OEH meets consensus expectations for the first time in while, which seems good enough... for now
OEH 3Q09 CONF CALL
Quarterly Review & Outlook
- No big surprises in the 3rd quarter as trends set in the 2nd quarter continued
- Grand Hotel Europe was down $3MM in EBITDA, $1.4MM was due to currency
- Mexico was down $0.75MM (continued H1N1)
- Occupancy grew 2% in Italy
- Trains and cruises, cost basis in Euros impacted results by over a $1MM, despite some revenue recovery in certain products
- Goal of reducing fixed cost base has been achieved and now they need to hold costs down
- Goal of deleveraging:
- First step is selling non-core assets, should have proceeds of "over" $100MM by year end
- $55-65MM in cash proceeds expected from sale of villas in St Martin
- Worked at Keswick hall to sell some plots for residential development
- Net result should reduce debt by $140MM
- Business outlook
- Italy RevPAR grew 3%, Russia grew 9% in local currency in October
- However, October still saw revenues drop 19%
- Trends over the last 5 weeks have been consistent
- Nov & Dec are trending 18% behind in bookings, but should end up better
- 1Q2010 is running 50% in bookings from where they were a year ago
- Bookings are very last minute still
- Restricted cash was $18MM
- 9.0x TTM debt/EBITDA
- $116MM of loans drawn of R/C loans outstanding
- $51MM of debt due in 2010 is related to Cupacoy which should be repaid from villa sales
- Some of the capex this quarter was covered by insurance proceeds
- Tax charge of $12-14MM for FY2009
- Discussing debt maturities with their banks
- One of the strategies is rebalancing debt maturities, for example Grand Hotel Europe, which they beleive is worth over $200MM only have $20ishMM of debt want to add some leverage there
- Are seeing some interesting opportunities arise in the luxury space, will look at more management related opportunitites
Q&A
- Don't expect the booking window to further shorten but at the same time don't expect it to lengthen
- Some of the group business they have is also booked within a month of the event
- Any corporate bookings they have are last minute
- 2010 should be like 2009 booking wise
- "Last year all the bookings were last minute, now they are last second"
- Domestic business around the world has increased to offset the considerable decrease in UK travelers, while US traveler has somewhat stabilized
- Rate of expense growth next year?
- Think they can really keep a very tight lid on costs for one more year
- 50% target on variable costs (on flow through), the real challenge is for that not to grow when things recover
- There are some properties that will likely see additional declines next year - like Mexico
- Hope to keep fixed cost growth at or below local inflation levels
- American guest (ex - domestic properties) is just above 30% (consistent across most of Italy, ex Ravello which is in mid 20's)
- Debt refinancings? Trying to achieve 85% on renewal (loan to value).
- Balance of doing it now vs keeping the current low pricing?
- They can do a forward start agreement to balance some of that out
- Debt would be marked around mid 200's spread - would be happy there (sounds very low to me)
- Would like to have something done by filing of 3Q2010 10Q, otherwise they have a current debt issue
- Color on market pricing
- Have traditionally bought assets around a 10x multiple (on what they think is a stabilized number). Their special sauce is buying slightly run down assets. Developing countries would have a slightly lower multiple though higher cost of debt
- Performance in Asia is bouncing back nicely
- Any change on dual class structure?
- Hearing in Bermuda 6 weeks ago, and the court has ordered a further hearing on a pure question on law on whether having the dual structure is legal as well as OEH's desire to move to dismiss the charges. No date set - sometime in 2010
- El Canto
- Dealing with some interested parties putting together JV
- Would only do the project with a JV partner
- Have $52MM sunk there
- No more payments due on NY library until 2010, taking the total to $30MM
- Brought recurring capex down from over $100MM to $35-40MM including the completion of Cataratas for 2010.
- Any acquisition they would pursue in the intermediate term would likely pursue it through a JV that is asset lite from their end. Hopefully see some opportunities come through in next 6-8 months
