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Sunstone Hotel Investors, Inc. (SHO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered mixed results: total revenues of $214.8M (-2.0% YoY), Adjusted EBITDAre of $48.1M (-12.0% YoY), and Adjusted FFO/share of $0.16 (-15.8% YoY); full-year Adjusted EBITDAre and FFO/share landed at the high end of 2024 guidance .
  • 2025 outlook calls for total portfolio RevPAR growth of +7% to +10% (ex-Andaz +3% to +6%), Adjusted EBITDAre of $245M–$270M, and Adjusted FFO/share of $0.86–$0.98; Andaz Miami Beach expected to contribute $8M–$9M of EBITDA as it opens mid-March .
  • Balance sheet remains strong: all debt unsecured, ~$700M liquidity, net debt and preferred to trailing EBITDA at 4.3x (expected to moderate to ~3.9x at midpoint of 2025 guidance) .
  • Key narrative drivers: accelerating group pace (~+10%), citywide tailwinds, Andaz debut, easier comps in San Diego in H2, and disciplined cost control amid wage inflation; leisure demand remains the swing factor (Maui recovery back-end loaded) .

What Went Well and What Went Wrong

What Went Well

  • Group strength across portfolio: “Group pace is up approximately 10%... with broad‑based strength” and Westin DC delivered a “banner year” with 30% RevPAR growth and higher out‑of‑room spend ($213 per group room) .
  • Cost discipline and ancillary revenue: Q4 results “came in ahead of expectations” on stronger ancillary revenue, better expense management, and corporate savings; Q4 Adj. EBITDAre/FFO ended at high end of 2024 ranges .
  • Capital allocation and portfolio investment: Accretive acquisition of Hyatt Regency San Antonio Riverwalk (attractive yield), Marriott Long Beach conversion ramping, Andaz Miami Beach transformation near completion for mid‑March opening .

What Went Wrong

  • Leisure softness and Maui normalization: Leisure demand moderated; Maui pricing remained rate sensitive, with recovery expected to be gradual and back-end loaded (airlift improving, group solid) .
  • San Diego strike disruption: Lingering impacts from Q3/Q4 labor activity compressed margins and RevPAR; excluding strike and Andaz, Q4 comparable RevPAR grew 2.4%, highlighting the disruption’s weight on headline results .
  • Margin compression: Comparable hotel Adjusted EBITDAre margin fell ~180–210 bps YoY in Q4 due to renovations (Miami/Long Beach) and San Diego strike impacts .

Financial Results

Core Financials and KPIs

MetricQ4 2023Q3 2024Q4 2024Vs. Estimates
Total Revenues ($USD Millions)$219.225 $226.392 $214.770 N/A (consensus unavailable)
Net Income ($USD Millions)$126.985 $3.249 $0.836 N/A (consensus unavailable)
Adjusted EBITDAre ($USD Millions)$54.648 $53.567 $48.093 N/A (consensus unavailable)
Adjusted FFO per Diluted Share ($)$0.19 $0.18 $0.16 N/A (consensus unavailable)
Comparable RevPAR ($)$201.29 $207.56 $199.07 N/A (consensus unavailable)
ADR ($)$308.25 $301.69 $304.85 N/A (consensus unavailable)
Occupancy (%)65.3% 68.8% 65.3% N/A (consensus unavailable)
Comparable Hotel Adj. EBITDAre Margin (%)25.1% 24.9% 23.3% N/A (consensus unavailable)

Notes: Estimates could not be retrieved via S&P Global due to tool limits; consensus unavailable.

Full-Year Comparison

MetricFY 2023FY 2024
Total Revenues ($USD Millions)$986.480 $905.809
Comparable RevPAR ($)$219.32 $214.06
Adjusted EBITDAre ($USD Millions)$263.4 $229.7
Adjusted FFO per Diluted Share ($)$0.95 $0.80

Property-Level Highlights (Q4 2024 vs Q4 2023)

PropertyQ4’24 Revenues ($M)Q4’24 Hotel Adj. EBITDAre ($M)MarginQ4’23 Revenues ($M)Q4’23 Hotel Adj. EBITDAre ($M)MarginMargin Δ
Westin Washington DC$21.6 $6.12 28.3% $20.0 $3.63 18.1% +1,020 bps
Hyatt San Antonio Riverwalk$14.74 $6.20 42.1% $13.57 $5.72 42.2% -10 bps
Wailea Beach Resort$30.12 $9.72 32.3% $36.80 $14.24 38.7% -640 bps
Marriott Boston Long Wharf$16.14 $5.62 34.8% $14.50 $5.32 36.7% -190 bps
Hilton San Diego Bayfront$34.86 $6.08 17.4% $41.36 $11.48 27.8% -1,040 bps

Balance Sheet & Liquidity KPIs

KPIQ4 2024
Total Liquidity (~cash + undrawn revolver)~$700M
Cash & Cash Equivalents$180.3M (includes $73.1M restricted)
Total Debt (Unsecured)$845.0M
Net Debt + Preferred / Trailing EBITDA4.3x (year-end); ~3.9x at 2025 midpoint
Dividend (Declared Q1 2025)$0.09/share

Non-GAAP Adjustments (Q4 2024)

ItemQ4 2024 ($USD ‘000s)
Pre-opening costs (Andaz Miami Beach)$1,181
Property-level legal settlements$1,182
Other adjustments (net)$4,168 (to EBITDAre)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income ($M)FY 2024$31–$41 $43 Beat midpoint by $7
Adjusted EBITDAre ($M)FY 2024$220–$230 $230 Beat midpoint by $5
Adjusted FFO ($M)FY 2024$152–$162 $163 Beat midpoint by $7
Adjusted FFO/share ($)FY 2024$0.75–$0.80 $0.80 At high end
Total Portfolio RevPAR GrowthFY 2024-3.25% to -1.75% (updated Nov) -2.4% actual +10 bps vs midpoint
2025 RevPAR GrowthFY 2025N/A+7% to +10% (ex-Andaz +3% to +6%) New
2025 Adjusted EBITDAre ($M)FY 2025N/A$245–$270 New
2025 Adjusted FFO/share ($)FY 2025N/A$0.86–$0.98 New
2025 Quarterly cadenceFY 2025N/AEBITDA distribution: ~21–22% Q1, ~30% Q2, balance Q3/Q4 New
Andaz Miami BeachFY 2025N/A$8–$9M EBITDA; opens mid‑March New
CapexFY 2025N/A$80–$100M New
Other assumptionsFY 2025N/AInterest income $4–$5M; overhead $22–$23M (incl. $1.8M management transition); interest expense $50–$53M; preferred dividends $16–$17M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Group demand & citywidesPace up high single digits; convention hotels led; Westin DC strong Group production robust; revenue pacing up low double digits for 2025 Group pace ~+10%; strong across quarters; Westin DC led with 30% RevPAR growth and higher out‑of‑room spend Improving
Business transient (BT)Recovery in Boston/SF; AI/legal/financial driving SF Further recovery in Boston/SF/Portland Continuation of strength; operators compress transient rates off stronger group base Improving
Leisure demandNormalization in pricing; Key West price sensitivity; Maui softer Leisure moderated; Maui softer than expected into Q4 Leisure roughly similar to 2024; upside hinges on Maui and markets like Orlando; festive strong but rate moderated Stabilizing to improving late-year
Maui recoveryGroup pace up 18% for 2025; renovations underway Festive room nights pacing +20%; airline lift turning positive; gradual recovery 35k group RN target vs 37k in 2019; leisure lift expected in H2; recovery step function tied to airlift Gradual recovery
San Diego strikeNot presentDisrupted Q3/Q4; contract ratified Oct; lingering Q4 impact Excluding San Diego, margins down only 70 bps; easier comps set up in H2 2025 Headwinds abating
Capital recyclingAcquisition of Hyatt San Antonio (higher than underwritten yield) Balanced approach amid slow transaction markets; share repurchases Continued discipline; potential asset sales/acquisitions/repurchases in 2025 Ongoing
Andaz Miami BeachOn schedule for year-end (Q2) Debut delayed to Feb 2025, net investment ~$95M Opening mid‑March; $8–$9M 2025 EBITDA; 2026 expected to double Near-term catalyst
Wage inflation4%–6% range expectation (Q2) —2025 near top end of 4%–6%; moderates in 2026–2027 Manageable

Management Commentary

  • “We returned nearly $100 million to shareholders through our quarterly dividend and share repurchases… our strong balance sheet and liquidity position gives us the ability to enhance our capital returns as we move into 2025.”
  • “Group pace is up approximately 10%… portfolio will benefit from the easy comparison in the second half of the year in San Diego… and from continued growth in Wine Country.”
  • “Our earnings results for the fourth quarter came in ahead of expectations as stronger ancillary revenue, better expense management… served as a tailwind to in‑line rooms revenue growth.”
  • “We estimate that full year adjusted EBITDAre will range from $245 million to $270 million, and our adjusted FFO per diluted share will range from $0.86 to $0.98.”
  • “Our capital investment activity for this year will be lower… $80 million to $100 million.”

Q&A Highlights

  • Demand mix underpinning RevPAR: Group pacing >10%, BT steady, leisure similar with potential H2 pickup (Maui/Orlando); leisure is main swing factor .
  • Wage/benefit inflation: 2025 near high end of 4–6%, moderating in 2026–2027 .
  • Andaz ramp: 2025 $8–$9M EBITDA; occupancy ramp from ~20% in March to ~70s in Q4; 2026 EBITDA expected to “easily double,” approaching stabilization in 2027 .
  • Napa (Montage/Four Seasons): ~$3M combined 2024 EBITDA growth; optimizing group mix (mid‑60% Montage, mid‑40% FS), ancillary spend ~$900–$1,000/day; further cost gains expected in 2025 .
  • Maui guidance framing: 35k group RN target vs 37k in 2019; leisure recovery step function tied to Kaanapali and airlift normalization .
  • Orlando (Renaissance): Considering brand strategy if transient mix improves; proximity to new park is a potential tailwind; 2025 capex normalized .
  • Portfolio concentration/capital recycling: Intends to accelerate recycling; not afraid of concentration in “fantastic locations” .
  • Expense growth: Total expenses to rise ~4%–4.5%; insurance easing; utilities a bit higher .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable due to tool limits at the time of retrieval; therefore, numeric comparisons to consensus could not be provided. Based on company‑reported guidance, sell‑side models likely need to reflect: Andaz mid‑March opening and $8–$9M 2025 EBITDA, 2025 RevPAR growth of +7% to +10% (ex‑Andaz +3% to +6%), and quarterly earnings cadence with stronger H2 on San Diego comps .

Key Takeaways for Investors

  • Near-term catalysts: Andaz Miami Beach opening mid‑March; expect sequential ramp with 2026 EBITDA doubling vs 2025; watch Q2 seasonality and H2 easier comps (San Diego) .
  • Group-driven operating leverage: Group pace ~+10% across quarters provides rate compression opportunities for transient, aiding margin recovery as leisure stabilizes .
  • Leisure is the swing factor: Maui recovery likely gradual and back‑end loaded; monitoring airlift and promotional dynamics; upside potential in Orlando with new park .
  • Margin trajectory: Comparable margins compressed in 2024; management emphasizes efficiency/productivity offsets; expect margin improvement as investments (Long Beach/Andaz) contribute and strike impacts roll off .
  • Balance sheet optionality: All debt unsecured, ~$700M liquidity, leverage trending to ~3.9x at 2025 midpoint; supports opportunistic share repurchases or selective acquisitions .
  • 2025 setup: Guidance implies double‑digit EPS/FFO growth at the midpoint; quarterly cadence skewed to Q2–Q4; monitor execution on Andaz ramp and group/event calendars .
  • Trading lens: Stock narrative should improve with visible Andaz opening, stronger group calendars, and San Diego comps; downside risks if leisure underperforms or wage inflation runs above plan .

Additional Q4 Press Releases Reviewed

  • Q3 2024 press release summary and the Oct 10 operations update (labor strike impact; capex; Andaz timing/budget revisions) were read for trend analysis and context .