Strategic Hotels & Resorts, Inc. (BEE)

Q2 2010 Earnings Call Transcript

August 5, 2010 10:00 am ET

Executives

John Stander – VP, Corporate Finance

Laurence Geller – President and CEO

Diane Morefield – EVP and CFO

Analysts

Bill Crow – Raymond James

Ryan Meliker – Morgan Stanley

Will Marks – JMP Securities

Chris Woronka – Deutsche Bank

Smedes Rose – Keefe, Bruyette & Woods

Brian Shandelle [ph] – BAM

Presentation

Operator

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Previous Statements by BEE
» Strategic Hotels & Resorts, Inc. Q1 2010 Earnings Call Transcript
» Strategic Hotels & Resorts Q4 2009 Earnings Conference Call
» Strategic Hotels & Resorts Inc. Q2 2009 Earnings Call Transcript

Good day ladies and gentlemen. And welcome to the second quarter 2010 Strategic Hotels and Resorts earnings conference call. My name is Natasha, and I will 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 this conference. (Operator Instructions)

I would now like to turn the calling over to Mr. John Stander, Vice President, Corporate Finance. Please proceed, sir.

John Stander

Thank you and good morning everyone. Welcome to Strategic Hotels and Resorts' second quarter 2010 earnings conference call. Our press release and supplemental financial were distributed yesterday. These are available on the company's website at strategichotels.com within the Investor Relations section.

We’re also hosting a live webcast of today's call which can be accessed in the same section of the site and a replay of today's call will be available for one 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 managements 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 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, our Chief Financial Officer. Laurence?

Laurence Geller

Thank you, John. Good morning everybody. We are extremely pleased with our operating results this quarter and believe that the recovery we began experiencing towards the ends of the first quarter has continued and the outlook for our industry in general and our company in particular is increasingly positive with corporate transient and corporate group business and growth leading the demand recovery cycle.

We equally very well pleased with results from our sustainable cost reductions and the significant progress we’ve made during the quarter on strengthening our balance sheet, all leading to a return to a positive comparable FFO per share.

Yesterday, we reported comparable EBITDA of $35.1 million and comparable FFO per diluted share of $0.2 on RevPAR growth of 7.3% and total RevPAR growth of 5.9%; representing the first quarter of positive year-over-year top-line growth, since the second quarter of 2008.

Diane will cover the financial details of the quarter and I'll try and discuss the more macro trends for you. We highlighted the importance of the concept of convergence in the first quarter which is a period when occupancy, rate, RevPAR, total RevPAR, EBITDA and EBITDA margins are all positive year-over-year. As we anticipated, we achieved this very important inflexion point during the second quarter.

As demand started to improve we focused on aggressively growing rate as a corporate imperative. The strong growth in group and corporate transient demand during the quarter helped us significantly reduce rooms sold through highly discounted channels such as OPEC pricing websites, which for example include price line and Travelocity.

As a result, we sold 32,000 fewer discounted transient rooms this quarter than in the second quarter of 2009. And that contribute to driving our overall average daily rate up 3.3% with transient rate improving 11% during the quarter. We feel we've been a leader in pushing rates and will continue to do so.

Although, we reported a 50 basis point expansion of EBITDA margins during the quarter, it masks the real story. During last year's second quarter we recorded over three times the normal level of cancellation fees. So excluding those fees and to remind you, these were $6.6 million in 2009, as against $2.1 million in 2010, all for the second quarter. So excluding those, our EBITDA margins expanded 280 basis points on similar adjusted total revenue growth of 9.2%.

One of our methods of measuring efficiency is the multiple of operating EBITDA growth to revenue growth. The second quarter result of just under four times clearly demonstrates the profit flow through that our disciplined labor and cost management systems bring and our future earnings growth potential, as the recovery accelerates.

Labor productivity measured by total hours worked for occupied rooms improved by over 3% of our North American hotels. Importantly however, total hours worked only increased 4% despite of 2.7 percentage point increase in occupancy and an 11% increase in covers served. This equates to an overall year-over-year enhancement productivity of 8% on total occupied rooms and total recovers.

Clearly, the success of our intense effort on controlling costs is reflected in these portfolio results and these results which are outstanding demonstrate the effectiveness and sustainability of the reengineering and margin enhancement of programs we have aggressively implemented over the past two years.

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