Jon Stanner - VP of Corporate Finance
Laurence Geller - President and CEO
Diane Morefield - CFO and EVP
Will Marks - JMP Securities
Smedes Rose - KBW
Strategic Hotels & Resorts, Inc. (BEE) Q1 2010 Earnings Call May 6, 2010 10:00 AM ET
Good day, ladies and gentlemen, and welcome to the Q1 2010 Strategic Hotels & Resorts Earnings Conference Call. My name is Colby [ph] and I will be your coordinator today. At this time, all participants are in listen-only mode. (Operator Instructions) We will accept your questions at the end of this conference. As a reminder, today's call is being recorded.
I would now like to turn the call over to Mr. Jon Stanner, Vice President of Corporate Finance. Please proceed.
Thank you, and good morning, everyone. Welcome to Strategic Hotels & Resorts first quarter 2010 earnings conference call. Our press release and supplemental financials were distributed yesterday. These are available on the company's website at strategichotels.com within the Investor Relations section.
We are 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 would 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 our management team here with me today, Laurence Geller, President and Chief Executive Officer, and Diane Morefield, our recently appointed Chief Financial Officer. Laurence?
Yeah, thank you Jon. Good morning and welcome to our first quarter earnings call. Yesterday we’ve reported comparable EBITDA of 22 million and an FFO per share loss is $0.15, which is flat to last year, and RevPAR decline of 4.3% and the total RevPAR decline of 3.7%.
Well most of our key operating metrics, predictably declined this quarter, we have begin to see meaningful improvement in our forward indicators and demand appears to be growing across the entire spectrum of our customer base.
In last quarter’s conference call, we posed the question of how soon rising economic activity would drive increased demand for high-end lodging, while we were cautiously optimistic at that time, we are pleasantly surprised that the velocity at which the nation recovery seems to be occurring, without March appearing, that have been the focal month to this phase of the cycle with RevPAR up over 3.6% after two months of negative RevPAR for us. Our industry’s luxury RevPAR growth turned positive on February, the 28, after some 96 weeks of negative growth.
Our margin performance for the quarter was very satisfactory and it was a direct result of the implementation about sustainable productivity enhancement measures, which have supported our margins during the down-turn, and should measurably increment margin expansion as the recovery progresses.
During our last report, we discussed our goal to derisk the balance sheet, and since that time, we’ve taken several important steps towards extending our maturities.
Most notably yesterday, we closed on a refinancing of two mortgages, totaling 344 million, with a new 318 million loan, bearing an interest rate of just over 6%. And importantly, maturity extended out till 2017.
Diane will discuss this transaction in more detail. But we’re very pleased with the execution of this transaction, which speaks not only to the quality and potential of the properties themselves, but importantly to the strengths of our relationships with not only this specific lender, but our lending group in general.
I’d like now to introduce our new CFO, Diane Morefield, who many of will remember for her days at Equity International and Equity Office Properties. We are truly delighted to have Diane join our team at this important threshold in our company’s life.
On a personal note, I am personally thrilled about our partnership going forward. After Diane has walked you through the quarter’s results and provided a balance sheet update, I’ll close with some additional thoughts on the outlook for our industry and for our company in particular. Diane?
Thank you, Laurence and good morning everyone. I am very excited to be here and to be participating on my first earnings call, since joining Laurence and the team here at Strategic Hotels a few ago. I also look forward to working with all of you.
Turning to our first quarter results, our first quarter ultimately turned out to be a tale of monthly progress, as Laurence mentioned, our RevPAR growth improved sequentially by month from negative 16% in January to negative 0.4% for February and finishing at a positive 3.6% in March.
You may recall that on the fourth quarter 2009 earnings call, at the end of February, with essentially two-thirds of the first quarter of 2010, already on the book, we said we expected RevPAR in the first quarter to decline by between 5.5% to 7%.
Our actual first quarter results were RevPAR decline of only 4.3% and a total RevPAR declined to 3.7%. A 1.6 percentage point increase in occupancy was offset by a 6.9% decline in average rate during the four quarter for North America. Our improvement in occupancy this quarter was heavily weighted for the group customers segment which was up over 7% in room nights compared to the first quarter of last year when we experienced a record number of corporate group cancellations primarily encouraged by some of the negative weather coming out of Washington at the time.
An important trend that we have noted is that corporations, including financial institutions appeared to be increasingly comfortable scheduling group meetings and conferences again. Our resorts perform better than our urban hotels from an occupancy perspective gaining 12% in the quarter. This was driven by a 35% increase in group room nights which reinforces our thesis with the corporate customers returning and the so called stigma associated with high end resorts anticipated.
Transient occupancy was down slightly in the quarter, however, corporate transient business pick up 0.3% and trended positive throughout the quarter, particularly markets like San Francisco where they previously been conspicuously absent. This is yet another sign of corporations willingness and propensity to spend on travel.
Rate continues to be an issue for the industry as a whole as pricing power typically lagged occupancy growth in the early stages of lodging recovery. Our 6.9% rate decline in the first quarter was spread purely broadly over all customers' segment and property type. However, average rate was only down 0.4% in March versus last year and was again indicative of the improvement we saw as the quarter progressed.
Compression nights which we define as nights with 90% or greater occupancy more than doubled from a 118 in the first quarter of 2009 to 239 this year.
Let me spend a few moments now on some specific markets. We remained very bullish on the Washington D.C. market and our Four Seasons hotel there. However, our Q1 results this year was resorted [ph] by the inauguration in January of last year and the heavy snow storms that hit this February. We therefore reported a RevPAR decline of 20.5% and keep in mind this is against the 10% increase in RevPAR in the first quarter of last year when the rest of our portfolio was down 24% at the time. So clearly, the results anoint of this quarter, we believe are anomaly and not indicative of our longer term outlook for this premier hotel assets for both rooms and non-rooms profit centers.
The Chicago market continues to suffer from weakness in city wide conventions and coupled with the seasonally week first quarter there were far fewer compression nights to support way which drove RevPAR at our two downturn hotels now at 30% lower for the quarter. That been said, there are positive indicators for the city looking out over the remainder of the year and our summer season looks to be on pace with our expectations and with prior years.
However, issues related to McCormick Place will continue to create uncertainty for the Chicago market in the near term. And although city and state are taking aggressive measures that at least to tempt to address this issues much more remains to be done to satisfactory remediate the situations and keep existing city wide conventions in Chicago that alone attracting new business. The good news is that this matter seems to be a very high priority for both the city and state and we believe that a satisfactory solution must and will ultimately be reached.
Our two close so California Ritz-Carlton Hotel suffered a greater impact from the so called the AIG effect last year, but both are showing signs of recovery in the first quarter this year. RevPAR in Half Moon Bay was up nearly 40% for the quarter and a significant increase and occupancy of 18.1% from last year when the total -- I am sorry, when the hotel experienced an extraordinary level of cancellation.
Both hotels experienced a strong pick up in group bookings booked in the first quarter for the remainder of 2010. Half Moon Bay's bookings are up 40% and Laguna Niguel is up 22%. In terms of market share penetration these hotels are outperforming their respective competitive stats by 39% and 11% respectively.
Our InterContinental Miami delivered favorable results, driven impart by a benefit from the Super Bowl, Orange Bowl and Pro Bowl in the first quarter of this year, with RevPAR improving 14% compared to Q1, 2009, and total RevPAR growth of 18%.
Touching on Mexico, due to the lingering impact of the H1N1 virus and the travel advisory for Mexico, our Four Seasons Punta Mita was down nearly 12% RevPAR as the result of lower rate group business previously booked to partially offset the anticipated loss of more profitable transient occupancy for this particular asset.
The result an increase in banquet revenue and higher average checks at our food and beverage outlets led to a 7.3% increase in non-room revenue for the quarter. We remained confident that this hotel will continue our longest road to recovery.
Our European portfolio had a strong quarter with 6.4% RevPAR growth and 5.1% total RevPAR on constant dollar basis, resulting in a 290 basis points margin expansion. This was led by the Marriott Grosvenor Square, which underwent the renovation last year, and had a 38.7% increase in RevPar. This was more than offset by 21% decline at the InterContinental Prague.
We also want to highlight that the recent Iceland volcanic disruption that suspended air travel throughout Europe recently, had an impact on our European hotels, and is expected to reduce our Q2 revenues between 800,000 and 900,000 and EBITDA reduction between 350,000 and 400,000.
Turning to expenses. We continue to be very focused on productivity enhancement efforts. For the quarter, we held EBITDA margin contraction to a 180 basis points despite a 4% loss in revenue. Keep in mind, the composition of our top line decline was a combination of higher occupancy and the loss in room rates, which compounded to put even more pressure on margins.
Importantly, during the first quarter of last year we reported $6.7 million in cancellation fees, which was significantly higher than the more normalized $1.5 million experienced in the first quarter of this year.
If you adjust for those fees our EBITDA margin would have actually expanded 20 basis points on slightly negative revenue growth. We believe it that there is continued strong performance reinforces our ability to sustain productivity enhancements on an ongoing basis.
Other measures are the hours worked and number of FTEs at the hotels declined a little over 4% for the quarter. And hours worked for occupied room which is clearly the best measure of productivity improvement declined a significant 6.7%.
Payroll and related expenses were up less than 1% despite both our increase in occupancy and 3.8% increase in average wages. We’re pleased that the labor systems we’ve spoken about so much over the past two years continue to demonstrate tangible results, which will bowled [ph] well for healthy margin growth as the recovery evolved.
Turning to earnings. Comparable EBITDA for the quarter as mentioned was $22 million, which was the decline of just over 3% from last years first quarter. In Q1 we had an FFO per share loss of $0.15, which is flat to last year. And included in this quarters G&A number as the $1 million charge for severance cost.
Regarding the balance sheet, we do continue to make significant strides towards strengthening our balance sheet. Yesterday as Laurence mentioned, we closed on the refinancing of two property mortgages at the Westin St. Francis and Fairmont Chicago under one cross collateralize $317.8 million loan with the maturity of May 2017. These under originally matured in 2011 and 2012, in exchange for the extension we pay down $26 million of principal and secured a fixed interest rates of 6.09%.
The first 18 months of the term is interest only afterward the 20 year principal amortization schedule begins. The loan remains non-recourse obligation and provide for prepayments release and transfer probation. While the pre-financing will increase amount of cash interest expense paid, we project the assets will continue to provide more than sufficient cash flow to cover debt service. We believe this is the great outcome to address the maturities of two important properties and smooth other debt maturities scheduled to very attractive fixed interest rate. It is also testament of the strong working relationship we have fostered with our various lenders. We worked very productively with MetLife on this refinancing and MetLife also finances the Hyatt Regency La Jolla for us as well as these two hotels.
Combine with the amendment to the Prague InterContinental loan we completed in January, we have now extended over $450 million of mortgage debt which is roughly 35% of our consolidated properties debt, to 2015 and beyond just since the beginning of this year. This solid progress is in line with our stated strategy of taking a methodical and disciplined approach to derisking our balance sheet.
Addressing our liquidity, pro forma following the close of the refinancing of the Westin St. Francis and Fairmont, Chicago loan, we have approximately $224 million drawn on our line of credit. In addition, we have approximately $40 million unrestricted corporate cash and another $57 million of unrestricted cash at the hotel level, and $28 million of restricted cash reserve for FF&E and lender reserves.
In summary, we are very pleased with our progress on restructuring the balance sheet and outside of the share of the Hotel del Coronado debt. We now have no maturities until September of next year.
As cash was improved at property level and conditions in the credit markets continue to ease, we are increasingly confident in our ability to manage the refinancing of non-recourse and our corporate loans of maturity. Never forgetting, however, the non-recourse means exactly that and we stand by our intention to carefully evaluate each properties, future potential before committing any incremental funds as part of our refinancing offer.
With that, I’d now like to turn the call back over to Laurence.
Thanks Diane. I am pleased, very pleased by what we are seeing in the high end luxury hotel market and luxury hotel trends today. They now appeared to be mirroring the nation stage of previous V shape recoveries. But it’s not only our industry that’s seeing positive trends.
For example, the key measure used to monitor load factor in yield in the airline industry as present [ph] or passenger revenue per available seat. Amongst key carriers this appears to be up approximate 20% in the first quarter. A particular relevant, I think, is United Airlines premium cabin bookings, which are up approximately 25% for the first quarter.
As Diane mentioned, our Q1 was defined by progress where the velocity of improvement rapidly increased through March. And these positive trends continue to improve during the current quarter. And important monthly measure for us is a term, we called conversions, which we define by months when occupancy rates, total RevPAR or EBITDAR and EBITDA margins all improved on the year-over-year basis.
Based on the trends, we currently see, we expect monthly conversions in our North American portfolio, after adjusting for extraordinary cancellation fees to occur during this current quarter.
Let me spend a moment discussing how the shifting in our mix of business is likely to lead to improve results. We believed group pace is one of the leading indicators of corporate confidence, and carefully monitor all group performance metrics.
As in past years, medical and health remains our number one group segment, while financial services, which dropped to number four in 2009 has year-to-date recovered to second place in group pace.
Of note, I think, is that the insurance industry, which traditionally runs at approximately 3% of our Group business, has increased already this year to 5%. Historically, our room revenue is split fairly evenly between group and transients occupied room nights. As the downturn begins to take hold in late 2008 and into 2009, our operators have little choice, that to replace the portion of our higher rated group business with discount rates in transient business. Therefore by the first quarter of last year 53% of our room nights were transient rooms.
We’re now beginning to see that mix shift pack towards its historical average. In the first quarter of this year, transients occupancy accounted for only 51% of total occupied rooms. As you know, along with higher group occupancy comes increase ancillary spending in the hotels, hotels spas, restaurants retail outlets and other amenities that is driven our total RevPAR results, so well in previous gross cycles.
Group place trends also continue in the right direction. Adjusting for extraordinary cancellations last year, we are now ahead of 2009 in terms of room nights currently on the book. And although rate is down slightly, the shorter term in the year -- for the year bookings know as 80-20 are improving in rate.
80 are on the nights booked in March for 2010 where rates 24% higher than those booked in February. We mentioned last quarter that we rightly on pace from a group perspective to achieve the same level of group nights as we had in 2009. As of March 31st, we needed to book just 90,000 room nights for 2010 to achieve that objective and for reference sake; we booked 30,000 --36000 room nights in the year in March of this year and 29000 in both January and February. So, we are well on the way to achieving at the least method objective and possibly more.
Group RevPAR production, which we believe is the appropriate way to look group pace, as it captures both the rate and occupancy impact on revenue, was up 45% year-over-year in March and 14% for the first quarter.
Group RevPAR for the full year is still down slightly to last year, but as I mentioned, the rates on shorter term bookings are improving month-over-month, so the trends are good and should they continue, we’re optimistic, we’ll continue to grow group rate.
Science of rebound, rebounding luxury spending are prevalent. For example, luxury spending over the Christmas season in retail was up 10.5%, compared with 2008. And the luxury retail sector as a whole is projecting growth in the single -- mid-single digits for all of 2010.
Importantly, high income consumer confident is up almost 40% from the first quarter of last year. Similar trends exist in our own portfolio. Notably at the fall season in Washington D.C where average rating of all suites was up 33% in the first quarter to $10,500 per night.
Spa treatment sales were up 18% and the average cover of the Michael Mina Bourbon Steak house restaurant was up 10%. We spoken in our last call, about our plans to exit Europe in a methodical disciplined and orderly fashioned. We are reiterate that is our focus to become a North American centric company, and we are pursuing this strategy in a very fulfill and division manner, with a goal of maximizing proceeds.
Like the U.S. the European hotel market is recovering and we'll seek to take the maximum advantage of an increasing appetite for transaction as the year continues. The picture is so insignificantly improving market such as London where our Grosvenor Square hotel represents the majority of our European equity.
The early nature of the recovery, the velocity of change and the inherent risks and overall unpredictability in our economy, our industry and our business in particular, in addition to the obvious linkage with global events, such as sovereign debt crisis, terrorist attacks and natural disasters mandates we carefully and constantly consider the many risks that threaten us snuz [ph] recovery in lodging demand. As such it's appropriate for us to continue our policy of not giving guidance at this time. Although, we do not find fault with guidance -- our guidance's forecast provided by SECOB's [ph] with high-end brands.
However, as we did in our previous call, I would like to share our thoughts pertaining to the forecast for the second quarter. We see RevPAR up between 6 and 8%, which importantly from a trend perspective is largely driven by rate increases. I would add that initial indications of margin performance for Q2 excluding cancellations which were abnormally high in the first half of last year, currently appear to be in the range of up 150 to 250 basis points. While we've ever mindful of the risks inherent in this environment, we are increasingly optimistic in the V-shape nature of demand, especially given the unusually benign supply metrics we are seeing.
For example the Smith Travel year-over-year demand for luxury rooms index has improved from minus 8.6 in early 2009 to a 20 year high of 16.7% in the first quarter of this year. Luxury supply growth is well contained as rooms currently under construction are down over 65% from 2009 and a mere 2% of total existing supply. The total active pipeline of new supply is down over 60% from last year and more importantly within our specific markets there is less than 1% new competitive supply even potentially coming to market in the foreseeable future. All of this well bodes well for the future profitability for our unique collection of high-end assets.
I now like to turn the call for questions. Operator.
(Operator Instructions) Your first question comes from the line of Will Marks with JMP Securities. Please proceed.
Will Marks – JMP Securities
Thank you. Good morning Laurence. Good morning Diane.
Good morning, Will.
Good morning, Will.
Will Marks – JMP Securities
First question I had was on the interest expense line, is there a run rate you can give us based on performance for the transaction that just closed?
Yes, as you know in the fourth quarter press release we gave a estimate of approximately a 100 million in interest expense in total for 2010. That number on a pro forma basis is expected increase in the 10 to $12 million range. We now adjust for the fix rate MetLife loan.
Will Marks – JMP Securities
Okay. Great. Thank you, that’s very helpful. Next is kind of big picture question that's for Laurence. If you look at just traditional metrics, whether its cap rates, I guess importantly price per key [ph] and this is basically softball question for you. What is your -- and I can do the calculations but I’d like to hear from you, where are you traded there on price per key and can you give us any comps in the market and where you see that headed?
I guess, we are probably trading somewhere between 350 and 400,000 per key today, replacement costs excluding lands. So it's really not apples-to-apples, is certainly around 600 to 620,000 a key for us today.
As far as comps are concerned, we've only seen a few so far and they've been very interesting. We were interested in the way the Stockdale and D.C traded to the south, we thought that was a very good indication of value for an upper up scale property. The Monarch Bay property which is the somewhat interior location, to our Laguna property traded I think around 630,000 a key. So, there are some beginning to be indications of it. Anecdotally we hear a lot more but we haven't really seen enough of a swat for trades to get a sense of real comparable valve.
So for us -- notwithstanding for us given the supplies I mentioned, the -- a reasonable property for anticipated value is got to be close to replacement number which I told Mosaics [ph] land.
Will Marks – JMP Securities
Great, thank you for that. Just moving on, one more question on the mix -- the decision to exit Europe now, it’s easy now to say that these things were cover, maybe it’s not, last time to sell, but there are balanced sheet issues etcetera. Maybe can you give us today’s reason [ph] you know based on today’s conditions why get out of Europe?
Okay, for us in Europe and again, because of the pricing issues, the Cap Rate issues, the differentials and the cost of maintaining Europe. The decision to exit Europe soon arrival than later which we announced last quarter is clearly the right ones stand with out any change.
We are actively pursuing a number of opportunities there, but again as we see, as the numbers are moving and we saw debt crisis effect local consumer confidence and local credit markets. We’re not rushing because are in no desperate hurry to sell but we want to get out of European in an orderly fashion, and we’re progressing along with it. I am very satisfactory and I am delighted with the level of interest there. Things take longer in Europe. The deals are more complex, and the sovereign capital prices going on over there has certainly made things on the some (inaudible) in the last couple of weeks.
Will Marks – JMP Securities
Can we assume that by year-end or that you’ll be out of Europe, is that a goal? I don’t want to put words in your mouth?
You put it words in my mouth, well and I don’t think you can make that assumption. We will be out of European in a pull full [ph] and exit, an orderly process, and we will maximize our proceeds and so doing.
Will Marks – JMP Securities
Great. Thank you very much.
Your next question comes from the line of Ryan Malakar [ph] with Morgan Stanley. Please proceed.
Good morning, guys. Just had a quick question for you, regarding the refinancing with MetLife, do you have any idea, I guess two things, one, do you have any idea what they were looking at from loan to value standpoints to get to that loan level. And the second thing was, did you guys shop around to other lenders so I know MetLife was the existing lenders, so why made the most sense to work with them. Just curious how the lending market looking for these type of assets? Thanks.
Let me comment on that, I don’t think, I can tell you how MetLife evaluated this decision. Part of it was obviously the property value, future earnings and the strength of the relationship that we had with them over a very extended period. Having said that, during the last few months that be last two or three months, we have been approach by variety of different capital sources on many of our properties to look at them. So whereas, it will clearly, we had no intention of doing anything more than work with their existing lender in terms of relationship.
As a more generic question, pertains to the portfolio, we have noted the month-by-month increase in number of lenders coming to us on these properties and including CMBS which prior to January of this year we haven’t seen. So, I think in indicative sense is much more interest as the recovery is coming and there is much more aggression spread [ph] is slightly narrowing. And loan to value is the issue for everybody. How do you get there and in a V-shape [ph] recovery it’s hard to figure out what tomorrows value would be or convinced the lender of it.
Okay, that’s helpful. Thank you.
Your next question comes from the line of Smedes Rose with KBW. Please proceed.
Smedes Rose – KBW
Hi, it’s Smedes. Couple of questions for you. I am wondering in your RevPAR outlook for the second quarter, I think you said 6% to 8%, is that -- can you break that up between what you think it will be in the US versus Europe, I mean, is that portfolio -- ?
Smedes, forgive me, I was in articulate that -- I think we were really referencing North America there.
Smedes Rose – KBW
-- those numbers. So, that is North America.
Smedes Rose – KBW
Okay, great. And then, Laurence, you talked all about sort of reengineering I guess the way you run some of these hotels, so just in general when we think about a dollar of incremental rate, what sort of flow through do you think you could, can get on that, I mean, 60% or 70% or do you think it would more than that now?
We’ve model, we tend to model very conservatively and then we look at the dollar of RevPAR increase we tend to model it, it for theoretical purposes in 50-50 rate and occupancy. Under that basis, you’d probably in the 60-70 range. As you get up into the rate we would expect that to include that to go up about 20 basis points.
Smedes Rose – KBW
Okay. And then, I just – it look like you guys paid-off some of your slot contract, I guess in the first quarter of about $25 million or so, can you just maybe add a little more color on that in light of your full year interest expense guidance?
For the full year interest expense guidance we just gave was the 109 in initially plus the additional $10 million to $12 million would also include the amortization of Swaps which is you know is really a non-cash item, but you know as dictated by the accounting guide lines. So that, pay down on Swaps earlier this year is included and captured in that number.
Smedes Rose – KBW
Great. Okay. And then, Laurence, just finally for you. I guess there is a large asset in London for sale, I think, it maybe -- it's like J.W. Marriott maybe that's -- do you have any sense of how that's moving along in terms of the sales process?
Clearly, we watched that and it's I believe this is J.W. it's the Gros Marriott and Grosvenor Square -- Grosvenor House on Park Lane, which is a very large hotel with the sub mixed-used component to it. The prices -- the price, the mutated price that the brokers were indicating was £1 million plus per room. I understand a significant interest, it will be a slow process and we are watching it very carefully as a very interesting benchmark for us on our decision, how to price and when to sale.
Smedes Rose – KBW
All right. Thank you, guys.
Thank you. Your next question comes from the line of Bill Crow with Raymond James. Please proceed.
Bill Crow – Raymond James
Good morning, Laurence and Diane welcome back to the public world.
Bill Crow – Raymond James
Lawrence, talking about domestic asset sales and the prospects there and whether you would, maybe less likely to undertake that given the V-shaped recovery you referenced.
At this moment, the only asset that we are marketing clearly are the European assets. We very much like the dynamics of only assets we have now in the US. But we are also as you know, we are very, very disciplined, if an exceptional price comes that to, out of the blue and out of suit that well exceeds what we consider our re-buy analysis that I mentioned to you previously. We’re not fools, we’re business people, we know how to redeploy capital. At the moment we’re not actively marketing anything in the U.S.
Bill Crow – Raymond James
That’s good, I’m making sure, which -- doesn’t seem…
No, we’ve actually, we’re delighted to announce that it has been likely refurnished and is getting the interest in the great customer comments, as measured by the group meeting planer. So (inaudible) is probably not our more strategic of assets Bill.
Bill Crow – Raymond James
Right, okay. All right and then one question about Eddy Freddy you said that…
I hope, that it becomes a great term of reference in the lodging industry.
We have to do with Jon standard credit for Eddy Freddy.
Bill Crow – Raymond James
All right Jon where to go. Laurence, I know it’s early, but any enquiries that larger properties from group of business that may have been booked in Nashville, but has to relocate?
I have to be quite careful about this. As you know in previous slide -- previously, I was a Board Director of Gaylord. I wouldn’t preclude the possibility of us having very good relationships with them and offering to be assistance in relocating their group, should the circumstances pertain to it.
Bill Crow – Raymond James
Okay. Fair enough, thanks guys.
(Operator Instructions) Your next question comes from the line of (inaudible). Please proceed.
Good morning how are you guys?
Fine Jeff, how are you?
Good. Thank you. I was wondering, could you please help me understand, your thinking around the preferred shares. On the balance sheet I was just curious kind of the ranges solution that you guys could take to kind of deal with them? Thank you.
Okay. Jeff, thanks for the question. I think it's an important question. The preferred to sit on – are there are some 380 million, 370 million I think it is of preferred outstanding accruing interest at sort of around 8.25 to 8.5%. We stop paying the dividend five quarters ago. And each quarter it becomes a subject of great discussion amongst the board members as whether or not we should --whether and when we should consider the paying either the current or the accrued dividends. So it's accruing at approximately $30 million on an annual basis or 7.5 per quarter.
Please remember that it is not a compounding interest rate. It is a simple interest rate. So this becomes -- it is reasonably efficient financing for us up to any sense. Having said that, we are very conscious of it. It is our intent when -- as we see the way the markets are settling down and the recovery comes, it's our intent to address that, the interest, the current and the accrued interest initially, and then determine as we -- as the cycle matures whether or not in any form corporate refinancing we address the principal of it.
And is there any thought to – we've seen others in your industry and other financials industry look at exchanging those things for common equity?
Every quarter since the downturn has come we’ve evaluated with our outside advisors all of the issues pertaining to our non-property related stock which are obviously the line of credit, the convertibles and the preferred, and we continue to do so. There is no current movement on the -- we have announced no current activities to do any form of equity for preferred exchange at this time. Nonetheless, all leaves in the forest are turned over every quarter with our board.
Excellent. Thank you very much.
At this time, there are no further questions in queue. On the interruption, a question has just appeared from the line of Suzanne O'Halloran with JPMorgan. Please proceed. Your line is now open.
Operator, we are not hearing Suzanne.
Suzanne, if you will, please check your phone for mute. (Operator Instructions) Your line is now open.
I think we should probably continue, operator?
Yes, sir. There are no other questions appear in queue.
Thanks. If Suzanne is on the line, then she’s having technical difficulty. Please feel free to call Diane and John Stanner or myself after the call. Thank you very much everybody for listening. After very long and difficult period we are now seeing consistent indicators of recovery. And we have well founded and grounded reasons for optimisms in general in fact our company in particular. We have got irreplaceable locations and assets in great physical and competitive condition.
We have implemented systemic and sustainable changes to the operation that will have significant upside both the profitability and values. And we have unusually long-term the nine supply dynamics in our markets. We are improving our balance sheets and are increasingly confident to our ability to meet the challenges ahead in the goals we have set. We fully intend to continue to execute our plans in fulfill methodical and disciplined manner.
So thank you for your time today and for your support. We look forward to speaking to you next quarter, when I hope the trends we see today will be moved [ph] in improving results for our economy, our industry and a bubble for our company. Thank you very much.
Thank you for your participation in today’s conference. That concludes the presentation. You may now disconnect. Have a great day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!