BEL
#Thank you, Jodi.
Good morning, everyone, and thank you for joining us today for the first-quarter 2016 earnings conference call for Belmond Ltd.
We issued our earnings release last night.
The release is available on our investor relations website at investor.
belmond.com as well as on the SEC website.
On the call with me today are <UNK> <UNK>, President and Chief Executive Officer, and Martin O'Grady, Chief Financial Officer.
Before we get started today, I would like to read out our usual cautionary statement under the Private Securities Litigation Reform Act of 1995 in the United States.
In the course of remarks to you today by Belmond's management and in answering your questions, they may make forward-looking statements concerning Belmond such as earnings outlook, future investment plans and other matters that are not historic facts.
We caution that actual results of Belmond may differ materially from these forward-looking statements.
Information about factors that could cause actual results to differ is set out in yesterday's news release, the Company's latest annual report to shareholders and the filings of the Company with the Securities and Exchange Commission.
I will now hand the call over to <UNK>.
Thank you, <UNK>, and good morning everyone.
Before getting started, I first would like to mention that we will be hosting an investors and analysts meeting in New York City on June 1st, which we will also be live webcasting.
We all look forward to providing more details around the execution of our strategic plan along with metrics and financial roadmap for our growth.
I remain, from my side, fully committed to maintaining an ongoing and transparent dialogue with our investors and the analysts and I see our June event as a fantastic opportunity to engage with many of you again.
And we hope that you will join us on June 1st, either in person or, if not, via webcast.
Turning then to the agenda for today's call, I will provide you first with an update on the recent progress that we have made on our strategic growth priorities.
Martin will then give you an overview of our first-quarter results and take you through the second-quarter and the full-year RevPAR guidance, which we provided in our earnings release last night.
As you will have noted from our release, we have maintained our full-year 2016 RevPAR guidance at 3% to 7% growth.
With our investor meeting taking place in only a few weeks' time from now, I will keep my remarks today short and brief.
Our goal has been, and remains, to execute more aggressively on our strategic growth plan and, in order to do so, we continue to focus on three key areas.
First, driving top-line growth and bottom-line results at our existing properties; second, continuing to build brand awareness; and third, expanding our global footprint.
Let me start with our first growth area, driving top- and bottom-line results.
Our solid performance in the first quarter, with constant currency adjusted EBITDA more than double than what it was a year ago, is a testament to our focus on driving strong results from our existing portfolio.
As I mentioned on our last call, we modified our organizational structure earlier this year and we did that by changing the reporting lines for all the revenue management and sales related functions to report now into Philippe Cassis.
We made this change in order to break down the silos that previously existed in some of these areas, with the goal of creating one seamless, customer-centric sales organization that encourages the collaboration of all the revenue related efforts at the property, at the regional, as well as on the corporate levels.
Although we are only making this change just a few months ago, it has already shown the first steps of benefiting to our results, with the first-quarter, constant currency RevPAR showing a growth of 9%, which was exceeding the top end of our guidance range.
We expect that this resource realignment will continue to be an effective approach to drive maximum revenue and in turn obviously EBITDA from our existing portfolio.
We also continue to reinvest in our assets in order to best position our existing properties for continued growth and enhanced value.
During the first quarter, we invested $11 million in project CapEx, with a focus on EBITDA enhancing projects first of all.
Of that amount, we spent approximately $800,000 at the Belmond Villa Sant'Andrea in Sicily, primarily on a project that increases the number of keys at the hotel from 65 to 69.
This project for me is an excellent example of our team finding creative ways to generate revenue from areas where previously we weren't producing any income.
We converted a back of the house space into high-revenue-producing junior suites by relocating the staff changing areas from one part of the main building, which actually had prime sea views, to an adjacent empty building.
We launched these four new suites just earlier this week and we expect that they will prove to be as successful and in-demand as the six junior suites which we added to this property in May 2014.
The total project budget for the four junior suites is approximately $1.6 million, and we are projecting that these new rooms will yield ADRs in excess of EUR800, with an expected payback period of less than four years.
Also during the quarter, we invested at Belmond Charleston Place in South Carolina to convert retail space into a high-end sports pub.
This site is located at the corner of Meeting and Market Street, which is highly valuable real estate in Charleston due to the robust street traffic which you will find here.
We identified a lucrative opportunity to transform the space, which was previously generating minimal rental income, into a restaurant that we expect will provide enhanced financial returns by allowing us to actually capture the existing demand from both the hotel guests, as well as from the local market.
We expect this restaurant will open at the end of May, and the forecasted total budget for this project is approximately $1.4 million.
We are projecting that the new outlet will generate approximately $1 million of incremental revenue and nearly $300,000 of incremental EBITDA at stabilization, with a payback period of approximately five years.
This project is yet another example on how to repurpose existing underutilized space and drive enhanced asset value.
During the quarter, we continued to reap the benefits of the investments that were made in prior years as well, so notably at the Belmond Mount Nelson Hotel in Cape Town, where we have been renovating a large percentage of the hotel rooms over the past few years and where we refurbished the hotel's meeting and banqueting facilities in 2015.
Collectively, these changes have allowed us to be more effective in our group sales efforts during the shoulder and low seasons, both as a result of having more consistent room product as well as having fresher and more-up-to-date conference space.
Additionally, our significant enhanced room product here has also allowed us to drive rate from transient guests during the hotel's peak season, as it did for the first time in the first quarter of 2016.
We have, if we talk about it here, a leadership team that continues to focus aggressively to look at these type of projects, which give us high financial returns across all of our portfolio, and we do that by leveraging the deep operational experience along with the disciplined financial management that we expect to continue to enhance the quality and the value of all of our premium assets while at the same time driving improved top- and bottom-line results.
Additionally, we are highly focused on the opportunities to further capitalize on some of the key operational events that benefit our hotels.
And here we are talking in August, Rio de Janeiro that will host the 2016 Summer Olympics with many broadcasting and sporting activities going around, including things like beach volleyball, taking place very close to our hotel on the Copacabana Beach.
We view these games as an enormous opportunity to promote the Belmond brand due to the significant increased guest flow that we will have here, both from new guests staying at the hotel as well as from the elevated walk-in traffic that we are expecting here.
And all of this should drive enhanced awareness first of all for the legendary Belmond Copacabana Palace but obviously as well for the entire Belmond brand.
This provides me then with a nice transition to our second key focus area, which is building brand awareness.
We continue to make progress in expanding the brand reach through select strategic partnerships and by developing our employees' understanding at the same time in understanding and appreciation of the brand and where we are taking it.
We recently enhanced our sales distribution opportunities with the addition of two of our hotels into the Virtuoso network.
Virtuoso is a leading luxury travel network that offers by-invitation only memberships, and with the recent addition of the Belmond Le Manoir aux Quat'Saisons in Oxfordshire in England and soon-to-be-open Belmond Cadogan Hotel in London, nearly all of our hotels, safaris, trains and cruises participate in this exclusive program.
And, looking a little bit more specifically here at the addition of the Belmond Cadogan, it is in fact rare to have a hotel that is added to the Virtuoso network before the property has actually opened.
Typically Virtuoso will observe a hotel's first year of operations prior to deciding whether to include the property in their program.
And by having the Belmond Cadogan added nearly a year before its opening, we should be able to gain traction from this high-end leisure guest earlier in our sales processes, which is great news.
Virtuoso's decision to add Belmond Cadogan is for me a vote of confidence in our brand and it shows that they trust in the quality of the product even before seeing the renovated hotel.
It also is a validation that they believe in the experiences that we offer, and the level of services that we provide, to our guests.
Then in April, we hosted our first ever leadership conference, where we brought together our senior team members from across all areas of the organization - both corporate, regional and owned property, to introduce the teams to our strategic plan.
The goal here was to engage with the key members of the Belmond team, and dialogue about the Company, about our strategy and our goals, and I can truly say that the feedback has been that everyone is extremely excited about where the Company is going, and we believe that we are well-positioned for the execution of our growth plan.
At the conference, we also launched our Belmond core values, which we have since begun rolling out across the entire Company.
Our core values are the essence of who we are, it's defining our internal culture and it is framing of the relationships that we have with our guests and with our communities.
And, as I have said before, it is our employees who will truly bring our brand to life in the eyes of the guests and, consequently, it is essential that our employees live and breathe their Belmond brand, and that starts with our core values.
That brings me then to our third area of focus, which is expanding our footprint.
Essential to our aggressive footprint expansion plan is having the right resources in the right locations, to be fostering the relationship with - and promoting the Belmond management platform to - the key owners, the developers and the potential partners.
As I have mentioned on our last call, we have been concentrating on recruiting top talent to join our development team, and I am pleased to say that we have recently hired a new development director who joined our team in London here in April.
Our new director will be dedicated resource for the European market, with a strong focus on the southern part of the continent.
We will continue to work very hard on finding our next hire, but we are mindful of the fact that it is more important to get the right candidate than it is to get somebody right now.
So, as such, we are not rushing into any decisions but we are clear of our mandate to move quickly.
I must again emphasize that we do not expect that the incremental overhead expenses that we are talking about here associated with these new resources to be significant, and, as I just noted, building the right team of qualified people is crucial to getting our development engine going.
We also have continued to foster existing relationships and build new ones with the right players in the development world.
In March, James Simmonds, our Senior Vice President of Global Development, and I, we attended the International Hotel Investment Forum in Berlin, which is the paramount lodging industry and development conference in Europe.
And just last week we were at the Arabian Hotel Investment Conference in Dubai meeting with some of the Middle East's most important developers and decision-makers.
By having the right people on our team combined with the solid relationships with the key players in the development industry, I believe that we can start gaining ground on our aggressive plans to expand our global footprint.
We look forward to discussing this component, this important component of our growth plan, more fully with you when we meet in June.
Then in conclusion, I am pleased with our performance in the first quarter.
We exceeded our RevPAR guidance and we delivered strong year-over-year growth.
And, although the first quarter is seasonally our least financially significant quarter, I absolutely believe that it's essential to come out of the gate strong and we did just that.
We also generated solid business in the quarter that will help us see year-over-year growth for the full year.
And although we currently expect that the second quarter may provide a few challenges, we are seeing promising signs for the ---+ very promising signs for the third quarter, so our overall outlook for the year 2016 remains the same, with a projected RevPAR growth of between 3% and 7%.
At the same time, we are not losing sight of our long-term objectives and, during the quarter, we continued to make some good progress on our strategic plan.
As I have said since I assumed the role of CEO a little over six months ago, my goal here is to be completely transparent and open with the shareholders as possible.
And for me the June investor meeting will give us, me and the team, a great opportunity to work on that goal and I very much look forward to providing more specifics on our plan in a little bit under a month time from now.
With that, I would like to turn the call over to Martin to take you through our first-quarter results and our RevPAR guidance.
And after Martin speaks, we will be happy to answer your questions during a Q-and-A.
With that, Martin.
Thank you, <UNK>, and good morning, everyone.
And as <UNK> stated, I will now take you through some detail of our first-quarter results and then I will provide some color on how the rest of the year is shaping up.
And please note that, unless I state otherwise, all of the figures I will provide will be on a constant currency basis.
As <UNK> noted, we started off 2016 with a solid first-quarter.
Total revenue of $99.1 million was up 9% over the prior year quarter.
Same-store owned hotel RevPAR was also up 9%.
Adjusted EBITDA for the first quarter of 2016 was $7.9 million, a $5.2 million increase over the first quarter of 2015.
Adjusted EBITDA retention for the quarter was a healthy 65%, which led to a 500 basis point year-over-year increase in our adjusted EBITDA margin to 8% for the first quarter of 2016.
Looking at our European owned hotels, we grew first-quarter revenue by 21% and improved adjusted EBITDA by 17% over the prior year quarter.
Year-over-year growth in the quarter was largely driven by Belmond Reid's Palace, Madeira, which continued to benefit from increased demand for the destination due in part to increased airlift as well as disruption to North African tourism destinations.
Our performance for our European hotels was also helped by the timing of Easter, which took place in the first quarter of 2016 versus the second quarter of 2015 and provided a boost to Belmond Hotel Cipriani, in Venice, in particular.
North American revenue was down 3% and adjusted EBITDA was down 6%.
In the first quarter of 2015, Belmond El Encanto, in Santa Barbara, had a large buy-out that generated revenue of approximately $700,000, and this business did not re-occur in the current year quarter.
Belmond Maroma in Riviera Maya, Mexico was also down slightly and that is partially due to hotels in the Los Cabos region being open with renovated product in the first quarter of 2016 as compared to many hotels being closed in the first quarter of 2015.
In our rest of world region, revenue increased 18% and adjusted EBITDA increased 24% over the prior-year quarter.
Our strongest performing hotels were our two in Brazil and also Belmond Mount Nelson in Cape Town.
Both destinations continue to benefit from weaker currencies making the locations more attractive to overseas guests, and we deployed effective yield management techniques to maximize revenue.
Mount Nelson also benefited from the investments we made in previous years that <UNK> discussed.
Our owned trains and cruises segment experienced a 13% revenue decrease from the prior year quarter with adjusted EBITDA declining 35%.
Three of our seven products saw EBITDA growth this year in the trains and cruises segment, but the overall result was impacted by year-over-year decreases for our two boats in Myanmar where there are now seven luxury cruise boats operating in the market, as compared to three luxury cruise boats at the beginning of 2015.
On the other hand, we grew adjusted EBITDA for our part-owned and managed trains segment by $1.8 million over the prior year quarter and that was primarily due to the performance of PeruRail.
After year-over-year savings in central costs, our total adjusted EBITDA was up $5.2 million.
Now, turning to our balance sheet at March 31, 2016, we had total debt of $590 million.
Total cash, including restricted cash, was $128 million, resulting in total net debt of $462 million and net leverage of 3.8 times.
Note that the euro balance sheet rate at the end of the quarter was 5% stronger than at year-end, increasing the dollar value of our debt by $7.7 million.
Our $105 million corporate revolver, remains undrawn, so, including the revolver, but excluding restricted cash, our total cash availability was $226 million at the end of the first quarter.
Our fixed to floating interest split was 51% fixed to 49% floating.
Our weighted average interest rate was 4.3% and our weighted average debt maturity was 4.8 years.
Now, turning to our outlook for the second quarter of 2016.
Our constant currency guidance for the same-store ---+ for same-store worldwide RevPAR growth for the second quarter of 2016 is negative 1% to positive 3%, with growth coming mostly from occupancy.
Overall, the tone for the quarter is steady.
As you can see from our guidance, we do not currently expect to have RevPAR growth as strong as we saw in the first quarter.
Note that our expectations for the second quarter are consistent with what we had been expecting when we first provided 2016 guidance earlier this year.
We are expecting a stronger third quarter, which you will appreciate better when I turn to the full-year guidance.
In the second quarter, we expect to have increased RevPAR at eight out of 10 hotels in our European segment.
This growth is being partially offset by a non-Biennale year at Belmond Hotel Cipriani, in Venice.
At Belmond Grand Hotel Europe, in St.
Petersburg, we continue to market successfully to non-traditional markets, and we are currently expecting a healthy uplift in occupancy for the second quarter.
Despite the increased occupancy, we expect RevPAR to fall, as, in the prior year quarter, we had a foreign delegation during the annual economic forum that purchased a block of rooms at a high rate, and that particular group is not expected to return this year.
In North America, we expect that Belmond Charleston Place, for which the second quarter is its seasonally highest revenue quarter, will deliver a healthy result helped by enhanced room product following the recent completion of our phased rooms renovation.
We expect that Belmond El Encanto will return to its growth trajectory in the second quarter, as the hotel continues to mature.
We expect that the RevPAR increases at both of these hotels will be partially offset by a RevPAR decline at Belmond Maroma.
In our rest of world region, our resorts will be impacted primarily by Brazil, which is hosting the Olympics in the third quarter.
We are anticipating a bit of a lull in demand leading up to the games, so we expect that RevPAR for our two hotels in Brazil will be flattish for the second quarter.
We do expect to see some healthy RevPAR growth at Belmond Mount Nelson, in Cape Town, which we expect will continue to benefit from our recent investments in the hotel's rooms and meeting and banqueting facilities.
So when you look at all the regions combined, what we are expecting to see is same-store worldwide RevPAR growth in the second quarter of negative 1% to positive 3%.
Our same-store US dollar RevPAR guidance range for the second quarter is between negative 4% and 0%.
This divergence from our constant currency guidance is being driven primarily by forecasted weaker year-to-date average rateS for the Brazilian real and Russian rouble as compared to the same period in 2015.
So, turning to the full-year 2016, we are maintaining our constant currency guidance for same-store worldwide RevPAR growth at 3% to 7%.
In total, we expect growth to come from both rate and occupancy, but driven slightly more by rate.
We are expecting an overall moderate increase in RevPAR for our European segment, which is being driven by a firm third quarter, particularly in Italy.
While the euro has strengthened a bit this year, it remains at low levels compared to where it has historically traded, making European destinations still very attractive to visitors from North America, our largest customer base.
In Europe, we are forecasting that our strongest RevPAR increases will be at Belmond Villa Sant'Andrea in Sicily, which we expect will benefit from the four new junior suites we opened earlier this week; at Belmond La Residencia in Mallorca, where our percentage of US clients has been steadily increasing over the last few years following targeted marketing efforts; and Belmond Reid's Palace, which is having a strong year due to better air access and continued displacement from North African markets.
In our North America segment, the full-year picture is being driven by expected RevPAR growth at Belmond Charleston Place and Belmond El Encanto.
We have been very satisfied with the progress of Belmond Charleston Place as a result of our three-year rooms refurbishment, and, as <UNK> mentioned, we are continuing to invest to drive incremental EBITDA from this property.
We are currently expecting a similar rate of growth at Belmond El Encanto.
RevPAR growth for the region is expected to be partially offset by the factors affecting Maroma's performance that I touched on earlier.
We anticipate that our strongest RevPAR growth for the full year will come from our rest of world segment.
This is of course being driven by the Olympic Games taking place in Rio, which we currently anticipate will help deliver a net adjusted EBITDA benefit in the third quarter of approximately $4 million for Belmond Copacabana Palace.
That said, due to an expected lull in demand pre- and post-Olympics, we anticipate an overall uplift in the hotel's adjusted EBITDA for the full year of approximately $3 million.
So again, when we look at all the regions combined, we are anticipating full-year 2016 same-store worldwide RevPAR growth of 3% to 7%.
And our same-store US dollar RevPAR guidance range for the full year is between 0% and 4%.
And this divergence from our constant currency guidance is being driven primarily by a projected weaker Brazilian real and rouble and the South African rand when comparing our forecasted rates to the averages for the full-year of 2015.
But looking at the impact of currency and EBITDA for the full year of 2016, we are currently projecting that US dollar adjusted EBITDA growth will be negatively impacted by a total of approximately $1.5 million to $2.5 million as a result of all of the year-over-year currency movements.
And this compares favorably to 2015 when we experienced a negative currency impact of nearly $20 million, with the main driver last year of being the year-over-year depreciation of the euro.
It was down 16%.
And the year-over-year depreciation of the real, that was down 30%.
So for 2016, our forecast is currently showing that the euro would be relatively flat compared to the prior year and the real will also be down but less so than we experienced for 2015.
So, as you can see, we are currently expecting much lighter FX headwinds than we experienced last year.
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.
So thanks very much.
Operator.
Hi, <UNK>, this is <UNK>.
I think I can give you an indication of what we see in the third quarter.
We have seen booking pace pretty much ahead of last year from a pace point of view.
If we look at what the third quarter is driving, it is up nearly all of our hotels in Italy, which are up in material numbers from an occupancy point of view.
Both in rate and occupancy we see actually the upsides and if we take that then further, it would apply to both transient as well as groups.
So overall, the picture for both the third quarter and the entire year as Martin already said looks extremely good and solid.
I think what we'll be seeing there is probably half rate, half occupancy, so you are not going to have ---+ obviously if it was all rate, there would be much higher flow through but there will be picking up in occupancy as well.
I think if you look at the overall results for the full year, we are still very pleased with the growth that we are expecting to see from that hotel.
It just continues to outperform our expectations year over year over year, which is why we continue to invest in what is a very successful property.
I would have to get back to you what we were saying back then.
But right now what we are saying for the full-year, Joe, is the overall currency impacts I think we said was about $1.5 million to $2.5 million.
I would have to track back in my notes to see what it was back then.
I think that if we talk about the share repurchase when making decisions on how and when we would repurchase our shares, we would be looking at that in the form of how to best deliver long-term value to our shareholders.
I think at this point in time we do have a great vision of where we are taking the Company and we believe that the successful execution of our growth plan will actually deliver great and greater long-term shareholder value at this point in time.
And we would be more than happy to talk to you about that when we get together in June.
Well, for as far as putting the team together as I mentioned already, we have been putting a lot of effort on that and I was very pleased to be able to hire from one of our competitors one of their directors away who has started in April with us and actually hit the ground running.
Together with James, James Simmonds, our Senior Vice President of Development, we have been talking to a lot of decision-makers in the field.
We are building up our lead pipeline.
I think it would be not correct to talk about the pipeline of LOIs and the like but we start seeing some good build up here of things that potentially could be converted into contracts over time.
So it is early days but we are building up and we will continue to search for the other candidates as I had mentioned for those areas where we think that we have the biggest chance of success if we provide them with the resources to go after these deals.
And we will keep you posted as we go along.
Well, I am more than happy to pass that on to Martin for as far as the details of the other directors would be concerned.
But for as far as myself is concerned, I can tell you that at the moment that I had the opportunity after joining this Company, the opportunity when the window opens from our blackout period, I was in the position to buy shares and I can say that I bought 50,000 shares in the month of November.
And it was with private money, with after-tax money.
So just to reconfirm my vision of where we can take this Company and what kind of an investment I see in there.
Yes, and I am not going to comment on the specifics of individual director purchases but you will see the full list of directors and their individual ownership in the proxy that was recently filed.
Clearly you will see from the table that both the directors and management have a significant equity interest in the business.
Okay, thanks for that, <UNK>.
And the kind of relation that you would have with an organization like Virtuoso, they have a very large number of agents that are linked into Virtuoso and they pride themselves on being on the absolute top-end of the market.
These are the kind of customers that are used to paying the very high rates to stay with us both in the high season as well as in the mid- and lower-seasons.
So for us for nearly all of our properties, these would be important ---+ this would be an important customer relations.
And to be accepted in there, you have to prove to the Virtuoso organization that actually you can live up to the guest expectations that they are portraying out to their customers.
So it is truly a very important relation.
It is not an exclusive thing.
There is different players in the market but Virtuoso is I would say one of the key players in here and that is why we are thrilled to get them on board for both the Cadogan as well as for the Le Manoir aux Quat'Saisons.
And, yes, they do also help us a lot in the lower and the off-seasons so this is something that we could push hard on and making sure that with our sales organization we stay very close to our customers.
Yes, there is a cost involved in participating as a member of Virtuoso.
I would not be able to tell you what the exact amounts are.
But you can consider the commission cost as normal as would be in a normal agency situation, whereas the participation cost in the membership I would have to check that back.
But I would not see that as material in the overall relation of the business they would drive to us.
Thank you everyone for joining us today and we look forward to seeing you at our analyst meeting in a few weeks.
Have a great day.
Thanks everybody.
Thank you.
