Sunstone Hotel Investors Management Discusses Q2 2011 Results

Good morning, ladies and gentlemen, and welcome to the Sunstone Hotel Investors Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Monday, August 8. I would now like to turn the conference over to Mr. Bryan Giglia, Senior Vice President of Corporate Finance of the Sunstone Hotel Investors. Please go ahead, sir.

Bryan Giglia

Thank you, Camille. Good morning, everyone, and thank you for joining us today. By now you should have all received a copy of our second quarter earnings release, which was released this morning. If you do not yet have a copy, you can access it on our website at www.sunstonehotels.com. As you may have noticed, in addition to our scheduled quarterly release, we are also providing additional disclosures including property-level operating statistics. This additional disclosure can be found in the Investor Relations section of our website also.

Before we begin this call, 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, 10-Qs, 10-Ks 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 Ken Cruse, President and Chief Executive Officer; John Arabia, Chief Financial Officer; and Marc Hoffman, Chief Financial Officer. After our prepared remarks, the team will be available to answer your questions.

I will now turn the call over to Ken. Ken, please go ahead

Kenneth Cruse

Thank you, Brian. And thank you, all, for joining us. Today, I'll cover 3 topics including our second quarter performance, our outlook for the remainder of the year and Sunstone's now completed leadership transition. After that, Marc will cover our operational details, and John will review our finance initiatives, as well as our new supplemental disclosures. I will then conclude our prepared remarks before opening up the call for your questions.

Obviously, increasing global economic concerns, as well as the recently highlighted need for near-term stimulus and meaningful long-term fiscal reform in the U.S. have generated significant turbulence in the markets. While these macroeconomic concerns have taken their toll on individual stock values, we have not seen a direct translation into slower business trends in our hotels. In fact, as evidenced by our second quarter performance in our July results, we continue to see robust demand trends across our portfolio. Moreover, our liquidity position remains very strong, our debt maturities are well staggered and our business plan is oriented towards fiscal discipline and operational excellence. Accordingly, we are well-positioned for the current environment.

Moving to our second quarter results. For our comparable portfolio, second quarter RevPAR rose to nearly $132, an increase of 7.2% over the second quarter a year ago. Our solid RevPAR growth was driven by a 4.1 increase in rate and a 3.1 increase in occupancy. Transient business trends, in particular, were strong during the quarter and generally offset isolated instances of weakness in group demand. Our Q2 performance was further enhanced by strong growth in our recently renovated hotels and a corresponding decline in renovation disruption as we completed the majority of our 2011 renovation projects, including rooms renovations at 9 of our hotels during the first or second quarter of this year, leaving only a handful of ongoing projects throughout our portfolio.

Quality renovations and proactive asset management are leading to improved market penetration as measured by our composite, Smith Travel Research RevPAR index, which we refer to as our STR index. Our STR index increased nearly 100 basis points in the second quarter. Penetration was particularly strong in June with our portfolio gaining 230 basis points in STR index. Going forward, continued market share growth remains a core asset management focus.