Strategic Hotels & Resorts Reports Second Quarter 2015 Financial Results

Aug 05, 2015, 16:01 ET from Strategic Hotels & Resorts, Inc.

CHICAGO, Aug. 5, 2015 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the second quarter ended June 30, 2015. 

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

Second Quarter

Earnings Metrics

2015

2014

%

Net income attributable to common shareholders

$6.7

$80.8

(91.7)%

Net income per diluted share

$0.02

$0.35

(94.3)%

Comparable funds from operations (Comparable FFO) (a)

$69.0

$48.1

43.4%

Comparable FFO per diluted share (a)

$0.25

$0.21

19.0%

Comparable EBITDA (a)

$88.4

$68.9

28.3%

Same Store United States Portfolio Operating Metrics (b)

Average Daily Rate (ADR) (d)

$317.67

$299.97

5.9%

Occupancy

79.1%

80.0%

(0.9) pts

Revenue per Available Room (RevPAR) (d)

$251.41

$239.95

4.8%

Total RevPAR (d)

$472.27

$462.41

2.1%

EBITDA Margins (d)

28.3%

28.3%

0 bps

Total United States Portfolio Operating Metrics (c)

Average Daily Rate (ADR) (d)

$328.76

$310.53

5.9%

Occupancy

78.8%

80.0%

(1.2) pts

Revenue per Available Room (RevPAR) (d)

$259.15

$248.40

4.3%

Total RevPAR(d)

$495.90

$486.55

1.9%

EBITDA Margins(d)

27.7%

27.7%

0 bps

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

Year to Date

Earnings Metrics

2015

2014

%

Net income attributable to common shareholders

$22.5

$298.0

(92.4)%

Net income per diluted share

$0.07

$1.30

(94.6)%

Comparable funds from operations (Comparable FFO) (a)

$125.3

$60.3

107.7%

Comparable FFO per diluted share (a)

$0.45

$0.28

60.7%

Comparable EBITDA (a)

$162.5

$110.1

47.6%

Same Store United States Portfolio Operating Metrics (b)

Average Daily Rate (ADR) (d)

$312.95

$293.14

6.8%

Occupancy

75.5%

75.0%

0.5 pts

Revenue per Available Room (RevPAR) (d)

$236.16

$219.84

7.4%

Total RevPAR (d)

$454.93

$430.34

5.7%

EBITDA Margins (d)

26.8%

24.7%

210 bps

Total United States Portfolio Operating Metrics (c)

Average Daily Rate (ADR) (d)

$326.59

$305.73

6.8%

Occupancy

75.7%

75.5%

0.2 pts

Revenue per Available Room (RevPAR) (d)

$247.30

$230.78

7.2%

Total RevPAR(d)

$482.03

$456.46

5.6%

EBITDA Margins(d)

26.5%

24.6%

190 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 diluted share and Comparable EBITDA. Comparable FFO, Comparable FFO per diluted share and Comparable EBITDA are non-GAAP measures and are further explained within the reconciliation tables.

(b) 

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

(c) 

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

(d) 

ADR, RevPAR, Total RevPAR and EBITDA Margin statistics have been modified to take into account certain adjustments, including those related to the adoption of the Uniform System of Accounts for the Lodging Industry, Eleventh Revised Edition (the "USALI Eleventh Revised Edition").

 

"The second quarter represented another solid quarter of operating and financial results for the company," commented Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts.  "We were productive on many fronts.  We acquired a world-class asset, sold a non-core asset, substantially strengthened the balance sheet and, more importantly, significantly grew our top line and bottom line.  The outlook for the balance of the year is very positive and we are seeing attractive growth in group bookings looking into 2016 and beyond," summarized Gellein.   

Second Quarter Highlights

  • Total consolidated revenues were $356.9 million in the second quarter of 2015, a 29.2 percent increase over the prior year period.  The increase was primarily driven by the acquisitions of the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort and the Four Seasons Hotel Austin, as well as the consolidation of the Hotel del Coronado.
  • Net income attributable to common shareholders was $6.7 million, or $0.02 per diluted share, in the second quarter of 2015, compared with $80.8 million, or $0.35 per diluted share, in the second quarter of 2014.  The year-over-year decrease in net income was primarily the result of a one-time gain related to the acquisition and consolidation of the Hotel del Coronado recorded in the second quarter of 2014.
  • Comparable FFO was $0.25 per diluted share in the second quarter of 2015, compared with $0.21 per diluted share in the prior year period, a 19.0 percent increase over the prior year period.    
  • Comparable EBITDA was $88.4 million in the second quarter of 2015, compared with $68.9 million in the prior year period, a 28.3 percent increase between periods as a result of the Company's acquisition activity and same store growth.
  • Same Store United States portfolio RevPAR increased 4.8 percent in the second quarter of 2015, driven by a 5.9 percent increase in ADR offsetting a 0.9 percentage point decline in occupancy compared to the second quarter of 2014.  Total RevPAR increased 2.1 percent between periods, with non-rooms revenue decreasing 0.7 percent between periods. 
  • Total United States portfolio RevPAR increased 4.3 percent in the second quarter of 2015, driven by a 5.9 percent increase in ADR offsetting a 1.2 percentage point decline in occupancy compared to the second quarter of 2014.  Total RevPAR increased 1.9 percent between periods, with non-rooms revenue decreasing 0.5 percent between periods.
  • Group occupied room nights in the Total United States portfolio decreased 0.9 percent in the second quarter 2015 and transient occupied room nights decreased 1.8 percent compared to the second quarter of 2014.  Transient ADR increased 6.8 percent compared to the second quarter of 2014 and group ADR increased 4.7 percent.
  • Same Store United States and Total United States portfolio EBITDA margins were flat in the second quarter of 2015, compared to the second quarter of 2014.  Excluding a one-time real estate tax credit received in the second quarter of 2014 and one-time charges related to real estate and personal property taxes recognized in the second quarter of 2015, EBITDA margins expanded 40 basis points in the Same Store and Total United States portfolios.  EBITDA margins in both years have been adjusted to exclude the amortization of the below market hotel management agreement related to the Hotel del Coronado, and other adjustments related to the adoption of the USALI Eleventh Revised Edition to improve comparability between years.

Year to Date Highlights

  • Total consolidated revenues were $682.2 million for the six month period ended June 30, 2015, a 44.9 percent increase over the prior year period.  This increase was primarily driven by the acquisitions of the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort and the Four Seasons Hotel Austin, as well as the consolidation of the Hotel del Coronado and the Fairmont Scottsdale Princess resort.  
  • Net income attributable to common shareholders was $22.5 million, or $0.07 per diluted share, compared with $298.0 million, or $1.30 per diluted share, for the six month period ended June 30, 2014.  The year-over-year decrease in net income was primarily the result of the one-time gains related to the consolidation of the Fairmont Scottsdale Princess resort and the Hotel del Coronado recorded in the first half of 2014.
  • Comparable FFO was $0.45 per diluted share compared with $0.28 per diluted share in the six month period ended June 30, 2014, a 60.7 percent increase over the prior year period as a result of the Company's acquisition and financing activities.   
  • Comparable EBITDA was $162.5 million compared with $110.1 million for the six month period ended June 30, 2014, a 47.6 percent increase between periods as a result of the Company's acquisition activity and same store growth.

Transaction Activity

On April 9, 2015, the Company retired the $117.0 million loan that encumbered the Fairmont Scottsdale Princess resort.  The loan had an interest rate of LIBOR plus 36 basis points.  Upon closing, $15.1 million of cash being held by the lender was released to the Company.

On May 12, 2015, the Company closed on the acquisition of the Four Seasons Hotel Austin for $197.0 million.

On May 21, 2015, the Company, along with its joint venture partner, closed on the sale of the Hyatt Regency La Jolla hotel for $118 million.  The Company previously owned a 53.5% interest in the asset.  At closing, the joint venture retired $89.2 million of debt secured by the hotel.

On May 27, 2015, the Company closed a new $750.0 million senior unsecured credit facility with an accordion feature allowing additional borrowing capacity up to $1.0 billion.  The facility is comprised of a $450.0 million unsecured revolving credit facility and a $300.0 million unsecured term loan.  The revolving credit facility interest rate is based upon a leverage-based pricing grid ranging from LIBOR plus 165 basis points to LIBOR plus 240 basis points.  The term loan interest rate is also based on a leverage based pricing grid ranging from LIBOR plus 160 basis points to LIBOR plus 235 basis points.  The combined unsecured facility has a five-year term. 

On May 27, 2015, the Company also closed a $115.0 million mortgage loan secured by the Ritz-Carlton Half Moon Bay hotel.  The loan bears interest at a floating rate of LIBOR plus 240 basis points and has a five-year initial term with two, one-year extension options.

On May 27, 2015, the Company simultaneously repaid the previously outstanding $209.6 million loan secured by the Westin St. Francis hotel and the $93.1 million loan secured by the Fairmont Chicago hotel that were cross-collateralized and priced at a fixed interest rate of 6.09 percent and set to mature in June 2017.  In connection with the repayment, the Company paid a prepayment penalty totaling approximately $32.9 million.

Subsequent Event

  • On July 24, 2015, the Company acquired the remaining 49 percent ownership interest in the JW Marriott Essex House hotel.  Pursuant to the terms of the joint venture agreements, the Company's partner, affiliates of KSL Capital Partners, LLC ("KSL"), exercised a contractual put option of their equity interests in the asset and the Company will issue KSL an aggregate of 6,595,449 shares of common stock priced at $12.82 per share, or an implied valuation of $84.6 million

2015 Guidance

Based on the results of the first six months of 2015 and current forecasts for the remainder of the year, management is adjusting its guidance ranges for full year 2015 RevPAR growth, Total RevPAR growth, Comparable EBITDA and Comparable FFO per fully diluted share. 

For the full-year ending December 31, 2015, the Company is providing the following guidance ranges:  

Guidance Metrics

Previous Range

Revised Range

RevPAR

6.0% - 8.0%

5.5% - 6.5%

Total RevPAR

4.5% - 6.5%

4.0% - 5.0%

EBITDA Margin expansion

125 – 175 basis points

125 – 175 basis points

Comparable EBITDA

$320M - $340M

$325M - $340M

Comparable FFO per diluted share

$0.85 - $0.93

$0.88 - $0.94

 

The guidance presented takes into account various accounting changes as stipulated by the industry's USALI Eleventh Revised Edition, which became effective in January 2015. Guidance for 2015 RevPAR, Total RevPAR and EBITDA margin expansion has been presented to reflect changes compared to the prior year as if these 2014 statistics included the USALI Eleventh Revised Edition changes. Actual RevPAR, Total RevPAR and EBITDA Margin changes from prior year may differ slightly. The Company will present 2014 RevPAR, Total RevPAR and EBITDA margins on an as reported basis and on a pro forma basis, which will include the USALI Eleventh Revised Edition changes.

Portfolio Definitions

Same Store United States portfolio hotel comparisons for the second quarter of 2015 are derived from the Company's hotel portfolio at June 30, 2015, consisting of 14 properties located in the United States, but excluding the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort, and the Four Seasons Hotel Austin which were acquired on December 9, 2014, January 29, 2015, and May 12, 2015, respectively as well as the Hyatt Regency La Jolla, which was sold on May, 21, 2015.

Total United States portfolio hotel comparisons for the second quarter of 2015 are derived from the Company's hotel portfolio as of June 30, 2015, consisting of all 17 properties located in the United States, including the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort, and the Four Seasons Hotel Austin, which were acquired on December 9, 2014, January 29, 2015, and May 12, 2015, respectively, but excluding the Hyatt Regency La Jolla, which was sold on May, 21, 2015.   

Total United States portfolio hotel comparisons for the full year 2015 are derived from the Company's current hotel portfolio, consisting of 17 properties located in the United States, including the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort, and the Four Seasons Hotel Austin which were acquired on December 9, 2014, January 29, 2015, and May 12, 2015 respectively, but excluding the Hyatt Regency La Jolla, which was sold on May, 21, 2015.

Earnings Call

The Company will conduct its second quarter 2015 conference call for investors and other interested parties on Thursday, August 6, 2015 at 10:00 a.m. Eastern Time (ET).  Interested individuals are invited to access the call by dialing 877.930.8296 (toll international: 253.336.8739) with passcode 80609573. 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/3x8gtzod/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 1:00 p.m. ET on August 6, 2015 through 11:59 p.m. ET on August 13, 2015. To access the replay, dial 855.859.2056 (toll international: 404.537.3406) with passcode 80609573.  A replay of the call will also be available in the Investor Relations section of the company's website at http://www.strategichotels.com.

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 18 properties with an aggregate of 8,199 rooms and 851,000 square feet of multi-purpose meeting and banqueting space. For a list of current properties and for further information, please visit the Company's website at 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 economic conditions and disruptions 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; contagious disease outbreaks; 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 2015 net income 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 Income Attributable to Common Shareholders

$58.9

$73.9

Depreciation and Amortization

160.6

160.6

Interest Expense

81.4

81.4

Income Taxes

8.1

8.1

Non-controlling Interests

0.2

0.2

Adjustments from Consolidated Affiliates

8.6

8.6

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)

(0.2)

Gain on Sale of Asset

(40.6)

(40.6)

Impairment Losses

10.4

10.4

Loss on Early Extinguishment of Debt

34.2

34.2

Hotel Acquisition Costs

1.1

1.1

Amortization of Below Market Management Agreement

2.1

2.1

Other Adjustments

0.2

0.2

Comparable EBITDA

$325.0

$340.0

 

Low Range

High Range

Net Income Attributable to Common Shareholders

$58.9

$73.9

Depreciation and Amortization

159.9

159.9

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)

(0.2)

Gain on Sale of Asset

(40.6)

(40.6)

Non-controlling Interests

0.2

0.2

Adjustments from Consolidated Affiliates

12.0

12.0

Impairment Losses

10.4

10.4

Interest Rate Swap OCI Amortization

10.4

10.4

Loss on Early Extinguishment of Debt

34.2

34.2

Amortization of Debt Discount

0.8

0.8

Amortization of Below Market Management Agreement

2.1

2.1

Hotel Acquisition Costs

1.1

1.1

Comparable FFO

249.2

264.2

Comparable FFO per Diluted Share

$0.88

$0.94

 

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,

2015

2014

2015

2014

Revenues:

Rooms

$

186,377

$

148,874

$

349,241

$

251,974

Food and beverage

134,523

100,028

257,992

170,045

Other hotel operating revenue

34,989

25,942

72,896

46,181

Lease revenue

1,013

1,319

2,044

2,618

Total revenues

356,902

276,163

682,173

470,818

Operating Costs and Expenses:

Rooms

51,072

41,268

98,937

74,975

Food and beverage

88,245

67,077

171,319

121,680

Other departmental expenses

86,626

66,238

171,350

119,817

Management fees

12,423

9,241

23,862

15,019

Other hotel expenses

19,842

15,572

35,455

31,250

Lease expense

1,017

1,260

2,051

2,518

Depreciation and amortization

40,331

28,058

77,995

50,263

Impairment losses

10,401

10,401

Corporate expenses

6,441

7,198

14,709

14,391

Total operating costs and expenses

316,398

235,912

606,079

429,913

Operating income

40,504

40,251

76,094

40,905

Interest expense

(20,709)

(19,587)

(43,494)

(37,861)

Interest income

16

50

117

77

Loss on early extinguishment of debt

(34,211)

(34,211)

Equity in earnings of unconsolidated affiliates

826

5,271

Foreign currency exchange gain (loss)

40

(8)

(76)

(6)

Gain on consolidation of affiliates

65,349

143,466

Other income, net

40,465

795

40,308

1,218

Income before income taxes and discontinued operations

26,105

87,676

38,738

153,070

Income tax expense

(2,452)

(207)

(2,671)

(246)

Income from continuing operations

23,653

87,469

36,067

152,824

Income from discontinued operations, net of tax

604

159,039

Net Income

23,653

88,073

36,067

311,863

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

(67)

(281)

(104)

(1,130)

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

(16,888)

217

(13,454)

4,258

Net Income Attributable to SHR

6,698

88,009

22,509

314,991

Preferred shareholder dividends

(7,169)

(16,993)

Net Income Attributable to SHR Common Shareholders

$

6,698

$

80,840

$

22,509

$

297,998

Basic Income Per Common Share:

Income from continuing operations attributable to SHR common shareholders

$

0.02

$

0.36

$

0.08

$

0.65

Income from discontinued operations attributable to SHR common shareholders

0.74

Net income attributable to SHR common shareholders

$

0.02

$

0.36

$

0.08

$

1.39

Weighted average shares of common stock outstanding

276,380

222,013

257,056

214,450

Diluted Income Per Common Share:

Income from continuing operations attributable to SHR common shareholders

$

0.02

$

0.35

$

0.07

$

0.60

Income from discontinued operations attributable to SHR common shareholders

0.70

Net income attributable to SHR common shareholders

$

0.02

$

0.35

$

0.07

$

1.30

Weighted average shares of common stock outstanding

278,383

233,463

284,208

225,900

 

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

Consolidated Balance Sheets

(in thousands, except share data)

June 30, 2015

December 31, 2014

Assets

Investment in hotel properties, net

$

3,276,411

$

2,828,400

Goodwill

21,629

38,128

Intangible assets, net of accumulated amortization of $11,783 and $7,288

93,936

94,324

Investment in unconsolidated affiliates

22,850

22,850

Cash and cash equivalents

98,586

442,613

Restricted cash and cash equivalents

77,790

81,510

Accounts receivable, net of allowance for doubtful accounts of $688 and $492

71,486

51,382

Deferred financing costs, net of accumulated amortization of $8,203 and $7,814

14,580

11,440

Deferred tax assets

1,419

1,729

Prepaid expenses and other assets

56,727

46,781

Total assets

$

3,735,414

$

3,619,157

Liabilities, Noncontrolling Interests and Equity

Liabilities:

Mortgages payable, net of discount

$

1,460,637

$

1,705,778

Credit facility, including an unsecured term loan of $300,000 and $0

344,000

Accounts payable and accrued expenses

234,306

224,505

Preferred stock redemption liability

90,384

Distributions payable

104

Deferred tax liabilities

46,117

46,137

Total liabilities

2,085,060

2,066,908

Commitments and contingencies

Noncontrolling interests in SHR's operating partnership

9,619

10,500

Equity:

SHR's shareholders' equity:

Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 275,494,707 and 267,435,799 shares of common stock issued and outstanding)

2,755

2,674

Additional paid-in capital

2,451,209

2,348,284

Accumulated deficit

(867,960)

(890,469)

Accumulated other comprehensive loss

(7,586)

(13,032)

Total SHR's shareholders' equity

1,578,418

1,447,457

Noncontrolling interests in consolidated affiliates

62,317

94,292

Total equity

1,640,735

1,541,749

Total liabilities, noncontrolling interests and equity

$

3,735,414

$

3,619,157

 

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

Financial Highlights

Supplemental Financial Data

(in thousands, except per share information)

June 30, 2015

Pro Rata Share

Consolidated

Capitalization

Shares of common stock outstanding

275,495

275,495

Operating partnership units outstanding

794

794

Restricted stock units outstanding

1,205

1,205

Combined shares and units outstanding

277,494

277,494

Common stock price at end of period

$

12.12

$

12.12

Common equity capitalization

$

3,363,227

$

3,363,227

Consolidated debt

1,805,618

1,805,618

Pro rata share of consolidated debt

(110,250)

Cash and cash equivalents

(98,586)

(98,586)

Total enterprise value

$

4,960,009

$

5,070,259

Net Debt / Total Enterprise Value

32.2

%

33.7

%

Common Equity / Total Enterprise Value

67.8

%

66.3

%

 

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

Disposition of Hotel Properties

2015 Dispositions

Effective January 1, 2015, the Company adopted new accounting guidance which amends the requirements for reporting discontinued operations.  Under the guidance, only disposals that represent a strategic shift that has (or will have) a major effect on the Company's results of operations would qualify as discontinued operations.

On May 21, 2015, the Company, along with its joint venture partner, sold the Hyatt Regency La Jolla hotel for sales proceeds of approximately $118,293,000.  The $89,228,000 mortgage loan secured by the hotel was repaid at the time of closing.  A $40,613,000 gain on the sale was recorded in other income, net in the condensed consolidated statements of operations for the three and six months ended June 30, 2015.  The portion of the gain attributable to the joint venture partner was $16,649,000, which is reflected in net income attributable to the noncontrolling interests in consolidated affiliates in the condensed consolidated statements of operations for the three and six months ended June 30, 2015.  The disposition of the Hyatt Regency La Jolla hotel does not represent a strategic shift that has had a major effect on the Company's results of operations; therefore, the hotel's results of operations are included in continuing operations for all periods presented.

2014 Dispositions

During the six months ended June 30, 2014, the Company sold the following hotels:

Hotel

Location

Date Sold

Sales Proceeds

Gain on sale

Four Seasons Punta Mita Resort and La Solana land parcel

Punta Mita, Mexico

February 28, 2014

$

206,867,000

$

63,879,000

Marriott London Grosvenor Square

London, England

March 31, 2014

$

209,407,000

(a)

$

92,889,000

(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 $97,257,000.

 

The results of operations of hotels sold prior to January 1, 2015 are classified as discontinued operations and segregated in the consolidated statements of operations for all periods presented. The following is a summary of income from discontinued operations, net of tax, for the three and six months ended June 30, 2014 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2014

2014

Hotel operating revenues

$

$

17,767

Operating costs and expenses

11,485

Depreciation and amortization

1,275

Total operating costs and expenses

12,760

Operating income

5,007

Interest expense

(1,326)

Interest income

2

Loss on early extinguishment of debt

(272)

Foreign currency exchange gain

32

Income tax expense

(833)

Gain on sale, net of tax

604

156,429

Income from discontinued operations, net of tax

$

604

$

159,039

 

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

Hotel del

Coronado

Fairmont Scottsdale

Princess

Total

Total revenues (100%)

$

33,821

$

$

33,821

Property EBITDA (100%)

$

11,202

$

$

11,202

Equity in earnings of unconsolidated affiliates (SHR ownership)

Property EBITDA

$

4,075

$

$

4,075

Depreciation and amortization

(1,572)

(1,572)

Interest expense

(1,518)

(1,518)

Other expenses, net

(18)

(18)

Income taxes

(87)

(87)

Equity in earnings of unconsolidated affiliates

$

880

$

$

880

EBITDA Contribution:

Equity in earnings of unconsolidated affiliates

$

880

$

$

880

Depreciation and amortization

1,572

1,572

Interest expense

1,518

1,518

Income taxes

87

87

EBITDA Contribution

$

4,057

$

$

4,057

FFO Contribution:

Equity in earnings of unconsolidated affiliates

$

880

$

$

880

Depreciation and amortization

1,572

1,572

FFO Contribution

$

2,452

$

$

2,452

 

Six Months Ended June 30, 2014

Hotel del

Coronado

Fairmont

Scottsdale

Princess

Total

Total revenues (100%)

$

67,863

$

35,006

$

102,869

Property EBITDA (100%)

$

20,761

$

13,191

$

33,952

Equity in earnings of unconsolidated affiliates (SHR ownership)

Property EBITDA

$

7,426

$

6,595

$

14,021

Depreciation and amortization

(3,526)

(1,551)

(5,077)

Interest expense

(3,418)

(168)

(3,586)

Other expenses, net

(25)

(30)

(55)

Income taxes

143

143

Equity in earnings of unconsolidated affiliates

$

600

$

4,846

$

5,446

EBITDA Contribution

Equity in earnings of unconsolidated affiliates

$

600

$

4,846

$

5,446

Depreciation and amortization

3,526

1,551

5,077

Interest expense

3,418

168

3,586

Income taxes

(143)

(143)

EBITDA Contribution

$

7,401

$

6,565

$

13,966

FFO Contribution

Equity in earnings of unconsolidated affiliates

$

600

$

4,846

$

5,446

Depreciation and amortization

3,526

1,551

5,077

FFO Contribution

$

4,126

$

6,397

$

10,523

 

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

Leasehold Information

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

Marriott Hamburg:

Property EBITDA

$

1,321

$

1,687

$

2,560

$

3,199

Revenue (a)

$

1,013

$

1,319

$

2,044

$

2,618

Lease expense

(1,017)

(1,260)

(2,051)

(2,518)

Less: Deferred gain on sale-leaseback

(43)

(54)

(87)

(107)

Adjusted lease expense

(1,060)

(1,314)

(2,138)

(2,625)

Comparable EBITDA contribution from leasehold

$

(47)

$

5

$

(94)

$

(7)

Security Deposit (b):

June 30, 2015

December 31, 2014

Marriott Hamburg

$

2,117

$

2,299

(a)

For the three and six months ended June 30, 2015 and 2014, 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) attributable to SHR common shareholders; 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 attributable to SHR common shareholders 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 attributable to SHR common shareholders 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 Attributable to SHR Common Shareholders to EBITDA and Comparable EBITDA

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

Net income attributable to SHR common shareholders

$

6,698

$

80,840

$

22,509

$

297,998

Depreciation and amortization—continuing operations

40,331

28,058

77,995

50,263

Depreciation and amortization—discontinued operations

1,275

Interest expense—continuing operations

20,709

19,587

43,494

37,861

Interest expense—discontinued operations

1,326

Income taxes—continuing operations

2,452

207

2,671

246

Income taxes—discontinued operations

833

Income taxes—sale of assets

20,451

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

67

281

104

1,130

Adjustments attributable to noncontrolling interests in consolidated affiliates (b)

(3,209)

(3,939)

(7,046)

(7,614)

Adjustments attributable to unconsolidated affiliates (c)

3,153

8,443

Preferred shareholder dividends

7,169

16,993

EBITDA

67,048

135,356

139,727

429,205

Realized portion of deferred gain on sale-leaseback

(43)

(54)

(87)

(107)

Gain on sale of assets—continuing operations

(40,613)

(767)

(40,613)

(767)

Gain on sale of assets—discontinued operations

(604)

(176,880)

Gain on consolidation of affiliates

(65,349)

(143,466)

Impairment losses

10,401

10,401

Loss on early extinguishment of debt—continuing operations

34,211

34,211

Loss on early extinguishment of debt—discontinued operations

272

Foreign currency exchange (gain) loss—continuing operations

(40)

8

76

6

Foreign currency exchange gain—discontinued operations

(32)

Hotel acquisition costs

346

1,066

Non-cash interest rate derivative activity

30

146

Amortization of below market hotel management agreement

513

108

1,026

108

Activist shareholder costs

104

1,637

Adjustments attributable to noncontrolling interests in consolidated affiliates (d)

16,559

109

16,559

109

Comparable EBITDA

$

88,412

$

68,911

$

162,512

$

110,085

(a)

EBITDA is presented on a full participation basis, which means we have assumed conversion of all redeemable noncontrolling interests in SHR's operating partnership into shares of SHR's common stock.  This adjustment reverses the net income that was allocated to the noncontrolling interests in SHR's operating partnership.

(b)

This adjustment represents the portion of interest expense, income taxes and depreciation and amortization attributable to the noncontrolling interest in affiliates that are consolidated but not wholly owned by us.

(c)

This adjustment represents our portion of interest expense, income taxes and depreciation and amortization related to affiliates that are not consolidated.

(d)

This adjustment represents the portion of gains or losses from sales of depreciable property and the portion of loss on early extinguishment of debt attributable to the noncontrolling interests in affiliates that are consolidated but not wholly owned by us.

 

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

Reconciliation of Net Income Attributable to SHR Common Shareholders to

Funds From Operations (FFO) Attributable to SHR Common Shareholders, FFO—Fully Diluted and Comparable FFO

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

Net income attributable to SHR common shareholders

$

6,698

$

80,840

$

22,509

$

297,998

Depreciation and amortization—continuing operations

40,331

28,058

77,995

50,263

Depreciation and amortization—discontinued operations

1,275

Corporate depreciation

(127)

(123)

(255)

(246)

Gain on sale of assets—continuing operations

(40,613)

(767)

(40,613)

(767)

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

(43)

(54)

(87)

(107)

Adjustments attributable to noncontrolling interests in SHR's operating partnership (a)

(116)

(95)

(226)

(193)

Adjustments attributable to noncontrolling interests in consolidated affiliates (b)

14,801

(1,971)

12,558

(3,806)

Adjustments attributable to unconsolidated affiliates (c)

1,571

5,077

FFO attributable to SHR common shareholders

20,931

41,506

71,881

49,599

Adjustments attributable to noncontrolling interests in SHR's operating partnership - other (d)

183

376

330

1,323

FFO—Fully Diluted

21,114

41,882

72,211

50,922

Impairment losses

10,401

10,401

Non-cash interest rate derivative activity

2,489

2,184

5,718

(110)

Loss on early extinguishment of debt—continuing operations

34,211

34,211

Loss on early extinguishment of debt—discontinued operations

272

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

(40)

8

76

6

Foreign currency exchange gain—discontinued operations (a)

(32)

Amortization of debt discount

40

623

690

623

Amortization of below market hotel management agreement

513

108

1,026

108

Hotel acquisition costs

346

1,066

Activist shareholder costs

104

1,637

Excess of redemption liability over carrying amount of redeemed preferred stock

3,203

6,912

Adjustments attributable to noncontrolling interests in consolidated affiliates (e)

(90)

(90)

Comparable FFO

$

68,984

$

48,112

$

125,309

$

60,338

Comparable FFO per fully diluted share

$

0.25

$

0.21

$

0.45

$

0.28

Weighted average diluted shares (b)

279,380

225,348

278,145

217,875

(a)

This adjustment represents the portion of depreciation and amortization attributable to the redeemable noncontrolling interests in our operating partnership.

(b)

This adjustment represents the portion of depreciation and amortization and gains or losses from sales of depreciable property that are attributable to the noncontrolling interests in affiliates that are consolidated but not wholly owned by us.

(c)

This adjustment represents our portion of depreciation and amortization related to affiliates that are not consolidated.

(d)

This adjustment represents amounts other than depreciation and amortization that are attributable to the redeemable noncontrolling interests in our operating partnership.

(e)

This adjustment represents the portion of loss on early extinguishment of debt that is attributable to the noncontrolling interests in affiliates that are consolidated but not wholly owned by us.

(f)

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)

Hotel del Coronado

3.84

%

365 bp

$

475,000

March 2018

Four Seasons Washington, D.C.

2.44

%

225 bp

120,000

June 2019

JW Marriott Essex House Hotel

3.14

%

295 bp

225,000

January 2020

Unsecured revolving credit facility (c)

1.84

%

165 bp

44,000

May 2020

Unsecured term loan (c)

1.79

%

160 bp

300,000

May 2020

Loews Santa Monica Beach Hotel

2.74

%

255 bp

120,000

May 2021

InterContinental Chicago

5.61

%

Fixed

141,618

August 2021

Montage Laguna Beach (d)

3.90

%

Fixed

150,000

August 2021

Ritz-Carlton Half Moon Bay (e)

2.59

%

240 bp

115,000

May 2022

InterContinental Miami

3.99

%

Fixed

115,000

September 2024

1,805,618

Unamortized discount (d)

(981)

$

1,804,637

(a)

Spread over LIBOR (0.19% at June 30, 2015).

(b)

Includes extension options.

(c)

On May 27, 2015, we entered into a new $750,000,000 senior unsecured credit facility that is comprised of a $450,000,000 unsecured revolving credit facility and a $300,000,000 unsecured term loan.  Interest on the unsecured revolving credit facility is payable monthly based upon a leverage-based grid with annual rates ranging from LIBOR plus 1.65% to LIBOR plus 2.40%.  Interest on the unsecured term loan is also payable monthly based upon a leverage-based pricing grid with annual rates ranging from LIBOR plus 1.60% to LIBOR plus 2.35%.

(d)

On January 29, 2015, we closed on the acquisition of the Montage Laguna Beach resort. In connection with the acquisition, we assumed the outstanding balance of the mortgage loan secured by the Montage Laguna Beach resort. 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.

(e)

On May 27, 2015, we closed on a new $115,000,000 mortgage loan secured by the Ritz-Carlton Half Moon Bay hotel.  The mortgage loan has two, one-year extension options, subject to certain conditions.

 

Second Quarter 2015 Debt Repayments

On April 9, 2015, we repaid the $117,000,000 mortgage loan secured by the Fairmont Scottsdale Princess hotel.

On May 21, 2015, we sold the Hyatt Regency La Jolla hotel and repaid the $89,288,000 mortgage loan secured by the hotel at the time of closing. We recorded a $193,000 loss on early extinguishment of debt, which included the write off of unamortized deferred financing costs.

On May 27, 2015, we repaid the $209,558,000 mortgage loan secured by the Westin St. Francis hotel and the $93,124,000 mortgage loan secured by the Fairmont Chicago hotel using proceeds from the new mortgage loan secured by the Ritz-Carlton Half Moon Bay hotel and proceeds from the $300,000,000 unsecured term loan. We recorded a $34,014,000 loss on early extinguishment of debt, which included prepayment penalties of $32,917,000 and the write off of unamortized deferred financing costs.

 

Debt Summary (Continued)

(dollars in thousands)

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

Years ending December 31,

Amount

2015 (remainder)

$

1,126

2016

2,040

2017

3,066

2018

480,033

2019

125,276

Thereafter

1,194,077

1,805,618

Unamortized discount

(981)

$

1,804,637

Percent of fixed rate debt

22.5

%

Weighted average interest rate (f)

3.29

%

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

6.97

(f)

Excludes the amortization of deferred financing costs.

 

 

SOURCE Strategic Hotels & Resorts, Inc.



RELATED LINKS

http://www.strategichotels.com