Q2 2024 Sunstone Hotel Investors Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors' second quarter 2024 earnings call.
Speaker Change: At this time, all participants are in a listen-only mode.
Speaker Change: Later, we will conduct a question and answer session, and instructions will be given at that time.
Speaker Change: I would like to remind everyone that this conference is being recorded today, August 7, 2024, at 12 p.m. Eastern Time.
Speaker Change: I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.
Speaker Change: 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. Thank you, Operator.
Speaker Change: We caution you to consider these factors in evaluating our forward-looking statements.
Speaker Change: We also note that the commentary on this call will contain non-GAP financial information, including adjusted EBITDA RE, adjusted FFO, and property level adjusted EBITDA RE.
Speaker Change: We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles.
Speaker Change: 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.
Operator: With us on the call today are Bryan Giglia, Chief Executive Officer; Robert Springer, President and Chief Investment Officer; and Krzysztof Dopowicz, Chief Operating Officer. And finally, I will provide a summary of our second quarter earnings results and share the details of our updated outlook for 2024.
Speaker Change: With us on the call today are Bryan Giglia, Chief Executive Officer, Robert Springer, President and Chief Investment Officer, and Chris Ostapovich, Chief Operating Officer.
Speaker Change: Bryan will start us off with some highlights from our second quarter, including commentary on operations and recent trends.
Speaker Change: Afterward, Robert will discuss our capital investment activity.
Speaker Change: And finally, I will provide a summary of our second quarter earnings results and share the details of our updated outlook for 2024.
Speaker Change: After our remarks, the team will be available to answer your questions.
Speaker Change: With that, I would like to turn the call over to Bryan. Please go ahead.
Bryan Giglia: Thank you, Aaron, and good morning, everyone.
Bryan Giglia: 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.
Speaker Change: 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.
Speaker Change: Our second quarter earnings were in line with expectations as stronger ancillary revenues and successful cost controls offset softer leisure room revenue growth.
Speaker Change: While the near-term outlook for industry revenue growth has moderated.
Speaker Change: 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.
Speaker Change: 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 REVPAR trends.
Speaker Change: 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.
Speaker Change: 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.
Robert Springer: There were some encouraging signs at our Wine Country Resort, driven by the continued benefit from our newly converted Westin, Washington, D.C., downtown, which grew REVPAR by 33% and total REVPAR by 42%, which were expected to have tougher comps given their lighter convention calendar. However, the trends varied across our market. The demand environment on Maui has been softer than expected, which we anticipate will help bolster demand in the coming months. We fully expect demand to rebound as we mark the first anniversary of the tragic fires last night.
Speaker Change: 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.
Speaker Change: 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 REVPAR by 42%.
Speaker Change: 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.
Speaker Change: The West and Washington, D.C. 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.
Speaker Change: Our convention portfolio also benefited from the addition of the Hyatt Regency San Antonio Riverwalk.
Speaker Change: 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.
Speaker Change: The strong performance at these two hotels more than offset the challenge performance in the San Francisco and Orlando markets.
Speaker Change: which were expected to have tougher comps given their lighter convention calendars.
Speaker Change: In total, second quarter convention hotel repart was nearly 7% higher as compared to the second quarter of last year.
Speaker Change: As we look into the third quarter.
Speaker Change: We expect our convention hotels to once again lead in Red Park growth with further outsized increases in Washington, D.C., combined with more favorable booking patterns in Orlando, San Francisco, and San Diego.
Speaker Change: Our group pace 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.
Speaker Change: We continue to monitor trends in business travel and are encouraged by what we saw in the second quarter.
Speaker Change: The Marriott Boston Long Wharf exceeded our expectations, growing REBPAR by 8% from increases in both rate and occupancy.
Speaker Change: San Francisco also performed better, driven by higher mid-week transient demand, as the market benefits from growing commercial activity in the downtown area, driven not only by AI and other tech-related businesses,
Speaker Change: but also from increased bookings from legal and financial accounts.
Speaker Change: As has been widely discussed, leisure demand continued to moderate in the second quarter.
Speaker Change: Although the trends varied across our markets.
Speaker Change: We have experienced some ongoing normalization in pricing, particularly in Key West, where rates grew to very robust levels following the pandemic.
Speaker Change: During the quarter, Ocean's Edge grew occupancy by nearly four points, but at a lower rate than the prior year.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: While we expect some of these softer trends in Hualea to extend into the third quarter, which is reflected in our updated outlook,
Speaker Change: Bookings for the festive period remain healthy and above last year.
Speaker Change: 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.
Speaker Change: The island of Maui, and Wai?lea in particular, is an unmatched and spectacular destination.
Speaker Change: 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.
Speaker Change: Looking forward, YLA's group pace is up 18% next year and we are currently renovating guest rooms in the lobby to provide an enhanced guest experience.
Speaker Change: In other parts of our portfolio, the second quarter provided some more encouraging data points.
Robert Springer: In wine country, the Four Seasons Resort Napa Valley grew total rev par by over 22 percent as our operator was able to more effectively leverage group business and drive out-of-room spend. On top of this, there are markets with better citywide calendars. The Super Bowl in New Orleans. Thanks, Bryan. 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.
Speaker Change: In wine country, the Four Seasons Resort Napa Valley grew total REBPAR by over 22% as our operator was able to more effectively leverage group business and drive out-of-room spend.
Speaker Change: The Four Seasons Residences are also outperforming 2023, with revenue pace up 93%.
Speaker Change: At Montage Heidelsberg, we saw the benefit of productivity measures we have been implementing, which drove 470 basis points of margin expansion in the quarter.
Speaker Change: 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.
Speaker Change: which should continue into 2025 given the encouraging pace data we are seeing.
Speaker Change: Four Seasons has 2025 group room nights pacing up 11% which will add additional out-of-room spend and help to compress transient rates.
Speaker Change: 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 .
Speaker Change: This extended our completion date and led to some incremental displacement.
Speaker Change: to
Speaker Change: 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.
Speaker Change: consistent with the success we have seen at our DC conversion.
Speaker Change: The Marriott Long Beach Downtown is already gaining transient share.
Speaker Change: with fourth quarter transient pace at 96% relative to its performance as a renaissance in the same period of 2019.
Speaker Change: Group pace for Q3 and Q4 are up over 100% to last year and 2025 pace is trending strong with rate and occupancy growth.
Speaker Change: In Miami, the transformation of the Onda's 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.
Speaker Change: 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.
Speaker Change: While our outlook for 2024 has moderated, it is being impacted by some short-term factors
Speaker Change: And we remain encouraged about the growth potential we have embedded in our portfolio.
Aaron Reyes: 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.
Aaron Reyes: What is important to note here is that nearly half of the REBPAR decline and nearly all of the EBITDA decline is associated with the permitting delays in Long Beach and the slower-to-recover Maui market.
Aaron Reyes: 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.
Aaron Reyes: As we look forward, we continue to believe that our setup for 2025 is among the most attractive in the sector.
Aaron Reyes: Our group production was healthy during the second quarter and up 2% to 2023.
Aaron Reyes: Layering on top of this are markets with better citywide calendars.
Aaron Reyes: The Super Bowl in New Orleans, strong group pace in wine country, and growth at Onda's and Long Beach should all lead to an impressive 2025.
Aaron Reyes: In the meantime, we continue to thoughtfully execute on our three strategic objectives.
Aaron Reyes: 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.
Robert Springer: 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 Springer: Robert, please go ahead.
Robert Springer: Thanks, Bryan. Early in the quarter, we've closed on our previously announced acquisition of the Hyatt Regency San Antonio Riverwalk, and we are very pleased with the hotel's initial performance.
Robert Springer: The market is healthy and we are already seeing the results of our asset management initiatives at the property.
Robert Springer: In fact, we now expect the first year yield on our net purchase price will be closer to 9%.
Robert Springer: which is incredibly attractive for an asset of this quality.
Robert Springer: 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.
Robert Springer: 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.
Robert Springer: During the quarter, we also made additional progress on several other investments across the portfolio. As Bryan noted already, the renovation is in full swing at the soon-to-debut Ondas Miami Beach.
Bryan Giglia: As the first phases of the construction are nearing completion, we are now also working with the hotel team to prepare for the opening.
Bryan Giglia: 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 .
Bryan Giglia: We continue to be pleased with the progress being made on what is a very comprehensive reimagining of the resort.
Bryan Giglia: While the recent softer demand environment in Wylea has been disappointing, we are using the opportunity to move more efficiently through the soft goods rooms renovation we have underway at the resort.
Bryan Giglia: 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.
Bryan Giglia: We will be performing the remaining work around peak periods and do not anticipate any meaningful disruption at the hotel.
Bryan Giglia: 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.
Bryan Giglia: 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.
Bryan Giglia: While these are smaller projects, they will add to the earnings potential and value of our portfolio.
Speaker Change: 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.
Speaker Change: We will be disciplined and balanced in our approach.
Speaker Change: With that, I'll turn it over to Aaron. Please go ahead.
Aaron Reyes: Thanks, Robert. Our earnings results for the second quarter came in generally in line with expectations as higher ancillary revenue and contribution from certain corporate-level items offset lower REVCAR performance.
Aaron Reyes: Adjusted EBIT.RE for the second quarter was approximately $74 million, and adjusted FFO was 28 cents per diluted share.
Speaker Change: Our quarterly results reflect the impact of the extended completion of the renovation work at our hotel in Long Beach.
Operator: This resulted in $3 million of estimated EBITDA displacement in the quarter, approximately $1.5 million higher than anticipated. As Bryan noted earlier, we have lowered our full-year expectations for Red Park growth and earnings based on what we see today.
Speaker Change: which resulted in $3 million of estimated EBITDA displacement in the quarter, approximately $1.5 million higher than anticipated.
Speaker Change: together with approximately nine and a half million dollars of year-over-year decrease in earnings at the confidant as it undergoes its transformation to Onda's Miami Beach.
Speaker Change: We now estimate that we will incur $15 million to $16 million of total earnings disruption this year.
Speaker Change: Now that the work is completed in Long Beach, and as we get closer to the debut of ONDAWS.
Speaker Change: We look forward to recouping all of this displacement, plus additional earnings, at these hotels next year.
Speaker Change: Included in our earnings release this morning with our revised outlook for the year.
Speaker Change: As Bryan noted earlier, we have lowered our full-year expectations for Red Park growth and earnings.
Brian: The change is primarily related to the extended timing of completion of the renovation in Long Beach and a softer leisure trends we have seen in Waialea which together are impacting growth and four-year REVPAR by over 200 basis points.
Brian: Based on what we see today, we expect that our total portfolio full-year RevPAR growth, which includes all hotels in the portfolio.
Brian: will range from a decline of 25 basis points to an increase of 1.75% as compared to 2023.
Operator: REVPAR growth is projected to range from 2.25% to 4.25%. Including our revised outlet for the balance of the year, we now estimate the full-year adjusted EBITDA will range from $242 million to $252 million, and our adjusted FFO per diluted share will range from $0.85 to $0.90. Historically, the third quarter has contributed more to full-year earnings than the fourth.
Brian: If we exclude the confidant, Miami Beach.
Speaker Change: RevPAR growth is projected to range from 2.25% to 4.25%.
Speaker Change: As a reference point for our updated guidance range, the full year 2023 REVPAR metric for the total portfolio, including the Hyatt Regency San Antonio Riverwalk prior to our ownership, was $219.
Speaker Change: And for the total portfolio, excluding the Compton on Miami Beach, prior year REBPAR was $222.
Speaker Change: Including our revised outlet for the balance of the year, we now estimate the full year adjusted EBITDA will range from $242 million to $252 million, and our adjusted FFO per diluted share will range from $0.85 to $0.90.
Speaker Change: Well, there is not as much of a seasonal variation between the quarterly earnings in the second half of the year as there is in the first.
Speaker Change: Historically, the third quarter has contributed more to full year earnings than the fourth.
Speaker Change: At the midpoint of our revised range, our EBITDA in the first half of the year would equate to 52% of our total projected full year earnings.
Speaker Change: And we currently expect that an additional 24% to 25% will be generated in the 3rd quarter, with the remaining coming in Q4.
Speaker Change: Our balance sheet continues to be one of the strongest in this sector.
Speaker Change: As of the end of the quarter, we had over $230 million of total cash and cash equivalents, including our restricted cash.
Speaker Change: we retained full capacity on our credit facility which together with cash on hand equates nearly seven hundred thirty million dollars of total liquidity
Operator: We are finalizing our refinancing strategy for that loan now, and we'll provide an update as part of our next earnings call. Our conservatively levered balance sheet and significant liquidity position continue to provide flexibility and be a source of strength for the company. Now, shifting to our return of capital, our Board of Directors has authorized a base quarterly common dividend at a recently increased rate of $0.09 per share.
Speaker Change: We have one piece of secure deck coming due at the end of the year.
Speaker Change: We are finalizing our refinancing strategy for that loan now and will provide an update as part of our next earnings call.
Speaker Change: Our conservatively levered balance sheet and significant liquidity position continue to provide flexibility and be a source of strength for the company.
Speaker Change: Now shifting to our return of capital, our Board of Directors has authorized a base quarterly common dividend at a recently increased rate of $0.09 per share.
Speaker Change: In addition to the dividend, we have also repurchased approximately $7 million of shares since the start of the second quarter.
Speaker Change: We retain ample authorization and liquidity for additional share repurchase activities.
Speaker Change: Separate from the return of capital to our common shareholders, the board has also authorized the routine distributions for our series H&I preferred securities.
Speaker Change: And with that, we can now open the call to questions.
Speaker Change: So that we are able to speak with as many participants as possible, we ask that you please limit yourself to one question.
Speaker Change: Operator, please go ahead.
Operator: If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. Your first question...
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. Your first question comes from the line of Michael Bellisario with Baird. Please go ahead.
michael billisario: Thanks. Good morning, everyone.
michael billisario: very miic mtal
michael billisario: Bryan, I've got a big picture question for you. Can you remind us, review your view of value, what the board's view is, how they think about it, the path?
Speaker Change: to get to that number, and then maybe how you're thinking both about the things you can and cannot control in order to help close that valuation gap. Thanks.
Bryan Giglia: yes well we look at value and it's something that we spend a lot of time with support every board meeting on and
Speaker Change: like any other you know hotel investor we look at it
Speaker Change: from multiple ways. We look at it on a cash flow basis, we look at it on a relative multiple, we look at a replacement cost and so.
Speaker Change: We use all those, and we triangulate on our view of value, and the way that that plays into our capital allocation strategy...
Speaker Change: is
Speaker Change: At times when we see that deficit, we can do things such as what we did at Boston Park Plaza where we monetized and then we could use those to get the
Speaker Change: private market values and and then go and either reinvest that into new growth opportunities or into our into our stock.
Speaker Change: You know, if you look over the last couple of years, I think our approach has been very balanced in that, and that as we look forward...
Speaker Change: We have a great portfolio. We have great hotels and great markets. We have great internal growth that we've been able to
Speaker Change: build up on over the last couple years and they are now at a point where we have you know
Speaker Change: A cadence of hotels coming off a renovation and providing earnings like with DC and going to Long Beach and Ondas next year.
Speaker Change: We have ramping hotels. San Antonio, one where we deployed the capital, has done really well for us and there's a market that we're very excited about for several years to come and we're very happy with this, as Robert said, almost you know.
Bryan Giglia: And then, of course, what we have done consistently over the last couple of years is, when the stock gets to a meaningful gap, we've been able to repurchase shares. And that's something that we did again recently.
Robert Springer: a nine yield on on that investment you know in their first year.
Speaker Change: And then, of course, is also what we have done consistently over the last couple years is when the stock gets to a meaningful gap is that we've been able to repurchase shares and that's something that we did again.
Speaker Change: in the quarter recently, and have that balance sheet capacity and that flexibility to be able to
Speaker Change: You know, pull on any of these levers at any time and they change depending on where our valuation and where that gap is.
Speaker Change: Your next question comes from the line of Dori Kesten with Wells Fargo. Please go ahead.
Speaker Change: to
Dori Kesten: Thanks. Good morning. During your prepared remarks, you described some leisure pricing as normalizing, but are there any hotels in your portfolio where you're seeing true pay sensitivity at the margin?
Robert Springer: Where you're seeing just like true price sensitivity at the margin. You know one market we've talked about, where maybe it's a little bit more sensitive, and whether that. Not on the leisure side, but on the group side, we've... $700-$800; at Four Seasons, it's $900-$1000 a day per room. And that, between that and the productivity measures that we put in place, you're seeing the cash flow for both of those assets increase dramatically.
Dori Kesten: I'm sorry, Dori, but we'll leave the end of that as part of that.
Dori Kesten: where you're seeing just like true price sensitivity at the margin.
Speaker Change: One market we've talked about, Key West, has been one where there has been more price sensitivity. We have been able to capture some more occupancy there, but that's one where
Speaker Change: where maybe it's a little bit more sensitive and whether that's...
Speaker Change: competing, you know, options for the traveler, whether it be cruises or other other items plays into that a little bit more. Other markets, I don't think that we've seen that as much.
Speaker Change: You know, one market where, where...
Speaker Change: Not on the leisure side, but on the group side, we've...
Speaker Change: rationalized our pricing has been in Napa which has been very successful where we're bringing in additional group
Speaker Change: and you'll see...
Speaker Change: You know, when you go through the supplementals, you'll see the rates are lower, and that's because we're adding occupancy, we're taking the group at a more rational rate, which obviously fluctuates over the different demand periods, but then we're getting that ancillary spend where at montage, it's...
Speaker Change: You know, $700, $800 at Four Seasons, it's $900, $1,000 a day per room. And that is, between that and our productivity measures that we put in place, you're seeing the cash flow for both of those assets increase dramatically.
Speaker Change: Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Please go ahead.
Duane Pfennigwerth: Hi, thanks. I appreciate it. Just on Maui, given the asset level disclosure that you give us, you know, the market doesn't really look that off, or it's at least hard to tell in the disclosure that you've given. Can you talk specifically about...
Speaker Change: How your assumptions have changed in the back half of the year, maybe 3Q vs. 4Q, and if there's specific groups or seasonal periods that really impacted the forecast. Thanks for taking the question.
Speaker Change: Thanks, Duane. Good afternoon. So with Maui, I mean, your point is exactly right. When you look at the supplemental, and it's...
Speaker Change: It's down, but it's not down a lot. At the end of the day, this is a hotel that's going to run around 70% occupancy.
Speaker Change: It's a high $600 rate
Speaker Change: It is a meaningful hotel in our portfolio, and we have a concentrated portfolio. And if you have a concentrated portfolio, you want to make sure that you...
Speaker Change: You have great real estate, you have good market exposure, and you have the ability to create value both internally with those assets and externally. And Maui is an asset that is an exceptional piece of real estate.
Speaker Change: You know, when you look at our position within the YLA market,
Speaker Change: It is one of the better...
Speaker Change: luxury resort markets in the world and we're
Speaker Change: You know, we're the value proposition there. We have an outstanding 22 acres, multiple pools.
Speaker Change: some of the closest rooms to the water that you can have.
Speaker Change: um
Speaker Change: And we compete with some very high-end luxury product in that market.
Speaker Change: What we started seeing in the second quarter, which tends to be a heavier leisure quarter than group quarter, is that
Speaker Change: Some of the leisure demand did
Speaker Change: You know, moderate a bit, and as we got into then looking at our projections going forward, the third quarter, the group business really starts in like September , and then runs through towards, you know, towards the festive season.
Speaker Change: So from a group standpoint, the group demand is still...
Speaker Change: very good and our group pace is very good. It's just that that group kicks in in September and when we looked at the leisure and more the summer traveler, whether it's a combination of still traveling abroad or
Operator: are there?
Speaker Change: You know, other.
Speaker Change: Destinations, whether it be Mexico or Europe , is that...
Speaker Change: There wasn't group to help insulate that weakness. And so when we look at the guidance and the change to the guidance, it really is that impact in the third quarter. And while the tourism...
Speaker Change: authorities and and multiple stakeholders are doing promotions and other things to to remind the traveler that what a wonderful experience Maui is. It still is a longer booking window.
Speaker Change: by and so even with that going in
Speaker Change: Our assumption is that that that's not going to kick in until maybe September and then into the fourth quarter and September we already have very good group base and not a lot of additional rooms to sell to take advantage of that.
Speaker Change: And then probably the most important period of the year would be the festive period in December . Rate is down a couple percent for that, but occupancy is up.
Speaker Change: You know, over 10% right now. And so, you know, when we look at a hotel or resort like Maui, you really look at total REB PAR, and when we look at occupancy going up, that that much on a on a pace basis.
Speaker Change: That should bode well for the back end of the year.
Speaker Change: Your next question comes from the line of Smedes Rose with Citi. Please go ahead.
Smedes Rose: Hi, thank you.
Smedes Rose: I wanted to just ask you about, I guess, as the Andaz comes close to being back online and should be a pretty big contributor into next year.
Smedes Rose: Could you just talk about, I guess, how you're thinking about the mix of business there, group versus leisure, and just with that, I know you mentioned that it's on time. Does it remain on budget relative to what you shared previously?
Speaker Change: Good afternoon, Smedes. So, Andaz is in...
Speaker Change: Full renovation right now, as we've told you before. The hotel was shut down to really expedite the renovation.
Robert Springer: You know, the ultimate mix for that hotel is probably right around 25% group. You know, Miami Beach is a very high transient leisure market.
Speaker Change: You know, the ultimate mix for that hotel is probably right around 25% group. You know, Miami Beach is a very high transient leisure market.
Speaker Change: We did, through the renovation, add more suites to be able to accommodate groups.
Speaker Change: and we also, we also, you know...
Speaker Change: have, you know, there's also some non-food and beverage group business that the hotel can do too. And so our plan is to have renovation wrapping up for the most part in
Speaker Change: You know the fourth quarter Be looking to the reservation line isn't open quite yet, but looking to book Rooms into December use December which is a good demand period but use December as
Speaker Change: Time to fine-tune the operation so come the beginning of next year when we and I believe most of the investors are counting on
Speaker Change: the earnings from the hotel to really kick in as part of our 2025 growth to be in a great position for that.
Speaker Change: That's also a higher leisure time period, so transient bookings can fill the hotel at that point.
Speaker Change: We do have the sales team is.
Speaker Change: You know fully engaged right now and they are booking business that business is probably
Speaker Change: You know, you want to leave a little bit of time to get things running right, so that business is probably looking to come in.
Speaker Change: Mid to late January into February , but that you know, we are putting business on the books right now We are getting a great reception The pools are coming into into shape now. The backyard is coming into shape and you're starting to see
Speaker Change: The vision is becoming a little bit clearer, which is exciting for groups.
Speaker Change: As far as timing, timing is still for the fourth quarter, and I would say that as far as
Speaker Change: The budget, if it goes, our last update, we're roughly around those numbers right now. Still a lot of moving pieces, but we feel very confident with...
Speaker Change: With this thing being completed and ready to go, and most importantly, creating EBITDA going into next year.
Operator: Your next question comes from the line David Katz with Jeffries. Please go ahead.
Speaker Change: Your next question comes from the line of David Katz with Jeffries. Please go ahead.
David Katz: Hi, thank you. Can you talk a bit about Napa and, you know, what you're seeing up there and if that is encompassing the leisure trends that you cited earlier and, you know, just how you're doing with those two assets, please? Thank you.
Operator: Sure. Good afternoon, David.
Speaker Change: Sure. Good afternoon, David.
Speaker Change: So in the second quarter, starting with montage,
Speaker Change: From a group side, these are always going to be a little bit lumpy because you're going to have buyouts, you're going to have other bigger pieces of business that kind of come and go. Montage...
Speaker Change: Group, it had some buyouts, it had a buyout wedding last year. Group was down a little bit, but we actually had good transient pickup for the quarter. I think transient was up about 14%.
Speaker Change: group was down a couple percent and our total because that group was down our total rep part was was down you know a point or so.
Robert Springer: Even with that, with taking, you know, with having, you know, the group base in there and also driving the ancillary revenues, and then also remember that the montage is a little farther along in our productivity measures, the resort produced $800,000 more EBITDA than it did the prior year, even with REDPAR being down. So it shows that we were able to work with the operator, get the efficiencies that we thought were appropriate, and then also maintain the service levels of a true luxury hotel.
Speaker Change: Even with that, with taking, you know, with having, you know, the group base in there and also driving the ancillary revenues, and then also remember that the montage is a little farther along in our productivity measures.
Speaker Change: The resort produced $800,000 more of EBITDA than it did the prior year, even with REBPAR being down.
Speaker Change: We were able to work with the operator, get the efficiencies that we thought were appropriate, and then also maintaining the service levels of a true luxury hotel.
Speaker Change: Looking forward for the rest of the year, Group Haste is very strong in Q3, and we're on track to...
Speaker Change: be right around the group number that we thought we would be, call it 13 or 14,000.
Robert Springer: When we look into next year, we're very excited about montage because we are up three million dollars and in room revenue pace by about 70%, and so again, the cost model is there. We're starting to see some positives on the transient side and the group business and that ancillary spend. And most importantly, the total REB PAR is produced. Thanks. Good morning. Bryan, can you talk through your expectations?
Speaker Change: Room Nights. When we look into next year, we're very excited about Montage because we are up $3 million in room revenue pace, about 70%. And so again,
Speaker Change: The cost model is there. We're starting to see some positives on the transient side, and the group business, and that ancillary spend, and most importantly, the total REB PAR is producing.
Speaker Change: for four seasons.
Speaker Change: Four Seasons had a very good group.
Speaker Change: In Q2, we are implementing some of our productivity measures there, so they're not fully realized.
Speaker Change: The Michelin Star Restaurant has had increased its number of nights, has increased its revenue, is doing very well and bringing a lot of notoriety and people to the resort.
Speaker Change: And our profits were up, again, year over year, about half a million dollars of that asset. So, again, doing very well. As we look into next year, the group room nights pace is up about 11%. As I said earlier, rate is down a little bit, but that is by design to capture the...
Speaker Change: The ancillary spend, which is almost $1,000 a night per birth room. So again,
Speaker Change: You know, it's taking a little bit of time, but as we saw this quarter, both of these hotels are absolutely moving in the right direction and producing that, you know, the cash flow that we were counting on. And as we look into next year, both of them are lining up really well.
Speaker Change: Your next question comes from the line of Chris Darling with Green Street. Please go ahead.
Chris Darling: Thanks. Good morning.
Chris Darling: Bryan, can you talk through your expectations for total RevPAR growth this year relative to RevPAR and how that might have changed versus prior guidance? And then, you know, as you mentioned in your prepared remarks, out of room spend and cost reduction supporting results this quarter, can you help me understand how each of those aspects plays into the updated full year outlook?
Speaker Change: Okay, let me start. On total REB PAR, it's probably about 40 basis points.
Speaker Change: higher versus versus
Speaker Change: is where we're at.
Speaker Change: are.
Speaker Change: Yeah, I think if you look at how we've done through the first part of the year, you know, total REF power growth exceeded.
Speaker Change: Rooms Rev Part Growth in the second quarter. We saw that also in the first quarter. I think the magnitude of the disparity between rooms in total for this year, I think, will moderate a bit versus what we saw last year. But as Bryan noted, I think you'll expect that the total Rev Part Growth should outpace rooms by about 40 to 50 bps.
Speaker Change: And you'll be able to see some of that in our supplemental and...
Speaker Change: Remember too that a big piece of that will be the group side of things and unlike last year where our group pace was heavy in the first half of the year this year it's
Bryan Giglia: The second half of the year, and so there will be, you know, from a quarter to quarter basis, there will be some lumpiness to that.
Bryan Giglia: Your next question comes from the line of Chris Woronka with Deutsche Bank. Please go ahead.
David Katz: Hey, good morning, guys. Thanks for taking the time to answer the question.
Chris Woronka: Hey, good morning, guys. Thanks for taking the question. I was hoping we could talk a little bit about Orlando. And, you know, I know historically it's been a pretty good asset for you guys. And this year, pretty familiar with all the issues impacting the Orlando market. But, you know, for your asset there, specifically the Renaissance, do you think it's...
Bryan Giglia: I was hoping we could talk a little bit about Orlando. And, you know, historically, it's been a pretty good asset for you guys. And this year, I'm pretty familiar with all the issues impacting the Orlando market. But, you know, for your asset there, specifically the Renaissance, do you think?
Speaker Change: Totally a market kind of specific issue or you know what's your outlook for that asset next year relative to the market is there is there anything you think you need to do is it's still considered you know core on a longer term basis? Thanks.
Bryan Giglia: You know, we do have a lot of land there, and so, you know, there could be some opportunity longer term to enhance the assets and enhance its, you know, its leisure offerings. It's, you know, like our other or past Renaissance hotels, it does very well from the group side, and it does as well on an index basis on the transient side. And so when you look at what we've seen happen in DC, our transient index year-to-date is in the 1-30.
Chris: Good morning, Chris. Longer-term,
Speaker Change: We do have a lot of land there and so, you know, there there could be some opportunity longer term to to enhance the assets and enhance its
Speaker Change: It's leisure offerings, it's like our other or our past renaissance hotels, it does very well from the group side.
Speaker Change: It doesn't.
Speaker Change: do as well on an index basis on the transient side. And so when you look at what we've seen happen in DC, our transient index.
Bryan Giglia: Prior to the repositioning, we were in the high 90s. And so, you know, the branding obviously makes a big impact. You know, from a leisure standpoint, the location kind of in between both parks was, you know, next to SeaWorld, of course, but between the two major parks was, you know, never a good idea.
Speaker Change: The year-to-date is in the 130s.
Speaker Change: Prior to the repositioning, we were in the high 90s.
Speaker Change: You know, from a leisure standpoint, the location kind of in between both parks was, you know, next to SeaWorld, of course, but between the two major parks was, you know, never a...
Speaker Change: Made it the primary leisure destination choice with the new Orlando Gate opening I'm sorry the new Universal Gate opening
Speaker Change: much closer to the hotel, that should help going forward too. So, you know, I think what we can do is we can look in, especially when the new gate opens, and see where that, you know, if there's additional demand shifting to our area.
Speaker Change: We definitely have the space to enhance the leisure.
Speaker Change: You know, the leisure amenities at the hotel. Looking at the group side, the bread and butter of this hotel has always been group. It's been our space and the abundance of space.
Speaker Change: including the atrium area which we use really well and so that will always be
Speaker Change: for all. Thank you.
Speaker Change: Your next question comes from the line of Floris Van Dijkum with Compass Point. Please go ahead.
David Katz: Hey, thanks for taking my question. Bryan, maybe if you could talk a little bit about the transaction markets and also about
Speaker Change: Hey, thanks for taking my question. Bryan, maybe if you could talk a little bit about the transaction markets and also about
Speaker Change: potential.
Speaker Change: Rather, if, you know, because what we're hearing is that larger hotels are harder to transact in the current environment.
Speaker Change: Would you consider putting mortgage debt on one of your bigger assets, like, for example, the Hilton San Diego, and using some of that capital to buy either another hotel or fund more shareware purchases?
Speaker Change: Okay, good afternoon, Floris. You know, from a capital standpoint...
Flores: You know, I don't know if we would need to put a mortgage on a hotel. We have a fully undrawn $500 million line. We have cash on the balance sheet.
Speaker Change: We have a low levered balance sheet. So as far as access to capital, whether we wanted to acquire something, whether it be an asset or stock, I think we have all the flexibility and firepower that we need to do that.
Speaker Change: Thank you for that. Thank you. Thank you.
Speaker Change: You know, as far as the transaction market goes...
Speaker Change: When we sold Boston last year and started looking for acquisition targets,
Speaker Change: Our expectation were things were going to improve.
Speaker Change: This year and while the CM part of it was that the CMBS market would improve and that would improve the the pace of transactions
Speaker Change: The CMBS market has definitely improved. It seems like it's improved in mainly facilitating refinancings more than a lot of purchases. And as rates come down...
Bryan Giglia: And the, you know, the cost of that debt comes down, and then maybe we'll see some more private buyers become more active. But up until this point, I would really say we're disappointed with the pace because we thought that there would be better opportunities to deploy the remaining proceeds from Boston Park Plaza. So, we're going to have to wait and see, an acquisition that much more difficult because we're going to need to make up for that.
Speaker Change: And the, you know, the cost of that debt comes down, and then maybe we see some more private buyers become more active.
Speaker Change: But up until this point, it really, you know, I would say we're disappointed with the pace because we thought that there would be better opportunities to deploy the remaining proceeds from Boston Park Plaza.
Speaker Change: We did deploy a good portion of it in a San Antonio and we are very happy with that transaction And I think if we could find another San Antonio right now, we probably would
Speaker Change: would
Speaker Change: It would be more compelling.
Speaker Change: That said, we're not seeing a lot of that. We're not, and to your point, we're seeing some, maybe some of the smaller assets.
Speaker Change: deploying those proceeds into an asset and what are the return expectations of that asset and then compare that to
Speaker Change: Where are we trading? Where's our stock? And is that any more compelling?
Speaker Change: opportunity. And I think over time, we've shown that we go back and forth between those, you know, pretty often, and appropriately, and we try to remain balanced. And that's something is, you know, we said, we've already had some share repurchase.
Speaker Change: that we announced in the release this morning. And given the lower the stock price goes and the bigger the discrepancy between that and our view of value makes
Speaker Change: a acquisition that much more difficult because we're going to need to make up for that difference. And so all these things ebb and flow. The good news is, is, you know,
Speaker Change: We have the portfolio, we have the balance sheet, we have all the flexibility we need to be able to be very nimble and to be able to go back and forth and make the right capital allocation decision.
Operator: And that concludes our question and answer session. I will now turn the conference over to Bryan Giglia for his closing remarks.
Speaker Change: And that concludes our question and answer session. I will now turn the conference over to Bryan Giglia for closing remarks.
Bryan Giglia: Thank you everyone for your time and your interest and we look forward to seeing many of you in the coming months and we'll look forward to the grand opening of the the Andaz in Miami Beach later this year. Thank you.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Roberto Fernandez: Thanks for watching!