Belmond's (BEL) CEO Roeland Vos on Q4 2016 Results - Earnings Call Transcript

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Belmond Ltd. (NYSE:BEL) Q4 2016 Earnings Conference Call February 28, 2017 10:00 AM ET

Executives

Roeland Vos - President and CEO

Martin O’Grady - EVP and CFO

Amy Brandt - VP, Corporate Finance and IR

Analysts

David Katz - Telsey Advisory Group

Anthony Powell - Barclays Capital

Howard Bryerman - PENN Capital Management

Operator

Good morning and good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today’s Fourth Quarter 2016 Earnings Conference Call for Belmond Ltd. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions]. I must advise you this conference is being recorded today, Tuesday, February 28, 2017.

Now without any further delay, I’d like to hand the conference over to Amy Brandt, Vice President of Investor Relations. Ms. Amy, over to you.

Amy Brandt

Thank you, Erica. Good morning, everyone, and thank you for joining us today for the fourth quarter and full year 2016 earnings conference call for Belmond Ltd. We issued our earnings release last night. The release is available on our Investor Relations Web site at investor.belmond.com, as well as on the SEC Web site.

On the call with me today are Roeland Vos, President and Chief Executive Officer; and Martin O’Grady, Chief Financial Officer.

Before we get started today, I would like to readout our usual cautionary statement under the U.S. Private Securities Litigation Reform Act of 1995. In the course of our 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, its three-point growth strategy including future investment plans and other matters that are not historic facts and therefore involve risks and uncertainties.

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.

Management will be using certain non-GAAP financial measures today to analyze the fourth quarter and full year operating performance of the company. You can find reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings release we issued last night.

I will now hand the call over to Roeland.

Roeland Vos

Thank you, Amy, and good morning, everyone. We’re pleased to have you joining us for a discussion on our fourth quarter and our full year 2016 results, as well as for an outlook for 2017. 2016 was an important year for Belmond for a multitude of reasons. In June, we unveiled our long-term strategic plan laying out an ambitious goal to double the size of the company by the year 2020.

Over the course of the year and into 2017, we started to lay the foundation for all of the building blocks that are needed to accelerate the growth of the company; welcoming new people, beginning to implement the systems and the initiatives to help us execute on that plan.

And at the same time, we maintained a disciplined focus on our operating results delivering 8% constant currency adjusted EBITDA growth for the full year of 2016, which is in line with the organic growth CAGRs that we provided you with in our June presentation.

I’m pleased with how much we have accomplished in the first year of our strategic plan and I’m looking forward to 2017, which I expect will be another year of strong growth and particularly meaningful in the context of making headway towards our 2020 goals.

On today’s call, I will first speak briefly about our 2016 results, on our full year 2017 guidance and will then provide an update on some of the programs that we’ve made on our strategic plan. Martin will follow with the details of the fourth quarter and full year results and take you through the specifics of our RevPAR guidance.

Now before I begin, please note that all of the year-over-year variances that I’ll provide you with will be on a constant currency basis.

As you will have seen in our earnings release, our full year same-store RevPAR growth was 3% over 2015. Revenue also increased to 2% over prior year and as I just mentioned, total adjusted EBITDA was up 8% taking full year 2016 adjusted EBITDA to just north of $120 million.

You will recall that in our June Investor Presentation, we provided you with five-year CAGRs for our growth from the existing properties and that was 3% to 5% for RevPAR, 2% to 5% for revenue and 7.5% to 9.5% for adjusted EBITDA. Now you can see that our full year results fit clearly well within the bounds of each of these long-term metrics.

So with that, I’m pleased with this year’s growth which reflected our focus on delivering strong results during the high demand period, such as The Olympics and the European peak summer season, while at the same time working closely with the properties that are dealing with some more challenging operating environments where we did our best to mitigate the year-over-year declines.

Looking forward, we expect 2017 to be another year of growth. We provide same-store full year RevPAR guidance of 1% to 5% growth and you will note that this guidance is negatively impacted by the comparison to the Olympic year in Brazil. The impact of the Belmond Copacabana Palace on its own is 4 percentage points to our own year-over-year growth. That means that if we took this hotel out of the equation for both years’ comparisons, our RevPAR guidance would be 5% to 9% growth. That is certainly solid.

Now in light of this expected strong growth for the full year, it’s very important to highlight that we currently expect that our seasonal small first quarter which typically generates less than 5% of our annual adjusted EBITDA will be a challenging one. This will be made even more apparent in the year-over-year comparisons for our first quarter 2016, which was particularly strong.

At a high level, to our first quarter of 2017 we are seeing headwinds in Brazil, the Caribbean and for our trains and cruises. We see strength in places like Cape Town and in Charleston. I will note that many of the challenges that we’re seeing in year-over-year growth are largely isolated to the first quarter and the balance of the year is looking promising at this point in time and supports the full year guidance that I just provided to you.

I would now like to reflect on how we have been performing in the three key areas of this strategic plan, which as a reminder are driving top-line growth and bottom-line results, increasing brand awareness and expanding our global footprint. With regards to the first strategic growth pillar, organic growth, our focus in 2016 was on our four key areas for operating initiatives which were structure, resources, systems and product.

In terms of structure, we started the year by reviewing our organization to make sure that we’re operating as seamless as a fully integrated enterprise that supported our hotels and our businesses.

Looking at our sales and marketing department, we identified that having our sales and revenue management teams reporting into our Head of Marketing was causing us to miss some obvious synergies with the operations.

We changed this structure early in the year such that all of the revenue-related functions are now reporting to our Chief Operating Officer, Philippe Cassis. Philippe has a primary responsibility to drive the performance of our properties and it’s only logical that he oversees all of the teams in charge of driving revenue.

In terms of resources, having the right people in place and keeping them focused and motivated is fundamental to driving revenue and profit. We made great strides in engaging our employees to feel connected to the company, to feel connected to the brand so that our frontline employees deliver the best experience to our customers. Delivering that most exceptional personalized experience to our guests is on way that we differentiate ourselves from the rest of our competition in the luxury space.

We recently strengthened our regional leadership with the appointment of Robert Koren to Vice President of Southern Europe, a position which includes oversight of our key Italian assets. Robert brings over 30 years of solid industry experience, most recently serving as Starwood’s Vice President, Regional Director for Southern Europe where he was responsible for more than 60 luxury hotels. We’re excited to have Robert onboard and we believe that with his background that he will do a fantastic job in managing some of the world’s most well-known luxury properties.

It’s also essential for our people to know where we’re planning to take the company and how we intend to get there. We educated the entire organization on the strategic plan and aligned everyone’s focus on achieving the plan in order to get buy-in across the board from all those people who will be instrumental in our success.

Then on the systems front, you have heard me speak about creating a new digital ecosystem starting with our CRM. Having a more modern fully functional CRM for us is vital to be able to engage more effectively with our customers. And to be able to recognize them when they are at our properties and even before they arrive.

Our current CRM lacks the features to achieve these goals and as such we identified that we need to replace the CRM and we commenced an implementation program midway through 2016. We intend to go live with the CRM early in the second quarter of 2017 and expect that this new system will allow us to have better relationships with our customer thus translating into greater revenue opportunities as well.

Likewise, we believe that there are tremendous opportunities with our Web site. Our current site is outdated and having it fragmented. I’ve been speaking about this a number of times before. Completing rebuilding the Web site is a long process, so in the meantime we’ve executed on 10 identified areas for optimization of our existing site, all of which have been completed.

The improvements that we have seen thus far are perhaps small but encouraging. For the full year, we saw 5% uplift in the number of transactions and a 12% increase in revenue growth through the site. We expect of course that the larger impact will come from a complete rebuild of the Web site, which we have been working on in the background and which is completely on track to be completed in the second half of 2017.

Some of the enhancements that we expect the new site to have are recognition in guest history, personalized contact and therewith importantly personalized pricing capabilities, scalability or the ability to expand as we bring on more properties and better language support and translations. Also importantly, the site will also be fully integrated with a digital ecosystem to ensure consistent messaging across all of the social media channels.

The last category of operating initiatives is product and investing wisely into our existing properties is a key priority. We have been working diligently to ensure that we are allocating capital effectively to drive the most out of our portfolio.

In 2016, we spent approximately $34 million on project CapEx with a focus on EBITDA enhancement projects, including some of the following that were completed during 2016. The conversion of the back-of-the-house space into four junior suites at the Belmond Villa Sant’Andrea in Sicily; the conversion of meeting space and admin offices into eight new executive suites at the Belmond Miraflores Park in Lima.

Renovation of 48 keys in the main building in Belmond Mount Nelson in Cape Town bringing the total amount of the hotel keys that are renovated in this hotel in recent year to nearly 92%, so we’re nearly there. The addition of a new high-end sports pub utilizing previous lease retail space in high profile location at the Charleston Place in South Carolina; and then the extensive renovation of the Belmond La Residence d’Angkor in Cambodia which we just completed in past November.

As these products came on line throughout 2016, they started contributing to our results with the exception of La Residence d’Angkor which due to a six months closure was actually a drag on our 2016 results. We expect that this property will generate strong year-over-year growth in 2017 and importantly, this hotel now also serves as a brand calling card to our guests, to the travel trade and to the third-party owners in Asia.

As I mentioned on our last earnings call, we completed a project capital review in the second half of 2016 and one of the reasons for doing this was to ensure that we’re employing a comprehensive multiyear outlook instead of a more reactive approach of assessing only the current and the upcoming year.

As a result of this exercise and after gaining better visibility on the opportunities ahead, we made a strategic decision to accelerate or to frontload EBITDA-enhancing projects to start generating incremental organic growth even earlier.

By giving ourselves the time to reevaluate the opportunities before proceeding with certain investments, our actual 2016 project CapEx spend of $34 million came in nowhere than the $40 million to $60 million that we had identified in our June Investor Presentation.

After rolling the balance into the current year, our project CapEx guidance for 2017 rose to $55 million to $75 million. The majority of our 2017 project capital spend will be spend on EBITDA enhancing projects.

Okay. Turning now to our second growth pillar in our strategic plan and that is continuing to build awareness for the Belmond brand. At the beginning of 2016, we spend time to define our brand offering including forming the idea of the authentic escape, which is the golden thread that connects our properties and that helps us differentiate ourselves from the masses of competing luxury brands.

In September, our new Head of Brand & Marketing, Arnaud Champenois joined the company and assumed responsibility for the marketing of the brand and the communication effort. In only a few short months, he and the team have made tremendous strides laying the foundation for our future growth by finalizing our brand story.

They’ve also commenced a detailed review of our creative efforts, including the approach that we will take for our visual identify and for the advertising concept. Later this year, their focus will shift to the communication of this story through our new media strategy, which we expect to unveil when we launch our new Web site in the second half of the year. The media strategy will be more digitally focused than ever and it will have a strong point of view for our social media.

From a public relations perspective, we recently completed a global media roadshow to introduce our strategic plan to key lifestyle, key trade and business media as well as to provide the framework for our brand message and to set the stage for future media outreach.

These efforts included a series of events to engage with the global travel trades and the media in Europe, in Asia and in North America, including in this case many markets on which we had not historically focused.

Looking at the current year, we expect to launch our new train in Peru, the Belmond Andean Explorer in May and new product launches are for us an ideal opportunity to promote not only the new experience but at the same time also the entire brand.

We will use the train’s launch to generate diversity in the second quarter and we will then piggyback off the launch with the global road brand show and related to our events that will take place over the summer.

On the brand front, I truly think that in 2016 we laid a solid foundation for our brand personality from which we can now continue to build awareness for the Belmond brand and really bring the brand to life.

I should emphasize that while establishing the brand in the eyes of the customers is extraordinarily important for our existing properties, it also hold an important place in our footprint expansion activities. Having a differentiated brand story is extremely important in speaking with potential external partners.

Now that provides a nice act to our third key strategic focus area which is build the footprint expansion. The first essential step in expanding our footprint was building a development team.

Previously, we essentially operated with one deal person in this department. Over the course of this past year, we recruited people who I believe will put us in the best shape to source and to execute on new deals.

Our plan calls for a Senior Vice President in London and five supporting professionals to be located in Europe, Middle East, Asia and the Americas. We have strengthened our senior management team by bringing on Kenneth Hatton; Kenneth as our Senior Vice President of Global Development replacing James Simmonds.

Kenneth was most recently with Hyatt where we served as a Senior Vice President, Corporate Transactions Group and covered Europe, Africa, Middle East and Asia. Kenneth worked for many years before that as an M&A lawyer and in total has worked on transactions involving approximately 300 different hotels. And I can enthusiastically say that Kenneth is a wonderful addition to our team and I expect that he will be a catalyst in achieving our footprint expansion goals.

Additionally, we recently hired a director who is based in Dubai who primarily serves the Middle East and the Indian Ocean markets. And with this hire we now have three of our five director level positions in place and we expect to hire the final two for Asia and for the Americas in 2017, as it was planned.

Now with our enhanced development team, we have seen an increase in both the quality and the quantity of the opportunities that fit the Belmond brand and can be pursued by this experienced group of people.

In recent months, we have identified a number of attractive deals that fall along this spectrum from third-party management agreements to outright acquisitions, and we have maintained our disciplined approach to evaluating those opportunities and we’re currently assessing several deals that fit the financial metric and the brand requirements that we described at our June Investor and Analysts meeting.

Likewise, we have devoted a meaningful amount of time over the course of last year to develop capital partner relationships as well as other global relationships that we believe will lead to third-party management opportunities; management contracts that leverage our strength as a luxury operator that also understands the business from an owner’s perspective.

I’m increasingly confident that we have our expanding development team in place and combined with the meticulous investment process that we put behind it and the deepened relationship with the key owners and investment groups that this will lead to deal signings. It will lead to deal signings and momentum in our footprint expansion goals.

To conclude, our results for the full year 2016 was strong. They were strong and in line with the long-term metrics that we have laid out in our strategic plan. We performed extraordinarily well for the first nine months of the year, capitalizing on strong demand for both the Olympics in Brazil and the peak summer season in Europe.

The fourth quarter was indeed challenging largely as a result of the difficult economical environment that we have in Brazil at this point in time, which we expect will continue into 2017, as well as the impact of the hurricane Matthew at Belmond Charleston Place. But overall, I’m very pleased with our performance for 2016.

I’m also proud of the team here which quickly came together to form our strategy and over the course of the year commenced or delivered on many important initiatives. And I’m grateful for the contributions of our corporate team and as importantly for those of the people own property who team to operate some of the best hotels and experiences in the world while at the same time helping us to grow and to build a better company.

Looking ahead then, I believe that the foundations that we laid in 2016 and the new people that we recently hired will provide a tailwind for 2017. Our early indication for full year RevPAR growth and overall performance are solid, and I know that the team will remain focused and disciplined as we execute against our near and our long-term goals.

Now with that, I would like to turn the call over to Martin to provide us with more detail on the fourth quarter and full year results for 2016, as well as on the RevPAR guidance. And after Martin speaks, we’ll be happy to answer your questions during Q&A.

With that, Martin, all yours.

Martin O’Grady

Thank you, Roeland, and good morning, everyone. I’ll now take you through some the detail of our fourth quarter and full year 2016 results and I’ll then provide some color on our guidance for 2017. Please note that unless I state otherwise, all the figures I provide will be on a constant currency basis.

As Roeland mentioned, our results for the full year 2016 was strong. We recorded adjusted EBITDA of $128.2 million which represented an 8% year-over-year increase. Our revenue increased by 3% and adjusted EBITDA retention was a very healthy 65% reflecting a culture of strong cost control.

Although our full year results were good, we faced some challenges in the fourth quarter which is one of our two seasonally low quarters. During the fourth quarter, most of our European resort hotels commenced their winter closures and our South American, African and Caribbean hotels typically generate a relatively greater proportion of our EBITDA.

We had anticipated when we gave guidance on our last earnings call that the results of South America would be down, and unfortunately the actual results in particular from Brazil as well as from La Samanna and Saint Martin came in below our expectations. As a result, our fourth quarter constant currency same-store RevPAR came in at minus 7% which compares to our guidance range of minus 5% to minus 1%.

When looking at total results for the fourth quarter 2016 as compared to the prior year quarter, revenue was down $7.4 million and adjusted EBITDA was down $6.8 million with the EBITDA decline driven primarily by our two hotels in Brazil, which contributed $4.2 million or 61% of the decrease.

The other major driver of the year-over-year adjusted EBITDA decrease was our trains and cruises business which came in $2.2 million lower than in the prior year quarter. This business was once again impacted by the recent insurgence supply in river cruise operated in Myanmar.

We also recognized our first year of an expected offseason EBITDA loss for the Belmond Grand Hibernian train in Ireland after very successful partial season following its launch at the end of August. And the demand-related decreasing revenue for our Venice Simplon Orient-Express train was compounded by margin compression as a result of the train’s operating costs in euros whereas its revenues are in British pound which weakened.

Our result for the fourth quarter across the rest of our portfolio are detailed in our earnings release and for the large part are not particularly meaningful in the context of a largely successful full year 2016, so allow me to also reflect on that.

On the whole, we are pleased with the performance of our portfolio despite some challenging headwinds in various regions. Brazil dominated our results both on the upside and downside.

Belmond Copacabana Palace in Rio tended a strong performance in the third quarter as it benefitted from the Olympic Games, but the hotel was negatively impacted in the second and fourth quarters by a pre and post-Olympics lull and also by Brazil’s economic and political crisis. On a net basis for the full year of 2016, Belmond Copacabana Palace’s adjusted EBITDA was up $3 million over the prior year.

Our full year results benefitted from healthy performances across our European portfolio with the exception of Belmond Hotel Cipriani in Venice which operated in the year without the Biennale art festival. Excluding Cipriani, our owned European hotels adjusted EBITDA increased $5.4 million year-over-year.

Our other hotels in Europe were marginally able to drive rate by successfully leveraging strong demand in peak periods. Belmond La Residence d'Angkor also benefitted from increased U.S. business due to targeted marketing efforts and Belmond Villa Sant’Andrea in Sicily, so growth from the four new junior suites we opened in the second quarter.

We also saw strong results from Belmond Reid's Palace in Madeira which grew adjusted EBITDA by $1.6 million year-over-year as the hotel benefitted from leisure businesses displaced from North African markets and increased airlift, as well as from Belmond Grand Hotel in Russia where we were encouraged by an $800,000 year-over-year adjusted EBITDA increase.

This growth was largely occupancy driven due in part to successful sales and marketing efforts in Asia and the Middle East. In North America, we were less successful in driving year-over-year adjusted EBITDA growth. Belmond Maroma and Riviera Maya, Mexico was challenged by increased competition and Belmond La Samanna like many hotels in the Caribbean contend with decreased demand as a result of weaker concerns.

Belmond Charleston Place which adjusted EBITDA was more or less in line with the prior year had in fact been on track for another record year following the completion of its rooms for refurbishment but faced a setback with hurricane Matthew in October when the City of Charleston was evacuated and the hotel closed for four days.

I’ve already touched on rest of the world region for which we had good growth largely as a result of Belmond Copacabana Palace’s $3 million year-over-year adjusted EBITDA increase. Also within this region, Belmond Mount Nelson Hotel in Cape Town and our safari lodges in Botswana had strong years both benefitting from recent refurbishments.

And in Asia, results for our hotels were largely aligned with the prior year with the exception of Belmond La Residence d'Angkor which was closed for a planned renovation for approximately six months.

Looking at our trains and cruises segment, our owned businesses faced a number of challenges, some of which I have already mentioned in discussing our fourth quarter results whereas our PeruRail trains business had a very strong year following the commencement of additional freight transportation contracts for two large copper mines and another year of strong passenger train results.

Our central costs in total including share-based compensation and central marketing were well controlled coming in at $38.4 million which was a $5.7 million decrease from the prior year in dollar terms. 2016 central costs benefitted by $2.3 million from a weaker British pound for which the average rate to the U.S. dollar was 11% lower than in the prior year. So in total for the full year 2016, same-store worldwide RevPAR and revenue both increased 3% year-over-year and total adjusted EBITDA grew 8% to $128.2 million.

Turning to our balance sheet at December 31, 2016, we had total debt of $591 million, total cash including restricted cash was $156 million resulting in total net debt of $435 million. Net leverage was 3.4x as compared to 3.7x at the end of 2015. This decrease is the result of a $9 million reduction in our debt balance and a $9 million increase in last 12 months adjusted EBITDA.

Our $105 million corporate revolver remains undrawn. So including the revolver but excluding restricted cash, our total cash availability was $258 million at the end of the fourth quarter providing strong liquidity for the initial stages of growth as laid out in our strategic plan. Our fixed to floating interest split was 48% fixed to 52% floating. Our weighted average interest rate was 4.3% and our weighted average debt maturity was 3.9 years.

Now looking forward to 2017, we have provided full year RevPAR guidance of 1% to 5% on a constant currency basis and 2% to 6% growth in a U.S. dollar basis. This guidance reflects a robust outlook at a number of properties partially offset by what we expect will be a challenging year in Brazil.

Brazil will of course have a tough comparable year given that adjusted EBITDA for Belmond Copacabana Palace for the third quarter of 2016 when the Olympics were held was up $5.7 million over the third quarter of 2015.

We hear that business sentiment is starting to improve as Brazil’s new President implements tighter fiscal policies. However, our forward bookings do not yet support this view and we are projecting that combined full year adjusted EBITDA from our two hotels in Brazil to be down by between $6 million and $8 million year-over-year.

As you may expect, we have been working and will continue to work on reducing costs to try to minimize the impact of what we expect will be a soft demand year. We believe the hotel will be well positioned for a significant bounce back once the next cycle of economic recovery takes a stern hold. Apart from one or two other softer hotels, we are expecting a very positive year for the rest of the portfolio.

Looking specifically at Europe, the Biennale art festival will take place in Venice this year and bookings are beginning to look quite strong in Italy as well as for the rest of our European hotels. Our expectations for 2017 are helped by recent investments including the six new junior suites [indiscernible] expected to open in June, our first full year of having the four new junior suites at Belmond Villa Sant'Andrea and the addition of [indiscernible] 12 rooms at Belmond Hotel Splendido in Portofino. And of course we’ll be able to drive higher rates on those rooms.

We are also forecasting further improvements in Russia where our hotel is expected to benefit from strong group business, the 21st annual St. Petersburg International Economic Forum in June and the Confederations Cup in FIFA’s soccer tournament between the World Cup host nation and seven regional champions later in June and into July. This tournament takes place in the year prior to the World Cup which in 2018 will be in Russia.

In North America, we’re expecting a strong year in Charleston hopefully without another hurricane but in the year with what is expected to be a more buoyant U.S. economy and where we expect to continue to capitalize on our recent investments in rooms, through the beverage outlets and meeting and banqueting spaces. We also have recently signed a two-year contract for an airline crew business which gives us a larger base of business off of which to yield higher rates at this hotel.

Also, in North America, we are expecting better results from Belmond El Encanto in Santa Barbara where our first flow start. We have adapted our selling strategies and now yielding higher rated leisure business particularly on weekends and establishing nice pace of group business both of which are leading to strong 2017 pace.

Turning to our rest of world region. As noted, Brazil is the main contributor on the downside but on the upside we expect to see strong growth again at our hotel in Cape Town and from our safari’s operation, both of which are expected to continue to benefit from recent investments.

Also following investment, we will have a full year of a renovated Belmond La Residence d'Angkor which is expected to have a strong year. This hotel is excluded from our same-store statistics, so it does not contribute to the RevPAR guidance we have provided but it will of course play a role in our year-over-year revenue and adjusted EBITDA growth.

Looking beyond hotels, we expect to see year-over-year revenue growth for our owned trains and cruises business which will be helped by Belmond Grand Hibernian in its first full year of operations and also by Belmond [indiscernible] for which we recently increased capacity by adding a new carriage which also included a spa treatment carriage that has been generating incredible publicity for that train.

As we progress on our strategic plan, we will continue to invest in additional resources particularly in relation to our footprint expansion activities, our project management office and our sales efforts. As such, you should expect an increase in central costs in 2017 as noted in the guidance we have provided in our earnings release and in line with what we had assumed in the 2020 aspirational EBITDA goals we laid out in our June 2016 Investor Presentation.

In terms of currency, we are currently projecting a very small net impact on our full year 2017 results as we expected year-over-year movement in other trading currencies are largely offsetting one another. The exception is in the expected weaker average rate for the British pound which positively impacts our reported dollar central costs but negatively impacts the translation of our UK operations. In aggregate, we are currently projecting a net marginal positive impact from a weaker pound.

With all that said, for the full year we are expecting that the first quarter of 2017 like our most recent quarter, as Roeland mentioned, will be challenging. Off a seasonally low base, we are expecting RevPAR to decline between minus 11% and minus 7% on a constant currency basis and between minus 5% and minus 1% on a U.S. dollar basis.

As I previously mentioned, the first quarter is seasonally more important for our hotels in Brazil and Cape Town and as we are forecasting stronger average exchange rates for the Brazilian real and South African rand for the first quarter of 2017 than for the prior year quarter, we currently expect that our U.S. dollar RevPAR result will be better than our constant currency RevPAR results.

Now as a reminder, for the entire company, Q1 is our seasonally lowest quarter where we incur EBITDA losses for our businesses that have annual winter closures which include all of our Italian hotels, Belmond La Residence d'Angkor and most of our European trains.

And when combined with our RevPAR expectations, we are currently projecting that adjusted EBITDA will decrease year-over-year for the first quarter but this reduction should be offset by greater EBITDA growth over the balance of the year.

And to give you some color on that year-over-year adjusted EBITDA decreases, we’re currently projecting for the first quarter, I’m going to give you some additional detail and the ranges I provide are on a U.S. dollar basis.

For our European hotels, we’re projecting a drop of between $1.5 million and $2.5 million partly due to a change in the seasonal allocation of higher expenses for our Italian hotels and also the timing of Easter which took place in the first quarter of 2016 but occurs in the second quarter of 2017.

In the rest of the world hotels, we’re projecting a decrease of between $1.5 million and $2.5 million due largely to Brazil. And for our owned trains and cruises, we are currently expecting a $1 million to $2 million decline primarily driven by Venice Simplon Orient-Express as a result of margin compression related to a weaker British pound and Belmond Grand Hibernian as a result of it being the train’s first Q1 for which we expected will typically operate in an EBITDA loss position.

And lastly, total central costs including development, marketing and share-based compensation expenses we’re anticipating a $1.5 million to $2.5 million unfavorable variance due in part to our new development resources and activities, plus a recent change in the seasonal allocation of our central marketing costs.

Now you’ve heard what I’ve had to say about our first quarter 2017 but I will remind you that our view is that for the full year 2017 still holds as a result of expected increases for the remainder of the year, and we’re expecting to have another solid year of growth with constant currency RevPAR expected to increase between 1% and 5%.

So that concludes our prepared remarks. And before I hand you back to the operator for Q&A, we would like to request that you limit your questions asked to two per person. Thank you very much. Operator?

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions]. Our first question is coming from the line of David Katz. Please go ahead.

David Katz

Hi. Good morning, everyone, or good afternoon. The first question is, Roeland, you talked about CapEx. If I heard correctly, you said 55 million to 77 million for '17. And the reason for doing that is to drive greater EBITDA growth sooner. I will admit that there is a lot of information here that I’m still taking notes and processing on, because 1Q is going to be weak but we’re still I believe if I heard correctly, we’re still talking about EBITDA being up year-over-year for the full year. How much of that is driven by the incremental CapEx and what the sort of drivers of that upside? Is that prior changes in CapEx or this current CapEx that you’re spending now?

Roeland Vos

Well, you’re absolutely right that the numbers that we’re projecting for '17 are still very positive. And I think in the guidance that Martin just provided you with, that comes out very clear. For as far as the review of the capital is concerned, we have been looking at all of the – let’s say the next three to four years that would be part of the plan that we’re looking at here and be looking at which of those EBITDA enhancing projects can we move forward in a material way. And what we have been looking at is to say what needs to be done in order to get those projects executed earlier and how far can we bring them forward. If we look at, for example, the 2017 CapEx, 65% of that will be EBITDA enhancing capital spend. Similar things would apply to the year thereof or for 2018. So what happened here in actual effect is that you see that the under spend that we had for 2016 is tagged on to 2017 and as a total for these two years, and we still see it in line with what we had planned. The idea would be that going forward there are a number of EBITDA enhancing projects that we’re working on that we would hope to be able to get to the different stages of development and planning processes and then we would tag those on to the year 2018 as soon as we possibly can.

Martin O’Grady

But the other part of the question was how much of the growth next year relates to investment done last year and previously years, and I’m not able to quantify right now what the exact amounts are for each one. But we certainly are seeing the benefits coming through quite strongly. We saw that last year in places like Mount Nelson where we very successfully refurbished the hotel over a base period. We’re seeing it particularly optimistic next year for Charleston Place, for example, where we had that full rooms refurbishment not just the rooms but also the bar and the banqueting spaces more recently. Even Russia we’re seeing its good domestic demand holding up and we’ve redone recently a very beautiful banqueting space which is largely for domestic groups and with other events going on there, we’ll continue to benefit there. The safari camps, certainly it’s going to have a major impact on the operation next gen. Of course La Residence d'Angkor which was closed last year we’ll be benefitting from. So the whole list of different projects, David, that we’ve invested in and cash [indiscernible] when it’s hard to distinguish individual numbers. But we feel very positive about the current record and success we’ve had from prior investments. And with a good long list of new opportunities, we feel very optimistic about delivering on the organic growth objectives we’ve set out in our plan.

David Katz

All right. And if I can ask one more about CapEx in a different way. You brought some people on to pursue development opportunities. And one of the fair questions is, will there need to be investments whether it’s key money or sliver [ph] equity in order to capture management contracts? And I suppose a part of that question is the M&A landscape which is also part of what you’re pursuing at this point. What are you seeing out there? And I’m just trying to get a sense for what you might ultimately spend for 2017 and on what?

Roeland Vos

Yes, I think that’s a very fair question. And as part of our overall plan we clearly have laid out that part of our growth is going to come from management contracts where key money or limited guarantees would play an important role. Now depending on the number of those type of deals that we would be able to sign in 2017 that will define which monies will go out of the door in the form of key money contributions. Similar things would apply to the spread of deals that we could potentially do in the acquisition range where we’ll offer both of them, we have provided that our balance sheet is in a position where we can do those deals at least for the coming year without having to go through different ways of funding those. So I think all that is captured in the strategic plan. For as far as the M&A landscape is concerned, as I just mentioned with the new people that we have onboard for a few months now and Kenneth just joining us in January, we start seeing that the discussions are getting more intense around what the opportunities are for the brand to expand. We see a lot of opportunities passing by that would actually fit both our financial as well as our brand needs. And in that sense I think it’s reconfirming the kind of plans that we have laid out in our strategic plan and that we feel comfortable that we should be able to execute a number of those deals as we move forward.

Martin O’Grady

I think it’s hard to quantify exactly what the actual cash outflows will be this year. It will very much depend upon the deals that are done. But of course we will give you plenty of color as and when that – when that comes out of that. It’s not a question of if but when given the team that we’ve now got in place.

David Katz

Maybe the better way to ask the question is do you think that there’s some likelihood that we will see some management contract deals done this year and/or M&A opportunities done this year?

Roeland Vos

And I think the answer to both of those is yes, David.

David Katz

Got it, okay. Thank you very much.

Operator

And your next question is coming now from the line of Anthony Powell. Please ask your question.

Anthony Powell

Hi. Good afternoon, guys. Just a question on your EBITDA commentary that you gave. You’re saying that you expect EBITDA to increase year-over-year despite some of the challenges in Brazil. Is that taking to account the increase in central costs as well?

Martin O’Grady

Yes, it does. That wasn’t twofold. Yes.

Roeland Vos

And I think that Martin just read a number of reasons in the perspective of why we think that it’s achievable or why we think that it’s logical that we see upside in those EBITDA performances in those properties and as a whole as a company. And part of that was the ones that were mentioned in relation to capital spend but also in the prepared remarks. You heard Martin speak about Russia where we would have a number of events that will materially drive upside to our business as we have things in South Africa going our way, the safari camps going our way. But like that there is a long list of individual properties where we can very clearly see that there is upside on the year-over-year balance with good reason and where you can expect the EBITDA numbers will come in, in different ways throughout the year but in a very positive way.

Martin O’Grady

And I should clarify that the expected increase in EBITDA even with the increase in central costs is excluding any development growth. So when we get the development growth that would be also accretive.

Anthony Powell

Got it. Thanks. And in terms of just funding some of your development priorities, you’ve been building cash on the balance sheet. Are you going to use your cash for those purposes or are there more assets to sell in order to fund some growth opportunities?

Martin O’Grady

I think consistent with what I’ve said before, we do have some cash. We also have flexibility within our debt structure. And before we take on any very significant commitment or significant acquisitions, we would be looking to first sell something to fund that.

Anthony Powell

All right, great. That’s it for me. Thank you.

Martin O’Grady

Thanks, Anthony.

Roeland Vos

Thanks, Anthony.

Operator

And there’s a final question coming from the line of Bryerman. Please go ahead.

Howard Bryerman

Good morning. Can you guys hear me?

Roeland Vos

Yes, Howard. How are you?

Howard Bryerman

I’m doing well. Good morning. Thanks guys. So two quick questions. Martin, with the Q1 guidance and the increase in corporate and development costs, I guess the question is for both of you guys. '17 looks to be shaping up as a year in which the EBITDA growth CAGR to 2020 looks below kind of the high single digits stated goal. Am I thinking about that correctly? And if yes, that implies I guess a pretty significant acceleration in years '18 to '20. So do you still feel confident in the high-single digit EBITDA CAGR on the organic side? That’s question number one. And then Roeland for you, you talked about a bunch of deals that you’re looking at. I’m hoping you could reiterate your comments from Analyst Day that you won’t do a deal that’s dilutive to your current EBITDA multiple? Thanks guys.

Roeland Vos

All right. Let me start with the last piece. One of the reasons why we need the right people in the right place is because we want to execute smart deals that actually are accretive to our business and that fits within the financial marker we had put for ourselves and we will be very diligent in the execution of that. So I think that we should not be worrying about that piece of it. For as far as the organic growth is concerned – the CAGRs are concerned, I’ll let Martin fill in some of the details but we still see that '17 will be falling well within the boundaries of what we would be looking for without giving individual guidance on where EBITDA will end up.

Martin O’Grady

I’ll talk to that. I think we still have a plan and we’re very confident in our plan and we’ll be hitting the targets that we set out.

Roeland Vos

I don’t think that – the worry is that it turns in to be a big hockey stick. That is something that you should worry about. I think that the build-up is exactly as it was planned during the plan was laid out in June. Obviously, there will be variances to any plan that you make for five years. But at the end of the day, this is in striking distance of what we had laid out for 2017.

Howard Bryerman

Since I’m the last question, can I get one more?

Martin O’Grady

No man [ph].

Howard Bryerman

For someone that’s been around the group for nine months, I think I’m entitled to it. So, Martin, you talked about some trends at El Encanto. I guess relative to the original EBITDA target for the property, can you talk about the trajectory of the EBITDA ramp there? It sounds like you’re making some progress. I’m just curious what kind of return on the original $150 million of CapEx we’re looking at?

Martin O’Grady

Bryerman, we’ve known each other a long time and we know that when we restarted that project, yes of course the book value is a big high number of 134 but when we took the decision to recommence, we invested I think round about $17 million. We certainly are on an upward trajectory now. We got off to a slow start and we made some important changes. And I think Roeland, you want to say something.

Roeland Vos

What I think is actually be encouraging for El Encanto and I think that that is some of the upside that we see. We made some operational changes here. And one of the things that I mentioned before between the alignment of sales and the revenue management resources, and this hotel will be a typical example where we see the benefit of aligning what it takes to align sales with revenue management instead of them having working as different entities. So what we’ve seen here is it’s very nice that those two teams and the efforts that we’re putting in are paying off in a big way. And if you compare it to last year, last year being '16, we see that for '17, our group business is up. And group business not only up with the little number but with 85% year-over-year pace, which I think is pretty remarkable for a hotel this size. And it’s not just that it’s up from a number of bookings perspective but it’s also up in the right moments of the week which is clearly important for a place like El Encanto. So group business in the week and revenue management folks on maximizing rate in the weekends, which for that place is crucial. Now it goes without saying that we have been reinforcing folks on one of the very important market there, which is the entertainment market in Los Angeles and investing in that which in a place like this comes nearly or dramatically we would say, but there was a big opportunity where we walked in and we banked on that. And I’m looking forward to 2017 to see what we can do even further. So things are looking good and I think Martin answered your question first as far as the initial investments are concerned. But at least going forward, things are only up.

Howard Bryerman

Understood. Thanks, guys.

Roeland Vos

So that was the last question then, Bryerman?

Howard Bryerman

I’ve got last more, if there’s nobody else.

Roeland Vos

Thanks a lot.

Amy Brandt

Okay. Thank you everyone for joining us today to discuss our fourth quarter and full year results. We look forward to speaking to you in a few months.

Roeland Vos

Thanks, everybody.

Operator

That does conclude our conference for today. Thank you all for participating. You may all disconnect.

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