Exhibit 99.2
WESTCOAST HOSPITALITY CORPORATION
May 5, 2004
12:00 p.m. CDT
Moderator Ladies and gentlemen, thank you for standing by. Welcome to the
WestCoast Hospitality Corporation's First Quarter 2004 Earnings
Conference Call. At this time all participant lines are in a
listen-only mode. Later we will conduct a question and answer
session. Instructions will be given to you at that time. As a
reminder, this conference is being recorded.
I'd now like to turn the conference over to Steven Barbieri.
Please go ahead.
S. Barbieri Thank you. I'd like to remind you that all forward-looking
statements made during this conference call are within the
meaning of Federal Securities Law, including statements
concerning plans, objectives, goals, strategies, projections of
future events or performance, and the underlying assumptions.
They are inherently subject to a variety of risks and
uncertainties that could cause actual results to differ
materially from those expressed. I'd like to direct you to other
matters discussed in the company's annual report on Form 10-K for
the 2003 fiscal year and in other documents filed with the
company with the Securities and Exchange Commission.
I'll now turn the call over to Chairman of the Board, Don
Barbieri.
D. Barbieri Thank you very much, Steven, and, Leah, thank you very much for
the conference call hosting.
Ladies and gentlemen, welcome to the first quarter 2004 earnings
call for WestCoast Hospitality Corporation. I'm Don Barbieri,
Chairman of the Board of the company. I'm here today in the place
of CEO, Art Coffey. As we've reported, Art was in a snowmobile
accident in February and continues to recuperate from his
injuries at home and he's doing great. Over the past several
weeks Art has been progressively increasing his review of the
company's operations and his input into management activities.
We're happy to report that our expectation is that he'll be back
in the office during this quarter.
In Art's absence our senior management team has done a fantastic
job of operating the company and continue to make substantial
progress on their initiatives. Among other members of our senior
management team, with me here today is John Taffin, our Executive
Vice-President for Hotel
Operations, and Peter Hausback, our Chief Financial Officer. John
will be providing a report on hotel operations during the first
quarter and Peter will be reporting on the first quarter
financial performance, as well as some strategic initiatives
we've recently completed. After their presentations we'll be
happy to open up the call for questions from any interested
callers. Thank you very much.
At this point I'd like to turn the call over to John Taffin.
John?
J. Taffin Thank you, Don.
You have heard me report on the company's focus on increasing
market share during the past two quarters' earnings calls. I'm
pleased to report overall improved market share penetration for
hotels we have owned, leased, managed, and franchised for at
least one year. The total market occupancy increased by 3.6%,
while our hotels' occupancy increased by 5.8%. Combining this
with a slight increase in ADR resulted in a 6.2% increase in
RevPAR. We are very happy with this year-on-year growth. Regions
that performed especially well include western Washington,
southern California, western Oregon, and Salt Lake City, Utah.
Areas where we are still seeing some softness include Montana and
northern California.
Market segment statistics show that the growth in occupancy was
achieved through a 10.5% increase in the group segment occupied
rooms and a 2% increase in the transient segment occupancy. It's
worthwhile to note that the promotion subset of the overall
transient segment grew by 13.1%. This subset includes rates such
as AAA, Internet bookings, and packages, and we believe it to be
a target for us for improving occupancy and market share.
The group rooms increase is directly related to the strong
emphasis that we have placed on direct sales. We have continued
to invest in additional direct sales talent, have continued to
provide formal sales training, and have directed all general
managers and operations vice-presidents to be personally involved
in selling and relationship building.
Recently we hired Bill Heeney as Vice-President of Sales to lead
the Hotel Sales Division for the company. Mr. Heeney comes to us
with a strong hotel sales background, having held similar
positions with other hotel brands and hotel management companies.
His experience and knowledge will continue to support our
strategy of increasing market share.
Active management of the alternate distribution system channels
has had a favorable impact on the transient segment occupancy and
rooms revenue. Room night contributions for comparable hotels
through our central ADS
channel management program increased significantly for the
quarter compared to prior year and an increase of ADR of 29% or
$11.45. I am convinced that we have one of the best ADS
management programs in the industry. We are consistently
delivering more and more reservations through these channels
through better Web site screen placement at a reduced commission
rate and are yielding the rooms' availability to provide maximum
revenue potential to the hotel.
The distribution and marketing services department has provided
the support, the tools, and the programs to grow the promotional
transient segments. As an example, in February this department
introduced the "We Promise or We Pay" program that's designed to
encourage guests to book on our branded Web site at
westcoasthotels.com and redlion.com. We are promising to our
guests that our branded Web sites will provide the lowest rate
available compared to non-opaque third party Web sites.
Non-opaque sites are those third-party sites where the guest
chooses a specific hotel and is not involved in a blind auction.
Our guarantee is that if a guest does find a lower rate on one of
these third party, non-opaque sites that we will provide
complimentary accommodations and $100 in hotel services. The
investment that the company made in central reservation
technology allows us to be confident that we can provide this "We
Promise or We Pay" guarantee without significant need for manual
oversight of the program. The initial results of the program and
increased traffic and bookings through our branded Web site have
been very favorable.
Additionally, during the quarter our central reservation system,
including voice, GDS, ADS, branded Web site, national sales
services provided a contribution to the hotels of 29.9% of gross
rooms revenue. This increased from 25.4% during the same period
last year.
Our initiative to provide high-speed wireless Internet free to
our frequent travelers has resulted in the creation and
implementation of our proprietary, branded, high-speed, wireless
program "Net For Guests." Very soon we will complete the
installation of this program in our owned and leased Red Lion and
WestCoast Hotels. This complimentary service is simple to use, is
in high-demand, and ensures that we remain competitive in the
technological amenities we provide.
Through our research it was determined that a focus should be
placed on upgrading high guest contact areas of our hotels, such
as beds, bed linens, and pillows. With that in mind we are
rolling out a program that meets these needs. Orders were placed
in the first quarter for new pillowtop mattresses, quilted
coverlets, bed linens, and pillows and installation of these
items will happen primarily during the second quarter. The first
phase of this program is designed to reach 80% of the guests in
the participating hotels.
I have reported before that we have been developing a core menu
to provide more consistency of product in our hotel restaurants
and allow us to take advantage of volume purchasing discounts
provided when all hotels are buying the same products. We have
also added low-carb menu items to meet the increasing demand for
this type of food. The concept and menu are now complete, as is
the individual hotel restaurant training. On site implementation
will take place during May and June.
In future quarters we will be working on a children's menu that
will complement our restaurant core menu, as well as a catering
program designed on the same platform as the restaurant core
menu.
The company has created a Brand Advisory Board in an effort to
maintain positive relationships with franchisees and to gather
input on issues affecting hotels in the system, such as brand
standards and marketing programs. Members of the Brand Advisory
Board represent both owned and non-owned properties and serve in
an advisory capacity to management. During its first meeting the
brand advisory board met to review current initiatives, review
the 2004 brand marketing campaign, and to begin reviewing
existing brand standards. I believe this group will provide
valuable input to the company on issues related to the brands.
As I've reported, the hospitality industry experienced occupancy
growth in the first quarter of this year. I believe that through
our emphasis on direct sales and electronic distribution we have
taken advantage of this growth. Through these efforts and our
guest related initiatives we'll continue the focus on growing
market share.
Now I'll turn the call over to Peter Hausback, our CFO, who will
highlight for you the financial results for the quarter.
P. Hausback Thank you, John.
Before I discuss the first quarter financial performance I would
like to summarize some of the key financial initiatives completed
in the first quarter. First of all, our subsidiary, WestCoast
Hospitality Capital Trust completed an offering of
trust-preferred securities that raised $46 million. This offering
was completed in February before interest rates started to rise.
Approximately $30 million of the proceeds were used to redeem all
of the company's outstanding preferred stock. We were previously
paying an average of 8.5% preferred dividend on the outstanding
$30 million in preferred stock. This dividend has been replaced
with a tax-adjusted rate
of 6.2% on $46 million in debentures payable in connection with
the trust-preferred securities offering. This was a major
initiative we had previously communicated and was one of the key
objectives for financial restructuring we established last year.
We also completed the acquisition of the Red Lion Yakima Gateway
Hotel in January and the Red Lion Bellevue Inn in April, both of
which we previously controlled with operating leases. We were
able to use the equity from our previous sale of the Red Lion
River Inn and the Section 1031 Exchange to acquire these two
properties, thereby allowing complete deferral of our tax
obligation on the gain associated with the sale of the River Inn.
We expect that our net EBITDA will increase as a result of this
repositioning of our assets and we are happy to have gained
equity ownership of hotels in two key markets.
Financial performance for the first quarter was promising.
Revenue from owned and leased hotels, including management fee
revenue was up $770,000 or 2.3% to $34.9 million compared to
$34.1 million for the first quarter of 2003. The increase was
primarily due to the growth of $1.2 million in room revenue
between comparable quarters. This increase was partially offset
by declines of $249,000 in F&B revenue and $121,000 in management
fee revenue as compared to the first quarter of 2003. At our
owned and leased hotels ADR was $65.36 for the first quarter
compared to $64.74 for the first quarter of 2003. Average
occupancy for owned and leased hotels was 48.4% versus 46.6% for
the same period in 2003. The resulting RevPAR from owned and
leased hotels in 2004 of $31.61. It was $1.41 higher or 4.7%
higher than RevPAR in the first quarter of 2003.
Franchise central services and development revenue for the first
quarter decreased $513,000 as a result of the expected loss at
various franchises in 2003.
Entertainment segment revenue increased $984,000 in the first
quarter compared to the same quarter last year. Although
$645,000 of the increase was due to the presentation of three
Broadway shows during the first quarter of 2004 compared to two
shows in the same quarter of 2003, the remainder of the increased
revenues was the result of expanding ticket operations during the
last quarter.
Real estate revenue increased $211,000 for the quarter to $2.5
million from $2.3 million during the same quarter of 2003. The
increase was primarily due to fees earned on three new affordable
housing projects.
While gross departmental profit in the hotel division increased
0.7% or $643,000 from the first quarter of 2003 to the first
quarter of 2004. The overall expenses in the division increased
by $1.4 million. The increase in
expenses was due in part to variable increases associated with
our higher revenue and in part to additional sales personnel
training costs and higher sales department salaries and wages
associated with the deployment of a stronger sales force.
Utility costs were also significantly higher as compared to the
prior year.
With the strong improvement in the entertainment division we were
able to increase our operating margins to 21.9% for the quarter
compared to 15.8% last year.
Real estate segment costs increased 19% consistent with front-end
cost associated with newly managed properties.
Depreciation increased $469,000 quarter on quarter on quarter as
a result of new capital expenditures and the renewed depreciation
of certain assets originally held for sale in the first quarter
of 2003, which were not depreciated during that quarter.
As I previously described, interest expense increased during the
quarter primarily due to the interest on the debentures resulting
from our trust preferred offering. The total increase in
interest expense is $645,000. The tax deductibility of this
increased interest expense and the elimination of the preferred
stock dividends help keep the loss to common shareholders
minimized during the typically seasonally low part of the year.
Earnings per share was down $0.02 quarter on quarter.
We are proud that we have been able to increase our occupancy and
market share while at the same time completing our offering of
trust preferred securities and increasing our EBITDA by $110,000
quarter on quarter.
At this point in time we would be happy to open up the call for
questions.
Moderator Thank you. We have no questions. You may continue.
D. Barbieri I want to thank you very much and thank you, everyone for
listening. If you have questions, please don't hesitate to call
the company at any time. We look forward to your input and look
forward to giving you timely answers.
I want to tell you as the economy and the lodging sector
continues to improve, as the Chairman of the Board I am confident
that the company's focus on leveraging the excellent assets and
talent heads assembled will continue to make it a strong
competitor in its marketplace and drive positive financial
results and shareholder value.
One other point: We look forward to seeing as many of you as
possible at our annual shareholders' meeting on May 19th at 9:00
a.m. in Spokane, Washington at the WestCoast Ridpath Hotel.
Thank you very much for joining the call and have a great day.
Moderator Ladies and gentlemen, that does conclude your conference for
today. Thank you for your participation and for using AT&T
Executive Teleconference. You may now disconnect.