit your first question on what did RevPAR growth look like ex-Miami, those are the statistics that we have on page 2 of the earnings release. We show both the full portfolio and then without Miami. So for the quarter, as you saw in our guidance range, we were down 2.2% for the full portfolio, and then if you exclude Miami, it was down 40 basis points, and both of those metrics were on the better side of our guidance range.

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

Bryan Albert Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

A

And then, so to add on to that, when you look at the cadence for the year, Q1 will obviously be the, as Aaron said, the weakest quarter. When you look back to 2023, you had most of our group hotels had really some the best quarters that they've ever had, Wailea, San Diego. So, there was very strong growth, part of that was the impact of the year-over-year with Omicron. And so, Q1 was very strong. This year Q1 will be our toughest comp. When you look at the back half of the year, probably 60-or-so percent of our gain is coming in the back half. Q2 ramps up a little bit more. But our larger group hotels, the majority of their demand and the pace is coming in the back half of the year, Q3, Q4. That's stronger for the New Orleans market, the San Diego market. That's where we'll see the most growth. The only one that's more uniform across the year will be DC. And in our RevPAR guidance, DC is a big piece of it. It's 200 basis points of our RevPAR growth is coming from that hotel ramping up. Long Beach will start to see some of that happen in Q2, but mainly in the second half of the year.

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Duane Pfennigwerth	Q
Analyst, Evercore ISI
Okay. Thank you.
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Operator: Our next question comes from the line of Smedes Rose with Citi. Please go ahead.
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Smedes Rose
Analyst, Citigroup Global Markets, Inc.

Hi. Thanks. Bryan, I wanted to - as you noted, Maui definitely held up better in the fourth quarter. I just wanted to understand, is that just the normal business mix there or did it benefit from any fire-related fallout in terms of housing? And how are you thinking about that property in 2024? And just along with that, if you could just talk a little bit about what you're seeing at the two Napa hotels, which seemed to still sort be struggling to find their sort of reasonable run rate or at least a predictable one?

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Bryan Albert Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

A

Yeah. Okay. Good morning, Smedes. So in Maui, the majority of the business in the fourth quarter reverted back to the typical business that we would see in that market. There was some, early in the fourth quarter, October, a little bit of some of the relief business still in there. But the hotels did a really good job of pivoting early in getting that relief business in in the third quarter and then reverting back to its more typical business mix as we got later into the year or in the fourth quarter. There's still, and others have mentioned on calls, there's still some lingering impact, and we expect Maui to be a recovery market into 2024 and beyond. We have good group base in there. The leisure demand has been strong. The Wailea market is recovered much more than the Kaanapali market, which still has the majority of the relief room nights in their market right now. But we have seen, just as a reference point, the festive period in December was stronger than what we saw in 2022. And so, that higher-end leisure customer definitely came back to the market. Q1 is a little bit weaker on a year-over-year basis on the group side. That's mainly because there's a large group piece of business that rotates out of Maui every third year and then comes back. So, they'll be back next year. So from that standpoint, we're very happy with how the hotel has responded, how our market has responded. And our expectation is we'll get growth out of it this year and probably get back to a more normalized level into 2025.

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Sunstone Hotel Investors, Inc. (SHO)	Corrected Transcript
Q4 2023 Earnings Call	23-Feb-2024

When we look at the Wine Country assets, look, the leisure demand continues to be disappointing market-wide. But right now, we're focusing on what we can focus on to control in those hotels and to resorts. And that means focusing both on group, if you look at the - in the supplemental, you'll see that Montage had a better quarter than Four Seasons. Four Seasons had two buyouts that didn't repeat this year. So, there's always going to be that lumpiness in their numbers. Montage is a bigger hotel and does more group business. So, it was able to offset the transient weakness better with group than the Four Seasons was able to. And Montage, as we've talked about before, is farther along in some of the cost restructurings that we've done. And so, they're a little bit farther along. Four Seasons, that's being implemented now. And Montage also going into 2024, the residential units are now available and starting to be sold. So we expect both to continue to gradually increase on the top line, but we're not going to see that next leg really until we start to see some transient demand accelerate.

Now, in 2022, we saw, right when they opened, we saw some of that. We're starting to see some pickup in transient demand now. But it will come quickly when it does come. And what we've done in the meantime is set the cost model and the segmentations of the hotels up right to be able to really push that cash flow. The good news is throughout the rest of the portfolio and what we've taken a lot of time to do is make sure that we have the right portfolio mix and built a foundation of growth going forward to be able to handle markets that might not be performing the way we want them to. We have DC growing this year. We've layered that with Long Beach. While we're talking about displacement at Andaz right now, as we get later into the year, we'll start talking about next year and the ramp-up there. And remember, in the condition that that hotel was in as The Confidante, it was doing $12 million of EBITDA. So, we've built and layered growth in investing in our portfolio. We'll start to see - that gives us then Portland which is continuing to rebound. We're getting great growth at Long Wharf, which is building more of a group base. The hotel has done phenomenally, but there's still a lot more room to go there. And we haven't even talked about then what we can do with the proceeds from Boston Park Plaza and providing better growth and more growth from that, whether it be through share repurchase or additional acquisitions. And so, while we took some lumps to build this foundation, we're set up pretty well for 2024 and going into 2025 and beyond.

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Smedes Rose	Q
Analyst, Citigroup Global Markets, Inc.
Thank you. Appreciate it.
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Operator: Our next question comes from the line of Chris Woronka with Deutsche Bank. Please go ahead.
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Chris Woronka
Analyst, Deutsche Bank Securities, Inc.

Hey. Good morning, guys. Thanks for taking all the questions so far. I know you just spent a lot of time, Bryan, talking about the Wine Country assets, but I want to ask a slightly different question, which is, is there going to be at some point, is there more like a step function on profitability, let's call it, hotel EBITDA when you get to a certain level of occupancy or TRevPAR or something like that? You're obviously holding the rates just fine. You don't have enough occupancy. Is there more of a step function? I'm really trying to think about margin cadence as you eventually get more occupancy?

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Bryan Albert Giglia

Chief Executive Officer, Sunstone Hotel Investors, Inc.

A

Yeah, good afternoon, Chris. It's the right question and it's the right question for Wine Country and San Francisco. It's going to be a step function. We saw in San Francisco good growth last year. And there may be a time period where things go sideways a little bit and then we get some more acceleration. These

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