Belmond's (OEH) CEO John Scott on Q2 2014 Results - Earnings Call Transcript

Aug. 1.14 | About: Belmond Ltd. (BEL)

Belmond Ltd. (OEH) Q2 2014 Results Earnings Conference Call July 31, 2014 10:00 AM ET

Executives

Amy Brandt - VP of Investor Relations

John Scott - President and CEO

Martin O'Grady - Chief Financial Officer

Ralph Aruzza - Chief Sales and Marketing Officer

Analysts

Christopher Agnew - MKM Partners

Kevin Milota - JPMorgan

Carlos Santarelli - Deutsche Bank

Stephen Kent - Goldman Sachs

Chris Jones - Telsey

Operator

Thank you for standing by and welcome to the Second Quarter 2014 Earnings Conference Call for Belmond Limited. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions). I must advise you that this conference is being recorded today Thursday, 31 of July, 2014.

I would now like to hand the conference over to your first speaker today Amy Brandt, Vice President of Investor Relations. Thank you and please go ahead.

Amy Brandt

Thanks so much (inaudible). Good morning everyone and thank you for joining us today for the second quarter 2014 earnings conference call for Belmond Limited. We issued our earnings release last night. The release is available on our new Investor Relations website at investor.belmon.com as well as on the SEC website.

On the call with me today are John Scott, President and Chief Executive Officer; Martin O'Grady, Chief Financial Officer; and Ralph Aruzza, Chief Sales and Marketing Officer.

Before we get started today, I would like to read out our usual cautionary statements under the Private Securities Litigation Reform Act of 1995 in the United States. In the course of remarks to you today by Belmond’s management and in answering your questions, they may make forward-looking statements concerning Belmond such as its earnings outlook, future investment plans and other matters that are not historic facts.

We caution that actual results of Belmond may differ materially from these forward-looking statements. Information about factors that could cause actual results to differ is set out in yesterday's news release, the company's latest annual report to shareholders, and the filings of the company with the Securities and Exchange Commission.

I will now hand over to John. John?

John Scott

Thank you Amy, and good morning everybody. Thank you for joining us today to discuss Belmond’s second quarter 2014 results.

Before I get started, let me just apologize in advance suffering from a little bit of a chest cold this summer, so if I have to pause for a moment I hope you bear with me. As you may know we’ve recently changed our corporate name to Belmond Ltd following the successful launch of our new brand in March. We also recently changed our ticker symbol to BEL. To commemorate this event we have the owner of ring the closing bell at the New York Stock Exchange this past Monday. Thanks to those of you who joined us to help celebrate this important step in the company’s evolution.

At a high level this quarter and in fact a good part of this year are about laying the foundations for future growth by executing on our long-term strategy. In the second quarter, our results were impacted by several of these strategic initiatives that we outlined in our 2013 expressly presentation. We invested in the Belmond brand to drive future cost visitation and incremental revenue. We sold non-core Inn at Perry Cabin in March as part of our capital recycling program. And we closed our Belmond Miraflores Park hotel in Lima for renovation in order to improve one of our core businesses.

While these initiatives had a short-term impact on our second quarter EBITDA relative to our prior year results, they will benefit the company in the medium to long-term.

I want to highlight that even with these initiatives, we strengthened our core and in the face of macro challenges at our hotel in Russia, we still grew adjusted EBITDA 2% above prior year quarter. On a comparable basis that excludes the impact of these strategic initiatives, we grew our core revenue by 5% and our adjusted EBITDA by 7% over the second quarter 2013.

I am pleased with the progress we’ve made in positioning our company well for continued growth.

On today's call, I'll provide a brief update on the status of our recent Belmond brand launch; I'll then discuss some of our important strategic initiatives and provide no an overview of our second quarter 2014 performance; I’ll then hand the call over to Martin to give you some color on our projections for the remainder of the 2014 and to take you through some of the balance sheet related items.

Our Belmond brand launch is in full swing. We launched the brand to consumers in March and followed it with our first brand wide promotion, Discover Belmond. The promotion was a success. We generated more than 10,000 room nights and nearly $5 million of rooms revenue for our owned hotels. That's approximately 4 percentage points of occupancy and 6% of our room revenues for the second quarter.

Our next milestone is the first brand level print and digital advertising campaign starting in late September. The goal of this campaign is to build awareness of Belmond beginning with the focus on luxury travel consumers in the U.S. and the UK, our two largest source markets. Our first round of ads will appear in October issues of some of the best known travel and lifestyle publications, which will be in the new stands and distribution in late September.

Around the same time, we'll be running full page ads in targeted newspapers including New York Times and The Wall Street Journal channel and we will launch a digital campaign with broad geographic reach. Our creative work is inspired by the unique experiences and exceptional services our guests receive when staying at one of our properties. Our ads will be unique and impactful and we look forward to this next level of brand engagement with luxury travelers.

We continue to be encouraged by the industry and consumer response to our Belmond brand launch. In efforts for the company, Belmond was named one of the world’s top 10 hotel brands in the prestigious Travel and Leisure World's Best Awards. Announced in July, these awards recognize a very best in luxury travel. This accolade further promotes our brand and should increase awareness to travelers in our important U.S. market.

In addition to be named a top brand, 12 Belmond properties were voted amongst the best in their locations including Belmond, Maroma Resort & Spa in Riviera Maya area of Mexico; Belmond Copacabana Palace in Rio de Janeiro, Brazil; and Belmond Cipriani in Venice, Italy. These rewards highlight the strength -- the strong presence and strength of our Belmond properties have in the world's top luxury hotels.

In addition to the brand launch we continue to make good progress on several other strategic initiatives. Namely securing management agreements to drive incremental revenue and increase brand awareness, strengthening our leadership team to provide right resources for strategic growth and improving and extending our core through reinvestment in key assets that will drive incremental EBITDA.

We recently entered into our second long-term management agreement, a significant achievement in our strategy to grow revenue and increase brand awareness without significant capital investment on our part. In early July, we signed an agreement to operate the Cadogan hotel in the high end Knightsbridge area of London. The hotel will close shortly to undergo a $48 million complete restoration. We were attracted to the Cadogan hotel because of its strong owner, the Cadogan Estates which shares our vision for the property’s restoration and which will fully finance the renovation of the project.

The renovation will include the refurbishment of public areas, the creation of a signature restaurant and the reconfiguration of 64 keys to 54, in order to accommodate demand for luxury travelers for large suite. The fully renovated Belmond Cadogan is scheduled reopen this in the summer of 2016.

The management agreement for the Cadogan did not require us to provide capital and is consistent with industry standards both in length and fee structure. Additionally we are earning technical service fee for our older sites of the hotel’s renovation which will bring the property inline with our other hotels in the Belmond portfolio.

Executing two Management agreements The Cadogan hotel and Inn at Perry Cabin is an important achievement and a good foundation for securing additional agreements. We are actively building a pipeline of new third-party management opportunities and are excited about our progress on this important element of our growth strategy.

In the quarter, we further strengthened our senior management team and Board composition. In June, we announced the selection of Ingrid Eras-Magdalena as Vice President of Global Human Resources. Ingrid is a seasoned human resource leader with over 20 years of human resource experience in the hospitality industry. She will join us in September from Starwood, where she most recently served as Vice President, people development and staffing for Europe, Africa and the Middle East. Ingrid's deep experience in organizational systems and talent development will allow us to unlock additional value from our business and support our current and future growth.

At our 2014 Annual General Meeting, George Rafael, a long standing Director retired from the Board of Directors. And we thank him for his insight he has provided during his tenure. At the same time, Roeland Vos was elected to the Board. Roeland both compliments and strengthens our Board, he brings a wealth of experience not only in luxury hotel operations but also in hotel development and third-party management. Roeland retired in 2013 from Starwood where he most recently served as President of Europe, Africa and the Middle East division. I want to highlight the fact that five our eight Directors have join the Board in the last three years and together, the Board provides management with strong insights and direction.

As I mentioned earlier, we remain focused on improving and extending our core through reinvestment. During the quarter we continued to invest in our phase room renovation at the Belmond Charleston Place, one of our largest EBITDA producers.

We also invested in our prestigious Italian hotel portfolio during into annual winter closure period and with the benefits of our investments in this second quarter. At Belmond Villa Sant’Andrea our sixth new junior suites opened May 1 and have been well received by guests. In their first two months of operation, the six suites generated incremental revenues of more than $300,000 at an average rate in excess of $13,000. These early results are consistent with our underwriting projection and support our expectation that the project will have a payback period of approximately four years.

This project highlights the types of reinvestment opportunities within our portfolio on which we continue to remain focused. We also made progress on our investment projects at the Belmond Grand Hotel in Europe and St. Petersburg Russia where we’re converting 19 historic rooms into six luxury suites. In July the hotel opened three suites and in mid August we will start selling the remaining three suites. These suites included the hotel’s new 3,200 square feet two bedroom presidential suite. The presidential suite will be the largest in St. Petersburg and will be a drop for the many high profile guests that visit the city. We also opened the hotel’s newly renovated meeting rooms and made progress on the new Asian restaurant during the second quarter. We have encountered some construction delays with this project and now expect the restaurant will open at the end of the year. Despite the current situation in Russia which I’ll discuss later in the call we remain confident in this asset’s long-term potential and believe these renovations will enhance our competitive position and generate an attractive return on investment.

Turning to our results. I first want to update you on the successful 2014 FIFA World Cup, which took place in Brazil and was a meaningful driver of our second quarter growth. In advance of this event and the 2016 Summer Olympics in Rio we completely renovated the Belmond Copacabana’s main building including 145 million rooms and suite as well as the public areas.

This renovation positioned our hotel well to benefit from the 2014 World Cup. We believe the 2016 Olympics will offer similar opportunity for outperformance. The World Cup commenced on June 13th and lasted through July 13th. For the 18 nights of the World Cup that fell in the second quarter. The hotel’s local currency ADR increased 75% over the same 18 night period in 2013.

Occupancy for this period improved to over 99% compared to 71% in the prior period. The hotel was able to achieve this meaningful growth which exceeded even our forecasted expectation through active yield management. The World Cup was a great success. You should expect to see Belmond Copacabana Palace to report similar strong growth for the 13 night period of the World Cup that occurs in the third quarter.

Another highlight of the World Cup was the impact it on our other hotel in Brazil, Belmond Hotel das Cataratas in Iguazu Falls. The hotel generated its highest second quarter RevPAR ADR in occupancy since we acquired it in 2007 largely as a result of demand from guest busying hotel in between World Cup matches. This success highlights our ability to take advantage and cross promote our regional clusters where we have multiple properties such as in Brazil, Italy, Peru and Asia.

Looking at the full portfolio, our second quarter showed good signs of growth. Total second quarter revenue of $178 million, was up $5.1 million over the prior quarter driven by $2.7 million increase in our hotel revenue and a $2.4 million increase in our tranche encloses revenue.

I will remind you that the year-over-year growth was impacted by the sale of the Inn at Perry Cabin in March 2014 and the closure of the Belmond Miraflores Park from December 1, 2013 through April 15, 2014. If we exclude both of these hotels from the current and prior year periods total revenue for the second quarter 2014 would have increased $6.9 million or 5%.

For the second quarter 2014 same-store owned-hotel RevPAR was up 6% over the second quarter 2013 in both U.S. dollars and local currency. Unlike in the first quarter, which was significantly impacted by currency depreciation a more balanced business mix in our second quarter and that we did not experience the same currency impact.

In the second quarter, during which our Italian hotels open for their 2014 season. The impact from the appreciation of the euro and sterling more than offset the impact from the depreciation of the Russian ruble, South American rand and Brazilian real. As such our RevPAR growth in U.S. dollar and local currency term was the same.

Same store RevPAR growth for the quarter was driven by rate; ADR grew 8% in both U.S. dollar and local currency and was partially offset by 2 percentage point decrease in occupancy. ADR growth largely benefited from the World Cup with Copacabana Palace ADR increasing 31% and the Hotel das Cataratas ADR up 17%, both in local currencies for the second quarter.

Occupancy was most impacted by 7 percentage point decrease at the Belmond Charleston Place, 5 percentage point at the Grand Hotel Europe and 8 percentage point decrease at our Asian hotels primarily driven by our hotel in Koh Samui, Thailand.

Second quarter adjusted EBITDA was $41.9 million, a $700,000 increase over the prior quarter. As with revenue, our second quarter EBITDA was impacted by two hotels I mentioned, the Inn at Perry Cabin which we sold earlier this year and the Belmond Miraflores Park which was closed for renovation through April 15th.

Additionally adjusted EBITDA for the second quarter 2014 was reduced by $500,000 of Belmond brand launch cost incurred in the quarter. Excluding these three items both periods which provides a more meaningful comparison, adjusted EBITDA would have increased $2.9 million or 7% over the second quarter 2013.

Our reported adjusted EBITDA margin for the second quarter was 23.5%, a 0.3% decrease from the prior period. Excluding again the comparability issues I just mentioned, our adjusted EBITDA margin of 24.1% was 0.4 percentage points higher than the comparable margin for the second quarter 2013.

Moving into regional performance, our Continental Europe hotels performed well in the second quarter. Our Italian hotel portfolio had year-over-year EBITDA growth of $2 million or 11%. This growth was largely driven by an 8% year-over-year increase in ADR. The growth follows the May 2014 introduction of six new junior suites at Villa Sant’Andrea and the renovation of seven junior suites at the Villa San Michele.

Also in Europe, Belmond La Residencia in Mallorca increased EBITDA by $800,000 or 70%, due primarily to better yielding as a result of the change in the hotels revenue management strategy. These changes included the reclassification of the hotels room inventory and increase in room pricing and improved revenue management. Results for our Italian hotels and La Residencia benefited from a 5 percentage point year-over-year appreciation of the euro.

Belmond Grand Hotel Europe in St. Petersburg, Russia was negatively impacted by the political situation in the Ukraine. The depreciation of the ruble, increased local competition, and decreased food and beverage revenue, due primarily to the ongoing construction of the hotels new restaurant.

EBITDA for the hotel was down $1.6 million for the second quarter, with $800,000 of this decrease stemming from year-over-year depreciation in the ruble. Despite efforts to stimulate business from Russia, non-U.S. and non-European Union sources, the hotel was unable to offset cancellation of 2,300 room nights for room revenue of approximately $500,000 for the quarter. The forecast for the rest of the year does not yet appear to be improving and we continue to experience cancellations, largely from the U.S. and EU business sources.

Given the ongoing concern about the situation in Ukraine, we’re working to mitigate for future declines. We continue to concentrate on sourcing business from domestic Russian market with increased PR and sales efforts in Russia. We are also actively implementing cost savings initiatives to mitigate some of these revenue declines.

Looking in North America, comparable EBITDA for the region excluding the Inn at Perry Cabin decreased $400,000 or 5%. This decrease in comparable EBITDA was primary the result of declines at the Belmond La Samanna, and St. Martin and Charleston Place. At La Samanna, a slight increase in revenue was more than offset by the cost increases primarily due to the appreciation of the euro, leading to year-over-year decrease in EBITDA of $500,000. At Charleston Place, EBITDA fell $300,000 or 4% off of the record EBITDA in the second quarter in 2013, primarily as a result of year-over-year decrease in leisure demand and an increase in benefits costs.

Results for the period for the prior year quarter were driven by record group and leisure business volumes as well as strong food and beverage revenues. As compared to historical results, Charleston Place second quarter 2014 performance was very good but versus the hotel’s prior record performance, we experienced a modest decline.

EBITDA for Belmond El Encanto in Santa Barbara, which operated all its 92 keys in the second quarter 2014 versus only an average of 73 keys in the second quarter of 2013, increased $600,000 year-over-year. The hotel is making progress on its path towards stabilization and for the second quarter broke even for the first time since opening in late March 2013. The hotel as strong upside potential and we are currently expecting it to make a positive EBITDA contribution for the first full year as compared with adjusted EBITDA loss of approximately $1 million in 2013.

Looking at the owned hotels in the rest of the world, the strongest performances were from the two hotels in Brazil which I already spoke about in detail. EBITDA for these two hotels was up $3 million or 88%, impacting these results for the region were the Asian hotels which EBITDA decreased $800,000 year-over-year for the second quarter 2014. A primary reason for this decline was a situation in Bangkok which is the entry city for many of our Asian hotels including the Belmond Napasai in Koh Samui, Thailand. The EBITDA declined for this hotel made up three quarters of our Asia region's total EBITDA decline. The outlook for the region appears to be improving, particularly following the removal of Thailand's country wide curfew in June. For trains and cruises an $800,000 increase in EBITDA was primarily driven by our PeruRail joint venture. The operation had strong quarter and our EBITDA for the joint venture grew $800,000 or 25% over the prior year quarter. This growth was primarily result of increase in revenue for the past new trains and was driven by a 9% increase in tickets sold related to increased demand for the service as well as a 4% increase in average rate.

To conclude, our second quarter performance was balanced, despite the short-term impact that resulted from executing on our strategy to lay the foundation for long-term growth. On a comparable basis, we grew revenues by 5% and adjusted EBITDA by 7% over the second quarter 2013 showing good growth even in the face of macro headwinds in Russia. We are now one month into our seasonally strongest third quarter and remain focused on driving growth at our properties that a performing well and supporting our properties that are facing challenges. We will continue to focus this year on delivering on our strategic priorities and we'll drive long-term value to the business.

With that, I'd like to turn the call over to Martin to provide some details on our financials. Martin?

Martin O'Grady

Thanks John and good morning everyone. Before getting into my normal review of below EBITDA guidance, I will give some color on the RevPAR guidance we provided in the earnings release we issued last night. I’ll then provide our third quarter same-store RevPAR growth forecast and then move on to the full year forecast.

For the third quarter 2014, we expect same-store local currency RevPAR growth for our total owned hotels to be in the range of 1% to 5% due to rate growth. In dollars, we are projecting RevPAR growth of 3% to 7%. Let me remind you that the projected 2014 increase is compared to the strong RevPAR growth we experienced in the third quarter of 2013, when RevPAR was up 20% in dollars versus the third quarter of 2012.

By geography, we're projecting the largest RevPAR growth from our owned Rest of World hotels, where we are projecting year-over-year growth of between 17% and 21%, in both local currency and in dollar. This growth is rate driven and it's primarily due to the impact to the World Cup on 30 nights of the third quarter for the two hotels in Brazil.

For our owned North American hotels, we're projecting third quarter same-store RevPAR growth of between 5% and 9% in both local currency and dollars due to Q2 projected rate growth with flat occupancy. For Europe, we are projecting third quarter local currency RevPAR growth of between negative 3% and positive 1%; and in dollars we are projecting RevPAR growth of between negative 1% and positive 3%. This year-over-year variance is a result of an increase in rates and it’s partially offset by a projected decrease in occupancy and that’s mostly related to an expected decline in room nights sold at Grand Hotel Europe. If we exclude Grand Hotel Europe local currency RevPAR is projected to grow between 4% and 8% and that’s a result of middle single dated ADR growth and an increase in occupancy. And on top of this challenging environments in Russia, Grand Hotel Europe also has a difficult third quarter comparison due to the positive impact of the T20 Summit which took place in St. Petersburg in September 2013.

Turning to the full year 2014 guidance, we have lowered the forecast range that we provided in May by 1 percentage point and that’s due largely to the continued negative impact from our hotel in Russia. Our full year 2014 same store RevPAR growth is now forecasted to be between 3% and 7% in local currency and between 2% and 6% in dollars.

We expect that the full year growth will come mostly in the form of rate with ADR growth of between 3% and 7% in local currency and occupancy even with 2013. And by geography, our full year local currency growth is projected to be driven by our rest of world hotels followed by Europe and then by North America. For our same store rest of world owned hotels which excludes Miraflores Park, we are projecting full year RevPAR growth of between 14% and 18% in local currency and 8% to 12% in dollars. And this growth is primarily rate driven which projected ADR growth of between 13% and 17% in local currency with occupancy flat to slightly up. The strong growth is supported by the World Cup which as I mentioned benefits Belmond Copacabana Palace and Hotel das Cataratas for 30 days.

Belmond Mount Nelson is also projected to continue benefiting from the strengthening Cape Town market and also the hotels newly renovated room products.

From own hotels in Europe, we are projecting full year 2014 RevPAR growth up between north of 3% in local currency and north of 4% in dollars. This growth is rate driven with occupancy projected to be flat compared to 2013.

We've seen projected growth from most of our properties in the region with the exception of Charleston Grand Hotel Europe and excluding Grand Hotel Europe we are projecting local currency RevPAR growth to Europe of between 3% and 7% and that's primarily driven by rate with a projected moderate increase in occupancy.

For our same-store own North American hotels which now exclude Inn at Perry Cabin and also in full year same store stand Belmond El Encanto, we are projecting full year 2014 RevPAR to be flat to up 4% versus 2013 in local currency term. And we are projecting a year-over-year occupancy decrease with an increase in ADR of between $0.02 and $0.06.

Full year ‘14 North American RevPAR growth is negatively impacted by Belmond La Samanna, which experienced cancellations and reduced demand as a result of travel concerns that reported to loss (inaudible) in St. Martin and elsewhere in the Caribbean that was primarily impacting the first quarter 2014.

Now moving on to our below EBITDA items. On a corporate level central overheads for the quarter were $7 million versus $6.9 million in the second quarter of ‘13. And on an adjusted basis central overheads in the second quarter was $6.7 million this year versus $6.4 million last year. In addition to central overheads, we recognized non-cash share-based-comp expense of $2.2 million in the quarter compared to $2.3 million last year.

Depreciation in the quarter was $12.8 million, up from $12.2 million in the second quarter of ‘13. And depreciation expense grew $600,000 year-over-year and that’s mostly result of the completion of several capital projects in ‘13 and early ‘14.

Interest expense for the quarter was $8.2 million, and that’s essentially in line with interest expense of $8.1 million incurred in the second quarter of last year. Tax in the second quarter of ‘14 was $12.5 million and that compared to $2.9 million in the prior quarter. The tax charge in the second quarter of 2013 was net of $3.4 million benefit related to retranslation of deferred tax, liabilities recorded in local currencies and that’s due to the depreciation of those local currencies against the dollar. In addition, there was a $6.7 million year-over-year increase related to a change in the company’s quarterly profits mix and that was primarily result of the corporate debt refinancing in March 2014.

So overall, adjusted net earnings from continuing ops for the first quarter was $8 million compared to $17.7 million last year. This $9.7 million year-over-year increase is largely the result of increase in the tax expense that I just mentioned.

Now I’ll provide some color for these items for the rest of 2014. For the next two quarters of 2014, we’re going to expect central overheads to be between $6 million and $7 million per quarter. And in addition in central marketing we’ll spend a total of approximately $3 million over the second half of the year primarily on the advertising costs to rollout Belmond brand. We also expect to incur share based compensation expense of between $5 million and $6 million in the second half.

We expect depreciation expense for the next two quarters to be between $12.5 million and $13.5 million per quarter and we're expecting quarterly interest expense of between $7 million and $8 million per quarter with cash interest of the similar amounts.

Excluding the $1.9 million tax charge we recorded for the first six months of 2014 we currently anticipate tax expense for the full year of between $23.5 million and $25.5 million. And we expect that tax expense to be spread as follows.

In the third quarter a tax charge between $17.5 million and $18.5 million and in the fourth quarter a charge of between $4 million and $5 million. We expect cash tax for the rest of the year to be between $14 million and $15 million.

And via models you can assume those payments will be spread evenly over the last two quarters. On to the balance sheet, at the end of the quarter the company had $133 million upon restricted cash and $4 million of restricted cash. Looking at available liquidity and that includes approximately $102 million available under our corporate revolver we had $235 million available at June 30th.

Total tax at the end of the quarter was $642 million net debt including total restricted cash of $3.9 million was $504.9 million and that's down slightly from net debt of $508.8 million at the end of the first quarter '14.

Our net leverage ratio of 4.3 times adjusted EBITDA is up slightly when compared to the end of 2013 when it was 4.2 times. But it's down slightly as expected from 4.4 times at the end of March. We expect to continue to bring this ratio down toward our objective of at or below 4 times. At the end of June, interest expense on 44% of our debt was fixed and our weighted average cost of debt including margin was 4.5%. Our interest cover ratio was four times for the 12 months ended June 30th.

Repayments under the long term financing arrangements equaled $1.8 million during the quarter and we did not make any borrowings on debt facilities in the second quarter of ‘14. At the end of the second quarter, the weighted average maturity of our debt was six years, reflecting a meaningfully longer profile that we had with our previous asset level financing structure.

As a point of comparison, our weighted average maturity of debt at the end of '13 was just over two years. Our current maturity schedule at the end of ’14 -- June 2014 was as follows and for the remainder of 2014 $4 million; for 2015, $89 million; and for 2016, $6 million and thereafter $543 million.

Given our recent corporate debt facility and streamline financing structure, we only have one maturity to refinance in the next two years, not maturities for our $84 million Charleston Place bank loan, not matures in October 2015 and stands outside of our corporate facility under non-recourse structure.

I'm pleased to report that we have now received credit committee approval from two banks to refinance these loans at $8 million to $6 million and the new loan should close during the third quarter. The pricing on the new facility is 2.12% over LIBOR and that compares to 3.5% on the expiring debt and new term is five years.

Looking to cash flows for the quarter, the net cash provided by operating activities was $30.5 million and we reinvested $21 million into our portfolio through those capital expenditures. The second quarter 2014 CapEx included amount spent at the Grand Hotel Europe and that was mainly for the conversion of the 19 historic rooms into 6 super luxury suites and the renovation of the hotel’s restaurants and meeting rooms. It included the Charleston Place to finish the first phase of the rooms renovation project and also to start the second phase investment at Miraflores Park on the hotel renovation project and in our core Italian portfolio where we invested nearly $6 million during the quarter.

For the six months ended June 30, 2014, we reinvested approximately $39 million into our portfolio including approximately $30 million of project CapEx and on top this project CapEx we have already invested this year, we expect to spend in the range of $20 million to $30 million in the second half of the year.

So in total, we are looking at the project CapEx spend of approximately $50 million to $60 million for the full year of 2014 and that’s in line with the project CapEx guidance we have previously provided to you.

And just to remind you that this project CapEx spend is on top of our normal FF&E or maintenance CapEx spend. And looking at that $20 million to $30 million remaining project CapEx of ’14, our projections include amounts to be spent on the second phase of Charleston Place’s rooms renovation, the Grand Hotel Europe space renovation plan including the restaurant and the renovation of 26 rooms at Mount Nelson in Cape Town amongst other projects.

Now that concludes the finance update. And before I hand back to the operator for Q&A, we would like to request you could limit your questions back to about to two per person. Thank you. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Thank you. Your first question comes from the line of Christopher Agnew of MKM Partners. Please ask your question.

Christopher Agnew - MKM Partners

Thanks very much. Good morning. First question, in terms of management contracts, I just wonder where is your focus geographically, I'm wondering if there are opportunities in Italy. And I know that growth is not going to be linear. But in terms of broad expectations, should we be thinking about one to two agreements, maybe a year or is it more like three to four? Thanks.

John Scott

Thanks Chris. It was nice to see you the other day at our bell ring. So, geographic focus on the management front, I’d say couple of things. One, as you see with the announcement of London, clearly not only key gateway cities, but gateway cities where we have a link to our other product categories is a focus. So London as it relates to both a core source for our UK business and our trains as well as for travelers that are coming to Italy often come through London.

So, I would key gateway cities will continue to be a focus, the obvious suspects in New York and Rome are also priorities for us. You mentioned Italy. Italy, where we have a extraordinary circuit of properties would benefit from a launching point in Rome and that has been a focus of ours for quite some time. Focus, but deliberate effort to make sure we find the right properties in those marketplaces. I could go quickly and find quick things, but I think we’d rather take a more long view and make sure we find the right product.

So, that's kind of our view on that front. As it relates -- and then as I would say, if you look at our cluster representation around the globe, extending our footprint where we already are strong, clearly there is appeal to owners who see what we’ve done in regions like Italy, who see what we’ve done in regions like Peru and in Brazil. And in Asia, I think we will have the ability to extend our footprint from these clusters of excellence. So, I’d say key gateway cities where we have been strong and then selectively identifying new destinations. We do have a history in this company of being very strong and being able to execute on pioneering locations in terms of resorts. And I think that we will continue to have some of that mix in our portfolio as we grow on the management front.

And as it relates to expectations on that business, as I mentioned to you all when I first came on board, starting in this business is about laying a good foundation, making sure that we put the right properties in the management pipeline early on as opposed to going for opportunistic volume of properties. We get quite a few inbounds as well as identified a number of projects that at this stage we are sitting through quite thoughtfully, meaning we’ve been very selective in the early years to make sure that we lay the right kind of pipeline. So having said that, I think it takes time to build the pipeline and we have a team that is now more actively engaged in it with our ability with our brand and with our ability with demonstrating that we have secured a number of contracts, pure third party.

So I would say over time that we would ramp up our management front. And I’d say in the early years, it’s probably going to be one to three and then in later years, I won’t describe what that timeline is but in the early years that’s probably realistic on the one to three front and then in the later years accelerating that much we have built momentum and we have built momentum and we have built some scale as it relates to the third-party management business. So more to come on that front, but first announcement is an important one, London couldn't be anymore strategic for us than any other market and so we are very pleased about that. Thank you Chris.

Christopher Agnew - MKM Partners

Thanks and if I could ask a follow up on is it possible to quantify the EBITDA impact the Grand Hotel Europe in 3Q and 4Q? Thanks.

John Scott

Yes. I'll do it that for you because I am sure a lot of people would like to know that. So we are currently projecting that in Q3, it's going to be in the order of 6.5 to 7.5 base knowledge of thinking and Q4 was fairly quite so pretty flattish to down. Overall for the full year we're looking at a minimum of 10.5 million it could be 11.5 million down.

So quite a major impact sorry those are revenue numbers, let me be very clear about that, those are revenue numbers. In terms of the EBITDA numbers, we're down about 1.8 million for the first six months for the second, for the third quarter we're looking to be down around in the order of $5 million. And flattish I would say at this point again as I mentioned a quiet quarter. So full year down somewhere between $6 million and $7 million. So it’s a quite a significant impact.

Christopher Agnew - MKM Partners

Thank you.

Martin O'Grady

And hopefully as John said, we do have a great I believe confidence in the long-term future of assets.

Operator

Thank you. Your next question comes from the line of Kevin Milota of JP Morgan. Please ask your question.

Kevin Milota - JPMorgan

Hi, good morning everyone a couple of questions here. I hope you can give understandably you are up against the tough comp at Charleston Place anything else driving the weakness in the quarter at that property? And then secondly, could you provide book to revenue position for by region for the third quarter and second half of the year?

John Scott

I'm going to, Ralph Aruzza, our Chief Sales and Marketing Officer is here, I'm going to let him highlight some of the Charleston Place some of our business placement as you.

Ralph Aruzza

Yes, in Charleston Place specifically for Q2, we did see softening in trends and business we overtook a little bit of that some net improved. Overall though, we look at really substantial strong second quarter last year, so we're measuring against that we have or trying to replicating. A couple of micro points there, there was a tiny bit of business disruptions related to the renovation, in terms of having some rooms available for sale. There was also some I think visibility issues online with them changing things up on their web portals to correct that effect. And schools were released two weeks late into this summer, family travel season for them. It had also impacted some other hotels up and down because, frankly because of the bad weather and on the Eastern seaboard this winter school that actually stay in session for two weeks longer. So they feel like of couple of weeks trending business because of that. They are looking quite good in Q3 and Q4 in terms of rebounding on the trending business now.

John Scott

I mean Group A for Q4 is pretty good or about…

Ralph Aruzza

Group As for Q4 is up stand. So very strong to them right now.

Kevin Milota - JPMorgan

Okay and can you give us an update on the book revenue position across your entire portfolio?

John Scott

Well, can you clarify the question, you mean how much is on the books?

Kevin Milota - JPMorgan

Yes, how much revenue do you have on the books for North America, Europe and rest of world?

John Scott

Okay, thank you Kevin.

Martin O’Grady

Yes maybe I will do it in a slightly different way, we are looking we do give RevPAR guidance now and about your pace really supports that RevPAR guidance. We are looking at owned hotels for the year we have 75% of our revenue committed onto books to budget this year total portfolio about 70%.

Kevin Milota - JPMorgan

Okay, thank you.

Operator

Thank you. Your next question comes from the line of Carlos Santarelli of Deutsche Bank. Please ask your question.

Carlos Santarelli - Deutsche Bank

Hey guys, good morning, good afternoon. Just on the margin John, obviously when you started lot of focus on kind of incentivising your property level people a little bit differently and focusing on margins and cost controls and expenses, where do you guys think you are today in that process? And as we look towards the back half and out to 2015 in the 3% to 7% RevPAR environment, how do you think you could better flow through that to EBITDA et cetera?

John Scott

Yes well I would say this as I gone around as we dug into it, I think this company when I joined had a reasonably good focus on at a cost level. And so it was less about Carlos it was less about at the property level taking large amounts of cost out of the model, more about attracting more revenue at these existing properties and making sure that as you grow the revenue your flowthroughs are strong. So I would say this I think I have seen a good discipline on our flow-throughs, our properties are measured accordingly there, incentivized based on their ability, both on the up positive flow through and on the down how much are they controlling their cost as it relates to revenue dollars going away. So, I would say that there as you look at historically, we had higher, I'd say gross margins across the portfolio. I'd say there is still opportunity there and still potential, it will largely be revenue based on making sure with once we captured the revenue, making sure if flow through goes through. And on then basis, given the size and the nature of our hotels, you could see dramatic increases in our margins with growth in revenue and strong retentions. So, I'd say it's less about cost cutting and control on that front. Although when we are seeing tough times like in Russia and other sources, which we're focused on cost control, I'd say it's more about making sure that when we capture that revenue that it doesn't bleed away and cause. Mart, do you want to highlight anything?

Martin O’Grady

Yes, I'd say that's absolutely right. So we've always been very, very focused on that, we have regular calls to all the properties and get them very heavily focused on flow through retention, budgets, sorry bonuses and types. So those metrics and we are seeing a little bit of headwind to lead margin, because of planned closure of Miraflores Park, because of the investment in the Belmond Grand, that does impact the margin in the short-term and clearly as we didn’t get the return on that investment in the brand, we will see enough lift in the margin, but I missed on a little calculation here for me showing what the margin is now, this quarter if we strip out the effects of Inn at Perry Cabin, Miraflores Park and the Belmond brand spend our margin was actually up by 40 basis points from 23.7% last year it’s a 24.1% so definitely focused heavily on the cost side and we will benefit from the flow through as the revenue increases as the brand awareness increases.

Unidentified Company Representative

Yes. So, more work to be done on that. I wouldn’t say that that work is cost cutting, it is cost management and discipline and it is ensuring that we get the right types of retention, our target is 40% and I think that’s readily achievable particularly in a high when a lot of the growth is coming out of ADR. So Carlos we’re focused on it.

Carlos Santarelli - Deutsche Bank

Thanks a lot.

Operator

Thank you. (Operator Instructions). Thank you. Your next question comes from the line of Steven Kent of Goldman Sachs. Please ask your question.

Stephen Kent - Goldman Sachs

Sure. I guess I am still trying to get a better understanding of the Grand Hotel Europe and St. Petersburg, because normally, I wouldn’t dig so deep into an individual property, but this one is pretty significant and is part of the reason why you’re seeing some of this weakness in the third quarter because of comp or the expected decrease in the third quarter is because the comp is so difficult last year at that time you have that 220 summit there was a huge drive for a profitability. So that’s what I am trying to figure out. Depreciating ruble, Ukraine but maybe just a tough comp.

And then the second thing is just on cost visitation since you launched the Belmond brand, I know it’s early, but anything in website traffic or your customers or anything that suggests the change is starting to show results and visitation and interest in the properties?

John Scott

Great. Thanks Steve. Are you in the building? I'll see you later on but Martin, do you want to…

Martin O'Grady

Yes. To point a phrase and one of the analyst reports this morning described it as annus horribilis which was taken from Queen Elizabeth I think for that hotel and truly has been. And yes, they did have G20 Summit last year and I think it was up may be a couple of million dollars over the prior quarter in 2012. But you have got the effects of the new full season there; you have got we're talking about dollars and the ruble has been depreciating because of the crisis. You have had traffic not going into Russia right now. And of course we have the restaurants which are making meaningful impact on the EBITDA from the food and beverage side as well. So it really is a mix of everything. But certainly when I gave that full year impact to may be $6 million to $7 million, may be plateau of that would be because last year it was very strong with G20 third quarter. Ralph is going to take the question.

Ralph Aruzza

Yes, specifically to brand, we didn't -- we just launched about 140 days ago. So, we really haven't pointed our models of cross-visitation improvement until really ‘15 and beyond. I will say from a specific metric standpoint now, I mean cross-visitation seems to be rationing up from when we started but the brand again has only been in the marketplace for 140 days.

We started a lot of CRM development in terms of touch points to the customer base pre and post date that touch very much more brand specific; all of our promotions now they go out to our ongoing database or all cross-sell opportunities to the brand. So there is an individual promotion to one hotel. There is always a secondary promotion across the brand to try to drive that metric up.

I will say that it’s actually already been accepted colloquially and well but that not is a press. We are now referred to as Belmond. You don't see a lot of the company formally known or expressed any longer; picked up quite nicely in the travel community, especially both the retail travel community is using it quite organically and naturally and meeting planning community is using the brand quite naturally too. In fact we attribute a real spike in our overall group and forward performance in terms of production which stands a last month of about 51% over the same period last year to real brand residence to that take into market. We do what would be easiest with meeting planners to have them adapt and understand what the brand migration was and it seems to have worked quite nicely.

Stephen Kent - Goldman Sachs

Okay. Thank you.

John Scott

Thanks Steve.

Operator

Thank you. Your next question comes from the line of Chris Jones of Telsey. Please ask your question.

Chris Jones - Telsey

Hi, good morning, thank you. So two questions, first, you talked about in Mallorca improvement in yield management. Can you talk a little bit about that and whether not that’s something we should expect to see in other hotels? And then secondly, can you also touch on your willingness to utilizing that or redone your capital structure and your balance sheet, your ability, your willingness to use your balance sheet just to secure management deals going forward? Thank you.

Ralph Aruzza

I think on La Residencia, when we talk about revenue management, a lot of it actually was tweaking the product, doing some new initiatives on the product, so new layouts and really just having confidence in what that hotel can charge. If we look back several years ago, it was charging very high rates and we were just restoring confidence in the customers, confidence in the products and taking it back a level where it used to be and beyond.

John Scott

Yes. It's a good example Chris. For example Sicily, when we take over that hotel, we did some well before my time but you can see it pretty clearly renovated, did the right kind of renovations and attracted the right kind of market and effectively jack the rate up tremendously and got little resistance we get the right customers going to the right property and then historically this company has done very in selling suites. So as we care as we look at La Residentia and we looked at the room product that we had there, even though we had done what I first said which is increased rates based on confidence in a new consumer base that we were marketing to at that hotel versus the market that hotel marketed to prior to our ownership we also when you say reconfigure we looked at our categories and many rooms that we were selling as very nice deluxe rooms actually had the ability to be promoted as suites because they were multi-unit room.

So a little bit of a clever deep dive on that in looking into the extra room categories there, had a huge impact which you are seeing without actually having done a whole lot investment and reinvestment in that asset. Now we are looking at some reinvestment in that asset in terms of those suites because some additional suites because we saw what impact that we could have. So a little bit of that was optics in terms of us re-categorizing rooms and enabling us to increase rates for a category of room while keeping some other rooms the same. I don’t think you can expect to see that everywhere this one was a low hanging fruit but I will tell you that our Italian cluster has been very good at this and as this property falls underneath that we are applying successes that we did in Italy to Mallorca and it certainly resulted in positive. Ralph anything from you on that?

Ralph Aruzza

No just a little bit of, also evaluating shorter seasons, in terms of what we can do and extend a little bit from our price point standpoint when you actually this and value added rate. There were very exposed in a positive way and are discovered Belmond promotion early on, because that really was effecting there beginning of the season, shorter season.

John Scott

Yes. So Chris, let me quickly turn to, you talk about our improved balance sheet and liquidity, which is clearly another strategic step forward that we have accomplished this year. And I'd say we treat that liquidity with great respect. I'd say we have a number of investment opportunities that we have within our core portfolio that we've already demonstrated, we can drive incremental EBITDA in the shorter to medium term.

And then I would say as it relates to management opportunities, everyone talks about management deals, can you accelerate the deployment of capital, and that's in the form of either joint venture or key money or in some instances loans. And I'd say that in some instances that is a good tool, when it is a strategic hotel largely in key gateway cities that gets you a presence in a marketplace. Our ability to deploy a little bit of capital, when I say a little bit of capital, it's certainly is well below what it would be, if we were either owning or developing, might enhance our ability to get into a key gateway city.

So, New York as opposed to owning something there, if we could deploy some capital on a management perspective, we would do that. I take that very seriously in terms of look, when I look at capital for management agreements that capital that we are deploying in there is it really had two primary purposes or three primary purposes. One it makes us agreement stickier; two it juices our returns on that, it should have a good return on that capital that we’re putting in and some way shape or form; and three it enables us to get a better management agreement in terms of length and in terms of fees. But I will deploy that with great caution because look in many instances what they need is a good brand and a good operator and what they might want is a little alignment. If they need capital because they need capital we get the project done that causes my intent go up because of the financial strength of the sponsor.

So cautious, I think it will help us accelerate. It doesn’t mean that we’re going to run on, we’re trying to offer people money, it does mean that selectively we’ll look at it and if it is the right business economically, economic decisions we will do so.

Chris Jones - Telsey

Great, thank you.

John Scott

Thanks Chris.

Operator

Thank you. There are no further questions at this time, sir. Please continue.

John Scott

Okay. Amy?

Amy Brandt

Thanks very much everyone for joining our second quarter earnings conference call. We look forward to speaking with you again in a few months. Thanks very much.

John Scott

Thank you all.

Operator

Ladies and gentlemen, thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.

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