Sunstone Hotel Investors executives said their major achievement in 2022, a year that followed a leadership and strategic shake-up at the company, was buying and selling hundreds of millions of dollars in hotels, exiting what they viewed as lower-growth markets and investing in higher-growth hotels.
On the hotel-focused real estate investment trust's fourth-quarter and full-year 2022 earnings call, CEO Bryan Giglia said the company sold three hotels in Chicago for a combined price of $197 million, which was a sign of relative lack of faith in the city and those hotels.
"While we expected the hotels and the Chicago market to recover in 2022 and 2023, our view on these investments was given the significant future capital needs and near- and long-term pressures, our return on invested capital would continue to decline, and it was time to redeploy those proceeds in better growth opportunities," he said.
Those growth opportunities amounted to investments in the Confidante Miami Beach, which Sunstone bought for $232 million and invested another $60 million to renovate and convert it into an Andaz property, and a joint-venture buyout of a 25% stake in the Hilton San Diego Bayfront, which "equated to a consolidated value of $628 million."
Giglia said the San Diego property is already one of the bright spots for Sunstone's 15-hotel portfolio.
"The Hilton San Diego Bayfront continues to be one of our strongest-performing assets, with considerable in-house group [business] on the books for 2023," he said. "San Diego exceeded 2019 earnings in 2022, and we expect additional meaningful growth in 2023."
He said construction work on the Andaz Miami Beach will begin during the second quarter. The property has been exceeding Sunstone's underwriting even ahead of the conversion, he added.
Giglia described that deal as a "an investment with a decent near-term cash yield with a longer-term upside," and the San Diego deal as "a near-term cash-flow play where we were able to acquire that hotel's very good yield and let that yield grow."
In addition to acquisitions, Sunstone invested $128.6 million in improvements within its portfolio in 2022, which included the conversion of the Renaissance Washington DC into a Westin property — which will take place this year — and a rooms renovation at the Hyatt Regency San Francisco. The company expects to invest another $130 million to $150 million in renovations this year, which includes the Andaz Miami Beach conversion and the conversion of the Renaissance Long Beach into a Marriott.
Fourth-Quarter Performance
Sunstone recorded $17.5 million in net income for the fourth quarter and $90.8 million for the full year — with both figures being buoyed by the gains from selling the Chicago hotels, according to the company's latest earnings release.
Comparable revenue per available room was $193.59 for the fourth quarter and $194.31 for the year. Giglia noted during the earnings call that fourth-quarter performance beat expectations.
Adjusted earnings before interest, taxes, depreciation and amortization for real estate was $233.8 million for the full year, a 247.8% improvement over 2021 performance.
Sunstone's latest guidance for full-year 2023 calls for a total RevPAR increase of 30% to 32% compared to 2022.
As of press time, Sunstone's stock was trading at $10.50 a share, up 8.7% year to date. The NYSE Composite was up 2.3% for the same period.