Sunstone Hotel Investors, Inc. (NYSE:SHO)
Q4 2015 Earnings Conference Call
February 23, 2016 12:00 PM ET
Bryan Giglia - CFO
John Arabia - President and CEO
Marc Hoffman - COO
Robert Springer - CIO
Thomas Allen - Morgan Stanley
Lukas Hartwich - Green Street Advisors
Anthony Powell - Barclays
Shaun Kelly - Bank of America Merrill Lynch
Ryan Meliker - Canaccord Genuity
Rich Hightower - Evercore ISI
Good morning, ladies and gentlemen, and thank you for standing-by. Welcome to the Fourth Quarter Conference Call. At this time, all participants are in a 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 that this conference is being recorded today, February 23, 2016 at 9:00 AM Pacific Time.
I would now turn the presentation over to Bryan Giglia, Chief Financial Officer. Please go ahead.
Thank you, Alia, and good morning, everyone. By now you should have all received a copy of our fourth quarter earnings release and supplemental, which we released yesterday. If you do not yet have a copy, you can access it on our website.
Before we begin this call, I’d 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 adjusted EBITDA, adjusted FFO and hotel EBITDA margins. We are providing that information as a supplement to information prepared in accordance with Generally Accepted Accounting Principles.
In addition, Hotel information presented includes our adjusted comparable 29 hotel portfolio which may include prior ownership information and excludes information for the recently saw double three time square.
With us on the call today are John Arabia, President and Chief Executive Officer; Marc Hoffman, Chief Operating Officer; and Robert Springer, Chief Investment Officer. After our remarks, we will be available to answer your questions.
With that, I’d like to turn the call over to John.
Good morning, everybody, and thank you for joining us. Today, we'll provide an update on our performance of our business, discuss a few of our recent transactions, and provide our view on the current operating environment. Marc will then provide an overview of our operating results in trends, as well as highlight operating expectations for various markets in 2016. Bryan will then walk through our recent capital transactions, and he will also provide earnings guidance for the first quarter and for the full year 2016.
Overall, we were pleased with our fourth quarter operating results, which included RevPAR growth of 4.1% and total comparable hotel revenue growth of 4.6%. Like any quarter, they are both positive and negative events that transpired yet in the end, we continue to meet or exceed our operating and earnings expectations even what - in what has become a more challenging operating environment, and despite meaningful yet anticipated disruption at the Wailea Beach Resort.
In the fourth quarter, transient demand was a bit soft in a few markets, including in New Orleans, New York, Chicago and Northern Virginia. That said, the portfolio has performed above our expectations as Group business trends remained strong. Group room nights were flat in the quarter, but Group room rates increased by 5% and our banquet and audio-visual spend per Group room increased a robust 7.6% in the quarter.
From a market perspective, New York remains soft, but we had strong growth in Orlando, Boston, Portland and in most of our California markets, including San Francisco. In addition to strong property level performance and earnings growth in the quarter, we recently completed several transactions that we believe materially benefited the company and draw a value for our shareholders.
First, in December, we close down the sale of the DoubleTree Times Square, a deal that we've been working on for over a year for $540 million or nearly $1.2 million a key. This transaction unlocks meaningful shareholder value by monetizing an asset at a price materially above our internal valuation and then the price for some $200 million to $250 million higher than a consensus value of the asset held by both the buy-side and the sell-side analyst.
Furthermore, this transaction improved our near-term property level growth prospects, enhanced our already strong balance sheet, provided us with meaningful liquidity, reduced our ground lease exposure, eliminated a near-term debt maturity, reduced our near-term renovation expenditures and resulted in a significant distribution to our shareholders.
Furthermore, this transaction demonstrates that we are willing to sell a trophy asset or shrink the company, if it is in our shareholders' best interest.
In addition to the DoubleTree sale, we were also able to execute on a more routine yet important financing transactions that further strengthen what is now one of the best balance sheets in the space.
As mentioned on our last call at the end of October, we repaid the loan on the Renaissance Baltimore with the proceeds from a new seven-year term loan which we swapped to a fixed interest rate of 3.39%.
In February, we repaid the loan on the Boston Park Plaza with the proceeds from another new seven-year term loan, which we swapped to a fixed interest rate of 3.65%. These refinancings further reduce our average interest rate, extend our average debt maturity and increase the number of unencumbered hotels. We currently have only eight mortgages down from 16 mortgages at the end of 2014.
In addition to these recently completed transactions we remain very pleased with the progress made at and the near-term earnings outlook for both the Boston Park Plaza and the Hyatt Regency, San Francisco. Several floors of guest rooms have already been completed in Boston Park Plaza and it looked fantastic. The rest of the guest rooms will be completed at the end of the second quarter just in turn for what is expected to be a busy summer season in New England.
Similarly, the Hyatt Regency, San Francisco renovation was substantially completed just prior to the Super Bowl. The hotel continues to outperform our expectation as the hotel generated $28 million of EBITDA in 2015, representing a nearly 50% increase in hotel profits of over 2014. Despite recent concerns about the health of the San Francisco hotel market, we remain bullish about our location and the prospects within the city. We're also making considerable progress to the repositioning of the Wailea Beach Resort. The family pools have been completed and the rest of the resort remains on track to be completed over the course of the year. While our guidance reflects a fair amount of disruption in Wailea this year, we remain enthusiastic regarding its potential earnings growth in 2017 and beyond. The Maui markets remains strong and lower oil prices have had a direct benefit from Maui and our hotel.
Before I turn the call over to Marc, I'd like to provide a few thoughts on the current operating environment. There has been considerable concern of late regarding the health of the lodging expansion. On one hand there are reasons to remain positive, as most of our hotel level indicators suggest that hotel demand should remain healthy in 2016 and 2017.
For example, in 2015, our hotels produced a record $1.5 million group room nights for our current and future periods, representing a 1.4% increase in group room night production versus 2014. Well, recently in the fourth quarter, our hotels booked 442,000 group room nights, representing a 4.2% increase over the prior year. Furthermore, our 2016 group pace is up 12.9% driven by a more room nights and higher rates and group spend on food and beverage and audio-visual remains very strong. Our group booking pace is the softest in the first quarter up only slightly. And strongest in the third quarter which is up over 25%. While group attrition could increase, we believe that the underlying book suggest healthy lodging fundamentals ahead.
On the other hand, there are headwinds that paint a more sanguine picture. One cannot ignore the RevPAR growth has decelerated in recent quarters, nor ignore that recent transient trends have been softer than anticipated in certain markets. Furthermore, the fourth quarter of 2015 and the first quarter of 2016 have witnessed, are expected to witness relatively anemic growth. Excluding Wailea, our portfolio generated RevPAR growth of 1.8% in January, which was below our previous expectations. Perhaps more importantly, there are numerous economic indicators that give us pause and they result in softer than anticipated lodging demand.
For example, recent weakness in the high yield market, the commodities market and the currencies market suggest muted economic growth and have raised the risk of economic recession. While we believe that our 2016 guidance reflects an appropriate level of conservatism given these economic headwinds. We also believe that the range of potential outcomes and earnings outcomes is wider than normal. And therefore the risk of missing earnings guidance has increased.
Whatever eventually happens, whether it is no RevPAR growth or outsized RevPAR growth, Sunstone is well-positioned not only to navigate, but also take advantage of nearly any economic situation. Our ratio of net debt and preferred to EBITDA is below 2.5 times, we have approximately $313 million of unrestricted cash in addition to an undrawn $400 million credit facility and we believe strongly that we have built in earnings growth in 2017 with our soon to be completed repositionings in Boston and Wailea.
With that, I'll turn it over to Marc to discuss our recent operating results and current operating trends. Marc, please go ahead.
Thank you, John, and good morning, everyone. Thank you for joining us today.
I'll review our portfolio's fourth quarter and full year 2015 operating performance in greater detail.
Focusing on the fourth quarter, our portfolio achieved the high end of our expectations. Our RevPAR growth was 4.1%, driven all by increases in ADR and exceeded the midpoint of our adjusted guidance. Total occupancy for the quarter remained a robust 78%. Six of our hotels generated double-digit RevPAR growth during the fourth quarter, including our Hilton San Diego Bayfront, our Hyatt Regency, San Francisco and our Courtyard, Los Angeles Airport.
Our Renaissance Baltimore showed strength in Q4 with RevPAR of 8.3%, driven primary from occupancy, which is very encouraging after it had struggled for most of the second half of the year following the civil unrest.
Shifting to our revenue management review for the quarter, despite pockets of transient weakness in certain markets, overall our portfolio saw a growth in transient rate. Our transient rates overall grew at plus 3.4% in the fourth quarter. We continue to focus on shifting our business out of lower rated discount channels and into higher rated segments. Our discount channel declined nearly 2% in room nights, but grew nearly 6% in ADR in the fourth quarter.
Our premium business grew 3.4% with a 2.2% growth in ADR. On the group side for the fourth quarter, we saw solid group in revenue growth at 5% all in ADR. As John spoke, group food and beverage trends remained positive, we achieved a solid 7.6% increase in total banquet and AV sales per group room night for the quarter.
Moving on to the results for the full year of 2015, our comparable portfolio RevPAR was up 5.9% to $162.42. For 2015, five of our hotel generated double-digit RevPAR growth led by our Hyatt San Francisco, our Hyatt Chicago and our recently renovated Hilton New Orleans. A few key revenue management highlights for 2015 include the following. Our premium room revenue improved 6.1%, driven by a 4.3% increase in premium room rates. Our corporate negotiated ADR grew by 4.3%. And finally, our discounted room segment grew by only 2% with discounted room nights decreasing by 4.4% and rates increasing by 6.7% as our operators have effectively shifted mix into both higher rated segments and higher rated discount segments as the main group [ph].
Overall for full year 2015, our portfolio had a 3% increase in sell-out nights as compared to 2014, which is the sixth consecutive straight year of higher sell-out nights. For full year 2015, our comparable portfolio experienced a 1.6% growth in group production for all current and future years, and the highest group booking year, we’ve ever had.
Hotels that had strong group bookings in 2015, include our recently public space renovated Boston Park Plaza, our Orlando Renaissance, our San Diego Bayfront Hilton, our Renaissance Washington DC and our recently renovated Renaissance Long Beach.
Looking forward to 2016, our current group pace for all 29 hotels has increased by 12.9%, which has increased slightly from our position at the end of the year. We have group strength in several of our large group box hotels, including Washington DC Renaissance, the Renaissance Orlando, the Hilton San Diego Bayfront, and the Hyatt Regency San Francisco.
Now let’s spend some time talking about a few of our key markets in 2016. First, in Orlando. Orlando as an overall market, we anticipate we will see strength in both group and transient in 2016. PKF’s most recent forecast for 2016 for upper priced hotels indicates a 9% increase in RevPAR, the top market growth in the nation. Our Orlando hotel expects to have significant growth in group rooms with the current group pace of the Orlando Renaissance up 13%.
We anticipate we will see transient strength particularly in the summer months. This hotel has been largely, large contributor to our growth in food and beverage and other revenues in 2015. Washington DC as an overall market is expected to be positive in RevPAR in 2016 driven by strong citywide calendar. PKF’s most recent forecast for 2016 for upper priced hotels indicates a 3% increase in RevPAR. Our DC Renaissance group pace is also healthy at a plus 8% for the full year 2016, driven primarily through group growth in Q2, Q3 and Q4.
Based on the current pace and the total number of group rooms left to book for the year compared to history, we believe our Renaissance DC is positioned to outperform the market this year.
In San Francisco, we expect to have a solid performance in 2016. San Francisco as a market benefited from the Super Bowl weekend and should continue to benefit from the limited supply. Overall, the market will be impacted by the renovation of the Moscone Convention Center, which has already begun. But will intensify from June of '16 through June of '17.
However, our hotel has strategically focused on corporate and in-house group to prepare for the renovation at the Moscone Convention Center. Our 2016 group pace for the Hyatt Regency Embarcadero is up 11%. Well often as an overall market is expected to maintain a solid performance in 2016. The market will see an increase in the number of citywide as compared to 2015. However, due to size and timing there may be fewer compression dates within the year. We are projecting our three Boston hotels to deliver between 5.5% and 9.5% in combined RevPAR in 2016.
Moving on to more concerning markets. Chicago as we've stated in previous earnings call will have a tough 2016 particularly in the first half. For the full year, citywide decreased by 9 with the decline primarily in the first half of the year, stronger citywide in the back half of the year.
In addition, Chicago had significant new supply. Enter into the market in the last three years with more coming in 2016 and 2017. We anticipate Chicago will have a stronger Q3 and Q4, while Q1 and Q2 are expected to be extremely weak for all three of our hotels in the central business district of Chicago.
For New York, we expect our Hilton Times Square to lag behind the remainder of our portfolio with negative RevPAR growth. We believe that New York City as an overall market will have negative growth due to multiple factors. Following the sale of our DoubleTree, our Hilton Times Square represents only 4% of our 2015 year EBITDA well below most of our peers.
Moving on to Houston. Houston has been and is likely to continue to be a very difficult market for the foreseeable future. We anticipate that Houston as a market as well as our hotels are likely to experience negative RevPAR growth in 2016. The market is likely to struggle with both group and transient business due to the reduction of business related to the oil and gas sectors.
Finally, New Orleans. New Orleans has had a slow start to the year, due largely to soft transient demand coupled with changes in supply. We anticipate group will see a pickup later in the year. But transient may continue to be weak partly due to the reduction of business in the market related to oil and gas.
With that, let me turn the call over to Bryan for more details on our earnings, balance sheet and guidance. Bryan, please go ahead.
Thank you, Marc.
At the end of the year, we had $575 million of cash on hand, including $76 million of restricted cash. Adjusted for the common and preferred dividends paid in January, which included $186 million of fourth quarter cash distribution to our shareholders. Pro forma unrestricted cash would have been $313 million at the end of the year. As of December 31st, we had $1.1 billion of consolidated debt and preferred securities, which included 100% or $225 million mortgage secured by the Hilton San Diego Bayfront.
On February 1st, we repaid $114 million loans secured by the Boston Park Plaza hotel with proceeds from a seven year $100 million unsecured term loan and cash on hand. The term loan matures in 2023 and based on our leverage, we'll have a fixed interest rate at 3.65% to 4.4%. As of today, it bears an interest rate of 3.65%. Following this refinance, our debt has a weighted average term to maturity of approximately 4.3 years and an average interest rate of 4.4%. Our variable rate debt as a percentage of total debt stands at approximately 21%, which is down from over 30% prior to the completed sale of the DoubleTree.
In addition to Boston Park Plaza, in December, we repaid a $30 million loan secured by the Hilton Houston with cash on hand. We now have 21 unencumbered hotels that collectively generated approximately $194 million of EBITDA in 2015 and an undrawn $400 million credit facility. Our balance sheet is strong and we retain considerable flexibility to take advantage of opportunities as they present themselves.
Now turning to 2016 guidance. A full reconciliation can be found on pages 31 to 34 of our supplemental as well as in our earnings release. As you all know, our 2016 earnings are being negatively impacted by the repositioning of the Wailea Beach Resort, which will be completed at the end of this year.
As such, our guidance represents RevPAR for both our 29 hotel portfolio and the 28 comparable hotel portfolio, excluding Wailea.
As John indicated in his remarks, we have increased the size of our guidance range in 2016 to account for elevated economic uncertainty. We believe that this is appropriate and consistent with our practice of providing a reasonable guidance.
For the first quarter, we expect comparable 28 hotel portfolio RevPAR to be between 1.5% and 3.5%. We expect first quarter adjusted EBITDA to come in between $58 million and $61 million and we expect first quarter adjusted FFO per diluted share to be between $0.19 and $0.21. For the full year we expect comparable 28 hotel portfolio RevPAR to grow between 2.5% and 5.5%. Our full year 2016 adjusted EBITDA guidance ranges from $319 million to $343 million and our full year adjusted FFO ranges from a $1.17 to $1.28 per diluted share.
With that, I'd like to now open the call to questions. Alia, please go ahead.
Thank you so much. [Operator Instructions]. The first question comes from the line of Thomas Allen. Please go ahead.
Hey, guys. Just in the prepared remarks, I thought it was interesting, you were talking about your leverage levels and you talked about your significant cash position and your lower leverage creates more flexibility and optionality. So, last year you've really positioned yourself as a net seller and any intend to be not buyer this year and how you're thinking about the overall transaction market. Thanks.
Yeah, good morning, Thomas. John here. We made the call and I'd say about a year ago to be a net seller hotel, one, because we found that the return expectations in the private market continue to go lower, deeper and deeper into the economic recovery. And honestly, we are unable to compete with some of the 1031 exchange money or some of the values being paid for quality assets.
As the year went on, it was the same message, but for a slightly different reason. And that we felt we'd be a net seller largely because our cost of equity increased pretty materially as we and several of our peers started trading at very sizeable discounts to NAV. That has not changed, even taking down our NAV estimate a little bit for the sale of the DoubleTree Times Square. We still see ourselves trading at pretty material discount NAV.
And unless something changes far more significantly in the private market, or if there was an asset that somehow strategically made sense for us and quite honestly I think that those opportunities are very few and far between. I continue to see us more likely than not to be a net seller in this environment. You have to take into consideration that our own portfolio has recently traded as high of 9.5% cap rate. We're very proud of our portfolio even with the disruption and at this year and we really believe in how our hotels are positioned in terms of group business over this year and next. And so trying to find investments that are better than our own share price at this time, I think it would be difficult.
That's helpful. And then just as my follow-up, you mentioned that in 2015 you saw a 3% increase in sell-out nights. Can you give any more color around what kind of rate growth do you saw during those sell-out nights and then maybe additional color just around compression night volume and pricing in general would be helpful? Thanks.
I don't think we do Thomas, maybe we can circle back with you on just what the spike is. I think what you're driving with this and I think it’s a good conversation is, is whether or not Airbnb and others are having an impact on super premium rates, I would say just anecdotally they probably are I know that more confident [ph] can go into some of the details but those strategies around the Super Bowl is not to wait out for the very, very last dollar, but we filled the hotel not in the last minute, but I think we did it appropriately and we had a very, very successful Super Bowl. Marc, do you want to add on that?
Yeah. We'd have to go back and look, but we have when you consider the size of the portfolio, hundreds or thousands of sell-out room nights. What I would say to you is that it depends street corner-by-street corner and market-by-market, but we certainly have seen whether its Boston, Chicago, Orlando, San Francisco, our ability to spike rates on those sell-out nights has continued, there hasn't been any change to that in '15.
Very helpful. Thank you very much.
The next question comes from the line of Lukas Hartwich from Green Street Advisors. Please go ahead.
Thank you. Hey, John. I am curious what do you think that happened to hotel asset values in the last six to nine months?
Great question, Lukas. There were trades in the fourth quarter, but I would tell that it's very difficult to look at just trades quarter-after-quarter, because obviously it's different set of hotels. So, if you look at that you might come to the conclusion; perhaps come to the conclusion that asset values have not declined. I don't share that view. I think that it only makes sense that hotel values have come down modestly and I get there one through a theoretical argument, which is clearly there has been a more muted view on earnings and operating from them.
Two, you have modestly hired debt cost. Three, you have lower availability of debt on the margin and Bryan can speak more to that, but the availability of debt has declined a little bit and I think that's put incremental pressure on private equity buyers in particular.
And fourth, you've reduced a number of marginal buyers, REITs by and large are on the sidelines. I think some petro-based sovereign funds will see what they're appetite is versus what it was a year ago. So that tells me, you put that on to lender and that tells me could we have already seen maybe a 5% maybe a 10% decline in private market asset values and it probably feels right to me I know and Robert can speak to this. We have seen evidence of not in our own transactions but we've seen evidence of mid to high single-digits REIT trades on pricing.
Hey, I mean - hey, Lukas, this is Robert. I think the only thing I'd add to that is all assets are not made equal. I think one area that we've seen some resilience in value is where there is for lack of a better way to say, there is a story, right, you can change management, you can change brand, you can do a capital repositioning where a private equity buyer still feels they can go in there and unlock substantial value different than what the current owner can do because perhaps those options only exists upon a sale.
So, when you're talking kind of larger urban full service assets that are encumbered and those are probably the assets that had seen the biggest change, because when you listen to what John just said in terms of the people that are most likely impacted less buyer’s REITs are less active, certain sovereigns are less active. Those are the assets then they tend to go after, it only makes sense less buyers in a simple supply and demand equation, if that makes sense.
Yeah. That's really helpful. Bryan, could you maybe add on the availability of debt comment?
Sure. Good morning, Lukas. We've discussed this before and in times where there is economic uncertainty, the markets become volatile, the CMBS market is one that can lock up a little bit, seize up a little bit and I think what we’re seeing now is that if LTVs for standard a CMBS execution were in the high 60s, low 70s, before we probably move back about 500 basis points from that availability.
That’s helpful. And then I appreciate and understand the conservative guidance for the full year. I'm just wondering, if maybe you could quantify that at all in terms of what sort of impact that's having on the guidance other than the wider range?
As we thought it was prudent and again I’ll go back to my prepared remarks, I mean we’re getting two different signals, one signal is that of our portfolio, which not every indicator has been wildly positive, but when you take a look at our group business, particularly when you get into the third quarter like a little bit of the second quarter underlying operating fundamentals appear strong that we all know that that can change.
But when I take a look at what’s occurring in the broader market, and I think what’s caused a lot of concern and what’s caused pretty material decline in hotel share prices I think that that has pushed us to incremental conservatism. Our typical range, annual range is about 200 basis points spread in RevPAR and you can quickly see in our most recent guidance, we moved at the 300 and I think it's very safe to say that we just moved the bottom in that. So we will see if we're right or wrong, but in markets like this, incremental conservatism I believe is warranted.
Great. That’s it for me. Thanks.
The next question comes from the line of Anthony Powell of Barclays. Please go ahead.
Hi, good morning, guys.
Good morning, Anthony.
Just another question on guidance, assuming your group pace holds close to say 30% for the rest of the year, what would have had happened to the rest of your business for your RevPAR to hit the midpoint of your guidance?
You know what I think we’re going to have to run a little math for you, Anthony and probably get back to you on that.
I think that’s a little bit of an iterative answer. I do feel though that in fact our business comes in as we anticipate and transient generally remains at recent levels I think you’d be safe to say that we feel pretty good about our guidance.
And Anthony, if you look back over the last two quarters Q3, Q4 when you look at our guidance you look at our results from an adjusted EBITDA, adjusted FFO perspective, the performance of the portfolio and some transient weakness in Q3 and Q4, you could see that in the RevPAR results or sort of at the - call it the midpoints slightly above the midpoint of the range, but adjusted EBITDA, adjusted FFO driven by the group ancillary spend, food and beverage spend, push the performance above the top end of our range. So, in Q3 and Q4 you can see a little bit of the transient softness, but still the power of the group goes into performance of the overall portfolio.
Yeah, and Anthony keep in mind that we about 33%, 35% of our total portfolio is group and that’s heavily weighted to four or five hotels. Keep in mind that our crossover meaning how many group rooms have been identified and booked. And some of those hotels ranges anywhere from 80% to 90%, in fact I think our Bayfront is probably at 90, call it 3% of all expected group rooms already identified. No, it doesn’t mean that attrition can’t occur, so just correct it, it’s closer to 85% for the sales in San Diego of all those group rooms that we anticipate for the year were identified on the books. But as I said in my prepared remarks, there are reasons to remain positive on the sector.
Got it. That’s very helpful. And just on the cash you have a balance sheet and also your flexibility, what would trigger you to be more aggressive given that what share repurchases or any other type of activity, given your flexible balance sheet and all the cash that you have right now.
Sure. And keep in mind because of the DoubleTree sales, we were largely out of the market until we were not allowed to repurchase shares given the material non-public information of the DoubleTree sale and the risk of that occurring. We were at the market really until just the last couple of days in December. We've been in the blackout window since that point. Now, I also believe it's warranted that in the period like this. You'll probably see us sitting on more cash than normal. So, I'd like to keep my comments at that for now.
Very clear. Thanks a lot.
The next question comes from the line of Shaun Kelly of Bank of America Merrill Lynch. Please go ahead.
Hey, good afternoon, everyone. So John, we've - I think we were going to start to pull out a theme from this quarter. It's been and maybe the last couple of quarters it's been the sort of transient softness versus we've seem to continue to health out of group. And obviously it seems to be showing up in some of your near-term guidance and then your group booking paces as you move through the year. So my question is like, if you go back and sort of you think through prior cycles and sort of behavior that you've seen. Has there been a time period where you've seen an extended outperformance of group over transient or at some point do those kind of two-line sort of start to intersect. Just kind of how do you think through the behavior that is transient leading and group typically follows or is there big enough rate gap between the two that you just kind of occur for a longer period of time.
Interesting question. There have been times in history where there has been a disconnect between the two. And I would say it largely depends on what's going in the economy. As you very well know, Shaun group has really been late to this party, but in the past call it 12 months has finally showing up in more strength. Transient seems to be a bit soft particularly in a couple markets and that's either because of supply or shadow supply in markets like New York or foreign exchange New York or other factors, we saw in Chicago and New Orleans.
I can't remember back to another period where we saw or another cycle, where we saw this specific swing over from transient to group. But I would tell you in general there are some years that are better or worse from one of the other. And based on what we currently see, we like our group business. Now remember some of that was not just happened to stands some of that has been planned, when we acquired the Hyatt San Francisco, we all knew that the Moscone Center was going to be going under the knife and for expansion which we think is long-term, it's great for us. The short-term was going to cost some disruption. That was an asset that probably never did more than 85,000 to 90,000 group rooms. And we're probably going up to about 110 because of Marc Hoffman and Robert Springer identified this as a strategy and we grouped up.
So that's one of the reasons why we believe that while we're not completely insulated from that specific market, we feel pretty good about our position in that market and where we're located in the city.
I appreciate that color. and then my guess my follow up is sort to just to build on the answer which is on the transient side, we've also seen some of the other companies, it feels like starting to do what they can to, I guess fill rooms whereas maybe a year ago or year and a half ago, we're all talking about pushing price now it's taking the visibility. And I don't know if that means giving up on rates, but it certainly it probably meaning to being a little bit more flexible. Is that a strategy that Sunstone is more actively pursuing now as well?
Excuse me, thanks. I think look I think it comes down towards the end of the day. It's a street corner by street corner and really week by week. One of the things we pride ourselves here is our asset management team does weekly deep revenue management calls and does monthly deep group reviews of all pace and not just pace, but the actual patterns for each group hotel. What I can tell you is that in Q4 we had 816 sell-out nights compared to 786 in Q4 the prior year. For the full year, we had 2900 sell-out rooms compared to 2800 and that obviously in Q1 where there is current slight softness. I suspect we would be moving towards some segments to try and drive some mark. But not anything that's meaningful at all. Nothing that really adds up.
And then just the reverse we've been pretty aggressive, if you look at our crew room and the crew rooms we have remaining and the crew rate we have continue to book because crew has been pushed out of every major city. It's pretty healthy. So, I think depending upon times when there are individual hotels that need to fill. We will do things whether it's filling it, but I'm not sure how much that's changed compared to what we did in '14 and '15 because our total portfolio for 2015 ran an 82.3% occupancy, which is an all-time high and we want to hold that occupancy and again try and compress where we can.
Great. Thank you, Marc. I appreciate it.
The next question comes from the line of Ryan Meliker of Canaccord Genuity. Please go ahead.
Hey, good afternoon, guys. I guess morning out there. I guess one quick little thing that I was hoping you guys could shed a little bit of color on. Just kind of how you are expecting the disruption that you've got built into your guidance. I think $14 million to $16 million overlap and then 2.5 to 3.5 that Boston Park Plaza on a quarterly basis just so we can make sure there were more modeling things out correctly from a quarter-to-quarter basis.
So, from a revenue perspective it's pretty heavily weighted into the second quarter, Ryan and so roughly speaking it's probably call it between Boston Park Plaza and Wailea, call it 4 million in the first quarter about 10 in the second quarter and about 4 to 5 maybe in the third quarter. And then by the fourth quarter we're by and large were wrapped up on both assets will be a couple of things in Wailea that we're continuing to clean up and finish. But the heavy construction will be done in both the hotels.
Right. So 4Q will be a little bit of talent relative to the 2 million that you incurred this year.
It should be.
Okay, great. And then the second question I had was just I'm curious to get your thoughts. You talked a lot about your, the NAV discount that you are stock sees as well as peers. You obviously did a great job executing the sale of the DoubleTree that had significant capital gains. How come you elected to payout such a large portion of the capital gains dividend in the form of stock given you have so much cash on the balance sheet.
I understand the idea of wanting to maintain a high cash position. But I would have thought that given the NAV discount you may have less inclined issue so much so many share even if it's in the same shareholders.
Yeah, and I think that's a very important point, it's two same shareholders. So we look at that very simply as a stock split and we are able to hold on the incremental cash. It was a significant distribution, call it roughly a $12 share price, it was $1.26. So, it was a significant distribution and we believed and we received some fairly good feedback from our large shareholders that they were fine with us holding on to a portion of that cash. It also allowed us to achieve our long-term capital goals which you remember Ryan you've been around this business long time, five years ago our debt preferred to EBITDA was almost nine times. That's not only high, I would say that's dangerously high for a hotel company and we as a management team set off to change the balance sheet once in for all and by holding on to that cash, we got down to below 2.5 times, which was the lofty goal that we set out five years ago.
So, I believe we’re in a very good position, I know that our large shareholders trust us to hold on to the cash and we’ll see if we can make even more money with that cash going forward.
All right. Thanks for the insight, John.
The next question comes from the line of Meade Rose [ph] of Citi. Please go ahead.
Hi, thanks. Now that you’re mostly out of New York or I'm just curious do you have a sense of what the supply growth is for your portfolio over the course of this year and next year?
Yeah, we don’t have it aggregated as like one specific number that I can give you weighted average or so or something of the like. Obviously the market that we’re most focused on or most concerned with from a supply perspective is New York with supply growth that we’re tracking close to 7% in 2016.
Most other markets candidly that were exposed to supply growth is call it 1% to maybe 3%. Boston has a couple of projects delivering although we’re less concerned given the location of our assets we’re less concerned with the impact that they’re going to have keeping in mind that in many respects Boston Park Plaza is in itself somewhat new supply for the market because of the level repositioning, Chicago is a market that has just gotten in amount of new supply and it just seems to keep coming. Other than those markets New York, Chicago there is not really markets that we have significant concern with as it specifically as it relates to our I guess New Orleans has had a decent amount but again all those numbers are really kind of in the 1% to 3% range.
Okay, that’s helpful. Thanks. I just wanted to have do you have what percent of the rooms that the Boston Park Plaza are now completed renovating?
Okay. Thanks a lot guys.
The next question comes from the line of Rich Hightower of Evercore ISI. Please go ahead.
Hi, good afternoon, everyone.
Just want to follow up on the comments on the balance sheet kind of appreciate you taking this back in times when Sunstone’s leverage was much higher obviously it’s much different picture today so my question is this have you gotten any feedback from your major shareholders that might suggest people want Sunstone to get to potentially go the other way at some point in the future and lever up from - what’s almost a sector low leverage sort of fruition and if not what would kind of you willing or patient with sitting where you are today at this leverage level?
No, we haven’t received any of that specific feedback. However, I will tell you part of our business plan is to eventually re-lever particularly when operating fundamentals not really if but when operating fundamentals turn south, and while I don’t necessarily think that that’s this year at some at point in the future, we know given the economic sensitivity in this business that there are ebbs and flows. It has always been our business plan to have the capacity to take on incremental debt during those downturns because we believe that it’s in those downturns that one can make most amount of money and it's also the hardest for people to access capital.
Well, it’s very simple that we could take a substantial lift to earnings and not only take off in the defensive cost of returning assets at the bank not funding capital expansion, having the way people are, always very negative things will lead to destroy value and instead continue to go on - even in the most leveraging of those scenarios which is share repurchase. So fully believe Rich that in some point in future our leverage will increase and could increase fairly meaningfully but never to a point that we would put the company at risk or risk our liquidity.
And John what do you think the max sort of leverage level might be in that sort of the scenario where potentially you lever up significantly the buyback stock in a downturn or some other sort of combination of that?
You know, I think that if we have a handle on where we are in the downturn if we have a handle on the liquidity, on our debt maturities, we have all those things under control. I think you can easily see us managing at the leader [ph] of earnings probably to five or six times debt preferred, that’s not scary I mean some of our - I think there is other folks out there that are higher leverage levels in that right now.
Yup, that’s right. Okay. Thanks, John. Appreciate the color.
Sure. Thank you.
There are no further questions at this time. Please continue, Mr. Arabia.
Well, thank you so much. We really appreciate the interest in the company and several of us are around today, if you have any follow-up questions. Greatly appreciated and we’ll see many of you soon.
Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.
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