Sunstone Hotel Investors currently owns 19 hotel properties with 9,988 rooms in major U.S. gateway, convention, and resort markets operated by well-known brands like Marriott (NASDAQ: MAR), Hilton (NYSE: HLT), and Hyatt (NYSE: H). The company focuses on what it calls Long-Term Relevant Real Estate (LTRR), which are properties that have the following characteristics:
- Desirably located.
- Difficult to replicate.
- Enduring demand drivers.
- Stands the test of time.
- Generally owned fee simple.
- Superior economics for capital costs and owner profit.
These hotels tend to produce higher RevPAR and EBITDA per key than other hotels. Thus, Sunstone Hotel Investors believes it can generate higher returns from its properties.
The company complements its concentrated portfolio with a fortress-like balance sheet. The hospitality REIT entered the year with the lowest leverage ratio in its peer group at less than 1.5 times debt-to-EBITDA, well below the sector's 3.9 times average and its 2.5 to 3.0 times target range. It also had more than $900 million in cash and equivalents at the end of the first quarter, which it recently bolstered by selling one hotel for $80 million. That cash-rich balance sheet gives it ample flexibility to navigate the currently challenging market conditions and take advantage of acquisition opportunities that could arise during this downturn.
That liquidity has come in handy this year because Sunstone suspended operations at 14 of its then-20 hotels due to COVID-19. Meanwhile, the operating results of the six locations that remained open were extremely challenging: Total revenue plummeted 95.9% year over year in April as occupancy plunged from 86.4% to just 6.7%. Because of those brutal conditions, the company suspended its dividend to conserve cash. While hotel occupancy levels have improved over the past couple of months as states reopened their economies, the recent wave of new cases across the country could put renewed downward pressure on that number as more people opt to stay home.