Strategic Hotel & Resorts' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Strategic Hotels & Resorts Inc. (BEE)

Q1 2012 Earnings Call

May 02, 2012 10:00 AM ET


Jon Stanner – VP, Capital Markets and Treasurer

Laurence Geller – President and CEO

Diane Morefield – CFO


Jeffrey Donnelly – Wells Fargo

Smedes Rose – KBW

Bill Crow – Raymond James

Joe Greff – JPMorgan

Will Marks – JMP Securities

Enrique Torres – Green Street Advisors

Tim Wengerd – Deutsche Bank

Ethan Steinberg – Friess and Associates



Good day, ladies and gentlemen and welcome to the First Quarter 2012 Strategic Hotels and Resorts Earnings Call. My name is Erin 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 today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Jon Stanner

Thank you and good morning everyone. Welcome to the Strategic Hotels & Resorts first quarter 2012 earnings conference call. Our press release and supplemental financials were distributed yesterday and are available on the company’s new website in the Investor Relations section. We’re 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

Thank you good morning. Yesterday we reported yet another great quarter of results. Diane will cover the first quarter specifics in more detail shortly. While we're certainly very proud of this quarter's performance, I'd like to focus my comments on how these results fit within the context of the past nine quarters of lodging demand improvement and the very favorable outlook for continuing strengthening hotel performance. Of critical importance, our hotels have significantly outperformed their respective competitive sets since the beginning of the recovery in the second quarter of 2010 when we first saw our convergence of our key operating results. These and other trends continue and remain very positive. This consistent clear set outperformance is not nearly a case of all boats rising but is a direct result of our methodical, creative and some might say obsessive approach to systematic pioneering asset management.

Occupancy in our total North American portfolio improved for the ninth consecutive quarter and on an absolute basis is a full 17% or 9.2% percentage points above the trough in the first quarter of 2009. Compared to peak occupancy in 2007, our first quarter results were still 3.6% lower and that relative delta obviously continues to decline each quarter as lodging demands steadily improves. As it has traditionally, rate has been slower to recover, however, the first quarter marks the eight consecutive quarter of ADR growth in our total North American portfolio. Although we are still 4% lower in rate than our peak in the first quarter of 2007, ADR was $17 higher this quarter than our trough rate. This represents a healthy 15% increase. Therefore we have significant improvement ahead of us with our run rate.

Our 2012 RevPar guidance of 6 to 8% reflects the continuation of the long-term strong recovery in the high end lodging sector and implies a two year RevPar CAGR of nearly 9%. This important metric takes into account our outperformance last year which is continuing into this year and the obviously resultant tougher comparisons for 2012.

The first quarter was our seventh consecutive quarter of RevPar index growth at our individual hotels level, our measure of market share performance and this terrific accomplishment means we are now at the highest levels that we have recorded during the past five years of RevPar index growth. Non-rural spending has followed similar trends during this recovery, and our hotels have benefited from the return of our guest propensity to consume coming out of the downturn. For example, revenue at our food and beverage outlets is 32% higher than the trough which equates to an additional 5.5 million of revenue across the portfolio. Total RevPar is now a full 20% higher than the trough in the first quarter of 2010. Labor productivity has improved 14% from the trough and FTEs are down 13% at our hotels. Most critical is the fact that management level employees are down 22% from peak levels which we are confident are systemic and thus permanent reductions to the fixed cost basis of our hotels.

Given our business model that aggressively pursues spending outside of the guest rooms and the lower margins that result from this area of business, one of our preferred methods of evaluating profitability is EBITDA per room. We are in approximately $6,500 per room in the first quarter which is 55% higher than the trough in the first quarter of 2010. But is still 25% below peak, yet again demonstrating there remains a substantial run way for significant growth in operating profitability. Importantly we believe we can continue to augment our per room profitability in a cost effective manner given our significant pipeline of profitable, high return CapEx projects that we evaluate and increment continuously and then execute opportunistically.

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