Sunstone Hotel Investors, Inc. (NYSE:SHO) Q4 2024 Earnings Call Transcript

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q4 2024 Earnings Call Transcript February 21, 2025

Sunstone Hotel Investors, Inc. misses on earnings expectations. Reported EPS is $0.00418 EPS, expectations were $0.14.

Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors Fourth Quarter Earnings Call. At this time, all participants are in 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 this conference is being recorded today, February 21, 2025, at 1 PM Eastern Time. I will now turn the presentation over to Mr. Aaron Reyes, Chief Financial Officer. Please go ahead, sir.

Aaron Reyes: 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 will 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, and Robert Springer, President and Chief Investment 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 2025. 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.

Bryan Giglia: Thank you, Aaron, and good morning, everyone. Despite several headwinds during the fourth quarter, the portfolio finished 2024 strong with full-year adjusted EBITDA and full-year adjusted FFO per share at the high end of our guidance. The fourth quarter caps off a productive year at Sunstone Hotel Investors, Inc. in which we made further progress on our three strategic objectives, which include recycling capital, investing in our portfolio, and returning capital to our shareholders. All of these benefited the company and its shareholders in 2024 and will provide additional growth in 2025. During the first half of 2024, we successfully recycled proceeds from the sale of the Boston Park Plaza into the 630-room Hyatt Regency San Antonio Riverwalk for a net purchase price of $222 million after incentives, reflecting an attractive 9% capitalization rate on 2024 earnings.

In addition to the compelling initial yield, we have identified several value-enhancing opportunities that we will capitalize on in the near term. The hotel has an ideal location situated between two of the state’s biggest leisure demand drivers, the Riverwalk and the Alamo, and the hotel is within walking distance to the convention center. This year, we are updating the meeting space to better align it with the quality level of the already renovated guest rooms. Additionally, leading up to the opening of the new $500 million Alamo Visitor Center and Museum in 2027, we will enhance the ground floor retail spaces as we expect this area will be a primary access point to the new Alamo grounds and offers the opportunity to drive additional lease revenue.

Overall, we have been very pleased with this investment, and we see considerable potential to grow group and transient business. Building on the success of our conversion of the Westin Washington, D.C. Downtown, we continue to invest in our future growth, and in 2024, we completed the conversion of the Marriott Long Beach Downtown, which began its ramp-up at the end of last year and which will continue into this year. We also advanced the transformation of the Andaz Miami Beach, which is opening in the next few weeks. While the Andaz has taken a bit longer than anticipated due to a very challenging permitting and approval process in Miami Beach, the resort is moving through final inspections and will begin welcoming guests mid-March. The resort looks phenomenal, and we are very excited to demonstrate its earnings power as it ramps up in 2025 and 2026.

Shortly, Robert will share some additional details on our work in Miami and our other capital investment activity. The last element of our strategy is the return of capital to our shareholders. In 2024, we returned nearly $100 million to shareholders through our quarterly dividend and 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, over the last three years, we have repurchased nearly $190 million of common stock or almost 9% of shares outstanding at the start of that period. Our strong balance sheet and liquidity position give us the ability to enhance our capital returns as we move into 2025.

Now shifting to our quarterly and full-year results, we were pleased with how the portfolio performed relative to our expectations. During the fourth quarter, excluding San Diego, which experienced lingering disruption due to the labor strike, group business performed well, corporate travel continued to move higher, and leisure demand showed some acceleration in wine country and in Maui during the festive period. Convention business at the Westin Washington D.C. Downtown had a banner year, leading our group hotels with 30% RevPAR growth driven by an 18% increase in full-year group room nights on a 6% increase in rate. Out-of-room spend at the Westin was up over 16% for the full year at $213 per room. Group business remained strong at the recently acquired Hyatt Regency San Antonio Riverwalk, which grew room nights nearly 7% in the quarter and generated an impressive 18% increase in banquet contribution.

For the full year, San Antonio group room nights were up 3%, rate was up 2%, and out-of-room spend was up 20%. Given the upgrades we are making to the meeting space this year, we expect the hotel to continue to build and improve the overall quality of its group base. We also saw strength in our urban markets, where at many of our hotels, we strategically increased our group base, allowing our operators to compress transient rates. At our New Orleans hotels, fourth-quarter group room nights were up 23%, compressing transient rates and resulting in a combined RevPAR growth of nearly 20%. We saw similar results in Boston with fourth-quarter group room nights up 39% as the hotel focused on filling open patterns and driving occupancy in shoulder periods.

Our recently converted Marriott Long Beach Downtown had a solid compared to a renovation-impacted fourth quarter of 2023. We are pleased with the early performance of this recently converted Marriott, and together with the success we have seen from the contribution of the Westin D.C., it reinforces our thesis on the value created from better brand alignment. On the expense side, we continue to work with our managers to offset rising costs through efficiency measures and increased productivity. Our margin performance in the prior year was impacted by renovation activity in Long Beach and the strike in San Diego. Excluding these two hotels and Andaz Miami Beach, our margins were down only 70 basis points even with minimal top-line growth, which speaks to the effort of our operators to be management efforts.

While our 2025 budgets incorporate contractual wage rate increases at certain hotels, our expectation is that our operators will seek to drive efficiencies, higher rates, and incremental ancillary revenues to help mitigate these rising costs. Based on what we see today, we have a compelling setup to drive total revenue growth this year, which should translate into higher margins relative to last year. Looking forward to 2025, we are encouraged about the outlook for the year. The portfolio continues to benefit from recent investments, which should provide a tailwind for us in 2025 and 2026. Route pace is up approximately 10% with broad-based strength throughout the portfolio and across quarters, with Q3 being the softest of the year. In addition to growth from our completed conversions at Long Beach and Miami, the portfolio will benefit from the easy comparison in the second half of the year in San Diego, which was impacted by the labor strike in 2024, and from continued growth in wine country.

We maintain significant liquidity and look to recycle existing investments into new opportunities. Despite being faced with a challenging transaction market in 2024, we were able to execute and acquire a high-quality asset in San Antonio at a great current yield and with the opportunity to add value. We expect to continue our disciplined approach to capital allocation in 2025, which could include asset sales, acquisitions, or additional share repurchases. To sum things up, we executed our three strategic objectives in 2024, and while the path was not as smooth as we would have liked, we are now well-positioned to outperform in 2025 and 2026. 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 by utilizing our available liquidity and balance sheet capacity to thoughtfully grow the portfolio. These actions should further support our capital return objectives in the coming years. And with that, I’d like to turn the call over to Robert to give some additional thoughts on our renovation progress and upcoming capital investments. Robert, please go ahead.

Robert Springer: Thanks, Bryan. During 2024, we invested $157 million into our portfolio as we had multiple capital initiatives underway. The majority of these projects have recently or soon will be wrapping up, and we look forward to the earnings benefit they will now provide. As we have shared with you last quarter, we are nearing completion on a rooms renovation and lobby refresh at Wailea Beach Resort and have been performing the work around peak periods to minimize displacement. As part of the scope, we are combining a few rooms to create four residential-style oceanfront villa units with a kitchen, generous living area, and the ability to sell them in multiple configurations ranging from one to four bedrooms. While the first two have just come online, early feedback has been great, and they are already allowing the hotel to better compete with its luxury neighbors and win higher quality group business.

As Bryan noted earlier, we have made substantial progress in Miami, where construction is winding down and the resort is preparing to welcome guests as we work through the final steps in the cumbersome inspection and approval process. We are very pleased with the finished product and the degree of transformation we have achieved at this property. We have teams in the hotel now completing training and preparation work, and we look forward to opening the resort in a few weeks. While our total capital investment in 2025 will moderate back to more normalized levels, we will still have some important value-creating initiatives underway. In San Antonio, we will be renovating the meeting space starting in the third quarter, which should wrap up by the end of the year.

While the hotel is in great shape, a refresh of the meeting areas will better align them with the already renovated guest rooms and allow our sales teams to market a more cohesive product and drive more group business. In San Diego, we are in the planning stages for a renovation of the meeting space at our Hilton Bayfront. While we are still finalizing the details, we would not expect it to begin until late in the fourth quarter. Overall, the level of investment we have planned for the coming year will result in less earnings disruption than in the last two years, and we will instead get the benefit of the work we have already wrapped up or soon will be completing. As Bryan alluded to earlier, the transaction market in 2024 was not as robust as we had hoped, but we continue to seek out opportunities to drive further growth by recycling capital and deploying our considerable investment capacity.

We look forward to updating you on our progress as the year progresses. With that, I’ll turn it over to Aaron. Please go ahead.

Aaron Reyes: Thanks, Robert. Our earnings results for the fourth quarter came in ahead of expectations, as stronger ancillary revenue and savings at the corporate level served as a tailwind to in-line rooms revenue growth. Full-year EBITDA was $230 million, and FFO was $0.80 per diluted share, both of which were at the high end of our previously provided guidance ranges. Prior to the end of the quarter, we fully drew our recently arranged $100 million term loan and utilized most of the proceeds to repay the mortgage on the JW Marriott New Orleans. Following this refinancing, all of our debt is unsecured, and our balance sheet provides significant flexibility. Inclusive of our extension options, we do not have any debt maturities until 2026.

As of the end of the year, we had nearly $180 million of total cash and cash equivalents, including our restricted cash, and we have retained full capacity on our credit facility. Together with our cash, this equates to nearly $700 million of total liquidity. Our net debt and preferred equity to trailing EBITDA stood at 4.3 times as of year-end, and we expect this will continue to moderate downward as we move through the year and realize the growth in our earnings. In fact, based on the midpoint of our 2025 guidance, our net leverage would be only 3.9 times, which further illustrates the strength and increasing capacity of our balance sheet. Included in our earnings release this morning are the details of our initial outlook for 2025. Based on what we see today, we expect that our total portfolio RevPAR growth will range from 7% to 10% as compared to 2024.

Our strong top-line growth is a direct result of the multiple investments we have made within our portfolio. The debut of Andaz Miami Beach is expected to add nearly four points of growth this year, but even if we exclude this resort, our remaining portfolio RevPAR is still projected to grow a healthy 3% to 6%. 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. At the midpoint, this reflects annual growth of 12% and 15%, respectively. While we expect the distribution of quarterly growth for the industry will be more balanced in 2025 than what was initially expected for 2024, we will have some portfolio-specific considerations that will influence the cadence of our overall growth.

For the total portfolio, we expect that RevPAR growth for the first quarter will be in the area of 3% to 5% before increasing to approximately double-digit range for the balance of the year as we benefit from the opening of Andaz Miami Beach and experience the easier comparison in Q3 and Q4 from the impact of the strike in San Diego. This would generally translate into EBITDA distribution of approximately 21% to 22% in the first quarter, approximately 30% in the second quarter, with the remaining balance spread more or less evenly across the third and fourth quarters. In the 2025 outlook section of our press release, we have included the key assumptions that support our full-year guidance numbers. Our projections assume that Andaz comes online in mid-March and contributes $8 million to $9 million of EBITDA in 2025.

Given the change in timing for the project, we incurred less preopening costs in 2024 than initially projected and now expect that some of these items will be incurred in 2025. Following the redeployment of the Boston Park Plaza sale proceeds last spring and the change in deposit rates, we expect to generate less interest income on our cash balances in 2025 than we earned in 2024. As Robert noted, our capital investment activity for this year will be lower than our run rate in recent years and is expected to be in the range of $80 million to $100 million. Based on this level of investment and the nature of the projects we have planned, we will have meaningfully less earnings disruption in 2025 relative to what we experienced in the last couple of years.

Now shifting to our return of capital, for the first quarter, our board of directors has declared a $0.09 per share quarterly common dividend. It has also declared the routine distributions for our Series H and I preferred securities. While we retain ample capacity for additional capital return, the full-year outlook that was 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 are able to speak with as many participants as possible, we ask that you please limit yourself to one question. Operator, please go ahead.

Q&A Session

Operator: At this time, I would like to remind everyone to ask a question. Press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key or star two. The first question comes from the line of Duane Pfennigwerth of Evercore ISI. Please go ahead.

Duane Pfennigwerth: Hey. Thanks. Good morning. Good morning. Just wanted to wonder if you could speak to the underlying demand segment assumptions within the 7% to 10% RevPAR guide or maybe you want to think about that, you know, excluding the Andaz contribution. But how are you thinking about leisure growth, group contribution, and business transient within that 7% to 10%?

Bryan Giglia: So looking at the RevPAR guidance for this year, it’s based on the feedback we get from our hotels and what our hotels are saying at this point. So when you look at the different segments, it assumes that group continues to be very solid. We are pacing above 10% for the year. So from a group standpoint, a continuation of very solid performance. From a business transient standpoint, continued strength and slight improvement in certain markets, but more of a continuation of what we were seeing at the end of last year. And then the leisure is expecting to see roughly what we were seeing last year with maybe a little bit of pickup in the third and fourth quarter in Maui. And so when you look at that and you put all that together, if you ask where is the potential risk or upside in the 2025 guidance, it really comes down to the leisure segment and in multiple markets, whether it would be Maui with recovery and slower than anticipated recovery, but still seeing and when we saw a very good festive season last year to see some additional recovery, but not back to where we were in Maui, and back-end loaded to see some of this advertising and promotion.

Some of it really to catch. And then other markets maybe like Orlando too where you have a new park opening. And if leisure were to pick up there, that would be some upside for us. When you back out Andaz and you back out the Long Beach lift, there are some individual assets that are growing pretty strongly in the portfolio, and then there are others more closely aligned with the sector growth. And so from a cost standpoint, I think that allows us to really focus on costs. And if we see additional revenue or additional pickup, then that should flow pretty well.

Duane Pfennigwerth: Okay. I’ll keep it there. Thank you for the thoughts.

Operator: Your next question comes from the line of Smedes Rose of Citi. Please go ahead.

Smedes Rose: Hi. Thanks. I wanted to ask you, could you just share with us what the pace of wages and benefits increase were in 2024 at the hotel or the property level and kind of where you are expecting those to pace in 2025?

Bryan Giglia: Yeah. Good morning, Smedes. So we’ve always said historically that wages and benefits have kind of been oscillating between 4% and 6%. Last year, we were in the, call it, the mid-fours. There were several collective bargaining agreements that were settled last year in our markets, and so this includes San Diego being one of them, and San Francisco also. So that’s something that typically, what happens is they tend to be front-end loaded. And so that first year, the wages will be more than what will be the average wage over the life of the agreement. So if you look at that 4% to 6% range, we’ll be closer to the higher end of that in 2025. So definitely a step up from 2024, and then we will moderate back down to 2026 and 2027 to get to below that and then bring that average back down to where we historically have been in the, call it, 4% to 5% range.

Smedes Rose: Okay. Thank you.

Operator: Your next question comes from the line of Dori Kesten of Wells Fargo. Please go ahead.

Dori Kesten: Thanks. Good morning. When you said this year, the Andaz EBITDA would be about $8 million to $9 million, how are you thinking about the ramp in 2026 for that asset?

Bryan Giglia: Morning, Dori. So looking at the ramp and the ramp for 2025 and then going into 2026, and ultimately into 2027, the ramp will start off in the, you know, probably around the 20% in March. And then as we look into Q2, Q3, probably around the 50-ish percent occupancy getting into the high season in the fourth quarter where we should be in the, you know, in the seventies. Then looking into next year, when you look at the seasonality of Miami Beach, January and February are very big months. And so if we are looking at, call it, $8 million to $9 million in EBITDA this year, next year, we should easily double that EBITDA for 2025, I’m sorry, 2026. And then as we get into 2027, reach closer to that stabilization into the, you know, into the high twenties.

Dori Kesten: Thank you.

Operator: Your next question comes from the line of Michael Bellisario of Baird. Please go ahead.

Michael Bellisario: Thanks. Good morning, guys. Hi, Michael. Just want to go over the Napa assets again, you know, not too much in the prepared remarks, but maybe give us an update and how the operational improvements that you’re employing there are tracking against plan, and then what’s embedded in the 2025 guide for these hotels? Presumably, you’re assuming they’ll realize top and bottom line growth at these assets in 2025? Thanks.

Bryan Giglia: Yep. Sure. So looking at 2024 and all this information is available in our supplemental, we had good EBITDA growth at both hotels. As we implemented the plan that we had on the cost side and the plan that we had on the group side, knowing that the transient occupancy is going to be more tied to outbound travel and also the health and of the San Francisco Bay Area market. So we had, you know, between the two hotels, a little over $3 million of EBITDA growth. So on a percentage basis, that’s pretty strong. And that came from a combination of continuing to get each hotel closer to its what we believe is the optimal group mix, you know, that’s in the mid-sixties at Montage and in the mid-forties and in the Four Seasons, and we’re, you know, we’re getting closer to that, but still probably, you know, several points of occupancy away to get to that goal.

So when you see the numbers for 2025, you’ll see that the group room nights or room nights in general are up. Rate was down a little bit. Ancillary spend is still in the $900-ish range for Montage and over $1,000 at Four Seasons. So being able to yield out that group customer, that went very well, and we’re pretty much on target for where we want to be there. On the cost side, that process started at the Montage and then followed at the Four Seasons. We were able to get about, you know, a little over a million dollars of cost out of the Montage while maintaining a very high customer satisfaction rating. So we were able to change process without changing the impact on the guest. Four Seasons, it was a little bit below that million, but we have additional work to do, and that’s in process now.

And again, the same impact on guest satisfaction. When we look into 2025, we do look at continuing to build that group base. An increase in leisure or a surprise in leisure this year is definitely upside at these hotels. We’ll be upside at these hotels, and given where we have the cost model set now, additional occupancy will flow meaningfully to the bottom line. Even without that and not banking on that growth yet, we still are anticipating another couple million dollars of EBITDA growth at each of these hotels this year.

Michael Bellisario: Very helpful. Thank you.

Operator: Your next question comes from the line of Chris Darling of Green Street. Please go ahead.

Chris Darling: Thanks. Good morning. Bryan, going back to the recovery in Maui, can you frame what’s embedded in the low end of your guidance range for this year?

Bryan Giglia: Yeah. What we are expecting is that we continue to have solid group. You know, this year, our pace is up. We have, you know, just to give you a context of the different segments in Maui, we have 35,000 group room nights as our target for this year, and then in 2019, we ran at about 37,000. So from a group perspective, that demand remains strong. Maybe a little bit less incentive group than there was before, but we’re pretty happy with where the group business is. From a leisure standpoint, we expect a little bit of a lift in the second half of the year. But if you look in, you know, for those very familiar with the island or for those that have just been to the island and can see, is that part of the leisure increase is gonna be, you know, it’s gonna be more of a step function.

Kaanapali is now just getting back to operating base where they can take group and transient customers, and that the, you know, any sort of temporary living or other things are out of that market now. And so Kaanapali has to get its base of business back, which will then result in additional airline lift, which will then help on the ticket prices and get more people onto the island, which will bring more people into Wailea. And so our expectation is that that’s gonna take a little bit of time, and maybe we see a little bit of that this year. And so again, if there is spring break and summer, additional travel to the island and that picks up, then that would, you know, that would be in excess of where, you know, definitely our midpoint, but maybe even some of our top end of our range too.

Chris Darling: Thank you.

Operator: Your next question comes from the line of Chris Woronka of Deutsche Bank. Please go ahead.

Chris Woronka: Hey. Good morning, guys. Thanks for taking the question. I was hoping we’ve talked a little bit about your Renaissance Orlando. You know, you guys have good success converting the, you know, a couple of the other Renaissance you had in the portfolio. I know you sold a few others. You know, this hotel is kind of a little bit lower as far as your average, a little bit lower margin. I don’t see it kind of on the 2025 capital plan. Is there something, you know, to do there longer term, or is it, you know, maybe a little bit more for any anything you could tell us on that? Thanks.

Bryan Giglia: Yeah. Sure. Good morning, Chris. What we have found through our two investments is that rebranding definitely does work, you know, depending on the type of hotel and the guests you’re going after. And we’ve always said that our Renaissance Hotels have done very well with group customers and maybe not as well with the transient customer. When you look at what happened with transient in D.C. in 2024, we went from, you know, comparing it back to the last, call it, clean year would be 2019, but, you know, we had an occupancy index at the end of 2024 for the full year of 113 compared to a transient occupancy index of 89 in 2019, with a rate at a 117 index compared to a 106. Group, we also saw pickup not quite as much, but we went from a 125 RevPAR to a 119 split between occupancy and rates.

So you’re saying, like, it’s absolutely increased our transient occupancy, a better transient customer at a higher rate, which resulted in, you know, very solid EBITDA growth. In Long Beach, where, you know, Q4 was just the first quarter of true ramp, and we’re starting to see that now. But when we look at our transient occupancy index in January, compared to 2022, which was a decent year before the renovation, we went from a 73 now to an 82 in January of this year. And our rate index has increased from 95 to 106. So we’re starting to see that trade-off now of, you know, being able to go after the higher-rated Marriott customer. It also helps to have a product for both D.C. and Long Beach that is superior to its competitive set. When we look at Orlando, Orlando has always been a fantastic group hotel.

It has a lot of meeting space and a huge atrium that can serve as meeting space or feeding space also. And so we’ve always done very well there, and because of its location in between the two parks, maybe not as strong on the transient side. Now this year, we do have a new park opening, you know, a mile and a half, two miles away, which is much closer than the other parks. So now we’re much more proximate, including, you know, being proximate to the convention center. So that should help the hotel. And then, you know, if we look at that and we think that there is the ability to get a better transient customer at a better transient rate, then we will, you know, do what we’ve done in the past and work with our partners over at Marriott and try to figure out if there is a brand available because remember, it’s not just what you want to do, it’s also what’s available in the market.

And we would definitely look at that as far as, you know, to your observation, 2025 CapEx is definitely coming down, back to a normalized amount. So it’s not in the plan for 2025, but, you know, it could definitely be something that we’re looking at exploring and maybe if it makes sense, maybe something we’re down the road.

Chris Woronka: Okay. Very good. Thanks, Bryan.

Operator: Your next question comes from the line of Floris van Dijkum of Compass Point. Please go ahead.

Floris van Dijkum: Hey, Bryan. Thanks. I had a big picture question. You guys are relatively easy company to because you got fifteen hotels. Your top three hotels, you know, generate over fifty percent of EBITDA. Your obviously, and as I think we’ll supplant your Boston hotel once it’s stabilized. As you think about your portfolio construction, ideally, in in three years’ time, how do you see that concentration? Would you like to have fewer hotels that are more meaningful, or would you like to have more hotels or sort of diversify your income? Or are you broadly pretty happy with what you have today?

Bryan Giglia: Morning, Floris. Yeah. It’s a very interesting question. And I think the way we look at the portfolio and, you know, one of our main focuses in our strategy is to recycle capital, and 2024 was a challenging year to do that. We were able to pick our spot and early in the year get a really good transaction done that we’re very happy with, and very happy with what it’s gonna look like for the next several years in San Antonio. The year turned for the industry, you know, as the year moved on and, you know, being a relatively smaller company with an incredible balance sheet and great liquidity, we’re able to pivot really quickly and take advantage of opportunities and buy back our shares when that makes more sense than acquiring.

And the transaction market at that time really was not there wasn’t a lot happening other than maybe some very large transactions. And I think as we, you know, saw the expectations at the beginning of the year, and where things ended up at the end of the year, you know, we’re happy that we, you know, that we didn’t try to stretch to the transaction because it would have been a mistake, and chances are, earnings of the hotel would have been much lower at the end of the year than what we would have thought. And so we made the right capital allocation decision at that time. In a more functioning transaction environment, which I think we are either getting to or we’re rapidly approaching, I think, the debt side of the world is very supportive of transactions.

I think that, you know, there’s some economic uncertainty that makes things a little bit more difficult, but I think that there’s more alignment in operations this year. In that environment, we’re gonna want to churn a portion of our portfolio. We’re gonna wanna, you know, take some wins and get returns on assets that we’ve invested in and that we’re happy with and that, more importantly, our ability to value add going forward is going to be limited or would require major outlays that would take a lot of capital or take a lot of time or a lot of disruption, which we have to be aware of with the portfolio our size. And so going forward, we’re, you know, we would like to accelerate recycling capital. And if that I think that that means that we would be, at a minimum, the same size, but we have some very large assets, and at the end of the day, if we could take a large asset and turn it into two assets, then I think that gives us a little bit more mass, which, you know, helps take some of the concentration out of the portfolio too.

At the end of the day, though, we’re not afraid of concentration, especially if it’s in the best markets. So, you know, I think to answer your question, yes, we would want to recycle more, and that’s something that we think we should be doing on an ongoing basis. And given the market and a cost of capital that makes sense, that’s what we’ll look to do.

Floris van Dijkum: Thanks. Just may perhaps a slight would that you’ve obviously had a the wildfires in Maui. You’ve had the strike in San Diego. That probably makes those hotels less able to be recycled because, you know, they’re both have depressed EBITDA levels relative to peak. Should we, you know, view you as recycling other assets as a result of that later on this year?

Bryan Giglia: I mean, look. We are always in conversations. I mean, if you know, we’re capital allocators. So we’re always talking to people about different hotels in our portfolio. I would, you know, while Maui is on a recovery on the leisure side, Wailea still has done very well, and EBITDA is still at or above 2019 levels and maybe not as high as it was in 2022, but we think we can get a path back to there. That’s a phenomenal and very valuable and very scarce piece of real estate. And so I think that the value of Wailea hotel stock is probably maybe a little bit less volatile than other things. So I wouldn’t say that that would, you know, Maui is, like, that’s just it’s still a very liquid asset. San Diego bounced back, and we’re getting the majority of that EBITDA back this year, and it’s a phenomenal location next to the convention center.

It’s a very efficient hotel. And so, look, I think all of our hotels are always up for evaluation, and I don’t see anything being off the table.

Floris van Dijkum: Thank you.

Operator: Your next question comes from the line of Patrick Scholes of Truist Securities. Please go ahead.

Patrick Scholes: Great. Sorry if I missed this. Just wanted to sneak a question in at the end here. What do you are you baking in to the midpoint of your guidance as far as total expense growth?

Bryan Giglia: Thank you. Very sneaky, Patrick. Yeah. We’ve mentioned it before is that, like, for total expense growth, we’re in the kind of 4% to 4.5% range. A little bit higher on the wage side. And then, you know, other big-ticket expenses, real estate taxes are easing a bit. Insurance, we have renewal halfway through the year, so we still get the benefit of that coming down from last year. And our portfolio was pretty well located and it’s done pretty well. So we don’t think that our renewal will be anything more than the average this year. And then, you know, I think maybe utilities are a little bit higher, but I think when you mix all that together, we’re, you know, 4% to 4.5%.

Patrick Scholes: Okay. That was it. Thank you.

Operator: There are no further questions at this time. I will now turn the call back over to Bryan Giglia for final closing remarks. Please go ahead.

Bryan Giglia: I want to thank everyone for their time and interest in the company, and we look forward to meeting with many of you at upcoming conferences and many of you at the upcoming property tour of the Andaz Miami Beach, which we’re very excited to show you. Thank you.

Operator: Ladies and gentlemen, that concludes your conference call. Thank you for participating and ask that you please disconnect your lines.