Strategic's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Strategic Hotels & Resorts, Inc. (BEE)

Q2 2012 Results Earnings Call

August 7, 2012 10:00 AM ET

Executives

Jon Stanner – VP, Capital Markets and Treasurer

Laurence Geller – President and CEO

Diane Morefield – Chief Financial Officer

Analysts

Smedes Rose – Keefe, Bruyette & Woods

Ryan Meliker – MLV & Co.

Jeffrey Donnelly – Wells Fargo Securities

Bill Crow – Raymond James & Associates

Enrique Torres – Green Street Advisors

Tim Wengerd – Deutsche Bank

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Second Quarter 2012 Strategic Hotels & Resorts Earnings Conference Call. My name is Chris, and I will be your conference moderator for today. Presently, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. And at this time, I would now like to turn the conference over to your presenter for today, Mr. Jon Stanner, VP, Capital Markets and Treasurer. Sir, you may proceed.

Jon Stanner

Thank you, and good morning, everyone. Welcome to the Strategic Hotels & Resorts second quarter 2012 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’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 maybe 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, Jon. Good morning, everybody. Yesterday we reported yet another quarter of industry leading results. Most importantly, the strong and positive trends that we previously reported on continue.

Diane will cover the specifics of the quarter in more details shortly but as I did last quarter, I will frame our results in a broader context which demonstrates the continued and the potential Superior performance of our unique high end portfolio.

The second quarter marked the 10th consecutive quarter of improved lodging demand and occupancy in our total North American portfolio. This was close to 75% which is full -- a full 8 percentage points higher than the second quarter of 2009, which marked our previous cyclical trough.

Six of our assets are currently above their previous peak occupancy. Our industry has experienced a broad recovery in lodging demand across all segments. But absolute luxury lodging demand is currently at an all-time high. It shows no signs of diminishing and is outperforming other segments.

Lastly, driven by the new supply additions near the end of the last cycle, our portfolio is still 4% below the peak occupancy levels we achieved in the second quarter of 2007, inclined there is still considerable runway for growth.

ADR at our hotels increased for the ninth consecutive quarter and is 15% above the second quarter 2009 trough, but still 4% below peak. The second quarter was also our eighth consecutive quarter of RevPAR index growth for our individual hotels, which is our best measure of market share performance.

RevPAR index was over 110 points for the combined portfolio, a 0.8% increase to the second quarter of 2011. This is a clear reflection of our best-in-class asset management, as our hotels continued to aggressively outperform their direct competitive sets, as well as the broader market.

We are experiencing similar cumulative positive trends in non-room spending, a very important piece of our business model given historically nearly half of our total revenues are generated from outside of the guest rooms.

Revenue at our food and beverage outlets is 32% higher than in the second quarter of 2009, which equates to over $6 million of incremental revenue across the portfolio and is driving total RevPAR levels that are now 25% higher than the 2009 trough, but still 8% below the second quarter of 2007, again implying growth runway.

As room rates are aggressively grown it will be more challenging for non-rooms revenue growth to keep pace with rooms revenue growth. Our non-room segment of the business obviously has lower profit margin in the rooms department, so logically we measure profitability on an EBITDA per room basis.

In the second quarter we earned over $8,500 per room of EBITDA, which is 36% higher than trough levels and 14% better than last year, yet still 15% below peak, giving us significant growth opportunity for profits.

Our productivity has improved a healthy 10% compared to the second quarter of 2007, indicating a systemic change in our operations. Since the first quarter of 2010 when lodging demand started to improve, our total portfolio RevPAR CAGR on a trailing 12-month basis is 9% with EBITDA growing over 18% on a compounded annual basis.

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