Sunstone Hotel Investors Inc. CEO John Arabia said on the firm’s Q1 2019 results call that he was pleased with operating results and earnings for the first quarter, “as the well-publicized operating challenges in various markets were more than offset by benefit stemming from our attractive market concentrations, our successful renovation activities completed in previous years and various asset management initiatives that continue to produce outsized revenue growth and operating efficiencies.”
He explained that first quarter comparable RevPAR and portfolio revenue both increased 4.3% over the prior year, which stacks up very well to the company’s peers in the industry. “As topline growth was driven by a nearly 3% increase in group room nights –respectable room rate growth in both group and transient segments of demand, as well as 12% growth in other ancillary property level revenues. Comparable portfolio EBITDA increased by 6% in the first quarter, as total revenues increased faster than expenses, despite continued cost pressures in wages and benefits and insurance costs. While we saw first quarter wages increased by nearly 5%, group commissions as a percentage of group revenues were down by 60 basis points,” he explained.
Additionally, he said, food and beverage cost declined by 60 basis points driven by the continued, proactively working various food and beverage outlets and higher mix of catering revenue. “Comparable portfolio EBITDA exceeded our expectations and with coupled with lower-than-anticipated corporate expenses, resulted in adjusted EBITDA and adjusted FFO per diluted share that exceeded the high end of our most recent guidance.”
More specifically, routine renovation activity in Baltimore and San Diego and anticipated general market weakness in Chicago and Portland hindered the company’s first quarter operating results, he explained. That being said, the company benefited from market growth in San Francisco, Wailea, Key West as well as the benefits of capital improvements at its Marriott Long Wharf, Boston Park Plaza, Hyatt Embarcadero and Renaissance-LAX hotels, he said.
“Because of these investments, several of our hotels drove meaningful index gains and delivered the results well in excess of market growth. Notably, group food and beverage and audiovisual spend per occupied group room came in at a healthy $185 per group room night.
To put that number into perspective, our first quarter 2015 group out-of-room spend was $146 on a same-store basis. This represents a healthy 6% compounded annual growth rate and is a direct result of our targeted investments in Wailea, Boston, Orlando and San Francisco.”
According to Arabia, the company’s proactive investments in and repositioning of several of its hotels have provided the REIT’s group clients with creative spaces and facilities to deliver fantastic events. “And therefore, we have attracted higher-quality groups that are willing to pay more for premium experiences.”