Sunstone Hotel Investors, Inc. Q1 2010 Earnings Call Transcript

Sunstone Hotel Investors, Inc. Q1 2010 Earnings Call Transcript
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Sunstone Hotel Investors, Inc. (SHO)

Q1 2010 Earnings Call

May 10, 2010 1:00 pm ET

Executives

Bryan Giglia – Vice President of Corporate Finance

Arthur L. Buser – President, Chief Executive Officer & Director

Kenneth E. Cruse – Chief Financial Officer & Senior Vice President

Mark Hoffman – Senior Vice President & Head of Asset Management

Analysts

Chris Woronka – Deutsche Bank Securities

Kevin Milota – JP Morgan

Patrick Scholes – FBR Capital Markets

Andrew Whitman – Robert W. Baird & Co., Inc.

P

resentation

Operator

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Welcome to the Sunstone Hotel Investors first quarter earnings call. At this time all participants are in listen only mode. (Operator Instructions) I would now like to turn the conference over to Mr. Bryan Giglia, Senior Vice President Finance. Please go ahead, Sir.

Bryan Giglia

Thank you. Good afternoon everyone and thank you for joining us today. By now you should have all received a copy of our earnings release which was distributed this morning. If you do not yet have a copy you can access it on the investor relations section of our website at

www.SunstoneHotels.com

.

Before we begin this conference 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 prospectuses, 10Qs, 10Ks and other filings with the SEC which could cause actual results to differ materially from those projected. We caution you to consider those factors in evaluating our forward-looking statements.

We also note that this call may contain non-GAAP financial information including EBITDA, adjusted EBITDA, FFO, adjusted FFO and hotel EBITDA margins. We are providing that information as a supplement to information prepared in accordance with generally accepted accounting principles.

With us today are Art Buser, President and Chief Executive Officer; Ken Cruse, Chief Financial Officer. Mark Hoffman, Chief Operating Officer, will also be available to answer questions during the Q&A portion of this call.

I would like to turn the call over to Art. Art please go ahead.

Arthur Buser

Thanks Bryan. Good morning and/or good afternoon everybody and thank you for joining us today. Since we already provided an update detailing first quarter operating results on our business update call three weeks ago, during today’s call I will recap the highlights of the quarter. Following that I will provide an update on current operating trends and examples of how we are doing with our managers to build on this positive momentum and maximizing cash flow. Last, I will provide an update on both internal and external investment opportunities and the results of our RFP process. Finally, Ken will provide additional detail on our finance initiatives including the acquisition of two pieces of debt.

Looking at reviewing current operations for our 29 hotel portfolio adjusted EBITDA for the first quarter was $27.3 million and adjusted FFO and adjusted FFO per share were $4.2 million and $0.04 respectively. Reconciliations for adjusted EBITDA and adjusted FFO to net income can be found on our earnings release filed today. Again, all RevPAR stats discussed on today’s call are pro forma for our 29 hotel portfolio unless we note otherwise.

For the first quarter our total portfolio RevPAR was down 6.5% to prior year. Occupancy was up1.4 points and rate was down 8.4%. Excluding our two D.C. assets both of which benefited from the Presidential Inauguration in 2009 our total portfolio RevPAR was down 4% to the prior year. Occupancy increased by 2.1 points while rate was down 7%.

New York City and Boston continue to be leading indicator markets. Our Hilton Times Square generated 14 sell-out nights during the first quarter compared to two sell-out nights last year. Additionally, during the first quarter our Hilton Times Square realized 35 nights with a higher average daily rate than the same day in 2009. This positive trend improved further in April with 20 sell-out nights compared to 15 in 2009.

I think it is also important to note there were 15 sell-outs during the peak demand period of 2007. So that is a great comp. Like New York, Boston is also showing impressive recovery over 2009. Our Marriott Boston Long Wharf had 22 sell-out nights the first quarter compared to 5 first quarter of 2009. Still slightly less than the peak in 2007 where there was 28. It realized 14 nights with a higher rate. This trend continued in April with 11 sell-out nights compared to 2 in 2009 and 8 in 2007. So April in fact had more than 2007.

Let’s talk about the improving business trends and business mix. As highlighted in New York and Boston our portfolio wide sell-out nights in the first quarter showed a meaningful improvement over 2009 and in several cases our sell-out nights are approaching levels seen during peak demand periods of 2007. Portfolio wide in April we had 144 sell-out nights in the first quarter as compared to 132 in 2009 and 192 in 2007. April’s results provide further evidence we have entered into the early stages of what we expect to be an extended cyclical lodging recovery.

April RevPAR for our portfolio finished up 3.6% to last year and up significantly to our prior internal forecast. 19 of our 29 properties had occupancy increases in April and 11 of our hotels recorded higher rates. Overall our outlook on the remainder of the year is very positive as our operators continue to handily beat their forecasts submitted just 30 days prior. That really speaks to the rate of acceleration we are seeing.

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