Strategic Hotels & Resorts' CEO Discusses Q1 2011 Results - Earnings Call Transcript

| About: Strategic Hotels (BEE)

Strategic Hotels & Resorts Inc. (NYSE:BEE)

Q1 2011 Earnings Call

May 5, 2011 10:00 AM ET

Executives

Jon Stanner – VP, Capital Markets and Treasurer

Laurence Geller – President and CEO

Diane Morefield – EVP and CFO

Analysts

Bill Crow – Raymond James

Chris Woronka – Deutsche Bank

Ryan Meliker – Morgan Stanley

Andrew Didora – Banc of America/Merrill Lynch

Joe Graft – JPMorgan

Smedes Rose – KBW

Don Evans [ph] – Edmonds

Neil Bowie [ph] – Mariner Investment Group

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Strategic Hotels & Resorts earnings conference call. My name is Carol and I will be your coordinator for today. (Operator Instructions).

I would now like to turn the presentation over to Mr. Jon Stanner, Vice President, Capital Markets and Treasurer. Sir?

Jon Stanner

Thank you and good morning everyone. Welcome to the Strategic Hotels & Resorts first quarter 2011 earnings conference call. Our press release and supplemental financials were distributed yesterday, and are available on the company's website in the Investor Relations section.

We are hosting a live web cast of today's call, which can be accessed by the same section of the website with a replay of today's call also available for the next month. Before we get on our way, I'd like to say that this conference call will contain forward-looking statements under Federal Securities Laws.

These statements are based on current expectations, estimates and projections about the market and the industry in which the company operates, in addition to management's beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results 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 the management team here with me today. Laurence Geller, President and Chief Executive Officer; and Diane Morefield, Chief Financial Officer?

Laurence Geller

Thank you Jon, good morning everybody. Our first quarter's US same store RevPar growth of 16.6% and our total RevPar growth of 14.5% represents a very impressive performance. While our comparable EBITDA increase over the last year of 28% was equally impressive and resulted in an FFO improvement of $0.12 per share this past quarter. While we are of course delighted with these results, they reflect a composite picture of the coming together of our plans and our programs that have produced this industry leading performance.

We've worked very hard on each of the component features of the multi-dimensional pictures since we first implemented our initial contingency plans in August of 2007. We have executed and will continue to execute on all of the plans we have discussed with you previously and are beginning to see the fruits of our labor. While Diane will give you the specifics about the quarter, I'd like to summarize how the individual components integrating into the composite picture to produce consistently superior results and what this might mean to our future.

First and foremost, during this incredibly difficult downturn, we deliberately and prudently kept investing in our profit and upgrading them in order to keep each at the very leading edge of competitiveness in their individual markets. By the time our InterContinental Miami's room renovation is completed, our entire portfolio will be an impeccable condition and can effectively compete with or out compete any of the hotels or resorts in their respective clear sets. As a result of the excellent condition of our properties, our asset manager's hands-on approach to guerilla and technology driven marketing and importantly our rigorous revenue and rate management process, our market share index improved this quarter by 3.8% which coming off a strong improvement of 2.6% for the full year 2010 is of much ended and noteworthy achievement.

At the same time, our intense focus on sustainable productivity enhancements is delivering the desired results. Our productivity improved by 4.5% during the quarter, an example only. Over our total hours worked per occupied room was 6.9 during the quarter. By way of comparison, in the first quarter of 2007, this number was 7.5 hours per occupied room, or 10% higher than this quarter. EBITDA margins expanded by 430 basis points during the quarter and US property level EBITDA growth was an impressive 55% during the quarter. A key metric we reported on each quarter is EBITDA growth to RevPar growth which was an exceptional 3.3 times during the quarter. This number is particularly impressive given that rate improvement only accounted for 37% of our RevPar gains.

For the quarter, 49% of our room revenues were group driven. We continue to work very hard with our brands and operators on not only on the marketing and group business but importantly on group rate management revenue maximization programs. We're now seeing the results of improving confidence in our nation's economy and while group occupied room nights increased a healthy 8% in the first quarter, it's our future bookings outlooks that I think best demonstrates the result of our aggressive marketing efforts. As a result, definite group RevPar is up 15% compared to the same time last year, while bookings in the year for the year, professionally known (inaudible) are up 24%. Given our almost 50% rooms to no-rooms business split, this is a great future indicator of total RevPar growth and is exemplified by total RevPar growth of 14.5% in the US portfolio during this past quarter.

2007 is often referred to as peak performance and in March of that year we bought 47,000 same store group room nights in the year for the year. A measure of our successful execution of our plans is that the number of same store room nights booked in March of this year, was 2% higher at over 48,000 room nights.

Throughout the downturn we continue to work on updating our inventory of potential ROI CapEx projects and are now in the process of methodically implementing them. Restaurants, wine rooms, repositioning's and expansions tend to quickly yield us in the teens or better annualized returns. For example, our Bourbon Steak house and rooms expansion in Washington DC gave us an 11.5% annualized return in 2010 while the M29 retail outlet in DC which opened in March 2010 provided us a 70% yield just on 10 months of operations. We will continue to draw upon our project inventory in a disciplined manner as we are now doing. For example, we recently announced the construction of the franchise, 3,400 square feet Michael Jordan Stake House on minimal profit yielding mezzanine space in the InterContinental in Chicago. At the same time we'll increase the capacity of the bar by 40%.

We believe that the approximately of 4 million of expenditures on this project will yield mid-teens annualized returns soon after its third quarter opening this year. Of course, for our high-end portfolio in their markets, the crucial underlying difference between this and previous cycles in supply. Our unique portfolio of premium branded and well located properties are in growth markets with very high barriers to entry. If, and I stress if, land permits, land permits and equivalent high-end premium, high demand generating brands in equivalent locations to ours were even available, then the replacement cost today would be at the very least in the $700,000 per room range and would have at least a 4 to 5 years zoning, planning, permitting and development period ahead of them. It's therefore hard to see significant new competitive supply entering our markets for at least that period of time.

So as our composite picture comes together, it's clear that we have virtually no supply coming in our markets, high end properties in excellent physical and extremely competitive condition, branded properties with strong non-compete clauses in place, high-end demand rebounding faster than any other segment, technology led guerrilla marketing leading to increased market share, strong revenue management systems in place and sustainable leading edge productivity systems, our company is now extraordinarily well placed to benefit from the nascent economic and consumer trends we're now clearly seeing and hopefully our nation's economy is benefiting from.

All of this all goes very well for our future ability, not only to charge substantially high room rates across most segments, but continues to drive significant profitability gains as we continue to sustain and importantly improve our productivity systems and processors.

I am reminded that in previous recoveries, luxury RevPar compound annual gross rate was 8% for both the periods between 1992 and 2000 and 2002 to 2007. But that statistic is only one side of the equation. For equally I can't forget that luxury supply grew 23% between 1992 and 2000 and another 17% during the period between 2002 and 2007. Given our markets have virtually zero current supply growth for the foreseeable future; it's hard not to imagine that our properties have the opportunity to benefit from significant room rate growth. While we're not able to accurately predict room rates and RevPar increases for say the next five plus years, simple logic would dictate that it's only a future limit on the high end consumers propensity to consume that eventually may, and I stress may, slowdown our ability to increase room rates and slowdown the time it will take to reach unprecedented new rate highs.

From a purely theoretically and mathematical sense, an 8% RevPar growth rate alone for the next four years, with rate and occupancy gains evenly split would double our 2010 North American same store probably level EBITDA by 2014. While it would take 12% plus or minus RevPar growth to double it by 2013. Such is the practical reality of the significant operating leverage inherent with our now unique portfolio and with our industry leading revenue generating management processes combined with the sustainable productivity systems we regularly discuss. This operating leverage coupled with extensive built in inventory of potentially high yielding in-house projects demonstrates our ability to grow our earnings internally and importantly, allows us to be extremely disciplined and very selective in targeting future acquisitions. Of course the exceptional first quarter results of our operating strategies are only one albeit a crucial one part of our corporate strategy. Diane will now discuss not only our first quarter results but the progress we've made and continue to make on our all-important balance improvement and capital allocation strategy.

Diane Morefield

Thank you Lawrence and good morning everyone. For the quarter we reported comparable EBITDA of 28.7 million at 27.6% increase over the first quarter of last year and a comparable FFO per share loss of $0.02 as compared to an FFO loss per share of $0.14 in the same period last year. Both metrics were ahead of consensus estimates. Please note, that beginning this quarter, we have modified our definition of comparable EBITDA, FFO and FFO per share to exclude any charges related to the company's value creation plan which is consistent with our definition of these metrics when we provided our 2011 guidance on our last call.

Our reported G&A expense for the quarter was 14.5 million; however again, 9.2 million was related to the non-cash DCP expense. Adjusting for this expense, G&A was basically flat year-over-year at 5.2 million and very much in line with our annual G&A guidance run rate of 21 to 22 million. In the first quarter of 2012 I want to point out, we only recorded approximately 500,000 of these GP expense.

Turning to operations, improvements in demand as Lawrence has highlighted were broad based across our portfolio for the quarter and reflected what we believe is an improving economic and lodging environment. Despite stubbornly high end employment and rising gas prices, consumer confidence appears relatively stable and spending remains strong. March retail sales excluding automobile and gas consumptions increased a robust 7.1% on an annualized basis. Importantly 80% of the demand growth in our portfolio for the quarter came from the highly rated corporate transient and group segments resulting in discounted room nights sold declining for the fourth consecutive quarter.

Transient occupied room nights increased nearly 12% in our US portfolio while premium rated transient room nights increased over 40% during the quarter, and this segment yielded an average rate over 60% above the average rate for the entire portfolio. Excluding the Four Seasons Punta Mita non-room revenues increased 13% during the quarter with food and beverage revenue up 15% driven by 7% increase in the average check.

Banquette revenues were up 11% and revenues at our retail outlets increased 14%. Our operating performance across (inaudible) to our otherwise great quarter was at the Four Seasons Punta Mita where RevPar declined nearly 29% from the first quarter 2010. These concerting new reports on the security situation in Mexico clearly had a negative impact on the hospitality industry across Mexico and the downturn is far from unique to our resort. We continue to believe the situation in Mexico will ultimately turn around and we are using it as an opportunity to further develop new positioning and marketing programs at our resort.

Despite the significant RevPar decline, this property continues to contribute a significant amount of EBITDA with 3.5 million in the first quarter and maintains the highest GOP margin in our portfolio at 47.7% in the first quarter. This clearly demonstrates the operating leverage in our high end properties.

RevPar in our European portfolio which now only includes results from the Marriott London Grosvenor Square, and the Marriott Hamburg Hotel, increased 2.9% for the quarter or 1.5% on a constant dollar basis. I want to point out that RevPar our London property declined 8.3% on a constant dollar basis for the quarter; however that was the result of the now complete comprehensive room renovation that took approximately 100 rooms out of service during the quarter. So clearly this was an anomaly. This hotel is now in an excellent position to take advantage of the still incredibly strong London lodging market.

As you know we had a very active first four months of the year from a transaction perspective and made considerable progress on a number of our strategic objectives. As we've talked about repeatedly over the past few quarters, our focus in 2010 was on strengthening and restructuring our balance sheet and we are pleased to report that our net debt to EBITDA metric has declined from nearly 14 times at the beginning of 2010 to around seven times pro forma from our recent transactions. Most recently, we announced the closing of the sale of our leasehold interest in the Paris Marriott Champs Elysees hotel for nearly $60 million of gross proceeds. This represents over 20 times multiple on a 2010 earnings for the leasehold interest and quite frankly, far exceeded any expectations for the sale of our leasehold position. In fact, one of our investors called us and was convinced we had misplaced a decimal point in our original press release when we announced the transaction.

We also closed on the acquisition of two fantastic new Four Seasons hotels located in Jackson Hole Wyoming and the very attractive Silicon Market in California. We paid an implied 95 million for the two assets which represents an attractive 11 times projected 2011 EBITDA multiple. On a blended basis we paid under $3,000 per key for the two hotels which is significantly less than 50% of actual replacement costs and quite frankly original construction costs. The performance of these properties is already exceeding our original underwriting and we anticipate this positive momentum to carry throughout the year.

In connection with the all equity acquisition of those assets, we issued the additional 8 million shares of common stock in a private placement to the Woodbridge Company raising 50 million of gross proceeds at no discount to the trading value of the stock price at the time of the transaction and we paid no underwriting fees. The equity raised essentially match funded our reinvestment in the Hotel del Coronado in which we now own a 34.3% interest in partnership with Blackstone and KSL, their transaction closing in February. Importantly through the overall debt restructuring, we reduced the debt level on this hotel by approximately $200 million. We continue to make significant progress on our balance sheet restructuring as Lawrence mentioned. We are currently in the market to finance four property level loans two of which the InterContinental in Chicago and Miami which are later this year and the other two mature in 2012.

The debt capital markets continue to improve and we are very optimistic that we can refinance these loans on attractive terms and at similar proceed levels to the existing debt. In addition, we are also in the process of exploring the new revolving credit facility to replace our credit line which is scheduled to mature in March of next year. You'll recall that earlier this year we amended our existing line facility to provide additional borrowing capacity. We feel it's an appropriate time to negotiate a new line given the significant lending capacity and favorable market terms that are currently available in the capital markets. We currently have zero outstanding on our line of credit and approximately 100 million of unrestricted cash on our balance sheet. We also have an additional 310 million of availability on the line today. So we are now in a strong liquidity position as we complete the last steps of our balance sheet restructuring phase.

While it's inappropriate to discuss the specific details we continue to work towards the resolution of the Fairmont Scottsdale Princess 180 million debt maturity in September of this year. On a strong point though, performance of the resort is showing considerable improvement with first quarter RevPar growth of 12.4% driving a 26.3% growth in EBITDA. Let me give you a quick update on some of the larger capital projects we are undertaking this year.

In March, we guided that our owner funded capital expenditures would be in the $22 million range for the year. The majority of this spend is related to a comprehensive rooms and corridor renovations at the InterContinental Miami Hotel. In order to minimize this placement, about 75% of the room renovations would occur in the summer months this year, which is a slower period for the Hotel, with the remainder in 2012 are working around occupancy levels.

Finally, we'd like to comment on guidance. We reinstated full year guidance on our last earnings call and today we are raising the lower end of our full year 2012 guidance through RevPar and total RevPar growth to between 7.5 and 9%. When adjusting comparable EBITDA to between 140 and 150 million, and comparable FFO per share to a revised range of $0.01 to $0.07 for the year. While we're certainly very optimistic that the positive trends of the first quarter will continue throughout the year, we are maintaining a conservative approach to guidance given the inherent volatility of our sector and having only three months of actual results under our belt.

With that, we would now like to open up the call for any questions and Lawrence will just have a brief summary of comments at the end of Q&A. Thank you.

Question-and-Answer Session

Operator

Thank you very much Diane. (Operator Instructions). Your first question comes to you from the line of Bill Crow of Raymond James, please proceed Bill.

Bill Crow – Raymond James

Couple of questions here, any update on the proposed marketing for sale of London?

Laurence Geller

London's now the properties is, first of all Bill, good morning, thank you for that nice comment. We aspire to having great quarter guys one time. Secondly, as far as London is concerned, we just finished the renovation. The property is really doing terrifically well now. We have aspirations on a number of 2012 based on current forecasts. There are selected conversations going on with incredibly well qualified and appropriate buyers. We are very disciplined in our pricing of this. We have a clear understanding of what value is. We are not rushing to sell this. We will stick by what we said completely. We have a 2012 number in mind and when we get that, we will sell the property.

Bill Crow – Raymond James

Okay, fair enough. Any change in demand your West Coast properties from the tragic events in Japan?

Laurence Geller

No noticeable. I can't comment on Hawaii properties but certainly we've seen none whatsoever. Fortunately we have seen an uptick in Southern California. It's still not what we wanted to be but it has quarter-to-quarter we've seen noticeable turnaround in consumer confidence in the Southern California markets and are beginning to see that reflect in the operations of our hotels.

Bill Crow – Raymond James

Right, two more quick questions, first of all on April results to date, what we've seen is obviously the shift in Easter had a negative impact on upper upscale hotels but seems like a very positive impact on luxury and resort properties. Can you talk about how your portfolio is tracking in April?

Laurence Geller

It's too early too really to discuss April but I can say in general terms we see a continuation of the trends of January, February and March and no negatives on the horizon yet.

Bill Crow – Raymond James

And then finally from me, we thought the acquisitions you made of the two Four Seasons were terrific and the way of financing was great. There are assets that might be a good fit for your portfolio that are being marketed or plan to be marketed I think Barclays or something like that has some asset. What is your thought process from continuing to look at kind of growing your way out of the leverage situation?

Laurence Geller

Thank you for the question, it's really is the seminal question. I tried to point out in my comments that we were in the enviable position, much in that position that we have so much internal growth throughout portfolio that we can outgrow most portfolios without spending a dime because we've just got it built-in as you rightly commented earlier and you'll note, we took it on the (inaudible) in luxury section but we used that time to really reengineer the hotels, so we got tremendous operating leverage. That's number one. Number two, we have an inventory of internal projects which range from small amounts of money to fairly significant but are all executable within the shortage period of time once we start them. They give us double digit yields. For us, it's a priority to work on those and to keep these margins going because the highest return under this capital expenditure. Having said that, there are properties on the market that might, and I stress might fit within our portfolio but we are very disciplined about them and we're not going to euphorically chase properties down the property market. We don't need to be on the buying bench and this company, we've been through that in the past and we have suffered with leverage. We've learnt our lessons very well and is a very disciplined and methodical process. I am very proud of the way the balance sheet is growing and we're not (inaudible) that progress.

Operator

Thank you. Your next question comes to you from the line of Chris Woronka of Deutsche Bank. Please proceed Chris.

Chris Woronka – Deutsche Bank

I want to ask you guys about Scottsdale. I heard your prepared comments. I guess the question is, is it a market you still want to be in long-term or a market you want to be in with that brand and you did have a good quarter there. Is that indicative, is that turnaround going to continue there. Do you think, what I mean is there a certain number in mind where you think the EBITDA is going to get back a certain level. You keep it or is it more when you look the terms of the financing. Just your thoughts on the market and the assets specifically.

Laurence Geller

Chris, Scottsdale, the real question has been raised time and time again over the last two years because it's been the most difficult of our properties given the maturities early September of this year on $180 million of debt. Having said that, yes the market is improving and we continue to look at future pace happily improving. So the difficulty with it, the delta difficulty in financing narrows but it's still very short term because we got a maturity date not many months off. Having said that this property is in immaculate condition, the cost of replacement is gigantic and if we were to stay in this property, it really is a question of value per room and the terms and structures are restructuring. Obviously we have a duty to go out to pursue two or three different parts. One is to see if there is value over the debt and if so how do garnish it. And the secondly, it's not taking prudent risk just for the sake of a very nice property. So nothing has changed with us. We are going down, exploring every avenue and I say this in different context as returning absolutely every leaf over in the forest because we have done a lot of work on this. If we do give up on this property, it will be because we don't see the value there or we have confined economic solutions in the best interest of the shareholders. The markets have improved to results. The market in Scottsdale has improved and supply is dead zero.

Chris Woronka – Deutsche Bank

Okay, that's great. And Diane, I noticed that the management fees look like they were effectively flat year-over-year which is a bit surprising given the RevPar EBITDA growth. Can you kind of walk us through why they were only flat? Were the intended fees down?

Diane Morefield

We renegotiated several contracts last year. So even though revenues are up, we maintain flat management and incentive fees to the operator. So there are a couple of key contracts that we'll renegotiate.

Laurence Geller

Chris, I think probably the most significant was the Westin St. Francis which is 1,200 rooms. It's got such a material impact and it had a very high fees structure. When we refinance it as you will recall in conjunction with the Fairmont in Chicago, we renegotiated with the assistance of the chains the contracts to better reflect the current and perspective operating environments and that saved it, let's say that's likewise because we were going through the refurbishing in Miami. We used the opportunity to work with InterContinental to renegotiate the management fees there and in a very collaborative and sensible manner. As you know we have a strategy of working hard with the management's chains on contracts as situations involve and you'll the fruits of that labor.

Chris Woronka – Deutsche Bank

And then at the Four Seasons in Washington. You had a better quarter there than many of your peers did. Maybe your different assets. Just want to ask you if you see any impact from all the noise that's been going on in Washington. I know you don't really get any government business, you're getting the higher end international government business. Do you see any impact going forward there?

Laurence Geller

The results were terrific in the first quarter. I would have suggested the have been even better had the middle east spring shall I call it, not occurred in the term, not occurred. The answer really is, we are so far ahead in market share premium from everybody else. We have such a unique offering there that I don't see too much problems. We built very next year it despite of being an election year, we've got the (inaudible) coming back which is really with the headquarters for it and it changes everything. It really is an amazing thing. So prospectively I think DC has a growth trajectory on it that is so far differentiated from the rest of the DC properties that we are in the market of our own and I say that not with arrogance but simply with the benefit of experience.

Chris Woronka – Deutsche Bank

And then just on the acquisition front, I think the deal on the first quarter was great, was in interesting markets and terrific assets. But you've seen all your peers buying in New York and they are probably assets that can fit your portfolio here but you are thinking that this is a market you want to be in given where pricing is right now which is obviously very competitive.

Laurence Geller

Look I think pricing is competitive but it does reflect future supply and increase in the market demand. However for us, it's very simple. We've come through a long dark tunnel. Our balance sheet has improved dramatically. We have some $400 million of liquidity available. We have maturities that we are now working on. We have accrued preferred dividends outstanding. We're being very consistent are repeated. First we're going to deal with the maturities then we will look at our accrued preferred. Unless the opportunity is exceptional, I do not have buying envy and this company will stay very disciplined on this course. We are in a position though to look at acquisitions. We look at everything but our priorities are clear to us, they are clear to the board of directors and we are going to stick with them.

Operator

Thank you. Your next question will come to you from the line of Ryan Meliker of Morgan Stanley. Ryan?

Ryan Meliker – Morgan Stanley

Two quick questions, one, you gave some color on the (inaudible) in your prepared remarks. Just wondering out of that 15% group revenue phase, that you're up versus same period last year, can you give us some color on rate versus occupancy?

Laurence Geller

The good news about this and from (inaudible) sought through is that the preponderance probably is 75% of that day is in demand and only 2-3% in rate and in the balancing rate 2 or 3%. Why is that good news? Because we dying committed on the non-rooms revenues spend increasing, banqueting spend, spa spends, meeting room rental, audio visual etcetera. We were able to generate such profit from that size of it that we're looking for demand because actuarially we know how much per customers are going to spend on non-rooms business. So we're trying to push demand through that to get the non-rooms, get compression in demand and then we can put up the group rate even more. As we see future pace though, that strategy is working well because we've driven compression in the group markets, so now our future pace room rate is much higher than our historic room rate increase. It really is a balance. When I focus on revenue maximization and room strategies, it really has become a very sophisticated science and it's not just marketing demand for a segment, it really is rate management on a segment basis that's going to drive ADRs.

Ryan Meliker – Morgan Stanley

That's helpful and that makes perfect sense when you're focusing on total revenues. Just some color on that. Are you getting to the point now where maybe you're trying to push rate a little bit more because group volumes have grown to the level that they have grown and if so are you seeing any push back from groups yet.

Laurence Geller

The answer to the first one is yes, and we are pushing it as hard as we can and no, in the context of you asking the question, we're not seeing push back clearly, we're getting negotiations. We'll lose some contracts rather than when people have got holes in their calendar. We'll lose some contracts and we won't chase them down the hill. We meet with the meeting panels and travel intermediary as so often. I think we kind of know what they are thinking and work with them. By the way it's not just us that does that, the chains do it and we privy to their results. So we try and tailor it around it but it really is revenue management to do with the compression on that day when they want to be there and that's how we try it. No pushback now. High level of group corporate confidence. The pushback is only on the time they make the final decision. It's still shorter term that it was in 2007. It's not the rate, it's that final decision is still shorter which is why I suspect that's why we're seeing such in the year, for the year growth because its shorter term than I think as we go through the cycle it will end up being.

Ryan Meliker – Morgan Stanley

That's helpful and then shifting gears, you guys obviously put together some great margin performance in the US. But looking at Europe specifically, margins were down on RevPar up almost 3%. I am wondering if you can give us some color on, was it marginally currency related or what was driving the margin compression.

Laurence Geller

Well first of all London obviously now we're down to two assets. London is really the question we're talking about and we had literally 100 or so rooms being refurbished for three months in the quarter. You keep your fixed costs exactly the same and you've lost a third of the hotel plus or minus.

Ryan Meliker – Morgan Stanley

So it's really renovation related.

Laurence Geller

It really isn't to do with anything other than displacement.

Ryan Meliker – Morgan Stanley

Great, that's helpful. And then lastly and I know you've talked about this earlier with Bill's questions, but as you guys think about the London asset sale, is it really reasonable to think that you might get the pricing that you're looking for before we get to the Olympics?

Laurence Geller

Let me say I think we established everybody time and again with the pricing we get for assets. Mexico City, the small Paris hotel at the time we did it, and selling an index rent leasehold interest for 20 times multiple in Paris gives you a clue that there is so many varied reasons for buying in places like and Parson that the exception is normal to us. So I don't know what unreasonable means as far as pricing is concerned. I'll ask for the sky, the moon and the stars and I'll take all three.

Operator

Thank you. Gentlemen and ma'am, your next question comes to you from the line of Andrew Didora of Banc of America/Merrill Lynch. Andrew?

Andrew Didora – Banc of America/Merrill Lynch

One question for Lawrence. You guys talked about, you don't feel like you need to acquire at this point going forward that your current portfolio growth could outpace any deals that you do. But just curious as where the luxury segment is in the recovery. There comes a time when you consider selling assets here in North America?

Laurence Geller

Andrew first of all let me correct you, my point was not at an acquisition will be outpaced by a current EBITDA. It's merely that our EBITDA growth rate is hard to compete with even with companies who don't acquire. They have to acquire to keep up to our growth rate, that's the difference. So we have a trajectory of growth that's so much higher from internal projects that's relatively is unparalleled amongst our peers. Look, I do think this is a very unique time to acquire assets. We have a very select and disciplined approach to acquisition and we know the markets we want to be in and we know what assets we would like in those markets. If a when they come up, we'll take a disciplined look at it. If we think it's something that fits in with our fundamentals and matches with our future growth elsewhere, its strategic impulse rather than merely an accretive impulse.

Diane Morefield

Well and again, if we were to sell an asset knowing that growth rate we have in the individual hotels, we'd have to redeploy that capital into our capital with a higher growth rate so we don't feel that's probably that trade is out there.

Laurence Geller

And finally Andrew I think the final comment to all this is we have proven to be traders. We know how to buy and we know how to sell. We sold many billions since we first started this company in 1997 of assets. We're very disciplined about our rebuy analysis process. If we get a number that we think is really off the charts and I can't say it's not unlikely that assets within our portfolio because our portfolio is truly unique. It's not impossible will happen, we're not idiots. We'll take the dollar and run.

Operator

Okay, your next question will come to you from the line of Joe Graft of JPMorgan. Joe?

Joe Graft – JPMorgan

Good morning guys, I am all set with my questions. Thanks so much.

Laurence Geller

Thanks Joe.

Diane Morefield

Thank you Joe.

Operator

Okay Joe then, our next question will come to you from the line of Smedes Rose of KBW. Please proceed.

Smedes Rose – KBW

Given the rapid increase in your EBITDA in the operating results. I was just wondering Lawrence, could you maybe talk about just return to kind of the peak levels in 2007 of when you think you might be able to get there which I guess you could do on lower revenues given the higher margin going forward. And then is there any thought on bringing the preferred backend line making it current I guess, given the improved results.

Laurence Geller

I did a very articulate job of describing it. In our EBITDA its low, was essentially half of what we have before. So if you get 8% growth rate on 2010 numbers we'll get there 2013-2014 range. That's if you get 50-50 only in split of occupancy and rate, but what practically will happen is because of compression times, as you go forward into the cycle, your RevPar growth will come from demand, largely it will come from rate. Rate is much higher in profitability. We've got these sustained margin improvement programs so it isn't impossible if GDP increases and non-employment decreases enough that we get there earlier or if it goes the other way (inaudible) but it's that 8% growth rate which when you had so much supply which we use as our benchmark which is probably wrong, I do believe that as the luxury and the high end area is so sensitive to revenue management, that we could get if the economy is robust very many pleasant operating surprises.

Smedes Rose – KBW

Okay, that's helpful, thanks. And on the preferred, any just thoughts on that?

Laurence Geller

On the preferred its very straight forward. Diane has made it clear in previous calls, we're going to get the maturities done. As soon as we get that done, we do the line of credit, make sure that we are in good financial shape and don't run in any maturity risk and then it's our intent to go to the board with the proposal to pay off the accrued. However, let me make sure its however, under the current line of credit arrangements, paying off the accrued preferred returns mandates bank approval.

Operator

Okay, your next question will come from Will Marks of JMP Securities. Will?

Will Marks – JMP Securities

I had a question, seems like most companies are RevPar is going to continuously increase throughout the year its guidance. You guys had I think same store or directly is that 12%. You need to do lot less than that for the full year. Can you talk about progression in order to hit your guidance throughout the year?

Diane Morefield

Yes one key thing to point out is that remember the first quarter 2010 was actually negative RevPar. So by definition the comps are first quarter last year. They are much easier comps in way I think we saw very high RevPar growth this quarter. As we continue through the year, second quarter last year on it was positive RevPar growth. So that's part of why we have high RevPar this quarter but we are still very comfortable with the 7.5 to 9% range for the full year.

Will Marks – JMP Securities

And does any quarter stand out as being an anomaly or pretty evenly split?

Laurence Geller

Will aside from the Easter type holiday variation day that impacts, we are seeing the same seasonal trends just at higher level of demand that we have seen in previous years and that we would have expected to see. So there is no anomalies, there's nothing unusual on the horizon. However I would say that Diane and I have taken a very cautious approach to plan the out cash flows and because anything can happen and probably would happen. Who knows what volatility is in the markets today.

Will Marks – JMP Securities

Okay, and Lawrence in your comments you gave that 3.3 times EBITDA growth rate to RevPar growth rate. Should that, I know you haven't given guidance along those lines, but you see that continuing to play out throughout the year or is that maybe a quarter that not going to happen.

Laurence Geller

Yes, I mean look, as you go through it, if you're doing a lot more occupancy in the sum of a leisure business you're going to have lower margins, just good cash flow and profitability. Remember, a very solid result will be two times. Why especially this was exceptional and where as we may have had a demand but the first quarter of last year had less demand. What is exception is the way that the brands are cooperating with our asset managers on sustaining labor reductions and it could well be we're seeing a completely new paradigm in labor here.

Will Marks – JMP Securities

Okay and lastly do you have the number for what the key EBITDA was for the current portfolio.

Laurence Geller

No, but Jon will get back to you Will.

Operator

And so, your next question comes to you from the line of Don Evans of Edmonds [ph]. Please proceed Don.

Don Evans – Edmonds

Can you just talk a little bit about pricing from the standpoint of, if you look at these compression days, can you give us some kind of thought process where you are from past key from compression days so we can get a soft conscious of how much further you still have to go.

Laurence Geller

We're well up from compression nights, year-over-year, quarter-on-quarter. I am going to say with that although the PQ is interesting and we're probably still 15% down maybe even 20% down, what I don't know yet and we're still studying this and we won't know until later in the years what our target compression nights are as far as the pricing models are concerned. It's become so multi-dimensional that we're looking at it but I would say the simplistic answer is in general we're 15 to 20% away from where we want to be in demand.

Don Evans – Edmonds

Okay, got it. And so what does that mean from a pricing standpoint. Does that mean you've got another 15 to 20% pricing for compression rooms or is it more than that? Does that make sense?

Laurence Geller

It's not linear. Its exponential depending on the time. Your question is a good question but it such a sophisticated model it really is anything but linear. It really much is amalgam of algorithms to get to the pricing model.

Operator

Okay, your next question will come to you from the line of Neil Bowie [ph] of Mariner Investment Group. Please proceed.

Neil Bowie – Mariner Investment Group

Yes, you talked about the statistics and everything looked great. You talked about the maturities and the refinancing. I was wondering if you could have given the capital markets and they are somewhat uneven but any indication on what sort of receptivity on refinancing or otherwise on those hotels.

Diane Morefield

For the four hotels that were in the market which we have multiple terms so it's been a very high receptivity for the four hotels and even our line of credit we're very confident we'll be able to put a new line in place. So and the terms are very attractive. We're not having any pushback on our refinancing.

Laurence Geller

Having said that, we are as we said last quarter, we are still nervous and cautious about the financial markets. That's the reason why we are aggressively pursuing refinancing 2012 maturities now rather than let them hang out there. We might get better terms, later we might get all the markets might close because of the global nature of interlink banking, we're taking no chances, so we're going to push those quickly as we can on all of them. And as you can see from the results, the high-end portfolio that we have is attractive to borrowers and to lenders rather and we're being very good borrowers, we're being very open and we have wonderful relationships with our banking and our lending groups so now is the time for us to strike. I hope we'll finish everything quickly and I hope the markets don't change.

Operator

Ladies and gentlemen, this concludes the question answer portion of today's presentation. I will now turn your call back to Laurence Geller for his closing remarks. Sir?

Laurence Geller

Thank you and thanks so many of you for taking a whole hour to talk to us. It's gratifying for our board and for our management team to see the beginning of the strong results from our labors. We believe we are in the strong market segment and that the markets are in the nascent stage of recovery. Our unique portfolio of great properties, our great asset management systems which were working well and no supply give us the belief that we've got strong, sustainable and long-term growth in both revenues and profits. Thank you for your support, your time and for your interest and we look forward to speaking to you next quarter.

Operator

Ladies and gentlemen thank you very much for your participation in today's conference. This concludes your presentation and you may now disconnect. Have a great day.

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