Strategic Hotels & Resorts Reports Third Quarter 2015 Financial Results

05 Nov, 2015, 08:00 ET from Strategic Hotels & Resorts, Inc.

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

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

Third Quarter

Earnings Metrics

2015

2014

%

Total Revenues

$354.4

$305.3

16.1%

Net income attributable to common shareholders

$23.3

$21.0

10.8%

Net income per diluted share

$0.08

$0.07

14.3%

Comparable funds from operations (Comparable FFO) (a)

$69.4

$56.7

22.4%

Comparable FFO per diluted share (a)

$0.25

$0.23

8.7%

Comparable EBITDA (a)

$89.2

$75.2

18.6%

Same Store United States Portfolio Operating Metrics (b)

Average Daily Rate (ADR) (d)

$327.88

$318.25

3.0%

Occupancy

80.3%

80.1%

0.2 pts

Revenue per Available Room (RevPAR) (d)

$263.35

$255.02

3.3%

Total RevPAR (d)

$462.96

$448.10

3.3%

EBITDA Margins (d)

27.8%

27.3%

50 bps

Total United States Portfolio Operating Metrics (c)

Average Daily Rate (ADR) (d)

$341.46

$330.81

3.2%

Occupancy

79.6%

78.9%

0.7 pts

Revenue per Available Room (RevPAR) (d)

$271.77

$260.85

4.2%

Total RevPAR(d)

$485.23

$465.88

4.2%

EBITDA Margins(d)

27.1%

26.4%

70 bps

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

Year to Date

Earnings Metrics

2015

2014

%

Total Revenues

$1,036.6

$776.1

33.6%

Net income attributable to common shareholders

$45.8

$319.0

(85.7)%

Net income per diluted share

$0.16

$1.32

(87.9)%

Comparable funds from operations (Comparable FFO) (a)

$194.7

$117.0

66.4%

Comparable FFO per diluted share (a)

$0.70

$0.51

37.3%

Comparable EBITDA (a)

$251.7

$185.3

35.9%

Same Store United States Portfolio Operating Metrics (b)

Average Daily Rate (ADR) (d)

$318.19

$301.98

5.4%

Occupancy

77.1%

76.7%

0.4 pts

Revenue per Available Room (RevPAR) (d)

$245.32

$231.70

5.9%

Total RevPAR (d)

$457.64

$436.33

4.9%

EBITDA Margins (d)

27.1%

25.6%

150 bps

Total United States Portfolio Operating Metrics (c)

Average Daily Rate (ADR) (d)

$331.77

$314.43

5.5%

Occupancy

77.0%

76.6%

0.4 pts

Revenue per Available Room (RevPAR) (d)

$255.54

$240.91

6.1%

Total RevPAR(d)

$483.11

$459.64

5.1%

EBITDA Margins(d)

26.7%

25.2%

150 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").

"We are pleased to report another solid quarter of operating results which translated into attractive growth in our key financial metrics. Looking forward, we are also pleased to report continued strong group pace into 2016," commented Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts.  "Importantly, we continue to make progress towards closing our previously announced merger with Blackstone," summarized Gellein.   

Third Quarter Highlights

  • Total consolidated revenues were $354.4 million in the third quarter of 2015, a 16.1 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.
  • Net income attributable to common shareholders was $23.3 million, or $0.08 per diluted share, in the third quarter of 2015, compared with $21.0 million, or $0.07 per diluted share, in the third quarter of 2014. 
  • Comparable FFO was $0.25 per diluted share in the third quarter of 2015, compared with $0.23 per diluted share in the prior year period, an 8.7 percent increase over the prior year period.    
  • Comparable EBITDA was $89.2 million in the third quarter of 2015, compared with $75.2 million in the prior year period, an 18.6 percent increase between periods as a result of the Company's acquisition activity and same store growth.
  • Same Store United States portfolio RevPAR increased 3.3 percent in the third quarter of 2015, driven by a 3.0 percent increase in ADR and a 0.2 percentage point increase in occupancy compared to the third quarter of 2014.  Total RevPAR increased 3.3 percent between periods, with non-rooms revenue increasing 3.4 percent between periods. 
  • Total United States portfolio RevPAR increased 4.2 percent in the third quarter of 2015, driven by a 3.2 percent increase in ADR and a 0.7 percentage point increase in occupancy compared to the third quarter of 2014.  Total RevPAR increased 4.2 percent between periods, with non-rooms revenue increasing 4.1 percent between periods.
  • Group occupied room nights in the Total United States portfolio decreased 3.3 percent in the third quarter 2015 while transient occupied room nights increased 3.8 percent compared to the third quarter of 2014.  Group ADR increased 4.0 percent and transient ADR increased 1.8 percent compared to the third quarter of 2014.
  • Same Store United States and Total United States portfolio EBITDA margins expanded 50 basis points and 70 basis points, respectively, in the third quarter of 2015, compared to the third quarter of 2014.  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 $1,036.6 million for the nine month period ended September 30, 2015, a 33.6 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.  
  • Comparable net income attributable to common shareholders was $45.8 million, or $0.16 per diluted share for the nine month period ended September 30, 2015, compared with $319.0 million, or $1.32 per diluted share, for the nine month period ended September 30, 2014.  The year-over-year decrease in net income was primarily the result of 2014 gains on sales of assets totaling $156.5 million, or $0.66 per diluted share and one-time gains of $143.5 million, or $0.60 per diluted share related to the consolidation of the Fairmont Scottsdale Princess resort and the Hotel del Coronado recorded in 2014.
  • Comparable FFO was $0.70 per diluted share in the nine month period ended September 30, 2015, compared with $0.51 per diluted share in the nine month period ended September 30, 2014, a 37.3 percent increase over the prior year period as a result of the Company's acquisition and financing activities.   
  • Comparable EBITDA was $251.7 million for the nine month period ended September 30, 2015 compared with $185.3 million for the nine month period ended September 30, 2014, a 35.9 percent increase between periods as a result of the Company's acquisition activity and same store growth.

Transaction Activity

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 joint venture partner, affiliates of KSL Capital Partners, LLC ("KSL"), exercised a contractual put option of their equity interests in the asset and the Company issued 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.

Merger Agreement

On September 8, 2015, the Company announced that it entered into a definitive agreement (the "Merger Agreement") with affiliates of Blackstone Real Estate Partners VIII L.P., under which Blackstone would acquire all outstanding shares of common stock of Strategic Hotels & Resorts, Inc. for $14.25 per share in cash, and all of the outstanding membership units of the Company's subsidiary, Strategic Hotels Funding, L.L.C., not held by the Company, for $14.25 per unit in cash (the "Mergers").

2015 Guidance

Management has suspended the issuance of earnings guidance in light of the Company entering into a definitive merger agreement with affiliates of Blackstone Real Estate Partners VIII L.P.

Portfolio Definitions

Same Store United States portfolio hotel comparisons for the third quarter of 2015 are derived from the Company's hotel portfolio at September 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.

Total United States portfolio hotel comparisons for the third quarter of 2015 are derived from the Company's hotel portfolio as of September 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.   

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.

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. The Company currently has ownership interests in 17 properties with an aggregate of 7,921 rooms and 847,000 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.

Forward Looking Statements

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 failure to satisfy conditions to completion of the mergers described above (the "Mergers"), including receipt of stockholder approval; the failure of the Mergers to close for any other reason; the occurrence of any change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the merger agreement entered into with affiliates of Blackstone Real Estate Partners VIII L.P. (the "Merger Agreement"); the outcome of the legal proceedings that have been, or may be, instituted against the Company and others following the announcement of the Company entering into the Merger Agreement; risks that the proposed Mergers disrupt current plans and operations including potential difficulties in relationships with employees; the amounts of the costs, fees, expenses and charges relating to the Mergers; 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 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.

Additional Information Regarding the Transaction and Where to Find It

This press release does not constitute an offer to sell or the solicitation of an offer to buy the Company's securities or the solicitation of any vote or approval.  The proposed merger of the Company involving BRE Diamond Hotel Holdings LLC, BRE Diamond Hotel LLC, BRE Diamond Hotel Acquisition LLC, the Company and Strategic Hotels Funding L.L.C. will be submitted to the stockholders of the Company for their consideration at a special meeting of stockholders of the Company on December 8, 2015, at 10:00 a.m. Central Time. In connection therewith, the Company has filed and will continue to file relevant materials with the Securities and Exchange Commission (the "SEC"), including a definitive proxy statement that was filed with the SEC on October 19, 2015, and was first mailed to stockholders of the Company on or about October 26, 2015.  BEFORE MAKING ANY VOTING OR ANY INVESTMENT DECISION, INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the definitive proxy statement, any amendments or supplements thereto and other documents containing important information about the Company, as such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by the Company will be available free of charge on the Company's website at www.strategichotels.com under the heading "Financial Information" within the "Investor Relations" portion of the Company's website. Stockholders of the Company may also obtain a free copy of the definitive proxy statement and the filings with the SEC incorporated by reference in the proxy statement by contacting the Company's Investor Relations Department at 312-658-5000.

Participants in the Solicitation

The Company and its directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of the Company is set forth in its proxy statement for its 2015 annual meeting of stockholders, which was filed with the SEC on April 10, 2015, its annual report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the SEC on February 24, 2015, and in subsequent documents filed with the SEC, each of which can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation of the stockholders of the Company and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the definitive proxy statement and other relevant materials filed with the SEC.

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,

2015

2014

2015

2014

Revenues:

Rooms

$

198,114

$

176,133

$

547,355

$

428,107

Food and beverage

115,296

96,642

373,288

266,687

Other hotel operating revenue

40,346

31,224

113,242

77,405

Lease revenue

678

1,264

2,722

3,882

Total revenues

354,434

305,263

1,036,607

776,081

Operating Costs and Expenses:

Rooms

52,968

48,197

151,905

123,172

Food and beverage

83,412

70,965

254,731

192,645

Other departmental expenses

89,068

74,640

260,418

194,457

Management fees

11,578

9,970

35,440

24,989

Other hotel expenses

21,688

17,998

57,143

49,248

Lease expense

682

1,215

2,733

3,733

Depreciation and amortization

39,633

32,932

117,628

83,195

Impairment losses

2,325

12,726

Corporate expenses

10,709

5,405

25,418

19,796

Total operating costs and expenses

312,063

261,322

918,142

691,235

Operating income

42,371

43,941

118,465

84,846

Interest expense

(18,575)

(21,844)

(62,069)

(59,705)

Interest income

3

46

120

123

Loss on early extinguishment of debt

(609)

(34,211)

(609)

Equity in (losses) earnings of unconsolidated affiliates

(4)

5,267

Foreign currency exchange gain (loss)

4

(69)

(72)

(75)

(Loss) gain on consolidation of affiliates

(15)

143,451

Other income (expenses), net

2,746

(136)

43,054

1,082

Income before income taxes and discontinued operations

26,549

21,310

65,287

174,380

Income tax expense

(3,857)

(370)

(6,528)

(616)

Income from continuing operations

22,692

20,940

58,759

173,764

Income from discontinued operations, net of tax

63

159,102

Net Income

22,692

21,003

58,759

332,866

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

(65)

(67)

(169)

(1,197)

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

634

1,854

(12,820)

6,112

Net Income Attributable to SHR

23,261

22,790

45,770

337,781

Preferred shareholder dividends

(1,802)

(18,795)

Net Income Attributable to SHR Common Shareholders

$

23,261

$

20,988

$

45,770

$

318,986

Basic Income Per Common Share:

Income from continuing operations attributable to SHR common shareholders

$

0.08

$

0.08

$

0.17

$

0.71

Income from discontinued operations attributable to SHR common shareholders

0.70

Net income attributable to SHR common shareholders

$

0.08

$

0.08

$

0.17

$

1.41

Weighted average shares of common stock outstanding

279,579

248,509

276,580

225,932

Diluted Income Per Common Share:

Income from continuing operations attributable to SHR common shareholders

$

0.08

$

0.07

$

0.16

$

0.65

Income from discontinued operations attributable to SHR common shareholders

0.67

Net income attributable to SHR common shareholders

$

0.08

$

0.07

$

0.16

$

1.32

Weighted average shares of common stock outstanding

282,659

260,257

278,583

237,680

 

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

Consolidated Balance Sheets

(in thousands, except share data)

September 30, 2015

December 31, 2014

Assets

Investment in hotel properties, net

$

3,248,230

$

2,828,400

Goodwill

21,629

38,128

Intangible assets, net of accumulated amortization of $14,217 and $7,288

91,502

94,324

Assets held for sale

24,674

Investment in unconsolidated affiliates

21,010

22,850

Cash and cash equivalents

128,000

442,613

Restricted cash and cash equivalents

77,657

81,510

Accounts receivable, net of allowance for doubtful accounts of $563 and $492

68,414

51,382

Deferred financing costs, net of accumulated amortization of $9,206 and $7,814

13,873

11,440

Deferred tax assets

769

1,729

Prepaid expenses and other assets

49,164

46,781

Total assets

$

3,744,922

$

3,619,157

Liabilities, Noncontrolling Interests and Equity

Liabilities:

Mortgages payable, net of discount

$

1,460,206

$

1,705,778

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

302,000

Liabilities of assets held for sale

6,499

Accounts payable and accrued expenses

255,645

224,505

Preferred stock redemption liability

90,384

Distributions payable

104

Deferred tax liabilities

46,117

46,137

Total liabilities

2,070,467

2,066,908

Commitments and contingencies

Noncontrolling interests in SHR's operating partnership

10,944

10,500

Equity:

SHR's shareholders' equity:

Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 282,090,156 and 267,435,799 shares of common stock issued and outstanding)

2,821

2,674

Additional paid-in capital

2,508,756

2,348,284

Accumulated deficit

(844,699)

(890,469)

Accumulated other comprehensive loss

(5,131)

(13,032)

Total SHR's shareholders' equity

1,661,747

1,447,457

Noncontrolling interests in consolidated affiliates

1,764

94,292

Total equity

1,663,511

1,541,749

Total liabilities, noncontrolling interests and equity

$

3,744,922

$

3,619,157

 

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

Financial Highlights

Supplemental Financial Data

(in thousands, except per share information)

September 30, 2015

Capitalization

Shares of common stock outstanding

282,090

Operating partnership units outstanding

794

Restricted stock units outstanding

1,291

Combined shares and units outstanding

284,175

Common stock price at end of period

$

13.79

Common equity capitalization

$

3,918,773

Debt

1,763,147

Cash and cash equivalents

(128,000)

Total enterprise value

$

5,553,920

Net Debt / Total Enterprise Value

29.4

%

Common Equity / Total Enterprise Value

70.6

%

 

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

Disposition of Hotel Properties

Effective January 1, 2015, we 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 our results of operations will qualify as discontinued operations.

Asset Held for Sale

On August 19, 2015, we entered into an agreement with an unaffiliated third party to sell the Marriott Lincolnshire Resort for $20,650,000.  The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2015.  The hotel's assets and liabilities have been classified as held for sale on the accompanying consolidated balance sheet as of September 30, 2015.  The disposition of the Marriott Lincolnshire Resort will not represent a strategic shift that will have a major effect on our results of operations; therefore, the hotel's results of operations are included in continuing operations for all periods presented.

2015 Disposition

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 $40,594,000 gain on the sale was recorded in other income, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2015.  The portion of the gain attributable to the joint venture partner was $16,640,000, which is reflected in net loss (income) attributable to the noncontrolling interests in consolidated affiliates in the condensed consolidated statements of operations for the three and nine months ended September 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

Prior to January 1, 2015, and the adoption of the new accounting guidance that changed the criteria for reporting discontinued operations, 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.  We received net proceeds of $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 nine months ended September 30, 2014 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 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

63

156,492

Income from discontinued operations, net of tax

$

63

$

159,102

 

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.

Nine Months Ended September 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 September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Marriott Hamburg:

Property EBITDA

$

920

$

1,757

$

3,480

$

4,956

Revenue (a)

$

678

$

1,264

$

2,722

$

3,882

Lease expense

(682)

(1,215)

(2,733)

(3,733)

Less: Deferred gain on sale-leaseback

(29)

(52)

(116)

(159)

Adjusted lease expense

(711)

(1,267)

(2,849)

(3,892)

Less: Gain on sale of assets (b)

(2,680)

(2,680)

Comparable EBITDA contribution from leasehold

$

(2,713)

$

(3)

$

(2,807)

$

(10)

Security Deposit (c):

September 30, 2015

December 31, 2014

Marriott Hamburg

$

2,124

$

2,299

(a)

For the three and nine months ended September 30, 2015 and 2014, Revenue for the Marriott Hamburg hotel represents lease revenue.

(b) 

Effective September 1, 2015, we transferred our leasehold interest in the Marriott Hamburg hotel to an unaffiliated third party and were released from all of our obligations under the lease arrangements. We recognized the previously deferred gain of $2,680,000 during the three and nine months ended September 30, 2015 in other income (expenses), net, in the condensed consolidated statements of operations. 

(c) 

The security deposit is recorded in prepaid expenses and other assets on the consolidated balance sheets and will be released back to us in four equal installments over four years beginning on March 1, 2017.

 

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. 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 September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net income attributable to SHR common shareholders

$

23,261

$

20,988

$

45,770

$

318,986

Depreciation and amortization—continuing operations

39,633

32,932

117,628

83,195

Depreciation and amortization—discontinued operations

1,275

Interest expense—continuing operations

18,575

21,844

62,069

59,705

Interest expense—discontinued operations

1,326

Income taxes—continuing operations

3,857

370

6,528

616

Income taxes—discontinued operations

833

Income taxes—sale of assets

20,451

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

65

67

169

1,197

Adjustments attributable to noncontrolling interests in consolidated affiliates (b)

(732)

(4,070)

(7,778)

(11,684)

Adjustments attributable to unconsolidated affiliates (c)

(11)

8,432

Preferred shareholder dividends

1,802

18,795

EBITDA

84,659

73,922

224,386

503,127

Realized portion of deferred gain on sale-leaseback

(29)

(52)

(116)

(159)

(Gain) loss on sale of assets—continuing operations

(2,661)

38

(43,274)

(729)

Gain on sale of assets—discontinued operations

(63)

(176,943)

Loss (gain) on consolidation of affiliates

15

(143,451)

Impairment losses

2,325

12,726

Loss on early extinguishment of debt—continuing operations

609

34,211

609

Loss on early extinguishment of debt—discontinued operations

272

Foreign currency exchange (gain) loss—continuing operations

(4)

69

72

75

Foreign currency exchange gain—discontinued operations

(32)

Hotel acquisition costs

343

1,409

Merger-related costs

4,018

4,018

Non-cash interest rate derivative activity

6

127

152

127

Amortization of below market hotel management agreement

513

513

1,539

621

Activist shareholder costs

1,637

Adjustments attributable to noncontrolling interests in consolidated affiliates (d)

(8)

(5)

16,551

104

Comparable EBITDA

$

89,162

$

75,173

$

251,674

$

185,258

(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 September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net income attributable to SHR common shareholders

$

23,261

$

20,988

$

45,770

$

318,986

Depreciation and amortization—continuing operations

39,633

32,932

117,628

83,195

Depreciation and amortization—discontinued operations

1,275

Corporate depreciation

(126)

(124)

(381)

(370)

(Gain) loss on sale of assets—continuing operations

(2,661)

38

(43,274)

(729)

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

(63)

(156,492)

Loss (gain) on consolidation of affiliates

15

(143,451)

Impairment losses

2,325

12,726

Realized portion of deferred gain on sale-leaseback

(29)

(52)

(116)

(159)

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

(113)

(105)

(339)

(298)

Adjustments attributable to noncontrolling interests in consolidated affiliates (b)

(436)

(2,166)

12,122

(5,972)

Adjustments attributable to unconsolidated affiliates (c)

5,077

FFO attributable to SHR common shareholders

61,854

51,463

144,136

101,062

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

178

172

508

1,495

FFO—Fully Diluted

62,032

51,635

144,644

102,557

Non-cash interest rate derivative activity

2,465

3,241

8,183

3,131

Loss on early extinguishment of debt—continuing operations

609

34,211

609

Loss on early extinguishment of debt—discontinued operations

272

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

(4)

69

72

75

Foreign currency exchange gain—discontinued operations (a)

(32)

Amortization of debt discount

40

623

730

1,246

Amortization of below market hotel management agreement

513

513

1,539

621

Hotel acquisition costs

343

1,409

Costs related to the Mergers

4,018

4,018

Activist shareholder costs

1,637

Excess of redemption liability over carrying amount of redeemed preferred stock

6,912

Adjustments attributable to noncontrolling interests in consolidated affiliates (e)

(90)

Comparable FFO

$

69,407

$

56,690

$

194,716

$

117,028

Comparable FFO per fully diluted share

$

0.25

$

0.23

$

0.70

$

0.51

Weighted average diluted shares (f)

282,664

251,862

279,739

229,364

(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 for the three and nine months ended September 30, 2014. On July 24, 2015, our joint venture partner exercised its put option.  In connection with the exercise of the put option, and in accordance with the terms of the joint venture agreements, we issued an aggregate of 6,595,449 shares of our common stock to our joint venture partner, which are included in the weighted average diluted shares outstanding for the three and nine months ended September 30, 2015.

 

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

2,000

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

141,147

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

1,763,147

Unamortized discount (d)

(941)

$

1,762,206

(a) 

Spread over LIBOR (0.19% at September 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.

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)

$

655

2016

2,040

2017

3,066

2018

480,033

2019

125,276

Thereafter

1,152,077

1,763,147

Unamortized discount

(941)

$

1,762,206

Percent of fixed rate debt

23.0

%

Weighted average interest rate (f)

3.31

%

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

6.72

(f)

Excludes the amortization of deferred financing costs.

 

 

SOURCE Strategic Hotels & Resorts, Inc.



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