Strategic Hotels & Resorts Reports Third Quarter 2013 Financial Results Company Raises Full Year Guidance Ranges

CHICAGO, Nov. 11, 2013 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the third quarter ended September 30, 2013. 

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

Third Quarter





Earnings Metrics

2013

2012

%

Net income/(loss) attributable to common shareholders

$3.8

$(8.6)

N/A

Net income/(loss) per diluted share

$0.00

$(0.05)

N/A

Comparable funds from operations (Comparable FFO) (a)

$29.8

$17.0

75.4%

Comparable FFO per diluted share (a)

$0.14

$0.08

75.0%

Comparable EBITDA (a)

$60.1

$46.6

29.1%





Total North American Portfolio Operating Metrics (b)




Average Daily Rate (ADR)

$298.87

$278.23

7.4%

Occupancy

78.9%

76.6%

2.3 pts

Revenue per Available Room (RevPAR)

$235.79

$213.08

10.7%

Total RevPAR

$404.76

$371.28

9.0%

EBITDA Margins

25.8%

21.8%

400 bps





North American Same Store Operating Metrics (c)




ADR

$276.05

$257.57

7.2%

Occupancy

81.2%

78.5%

2.7 pts

RevPAR

$224.09

$202.27

10.8%

Total RevPAR

$385.01

$354.07

8.7%

EBITDA Margins

26.5%

23.6%

290 bps



(a) 

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

(b) 

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

(c)  

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

"Our performance in the third quarter was exceptional as our best in class portfolio continues to lead the industry. With both increasing rates and occupancy, revenues grew 16.2%, same store RevPAR was up 10.8%, Comparable EBITDA grew 29.1%, and margins expanded an impressive 290 basis points," said Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts, Inc. "We are very encouraged by the trends we are seeing in group business and transient demand, and continue to see strong embedded growth in our portfolio. As a result, we have raised our full year guidance accordingly."

Gellein continued, "Per our stated strategy, we continue to focus on the disposition of at least one of our hotels to continue to deleverage the balance sheet."

Third Quarter Highlights

  • Total consolidated revenues were $237.6 million in the third quarter of 2013, a 16.2 percent increase over the prior year period.
  • Total North American portfolio RevPAR increased 10.7 percent in the third quarter of 2013, driven by a 7.4 percent increase in ADR and a 2.3 percentage point increase in occupancy compared to the third quarter of 2012.  Total RevPAR increased 9.0 percent between periods with non-rooms revenue increasing by 8.3 percent between periods.
  • Comparable FFO was $0.14 per diluted share in the third quarter of 2013, compared with $0.08 per diluted share in the prior year period, a 75.0 percent increase over the prior year period.    
  • Comparable EBITDA was $60.1 million in the third quarter of 2013, compared with $46.6 million in the prior year period, a 29.1 percent increase between periods.   
  • Net income attributable to common shareholders was $3.8 million, or $0.00 per diluted share, in the third quarter of 2013, compared with net loss attributable to common shareholders of $8.6 million, or $0.05 per diluted share, in the third quarter of 2012.
  • Transient occupied room nights in the Total North American portfolio increased 5.2 percent and group occupied room nights increased 3.0 percent in the third quarter of 2013 compared to the third quarter of 2012.  Transient ADR increased 7.7 percent compared to the third quarter of 2012 and group ADR increased 5.1 percent compared to the third quarter of 2012.  Transient revenues increased 13.3% compared to the third quarter of 2012 and group revenues increased 8.3%, compared to the third quarter of 2012.
  • North American same store RevPAR increased 10.8 percent in the third quarter of 2013, driven by a 7.2 percent increase in ADR and a 2.7 percent point increase in occupancy.  Total RevPAR increased 8.7 percent with non-rooms revenue increasing by 6.6 percent between periods. 
  • European RevPAR declined 2.8 percent (3.6 percent in constant dollars) in the third quarter of 2013, driven by a 6.2 percentage (7.0 percent in constant dollars) decrease in ADR, partially offset by a 3.1 percent point increase in occupancy between periods. European Total RevPAR decreased 6.9 percent in the third quarter of 2013 over the prior year period (7.9 percent in constant dollars).  
  • Total North American portfolio EBITDA margins expanded 400 basis points in the third quarter of 2013, compared to the third quarter of 2012.  North American same store EBITDA margins expanded 290 basis points.  The significant variance between the two portfolios is largely driven by a real estate tax assessment at the Hotel del Coronado in the third quarter of 2012.  Adjusted for this and other one-time items, Total North American portfolio EBITDA margins expanded 240 basis points while North American same store EBITDA margins expanded 200 basis points.
  • Group room nights currently booked for 2013 are 2.8 percent higher compared to room nights booked for 2012 at the same time last year, with rates 4.2 percent higher, resulting in a 7.1 percent RevPAR increase.
  • Group room nights currently booked for 2014 are 8.8 percent higher compared to room nights booked for 2013 at the same time last year, with rates 4.1 percent higher, resulting in a 13.2 percent RevPAR increase.

The company reported financial results for the nine month period ended September 30, 2013 as follows:

  • Total consolidated revenues were $683.2 million for the nine month period ended September 30, 2013, a 16.9 percent increase over the prior year period.
  • Net loss attributable to common shareholders was $16.4 million, or $0.11 per diluted share, compared with net loss attributable to common shareholders of $43.1 million, or $0.22 per diluted share, for the nine month period ended September 30, 2012.
  • Comparable FFO was $0.29 per diluted share compared with $0.21 per diluted share in the nine month period ended September 30, 2012, a 38.1% increase between periods.    
  • Comparable EBITDA was $154.8 million compared with $130.7 million for the nine month period ended September 30, 2012, an 18.5 percent increase between periods.   

Preferred Dividends

On August 27, 2013, the Company's board of directors declared a quarterly dividend of $0.53125 per share of 8.5 percent Series A Cumulative Redeemable Preferred Stock paid on September 30, 2013 to shareholders of record as of September 13, 2013, a quarterly dividend of $0.51563 per share of 8.25 percent Series B Cumulative Redeemable Preferred Stock paid on September 30, 2013 to shareholders of record as of September 13, 2013 and a quarterly dividend of $0.51563 per share of 8.25 percent Series C Cumulative Redeemable Preferred Stock paid on September 30, 2013 to shareholders of record as of September 13, 2013.

Transaction Activity

On August 7, 2013, the Company closed on a one-year extension of the loan secured by the Marriott London Grosvenor Square hotel.  Under the terms of the agreement, the GBP LIBOR spread increases in steps throughout the extension period from 210 basis points in August 2013 to 425 basis points in April 2014.  The loan will mature in October 2014, has no principal amortization requirement and is pre-payable with no penalty.    

On September 9, 2013, the Company closed on amendments to the cross-collateralized mortgage agreements secured by the Westin St. Francis and Fairmont Chicago hotels, which eliminate future principal amortization payments subject to meeting certain financial and other requirements.  Prior to the amendments, the loans were subject to a 20-year principal amortization schedule.  Both mortgage agreements will continue to bear interest at a fixed rate of 6.09 percent and are set to mature in June 2017. 

2013 Guidance

Based on the results of the first nine months of 2013 and current forecasts for the remainder of the year, management is raising its guidance ranges for full year 2013 RevPAR growth, Total RevPAR growth, Comparable EBITDA, and Comparable FFO per fully diluted share. 

For the full-year ending December 31, 2013, the Company is providing the following revised guidance ranges as compared to the previously  stated ranges: 

Guidance Metrics

Previous Range


Revised Range

RevPAR

6.0% - 7.0%


7.5% - 8.0%

Total RevPAR

5.0% - 6.0%


6.5% - 7.0%

EBITDA Margin expansion

100 – 125 basis points


125 – 150 basis points

Comparable EBITDA

$200M - $210M


$205M - $215M

Comparable FFO per diluted share

$0.35 - $0.40


$0.38 - $0.43

Portfolio Definitions

Total North American portfolio hotel comparisons for the third quarter of 2013 are derived from the Company's hotel portfolio at September 30, 2013, consisting of all 16 properties located in North America, including unconsolidated joint ventures.   

North American same store hotel comparisons for the third of quarter 2013 are derived from the Company's hotel portfolio at September 30, 2013, consisting of properties located in North America and held for five or more quarters, in which operations are included in the consolidated results of the Company.  As a result, same store comparisons include 13 properties and exclude the JW Marriott Essex House Hotel, which was acquired on September 14, 2012, and the unconsolidated Hotel del Coronado and Fairmont Scottsdale Princess hotels.

European hotel comparisons for the third quarter of 2013 are derived from the Company's European owned and leased hotel properties at September 30, 2013, consisting of the Marriott London Grosvenor Square and the Marriott Hamburg hotels. 

Earnings Call

The Company will conduct its third quarter 2013 conference call for investors and other interested parties on Tuesday, November 12, 2013 at 11:00 a.m. Eastern Time (ET).  Interested individuals are invited to access the call by dialing 800.688.0836 (toll international: 617.614.4072) with passcode 14570741. To participate on the webcast, log on to the company's website at http://www.strategichotels.comor http://edge.media-server.com/m/p/9ffccf74/lan/en15 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 p.m. ET on November 12, 2013 through 11:59 p.m. ET on November 19, 2013. To access the replay, dial 888.286.8010 (toll international: 617.801.6888) with passcode 39630997.  A replay of the call will also be available on the Internet at http://www.strategichotels.comor http://www.earnings.comfor 30 days after the call.

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

About the Company

Strategic Hotels & Resorts, Inc. is a real estate investment trust (REIT) which owns and provides value-enhancing asset management of high-end hotels and resorts in the United States, Mexico and Europe. The Company currently has ownership interests in 18 properties with an aggregate of 8,272 rooms and 840,000 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, 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:  failure to complete or close on transactions or the failure of closing conditions to be satisfied, the effects of the recent global economic recession upon business and leisure travel and the hotel markets in which the Company invests; the Company's liquidity and refinancing demands; the Company's ability to obtain,  refinance or extend maturing debt, including the $133 million mortgage related to the Fairmont Scottsdale Princess hotel that matures on December 31, 2013; the Company's ability to maintain compliance with covenants contained in its debt facilities; stagnation or further deterioration in economic and market conditions, particularly impacting business and leisure travel spending in the markets where the Company's hotels operate and in which the Company invests, including luxury and upper upscale product; general volatility of the capital markets and the market price of the Company's shares of common stock; availability of capital; the Company's ability to dispose of properties in a manner consistent with 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, Mexico, Germany, England or other countries where the Company invests; difficulties in identifying properties to acquire and completing acquisitions; the Company's failure to maintain effective internal control over financial reporting and disclosure controls and procedures; risks related to natural disasters; increases in interest rates and operating costs, including insurance premiums and real property taxes; contagious disease outbreaks, such as the H1N1 virus outbreak; delays and cost-overruns in construction and development; marketing challenges associated with entering new lines of business or pursuing new business strategies; the Company's failure to maintain its status as a REIT; changes in the competitive environment in the Company's industry and the markets where the Company invests; changes in real estate and zoning laws or regulations; legislative or regulatory changes, including changes to laws governing the taxation of REITs; changes in generally accepted accounting principles, policies and guidelines; and litigation, judgments or settlements.

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

The following tables reconcile projected 2013 net loss attributable to common shareholders to projected Comparable EBITDA, Comparable FFO and Comparable FFO per diluted share (in millions, except per share data):


Low Range


High Range

Net Loss Attributable to Common Shareholders

$(30.5)


$(20.5)

Depreciation and Amortization

113.2


113.2

Interest Expense

87.2


87.2

Income Taxes

1.5


1.5

Non-controlling Interests

(0.1)


(0.1)

Adjustments from Consolidated Affiliates

(15.2)


(15.2)

Adjustments from Unconsolidated Affiliates

23.9


23.9

Preferred Shareholder Dividends

24.2


24.2

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Loss on Sale of Asset

0.8


0.8

Impairment Losses and Other Charges

0.7


0.7

Other Adjustments

(0.5)


(0.5)

Comparable EBITDA

$205.0


$215.0






Low Range


High Range

Net Loss Attributable to Common Shareholders

$(30.5)


$(20.5)

Depreciation and Amortization

112.5


112.5

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Loss on Sale of Asset

0.8


0.8

Non-controlling Interests

0.0


0.0

Adjustments from Consolidated Affiliates

(7.9)


(7.9)

Adjustments from Unconsolidated Affiliates

14.4


14.4

Impairment Losses and Other Charges

0.7


0.7

Other Adjustments

(9.3)


(9.3)

Comparable FFO

80.5


90.5

Comparable FFO per Diluted Share

$0.38


$0.43








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

Consolidated Statements of Operations

(in thousands, except per share data)








Three Months Ended September 30,


Nine Months Ended September 30,



2013


2012


2013


2012

Revenues:









Rooms


$

144,150



$

119,067



$

393,072



$

323,709


Food and beverage


69,625



63,283



221,260



197,693


Other hotel operating revenue


22,417



21,040



65,132



59,338


Lease and other revenue


1,416



1,175



3,776



3,505


Total revenues


237,608



204,565



683,240



584,245


Operating Costs and Expenses:









Rooms


38,525



32,069



110,711



90,628


Food and beverage


56,359



47,355



170,763



143,065


Other departmental expenses


59,401



52,908



173,827



153,557


Management fees


7,024



6,182



20,767



18,012


Other hotel expenses


14,771



13,988



47,826



40,360


Lease expense


1,202



1,114



3,584



3,425


Depreciation and amortization


26,244



25,649



80,459



76,416


Impairment losses and other charges


728





728




Corporate expenses


5,487



6,956



18,880



23,632


Total operating costs and expenses


209,741



186,221



627,545



549,095


Operating income


27,867



18,344



55,695



35,150


Interest expense


(21,106)



(19,942)



(63,871)



(58,627)


Interest income


12



42



45



122


Equity in earnings (losses) of unconsolidated affiliates


451



(2,257)



3,252



(2,054)


Foreign currency exchange (loss) gain


(9)



(996)



177



(1,169)


Other (expenses) income, net


(832)



436



45



1,365


Income (loss) before income taxes and discontinued operations


6,383



(4,373)



(4,657)



(25,213)


Income tax benefit (expense)


430



600



(1,121)



(215)


Income (loss) from continuing operations


6,813



(3,773)



(5,778)



(25,428)


Loss from discontinued operations, net of tax








(535)


Net Income (Loss)


6,813



(3,773)



(5,778)



(25,963)


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


(29)



17



22



126


Net loss attributable to the noncontrolling interests in consolidated affiliates


3,018



1,241



7,467



891


Net income (loss) attributable to SHR


9,802



(2,515)



1,711



(24,946)


Preferred shareholder dividends


(6,042)



(6,042)



(18,125)



(18,125)


Net income (loss) attributable to SHR common shareholders


$

3,760



$

(8,557)



$

(16,414)



$

(43,071)


Basic Income (Loss) Per Share:









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


$

0.02



$

(0.04)



$

(0.08)



$

(0.22)


Loss from discontinued operations attributable to SHR common shareholders









Net income (loss) attributable to SHR common shareholders


$

0.02



$

(0.04)



$

(0.08)



$

(0.22)


Weighted average shares of common stock outstanding


206,767



206,523



206,163



198,872


Diluted Income (Loss) Per Share:









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


$



$

(0.05)



$

(0.11)



$

(0.22)


Loss from discontinued operations attributable to SHR common shareholders









Net income (loss) attributable to SHR common shareholders


$



$

(0.05)



$

(0.11)



$

(0.22)


Weighted average shares of common stock outstanding


220,258



218,182



217,553



198,872





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

Consolidated Balance Sheets

(in thousands, except share data)








September 30, 2013


December 31, 2012

Assets





Investment in hotel properties, net


$

1,915,212



$

1,970,560


Goodwill


40,359



40,359


Intangible assets, net of accumulated amortization of $12,143 and $10,812


29,185



30,631


Investment in unconsolidated affiliates


106,914



112,488


Cash and cash equivalents


79,801



80,074


Restricted cash and cash equivalents


75,183



58,579


Accounts receivable, net of allowance for doubtful accounts of $1,611 and $1,602


52,794



45,620


Deferred financing costs, net of accumulated amortization of $10,887 and $7,049


9,931



11,695


Deferred tax assets


3,027



2,203


Prepaid expenses and other assets


48,901



54,208


Total assets


$

2,361,307



$

2,406,417







Liabilities, Noncontrolling Interests and Equity





Liabilities:





Mortgages and other debt payable


$

1,162,567



$

1,176,297


Bank credit facility


137,000



146,000


Accounts payable and accrued expenses


218,410



228,397


Deferred tax liabilities


47,146



47,275


Total liabilities


1,565,123



1,597,969


Commitments and contingencies





Noncontrolling interests in SHR's operating partnership


7,404



5,463


Equity:





SHR's shareholders' equity:





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


99,995



99,995


8.25% Series B Cumulative Redeemable Preferred Stock ($0.01 par value per share; 3,615,375 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $90,384 in the aggregate)


87,064



87,064


8.25% Series C Cumulative Redeemable Preferred Stock ($0.01 par value per share; 3,827,727 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $95,693 in the aggregate)


92,489



92,489


Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 205,527,049 and 204,308,710 shares of common stock issued and outstanding)


2,055



2,043


Additional paid-in capital


1,710,267



1,730,535


Accumulated deficit


(1,244,216)



(1,245,927)


Accumulated other comprehensive loss


(44,896)



(58,871)


Total SHR's shareholders' equity


702,758



707,328


Noncontrolling interests in consolidated affiliates


86,022



95,657


Total equity


788,780



802,985


Total liabilities, noncontrolling interests and equity


$

2,361,307



$

2,406,417





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

Financial Highlights

Supplemental Financial Data

(in thousands, except per share information)






September 30, 2013



Pro Rata Share


Consolidated

Capitalization





Shares of common stock outstanding


205,527



205,527


Operating partnership units outstanding


853



853


Restricted stock units outstanding


1,633



1,633


Combined shares and units outstanding


208,013



208,013


Common stock price at end of period


$

8.68



$

8.68


Common equity capitalization


$

1,805,553



$

1,805,553


Preferred equity capitalization (at $25.00 face value)


289,102



289,102


Consolidated debt


1,299,567



1,299,567


Pro rata share of unconsolidated debt


239,400




Pro rata share of consolidated debt


(133,042)




Cash and cash equivalents


(79,801)



(79,801)


Total enterprise value


$

3,420,779



$

3,314,421


Net Debt / Total Enterprise Value


38.8

%


36.8

%

Preferred Equity / Total Enterprise Value


8.4

%


8.7

%

Common Equity / Total Enterprise Value


52.8

%


54.5

%




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

Investments in Unconsolidated Affiliates

(in thousands)


We have a 36.4% and 50.0% ownership interest in the Hotel del Coronado hotel and the Fairmont Scottsdale Princess hotel, respectively. We account for these investments using the equity method of accounting.








Three Months Ended September 30, 2013


Three Months Ended September 30, 2012



Hotel del

Coronado


Fairmont Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont Scottsdale

Princess


Total

Total revenues (100%)


$

47,279



$

14,338



$

61,617



$

44,978



$

10,607



$

55,585


Property EBITDA (100%)


$

18,667



$

(302)



$

18,365



$

14,560



$

(2,163)



$

12,397


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

















Property EBITDA


$

6,790



$

(151)



$

6,639



$

4,994



$

(1,082)



$

3,912


Depreciation and amortization


(1,896)



(1,533)



(3,429)



(1,711)



(1,774)



(3,485)


Interest expense


(1,950)



(195)



(2,145)



(2,522)



(191)



(2,713)


Other expenses, net


(205)



(16)



(221)



(19)



(5)



(24)


Income taxes


(339)





(339)



(74)





(74)


Equity in earnings (losses) of unconsolidated affiliates


$

2,400



$

(1,895)



$

505



$

668



$

(3,052)



$

(2,384)


EBITDA Contribution:













Equity in earnings (losses) of unconsolidated affiliates


$

2,400



$

(1,895)



$

505



$

668



$

(3,052)



$

(2,384)


Depreciation and amortization


1,896



1,533



3,429



1,711



1,774



3,485


Interest expense


1,950



195



2,145



2,522



191



2,713


Income taxes


339





339



74





74


EBITDA Contribution


$

6,585



$

(167)



$

6,418



$

4,975



$

(1,087)



$

3,888


FFO Contribution:













Equity in earnings (losses) of unconsolidated affiliates


$

2,400



$

(1,895)



$

505



$

668



$

(3,052)



$

(2,384)


Depreciation and amortization


1,896



1,533



3,429



1,711



1,774



3,485


FFO Contribution


$

4,296



$

(362)



$

3,934



$

2,379



$

(1,278)



$

1,101

















Nine Months Ended September 30, 2013


Nine Months Ended September 30, 2012



Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont

Scottsdale

Princess


Total

Total revenues (100%)


$

115,367



$

69,498



$

184,865



$

110,332



$

56,735



$

167,067


Property EBITDA (100%)


$

38,487



$

14,772



$

53,259



$

33,522



$

9,743



$

43,265


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















Property EBITDA


$

13,999



$

7,386



$

21,385



$

11,498



$

4,871



$

16,369


Depreciation and amortization


(5,647)



(5,005)



(10,652)



(5,098)



(5,321)



(10,419)


Interest expense


(6,384)



(585)



(6,969)



(7,544)



(589)



(8,133)


Other expenses, net


(228)



(35)



(263)



(62)



(44)



(106)


Income taxes


(276)





(276)



293





293


Equity in earnings (losses) of unconsolidated affiliates


$

1,464



$

1,761



$

3,225



$

(913)



$

(1,083)



$

(1,996)


EBITDA Contribution













Equity in earnings (losses) of unconsolidated affiliates


$

1,464



$

1,761



$

3,225



$

(913)



$

(1,083)



$

(1,996)


Depreciation and amortization


5,647



5,005



10,652



5,098



5,321



10,419


Interest expense


6,384



585



6,969



7,544



589



8,133


Income taxes


276





276



(293)





(293)


EBITDA Contribution


$

13,771



$

7,351



$

21,122



$

11,436



$

4,827



$

16,263


FFO Contribution













Equity in earnings (losses) of unconsolidated affiliates


$

1,464



$

1,761



$

3,225



$

(913)



$

(1,083)



$

(1,996)


Depreciation and amortization


5,647



5,005



10,652



5,098



5,321



10,419


FFO Contribution


$

7,111



$

6,766



$

13,877



$

4,185



$

4,238



$

8,423




Investments in Unconsolidated Affiliates (Continued)

(in thousands)














Debt


Interest Rate




Spread over

LIBOR




Loan Amount


Maturity (a)

Hotel del Coronado













CMBS Mortgage and Mezzanine


3.83

%




365 bp




$

475,000



March 2018

Cash and cash equivalents










(8,870)




Net Debt










$

466,130




Fairmont Scottsdale Princess













CMBS Mortgage


0.54

%




36 bp




$

133,000



April 2015

Cash and cash equivalents










(3,937)




Net Debt










$

129,063





(a)  Includes extension options.

Caps


Effective

Date


LIBOR Cap Rate


Notional Amount


Maturity

Hotel del Coronado









CMBS Mortgage and Mezzanine Loan Caps


March 2013


3.00

%


$

475,000



March 2015

Fairmont Scottsdale Princess









CMBS Mortgage Loan Cap


June 2011


4.00

%


$

133,000



December 2013




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

Leasehold Information

(in thousands)








Three Months Ended September 30,


Nine Months Ended September 30,



2013


2012


2013


2012

Marriott Hamburg:









Property EBITDA


$

1,655



$

1,508



$

4,557



$

4,404


Revenue (a)


$

1,416



$

1,175



$

3,776



$

3,505











Lease expense


(1,202)



(1,114)



(3,584)



(3,425)


Less: Deferred gain on sale-leaseback


(52)



(49)



(154)



(150)


Adjusted lease expense


(1,254)



(1,163)



(3,738)



(3,575)











EBITDA contribution from leasehold


$

162



$

12



$

38



$

(70)
























Security Deposit (b):


September 30, 2013


December 31, 2012

Marriott Hamburg


$

2,570



$

2,507












(a)  For the three and nine months ended September 30, 2013 and 2012, 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, with the exception of impairment of depreciable real estate. NAREIT adopted a definition of FFO in order to promote an industry-wide standard measure of REIT operating performance. NAREIT defines FFO as net income (or loss) (computed in accordance with GAAP) excluding losses or gains from sales of depreciable property, impairment of depreciable real estate, real estate-related depreciation and amortization, and our portion of these items related to unconsolidated affiliates. We also present FFO—Fully Diluted, which is FFO plus income or loss on income attributable to redeemable noncontrolling interests in our operating partnership. We also present Comparable FFO, which is FFO—Fully Diluted excluding the impact of any gains or losses on early extinguishment of debt, impairment losses, foreign currency exchange gains or losses and certain other charges that are highly variable from year to year. We believe that the presentation of FFO, FFO—Fully Diluted and Comparable FFO provides useful information to management and investors regarding our results of operations because they are measures of our ability to fund capital expenditures and expand our business. In addition, FFO is widely used in the real estate industry to measure operating performance without regard to items such as depreciation and amortization. We also present Comparable FFO per diluted share as a non-GAAP measure of our performance. We calculate Comparable FFO per diluted share for a given operating period as our Comparable FFO (as defined above) divided by the weighted average of fully diluted shares outstanding, excluding shares related to the JW Marriott Essex House Hotel put option. Dilutive securities may include shares granted under share-based compensation plans and operating partnership units. No effect is shown for securities that are anti-dilutive.

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

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

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

(in thousands)








Three Months Ended September 30,


Nine Months Ended September 30,



2013


2012


2013


2012

Net income (loss) attributable to SHR common shareholders


$

3,760



$

(8,557)



$

(16,414)



$

(43,071)


Depreciation and amortization


26,244



25,649



80,459



76,416


Interest expense


21,106



19,942



63,871



58,627


Income taxes


(430)



(600)



1,121



215


Noncontrolling interests


29



(17)



(22)



(126)


Adjustments from consolidated affiliates


(3,912)



(1,879)



(11,015)



(4,382)


Adjustments from unconsolidated affiliates


5,903



7,036



17,936



20,606


Preferred shareholder dividends


6,042



6,042



18,125



18,125


EBITDA


58,742



47,616



154,061



126,410


Realized portion of deferred gain on sale-leaseback


(52)



(49)



(154)



(150)


Loss on sale of assets—continuing operations


1,028





755




Loss on sale of assets—adjustments from consolidated affiliates


(370)





(370)




Impairment losses and other charges


728





728




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


9



996



(177)



1,169


Foreign currency exchange loss—discontinued operations (a)








535


Adjustment for Value Creation Plan




(2,013)





2,759


Comparable EBITDA


$

60,085



$

46,550



$

154,843



$

130,723



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




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

Reconciliation of Net 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 September 30,


Nine Months Ended September 30,



2013


2012


2013


2012

Net income (loss) attributable to SHR common shareholders


$

3,760



$

(8,557)



$

(16,414)



$

(43,071)


Depreciation and amortization


26,244



25,649



80,459



76,416


Corporate depreciation


(125)



(260)



(383)



(789)


Loss on sale of assets—continuing operations


1,028





755




Realized portion of deferred gain on sale-leaseback


(52)



(49)



(154)



(150)


Noncontrolling interests adjustments


(25)



(121)



(277)



(374)


Adjustments from consolidated affiliates


(2,269)



(859)



(5,565)



(2,185)


Adjustments from unconsolidated affiliates


3,429



3,792



10,653



11,335


FFO


31,990



19,595



69,074



41,182


Redeemable noncontrolling interests


53



104



255



248


FFO—Fully Diluted


32,043



19,699



69,329



41,430


Impairment losses and other charges


728





728




Non-cash mark to market of interest rate swaps


(2,977)



(1,688)



(9,121)



(4,405)


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


9



996



(177)



1,169


Foreign currency exchange loss—discontinued operations (a)








535


Adjustment for Value Creation Plan




(2,013)





2,759


Comparable FFO


$

29,803



$

16,994



$

60,759



$

41,488


Comparable FFO per fully diluted share


$

0.14



$

0.08



$

0.29



$

0.21


Weighted average diluted shares (b)


209,722



208,696



209,125



201,050



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


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




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

Debt Summary

(dollars in thousands)










Debt


Interest Rate


Spread (a)


Loan Amount


Maturity (b)

North Beach Venture


5.00

%


Fixed


$

1,476



January 2014

Marriott London Grosvenor Square (c)


3.12

%


260 bp (c)


113,367



October 2014

Bank credit facility


3.18

%


300 bp


137,000



June 2015

Four Seasons Washington, D.C.


3.33

%


315 bp


130,000



July 2016

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


186,278



September 2017

Hyatt Regency La Jolla (d)


4.50% / 10.00

%


400 bp / Fixed


89,367



December 2017

InterContinental Miami


3.68

%


350 bp


85,000



July 2018

Loews Santa Monica Beach Hotel


4.03

%


385 bp


109,500



July 2018

InterContinental Chicago


5.61

%


Fixed


144,867



August 2021







$

1,299,567





(a)

Spread over LIBOR (0.18% at September 30, 2013). Interest on the JW Marriott Essex House Hotel loan is subject to a 0.75% LIBOR floor.  Interest on the Hyatt Regency La Jolla loan is subject to a 0.50% LIBOR floor.


(b)

Includes extension options.


(c)

Principal balance of £70,040,000 at September 30, 2013. On August 7, 2013, the Company entered into an amendment to the mortgage loan. The amendment extended the maturity of the loan to October 2014 and waived the July 2013 and subsequent principal payments through the extended term. Pursuant to the amendment, the spread over GBP LIBOR increases in steps during the extension period from GBP LIBOR plus 2.10% in August 2013 to GBP LIBOR plus 4.25% in April 2014. The spread in the table is the spread as of September 30, 2013.


(d)

Interest on $72,000,000 is payable at LIBOR plus 4.00%, subject to a 0.50% LIBOR floor, and interest on $17,367,000 is payable at a fixed rate of 10.00%.




Domestic and European Interest Rate Swaps








Swap Effective Date


Fixed Pay Rate

Against LIBOR


Notional

Amount


Maturity

February 2010


4.90

%


$

100,000



September 2014

February 2010


4.96

%


100,000



December 2014

December 2010


5.23

%


100,000



December 2015

February 2011


5.27

%


100,000



February 2016



5.09

%


$

400,000






















Swap Effective Date


Fixed Pay Rate

Against GBP LIBOR


Notional

Amount



Maturity

October 2007


5.72

%




£

69,010



October 2013













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





Years ending December 31,


Amount

2013


$

948

2014



119,098

2015



143,029

2016



139,783

2017



577,550

Thereafter



319,159



$

1,299,567





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



75.3%

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



6.60%

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



3.79


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

SOURCE Strategic Hotels & Resorts, Inc.



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