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We are providing that information as a supplement to information prepared in accordance with Generally Accepted Accounting Principles.
With us on the call today are John Arabia, President and Chief Executive Officer; Bryan Giglia, Chief Financial Officer; and Marc Hoffman, Chief Operating Officer.
I can say without hesitation, that I'm glad 2020 is behind us, and I firmly believe the better days lie ahead.
It goes without saying, that 2020 posed the most difficult challenges the hotel industry has ever faced, and we are forced to do things we never thought we would have to do.
That said, in rising to the occasion, we and others working together, also accomplished things we never thought possible.
Simply stated, we are not out of the woods yet.
We have recently witnessed evidence of a recovery in demand, including leisure, commercial and group demand.
We believe if these trends continue and a gradual recovery has started, and we are likely to resume hotel profitability sometime late in the second quarter or early in the third quarter of this year.
Today, I'll provide a recap of 2020 including our accomplishments here at Sunstone, as well as our annual and quarterly operating results.
I will then provide comments on recent operating and booking trends, followed by an update on our liquidity, and an overview of our 2021 capital projects as we continue to focus on long-term growth.
Bryan will later provide more details on our recent earnings, finance transactions, liquidity and dividends.
So let's begin with a recap of last year.
Despite the extremely challenging operating environment, we were able to navigate the pandemic and execute on several transactions that increased the quality of our portfolio, reduced our debt, and better positioned the Company for long-term growth.
During the year, we sold two hotels, the Renaissance Baltimore and the Renaissance LAX for combined gross proceeds of nearly $172 million.
These two transactions bring the number of hotels sold in the past three years to a total of nine hotels for gross proceeds of approximately $575 million.
In July, we sold the Renaissance Baltimore at a reasonable discount to pre-pandemic pricing, which we believe was a good outcome, considering the asset is lower quality, urban group-oriented hotel that was losing money and expected to lose money for some time.
In December, we are fortunate to compete the sale of the Renaissance LAX, and what we believe to be a pre-pandemic valuation.
This was a fantastic execution, and a direct result of our strong balance sheet and nimble investment team.
We did not have to sell this hotel, nor did we need the incremental liquidity, and because of this, we were able to hold the line and extract premium pricing equating to a 6.8% cap rate on 2019 actual earnings.
Additionally, during the fourth quarter, we reached a resolution with the lender of the mortgage on the Hilton Times Square, resulting in in assignment-in-lieu.
Given the operating challenges this hotel faced prior to the pandemic, which were only exacerbated by a proposed uneconomic ground rent reset, and an increase in property taxes, we expected the hotel to generate sizable cash losses for the foreseeable future.
While we are hoping for another outcome, the assignment of our interest in this hotel mitigated what we believe to be a deteriorating situation, and all things considered was the best outcome in a terrible situation.
The departure of these three hotels in 2020 further consolidates our portfolio into long-term relevant real estate, and further reduces our ground lease exposure.
It is worthwhile to note that the combined 2019 RevPAR and EBITDA per key of these three hotels, in aggregate, was approximately 19% lower and 54% lower respectively than the remainder of our portfolio.
Additionally, the dispositions leave us with only two ground lease assets in the portfolio, which we believe compares about the best across all publicly traded hotel REITs.
Despite the limitations on the incurred environment, we continue to make selective capital investments in 2020 that we believe will result in long-term value creation.
During the year, we invested $51 million into our hotel portfolio, with the largest project being the complete repositioning renovation of the Bidwell Portland, which turned out just beautifully.
As many of you know, we take a long-term view of our business, and so despite the uncertainty facing the industry in 2020, we chose to accelerate several highly disruptive projects that were on hold awaiting a quiet time to be completed.
At our Renaissance Orlando, we completed the first phase of a refresh of the hotel large atrium lobby, including replacing nearly 50,000 square feet of flooring, which would have otherwise resulted in millions of dollars of displacement.
The lobby looks amazing.
And we were able to complete this investment without any displacement or guest impact.
At our Wailea Beach Resort, we added 32 beautiful lanai decks, which has significantly increased the appeal and the revenue potential of these oceanfront rooms.
Also in Wailea, we remain on track to complete our solar project in this quarter, which will eliminate approximately 650,000 kilowatts annually of energy, and reduce not only our carbon footprint, but also our energy bill by roughly $160,000 per year.
And finally at our DC Renaissance, we have completed the refresh of our product to share and the meeting space escalator modernization, both of which have result -- would have resulted in meaningful group displacement during normal operating times.
In summary, despite very challenging times, we had a productive year at Sunstone.
Let's move on to 2020 operating results.
Of our 17 hotels, 15 were in operation at the end of the year, which represents 92% of our rooms in the portfolio, and nearly 98% of our comparable 2019 hotel EBITDA.
For the full year, comparable portfolio revenues were $233 million, and RevPAR was just over $46, which represent declines of 76% and 77% respectively, compared to 2019.
To put this into perspective, roughly 75% of our comparable revenues in the year were generated in the first quarter prior to the pandemic.
Full year comparable property-level EBITDA was a loss of $64 million, which represents a decline of 120% relative to 2019, despite a previously thought unattainable 56% decline in same-store operating expenses.
Three of our hotels, Wailea Beach Resort, Embassy Suites La Jolla and Oceans Edge achieved positive EBITDA for the year.
Moving on to the fourth quarter.
Comparable portfolio revenues were $32 million and RevPAR was $25.36, which represents a decline of 86% and 87% respectively, compared to the fourth quarter of last year.
Our fourth quarter RevPAR was challenged by the seasonal slowdown in business and the increase in both COVID cases and stay-at-home restrictions, which had a temporary impact on transient reservations.
Nevertheless, our portfolio RevPAR of just over $25 increased from the nearly $18 witnessed in the third quarter and the $3 in the second quarter, as we opened up additional hotels, and as occupancy at several hotels increased, particularly our higher-rated properties.
Demand in the fourth quarter came from a combination of leisure transient, contract business, and event-driven groups that were primarily related to either government or emergency management business.
Fourth quarter group business, which was made up of non-congregating room blocks, was generally limited to our hotels in San Diego and New Orleans.
We have also recently seen a very small, but growing number of commercial transient rooms, particularly in October and November, as workforce started to return to traditional offices and get back out on the road.
Furthermore, in December, we saw an increase in holiday travel at Oceans Edge, Wailea Beach Resort, Renaissance Orlando and both of our hotels in San Diego.
Leisure demand continues to be the primary source of business for many of our hotels.
Our drive-to hotels and resort destinations continued to outperform our City Center hotels, particularly on the weekends as people seek travel opportunities away from their homes.
Our Oceans Edge Resort in Key West ran at 53% occupancy in the fourth quarter, and a slightly higher rate than the fourth quarter of 2019 driven completely by transient leisure business.
This spacious resort with six separate pools is an ideal destination for a socially distance vacation.
Over the New Year's holiday, Oceans Edge ran nearly 90% occupancy, with an average rate that was competitive that of the prior year.
Similarly, our hotel in Wailea continues to rebound despite the flighty nature of the Hawaiian Islands, which reopened for business in mid-October, albeit with significant testing requirements and limited open amenities.
As expected, demand in Wailea has been building slowly with occupancy levels in the range of 19% to 23% per month.
As Wailea's occupancy builds, we continue to maintain our premium pricing integrity and have been disciplined in our approach to revenue management as opposed to lowering prices in hopes of creating demand.
Our November ADR at the property was 13% higher than the previous year, and our ADR from Christmas to New Year was over $725.
We continue to believe that our outstanding hotel product, and desire by travelers to vacation in Mali, will allow us to maintain our high rates, while building our occupancy, as more people feel comfortable travel.
Now let's take a look at our quarterly group performance.
Group business increased sequentially in the fourth quarter compared to the third quarter from 21,000 room nights to 32,000 room nights or about 24% of the total room nights achieved in the quarter.
Current group business continues to be composed primarily of government and emergency management-related groups, all of which tend to book with little lead time.
That said, we have also started to see a few incidences of traditional groups keeping their meetings as planned.
For example, while certain isolated events that showed up were small compared to historic events, its sports group kept our room block at our Renaissance Orlando in early January, and two medical groups recently showed up at Wailea Beach Resort.
During the fourth quarter, property-level expenses declined by 70%, which includes the benefits -- benefit of approximately $8.7 million of operational level credits and adjustments, including several real estate tax adjustments and employee tax credits.
Despite such a material decline in cost, the challenging demand environment resulted in property-level adjusted EBITDA loss of $18 million in the fourth quarter.
Now, a loss of $18 million is nothing to get excited about, but it does show continued improvement from the third quarter, which had a loss of $32 million for the comparable portfolio.
Similar to the third quarter, the fourth quarter property-level loss was several million dollars better than we had anticipated, even after accounting for the credits we received.
We continue to work with our operators, not only to reduce expenses in the short term, but also to identify efficiencies and other improvements to our operating model that are expected to generate sustained cost savings for owners as demand returns to our hotels.
We believe 2021 group business will ultimately depend on the speed and efficacy of the vaccine distribution, and the degree to which that allows us to return to normal.
In the near term, cancellations in the first quarter of '21 are trending in line with that of the fourth quarter of last year, and we would expect a limited group room nights outside select government-related groups.
Looking at the second quarter, our group cancellations have increased over the last 90 days, but at a much slower pace than what we saw in recent quarters.
Several groups remain intent on holding their events in the second quarter, including a couple of association events in San Diego, and a few small city wise in Boston.
This gives us some confidence that group room nights will begin to increase in the second quarter.
And then as the distribution of the vaccine becomes more widespread, this travel restrictions and social distance requirements ease, group trends will accelerate in mid-to-late summer.
Given the expected vaccination trajectory, meeting planners have become more confident about holding their events in the third and fourth quarter, and we've witnessed minimal group cancellations for that time period.
Based on these assumptions, we expect our portfolio will perform materially better in the second half of 2021, and specifically in the fourth quarter.
Recent pace of future group bookings also points to recovery.
Following the loosening of stay-at-home orders in the earlier part of this year, we saw a meaningful increase in bookings in group lead volume.
In January, our portfolio group lead volume was up 130% over December, and the total number of leads reached a level not seen since last March.
From a production standpoint, Hilton San Diego Bayfront had its highest January group production in the last six years, with over 17,000 room nights booked, and Boston Park Plaza booked several large pieces of business for the third and fourth quarter.
In New Orleans, Jazz Fest, French Quarter Fest and two other festivals were rescheduled for October, and now every weekend in October has the potential for market compression, which is great and something we have not seen in quite some time.
Looking further group bookings.
Since the beginning of the fourth quarter, we booked 140,000 new group room nights for all future months, excluding the rebooking of previously cancelled groups.
While a portion of these bookings relate to isolated driven event business, the remaining balance still represents an acceleration from previous months and demonstrate there is pent-up demand to hold meetings when conditions permit.
In addition to new bookings, to date we have rebooked 266,000 group rooms -- group room nights that previously cancelled or approximately 25% of all cancelled group room nights since the start of the pandemic.
We would expect that number of rebook rooms to increase as another 3% of cancelled rooms are at various stages of reworking their contracts, and an incremental 24% of cancelled room nights have expressed an interest in rebooking and are working with our sales team to potentially secure new dates.
Taken together, the new group -- groups booked, since the beginning of the fourth quarter and all rebook groups, and those in the contracting process, represent approximately $100 million of group room revenue, and approximately $125 million of total group revenue.
We are confident we would not have captured all of this business, if we did not keep sales professional on property to work with and take care of our meeting planners and group customers.
While our 2021 group room night pace is down materially compared to pre-pandemic levels, we currently have approximately 290,000 group rooms on the books for 2021, representing $62 million of group room revenue, a significant increase from the depressed 2020 levels.
In addition to the more optimistic outlook for group business, transient trends are also showing signs of improvement, particularly after the vaccine distribution began.
Looking at the historical trajectory, in mid-March 2020, net transient bookings quickly turned sharply negative, meaning reservation cancellations materially outpaced new reservations as travel came to historic standstill.
Weekly net transient reservations generally remained negative through the middle of July, and then gradually increased through mid-October as more hotels opened.
Around late October, or early November, net transient reservations remained positive but decelerated, because the weather turned cooler and COVID-19 cases spiked.
That said, I'm pleased to report the net transient reservations have rapidly improved since the vaccine distribution began.
And our weekly forward bookings, while still short of normal levels, are at the highest levels that they have been since the first week of March 2020.
Following the onset of the pandemic, the booking window grew increasingly short, with most reservations being made within a few days of arrival.
We are now starting to see a booking window extend.
For example, Oceans Edge has a significant increase in transient bookings that span over a three-month period.
Similarly, we are starting to pick up transient reservations as far out as the fourth quarter, particularly in places like Wailea.
For the second half of the year Wailea has 13% more transient rooms on the books, compared to the same time in 2019, and the outlook has been improving weekly.
While it is obvious that we still have a long way to go to get back to normal operating levels, the trend is clearly headed in the right direction, particularly as the majority of our portfolio is open and vaccine distribution continues to accelerate and show promise.
Now let's talk a bit about our improving cash burn.
On our last call, we provided an estimate of our monthly cash burn, assuming the majority of our portfolio was in operations, but would continue to run at very low occupancies.
At that time, we established that we would incur property-level cash losses of approximately $10 million to $13 million a month, and with -- and when combined with our corporate expenses, debt service and preferred dividends represented a total monthly cash burn of $16 million to $20 million before capex and extraordinary items.
Our actual cash, or excuse me, our actual hotel-level cash burn for the fourth quarter was approximately $9 million per month.
And when combined with our corporate cash requirements, equated to a monthly burn rate of $16 million on average, which was at the low end of our estimated range.
We continue to fine-tune our operating model at the prevailing occupancy levels, and remain focused on minimizing operating expenses.
We currently expect that our first quarter monthly corporate cash burn rate before capital investment will range from approximately $14 million to $17 million per month or 14% decline from the previously provided range.
Furthermore, if occupancy begins to increase, we would expect second quarter cash burn to decrease significantly, and anticipate that our portfolio could achieve monthly profitability late in the second quarter or early in the third quarter, and then our monthly corporate cash usage could achieve breakeven levels by the end of the third quarter.
So let's switch gears and talk a bit about our significant and enviable liquidity position.
We ended the year with $368 million of unrestricted cash, and full availability on our $500 million credit facility.
Our year-end cash balance included the proceeds from the sale of the Renaissance LAX, as well as the repayment of the mortgage secured by the Renaissance DC, which was paid off just prior to year end.
Repayment of the DC loan eliminates roughly $10 million of annual debt service, and will leave us with only three mortgages.
As our cash burn rate continues to decline, we are increasingly confident that a notable portion of our existing unrestricted cash balance is available for investments that we believe are likely to become available in the next several quarters.
That is, we're one of the few companies that is not dependent on credit facility draws or other borrowings to fund meaningful acquisitions.
From a capital perspective, we plan to invest approximately $70 million to $80 million into our portfolio in 2021.
Our largest projects this year will be the Renaissance Washington DC, where we have been working with Marriott on a plan to convert the hotel to the Western brand.
As part of the conversion, nearly all areas of the hotel will be reinvented, including a full renovation of all 807 guest rooms and bathrooms, conversion of a majority of bathtubs to showers, the addition of nine new keys, upgrading the fitness center, the redesign of all public spaces, meeting areas and food and beverage outlets, as well as enhancements to the exterior facade.
We believe the Western brand will elevate the hotel's positioning, allow it to be better compete for both group and transient customers, and ultimately, enhance the long-term earnings potential and value of the hotel.
Renovation work will begin later in '21, and the rebranding will occur in 2022, once the repositioning is substantially complete.
We anticipate that the total investment for the conversion to be approximately $70 million, with nearly $30 million of that spend occurring in the current year.
This investment is roughly $30 million over the cost of a cyclical renovation, but one that we believe will generate a low- to mid-teens return on incremental investment given the increased rate potential.
We are excited about this project and look forward to working with Marriott on another successful repositioning.
In addition to the conversion project in Washington DC, we have several other value-enhancing projects planned across the portfolio this year.
At the Hilton San Diego Bayfront, we're renovating the ground floor by redesigning and reconcepting our restaurant and converting a formerly leased restaurant space into meeting space.
The new meeting space will enable us to sell more group rooms and allow for the combination of indoor and outdoor waterfront meeting space that sits adjacent to our event lawn.
At our Boston Park Plaza, we are converting another former ground floor retail space into additional meeting and pre-function space.
Similar to our successful Avenue 34 meeting space, we anticipate this will also be highly sought after for social catering events, and will provide additional breakout space to attract large groups.
Finally, we are adding a second adult serenity pool at our Wailea Beach Resort to better accommodate guests, and to further enhance our overall resort experience.
To sum things up, we believe that the worst is behind us and we are now in a period of transition.
The vast majority of our portfolio is operating, and we are seeing trends that give us increased optimism and confidence that we are on the path to return to profitability in the second half of 2021.
And finally, our significant cash on hand before drawing down on our credit facility, not only provides us with stability during these uncertain times, but will also allow us to find attractive investments earlier than others who may be focused on shoring up liquidity.
As of the end of the quarter, we had approximately $416 million of total cash and cash equivalents, including $48 million of restricted cash, and then undrawn $500 million revolving credit facility.
During the quarter, we utilized proceeds from the sale of the Renaissance LAX, along with cash on hand, to repay the $108 million mortgage secured by the Renaissance Washington DC.
The repayment of this loan removes our highest cost piece of secured debt, eliminates nearly $10 million of debt service per year, and leaves us with only three secured mortgages remaining in the portfolio.
During the quarter, we also executed amendments to our unsecured debt agreements, which provide for additional covenant relief and extend the financial covenant waiver period until the first quarter of 2022.
We appreciate the ongoing support of our high-quality lending group throughout this process.
Our balance sheet remains strong with significant liquidity, and continues to position us not only to successfully navigate the current operating environment, but to also allow us to take advantage of opportunities as they may arise, as the industry recovers.
We continue to focus on managing our costs and minimizing hotel expenses, while maintaining our properties in good condition, and opportunistically investing in projects that would have resulted in material displacement.
Working with our operators, we have reduced operating expenses by approximately 60% to 70% since the start of the pandemic.
Our current projected cash burn rate is now $14 million to $17 million per month before capital expenditures, which has reduced from our previous range of $16 million to $20 million per month, and down from the actual fourth quarter burn of approximately $16 million.
Shifting to fourth quarter financial results.
Our fourth quarter performance was significantly better than third quarter.
Operations continue to reflect the most dramatic decline in hotel demand the industry has ever seen.
Fourth quarter adjusted EBITDA was a loss of $19 million, and fourth quarter adjusted FFO per diluted share was a loss of $0.16.
While we were anticipating the fourth quarter results, which showed sequential improvement, the actual results also benefited from approximately $8.7 million of operational level credits and adjustments, some of which may not repeat in the first quarter of 2021.
While we are not providing guidance at this time, let me provide a basic framework on how we are thinking about 2021.
As we've noted, we expect our near-term monthly corporate cash burn to be between $14 million and $17 million before capex.
That is, our assumption for the first quarter, which is marginally better, but generally in line with the fourth quarter of last year.
As the year progresses, we anticipate that the monthly cash burn will decline meaningfully, and we expect to reach hotel profitability by the end of the second quarter or early third quarter.
The rate of acceleration will depend on the success of vaccine distribution, the continued easing of state and local restrictions, and the return of group travel.
As John indicated, we are seeing multiple signs of demand acceleration, especially in the back half of the year.
We have suspended our common dividend, and will reach -- we have suspended our common dividend until we return to taxable income, which may or may not occur in 2021.
Separately, our Board has approved the routine quarterly distributions for both of our outstanding series of preferred securities.
And with that, we can now open the call to questions.

user
q4 adjusted ffo loss per share $0.16.17 hotel portfolio revpar decreased 86.9% to $25.36 in quarter.
to reposition and rebrand renaissance washington dc to westin washington dc.
sunstone - in 2021, expects to invest about $70 million - $80 million of capital, including about $30 million to reposition and rebrand renaissance washington dc.

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