Strategic Hotels & Resorts Reports Third Quarter 2012 Financial Results

CHICAGO, Nov. 7, 2012 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the third quarter ended September 30, 2012.

($ in millions, except per share and operating metrics)

Third Quarter

Earnings Metrics

2012

2011

% Change

Net loss attributable to common shareholders

$(8.6)

$(11.9)

N/A

Net loss per diluted share

$(0.05)

$(0.06)

N/A

Comparable funds from operations (Comparable FFO) (a)

$17.0

$11.3

50.9%

Comparable FFO per diluted share (a)

$0.08

$0.06

33.3%

Comparable EBITDA (a)

$46.6

$43.6

6.7%





Total United States Portfolio Operating Metrics (b)




Average Daily Rate (ADR)

$271.50

$258.06

5.2%

Occupancy

77.1%

76.7%

0.4 pts

Revenue per Available Room (RevPAR)

$209.39

$197.98

5.8%

Total RevPAR

$372.08

$352.09

5.7%

EBITDA Margins

24.1%

24.1%

N/A





North American Same Store Operating Metrics (c)




ADR

$257.57

$246.70

4.4%

Occupancy

78.5%

77.6%

0.9 pts

RevPAR

$202.27

$191.47

5.6%

Total RevPAR

$354.07

$334.68

5.8%

EBITDA Margins

23.6%

22.2%

140 bps


(a) Please refer to tables provided later in this press release for a reconciliation of net loss to Comparable FFO, Comparable FFO per share and Comparable EBITDA. Comparable FFO, Comparable FFO per share and Comparable EBITDA are non-GAAP measures and are further explained with the reconciliation tables.

(b) Operating statistics reflect results from the Company's Total United States portfolio (see portfolio definitions later in this press release).

(c) Operating statistics reflect results from the Company's North American same store portfolio (see portfolio definitions later in this press release).

"Our portfolio continued to perform very well during the quarter, with solid year-over-year growth," said Raymond L. "Rip" Gellein, Jr., Chairman of the Board and Chief Executive Officer of Strategic Hotels & Resorts, Inc. "The acquisition of the Essex House hotel was a terrific achievement, with early indicators showing very positive reception to the JW Marriott brand. Looking forward, we see positive trends heading into the new year with group pace significantly ahead of this time last year."

Third Quarter Highlights

  • Net loss attributable to common shareholders was $8.6 million, or $0.05 per diluted share, in the third quarter of 2012, compared with a loss of $11.9 million, or $0.06 per diluted share, in the third quarter of 2011.
  • Comparable FFO was $0.08 per diluted share in the third quarter of 2012, compared with $0.06 per diluted share in the prior year period.
  • Comparable EBITDA was $46.6 million in the third quarter of 2012, compared with $43.6 million in the prior year period, a 6.7 percent increase between periods.
  • Total United States portfolio RevPAR increased 5.8 percent in the third quarter of 2012, driven by a 5.2 percentage increase in ADR and a 0.4 percent point increase in occupancy, compared to the third quarter of 2011. Total RevPAR increased 5.7 percent between periods with non-rooms revenue increasing by 5.6 percent between periods.
  • ADR growth in the Total United States portfolio was driven by a 5.8 percent increase in transient ADR compared to the third quarter of 2011 and a 3.2% increase in group ADR.
  • RevPAR increased 7.2 percent in the third quarter of 2012 in the Company's Total United States resort portfolio and 4.4 percent in the Company's Total United States urban portfolio, compared to the third quarter of 2011.
  • North American same store RevPAR increased 5.6 percent in the third quarter of 2012, driven by a 4.4 percentage increase in ADR and a 0.9 percent point increase in occupancy. Total RevPAR increased 5.8 percent with non-rooms revenue increasing by 6.0 percent between periods.
  • European RevPAR increased 0.1 percent (5.6 percent in constant dollars) in the third quarter of 2012, driven by a 1.6 percent increase in ADR (7.2 percent in constant dollars) offsetting a 1.3 percentage point decrease in occupancy between periods. European Total RevPAR increased 0.1 percent in the third quarter over the prior year period (5.7 percent in constant dollars).
  • Total United States portfolio EBITDA margins were flat in the third quarter of 2012, compared to the third quarter of 2011. EBITDA margins for the quarter were impacted by a $2.7 million real estate tax expense recorded at the Hotel del Coronado related to prior periods as the result of a reassessment of the asset's taxable basis. Excluding this one-time charge, Total United States portfolio EBITDA margins expanded by 110 basis points in the third quarter of 2012 and North American same store EBITDA margins expanded 140 basis points.
  • Group room nights currently booked for 2012 are 0.1 percent lower than room nights booked for 2011 at the same time last year but at rates 3.5 percent higher, resulting in a 3.3 percent RevPAR increase.

The company reported financial results for the nine month period ended September 30, 2012 as follows:

  • Net loss attributable to common shareholders was $43.1 million, or $0.22 per diluted share, compared with net loss attributable to common shareholders of $7.8 million, or $0.04 per diluted share, for the nine month period ended September 30, 2011.
  • Comparable FFO was $0.21 per diluted share compared with $0.09 per diluted share in the nine month period ended September 30, 2011.
  • Comparable EBITDA was $130.7 million compared with $114.8 million for the nine month period ended September 30, 2011, a 13.8 percent increase between periods.

Preferred Dividends

On August 30, 2012, the Company's Board of Directors declared a quarterly dividend of $0.53125 per share of 8.5 percent Series A Cumulative Redeemable Preferred Stock paid on October 1, 2012 to shareholders of record as of September 14, 2012, a quarterly dividend of $0.51563 per share of 8.25 percent Series B Cumulative Redeemable Preferred Stock paid on October 1, 2012 to shareholders of record as of September 14, 2012 and a quarterly dividend of $0.51563 per share of 8.25 percent Series C Cumulative Redeemable Preferred Stock paid on October 1, 2012 to shareholders of record as of September 14, 2012.

Transaction Activity

On September 14, 2012, the Company closed on the acquisition of the JW Marriott Essex House Hotel in New York City for a gross purchase price of approximately $362.3 million and established a joint venture arrangement with affiliates of KSL Capital Partners, LLC to fund the equity portion of the acquisition. The Company owns 51.0 percent of the joint venture and serves as managing member and asset manager.

Subsequent Events

On November 1, 2012, the Company closed a $90.0 million non-recourse mortgage agreement with MetLife secured by the Hyatt Regency La Jolla hotel. Under the terms of the loan agreement, the $97.5 million mortgage previously encumbering the property was replaced with a $72.0 million A-Note and an $18.0 million B-Note that will each mature December 1, 2017. The floating rate A-Note bears interest at LIBOR plus 400 basis points, subject to a 50 basis point LIBOR floor, and the B-Note bears interest at a fixed rate of 10.0 percent.

On November 2, 2012, the Company announced that Laurence S. Geller stepped down as President and Chief Executive Officer of Strategic Hotels & Resorts, Inc. and member of the Company's Board of Directors effective as of such date. Raymond L. "Rip" Gellein, Jr., Chairman of the Company's Board of Directors, was appointed Chief Executive Officer. In addition, Sheli Z. Rosenberg was appointed lead independent director of the Board.

2012 Guidance

Based on the results of the first three quarters and current forecasts for the remainder of the year, the Company is reaffirming its guidance range for full year 2012 RevPAR growth, Total RevPAR growth, Comparable EBITDA, and Comparable FFO per diluted share.

For the year ending December 31, 2012, the Company anticipates that Comparable EBITDA will be in the range of $165.0 million to $180.0 million and Comparable FFO in the range of $0.21 and $0.29 per fully diluted share. Management is also reaffirming its guidance for North American same store RevPAR growth in the range between 6.0 percent to 8.0 percent and Total RevPAR growth in the range between 5.0 percent and 7.0 percent.

Portfolio Definitions

Total United States portfolio hotel comparisons for the third quarter of 2012 are derived from the Company's hotel portfolio at September 30, 2012, consisting of all 14 properties located in the United States, including unconsolidated joint ventures, but excluding the JW Marriott Essex House Hotel which was acquired on September 14, 2012.

North American same store hotel comparisons for the third quarter of 2012 are derived from the Company's hotel portfolio at September 30, 2012, consisting of properties located in North America and held for five or more quarters, in which operations are included in the consolidated results of the Company. As a result, same store comparisons include 13 properties and exclude the unconsolidated Hotel del Coronado and Fairmont Scottsdale Princess hotels and the recently acquired JW Marriott Essex House Hotel which was purchased on September 14, 2012.

European hotel comparisons for the third quarter of 2012 are derived from the Company's European owned and leased hotel properties at September 30, 2012, consisting of the Marriott London Grosvenor Square and the Marriott Hamburg hotels.

Earnings Call

The Company will conduct its third quarter 2012 conference call for investors and other interested parties on Thursday, November 8, 2012 at 10:00 a.m. Eastern Time (ET). Interested individuals are invited to access the call by dialing 888.679.8040 (toll international: 617.213.4851) with passcode 99633171. To participate on the webcast, log on to the company's website at http://www.strategichotels.com or http://edge.media-server.com/m/p/hssa33gr/lan/en.

For those unable to listen to the call live, a taped rebroadcast will be available beginning at 12:00 p.m. ET on November 8, 2012 through 11:59 p.m. ET on November 15, 2012. To access the replay, dial 888.286.8010 (toll international: 617.801.6888) with passcode 77474592. A replay of the call will also be available on the Internet at http://www.strategichotels.com or http://www.earnings.com for 30 days after the call.

The Company also produces supplemental financial data that includes detailed information regarding its operating results. This supplemental data is considered an integral part of this earnings release. These materials are available on the Strategic Hotels & Resorts' website at www.strategichotels.com within the Investor Relations section of the website.

About the Company

Strategic Hotels & Resorts, Inc. is a real estate investment trust (REIT) which owns and provides value-enhancing asset management of high-end hotels and resorts in the United States, Mexico and Europe. The Company currently has ownership interests in 18 properties with an aggregate of 8,271 rooms and 851,600 square feet of meeting space. For a list of current properties and for further information, please visit the Company's website at http://www.strategichotels.com.

This press release contains forward-looking statements about Strategic Hotels & Resorts, Inc. (the "Company"). Except for historical information, the matters discussed in this press release are forward-looking statements subject to certain risks and uncertainties. These forward-looking statements include statements regarding the Company's future financial results, stabilization in the lodging space, positive trends in the lodging industry and the Company's continued focus on improving profitability. Actual results could differ materially from the Company's projections. Factors that may contribute to these differences include, but are not limited to the following: the effects of the recent global economic recession upon business and leisure travel and the hotel markets in which the Company invests; the Company's liquidity and refinancing demands; the Company's ability to obtain or refinance maturing debt; the Company's ability to maintain compliance with covenants contained in the Company's debt facilities; stagnation or further deterioration in economic and market conditions, particularly impacting business and leisure travel spending in the markets where the Company's hotels operate and in which the Company invests, including luxury and upper upscale product; general volatility of the capital markets and the market price of the Company's shares of common stock; availability of capital; the Company's ability to dispose of properties in a manner consistent with the Company's investment strategy and liquidity needs; hostilities and security concerns, including future terrorist attacks, or the apprehension of hostilities, in each case that affect travel within or to the United States, Mexico, Germany, England or other countries where the Company invests; difficulties in identifying properties to acquire and completing acquisitions; the Company's failure to maintain effective internal control over financial reporting and disclosure controls and procedures; risks related to natural disasters; increases in interest rates and operating costs, including insurance premiums and real property taxes; contagious disease outbreaks, such as the H1N1 virus outbreak; delays and cost-overruns in construction and development; marketing challenges associated with entering new lines of business or pursuing new business strategies; the Company's failure to maintain its status as a REIT; changes in the competitive environment in the Company's industry and the markets where the Company invests; changes in real estate and zoning laws or regulations; legislative or regulatory changes, including changes to laws governing the taxation of REITS; changes in generally accepted accounting principles, policies and guidelines; and litigation, judgments or settlements.

Additional risks are discussed in the Company's filings with the Securities and Exchange Commission, including those appearing under the heading "Item 1A. Risk Factors" in the Company's most recent Form 10-K and subsequent Form 10-Qs. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. The forward-looking statements are made as of the date of this press release, and the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.


 

The following tables reconcile projected 2012 net loss attributable to common shareholders to projected Comparable EBITDA, Comparable FFO and Comparable FFO per diluted share ($ in millions, except per share data):


Low Range


High Range

Net Loss Attributable to Common Shareholders

$(85.9)


$(71.0)

Depreciation and Amortization

120.3


120.3

Interest Expense

83.4


83.4

Income Taxes

0.8


0.8

Non-controlling Interests

(0.3)


(0.2)

Adjustments from Consolidated Affiliates

(9.4)


(9.4)

Adjustments from Unconsolidated Affiliates

27.7


27.7

Preferred Shareholder Dividends

24.2


24.2

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Adjustment for Value Creation Plan

2.8


2.8

Other Adjustments

1.6


1.6

Comparable EBITDA

$165.0


$180.0


Low Range


High Range

Net Loss Attributable to Common Shareholders

$(85.9)


$(71.0)

Depreciation and Amortization

119.2


119.2

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Non-controlling Interests

(0.3)


(0.1)

Adjustments from Consolidated Affiliates

(5.0)


(5.0)

Adjustments from Unconsolidated Affiliates

15.2


15.2

Adjustment for Value Creation Plan

2.8


2.8

Other Adjustments

(2.8)


(2.8)

Comparable FFO

$43.0


$58.1

Comparable FFO per Diluted Share

$0.21


$0.29





 

 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Consolidated Statements of Operations

(in thousands, except per share data)

 



Three Months Ended September 30,


Nine Months Ended September 30,



2012


2011


2012


2011

Revenues:









Rooms


$

119,067



$

110,048



$

323,709



$

310,330


Food and beverage


63,283



58,664



197,693



195,987


Other hotel operating revenue


21,040



19,939



59,338



59,860


Lease revenue


1,175



1,255



3,505



3,747


Total revenues


204,565



189,906



584,245



569,924


Operating Costs and Expenses:









Rooms


32,069



29,283



90,628



85,728


Food and beverage


47,355



45,345



143,065



142,010


Other departmental expenses


52,908



51,358



153,557



155,856


Management fees


6,182



5,879



18,012



18,203


Other hotel expenses


13,988



12,672



40,360



39,497


Lease expense


1,114



1,249



3,425



3,702


Depreciation and amortization


25,649



25,526



76,416



86,222


Corporate expenses


6,956



(2,228)



23,632



24,206


Total operating costs and expenses


186,221



169,084



549,095



555,424


Operating income


18,344



20,822



35,150



14,500


Interest expense


(19,942)



(21,838)



(58,627)



(67,148)


Interest income


42



41



122



124


Loss on early extinguishment of debt




(399)





(1,237)


Loss on early termination of derivative financial instruments








(29,242)


Equity in losses of unconsolidated affiliates


(2,257)



(1,867)



(2,054)



(6,266)


Foreign currency exchange (loss) gain


(996)



(209)



(1,169)



77


Other income, net


436



355



1,365



4,716


Loss before income taxes and discontinued operations


(4,373)



(3,095)



(25,213)



(84,476)


Income tax benefit (expense)


600



(867)



(215)



(279)


Loss from continuing operations


(3,773)



(3,962)



(25,428)



(84,755)


Income (loss) from discontinued operations, net of tax




19



(535)



101,215


Net (loss) income


(3,773)



(3,943)



(25,963)



16,460


Net loss (income) attributable to the noncontrolling interests in SHR's operating partnership


17



16



126



(70)


Net loss (income) attributable to the noncontrolling interests in consolidated affiliates


1,241



(254)



891



(997)


Net (loss) income attributable to SHR


(2,515)



(4,181)



(24,946)



15,393


Preferred shareholder dividends


(6,042)



(7,721)



(18,125)



(23,164)


Net loss attributable to SHR common shareholders


$

(8,557)



$

(11,902)



$

(43,071)



$

(7,771)


Basic Loss Per Share:









Loss from continuing operations attributable to SHR common shareholders


$

(0.04)



$

(0.06)



$

(0.22)



$

(0.62)


Income (loss) from discontinued operations attributable to SHR common shareholders








0.58


Net loss attributable to SHR common shareholders


$

(0.04)



$

(0.06)



$

(0.22)



$

(0.04)


Weighted average common shares outstanding


206,523



186,146



198,872



173,349


Diluted Loss Per Share:









Loss from continuing operations attributable to SHR common shareholders


$

(0.05)



$

(0.06)



$

(0.22)



$

(0.62)


Income (loss) from discontinued operations attributable to SHR common shareholders








0.58


Net loss attributable to SHR common shareholders


$

(0.05)



$

(0.06)



$

(0.22)



$

(0.04)


Weighted average common shares outstanding


218,182



186,146



198,872



173,349


 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Consolidated Balance Sheets

(in thousands, except share data)

 



September 30, 2012


December 31, 2011

Assets





Investment in hotel properties, net


$

2,001,747



$

1,692,431


Goodwill


40,359



40,359


Intangible assets, net of accumulated amortization of $10,295 and $8,915


30,971



30,635


Investment in unconsolidated affiliates


117,005



126,034


Cash and cash equivalents


82,048



72,013


Restricted cash and cash equivalents


49,026



39,498


Accounts receivable, net of allowance for doubtful accounts of $1,542 and $1,698


55,153



43,597


Deferred financing costs, net of accumulated amortization of $6,308 and $3,488


12,846



10,845


Deferred tax assets


2,600



2,230


Prepaid expenses and other assets


55,955



29,047


Total assets


$

2,447,710



$

2,086,689


Liabilities, Noncontrolling Interests and Equity





Liabilities:





Mortgages and other debt payable


$

1,185,347



$

1,000,385


Bank credit facility


124,000



50,000


Accounts payable and accrued expenses


245,149



249,179


Distributions payable


6,042



72,499


Deferred tax liabilities


47,305



47,623


Total liabilities


1,607,843



1,419,686


Noncontrolling interests in SHR's operating partnership


5,129



4,583


Equity:





SHR's shareholders' equity:





8.50% Series A Cumulative Redeemable Preferred Stock ($0.01 par value per share; 4,148,141 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $105,907 and $130,148 in the aggregate)


99,995



99,995


8.25% Series B Cumulative Redeemable Preferred Stock ($0.01 par value per share; 3,615,375 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $92,249 and $112,775 in the aggregate)


87,064



87,064


8.25% Series C Cumulative Redeemable Preferred Stock ($0.01 par value per share; 3,827,727 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $97,667 and $119,377 in the aggregate)


92,489



92,489


Common shares ($0.01 par value per share; 350,000,000 and 250,000,000 common shares authorized; 204,308,710 and 185,627,199 common shares issued and outstanding)


2,043



1,856


Additional paid-in capital


1,735,395



1,634,067


Accumulated deficit


(1,215,567)



(1,190,621)


Accumulated other comprehensive loss


(58,261)



(70,652)


Total SHR's shareholders' equity


743,158



654,198


Noncontrolling interests in consolidated affiliates


91,580



8,222


Total equity


834,738



662,420


Total liabilities, noncontrolling interests and equity


$

2,447,710



$

2,086,689


 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Financial Highlights

Supplemental Financial Data

(in thousands, except per share information)

 



September 30, 2012



Pro Rata Share


Consolidated

Capitalization





Common shares outstanding


204,309



204,309


Operating partnership units outstanding


853



853


Restricted stock units outstanding


1,370



1,370


Value Creation Plan units outstanding under the deferral program


1,239



1,239


Combined shares and units outstanding


207,771



207,771


Common stock price at end of period


$

6.01



$

6.01


Common equity capitalization


$

1,248,704



$

1,248,704


Preferred equity capitalization (at $25.00 face value)


289,102



289,102


Consolidated debt


1,309,347



1,309,347


Pro rata share of unconsolidated debt


212,275




Pro rata share of consolidated debt


(138,648)




Cash and cash equivalents


(82,048)



(82,048)


Total enterprise value


$

2,838,732



$

2,765,105


Net Debt / Total Enterprise Value


45.8

%


44.4

%

Preferred Equity / Total Enterprise Value


10.2

%


10.5

%

Common Equity / Total Enterprise Value


44.0

%


45.1

%


 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Discontinued Operations

The results of operations of hotels sold are classified as discontinued operations and segregated in the consolidated statements of operations for all periods presented. The following hotel was sold during 2011 (in thousands):





Hotel

Date Sold

Net Sales Proceeds

Paris Marriott Champs Elysees (Paris Marriott)

April 6, 2011

$

60,003



The following is a summary of income (loss) from discontinued operations for the three and nine months ended September 30, 2012 and 2011 (in thousands):



Three Months Ended September 30,


Nine Months Ended

September 30,



2012


2011


2012


2011

Hotel operating revenues


$



$



$



$

9,743


Operating costs and expenses




(54)





9,456


Operating income




54





287


Foreign currency exchange (loss) gain






(535)



51


Other income, net








326


Income tax expense








(379)


(Loss) gain on sale




(35)





100,930


Income (loss) from discontinued operations


$



$

19



$

(535)



$

101,215



 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Investments in Unconsolidated Affiliates

(in thousands)

 

On January 9, 2006, we purchased a 45% interest in the unconsolidated affiliate that owns the Hotel del Coronado. On February 4, 2011, we completed a recapitalization of the unconsolidated affiliate. As part of the recapitalization, a new unconsolidated affiliate was formed to own the Hotel del Coronado and to invest cash in the asset. Pursuant to the terms of the recapitalization, we became a limited partner in the new unconsolidated affiliate, and our ownership interest in the Hotel del Coronado decreased from 45% to 34.3%. On June 9, 2011, we completed a recapitalization of the Fairmont Scottsdale Princess hotel. As part of the recapitalization, our ownership interest in the Fairmont Scottsdale Princess hotel decreased from 100% to 50%. We account for these investments using the equity method of accounting.









Three Months Ended September 30, 2012


Three Months Ended September 30, 2011



Hotel del

Coronado


Fairmont Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont Scottsdale

Princess


Total

Total revenues (100%)


$

44,978



$

10,607



$

55,585



$

43,417



$

10,280



$

53,697


Property EBITDA (100%)


$

14,560



$

(2,163)



$

12,397



$

16,995



$

(2,452)



$

14,543


Equity in earnings (losses) of unconsolidated affiliates (SHR ownership)











Property EBITDA


$

4,994



$

(1,082)



$

3,912



$

5,830



$

(1,226)



$

4,604


Depreciation and amortization


(1,711)



(1,774)



(3,485)



(1,665)



(1,806)



(3,471)


Interest expense


(2,522)



(191)



(2,713)



(2,648)



(198)



(2,846)


Other expenses, net


(19)



(5)



(24)



(83)



(96)



(179)


Income taxes


(74)





(74)



(125)





(125)


Equity in earnings (losses) of unconsolidated affiliates


$

668



$

(3,052)



$

(2,384)



$

1,309



$

(3,326)



$

(2,017)


EBITDA Contribution:













Equity in earnings (losses) of unconsolidated affiliates


$

668



$

(3,052)



$

(2,384)



$

1,309



$

(3,326)



$

(2,017)


Depreciation and amortization


1,711



1,774



3,485



1,665



1,806



3,471


Interest expense


2,522



191



2,713



2,648



198



2,846


Income taxes


74





74



125





125


EBITDA Contribution


$

4,975



$

(1,087)



$

3,888



$

5,747



$

(1,322)



$

4,425


FFO Contribution:













Equity in earnings (losses) of unconsolidated affiliates


$

668



$

(3,052)



$

(2,384)



$

1,309



$

(3,326)



$

(2,017)


Depreciation and amortization


1,711



1,774



3,485



1,665



1,806



3,471


FFO Contribution


$

2,379



$

(1,278)



$

1,101



$

2,974



$

(1,520)



$

1,454




Nine Months Ended September 30, 2012


Nine Months Ended September 30, 2011



Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total

Total revenues (100%)


$

110,332



$

56,735



$

167,067



$

106,404



$

12,389



$

118,793


Property EBITDA (100%)


$

33,522



$

9,743



$

43,265



$

34,748



$

(3,196)



$

31,552


Equity in losses of unconsolidated affiliates (SHR ownership)











Property EBITDA


$

11,498



$

4,871



$

16,369



$

12,022



$

(1,598)



$

10,424


Depreciation and amortization


(5,098)



(5,321)



(10,419)



(4,963)



(2,257)



(7,220)


Interest expense


(7,544)



(589)



(8,133)



(7,382)



(248)



(7,630)


Other expenses, net


(62)



(44)



(106)



(1,547)



(640)



(2,187)


Income taxes


293





293



554





554


Equity in losses of unconsolidated affiliates


$

(913)



$

(1,083)



$

(1,996)



$

(1,316)



$

(4,743)



$

(6,059)


EBITDA Contribution













Equity in losses of unconsolidated affiliates


$

(913)



$

(1,083



$

(1,996)



$

(1,316)



$

(4,743)



$

(6,059)


Depreciation and amortization


5,098



5,321



10,419



4,963



2,257



7,220


Interest expense


7,544



589



8,133



7,382



248



7,630


Income taxes


(293)





(293)



(554)





(554)


EBITDA Contribution


$

11,436



$

4,827



$

16,263



$

10,475



$

(2,238)



$

8,237


FFO Contribution













Equity in losses of unconsolidated affiliates


$

(913)



$

(1,083)



$

(1,996)



$

(1,316)



$

(4,743)



$

(6,059)


Depreciation and amortization


5,098



5,321



10,419



4,963



2,257



7,220


FFO Contribution


$

4,185



$

4,238



$

8,423



$

3,647



$

(2,486)



$

1,161


 

Investments in Unconsolidated Affiliates (Continued)

(in thousands)

 

Debt


Interest Rate




Spread over

LIBOR




Loan Amount


Maturity (a)

Hotel del Coronado













CMBS Mortgage and Mezzanine


5.80

%


(b)


480 bp


(b)


$

425,000



March 2016

Cash and cash equivalents










(16,219)




Net Debt










$

408,781




Fairmont Scottsdale Princess













CMBS Mortgage


0.57

%




36 bp




$

133,000



April 2015

Cash and cash equivalents










(4,290)




Net Debt










$

128,710




(a) Includes extension options.

(b) Subject to a 1% LIBOR floor.

Caps


Effective

Date


LIBOR Cap Rate


Notional Amount


Maturity

Hotel del Coronado









CMBS Mortgage and Mezzanine Loan Caps


February 2011


2.00

%


$

425,000



February 2013

CMBS Mortgage and Mezzanine Loan Caps


February 2013


2.50

%


$

425,000



March 2013

Fairmont Scottsdale Princess









CMBS Mortgage Loan Cap


June 2011


4.00

%


$

133,000



December 2013

 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Leasehold Information

(in thousands)

 



Three Months Ended September 30,


Nine Months Ended September 30,



2012


2011


2012


2011

Paris Marriott (a):









Property EBITDA


$



$



$



$

3,455


Revenue (b)


$



$



$



$

3,455











Lease expense








(3,274)


Less: Deferred gain on sale-leaseback








(1,214)


Adjusted lease expense








(4,488)











EBITDA contribution from leasehold


$



$



$



$

(1,033)











Marriott Hamburg:









Property EBITDA


$

1,508



$

1,734



$

4,404



$

5,034


Revenue (b)


$

1,175



$

1,255



$

3,505



$

3,747











Lease expense


(1,114)



(1,249)



(3,425)



(3,702)


Less: Deferred gain on sale-leaseback


(49)



(42)



(150)



(151)


Adjusted lease expense


(1,163)



(1,291)



(3,575)



(3,853)











EBITDA contribution from leasehold


$

12



$

(36)



$

(70)



$

(106)











Total Leaseholds:









Property EBITDA


$

1,508



$

1,734



$

4,404



$

8,489


Revenue (b)


$

1,175



$

1,255



$

3,505



$

7,202











Lease expense


(1,114)



(1,249)



(3,425)



(6,976)


Less: Deferred gain on sale-leasebacks


(49)



(42)



(150)



(1,365)


Adjusted lease expense


(1,163)



(1,291)



(3,575)



(8,341)











EBITDA contribution from leaseholds


$

12



$

(36)



$

(70)



$

(1,139)


Security Deposit (c):


September 30, 2012


December 31, 2011

Marriott Hamburg


$

2,443



$

2,462











(a) On April 6, 2011, we sold our leasehold interest in the Paris Marriott hotel. The results of operations for the Paris Marriott hotel have been classified as discontinued operations for all periods presented.

(b) For the nine months ended September 30, 2011, Revenue for the Paris Marriott hotel represents Property EBITDA. For the three and nine months ended September 30, 2012 and 2011, Revenue for the Marriott Hamburg hotel represents lease revenue.

(c) The security deposit is recorded in prepaid expenses and other assets on the consolidated balance sheets.


 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

Non-GAAP Financial Measures

 

We present five non-GAAP financial measures that we believe are useful to management and investors as key measures of our operating performance: Funds from Operations (FFO); FFO—Fully Diluted; Comparable FFO; Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA); and Comparable EBITDA.


EBITDA represents net income (or loss) attributable to SHR common shareholders excluding: (i) interest expense, (ii) income taxes, including deferred income tax benefits and expenses applicable to our foreign subsidiaries and income taxes applicable to sale of assets; (iii) depreciation and amortization; and (iv) preferred stock dividends. EBITDA also excludes interest expense, income taxes and depreciation and amortization of our unconsolidated affiliates. EBITDA is presented on a full participation basis, which means we have assumed conversion of all redeemable noncontrolling interests of our operating partnership into our common stock. We believe this treatment of noncontrolling interests provides useful information for management and our investors and appropriately considers our current capital structure. We also present Comparable EBITDA, which eliminates the effect of realizing deferred gains on our sale leasebacks, as well as the effect of gains or losses on sales of assets, early extinguishment of debt, impairment losses, foreign currency exchange gains or losses and the Value Creation Plan expense. We believe EBITDA and Comparable EBITDA are useful to management and investors in evaluating our operating performance because they provide management and investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe they help management and investors meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our asset base (primarily depreciation and amortization) from our operating results. Our management also uses EBITDA and Comparable EBITDA as measures in determining the value of acquisitions and dispositions.

 

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, with the exception of impairment of depreciable real estate. NAREIT adopted a definition of FFO in order to promote an industry-wide standard measure of REIT operating performance. NAREIT defines FFO as net income (or loss) (computed in accordance with GAAP) excluding losses or gains from sales of depreciable property, impairment of depreciable real estate, real estate-related depreciation and amortization, and our portion of these items related to unconsolidated affiliates. We also present FFO—Fully Diluted, which is FFO plus income or loss on income attributable to redeemable noncontrolling interests in our operating partnership. We also present Comparable FFO, which is FFO—Fully Diluted excluding the impact of any gains or losses on early extinguishment of debt, impairment losses, foreign currency exchange gains or losses and the Value Creation Plan expense. We believe that the presentation of FFO, FFO—Fully Diluted and Comparable FFO provides useful information to management and investors regarding our results of operations because they are measures of our ability to fund capital expenditures and expand our business. In addition, FFO is widely used in the real estate industry to measure operating performance without regard to items such as depreciation and amortization. We also present Comparable FFO per diluted share as a non-GAAP measure of our performance. We calculate Comparable FFO per diluted share for a given operating period as our Comparable FFO (as defined above) divided by the weighted average of fully diluted shares outstanding, excluding shares related to the JW Marriott Essex House Hotel put option. Dilutive securities may include shares granted under share-based compensation plans and operating partnership units. No effect is shown for securities that are anti-dilutive.

 

We caution investors that amounts presented in accordance with our definitions of FFO, FFO—Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP measures in the same manner. FFO, FFO—Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA should not be considered as an alternative measure of our net income (or loss) or operating performance. FFO, FFO—Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that FFO, FFO—Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA can enhance your understanding of our financial condition and results of operations, these non-GAAP financial measures, when viewed individually, are not necessarily a better indicator of any trend as compared to comparable GAAP measures such as net income (or loss) attributable to SHR common shareholders. In addition, you should be aware that adverse economic and market conditions might negatively impact our cash flow. We have provided a quantitative reconciliation of FFO, FFO—Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA to the most directly comparable GAAP financial performance measure, which is net income (or loss) attributable to SHR common shareholders.

 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Reconciliation of Net Loss Attributable to SHR Common Shareholders to EBITDA and Comparable EBITDA

(in thousands)

 



Three Months Ended September 30,


Nine Months Ended September 30,



2012


2011


2012


2011

Net loss attributable to SHR common shareholders


$

(8,557)



$

(11,902)



$

(43,071)



$

(7,771)


Depreciation and amortization


25,649



25,526



76,416



86,222


Interest expense


19,942



21,838



58,627



67,148


Income taxes—continuing operations


(600)



867



215



279


Income taxes—discontinued operations








379


Noncontrolling interests


(17)



(16)



(126)



70


Adjustments from consolidated affiliates


(1,879)



(1,248)



(4,382)



(5,431)


Adjustments from unconsolidated affiliates


7,036



7,162



20,606



16,293


Preferred shareholder dividends


6,042



7,721



18,125



23,164


EBITDA


47,616



49,948



126,410



180,353


Realized portion of deferred gain on sale-leaseback—continuing operations


(49)



(42)



(150)



(151)


Realized portion of deferred gain on sale-leaseback—discontinued operations








(1,214)


Gain on sale of assets—continuing operations








(2,640)


Loss (gain) on sale of assets— discontinued operations




35





(100,930)


Loss on early extinguishment of debt




399





1,237


Loss on early termination of derivative financial instruments








29,242


Foreign currency exchange loss (gain)—continuing operations (a)


996



209



1,169



(77)


Foreign currency exchange loss (gain)—discontinued operations (a)






535



(51)


Adjustment for Value Creation Plan


(2,013)



(6,921)



2,759



9,078


Comparable EBITDA


$

46,550



$

43,628



$

130,723



$

114,847


(a) Foreign currency exchange gains or losses applicable to third-party and inter-company debt and certain balance sheet items held by foreign subsidiaries.

 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Reconciliation of Net Loss Attributable to SHR Common Shareholders to

Funds From Operations (FFO), FFO—Fully Diluted and Comparable FFO

(in thousands, except per share data)

 



Three Months Ended September 30,


Nine Months Ended September 30,



2012


2011


2012


2011

Net loss attributable to SHR common shareholders


$

(8,557)



$

(11,902)



$

(43,071)



$

(7,771)


Depreciation and amortization


25,649



25,526



76,416



86,222


Corporate depreciation


(260)



(279)



(789)



(868)


Gain on sale of assets—continuing operations








(2,640)


Loss (gain) on sale of assets—discontinued operations




35





(100,930)


Realized portion of deferred gain on sale-leaseback—continuing operations


(49)



(42)



(150)



(151)


Realized portion of deferred gain on sale-leaseback—discontinued operations








(1,214)


Deferred tax expense on realized portion of deferred gain on sale-leasebacks








379


Noncontrolling interests adjustments


(121)



(134)



(374)



(440)


Adjustments from consolidated affiliates


(859)



(663)



(2,185)



(3,822)


Adjustments from unconsolidated affiliates


3,792



3,770



11,335



8,023


FFO


19,595



16,311



41,182



(23,212)


Redeemable noncontrolling interests


104



118



248



510


FFO—Fully Diluted


19,699



16,429



41,430



(22,702)


Non-cash mark to market of interest rate swaps


(1,688)



1,146



(4,405)



(487)


Loss on early extinguishment of debt




399





1,237


Loss on early termination of derivative financial instruments








29,242


Foreign currency exchange loss (gain)—continuing operations (a)


996



209



1,169



(77)


Foreign currency exchange loss (gain)—discontinued operations (a)






535



(51)


Adjustment for Value Creation Plan


(2,013)



(6,921)



2,759



9,078


Comparable FFO


$

16,994



$

11,262



$

41,488



$

16,240


Comparable FFO per diluted share


$

0.08



$

0.06



$

0.21



$

0.09


Weighted average diluted shares (b)


208,696



188,097



201,050



175,974


(a) Foreign currency exchange gains or losses applicable to third-party and inter-company debt and certain balance sheet items held by foreign subsidiaries.

(b) Excludes shares related to the JW Marriott Essex House Hotel put option.


 

 

Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR)

 

Debt Summary

(dollars in thousands)

 

Debt


Interest Rate


Spread (a)


Loan Amount


Maturity (b)

North Beach Venture


5.00

%


Fixed


$

1,476



January 2013

Marriott London Grosvenor Square (c)


1.70

%


110 bp (c)


114,870



October 2013

Bank credit facility


3.21

%


300 bp


124,000



June 2015

Four Seasons Washington, D.C.


3.36

%


315 bp


130,000



July 2016

Westin St. Francis


6.09

%


Fixed


215,673



June 2017

Fairmont Chicago


6.09

%


Fixed


95,828



June 2017

JW Marriott Essex House Hotel


4.75

%


400 bp


190,000



September 2017

Hyatt Regency La Jolla (d)


4.50% / 10.00%


400 bp / Fixed


90,000



December 2017

InterContinental Miami


3.71

%


350 bp


85,000



July 2018

Loews Santa Monica Beach Hotel


4.06

%


385 bp


110,000



July 2018

InterContinental Chicago


5.61

%


Fixed


145,000



August 2021







$

1,301,847




(a) Spread over LIBOR (0.21% at September 30, 2012). Interest on the JW Marriott Essex House Hotel loan is subject to a 0.75% LIBOR floor. Interest on the Hyatt Regency La Jolla loan is subject to a 0.50% LIBOR floor.

(b) Includes extension options.

(c) Principal balance of £71,070,000 at September 30, 2012. Spread over three-month GBP LIBOR (0.60% at September 30, 2012).

(d) This loan was refinanced on November 1, 2012. The new principal and interest are reflected in the table. Interest on $72,000,000 is payable at LIBOR plus 4.00%, subject to a 0.50% LIBOR floor, and interest on $18,000,000 is payable at a fixed rate of 10.00%.

Domestic and European Interest Rate Swaps

Swap Effective Date


Fixed Pay Rate

Against LIBOR


Notional

Amount


Maturity

February 2010


4.90

%


$

100,000



September 2014

February 2010


4.96

%


100,000



December 2014

December 2010


5.23

%


100,000



December 2015

February 2011


5.27

%


100,000



February 2016



5.09

%


$

400,000




Swap Effective Date


Fixed Pay Rate

Against GBP LIBOR


Notional

Amount



Maturity

October 2007


5.72

%




£

71,070



October 2013













Future scheduled debt principal payments (including extension options and the refinanced loan at the Hyatt Regency La Jolla) are as follows:

Years ending December 31,


Amount

2012 (remainder)


$

2,148


2013


127,212


2014


13,872


2015


140,246


2016


150,661


Thereafter


867,708




$

1,301,847





Percent of fixed rate debt including U.S. and European swaps


76.1

%

Weighted average interest rate including U.S. and European swaps (e)


6.50

%

Weighted average maturity of fixed rate debt (debt with maturity of greater than one year)


4.07


(e) Excludes the amortization of deferred financing costs and the amortization of the interest rate swap costs.

 

 

SOURCE Strategic Hotels & Resorts, Inc.

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