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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