Sunstone Hotel Investors, Inc. (SHO) Q4 2022 Earnings Call Transcript

Sunstone Hotel Investors, Inc. (NYSE:SHO) Q4 2022 Earnings Conference Call February 22, 2023 11:00 AM ET

Company Participants

Aaron Reyes - CFO & SVP

Bryan Giglia - CEO

Robert Springer - President & CIO

Conference Call Participants

Smedes Rose - Citigroup

Michael Bellisario - Robert W. Baird & Co.

Duane Pfennigwerth - Evercore ISI

David Katz - Jefferies

Gregory Miller - Truist Securities

Anthony Powell - Barclays Bank

Floris Van Dijkum - Compass Point Research & Trading

Operator

Good morning, ladies and gentlemen, and convey you for opinionated by. Welcome to nan Sunstone Hotel Investors Fourth Quarter 2022 Earnings Call. [Operator Instructions]. I would for illustration to punctual everyone that this convention is being recorded today, February 22, 2023, astatine 11:00 a.m. Eastern Time.

I will now move nan position complete to Mr. Aaron Reyes, Chief Financial Officer. Please spell ahead, sir.

Aaron Reyes

Thank you, operator, and bully morning, everyone. Before we begin, I would for illustration to punctual everyone that this telephone contains forward-looking statements that are taxable to risks and uncertainties, including those described successful our prospectuses, 10-Qs, 10-Ks and different filings pinch nan SEC, which could origin existent results to disagree materially from those projected. We be aware you to see these factors successful evaluating our forward-looking statements.

We besides statement that this telephone whitethorn incorporate non-GAAP financial information, including adjusted EBITDAre, adjusted FFO and spot level adjusted EBITDAre. We are providing that accusation arsenic a supplement to accusation prepared successful accordance pinch mostly accepted accounting principles.

On today's call, references to our comparable portfolio will mean our 13-hotel portfolio, which includes The Confidante Miami Beach, but excludes Montage Healdsburg and 4 Seasons Resort Napa Valley. Additional specifications connected our 4th fourth capacity person been provided successful our net merchandise and supplemental, which are disposable connected our website.

With america connected nan telephone coming are Bryan Giglia, Chief Executive Officer; and Robert Springer, President and Chief Investment Officer. Bryan will commencement america disconnected pinch immoderate highlights from past year, followed by immoderate commentary connected our 4th fourth operations and caller trends. Afterwards, Robert will talk our transaction activity and different caller superior investments. And finally, I will provide a summary of our existent liquidity position, recap our 4th fourth and afloat twelvemonth '22 net results and supply immoderate further specifications connected our outlook for 2023. After our remarks, nan squad will beryllium disposable to reply your questions.

With that, I would for illustration to move nan telephone complete to Bryan. Please spell ahead.

Bryan Giglia

Thank you, Aaron, and bully morning, everyone. Before we get into nan quarterly highlights, I want to return a infinitesimal to recap 2022, which began pinch immoderate uncertainty and modulation and ended pinch coagulated execution and a patient strategy successful place. Last year, we reinvigorated our strategy, focusing connected 3 elemental tenants to create and recognize shareholder value: recycling capital, investing successful our portfolio and returning superior to our shareholders.

On nan recycling front, we began nan twelvemonth by divesting of 3 hotels successful Chicago. While we expected nan hotels and nan Chicago marketplace to retrieve successful 2022 and 2023, our position connected these investments was that fixed nan important early superior needs and near- and semipermanent costs pressures, our return connected invested superior will proceed to diminution and it was clip to redeploy those proceeds into amended maturation opportunities.

We were fortunate to do conscionable that pinch nan acquisition of The Confidante Miami Beach and a 25% liking successful nan Hilton San Diego Bayfront, giving nan institution 100% ownership of this awesome hotel. Overall, we sold $197 cardinal of Chicago existent property and redeployed those proceeds mixed pinch astir $200 cardinal of our equilibrium expanse capacity to get Miami Beach and San Diego. We deliberation this was a bully trade.

Miami performed good for america successful 2022, and we are preparing to toggle shape nan edifice into nan Andaz Miami Beach starting successful nan 2nd 4th of this year. Hilton San Diego remains a standout successful nan portfolio arsenic nan edifice continues to use from sustained leisure request and a beardown resurgence successful in-house firm group business.

The acquisition of our partner's 25% stock implies an 8% headdress complaint connected 2022 edifice NOI. And pinch further net maturation forecasted for 2023, we are pleased to person consolidated ownership of this well-performing asset.

In summation to an progressive twelvemonth of superior recycling, we besides identified and executed connected respective investments successful our existing portfolio that are expected to consequence successful further worth creation. In 2022, we completed nan renewal of each modular guestrooms and bathrooms astatine nan Hyatt Regency San Francisco. We were capable to renovate without incurring meaningful displacement, and now our edifice is amended positioned arsenic group business and transient request gradually returned to nan market.

At nan Hilton San Diego, we completed a afloat edifice renovation, including an expanded marketplace conception that will streamline operations, summation eating options, enhanced wide impermanent restitution and summation profitability. We besides continued nan repositioning of nan Renaissance D.C. to nan Westin brand. All gathering abstraction is complete, guestrooms are being turned complete and nan last phase, nan lobby and nutrient and beverage offerings, are underway and will beryllium completed successful nan 2nd half of this year. Our renewal headwind is subsiding, and we expect to spot net acceleration later this twelvemonth arsenic we use from a afloat renovated flagship Westin.

Finally, we made important advancement readying for nan translator of The Confidante Miami Beach to nan Andaz Miami Beach. We look guardant to sharing pinch you nan early look and, much importantly, nan worth we expect to create astatine this formation beforehand edifice successful nan future.

The past constituent of our strategy is nan return of superior to our shareholders. In 2022, we reinstated our quarterly dividend and besides returned $108 cardinal to shareholders by repurchasing our shares astatine a meaningful discount to NAV. While our stock repurchase activity will stay opportunistic, our communal dividend will proceed to supply a much accordant return of capital. That said, successful 2023, we person repurchased $11 cardinal of our communal stock, further demonstrating our willingness and expertise to repurchase banal astatine due times.

Now shifting to quarterly operations. We are pleased pinch our capacity successful nan 4th fourth pinch results that exceeded our expectations and that added to an already productive twelvemonth for Sunstone. During nan quarter, our portfolio continued to bid beardown rates pinch comparable mean regular complaint of $286, a 12% summation from past twelvemonth and a 16% summation arsenic compared to 2019.

While we saw meaningful year-over-year complaint maturation crossed our portfolio, our municipality hotels proceed to spot nan biggest gains and grew rates 20% successful nan 4th arsenic compared to nan anterior year. San Francisco led nan portfolio for a 2nd 4th successful a row, and we expect that our well-located precocious renovated edifice will lend further to our maturation successful 2023.

Comparable portfolio occupancy was 68% and includes nan effect of nan renewal presently underway astatine our soon-to-be rebranded Westin Washington, D.C. As I noted earlier, this task will beryllium completed later this twelvemonth and will supply an further furniture of maturation for america going forward.

Including our 2 vino state hotels, our full portfolio generated a 4th fourth RevPAR of $207 made up of occupancy of 67% astatine a $309 mean regular rate. Non-room revenues came successful beardown during nan 4th quarter, benefiting from continued increases successful banquet spend. We erstwhile again saw a important publication from nutrient and beverage revenue, which was adjacent 2019 levels. Banquet and AV income per group room was $238 for nan comparable portfolio successful Q4 compared to $209 successful 2019, up 14%.

The spot successful group activity has been encouraging pinch respective of our larger hotels exceeding pre-pandemic levels. Hilton San Diego Bayfront banquet publication per group room nighttime was up 48% complete Q4 2019. Hyatt Regency San Francisco, which has been slower to retrieve than galore of our hotels, saw catering contributions up 14% to 2019, driven by paper pricing initiatives, upselling connected tract and groups exceeding their minimum nutrient and beverage thresholds.

Including nan out-of-room spend, our portfolio generated an further $122 of gross per disposable room successful nan 4th for a full RevPAR of astir $329. For nan comparable portfolio, full RevPAR came successful astatine $305 wrong 3% of 2019 pinch occupancy 15 points little than 2019. For nan afloat year, full RevPAR came successful astatine $326 for nan full portfolio.

During nan quarter, we besides collected $10 cardinal of business interruption security proceeds associated pinch mislaid gross related to nan pandemic. While we are continuing to prosecute further betterment nether nan policy, which has a $25 cardinal limit, nary further amounts are guaranteed.

On nan disbursal side, we proceed to navigate nan increases successful costs we've seen complete nan past respective years and look for imaginative ways to trim disbursal pressures. We person worked pinch our operators to optimize paper offerings and reappraisal pricing to mitigate rising nutrient and beverage costs. While hourly costs maturation continues to hover astatine nan precocious extremity of historical yearly maturation ranges, our managers person been capable to thrust efficiencies successful definite areas to thief offset higher labour costs.

The 4th fourth continued to spot elevated inferior costs, which makes our caller power ratio investments that overmuch much valuable. In Wailea, nan first shape of our star sheet installation has generated important savings, and we are looking guardant to completing nan 2nd shape later this year, which will summation our star accumulation to astir 20% of nan resort's full power use.

Despite costs pressures, our comparable edifice portfolio generated an EBITDA separator of 28.5% successful nan 4th quarter, which does not see immoderate use from nan business interruption proceeds. Excluding our edifice successful D.C., which is nether renovation, EBITDA separator was astir 30%, which is only 140 ground points beneath that achieved for nan aforesaid 4th successful 2019, moreover pinch astir 13 points of little occupancy. As we move into 2023, our attraction is connected maximizing portfolio EBITDA arsenic we purpose to bring each edifice to its optimal occupancy level.

Now turning to segmentation. Our comparable portfolio generated 174,000 full group room nights successful nan quarter, and nan group conception comprised astir 37% of full demand. Q4 group room nighttime measurement represents astir 92% of humanities amounts pinch mean rates 8% higher than successful nan aforesaid 4th successful 2019.

While nan full comparable gross is still trailing to 2019, Corporate and Association segments proceed to comprise nan mostly of Q4 group mix, which is simply a affirmative inclination arsenic these rates are typically higher for those groups. Comparable group accumulation for each existent and early periods successful Q4 was 230,000 room nights, much than what we put connected nan books successful Q4 2021 and astatine 15% higher rates and a 5% summation successful gross accumulation comparative to Q4 2019. For nan afloat year, group accumulation was astatine 82% of 2019 room nights, but astatine a 22% higher rate.

Hilton Bayfront's accumulation was beardown successful Q4, mostly owed to groups successful nonholiday periods, which created compression and drove marketplace share. Our expertise to furniture much group and societal events is simply a nonstop consequence of our caller summation of 6,000 quadrate feet of stunning waterfront arena abstraction that opens up into an arena section that provides a signature and a highly desirable Southern California indoor/outdoor experience.

Boston Park Plaza strategically placed in-house group business complete citywide overflow, yielding important nutrient and beverage contribution. Again, our precocious 2021 finance to adhd 5,000 quadrate feet of elastic modern gathering abstraction allowed nan edifice to summation its group capacity.

In position of transient business, which accounted for astir 60% of our full room nights successful nan quarter, comparable rates came successful astatine $311 aliases 22% higher than nan pre-pandemic levels we saw successful nan aforesaid 4th of 2019. At nan JW Marriott New Orleans, consulting and authorities accounts proceed to thrust typical firm measurement for nan Hyatt Regency San Francisco, business transient accounts performed good successful 2022 pinch important information from technology, finance and consulting accounts, starring to firm negotiated nights astatine astir 96% of 2019 levels for nan afloat year. Marriott Boston Long Wharf besides continued to spot an uptick successful business recreation from master services and increases successful authorities defense contractor bookings.

As we move into nan early portion of 2023, we are pleased by nan trends we are seeing successful transient bookings. For nan past fewer weeks, our transient pickup for nan adjacent 6 months has been hovering conscionable beneath 2019 levels. A meaningful betterment comparative to nan mid-teens variance we saw successful nan second portion of 2022. The accrued velocity successful transient bookings is astir salient astatine our municipality hotels arsenic higher contributions from accepted firm and authorities accounts constituent to much robust business transient request successful nan twelvemonth ahead. Based connected our 2022 capacity and what we are seeing truthful acold this year, we stay encouraged astir nan outlook for 2023. Lead volumes astatine nan extremity of 2022 surpass 2019 levels, and we proceed to spot place successful short-term booking activity pinch higher publication from firm group events. Our group pickup successful nan 4th for nan 4th was higher than humanities averages, underscoring nan inclination we person seen of groups booking person successful to their events.

Pace for nan first half of 2023 is down only 2% to 2019 for nan comparable portfolio pinch little room nights offset by higher rates. Excluding our hotels undergoing important renovation, our first half gait flips affirmative to up 2% compared to pre-pandemic volume. While we still person immoderate activity to do successful nan 2nd half of nan year, nan shorter-term quality of booking patterns should thief capable successful nan 3rd and nan 4th quarters pinch further group business arsenic nan twelvemonth progresses. So far, we person seen beardown group booking activity astatine our hotels successful Boston and Washington, D.C. successful nan first quarter, and some San Diego and San Francisco person beardown citywide calendars for Q1 compared to past year. We expect our hotels successful these markets to spot immoderate use from marketplace compression, which should construe into pricing strength.

Group booking gait for our first 4th astatine our Hilton Bayfront and Renaissance Orlando is up of nan aforesaid clip successful 2019. Our 2 edifice assets successful Wine Country are besides seeing affirmative group trends and nan value of nan group's booking astatine these properties is highly high, generating charismatic group rates pinch meaningful ancillary spend. As of nan commencement of nan year, Montage has astir doubly nan magnitude of group gross connected nan books for 2023 than it had arsenic of nan commencement of past year, and group gait for nan 4 seasons is up complete 80%. The important maturation successful gait astatine each edifice is simply a operation of much nights booked and higher rates. Overall, we are pleased pinch nan types of events these properties are now attracting arsenic they proceed to ramp up.

As portion of our net merchandise this morning, we reintroduced net guidance. Absent a worldly slowdown successful nan broader economy, we expect important year-over-year EBITDA maturation successful 2023. Given nan uncertainty successful nan macro situation and nan short-term quality of booking patterns, we are providing net guidance for nan first 4th supplemented by afloat twelvemonth estimates for definite firm level expenses. Despite further profitability maturation this year, our 2023 results will not bespeak nan afloat net imaginable of nan portfolio arsenic nan completion of renovations that are aliases will soon beryllium underway this twelvemonth and nan publication from our precocious developed and still ramping assets should equate to meaningful further profitability maturation beyond nan existent year. This is an important distinction, fixed nan disparity and betterment crossed our various markets and nan nuances circumstantial to our portfolio, I judge Sunstone will use from aggregate layers of maturation successful nan coming years. Later, Aaron will supply nan specifics of our near-term outlook.

Our balanced attack to superior allocation successful 2022 will use our portfolio and our shareholders successful 2023 and beyond. First, our vino state resorts proceed to ramp, while these luxury resorts saw immoderate leisure softness successful nan 2nd half of 2022, we attraction each edifice connected amended balancing their customer mix, expanding nan magnitude of group business successful bid to use from a beardown mean regular complaint and meaningful out-of-room spend. Both resorts are now positioned good for 2023 pinch a sizable group guidelines that will alteration them to thrust profitability. There is much activity to do, but each edifice should spot important net maturation this year.

Second, nan acquisition of our partner's 25% ownership of nan Hilton San Diego Bayfront continues to beryllium 1 of our strongest performing assets pinch sizeable in-house group connected nan books for 2023. San Diego exceeded 2019 net successful 2022, and we expect further meaningful maturation successful 2023. Third, our investments crossed our portfolio will proceed to supply semipermanent growth. The finance we made successful San Francisco past twelvemonth is expanding our expertise to adhd group business successful 2023. The translator of nan Renaissance D.C. to nan Westin D.C. will beryllium completed during nan 2nd half of this year, turning nan displacement headwind into a tailwind. Despite renewal headwinds astatine nan edifice during nan first half of 2023, we still expect net maturation complete 2022 that will accelerate into 2024.

In 2023, we will statesman and complete nan rebranding for nan Renaissance Long Beach to nan Marriott Long Beach. Last is nan rebranding of nan Andaz Miami Beach, which will statesman building during nan 2nd quarter. And while we will acquisition displacement this year, it will adhd further maturation successful 2024 and 2025. We stay thoughtful connected our superior allocation and judge that we person layered our finance to supply multiyear maturation and much importantly, worth creation.

To sum things up, better-than-expected capacity successful nan 4th fourth gives america assurance arsenic we move into 2023. Our well-located municipality and group-oriented assets will spot continued maturation successful nan coming years arsenic request for business recreation and firm events continues to drawback up pinch nan already robust leisure request astatine our edifice properties. Given nan Omicron headwinds earlier past year, we are good positioned for a beardown year-over-year maturation successful nan first 4th and spot opportunities for ongoing maturation crossed our portfolio successful nan remaining quarters of 2023.

Additionally, Sunstone continues to actively allocate capital, investing successful our portfolio recycling income proceeds into caller maturation opportunities and returning superior to our shareholders done stock repurchase and dividends. We judge this is simply a winning look that will supply semipermanent worth to our owners. And pinch that, I'll move it complete to Robert to springiness immoderate further thoughts connected our transactions complete nan past twelvemonth and upcoming superior investments. Robert, spell ahead.

Robert Springer

Thanks, Brian. We are pleased pinch nan transaction activity we completed successful 2022. Early successful nan year, we exited nan Chicago market, which we judge did not connection capable semipermanent maturation imaginable and recycle those proceeds into higher maturation opportunities. Midyear, we purchased The Confidante Miami Beach, which has been exceeding our underwriting and which will soon beryllium transforming into nan Andaz Miami Beach. As we shared previously, nan renewal and repositioning of this edifice will statesman this twelvemonth and reason adjacent year. We stay enthusiastic astir this task and nan important net imaginable of this well-located beachfront property. We are completing nan creation and support shape moving pinch immoderate breathtaking imaginable nutrient and beverage partners and preparing for building to commencement during nan 2nd quarter. The extremity merchandise will beryllium a luxury beachfront edifice astatine a highly charismatic all-in basis.

We besides bought retired our JV partner astatine nan Hilton San Diego Bayfront for an implied worth of $628 cardinal aliases an charismatic sub 12x aggregate connected 2022 EBITDA. This was a awesome opportunity for america to consolidate ownership of a market-leading, well-located plus successful a premier normal and edifice destination. Overall, we judge our finance activity successful 2022 represents thoughtful dispositions and superior recycling into higher maturation and amended per stock NAV enhancing opportunities.

In summation to transactions, we were actively investing backmost into our portfolio successful 2022. We look guardant to debuting a caller high-end excavation astatine Wailea Beach Resort later this spring. The summation of nan Olakino excavation will supply guests pinch a caller wellness and manner focused experience. This finance will not only make incremental gross from nan guests who would for illustration to acquisition access, but it will besides amended nan wide edifice acquisition and further heighten nan entreaty and worth of nan asset.

Additionally, nan 2nd shape of our star installation will beryllium completed later this twelvemonth and thief make nan edifice much sustainable while lowering inferior costs. Work is besides progressing connected nan conversion of nan Renaissance Washington, D.C. to nan Westin brand. The task is expected to beryllium completed by nan 3rd 4th and will lend to year-over-year maturation successful nan 2nd half of 2023. We expect to relaunch nan edifice arsenic nan Westin successful Q4 of 2023. We are besides converting our Renaissance successful Long Beach to a Marriott, and that task will beryllium kicking disconnected later this year. We expect nan investments to amended alteration nan edifice to compete for business and turn earnings. The edifice was approaching a cyclical renewal and does not require a meaningful incremental finance to unafraid nan Marriott flag, which should thrust higher group complaint and transient occupancy. The renewal will statesman successful nan 2nd 4th of this twelvemonth and beryllium completed by nan extremity of nan year, and we do not expect important disruption while nan activity is performed.

2023 will beryllium an important twelvemonth for america arsenic we will statesman to recognize nan benefits of our caller investments and conversion activity and commencement to laic nan groundwork for nan adjacent furniture of maturation successful nan portfolio. Recycling superior will proceed to beryllium a awesome constituent of our strategy arsenic we look to harvest gains and redeploy proceeds into caller maturation opportunities. The transaction markets stay challenging fixed economical uncertainty and restrictive financing markets. That said, we support sizeable equilibrium expanse capacity, which will let america to beryllium opportunistic and return advantage of dislocation. Additionally, we perpetually look for ways to creatively turn and heighten nan worth of our portfolio, and we look guardant to sharing updates connected our finance activity arsenic nan twelvemonth progresses. With that, I'll move it complete to Aaron.

Aaron Reyes

Thanks, Robert. As of nan extremity of nan 4th quarter, we had astir $157 cardinal of full rate and rate equivalents, including $56 cardinal of restricted cash. We retained afloat capacity connected our in installments facility, which, together pinch rate connected hand, equates to astir $660 cardinal of full liquidity. We person 1 indebtedness maturity successful December of this twelvemonth and expect to reside nan refinancing successful nan adjacent fewer months. As of nan extremity of nan 4th quarter, our nett indebtedness and preferred equity to EBITDA stood astatine only 4.1x. And our nett indebtedness to EBITDA was little than 3x, giving america 1 of nan strongest equilibrium sheets successful nan sector.

Shifting to our financial results, nan afloat specifications of which are provided successful our net merchandise successful our supplemental. The quarterly results, which surpassed our first expectations bespeak continued spot successful leisure recreation and increasing firm and group demand. Adjusted EBITDAre for nan 4th fourth was $69 cardinal and adjusted FFO was $0.26 per diluted share. The 4th fourth results see astir $9.7 cardinal of proceeds nett of expenses received from a COVID-related business interruption security claim. For amended comparability, we person removed this nett gross from nan edifice level financial information and separator calculation presented successful our property merchandise and supplemental reporting package.

As Brian mentioned earlier, while guardant visibility remains challenging, we are providing net guidance for nan first quarter. Based connected what we spot today, we expect first 4th full portfolio RevPAR to summation betwixt 30% and 32% arsenic compared to nan first 4th of 2022. While nan effect of nan Omicron version makes for an easier comparison successful Q1 and will ore afloat twelvemonth RevPAR maturation successful nan first portion of nan year. Assuming a dependable economical environment, we judge our portfolio tin present meaningful year-over-year RevPAR maturation successful each 4th of nan year, which could consequence successful afloat twelvemonth full portfolio RevPAR maturation ranging from nan debased double digits to nan mid-teens, excluding our edifice successful Miami, that will beryllium undergoing renovation.

For nan first quarter, our adjusted EBITDAre guidance ranges from $51 cardinal to $55 million, and our adjusted FFO per diluted stock ranges from $0.16 to $0.18. We expect to put betwixt $130 cardinal and $150 cardinal into our portfolio this twelvemonth and will incur immoderate displacement successful relationship pinch our larger projects. Our first 4th outlook includes astir $3 cardinal of EBITDA displacement related to nan in-process conversion activity astatine our edifice successful D.C. For nan afloat year, we estimate that we will incur betwixt $16 cardinal to $18 cardinal of EBITDA displacement related to nan completion of nan Westin D.C. conversion and nan renewal activity astatine The Confidante Miami Beach arsenic we statesman nan conversion activity astatine that hotel. Note that our guidance does not presume nan postulation of immoderate further business interruption security proceeds aliases incremental banal repurchases.

Now turning to dividends. Our Board has declared a communal dividend of $0.05 per stock for nan first quarter, on pinch nan regular distributions for our Series H and I preferred securities. And pinch that, we tin now unfastened nan telephone to questions truthful that we are capable to speak pinch arsenic galore participants arsenic possible. We inquire that you please limit yourself to 1 question. Operator, please spell ahead.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first mobility comes from Smedes Rose from Citi.

Smedes Rose

I conscionable wanted to inquire you a small much erstwhile you said that you deliberation RevPAR maturation this twelvemonth could beryllium nan debased double digits to nan mid-teens. Do you deliberation that's much driven by occupancy versus rate? And possibly you could conscionable speak to really you're reasoning astir wide costs maturation this twelvemonth and benignant of nan spot level margin?

Bryan Giglia

So erstwhile you look astatine nan cadence of nan distribution from quarter-to-quarter, there's -- for nan RevPAR -- aliases looking astatine nan RevPAR buildup, you're going to spot a mostly coming in, successful nan first half of nan twelvemonth pinch nan year-over-year comp to nan Omicron past year. So occupancy, particularly astatine our group and municipality hotels will prime up meaningfully successful Q1 besides successful Q2. And past arsenic we look done nan remainder of nan year, while we do expect complaint growth, and we expect much complaint maturation coming from those municipality and group hotels than nan leisure hotels that nan creation will beryllium much -- decidedly much skewed to occupancy.

Now erstwhile we look astatine what does that mean for edifice EBITDA margins. When we look complete past twelvemonth and we look astatine labour costs that came in, our anticipation was 4% to 5%. They benignant of came successful correct there. We're astir apt towards nan little extremity of that this year. There are definite fixed costs that person been better. We've really done amended connected existent property taxes, different ones specified arsenic insurance, and past besides crushed rent that San Diego that's participating, those are up importantly year-over-year arsenic nan hotels person done better.

There's besides immoderate sound successful '23 erstwhile you look astatine nan effect of Confidante and D.C., some astatine different stages of their renewal but some having immoderate level of effect complete nan year. If we backmost those hotels out, looking astatine nan gains we expect, particularly driven by nan group successful municipality hotels our anticipation is, is that we will -- moreover pinch nan occupancy, we will person immoderate separator summation astatine those hotels, but it will beryllium minimal this twelvemonth fixed that composition. There are definite hotels successful nan portfolio -- San Francisco, which was our champion maturation edifice successful Q4, will beryllium our champion maturation edifice successful Q1 and will proceed passim nan year. It's a slower trajectory backmost to '19 than immoderate of nan different hotels, but it's still providing very bully maturation and edifice sewage size needs nan group contribution, request nan banquet publication for its margins to increase. So year-over-year, we tin ex nan renewal hotels, we should beryllium capable to get immoderate separator summation and predicated much connected a overmuch much occupancy skewed RevPAR gain.

Operator

Our adjacent mobility comes from Michael Bellisario from Baird.

Michael Bellisario

Brian, you've been successful nan CEO spot now for astir a year. Maybe tin you springiness america a speedy look backmost and look forward, what were nan hits and misses complete nan past year? And possibly really would those shifted your guardant outlook, peculiarly connected nan superior allocation broadside of things?

Bryan Giglia

Sure. So looking astatine superior allocation, since that's our focus. Last year, location was -- we had immoderate modulation successful nan beginning, but past sewage to activity arsenic quickly arsenic we could and really group nan -- I wouldn't opportunity measurement to strategy but reinvigorated nan strategy of focusing connected superior recycling, investing successful our portfolio erstwhile it makes consciousness and past returning superior to our shareholders. So connected nan finance beforehand aliases connected -- let's commencement connected nan superior recycling front. We were capable to divest nan Chicago hotels. And while -- erstwhile we said this, and possibly you whitethorn person moreover asked this mobility erstwhile we sold them, our anticipation was perfectly that location would beryllium maturation successful nan Chicago market.

And -- but nan logic why we look to divest of them was a operation of superior needs and moreover though location would beryllium short-term gains and particularly successful nan adjacent term, wherever possibly staffing levels weren't afloat up, that we knew what we saw pinch leisure that net would travel backmost quickly. But longer term, based connected our finance tenure successful that market, we knew that location were immoderate headwinds pinch labor, pinch existent property taxes and different things. So we judge that based connected wherever those hotels were successful our finance life rhythm that it was nan correct clip to divest of them and reinvest successful markets wherever we thought we could springiness much growth.

And past those proceeds went into Miami, which we're very happy pinch really it's been performing and getting fresh to do a awesome repositioning there, which we deliberation will adhd important value. And successful San Diego, which was a much stabilized, location wasn't -- it was 25% liking that we bought. It's a sizable asset, an plus that was performing really well, an plus that had money that was precocious put into it that added much gathering abstraction to let it to summation its group component, which San Diego complete nan past fewer years did really good pinch transient and leisure but -- and location still is meaningful leisure request there, but that edifice needs to person a meaningful magnitude of group for profitability.

And past successful Q4, you started seeing that edifice displacement retired of immoderate of nan much discounted leisure aliases nan much accepted firm group that comes pinch a meaningful out-of-room spend, and you saw nan profitability of that edifice continued to increase. And based connected its gait for 2023, we deliberation that there's moreover much maturation there. And truthful that's a edifice wherever our investment, while Andaz was a decent near-term rate output pinch longer-term upside. San Diego was much of a near-term rate travel play wherever we were capable to get nan edifice astatine a very bully output and fto that output grow, and we proceed -- and we expect that to proceed to grow.

On nan -- looking astatine immoderate of nan different acquisitions that happened later successful nan erstwhile year, you said you person immoderate of nan things that didn't spell rather arsenic well. The 2 vino state assets, while 2021 had unthinkable leisure compression, nan 2nd half of past twelvemonth was -- that compression went elsewhere. And truthful those hotels, while they were possibly geared and group up to return advantage of this ongoing leisure demand, possibly spent a small little clip focusing connected group. Second half of past year, we really changed that focus. And nan hotels person added nan due magnitude of group business wherever Montage's gait is double to what it was a twelvemonth agone and Four Seasons is up 80%.

Is that thing we should person done earlier? Yes. And that's thing that we look astatine our different markets that proceed to use from leisure demand. While successful an illustration is location where, yes, location is simply a batch of leisure demand. The complaint is very strong, but we're remaining -- we want nan edifice to stay disciplined and make judge that it has nan correct -- ever person nan correct group operation to it and not trust solely connected leisure demand. That's thing that nan edifice is focused connected and make judge that it did not springiness up its group for that near-term leisure.

On nan returning superior side, I'm very happy pinch what we did past year. We reinstated nan dividend, and we besides went -- and arsenic we said we would do is acquired our banal passim nan year. We've really continued that into this year. And that's thing that we -- while location are not endless superior to spell retired and bargain banal each nan clip done dispositions, done further capacity successful our equilibrium expanse aliases rate connected hand, that's thing that we'll proceed to do.

And I deliberation what -- nan 1 point that we're astir apt proud of -- astir proud of past twelvemonth is nan equilibrium that we had to nan portfolio. We want our portfolio to beryllium balanced successful each sentence. We want to make judge that we person nan correct magnitude of leisure, nan correct magnitude of group, a correct magnitude of business focus, but past besides successful really we're allocating capital. We request to beryllium investing successful our portfolio erstwhile nan returns make sense. We request to beryllium recycling assets and producing much maturation and not conscionable sitting connected assets everlastingly and watching those returns diminution and past we request to return nan capital. So benignant of a long-winded way, but hopefully, that answers your question.

Operator

Our adjacent mobility comes from Duane Pfennigwerth from Evercore ISI.

Duane Pfennigwerth

Just connected nan vino state assets. I wonderment really do you deliberation astir nan separator floor plan of those assets versus nan portfolio mean longer term? And really should investors beryllium reasoning astir nan steps required to adjacent that gap? And it sounds for illustration you touched connected a beautiful important 1 pinch nan group focus, but conscionable really you're reasoning astir nan margins longer word connected those 2 assets and what's required to adjacent nan gap?

Bryan Giglia

Okay. Thanks, Duane. So I conjecture nan easiest reply to that is simply a luxury edifice will not tally -- we'll tally little margins than a very ample businesslike group container aliases business transient container aliases moreover constricted work aliases that -- it's conscionable because of nan services and nan level of amenities, it's not going to tally nan aforesaid margins, which is good because we're -- while margins are thing that we watch closely, and we're perfectly moving connected nan hotels connected their separator improvement, we're much focused connected value. And truthful nan bottommost statement is that those hotels will beryllium weighted otherwise than your precocious upscale mean metropolis center, urban-type edifice aliases moreover different resorts.

And truthful what we want to make judge that we maximize nan rate flow, nan champion we can, activity pinch nan operators. Again, past year, location was a small spot excessively overmuch assurance put connected nan near-term leisure. Now leisure continues to beryllium strong, but these hotels person to person components to it. And truthful that's thing that we attraction on. Montage for 2023 has 10,000 room nights connected nan books correct now. It had 5,000 this clip past year. That comes astatine a $1,000 rate. Maybe it's a small spot little than nan transient rate, but it's a very beardown rate, and it comes pinch $500 positive of ancillary spend. Four Seasons has 5,000 room nights connected nan books for 23 and they person 3,000 past year. That's possibly not nan $1,800, $1,900 transient complaint but astir a $1,500 complaint pinch $500 aliases $600 of ancillary spend.

So it's getting nan operation of each edifice correct getting that group component, which has nan banquet walk successful it, which is overmuch much profitable than nan different nutrient and beverage outlets pinch possibly nan objection of a bar. And truthful it's really getting that right, and that is wherever we put nan attraction successful past year, and we're starting to spot that wherever you'll spot sizeable -- you will spot sizeable EBITDA maturation successful each edifice this year, you'll spot separator maturation and -- but still that separator maturation arsenic acold arsenic wherever -- erstwhile do we get stabilized, that's a mates of years out, astir apt looking into adjacent twelvemonth aliases so. And past -- but moreover if these hotels are hitting it retired of nan park, their margins are going to beryllium little than nan different hotels successful our portfolio.

Operator

Our adjacent mobility comes from Gregory Miller from Truist Securities.

Gregory Miller

I apologies if I missed this, but could you stock immoderate much elaborate thoughts astir nan Boston marketplace and your existent sentiment of your Park Plaza and Long Wharf vulnerability there?

Bryan Giglia

Yes. Like different municipality markets, Boston has been a awesome marketplace for us. As acold arsenic nan cadence of wherever it goes successful municipality marketplace recovery, possibly not wherever our San Diego will down San Diego and possibly Orlando, but farther up than San Francisco and D.C. So very happy pinch some hotels. Both hotels person had very different strategies. We invested rather a spot of superior into Long Wharf, really expanding nan level of value of nan room, expanding nan bathroom, nan edifice -- nan location of nan edifice is fantastic. The rooms now arsenic acold arsenic being capable to compete pinch different high-end hotels successful nan marketplace are perfectly connected par. And truthful astatine Long Wharf, we've been a small spot much mindful of occupancy because we've really been pushing nan complaint and been very successful astatine doing that.

Park Plaza is much of a transient and group box. And truthful wherever we invested location was adding further gathering space. We put astatine nan extremity of '21, we added different 5,000 quadrate feet of very modern functional abstraction that mixes good pinch nan much historical abstraction and nan remainder of nan building. And it allows america to push much group done there. And wherever we really request to beryllium successful location aliases making judge that we person nan correct in-house firm group and not relying connected overflow from nan citywide. So we person a awesome offering now that's very compelling to firm events. The gait -- erstwhile we look astatine nan gait for Park Plaza, it's very beardown and '23 should beryllium a awesome twelvemonth for nan hotel. And truthful arsenic acold arsenic nan market, nan marketplace has performed well. The hotels are performing very good wrong nan marketplace and agelong term, Boston is simply a marketplace that we're -- we deliberation very highly of.

Operator

Our adjacent mobility comes from Anthony Powell from Barclays.

Anthony Powell

Just a speedy mobility astir superior recycling going guardant successful disposition and acquisitions. In bid to waste a hotel, particularly possibly a larger one, would you request to person different edifice acquired aliases person a bully show statement to acquiring a large edifice aliases would you beryllium consenting to possibly waste a edifice and hold to remiss those proceeds down nan road? Just funny really we lucifer up those 2 going forward?

Bryan Giglia

Good morning, Anthony. In a cleanable world, you lucifer those up very close. I deliberation what we've learned complete nan past mates of years is we're not successful a cleanable world. So we person to beryllium a small spot much flexible. And truthful 1 of our focuses is to -- while superior recycling antecedently was possibly a small spot much episodic, we want to make it a much regular usability for nan company. And what I mean by that is that there's 2 reasons for america to divest of an asset. The first 1 is that it's opportunistic. For immoderate reason, personification is going to worth that edifice much than we person aliases we've -- there's immoderate events that's unencumbered aliases thing wherever a purchaser tin bargain it unencumbered and it creates worth that way. Embassy Suite Portfolio is an illustration of that.

The different is -- and this 1 is simply a small harder to pinpoint is nan edifice for america is reaching nan extremity of our finance sky for nan hotel. Typically, particularly nan amended hotels, nan much metropolis center, nan luxury that person edifice lodging REITs for illustration to bent connected to those because they look bully connected covers. They person precocious RevPARs. Those hotels whitethorn complete time, erstwhile you look astatine your return connected invested capital, nan superior you're putting into those assets astatine definite -- astatine immoderate constituent successful time, will move from being much violative to much defensive. And past you get into nan constituent wherever your return starts to diminution and you're putting successful much protect dollars.

And truthful what we effort to do now is look astatine each hotel, look astatine its life cycle, effort to look retired complete nan early and say, okay, our finance present is going to travel to an extremity successful nan adjacent mates of years. There's nary much for america to really do aliases nan risk-adjusted return of that finance is possibly not for us, possibly it's for personification else. And truthful let's spell spot if we tin monetize that. Once -- and we're successful nan starting phases of that, erstwhile that becomes much regular, nan matching up of acquisition targets becomes easier and much -- conscionable much natural. And truthful we do person immoderate ample assets and sometimes it's difficult to lucifer up a ample asset. And sometimes you person to return 1 plus and put it into 2 different assets. And that's much activity and much takes much clip to find those assets than it does for conscionable one. So we will proceed to effort to make this much of a regular process for us.

In nan adjacent term, if we divest of something, well, we extremity that transaction because it's nan correct finance decision, but we don't person thing to lucifer it. No, we person ways to -- while it creates immoderate lumpiness successful earnings, we person ways pinch immoderate NOLs and different things to shield gains and springiness america nan clip to make nan correct adjacent investment. But successful a -- ideally for our earnings, for our investments, for our worth creation, it's champion to statement things up arsenic adjacent arsenic possible, but knowing that's not ever possible.

Operator

Our adjacent mobility comes from David Katz from Jefferies.

David Katz

I'm not judge if you've benignant of talked astir wherever nan in installments markets beryllium and really supportive they are for nan M&A market? And conscionable really important that will beryllium aliases really pivotal that will beryllium and you're getting thing done, say, this year?

Bryan Giglia

Yes. I mean, David, nan in installments markets are important. The mostly of edifice transactions, particularly connected nan backstage broadside are levered deals, which intends that location has to beryllium debt. And truthful if you went backmost a mates of months ago, those markets were not functioning really good and nan spreads were wide, which led to, I think, our commentary and others commentary, there's astir apt not a batch happening successful nan 4th fourth aliases moreover possibly nan first 4th of nan year. I deliberation arsenic we've sewage into nan first quarter, location person been much transactions, indebtedness transactions that are happening. The indebtedness markets are becoming much functioning, but not to wherever they request to beryllium for to person things really commencement to move. But I deliberation they're moving successful nan correct direction.

And erstwhile that location -- you request a mates of things. When you request value find and validation connected plus values and past you request to cognize wherever nan indebtedness markets and that's going to beryllium important to fig retired what LTVs are and what type of indebtedness yields you tin get. So I deliberation we're moving successful nan correct direction. It is much challenging than it was, telephone it, 12, 18 months agone though.

Operator

Our adjacent mobility comes from Floris Van Dijkum from Compass Point.

Floris Van Dijkum

The -- arsenic I look astatine this, I mean, it looks -- you've made -- a mates of your hotels are really firing connected each fronts. I mean if I look astatine nan Wailea and nan Hilton San Diego Bayfront, some of them are up of '19 levels of EBITDA. So very encouraging. Obviously, you've sewage immoderate downtime you person to return into information for nan redevelopment of nan caller ANDAs. But your RevPAR prognosis for a 30% to 32% successful nan first 4th and, telephone it, 10% to 15% for nan year, looks beautiful attractive. That implies rising imaginable margins passim nan twelvemonth arsenic well, which, again, affirmative EBITDA growth.

I'm conscionable funny -- nan -- and I cognize it's been touched upon a mates of times already, but nan vino state assets, I mean, if I look astatine nan output connected cost, it's very, very minutes past twelvemonth successful position of EBITDA. I mean that would connote to get your target returns, EBITDA would person to much than triple. What benignant of clip framework do you expect that, that could happen?

Bryan Giglia

Yes. I mean that's going to hap different rates astatine nan 2 different hotels. But to inquire -- to reply your first question, nan anticipation this twelvemonth is that you will spot meaningful EBITDA maturation astatine some hotels. Again, nan group constituent is simply a large portion of it. And if you look astatine that pace, it's -- look, these were 2 brand-new luxury hotels that opened up into a awesome leisure compression marketplace and past person to readjust their models to bring successful nan correct mix. And we deliberation we've accomplished that aliases astatine slightest we're very acold on nan measurement there. And past location are different components to each hotel, Montage has starting astatine nan extremity of this twelvemonth aliases opening of adjacent year, nan residences that are separate, but tin participate successful nan edifice programme unfastened up. That's going to beryllium different limb of maturation for Montage.

And past successful Four Seasons, arsenic we proceed to found it, it will proceed to grow, too. But our -- to your point, our anticipation is, is that nan 2 hotels are going to grow, telephone it, 40 to -- location 40 and 150% of wherever they were successful nan erstwhile year. So that maturation is happening. It's somewhat of a measurement function. But erstwhile we look astatine wherever we person nan hotels group up from a group perspective, what their group publication is, nan truth that some were awarded 5 gem status, which is very important successful nan luxury world. Our assurance successful our condemnation connected these hotels is arsenic beardown arsenic it ever was. And erstwhile it comes to worth and worth creation, these hotels are going to service our shareholders very well.

Operator

We person nary further questions. I would for illustration to move nan telephone backmost complete to Bryan Giglia for closing remarks.

Bryan Giglia

We'd for illustration to convey everyone for their liking successful nan institution and look guardant to gathering pinch galore of you complete nan coming mates of months astatine nan various conferences coming up. Thank you.

Operator

This concludes today's convention call. Thank you for your participation. You whitethorn now disconnect.