Strategic Hotels & Resorts Reports Fourth Quarter And Full Year 2012 Results Exceptional operating performance continued throughout 2012; Comparable FFO increased 47.8 percent and Comparable EBITDA increased 13.3 percent from year prior

CHICAGO, Feb. 27, 2013 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the fourth quarter and full year ended December 31, 2012. 

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

Fourth Quarter

Earnings Metrics

2012

2011

% Change

Net loss attributable to common shareholders

$(36.4)

$(15.9)

  N/A

Net loss per diluted share

$(0.18)

$(0.09)

        N/A

Comparable funds from operations (Comparable FFO) (a)

$12.2

$20.1

(39.2)%

Comparable FFO per diluted share (a)

$0.06

$0.11

(45.5)%

Comparable EBITDA (a)

$44.7

$39.9

11.9%





Total United States Portfolio Operating Metrics (b)




Average Daily Rate (ADR)

$251.17

$243.88

3.0%

Occupancy

68.7%

67.5%

        1.2 pts

Revenue per Available Room (RevPAR)

$172.62

$164.53

4.9%

Total RevPAR

$344.60

$334.72

3.0%

EBITDA Margins

20.6%

19.7%

        90 bps





North American Same Store Operating Metrics (c)




ADR

$256.01

$248.74

2.9%

Occupancy

70.4%

68.9%

        1.5 pts

RevPAR

$180.22

$171.30

5.2%

Total RevPAR

$344.45

$333.81

3.2%

EBITDA Margins

21.2%

20.1%

      110 bps

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

Full Year

Earnings Metrics

2012

2011

% Change

Net loss attributable to common shareholders

$(79.5)

$(23.7)

   N/A

Net loss per diluted share

$(0.40)

$(0.13)

         N/A

Comparable FFO (a)

$53.7

$36.4

47.8%

Comparable FFO per diluted share (a)

$0.26

$0.20

30.0%

Comparable EBITDA (a)

$175.4

$154.8

13.3%





Total United States Portfolio Operating Metrics (b)




ADR

$258.21

$246.22

4.9%

Occupancy

72.4%

71.0%

       1.4 pts

RevPAR

$186.98

$174.74

7.0%

Total RevPAR

$355.90

$336.43

5.8%

EBITDA Margins

22.7%

21.5%

     120 bps





North American Same Store Operating Metrics (c)




ADR

$246.42

$236.24

4.3%

Occupancy

73.5%

71.8%

       1.7 pts

RevPAR

$181.18

$169.54

6.9%

Total RevPAR

$331.68

$314.26

5.5%

EBITDA Margins

22.4%

21.1%

     130 bps

(a) Please refer to tables provided later in this press release for a reconciliation of net (loss)/income 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).

"I am very pleased by our strong performance in 2012. We continued to deliver on our stated strategy, driving steady gains in ADR, occupancy, and RevPAR, which led to outstanding FFO and EBITDA growth in 2012," said Raymond L. "Rip" Gellein, Jr., Chairman and Chief Executive Officer of Strategic Hotels & Resorts, Inc.  "One of the year's highlights was the opportunistic and favorable acquisition of the Essex House Hotel, which brought us back to the New York market and gave us greater reach on the east coast. As we look forward to 2013, we remain focused on our strategic imperatives: maximizing RevPAR, non-rooms revenue and profit margins at our hotels; continuing to prudently manage our capital and delever our balance sheet; and selectively pursuing strategic opportunities to refine our admired portfolio and drive meaningful value for our shareholders."

Fourth Quarter Highlights

  • Net loss attributable to common shareholders was $36.4 million, or $0.18 per diluted share, in the fourth quarter of 2012, compared with a net loss attributable to common shareholders of $15.9 million, or $0.09 per diluted share, in the fourth quarter of 2011.  Fourth quarter results include $18.8 million of impairment losses and other related charges, a $7.8 million charge related to the termination of the management agreement at the Hotel del Coronado and a $2.5 million severance charge.  These charges have been excluded from Comparable EBITDA, FFO and FFO per share.
  • Comparable FFO was $0.06 per diluted share in the fourth quarter of 2012 compared with $0.11 per diluted share in the prior year period.  Fourth quarter 2011 Comparable FFO includes a $10.7 million one-time gain related to the successful preferred equity tender offer completed on December 19, 2011.  Excluding this gain, Comparable FFO would have been $0.05 per diluted share in the fourth quarter of 2011.     
  • Comparable EBITDA was $44.7 million in the fourth quarter of 2012 compared with $39.9 million in the prior year period, an 11.9 percent increase.   
  • Total United States RevPAR increased 4.9 percent in the fourth quarter of 2012, driven by a 3.0 percent increase in ADR and a 1.2 percentage point increase in occupancy, compared to the fourth quarter of 2011.  Total RevPAR increased 3.0 percent with non-rooms revenue increasing by 1.1 percent between periods.
  • ADR growth in the Total United States portfolio was driven by a 3.9 percent increase in transient ADR compared to the fourth quarter of 2011 and a 0.8 percent increase in group ADR.
  • RevPAR increased 5.3 percent in the fourth quarter of 2012 in the Company's Total United States resort portfolio and 4.6 percent in the Company's Total United States urban portfolio, compared to the fourth quarter of 2011.
  • North American same store RevPAR increased 5.2 percent in the fourth quarter of 2012, driven by a 2.9 percent increase in ADR and a 1.5 percentage point increase in occupancy, compared to the fourth quarter of 2011.  Total RevPAR increased 3.2 percent with non-rooms revenue increasing by 1.1 percent between periods.
  • European RevPAR increased 1.8 percent (a 1.9 percent increase in constant dollars) in the fourth quarter of 2012, driven by a 2.7 percent increase in ADR (a 2.7 percent increase in constant dollars) offsetting a 0.7 percentage point decline in occupancy. European Total RevPAR decreased 3.1 percent in the fourth quarter of 2012 over the prior year period (2.9 percent in constant dollars).  
  • Total United States EBITDA margins expanded 90 basis points in the fourth quarter of 2012 compared to the fourth quarter of 2011.  North American same store EBITDA margins expanded 110 basis points between periods. 

Full Year Highlights

  • Net loss attributable to common shareholders was $79.5 million, or $0.40 per diluted share, in 2012 compared with a net loss attributable to common shareholders of $23.7 million, or $0.13 per diluted share, in the prior year.  Full year 2012 results include $18.8 million of impairment losses and other related charges, a $7.8 million charge related to the termination of the management agreement at the Hotel del Coronado, and a $2.5 million severance charge.  Full year 2011 results included a $29.2 million charge related to the loss on early termination of derivative financial instruments and a $1.2 million charge related to the loss on early extinguishment of debt.  These charges have been excluded from Comparable EBITDA, FFO and FFO per share.
  • Comparable FFO was $0.26 per diluted share compared with $0.20 per diluted share in the prior year period.  Full year 2011 Comparable FFO includes a $10.7 million one-time gain related to a successful preferred equity tender offer completed on December 19, 2011.  Excluding this gain, Comparable FFO would have been $0.14 per diluted share. 
  • Comparable EBITDA was $175.4 million compared with $154.8 million in the prior year period, a 13.3 percent increase.
  • Total United States RevPAR increased 7.0 percent, driven by a 4.9 percent increase in ADR and a 1.4 percentage point increase in occupancy, compared to the full year 2011.  Total RevPAR increased 5.8 percent with non-rooms revenue increasing by 4.7 percent between years.
  • ADR growth in the Total United States portfolio was driven by a 5.0 percent increase in transient ADR compared to the full year 2011 and a 4.0 percent increase in group ADR.
  • RevPAR increased 7.0 percent in the Company's Total United States resort and urban portfolios, compared to the full year 2011.
  • North American same store RevPAR increased 6.9 percent, driven by a 4.3 percent increase in ADR and a 1.7 percentage point increase in occupancy, compared to the full year 2011.  Total RevPAR increased 5.5 percent with non-rooms revenue increasing by 4.3 percent between years.
  • European RevPAR increased 1.1 percent (5.0 percent in constant dollars), driven by a 1.1 percentage point increase in occupancy offsetting a 0.1 percent decrease in ADR (3.7 percent increase in constant dollars) between years. European Total RevPAR decreased 1.2 percent in between years (2.4 percent increase in constant dollars). 
  • Total United States and EBITDA margins expanded 120 basis points compared to the full year 2011.  North American same store EBITDA margins expanded 130 basis points between periods.    

Preferred Dividends

On November 29, 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 December 31, 2012 to shareholders of record as of December 14, 2012, a quarterly dividend of $0.51563 per share of 8.25 percent Series B Cumulative Redeemable Preferred Stock payable on December 31, 2012 to shareholders of record as of December 14, 2012 and a quarterly dividend of $0.51563 per share of 8.25 percent Series C Cumulative Redeemable Preferred Stock payable on December 31, 2012 to shareholders of record as of December 14, 2012.

2012 Transaction Activity

  • 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 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.   
  • On June 29, 2012, the Company paid previously accrued and unpaid dividends on the Series A, B and C Preferred Stock through June 30, 2012 to shareholders of record as of June 15, 2012.  In total, 14 quarters of preferred dividends were paid equating to $7.4375 per share of Series A Preferred Stock and $7.21882 per share of Series B and Series C Preferred Stock.
  • On April 23, 2012, the Company closed on the sale of 18.4 million shares of common stock at a public offering price of $6.50 per share, including 2.4 million shares of common stock issued pursuant to the exercise in full of the underwriters' over-allotment option.  The Company received approximately $114.1 million from the offering after deducting underwriting discounts, commissions and transaction expenses related to the offering.  The Company utilized the net proceeds from the offering to reduce borrowings under its secured bank credit facility, fund the payment of accrued and unpaid preferred dividends, and fund capital expenditures and working capital.   

Impairment Losses and Other Charges

Fourth quarter and full year 2012 results include impairment losses and other charges totaling $18.8 million, including a $14.6 million impairment of a Mexican land development site and $4.2 million of other charges related to the elimination of certain capital projects and entitlement pursuit activities.  These one-time charges have been excluded from Comparable EBITDA, FFO and FFO per share metrics.

2013 Guidance

For the full year 2013, the Company anticipates that Comparable EBITDA will be in the range of $195.0 million to $210.0 million and Comparable FFO in the range of $0.33 and $0.40 per fully diluted share.

The Company's 2013 guidance includes the following assumptions:

  • Same Store North American RevPAR growth in the range of 5.0 percent to 7.0 percent and Total RevPAR growth of 4.0 percent to 6.0 percent, respectively.  Same Store operating metrics include North American hotels which are included in the Company's consolidated financial results but exclude the JW Marriott Essex House Hotel, which was acquired in 2012; 
  • Same Store North American EBITDA margin expansion between 75 basis points and 125 basis points;
  • Corporate G&A expenses in the range of $21.0 million to $23.0 million;
  • Consolidated interest expense in the range of $95 million to $100 million, including approximately $10 million of non-cash interest expense;
  • Preferred dividend expense of $24.2 million;
  • Capital expenditures totaling approximately $65 million to $70 million, including spending of $35 million from property-level furniture, fixtures and equipment (FF&E) reserves and an additional $30 million to $35 million of owner-funded spending; and
  • No additional planned acquisition, disposition or capital raising activity.

Portfolio Definitions

Total United States portfolio hotel comparisons for the fourth quarter and full year 2012 are derived from the Company's hotel portfolio at December 31, 2012, consisting of all 14 properties located in the United States, including unconsolidated joint ventures. 

North American same store hotel comparisons for the fourth quarter and full year 2012 are derived from the Company's hotel portfolio at December 31, 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 contain 13 properties for the fourth quarter, including the Four Seasons Punta Mita Resort and excluding the JW Marriott Essex House Hotel, which was acquired on September 14, 2012, and the unconsolidated Hotel del Coronado and Fairmont Scottsdale Princess hotels. Same store comparisons contain contain 11 properties for the full year, also excluding the Four Seasons Jackson Hole and Four Seasons Silicon Valley hotels, which were acquired on March 11, 2011.

European hotel comparisons for the fourth quarter and full year 2012 are derived from the Company's European owned and leased hotel properties at December 31, 2012, consisting of the Marriott London Grosvenor Square and the Marriott Hamburg hotels. 

Earnings Call

The Company will conduct its fourth quarter and full-year 2012 conference call for investors and other interested parties on Thursday, February 28, 2013 at 10:00 a.m. Eastern Time (ET).  Interested individuals are invited to listen to the call by telephone at 800.573.4752 (toll international: 617.224.4324) with passcode 71539203.  To participate on the web cast, log on to http://edge.media-server.com/m/p/fzhfd434/lan/en 15 minutes before the call to download the necessary software.  For those unable to listen to the call live, a taped rebroadcast will be available beginning at 12:00 p.m. ET on February 28, 2013, through 11:59 p.m. ET on March 7, 2013. To access the replay, 888.286.8010 (toll international: 617.801.6888) and request replay pin number 25278256.  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 fourth quarter information section.

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 2013 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

$(55.7)


$(40.7)

Depreciation and Amortization

119.4


119.4

Interest Expense

97.4


97.4

Income Taxes

1.4


1.4

Non-controlling Interests

(0.1)


(0.1)

Adjustments from Consolidated Affiliates

(16.0)


(16.0)

Adjustments from Unconsolidated Affiliates

24.6


24.6

Preferred Shareholder Dividends

24.2


24.2

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Comparable EBITDA

$195.0


$210.0

 


Low Range


High Range

Net Loss Attributable to Common Shareholders

$(55.7)


$(40.7)

Depreciation and Amortization

118.5


118.5

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Non-controlling Interests

(0.1)


(0.0)

Adjustments from Consolidated Affiliates

(8.4)


(8.4)

Adjustments from Unconsolidated Affiliates

14.9


14.9

Comparable FFO

$69.0


$84.1

Comparable FFO per Diluted Share

$0.33


$0.40





 


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


Consolidated Statements of Operations

(in thousands, except per share data)








Three Months Ended December 31,


Years Ended

December 31,



2012


2011


2012


2011

Revenues:









Rooms


$

123,051



$

99,985



$

446,760



$

410,315


Food and beverage


76,164



71,207



273,857



267,194


Other hotel operating revenue


23,584



21,047



82,922



80,907


Lease revenue


1,273



1,675



4,778



5,422


Total revenues


224,072



193,914



808,317



763,838


Operating Costs and Expenses:









Rooms


34,268



28,359



124,896



114,087


Food and beverage


56,508



50,018



199,573



192,028


Other departmental expenses


58,424



51,808



211,981



207,664


Management fees


6,972



6,516



24,984



24,719


Other hotel expenses


16,482



14,311



56,842



53,808


Lease expense


1,155



1,163



4,580



4,865


Depreciation and amortization


27,048



25,840



103,464



112,062


Impairment losses and other charges


18,843





18,843




Corporate expenses


8,225



15,650



31,857



39,856


Total operating costs and expenses


227,925



193,665



777,020



749,089


Operating (loss) income


(3,853)



249



31,297



14,749


Interest expense


(16,862)



(19,299)



(75,489)



(86,447)


Interest income


95



49



217



173


Loss on early extinguishment of debt








(1,237)


Loss on early termination of derivative financial instruments








(29,242)


Equity in losses of unconsolidated affiliates


(11,431)



(2,949)



(13,485)



(9,215)


Foreign currency exchange gain (loss)


94



(79)



(1,075)



(2)


Other income, net


455



1,051



1,820



5,767


Loss before income taxes and discontinued operations


(31,502)



(20,978)



(56,715)



(105,454)


Income tax expense


(796)



(691)



(1,011)



(970)


Loss from continuing operations


(32,298)



(21,669)



(57,726)



(106,424)


Income (loss) from discontinued operations, net of tax




357



(535)



101,572


Net loss


(32,298)



(21,312)



(58,261)



(4,852)


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


58



99



184



29


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


1,880



614



2,771



(383)


Net loss attributable to SHR


(30,360)



(20,599)



(55,306)



(5,206)


Preferred shareholder dividends


(6,041)



4,682



(24,166)



(18,482)


Net loss attributable to SHR common shareholders


$

(36,401)



$

(15,917)



$

(79,472)



$

(23,688)


Basic Loss Per Share:









Loss from continuing operations attributable to SHR common shareholders


$

(0.18)



$

(0.09)



$

(0.40)



$

(0.70)


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








0.57


Net loss attributable to SHR common shareholders


$

(0.18)



$

(0.09)



$

(0.40)



$

(0.13)


Weighted average common shares outstanding


206,836



186,151



201,109



176,576


Diluted Loss Per Share:









Loss from continuing operations attributable to SHR common shareholders


$

(0.18)



$

(0.09)



$

(0.40)



$

(0.70)


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








0.57


Net loss attributable to SHR common shareholders


$

(0.18)



$

(0.09)



$

(0.40)



$

(0.13)


Weighted average common shares outstanding


206,836



186,151



201,109



176,576


 

 

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


Consolidated Balance Sheets

(in thousands, except share data)






December 31,



2012


2011

Assets





Investment in hotel properties, net


$

1,970,560



$

1,692,431


Goodwill


40,359



40,359


Intangible assets, net of accumulated amortization of $10,812 and $8,915


30,631



30,635


Investment in unconsolidated affiliates


112,488



126,034


Cash and cash equivalents


80,074



72,013


Restricted cash and cash equivalents


58,579



39,498


Accounts receivable, net of allowance for doubtful accounts of $1,602 and $1,698


45,620



43,597


Deferred financing costs, net of accumulated amortization of $7,049 and $3,488


11,695



10,845


Deferred tax assets


2,203



2,230


Prepaid expenses and other assets


54,208



29,047


Total assets


$

2,406,417



$

2,086,689


Liabilities, Noncontrolling Interests and Equity





Liabilities:





Mortgages and other debt payable


$

1,176,297



$

1,000,385


Bank credit facility


146,000



50,000


Accounts payable and accrued expenses


228,397



249,179


Distributions payable




72,499


Deferred tax liabilities


47,275



47,623


Total liabilities


1,597,969



1,419,686


Noncontrolling interests in SHR's operating partnership


5,463



4,583


Commitments and contingencies





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 $103,704 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 $90,384 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 $95,693 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


1,730,535



1,634,067


Accumulated deficit


(1,245,927)



(1,190,621)


Accumulated other comprehensive loss


(58,871)



(70,652)


Total SHR's shareholders' equity


707,328



654,198


Noncontrolling interests in consolidated affiliates


95,657



8,222


Total equity


802,985



662,420


Total liabilities, noncontrolling interests and equity


$

2,406,417



$

2,086,689


 

 

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


Financial Highlights


Supplemental Financial Data

(in thousands, except per share information)






December 31, 2012



Pro Rata Share


Consolidated

Capitalization





Common shares outstanding


204,309



204,309


Operating partnership units outstanding


853



853


Restricted stock units outstanding


1,610



1,610


Value Creation Plan units outstanding under the deferral program


1,301



1,301


Combined shares and units outstanding


208,073



208,073


Common stock price at end of period


$

6.40



$

6.40


Common equity capitalization


$

1,331,667



$

1,331,667


Preferred equity capitalization (at $25.00 face value)


289,102



289,102


Consolidated debt


1,322,297



1,322,297


Pro rata share of unconsolidated debt


221,200




Pro rata share of consolidated debt


(135,160)




Cash and cash equivalents


(80,074)



(80,074)


Total enterprise value


$

2,949,032



$

2,862,992


Net Debt / Total Enterprise Value


45.0

%


43.4

%

Preferred Equity / Total Enterprise Value


9.8

%


10.1

%

Common Equity / Total Enterprise Value


45.2

%


46.5

%

 


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 months and years ended December 31, 2012 and 2011 (in thousands):



Three Months Ended December 31,


Years Ended December 31,



2012


2011


2012


2011

Hotel operating revenues


$



$



$



$

9,743


Operating costs and expenses








9,456


Operating income








287


Foreign currency exchange (loss) gain






(535)



51


Other income, net








326


Income tax expense








(379)


Gain on sale




357





101,287


Income (loss) from discontinued operations


$



$

357



$

(535)



$

101,572


 

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

Investments in Unconsolidated Affiliates
(in thousands)

On February 4, 2011, we completed a recapitalization of the unconsolidated affiliate that owns the Hotel del Coronado. Pursuant to the terms of the recapitalization, our ownership interest in the Hotel del Coronado decreased from 45% to 34.3%. On December 17, 2012, we acquired an additional interest in the entity increasing our ownership to 36.4%. 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 December 31, 2012


Three Months Ended December 31, 2011



Hotel del

Coronado


Fairmont Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont Scottsdale

Princess


Total

Total revenues (100%)


$

29,888



$

20,546



$

50,434



$

30,324



$

18,322



$

48,646


Property EBITDA (100%)


$

7,201



$

3,034



$

10,235



$

7,697



$

2,052



$

9,749


Equity in losses of unconsolidated affiliates (SHR ownership)











Property EBITDA


$

2,491



$

1,517



$

4,008



$

2,640



$

1,026



$

3,666


Depreciation and amortization


(1,797)



(1,823)



(3,620)



(1,674)



(1,765)



(3,439)


Interest expense


(2,549)



(189)



(2,738)



(2,515)



(204)



(2,719)


Other expenses, net


(7,869)



(111)



(7,980)



(22)



(17)



(39)


Income taxes


90





90



(49)





(49)


Equity in losses of unconsolidated affiliates


$

(9,634)



$

(606)



$

(10,240)



$

(1,620)



$

(960)



$

(2,580)


EBITDA Contribution:













Equity in losses of unconsolidated affiliates


$

(9,634)



$

(606)



$

(10,240)



$

(1,620)



$

(960)



$

(2,580)


Depreciation and amortization


1,797



1,823



3,620



1,674



1,765



3,439


Termination fee


7,820





7,820








Interest expense


2,549



189



2,738



2,515



204



2,719


Income taxes


(90)





(90)



49





49


EBITDA Contribution


$

2,442



$

1,406



$

3,848



$

2,618



$

1,009



$

3,627


FFO Contribution:













Equity in losses of unconsolidated affiliates


$

(9,634)



$

(606)



$

(10,240)



$

(1,620)



$

(960)



$

(2,580)


Depreciation and amortization


1,797



1,823



3,620



1,674



1,765



3,439


Termination fee


7,820





7,820








FFO Contribution


$

(17)



$

1,217



$

1,200



$

54



$

805



$

859


 

 



Year Ended December 31, 2012


Year Ended December 31, 2011



Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total

Total revenues (100%)


$

140,220



$

77,281



$

217,501



$

136,727



$

30,711



$

167,438


Property EBITDA (100%)


$

40,722



$

12,777



$

53,499



$

42,445



$

(1,144)



$

41,301


Equity in losses of unconsolidated affiliates (SHR ownership)











Property EBITDA


$

13,989



$

6,389



$

20,378



$

14,662



$

(572)



$

14,090


Depreciation and amortization


(6,895)



(7,145)



(14,040)



(6,637)



(4,022)



(10,659)


Interest expense


(10,093)



(778)



(10,871)



(9,897)



(452)



(10,349)


Other expenses, net


(7,931)



(155)



(8,086)



(1,569)



(657)



(2,226)


Income taxes


383





383



505





505


Equity in losses of unconsolidated affiliates


$

(10,547)



$

(1,689)



$

(12,236)



$

(2,936)



$

(5,703)



$

(8,639)


EBITDA Contribution













Equity in losses of unconsolidated affiliates


$

(10,547)



$

(1,689)



$

(12,236)



$

(2,936)



$

(5,703)



$

(8,639)


Depreciation and amortization


6,895



7,145



14,040



6,637



4,022



10,659


Termination fee


7,820





7,820








Interest expense


10,093



778



10,871



9,897



452



10,349


Income taxes


(383)





(383)



(505)





(505)


EBITDA Contribution


$

13,878



$

6,234



$

20,112



$

13,093



$

(1,229)



$

11,864


FFO Contribution













Equity in losses of unconsolidated affiliates


$

(10,547)



$

(1,689)



$

(12,236)



$

(2,936)



$

(5,703)



$

(8,639)


Depreciation and amortization


6,895



7,145



14,040



6,637



4,022



10,659


Termination fee


7,820





7,820








FFO Contribution


$

4,168



$

5,456



$

9,624



$

3,701



$

(1,681)



$

2,020


 

 

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










(7,929)




Net Debt










$

417,071




Fairmont Scottsdale Princess













CMBS Mortgage


0.57

%




36 bp




$

133,000



April 2015

Cash and cash equivalents










(4,626)




Net Debt










$

128,374




(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 December 31,


Years Ended December 31,



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


$

1,472



$

1,568



$

5,876



$

6,603


Revenue (b)


$

1,273



$

1,675



$

4,778



$

5,422











Lease expense


(1,155)



(1,163)



(4,580)



(4,865)


Less: Deferred gain on sale-leaseback


(50)



(66)



(200)



(217)


Adjusted lease expense


(1,205)



(1,229)



(4,780)



(5,082)











EBITDA contribution from leasehold


$

68



$

446



$

(2)



$

340











Total Leaseholds:









Property EBITDA


$

1,472



$

1,568



$

5,876



$

10,058


Revenue (b)


$

1,273



$

1,675



$

4,778



$

8,877











Lease expense


(1,155)



(1,163)



(4,580)



(8,139)


Less: Deferred gain on sale-leasebacks


(50)



(66)



(200)



(1,431)


Adjusted lease expense


(1,205)



(1,229)



(4,780)



(9,570)











EBITDA contribution from leaseholds


$

68



$

446



$

(2)



$

(693)


 



December 31,

Security Deposit (c):


2012


2011

Marriott Hamburg


$

2,507



$

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 year ended December 31, 2011, Revenue for the Paris Marriott hotel represents Property EBITDA. For the three months and years ended December 31, 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 certain other charges that are highly variable from year to year. 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 certain other charges that are highly variable from year to year. 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 December 31,


Years Ended December 31,



2012


2011


2012


2011

Net loss attributable to SHR common shareholders


$

(36,401)



$

(15,917)



$

(79,472)



$

(23,688)


Depreciation and amortization


27,048



25,840



103,464



112,062


Interest expense


16,862



19,299



75,489



86,447


Income taxes—continuing operations


796



691



1,011



970


Income taxes—discontinued operations








379


Noncontrolling interests


(58)



(99)



(184)



(29)


Adjustments from consolidated affiliates


(4,217)



(1,302)



(8,599)



(6,733)


Adjustments from unconsolidated affiliates


6,956



6,928



27,562



23,221


Preferred shareholder dividends


6,041



(4,682)



24,166



18,482


EBITDA


17,027



30,758



143,437



211,111


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


(50)



(66)



(200)



(217)


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








(1,214)


Gain on sale of assets—continuing operations








(2,640)


Gain on sale of assets—discontinued operations




(357)





(101,287)


Impairment losses and other charges


18,843





18,843




Loss on early extinguishment of debt








1,237


Loss on early termination of derivative financial instruments








29,242


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


(94)



79



1,075



2


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






535



(51)


Adjustment for Value Creation Plan


(1,352)



9,529



1,407



18,607


Severance charges


2,485





2,485




Management agreement termination fee (b)


7,820





7,820




Comparable EBITDA


$

44,679



$

39,943



$

175,402



$

154,790


 

(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) Our share of the Hotel del Coronado management agreement termination fee included in both equity in losses of unconsolidated affiliates and net loss attributable to the noncontrolling interests in consolidated affiliates.

 

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 December 31,


Years Ended December 31,



2012


2011


2012


2011

Net loss attributable to SHR common shareholders


$

(36,401)



$

(15,917)



$

(79,472)



$

(23,688)


Depreciation and amortization


27,048



25,840



103,464



112,062


Corporate depreciation


(190)



(273)



(979)



(1,141)


Gain on sale of assets—continuing operations








(2,640)


Gain on sale of assets—discontinued operations




(357)





(101,287)


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


(50)



(66)



(200)



(217)


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


(127)



(135)



(501)



(575)


Adjustments from consolidated affiliates


(1,906)



(664)



(4,091)



(4,486)


Adjustments from unconsolidated affiliates


3,923



3,740



15,258



11,763


FFO


(7,703)



12,168



33,479



(11,044)


Redeemable noncontrolling interests


69



36



317



546


FFO—Fully Diluted


(7,634)



12,204



33,796



(10,498)


Impairment losses and other charges


18,843





18,843




Non-cash mark to market of interest rate swaps


(7,833)



(1,696)



(12,238)



(2,183)


Loss on early extinguishment of debt








1,237


Loss on early termination of derivative financial instruments








29,242


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


(94)



79



1,075



2


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






535



(51)


Adjustment for Value Creation Plan


(1,352)



9,529



1,407



18,607


Severance charges


2,485





2,485




Management agreement termination fee (b)


7,820





7,820




Comparable FFO


$

12,235



$

20,116



$

53,723



$

36,356


Comparable FFO per fully diluted share


$

0.06



$

0.11



$

0.26



$

0.20


Weighted average diluted shares (c)


209,307



188,340



203,605



179,319


 

(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) Our share of the Hotel del Coronado management agreement termination fee included in both equity in losses of unconsolidated affiliates and net loss attributable to the noncontrolling interests in consolidated affiliates.

(c) 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)

Marriott London Grosvenor Square (c)


1.62

%


110 bp (c)


$

115,468



October 2013

North Beach Venture


5.00

%


Fixed


1,476



January 2014

Bank credit facility


3.21

%


300 bp


146,000



June 2015

Four Seasons Washington, D.C.


3.36

%


315 bp


130,000



July 2016

Westin St. Francis


6.09

%


Fixed


214,186



June 2017

Fairmont Chicago


6.09

%


Fixed


95,167



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







$

1,322,297




 

(a) Spread over LIBOR (0.21% at December 31, 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 December 31, 2012. Spread over three-month GBP LIBOR (0.52% at December 31, 2012).

(d) 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) are as follows:

Years ending December 31,


Amount

2013


$

126,334


2014


15,348


2015


162,246


2016


150,661


2017


549,516


Thereafter


318,192




$

1,322,297





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


74.8

%

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


6.45

%

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


4.21


(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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