Strategic Hotels & Resorts CEO Discusses Q3 2010 Results – Earnings Call Transcript
Strategic Hotels & Resorts, Inc. (
)
Q3 2010 Earnings Conference Call
November 4, 2010 10:00 AM ET
Executives
John Stander – VP, Corporate Finance
Laurence Geller – President and CEO
Diane Morefield – EVP and CFO
Analysts
Smedes Rose – Keefe, Bruyette & Woods
Ryan Meliker – Morgan Stanley
Chris Woronka – Deutsche Bank
Will Marks – JMP Securities
Jeffrey Donnelly – Wells Fargo Securities, LLC
Joe Graft – JP Morgan
Presentation
Operator
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Strategic Hotels & Resorts Inc. Q2 2009 Earnings Call Transcript
Good day, ladies and gentlemen. And welcome to the Third Quarter 2010 Strategic Hotels and Resorts earnings conference call. My name is Christine, and I will be your coordinator for today. (Operator Instructions)
I would now like to turn the conference over to your host for today, Mr. John Stander, Vice President of Corporate Finance. Sir, please proceed.
John Stander
Thank you and good morning everyone. Welcome to Strategic Hotels and Resorts’ third quarter 2010 earnings conference call. Our press release and supplemental financial were distributed yesterday and are available on the company’s website in the strategichotels.com within the Investor Relations section.
We are hosting a live webcast of today’s call, which can be accessed in the same section of the site with a replay of today’s call also available for the next month. Before we get underway, I’d like to say that this conference call will contain forward-looking statements under Federal Securities Laws.
These statements are based on current expectations, estimates and projections about the market and the industry in which the company operates, in addition to management’s beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results may be affected by a wide variety of factors. For a list of these factors please refer to the forward-looking statement notice included within our SEC filings.
In the press release and supplemental financials the company has reconciled all non-GAAP financial measures to the directly comparable GAAP measures in accordance with Reg G requirements.
I would now like to introduce the members of our management team here with me today. Laurence Geller, President and Chief Executive Officer and Diane Morefield, Executive Vice President and Chief Financial Officer. Laurence?
Laurence Geller
Thank you. Good morning and welcome everybody to our third quarter earnings conference call. Yesterday, we reported third quarter RevPAR growth of 7.3% and total RevPAR growth of 6%. These were driven by 1.3 percentage point increase in occupancy and more importantly, a healthy 5.4% increase in average rate. This represents the second consecutive quarter positive year-over-year operating trends where our improvement has been largely driven by rate gains, which clearly have much higher profitability flow-through characteristics.
As a company, we believe a very important operating performance metrics is EBITDA to RevPAR growth ratio with a result of over two times considered successful. This quarter, exceptionally strong adjusted performance, once again produced for us a ratio of well-over three times. And we’re very pleased with the improvements in our business and at least we’re broad-based in the third quarter, which was the first time we’ve seen three consecutive quarters of demand growth since 2007.
We saw rate in occupancy improvement in both our transient and group segments. Our 8.5% increase in transient ADR evidences the elimination of lower rated primarily intimate base bookings that were replaced with higher rate corporate business by strategic plan.
Non-rooms revenue increased 4.5% in the third quarter as F&B revenues grew by 6.8% driven by a 6% increase in banquette revenues and importantly from a consumer trend perspective, a 7% increase in sales at our outlets.
We continue our noteworthy success in containing cost and improving productivity at our hotels. This quarter we reported hotel level EBITDA margin expansion of 150 basis points. Cancellation fees which were $2.7 million in the third quarter of 2009, compared to $1.8 million in the third quarter of this year reduced margin expansions by 50 basis points.
In addition, our hotels step up their accruals for yearend bonuses in the third quarter led by sales driven bonuses and this resulted in a 40-basis point reduction in margins. So, adjusting for these two items, our EBITDA margins expanded a very impressive 240 basis points on a similarly adjusted 6.8% increase in total revenues.
Productivity improvement once again continued at our properties as hours work per occupied room decreased 2.4% during this quarter. Total hours work is an important measure for our segment of the industry and we are pleased that this quarter, total hours work declined 0.6% despite an actual 2% increase in occupied room nights.
Year-to-date hours per occupied room has declined 4.1%, while total hours work has declined 1.4% year-to-date despite an increase in occupied rooms of over 2%. We also benefit from the 11.4% decline in insurance expense and a 3% decline in real estate taxes during the quarter. These are two areas to which we continue to successfully devote significant corporate attention.
Our adjusted EBITDA per available room growth of 22.9% is a strong achievement at this nation’s stage of the recovery and all goes well for the future. We continue to be very encouraged by many macro-level indicators and trends that we track on a monthly basis.
The U.S. Department of Commerce just reported international visitation to the U.S. is projected to increase 9% in 2010, which will set a record of $60 million visitors this year and increase to nearly 83 million visitors by 2015, a 7% CAGR.
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