Strategic Hotels & Resorts Reports Second Quarter 2014 Financial Results Company Raises Lower-End of Full Year Guidance Ranges

CHICAGO, Aug. 4, 2014 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the second quarter ended June 30, 2014. 

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

Second Quarter

Earnings Metrics

2014

2013

% Change

Net income attributable to common shareholders

$80.8

$3.3

2,369.2%

Net income per diluted share

$0.35

$0.01

3,400.0%

Comparable funds from operations (Comparable FFO) (a)

$48.1

$28.7

67.8%

Comparable FFO per diluted share (a)

$0.21

$0.14

50.0%

Comparable EBITDA (a)

$68.9

$60.3

14.3%





Total United States Portfolio Operating Metrics (b)




Average Daily Rate (ADR)

$296.15

$282.24

4.9%

Occupancy

79.6%

79.3%

 0.3 pts

Revenue per Available Room (RevPAR)

$235.68

$223.80

5.3%

Total RevPAR

$447.26

$417.10

7.2%

EBITDA Margins

28.1%

26.4%

170 bps



(a)

Please refer to the tables provided later in this press release for a reconciliation of net income attributable to common shareholders 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 which is derived from the Company's hotel portfolio at June 30, 2014, consisting of all 15 properties located in the United States.

"Building upon the positive momentum from the first quarter, we drove continued high performance among all our key metrics in the first half of 2014, perhaps most notably within group room nights and related ancillary spend," said Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts, Inc.  "Total RevPAR grew 7.2% while EBITDA margins expanded 170 basis points leading to a 14.3% increase in Comparable EBITDA and a 50.0% increase in Comparable FFO per share in the second quarter; which were all above consensus estimates. From a transactional perspective, the Company has completed nearly $2.7 billion in gross transactions since the beginning of the year, with second quarter highlights including the acquisition of the remaining interest in the iconic Hotel del Coronado, raising or refinancing nearly $1.0 billion of capital and retiring $200 million of high cost preferred equity.  This has allowed us to continue building the highest quality portfolio in the industry, while lowering our cost of capital and further deleveraging our balance sheet.   I remain very optimistic about the second half of the year, which is why we have upwardly revised the lower end of our guidance ranges."

Second Quarter Highlights

  • Total consolidated revenues were $276.2 million in the second quarter of 2014, a 21.6 percent increase over the prior year period.
  • Net income attributable to common shareholders was $80.8 million, or $0.35 per diluted share, in the second quarter of 2014, compared with $3.3 million, or $0.01 per diluted share, in the second quarter of 2013.
  • Comparable FFO was $0.21 per diluted share in the second quarter of 2014, compared with $0.14 per diluted share in the prior year period, a 50.0 percent increase over the prior year period.    
  • Comparable EBITDA was $68.9 million in the second quarter of 2014, compared with $60.3 million in the prior year period, a 14.3 percent increase between periods.   
  • Total United States portfolio RevPAR increased 5.3 percent in the second quarter of 2014, driven by a 4.9 percent increase in ADR and a 0.3 percentage point increase in occupancy compared to the second quarter of 2013.  Total RevPAR increased 7.2 percent between periods with non-rooms revenue increasing by 9.4 percent between periods.
  • Transient occupied room nights in the Total United States portfolio increased 0.6 percent in the second quarter 2014 and group occupied room nights were flat compared to the second quarter of 2013.  Transient ADR increased 5.5 percent compared to the second quarter of 2013 and group ADR increased 3.9 percent.
  • Total United States portfolio EBITDA margins expanded 170 basis points in the second quarter of 2014, compared to the second quarter of 2013. 
  • Group room nights currently booked for 2014 are 7.2 percent higher compared to room nights booked for 2013 at the same time last year, with rates 3.2 percent higher, resulting in a 10.6 percent RevPAR increase.

The Company reported financial results for the six month period ended June 30, 2014 as follows:

  • Total consolidated revenues were $470.8 million for the six month period ended June 30, 2014, a 15.3 percent increase over the prior year period.
  • Net income attributable to common shareholders was $298.0 million, or $1.30 per diluted share, compared with net loss attributable to common shareholders of $20.2 million, or $0.11 per diluted share, for the six month period ended June 30, 2013.
  • Comparable FFO was $0.28 per diluted share compared with $0.15 per diluted share in the six month period ended June 30, 2013.    
  • Comparable EBITDA was $110.1 million compared with $94.8 million for the six month period ended June 30, 2013, a 16.2 percent increase between periods.   

Preferred Dividends & Redemptions

On April 3, 2014, the Company completed the redemption of all of the outstanding 4,148,141 shares of its 8.50% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Shares") at a redemption price of $25.00 per share, plus accrued and unpaid dividends in the amount of $0.54896 per share, for a total redemption cost of $106.0 million.  The redemption of the Series A Preferred Shares eliminated approximately $6.5 million in dividend payments in 2014 and $8.8 million of dividend payments on an annual basis.

On June 2, 2014, the Company's board of directors declared a quarterly dividend of $0.51563 per share of 8.25% Series B Cumulative Redeemable Preferred Stock and 8.25% Series C Cumulative Redeemable Preferred Stock, which was paid on June 30, 2014 to shareholders of record as of the close of business on June 16, 2014.

On July 3, 2014, the Company completed the redemption of all of the outstanding 3,827,727 shares of its 8.25% Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Shares") at a redemption price of $25.00 per share, plus accrued and unpaid dividends in the amount of $0.01719 per share, for a total redemption cost of $95.8 million.  The redemption of the Series C Preferred Shares eliminated approximately $3.9 million in dividend payments in 2014 and $7.9 million in dividend payments on an annual basis.

Transaction Activity

On April 21, 2014, the Company paid $22.7 million to terminate its $400.0 million notional value interest rate swap portfolio, which will reduce cash interest expense by approximately $11.5 million in 2014.  The swap portfolio had a weighted average LIBOR interest rate of 5.09 percent. 

On April 25, 2014, the Company closed on a new $300.0 million stock secured credit facility with an accordion feature allowing for additional borrowing capacity up to $400.0 million.  The facility's interest rate is based upon a leverage-based pricing grid ranging from LIBOR plus 175 basis points to LIBOR plus 250 basis points.  The initial pricing is LIBOR plus 200 basis points, representing a 75 basis point decline from the Company's previous credit facility. 

On May 29, 2014, the Company closed on a $120.0 million loan secured by the Loews Santa Monica Beach Hotel.  The loan bears interest at a floating rate of LIBOR plus 255 basis points and has a seven-year term, including extension options.

On June 2, 2014, the Company closed on an underwritten public offering of 41.4 million shares of common stock at a public offering price of $10.50 per share, including 5.4 million shares of common stock issued pursuant to the exercise in full of the underwriters' over-allotment option.  The Company received $416.8 million from the offering after deducting underwriting discounts and commissions and transaction expenses related to the offering.  The Company used the net proceeds from the offering to fund the acquisition of the 63.6 percent ownership interest in the Hotel del Coronado that it did not previously own from its joint venture partner, to redeem all of the issued and outstanding Series C Preferred Shares, and for general corporate purposes.

On June 11, 2014, the Company closed on the acquisition of the 63.6 percent ownership interest in the Hotel del Coronado that it did not previously own for $210.0 million in cash and became fully obligated under the entire $475.0 million loan encumbering the property.

On June 30, 2014, the Company closed on a $120.0 million loan secured by the Four Seasons Washington, D.C. hotel.  The loan bears interest at a floating rate of LIBOR plus 225 basis points and has a five-year term, including extension options.

2014 Guidance

Based on the results of the first six months of 2014 and current forecasts for the remainder of the year, management is raising the lower end of its guidance ranges for full year 2014 RevPAR growth, Total RevPAR growth, EBITDA margin expansion, Comparable EBITDA and Comparable FFO per fully diluted share. 

For the full-year ending December 31, 2014, the Company is providing the following guidance ranges: 

Guidance Metrics

Previous Range


Revised Range

RevPAR

5.0% - 7.0%


5.5% - 7.0%

Total RevPAR

5.0% - 7.0%


5.5% - 7.0%

EBITDA Margin expansion

120 – 200 basis points


150 – 200 basis points

Comparable EBITDA

$230M - $250M


$235M - $250M

Comparable FFO per diluted share

$0.59 - $0.68


$0.62 - $0.68

Earnings Call

The Company will conduct its second quarter 2014 conference call for investors and other interested parties on Tuesday, August 5, 2014 at 10:00 a.m. Eastern Time (ET).  Interested individuals are invited to access the call by dialing 866.953.6860 (toll international: 617.399.3484) with passcode 73605986. 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/jmm8mnof/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 2:00 p.m. ET on August 5, 2014 through 11:59 p.m. ET on August 12, 2014. To access the replay, dial 888.286.8010 (toll international: 617.801.6888) with passcode 16079435.  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.

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 and Europe. The Company currently has ownership interests in 16 properties with an aggregate of 7,865 rooms and 835,000 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, 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 economic conditions and disruption in financial markets 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, refinance or extend maturing debt; the Company's ability to maintain compliance with covenants contained in its debt facilities; stagnation or 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 its 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, Germany 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; 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 SEC, 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.


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

 

Consolidated Statements of Operations

(in thousands, except per share data)




Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Revenues:













Rooms


$

148,874



$

127,484



$

251,974



$

225,748


Food and beverage


100,028



79,966



170,045



142,023


Other hotel operating revenue


25,942



18,491



46,181



38,150


Lease revenue


1,319



1,160



2,618



2,360


Total revenues


276,163



227,101



470,818



408,281


Operating Costs and Expenses:













Rooms


41,268



36,087



74,975



67,850


Food and beverage


67,077



57,289



121,680



108,839


Other departmental expenses


66,238



53,285



119,817



104,466


Management fees


9,241



6,447



15,019



11,457


Other hotel expenses


15,572



15,234



31,250



30,123


Lease expense


1,260



1,206



2,518



2,382


Depreciation and amortization


28,058



24,691



50,263



49,599


Corporate expenses


7,198



7,209



14,391



12,972


Total operating costs and expenses


235,912



201,448



429,913



387,688


Operating income


40,251



25,653



40,905



20,593


Interest expense


(19,587)



(19,460)



(37,861)



(39,123)


Interest income


50



20



77



30


Equity in earnings of unconsolidated affiliates


826



1,456



5,271



2,801


Foreign currency exchange (loss) gain


(8)



84



(6)



(2)


Gain on consolidation of affiliates


65,349





143,466




Other income, net


795



745



1,218



877


Income (loss) before income taxes and discontinued operations


87,676



8,498



153,070



(14,824)


Income tax expense


(207)



(72)



(246)



(85)


Income (loss) from continuing operations


87,469



8,426



152,824



(14,909)


Income from discontinued operations, net of tax


604



329



159,039



2,318


Net Income (Loss)


88,073



8,755



311,863



(12,591)


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


(281)



(36)



(1,130)



51


Net loss attributable to the noncontrolling interests in consolidated affiliates


217



597



4,258



4,449


Net Income (Loss) attributable to SHR


88,009



9,316



314,991



(8,091)


Preferred shareholder dividends


(7,169)



(6,042)



(16,993)



(12,083)


Net Income (Loss) Attributable to SHR Common Shareholders


$

80,840



$

3,274



$

297,998



$

(20,174)


Basic Income (Loss) Per Common Share:













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


$

0.36



$

0.02



$

0.65



$

(0.11)


Income from discontinued operations attributable to SHR common shareholders






0.74



0.01


Net income (loss) attributable to SHR common shareholders


$

0.36



$

0.02



$

1.39



$

(0.10)


Weighted average shares of common stock outstanding


222,013



206,061



214,450



205,849


Diluted Income (Loss) Per Common Share:













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


$

0.35



$

0.01



$

0.60



$

(0.12)


Income from discontinued operations attributable to SHR common shareholders






0.70



0.01


Net income (loss) attributable to SHR common shareholders


$

0.35



$

0.01



$

1.30



$

(0.11)


Weighted average shares of common stock outstanding


233,463



219,227



225,900



217,006


 


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

 

Consolidated Balance Sheets

(in thousands, except share data)




June 30, 2014


December 31, 2013

Assets







Investment in hotel properties, net


$

2,722,752



$

1,795,338


Goodwill


38,128



38,128


Intangible assets, net of accumulated amortization of $3,716 and $11,753


91,635



29,502


Assets held for sale




135,901


Investment in unconsolidated affiliates


22,910



104,973


Cash and cash equivalents


245,468



73,655


Restricted cash and cash equivalents


91,480



75,916


Accounts receivable, net of allowance for doubtful accounts of $466 and $606


67,241



39,660


Deferred financing costs, net of accumulated amortization of $12,686 and $12,354


9,852



8,478


Deferred tax assets


2,134




Prepaid expenses and other assets


46,646



35,600


Total assets


$

3,338,246



$

2,337,151


Liabilities, Noncontrolling Interests and Equity







Liabilities:







Mortgages and other debt payable, net of discount


$

1,636,450



$

1,163,696


Bank credit facility




110,000


Liabilities of assets held for sale




17,027


Accounts payable and accrued expenses


204,171



189,889


Preferred stock redemption liability


95,693




Distributions payable


128




Deferred tax liabilities


45,778



46,137


Total liabilities


1,982,220



1,526,749


Commitments and contingencies







Noncontrolling interests in SHR's operating partnership


9,336



7,534


Equity:







SHR's shareholders' equity:







8.50% Series A Cumulative Redeemable Preferred Stock ($0.01 par value per share; 0 and 4,148,141 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $0 and $103,704 in the aggregate)




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 $90,446 and $90,384 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 $95,759 and $95,693 in the aggregate)




92,489


Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 247,371,386 and 205,582,838 shares of common stock issued and outstanding)


2,474



2,056


Additional paid-in capital


2,105,749



1,705,306


Accumulated deficit


(919,961)



(1,234,952)


Accumulated other comprehensive loss


(19,176)



(41,445)


Total SHR's shareholders' equity


1,256,150



710,513


Noncontrolling interests in consolidated affiliates


90,540



92,355


Total equity


1,346,690



802,868


Total liabilities, noncontrolling interests and equity


$

3,338,246



$

2,337,151


 


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

 

Financial Highlights

 

Supplemental Financial Data

(in thousands, except per share information)




June 30, 2014



Pro Rata Share


Consolidated

Capitalization







Shares of common stock outstanding


247,371



247,371


Operating partnership units outstanding


797



797


Restricted stock units outstanding


1,446



1,446


Combined shares and units outstanding


249,614



249,614


Common stock price at end of period


$

11.71



$

11.71


Common equity capitalization


$

2,922,980



$

2,922,980


Preferred equity capitalization (at $25.00 face value)


90,384



90,384


Preferred stock redemption liability


95,693



95,693


Consolidated debt


1,638,319



1,638,319


Pro rata share of consolidated debt


(132,568)




Cash and cash equivalents


(245,468)



(245,468)


Total enterprise value


$

4,369,340



$

4,501,908


Net Debt / Total Enterprise Value


31.0

%


33.1

%

Preferred Equity / Total Enterprise Value


2.1

%


2.0

%

Common Equity / Total Enterprise Value


66.9

%


64.9

%

 

 



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 hotels were sold during the six months ended June 30, 2014:


Hotel


Location


Date Sold


Sales Proceeds


Four Seasons Punta Mita Resort and La Solana land parcel


Punta Mita, Mexico


February 28, 2014


$

203,197,000



Marriott London Grosvenor Square


London, England


March 31, 2014


$

208,306,000


(a)

 

(a)   

There was an outstanding balance of £67,301,000 ($112,150,000) on the mortgage loan secured by the Marriott London Grosvenor Square hotel, which was repaid at the time of closing.  The net proceeds we received were $96,156,000.

The following is a summary of income from discontinued operations for the three and six months ended June 30, 2014 and 2013 (in thousands):



Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Hotel operating revenues


$



$

17,064



$

17,767



$

37,351


Operating costs and expenses




11,778



11,485



25,500


Depreciation and amortization




2,306



1,275



4,616


Total operating costs and expenses




14,084



12,760



30,116


Operating income




2,980



5,007



7,235


Interest expense




(1,819)



(1,326)



(3,642)


Interest income




1



2



3


Loss on early extinguishment of debt






(272)




Foreign currency exchange (loss) gain




(138)



32



188


Income tax expense




(695)



(833)



(1,466)


Gain on sale, net of tax


604





156,429




Income from discontinued operations


$

604



$

329



$

159,039



$

2,318




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

 

Investments in Unconsolidated Affiliates

(in thousands)


We had a 36.4% equity ownership interest in the Hotel del Coronado that we accounted for using the equity method of accounting until we acquired the remaining 63.6% equity ownership interest not previously owned by us on June 11, 2014. We had a 50.0% equity ownership interest in the Fairmont Scottsdale Princess hotel that we accounted for using the equity method of accounting until we acquired the remaining 50.0% equity ownership interest not previously owned by us on March 31, 2014. For purposes of this analysis, the operating results reflect the 36.4% equity ownership interest we held in the Hotel del Coronado prior to June 11, 2014 and the 50.0% equity ownership interest we held in the Fairmont Scottsdale Princess hotel prior to March 31, 2014.




Three Months Ended June 30, 2014


Three Months Ended June 30, 2013



Hotel del

Coronado


Fairmont Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont Scottsdale

Princess


Total

Total revenues (100%)


$

33,821



$



$

33,821



$

37,758



$

24,204



$

61,962


Property EBITDA (100%)


$

11,202



$



$

11,202



$

11,946



$

5,504



$

17,450


Equity in earnings of unconsolidated affiliates (SHR ownership)













Property EBITDA


$

4,075



$



$

4,075



$

4,345



$

2,752



$

7,097


Depreciation and amortization


(1,572)





(1,572)



(1,886)



(1,632)



(3,518)


Interest expense


(1,518)





(1,518)



(1,944)



(196)



(2,140)


Other expenses, net


(18)





(18)



(7)



(11)



(18)


Income taxes


(87)





(87)



(31)





(31)


Equity in earnings of unconsolidated affiliates


$

880



$



$

880



$

477



$

913



$

1,390


EBITDA Contribution:



















Equity in earnings of unconsolidated affiliates


$

880



$



$

880



$

477



$

913



$

1,390


Depreciation and amortization


1,572





1,572



1,886



1,632



3,518


Interest expense


1,518





1,518



1,944



196



2,140


Income taxes


87





87



31





31


EBITDA Contribution


$

4,057



$



$

4,057



$

4,338



$

2,741



$

7,079


FFO Contribution:



















Equity in earnings of unconsolidated affiliates


$

880



$



$

880



$

477



$

913



$

1,390


Depreciation and amortization


1,572





1,572



1,886



1,632



3,518


FFO Contribution


$

2,452



$



$

2,452



$

2,363



$

2,545



$

4,908


 




Six Months Ended June 30, 2014


Six Months Ended June 30, 2013



Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total

Total revenues (100%)


$

67,863



$

35,006



$

102,869



$

68,087



$

55,160



$

123,247


Property EBITDA (100%)


$

20,761



$

13,191



$

33,952



$

19,820



$

15,073



$

34,893


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
















Property EBITDA


$

7,426



$

6,595



$

14,021



$

7,209



$

7,537



$

14,746


Depreciation and amortization


(3,526)



(1,551)



(5,077)



(3,751)



(3,472)



(7,223)


Interest expense


(3,418)



(168)



(3,586)



(4,434)



(390)



(4,824)


Other expenses, net


(25)



(30)



(55)



(23)



(19)



(42)


Income taxes


143





143



63





63


Equity in earnings (losses) of unconsolidated affiliates


$

600



$

4,846



$

5,446



$

(936)



$

3,656



$

2,720


EBITDA Contribution



















Equity in earnings (losses) of unconsolidated affiliates


$

600



$

4,846



$

5,446



$

(936)



$

3,656



$

2,720


Depreciation and amortization


3,526



1,551



5,077



3,751



3,472



7,223


Interest expense


3,418



168



3,586



4,434



390



4,824


Income taxes


(143)





(143)



(63)





(63)


EBITDA Contribution


$

7,401



$

6,565



$

13,966



$

7,186



$

7,518



$

14,704


FFO Contribution



















Equity in earnings (losses) of unconsolidated affiliates


$

600



$

4,846



$

5,446



$

(936)



$

3,656



$

2,720


Depreciation and amortization


3,526



1,551



5,077



3,751



3,472



7,223


FFO Contribution


$

4,126



$

6,397



$

10,523



$

2,815



$

7,128



$

9,943


 



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

 

Leasehold Information

(in thousands)




Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Marriott Hamburg:













Property EBITDA


$

1,687



$

1,505



$

3,199



$

2,901


Revenue (a)


$

1,319



$

1,160



$

2,618



$

2,360















Lease expense


(1,260)



(1,206)



(2,518)



(2,382)


Less: Deferred gain on sale-leaseback


(54)



(51)



(107)



(102)


Adjusted lease expense


(1,314)



(1,257)



(2,625)



(2,484)















Comparable EBITDA contribution from leasehold


$

5



$

(97)



$

(7)



$

(124)


 


Security Deposit (b):


June 30, 2014


December 31, 2013

Marriott Hamburg


$

2,602



$

2,611











 

(a)    

For the three and six months ended June 30, 2014 and 2013, Revenue for the Marriott Hamburg hotel represents lease revenue.

(b)    

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. 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 on non-depreciable assets, 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 Income (Loss) Attributable to SHR Common Shareholders to EBITDA and Comparable EBITDA

(in thousands)




Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Net income (loss) attributable to SHR common shareholders


$

80,840



$

3,274



$

297,998



$

(20,174)


Depreciation and amortization—continuing operations


28,058



24,691



50,263



49,599


Depreciation and amortization—discontinued operations




2,306



1,275



4,616


Interest expense—continuing operations


19,587



19,460



37,861



39,123


Interest expense—discontinued operations




1,819



1,326



3,642


Income taxes—continuing operations


207



72



246



85


Income taxes—discontinued operations




695



833



1,466


Income taxes—sale of assets






20,451




Noncontrolling interests


281



36



1,130



(51)


Adjustments from consolidated affiliates


(3,939)



(3,549)



(7,614)



(7,103)


Adjustments from unconsolidated affiliates


3,153



5,717



8,443



12,033


Preferred shareholder dividends


7,169



6,042



16,993



12,083


EBITDA


135,356



60,563



429,205



95,319


Realized portion of deferred gain on sale-leaseback


(54)



(51)



(107)



(102)


Gain on sale of assets—continuing operations


(767)



(273)



(767)



(273)


Gain on sale of assets—adjustments from consolidated affiliates


109





109




Gain on sale of assets—discontinued operations


(604)





(176,880)




Gain on consolidation of affiliates


(65,349)





(143,466)




Loss on early extinguishment of debt—discontinued operations






272




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


8



(84)



6



2


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




138



(32)



(188)


Amortization of below market hotel management agreement


108





108




Activist shareholder costs


104





1,637




Comparable EBITDA


$

68,911



$

60,293



$

110,085



$

94,758


 

(a)   

Foreign currency exchange gains or losses applicable to certain balance sheet items held by foreign subsidiaries.

 



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

 

Reconciliation of Net Income (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 June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Net income (loss) attributable to SHR common shareholders


$

80,840



$

3,274



$

297,998



$

(20,174)


Depreciation and amortization—continuing operations


28,058



24,691



50,263



49,599


Depreciation and amortization—discontinued operations




2,306



1,275



4,616


Corporate depreciation


(123)



(127)



(246)



(258)


Gain on sale of assets—continuing operations


(767)



(273)



(767)



(273)


Gain on sale of assets, net of tax—discontinued operations


(604)





(156,429)




Gain on consolidation of affiliates


(65,349)





(143,466)




Realized portion of deferred gain on sale-leaseback


(54)



(51)



(107)



(102)


Noncontrolling interests adjustments


(95)



(125)



(193)



(252)


Adjustments from consolidated affiliates


(1,971)



(1,655)



(3,806)



(3,296)


Adjustments from unconsolidated affiliates


1,571



3,518



5,077



7,224


FFO


41,506



31,558



49,599



37,084


Redeemable noncontrolling interests


376



162



1,323



202


FFO—Fully Diluted


41,882



31,720



50,922



37,286


Non-cash interest rate swap activity—continuing operations


2,184



(2,353)



(110)



(4,651)


Non-cash interest rate swap activity—discontinued operations




(747)





(1,493)


Loss on early extinguishment of debt—discontinued operations






272




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


8



(84)



6



2


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




138



(32)



(188)


Amortization of debt discount


623





623




Amortization of below market hotel management agreement


108





108




Activist shareholder costs


104





1,637




Excess of redemption liability over carrying amount of redeemed preferred stock


3,203





6,912




Comparable FFO


$

48,112



$

28,674



$

60,338



$

30,956


Comparable FFO per fully diluted share


$

0.21



$

0.14



$

0.28



$

0.15


Weighted average diluted shares (b)


225,348



208,923



217,875



208,760


 

(a) 

Foreign currency exchange gains or losses applicable to 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)

Fairmont Scottsdale Princess (c)


0.52

%


36 bp


$

117,000



April 2015

Westin St. Francis


6.09

%


Fixed


209,588



June 2017

Fairmont Chicago


6.09

%


Fixed


93,124



June 2017

JW Marriott Essex House Hotel


4.75

%


400 bp


185,826



September 2017

Hyatt Regency La Jolla (d)


4.50% / 10.00%


400 bp / Fixed


89,277



December 2017

Hotel del Coronado (e)


3.81

%


365 bp


475,000



March 2018

InterContinental Miami (f)


3.66

%


350 bp


85,000



July 2018

Bank credit facility (g)


2.16

%


200 bp




April 2019

Four Seasons Washington, D.C. (h)


2.41

%


225 bp


120,000



June 2019

Loews Santa Monica Beach Hotel (i)


2.71

%


255 bp


120,000



May 2021

InterContinental Chicago


5.61

%


Fixed


143,504



August 2021








1,638,319




Unamortized discount (c)







(1,869)











$

1,636,450




 

(a)    

Spread over LIBOR (0.16% at June 30, 2014). 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)  

On March 31, 2014, we acquired the remaining 50.0% equity interest in the Fairmont Scottsdale Princess hotel, resulting in the Fairmont Scottsdale Princess hotel becoming wholly-owned by the Company. In connection with the acquisition, we consolidated the Fairmont Scottsdale Princess hotel and became fully obligated under the entire mortgage loan secured by the Fairmont Scottsdale Princess hotel. We recorded the mortgage loan at its fair value, which included a debt discount, which is being amortized as additional interest expense over the maturity period of the loan.

(d)   

Interest on $72,000,000 is payable at LIBOR plus 4.00%, subject to a 0.50% LIBOR floor, and interest on $17,277,000 is payable at a fixed rate of 10.00%.

(e)  

On June 11, 2014, we acquired the remaining 63.6% equity interest in the Hotel del Coronado, resulting in the Hotel del Coronado becoming wholly-owned by us. In connection with the acquisition, we consolidated the Hotel del Coronado and became fully obligated under the entire outstanding balance of the mortgage and mezzanine loans secured by the Hotel del Coronado.

(f)   

On July 7, 2014, we paid off the outstanding balance on the mortgage loan secured by the InterContinental Miami hotel. We are currently evaluating financing alternatives.

(g)  

On April 25, 2014, we entered into a new $300,000,000 secured bank credit facility, which replaced the previous secured bank credit facility.

(h)  

On June 30, 2014, we refinanced the loan secured by the Four Seasons Washington, D.C. hotel.

(i)  

On May 29, 2014, we refinanced the loan secured by the Loews Santa Monica Beach Hotel.



Debt Summary (Continued)

(dollars in thousands)


Future scheduled debt principal payments (including extension options) are as follows:




Years ending December 31,


Amount

2014 (remainder)


$

1,340


2015


121,029


2016


7,783


2017


575,008


2018


559,015


Thereafter


374,144




1,638,319


Unamortized discount


(1,869)




$

1,636,450






Percent of fixed rate debt


28.3

%

Weighted average interest rate (g)


4.17

%

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


4.23


 

(g) 

Excludes the amortization of deferred financing costs.

SOURCE Strategic Hotels & Resorts, Inc.



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