Strategic Hotels Aims to Double Earnings in Two to Three Years, CEO Says
Strategic Hotels & Resorts Inc., owner of the Four Seasons in Washington, plans to double earnings within three years, helped by cost cuts and a travel recovery, the company’s chief executive officer said today.
“We could potentially double our Ebitda, certainly in the next two to three years, through margin enhancements and rising demand,” CEO Laurence Geller said in a telephone interview. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability used by hotels.
Strategic Hotels has stakes in 17 properties including the Fairmont Scottsdale Princess in Arizona. The real estate investment trust, based in Chicago, has been boosting margins by cutting staff and selling off its European properties to focus on North America, Geller said.
“I still think there’s reengineering at the managerial levels,” Geller said. “Nothing is sacred. It’ll be hard to cut out any more staff at the customer interface, but those that sit at desks in Hermes ties are attackable.”
The REIT, which as of midyear had $1.29 billion in debt maturing from March 2011 through June 2017, last month agreed to sell the InterContinental Prague for about 110.6 million euros ($152.9 million). A year ago, Strategic Hotels sold the Four Seasons Mexico City, with net proceeds of $52.2 million.
The company is focusing on growth in metropolitan markets in North America, including New York and Boston, Geller said. The company plans to sell its three remaining European properties, in Hamburg, London and Paris, “when the time is right,” he said.
Three of the company’s properties, the Hotel del Coronado in San Diego, the Fairmont Scottsdale and the InterContinental Miami, have loans with maturities next year. Strategic Hotels is in talks to extend or refinance the debt.
“The Coronado is a complex, challenging asset,” Geller said. “I don’t know if you’ll see it on a default list, but I think it’s in everybody’s interest to restructure.”
The property in Scottsdale has been hurt by an oversupply of hotels in the area, he said.
“I don’t think we’d give up on it at the moment,” Geller said. “It’s cash-flow positive. But walking away is always an option at a non-recourse property.”
Strategic Hotels climbed 10 cents, or 2.4 percent, to $4.35 in New York Stock Exchange composite trading at 2:48 p.m., giving the company a market value of $658 million. The shares rose 88 percent in the 12 months through yesterday.
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