Good morning, ladies and gentlemen, thanks 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 PM Eastern time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

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 may 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 last year, followed by commentary on our fourth-quarter operations and recent trends. Afterward, 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.

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 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-term value-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 pays up almost 20% as compared to 2023. While the hotel has always been a productive group house, the conversion to the Western brand is already driving incremental transient demand at higher rates. Looking forward, work is now also underway on another value-added 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 give us the ability to further enhance our capital return into 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 Western Washington DC, which grew RevPAR by 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 had 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 costs 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 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 pays for the comparable portfolio are 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 resort's 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 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.

Thanks, Bryan. During 2023, we invested over $110 million into our portfolio as we completed and relaunched the 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 in 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 is a combined benefit of delivering a better guest experience while also contributing to higher food and beverage profitability. In DC, we're 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've shared with you before, capital recycling is a primary component of our strategy, and we are encouraged by the incremental activity we're 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.

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. 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 city-wide 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, 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. 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 opportunities to replay 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 costs 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. 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 carryover 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 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 also declared the routine distributions for a series of H and I preferred securities. While we retain ample capacity for additional capital return, the full-year outlook 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 were able to speak with as many participants as possible, we ask that you please limit yourself to one question. Operator, please go ahead.

Our first question comes from Chris Darling with Green Street. Please proceed.

Thanks. Good morning. Chris, 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 is the midpoint of your guidance range implied for leisure transient RevPAR growth this year? Thank you.

Good morning, Chris. I'll start with the first part. As we look ahead to 2024, we anticipate strong growth from our key assets such as Western DC, Long Wharf, and Long Beach as they emerge from renovations, along with San Diego and Portland. However, New Orleans is expected to fall slightly below expectations. While the market has shown decent performance this year, its growth is back-loaded, with demand concentrated in the third and fourth quarters, contrasting with the stronger transient business seen earlier in the year. In San Francisco, we experienced robust growth in 2023, and while there are positive indicators for 2024, the city's overall performance is concerning due to weak citywide events this year, which may lead to some pressure on average daily rates from underperforming sub-markets. Nevertheless, the business transient demand remains solid, particularly in the smaller group segment, which makes up about 40% of our business and is experiencing strong short-term bookings. Additionally, there are potential positive influences in the market from AI-related business growth and an anticipated increase in international visitors. In Orlando, the first quarter of last year was strong, but we expect some transient softness in the second half, especially with the new Universal Park opening next year.

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

Hey, thanks. I wanted to follow up on the 5 to 8x growth in Miami. Can you share what that growth rate was in the fourth quarter and how we should consider that for the first half of the year, particularly in the first and second quarters?

As far as the cadence?

So, yes, the 5 to 8 outlook that you're providing x Miami, what did x Miami RevPAR look like in the fourth quarter, and maybe you already indicated it's probably going to be more second half we did. But I wonder if you could put a finer point on the first half of the year?

So, Duane, just to hit your first question on what RevPAR growth looked like x Miami, those are the statistics that we have on page two 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. Both of those metrics were on the better side of our guidance range.

And then to add on to that, when you look at the cadence for the year, Q1 is will obviously be the weakest quarter. When you look back to ‘23, you had most of our group hotels had really some of the best quarters that they've ever had, Wailea, San Diego. So there was very strong – part of that was the impact of RevPAR with Omicron. And so Q1 was very strong this year, will be Q1 will be our toughest comp. When you look at the back half of the year, probably 60 or so percent of our gains are coming in the back half, Q2 ramps up a little bit more, our larger group hotels, the majority of their demand and the pace is coming in that 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, you know, 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 starting Q2, mainly in the second half of the year.

Okay, thank you.

Our next question comes from the line of Smedes Rose with Citi. Please go ahead.

Hi, thanks. Bryan, I wanted to understand if the performance in the fourth quarter was simply due to the usual business mix, or if there was any impact from fire-related issues in housing. How do you see that property developing in 2024? Additionally, could you provide some insight into the situation with the two Napa hotels, which appear to be struggling to achieve a stable run rate?

Good morning, Smedes. In Maui, the majority of the business in the fourth quarter returned to the typical levels we expect in that market. There was some residual relief business early in the fourth quarter, particularly in October, but the hotels managed to pivot quickly, securing that relief business in the third quarter before transitioning back to their usual business mix as the year progressed. There are still some lingering effects, and as noted by others, we anticipate that Maui will continue to recover throughout 2024 and beyond. Our group base looks strong, and leisure demand remains robust. The Wailea market has rebounded more significantly than the areas still affected, which currently hold most of the relief room nights. As a point of reference, the festive period in December showed stronger performance compared to 2022, indicating a return of the higher-end leisure customer. The first quarter is showing some year-over-year weakness on the group side due to a large group business that rotates out of Maui every third year, but it will return next year. Overall, we are pleased with how our hotel and the market have performed, and we expect growth this year, with a return to more normalized levels by 2025. Regarding our Wine Country assets, the leisure demand remains disappointing across the market. Currently, our focus is on what we can control at the two resorts, prioritizing both group business. As indicated in the supplemental report, Montage outperformed Four Seasons this quarter, partly because Four Seasons had a buyout that didn't occur this year, leading to variability in their numbers. Montage, being a larger hotel, has a stronger group business and was better able to offset the transient weakness compared to Four Seasons, which is also undergoing cost restructuring. As we move into 2024, the residential units at Montage are now available for sale, which we believe will help both properties gradually increase their top-line revenues. However, we won’t see the next wave of growth until transient demand starts to pick up significantly. We experienced a surge in demand when they opened in 2022, and we are beginning to observe a bit of an increase in transient demand again. Meanwhile, we've established the right cost models and hotel segmentations to enhance cash flow. The positive news is that our overall portfolio is well-positioned, and we've dedicated significant time to ensuring the right mix to support future growth, even in underperforming markets. Washington, DC is growing this year, and we've integrated that growth with Long Beach. As we discuss the displacement at Andaz later this year, we will also consider next year’s ramp-up, remembering that the hotel was previously doing $12 million of EBITDA as the Confidante. We've focused on building and layering growth into our portfolio. Portland continues to rebound, and Long Wharf is generating excellent growth while expanding its group base. The hotel is performing exceptionally well, with plenty of room for further improvement. We’ve also discussed how proceeds from the Boston Park Plaza can facilitate greater growth through share repurchase or additional acquisitions. While we've faced challenges to establish this foundation, we are well-prepared for 2024 and beyond.

Thank you. Appreciate it.

Our next question comes from the line of Chris Woronka with Deutsche Bank, please go ahead.

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 give RevPAR 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 build-out.

Good afternoon, Chris. You’re asking a pertinent question regarding Wine Country and San Francisco. We expect a progression in performance. Last year, we experienced solid growth in San Francisco, but we might encounter a period of stagnation before we see further acceleration. The resorts are on solid footing; we have established our foundation well. We’re currently refining our cost models and ensuring we’re sensible with our rates, keeping total revenue per available room in mind. We anticipate needing to reduce rates at both resorts to attract the right groups. With group spending around $700 to $800 at Montage and over $1000 at Four Seasons, it’s vital to assess these resorts from a comprehensive perspective. All of this groundwork is in place. You're correct that we will see growth once transient occupancy and demand return to the market, but it won't follow a straight trajectory.

Okay, thanks, Bryan.

Our next question comes from the line of Floris Van Dijkum with Compass Point. Please go ahead.

Thanks. Morning, guys. Thanks for taking my question. Hey, Bryan, question, as you keep shrinking your portfolio, if I do my math correct, your top three assets account for 58% of your EBITDA. Obviously, you know, very pleasantly surprised that Wailea Beach has bounced back as quickly as it has. It's great, kudos to you guys. And San Diego Bayfront continues to move along as well. My question was on the third of your top three, or you know, the Orlando SeaWorld Renaissance. You guys have rebranded some of your other Renaissance hotels, can you tell us a little maybe a little bit more on your longer-term view on the flag at this particular asset and what you could potentially do to create some value going forward?

Sure. Afternoon Floris. While Orlando is number three right now, I think that DC might be passing it very soon. But to your point of one concentration is something that we focus on quite a bit. As we look to acquire an additional asset or for more that concentration and making sure that we're spreading that out and replacing what we had in Boston, that's something we look atand we think a lot about. While we would like that majority of EBITDA coming from a few more hotels, we also like the ones that we have that are producing it and they are a world-class asset. Orlando, I think we've talked about this before on another call, is that we have rebranded a few of our Renaissance hotels and Renaissance hotels do very well on the group side, and we've been happy with the performance in Orlando; it has done very well and done well as Renaissance. Our view is that while we always look for opportunities to up-brand or add value through that, the Orlando is a pretty mature lodging market with a lot of brands everywhere. And so, what we're going to do in our focus is really to maximize this asset, and we think we can maximize it as a Renaissance. We have a lot of surface parking lots. We have a leisure component that's good but could maybe be better. So, we will look to maximize our real estate, which could include future development, redevelopment, and we've added a meeting space there a few years ago, which has been able to drive additional room nights. The good news is, we have a lot to work with there; and the brand has always been additive, especially at this location.

And maybe just to clarify on the surface parking lot, and I think, if I'm not mistaken, I mean, you can almost double the floor plate potentially. If you have structured parking, if I'm not mistaken. Would you consider adding additional hotel rooms? Or what kind of improvements do you reckon you would look to bring to the property?

I mean, structured parking comes with a cost that needs to be considered. However, with some of the space we have available, we could potentially add more guest rooms or additional meeting areas. I am not sure if that is necessary since the hotel already has a good amount of meeting space for its size. We could also incorporate more leisure features, such as a pool or a water park. Therefore, we have many options that we are currently assessing to determine what would be the most beneficial.

Thanks.

This concludes today's question and answer session. I would now like to turn the call over to Bryan Giglia for closing remarks.

Thank you, everyone for your interest and time today. We look forward to meeting with many of you at upcoming conferences and we look forward to those that we have tours of the Andaz and those that are touring it coming up. We think it will be a great opportunity for you to witness our next round of growth that we have embedded in this portfolio. Thank you.

This concludes today's call. You may now disconnect.