Strategic Hotels & Resorts Reports Second Quarter 2014 Financial Results

Company Raises Lower-End of Full Year Guidance Ranges

Aug 04, 2014, 16:01 ET from Strategic Hotels & Resorts, Inc.

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.



RELATED LINKS

http://www.strategichotels.com