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Strategic Hotels & Resorts, Inc. (



Q4 2011 Earnings Call

February 23, 2012 10:00 AM ET


Jon Stanner - VP, Capital Markets and Treasurer

Laurence Geller - President and CEO

Diane Morefield - CFO


Bill Crow - Raymond James

Will Marks - JMP Securities

Enrique Torres - Green Street Advisors

Rich Hightower - ISI Group

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Good day, ladies and gentlemen and welcome to the Fourth Quarter 2011 Strategic Hotels & Resorts Earnings Conference Call. My name is Jasmine and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today conference, Mr. Jon Stanner, Vice President, Capital Markets and Treasurer. Please proceed.

Jon Stanner

Thank you and good morning everyone. Welcome to Strategic Hotels & Resorts fourth quarter and full-year 2011 earnings conference call. Our press release and supplemental financials were distributed yesterday and are available on the company’s website in the Investor Relations section. We are hosting a live webcast of today’s call, which can be accessed by 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 the management team here with me today. Laurence Geller, President and Chief Executive Officer and Diane Morefield, our Chief Financial Officer. Laurence.

Laurence Geller

Good morning. 2011 was truly a terrific transformational year for Strategic Hotels & Resorts. During that year we methodically completed our comprehensive balance sheet restructuring program. This culminated in the successful partial tender for preferred stock and the announcement of the declaration of the accrued and first quarter 2012 preferred dividend payment.

Our asset management-driven, industry-leading operating results continued to be impressive as our double-digit RevPAR growth nearly 13% for the year in our U. S. portfolio, again led our peer group by a considerable margin. Most importantly, our hotels once again outperformed their respective market-specific competitive sets for 2011, gaining 1.5% in Smith Travel’s penetration index, RevPAR penetration index and this occurred for the sixth consecutive quarter.

We continue our very bullish outlook for the high-end lodging industry in general but more specifically to our unique portfolio of great assets located in multi-segmented, high barrier to entry markets. Our current group pace for 2012 is up 1% in room nights with the average rate on those rooms up 3.2%. This translates into group RevPAR being up 4.2% for the year. We’re very comfortable with this level of comparative group pace given that the group booking window was indeed lengthening in the first half of last year, then market turmoil and globally negative headlines focused on the nation’s debt ceiling debate and the ongoing European sovereign debt crisis caused a noticeable shortening of the booking window. These factors combined with ongoing political uncertainty here has resulted in corporate uncertainty and the narrowing booking timeframe has persisted into this year. When you combine this with tougher comparisons from strong 2011 results all of this is having a noticeable impact on our comparative full-year 2012 group pace.

As of the end of January we had 70% approximately of our expected 2012 group rooms on the books, which is consistent with where we were this time last year. And for reference, during our peak year of 2007 we had about 80% of our group rooms on the books at the end of January but we are now building off an already improving group base.

Occupied room nights in 2011 increased 5.4%, with rates on those rooms up nearly 6%. This resulted in group RevPAR increasing a significant 11.6% in 2011. It’s important to remember that the group booking window remains very short-term and we anticipate another strong year of in the year for the year that’s itty-bitty group bookings. As an illustration, group RevPAR is up approximately 4% for the full year. However, in the first quarter group room nights are already up over 7% with rate up over 3%, yielding an 11% increase in group revenue. Group production remained strong in January, with group room nights bookings 6% higher than the previous year same time.

Group non-room spending trends are continuing to strengthen at our properties. As an example, banqueting revenues were up 11% in 2011, with banqueting revenue per occupied group room increasing 6% compared to 2010.

Our transient business also improved in 2011, with room nights up 4.6% at rates 5.7% higher and we continue to aggressively book more rooms in the higher rated segments of our business. For both group and transient demand corporate business was the primary driver of growth in 2011 highlighted by our corporate transient demand, which was 9% higher than its previous peak in 2007.

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