Strategic Hotels & Resorts Reports Third Quarter 2012 Financial Results

CHICAGO, Nov. 7, 2012 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the third quarter ended September 30, 2012.

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

Third Quarter

Earnings Metrics

2012

2011

% Change

Net loss attributable to common shareholders

$(8.6)

$(11.9)

N/A

Net loss per diluted share

$(0.05)

$(0.06)

N/A

Comparable funds from operations (Comparable FFO) (a)

$17.0

$11.3

50.9%

Comparable FFO per diluted share (a)

$0.08

$0.06

33.3%

Comparable EBITDA (a)

$46.6

$43.6

6.7%

       

Total United States Portfolio Operating Metrics (b)

     

Average Daily Rate (ADR)

$271.50

$258.06

5.2%

Occupancy

77.1%

76.7%

0.4 pts

Revenue per Available Room (RevPAR)

$209.39

$197.98

5.8%

Total RevPAR

$372.08

$352.09

5.7%

EBITDA Margins

24.1%

24.1%

N/A

       

North American Same Store Operating Metrics (c)

     

ADR

$257.57

$246.70

4.4%

Occupancy

78.5%

77.6%

0.9 pts

RevPAR

$202.27

$191.47

5.6%

Total RevPAR

$354.07

$334.68

5.8%

EBITDA Margins

23.6%

22.2%

140 bps

 

(a) Please refer to tables provided later in this press release for a reconciliation of net 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 United States 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 portfolio continued to perform very well during the quarter, with solid year-over-year growth," said Raymond L. "Rip" Gellein, Jr., Chairman of the Board and Chief Executive Officer of Strategic Hotels & Resorts, Inc. "The acquisition of the Essex House hotel was a terrific achievement, with early indicators showing very positive reception to the JW Marriott brand. Looking forward, we see positive trends heading into the new year with group pace significantly ahead of this time last year."

Third Quarter Highlights

  • Net loss attributable to common shareholders was $8.6 million, or $0.05 per diluted share, in the third quarter of 2012, compared with a loss of $11.9 million, or $0.06 per diluted share, in the third quarter of 2011.
  • Comparable FFO was $0.08 per diluted share in the third quarter of 2012, compared with $0.06 per diluted share in the prior year period.
  • Comparable EBITDA was $46.6 million in the third quarter of 2012, compared with $43.6 million in the prior year period, a 6.7 percent increase between periods.
  • Total United States portfolio RevPAR increased 5.8 percent in the third quarter of 2012, driven by a 5.2 percentage increase in ADR and a 0.4 percent point increase in occupancy, compared to the third quarter of 2011. Total RevPAR increased 5.7 percent between periods with non-rooms revenue increasing by 5.6 percent between periods.
  • ADR growth in the Total United States portfolio was driven by a 5.8 percent increase in transient ADR compared to the third quarter of 2011 and a 3.2% increase in group ADR.
  • RevPAR increased 7.2 percent in the third quarter of 2012 in the Company's Total United States resort portfolio and 4.4 percent in the Company's Total United States urban portfolio, compared to the third quarter of 2011.
  • North American same store RevPAR increased 5.6 percent in the third quarter of 2012, driven by a 4.4 percentage increase in ADR and a 0.9 percent point increase in occupancy. Total RevPAR increased 5.8 percent with non-rooms revenue increasing by 6.0 percent between periods.
  • European RevPAR increased 0.1 percent (5.6 percent in constant dollars) in the third quarter of 2012, driven by a 1.6 percent increase in ADR (7.2 percent in constant dollars) offsetting a 1.3 percentage point decrease in occupancy between periods. European Total RevPAR increased 0.1 percent in the third quarter over the prior year period (5.7 percent in constant dollars).
  • Total United States portfolio EBITDA margins were flat in the third quarter of 2012, compared to the third quarter of 2011. EBITDA margins for the quarter were impacted by a $2.7 million real estate tax expense recorded at the Hotel del Coronado related to prior periods as the result of a reassessment of the asset's taxable basis. Excluding this one-time charge, Total United States portfolio EBITDA margins expanded by 110 basis points in the third quarter of 2012 and North American same store EBITDA margins expanded 140 basis points.
  • Group room nights currently booked for 2012 are 0.1 percent lower than room nights booked for 2011 at the same time last year but at rates 3.5 percent higher, resulting in a 3.3 percent RevPAR increase.

The company reported financial results for the nine month period ended September 30, 2012 as follows:

  • Net loss attributable to common shareholders was $43.1 million, or $0.22 per diluted share, compared with net loss attributable to common shareholders of $7.8 million, or $0.04 per diluted share, for the nine month period ended September 30, 2011.
  • Comparable FFO was $0.21 per diluted share compared with $0.09 per diluted share in the nine month period ended September 30, 2011.
  • Comparable EBITDA was $130.7 million compared with $114.8 million for the nine month period ended September 30, 2011, a 13.8 percent increase between periods.

Preferred Dividends

On August 30, 2012, 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 October 1, 2012 to shareholders of record as of September 14, 2012, a quarterly dividend of $0.51563 per share of 8.25 percent Series B Cumulative Redeemable Preferred Stock paid on October 1, 2012 to shareholders of record as of September 14, 2012 and a quarterly dividend of $0.51563 per share of 8.25 percent Series C Cumulative Redeemable Preferred Stock paid on October 1, 2012 to shareholders of record as of September 14, 2012.

Transaction Activity

On September 14, 2012, the Company closed on the acquisition of the JW Marriott Essex House Hotel in New York City for a gross purchase price of approximately $362.3 million and established a joint venture arrangement with affiliates of KSL Capital Partners, LLC to fund the equity portion of the acquisition. The Company owns 51.0 percent of the joint venture and serves as managing member and asset manager.

Subsequent Events

On November 1, 2012, the Company closed a $90.0 million non-recourse mortgage agreement with MetLife secured by the Hyatt Regency La Jolla hotel. Under the terms of the loan agreement, the $97.5 million mortgage previously encumbering the property was replaced with a $72.0 million A-Note and an $18.0 million B-Note that will each mature December 1, 2017. The floating rate A-Note bears interest at LIBOR plus 400 basis points, subject to a 50 basis point LIBOR floor, and the B-Note bears interest at a fixed rate of 10.0 percent.

On November 2, 2012, the Company announced that Laurence S. Geller stepped down as President and Chief Executive Officer of Strategic Hotels & Resorts, Inc. and member of the Company's Board of Directors effective as of such date. Raymond L. "Rip" Gellein, Jr., Chairman of the Company's Board of Directors, was appointed Chief Executive Officer. In addition, Sheli Z. Rosenberg was appointed lead independent director of the Board.

2012 Guidance

Based on the results of the first three quarters and current forecasts for the remainder of the year, the Company is reaffirming its guidance range for full year 2012 RevPAR growth, Total RevPAR growth, Comparable EBITDA, and Comparable FFO per diluted share.

For the year ending December 31, 2012, the Company anticipates that Comparable EBITDA will be in the range of $165.0 million to $180.0 million and Comparable FFO in the range of $0.21 and $0.29 per fully diluted share. Management is also reaffirming its guidance for North American same store RevPAR growth in the range between 6.0 percent to 8.0 percent and Total RevPAR growth in the range between 5.0 percent and 7.0 percent.

Portfolio Definitions

Total United States portfolio hotel comparisons for the third quarter of 2012 are derived from the Company's hotel portfolio at September 30, 2012, consisting of all 14 properties located in the United States, including unconsolidated joint ventures, but excluding the JW Marriott Essex House Hotel which was acquired on September 14, 2012.

North American same store hotel comparisons for the third quarter of 2012 are derived from the Company's hotel portfolio at September 30, 2012, 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 unconsolidated Hotel del Coronado and Fairmont Scottsdale Princess hotels and the recently acquired JW Marriott Essex House Hotel which was purchased on September 14, 2012.

European hotel comparisons for the third quarter of 2012 are derived from the Company's European owned and leased hotel properties at September 30, 2012, consisting of the Marriott London Grosvenor Square and the Marriott Hamburg hotels.

Earnings Call

The Company will conduct its third quarter 2012 conference call for investors and other interested parties on Thursday, November 8, 2012 at 10:00 a.m. Eastern Time (ET). Interested individuals are invited to access the call by dialing 888.679.8040 (toll international: 617.213.4851) with passcode 99633171. 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/hssa33gr/lan/en.

For those unable to listen to the call live, a taped rebroadcast will be available beginning at 12:00 p.m. ET on November 8, 2012 through 11:59 p.m. ET on November 15, 2012. To access the replay, dial 888.286.8010 (toll international: 617.801.6888) with passcode 77474592. A replay of the call will also be available on the Internet at http://www.strategichotels.com or http://www.earnings.com for 30 days after the call.

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

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 8,271 rooms and 851,600 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: 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 or refinance maturing debt; the Company's ability to maintain compliance with covenants contained in the Company's 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 the Company's 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 2012 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

$(85.9)

 

$(71.0)

Depreciation and Amortization

120.3

 

120.3

Interest Expense

83.4

 

83.4

Income Taxes

0.8

 

0.8

Non-controlling Interests

(0.3)

 

(0.2)

Adjustments from Consolidated Affiliates

(9.4)

 

(9.4)

Adjustments from Unconsolidated Affiliates

27.7

 

27.7

Preferred Shareholder Dividends

24.2

 

24.2

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)

 

(0.2)

Adjustment for Value Creation Plan

2.8

 

2.8

Other Adjustments

1.6

 

1.6

Comparable EBITDA

$165.0

 

$180.0

 

 

Low Range

 

High Range

Net Loss Attributable to Common Shareholders

$(85.9)

 

$(71.0)

Depreciation and Amortization

119.2

 

119.2

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)

 

(0.2)

Non-controlling Interests

(0.3)

 

(0.1)

Adjustments from Consolidated Affiliates

(5.0)

 

(5.0)

Adjustments from Unconsolidated Affiliates

15.2

 

15.2

Adjustment for Value Creation Plan

2.8

 

2.8

Other Adjustments

(2.8)

 

(2.8)

Comparable FFO

$43.0

 

$58.1

Comparable FFO per Diluted Share

$0.21

 

$0.29

       

 

 

 

 

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,

   

2012

 

2011

 

2012

 

2011

Revenues:

               

Rooms

 

$

119,067

   

$

110,048

   

$

323,709

   

$

310,330

 

Food and beverage

 

63,283

   

58,664

   

197,693

   

195,987

 

Other hotel operating revenue

 

21,040

   

19,939

   

59,338

   

59,860

 

Lease revenue

 

1,175

   

1,255

   

3,505

   

3,747

 

Total revenues

 

204,565

   

189,906

   

584,245

   

569,924

 

Operating Costs and Expenses:

               

Rooms

 

32,069

   

29,283

   

90,628

   

85,728

 

Food and beverage

 

47,355

   

45,345

   

143,065

   

142,010

 

Other departmental expenses

 

52,908

   

51,358

   

153,557

   

155,856

 

Management fees

 

6,182

   

5,879

   

18,012

   

18,203

 

Other hotel expenses

 

13,988

   

12,672

   

40,360

   

39,497

 

Lease expense

 

1,114

   

1,249

   

3,425

   

3,702

 

Depreciation and amortization

 

25,649

   

25,526

   

76,416

   

86,222

 

Corporate expenses

 

6,956

   

(2,228)

   

23,632

   

24,206

 

Total operating costs and expenses

 

186,221

   

169,084

   

549,095

   

555,424

 

Operating income

 

18,344

   

20,822

   

35,150

   

14,500

 

Interest expense

 

(19,942)

   

(21,838)

   

(58,627)

   

(67,148)

 

Interest income

 

42

   

41

   

122

   

124

 

Loss on early extinguishment of debt

 

   

(399)

   

   

(1,237)

 

Loss on early termination of derivative financial instruments

 

   

   

   

(29,242)

 

Equity in losses of unconsolidated affiliates

 

(2,257)

   

(1,867)

   

(2,054)

   

(6,266)

 

Foreign currency exchange (loss) gain

 

(996)

   

(209)

   

(1,169)

   

77

 

Other income, net

 

436

   

355

   

1,365

   

4,716

 

Loss before income taxes and discontinued operations

 

(4,373)

   

(3,095)

   

(25,213)

   

(84,476)

 

Income tax benefit (expense)

 

600

   

(867)

   

(215)

   

(279)

 

Loss from continuing operations

 

(3,773)

   

(3,962)

   

(25,428)

   

(84,755)

 

Income (loss) from discontinued operations, net of tax

 

   

19

   

(535)

   

101,215

 

Net (loss) income

 

(3,773)

   

(3,943)

   

(25,963)

   

16,460

 

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

 

17

   

16

   

126

   

(70)

 

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

 

1,241

   

(254)

   

891

   

(997)

 

Net (loss) income attributable to SHR

 

(2,515)

   

(4,181)

   

(24,946)

   

15,393

 

Preferred shareholder dividends

 

(6,042)

   

(7,721)

   

(18,125)

   

(23,164)

 

Net loss attributable to SHR common shareholders

 

$

(8,557)

   

$

(11,902)

   

$

(43,071)

   

$

(7,771)

 

Basic Loss Per Share:

               

Loss from continuing operations attributable to SHR common shareholders

 

$

(0.04)

   

$

(0.06)

   

$

(0.22)

   

$

(0.62)

 

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

 

   

   

   

0.58

 

Net loss attributable to SHR common shareholders

 

$

(0.04)

   

$

(0.06)

   

$

(0.22)

   

$

(0.04)

 

Weighted average common shares outstanding

 

206,523

   

186,146

   

198,872

   

173,349

 

Diluted Loss Per Share:

               

Loss from continuing operations attributable to SHR common shareholders

 

$

(0.05)

   

$

(0.06)

   

$

(0.22)

   

$

(0.62)

 

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

 

   

   

   

0.58

 

Net loss attributable to SHR common shareholders

 

$

(0.05)

   

$

(0.06)

   

$

(0.22)

   

$

(0.04)

 

Weighted average common shares outstanding

 

218,182

   

186,146

   

198,872

   

173,349

 

 

 

 

 

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

 

Consolidated Balance Sheets

(in thousands, except share data)

 

   

September 30, 2012

 

December 31, 2011

Assets

       

Investment in hotel properties, net

 

$

2,001,747

   

$

1,692,431

 

Goodwill

 

40,359

   

40,359

 

Intangible assets, net of accumulated amortization of $10,295 and $8,915

 

30,971

   

30,635

 

Investment in unconsolidated affiliates

 

117,005

   

126,034

 

Cash and cash equivalents

 

82,048

   

72,013

 

Restricted cash and cash equivalents

 

49,026

   

39,498

 

Accounts receivable, net of allowance for doubtful accounts of $1,542 and $1,698

 

55,153

   

43,597

 

Deferred financing costs, net of accumulated amortization of $6,308 and $3,488

 

12,846

   

10,845

 

Deferred tax assets

 

2,600

   

2,230

 

Prepaid expenses and other assets

 

55,955

   

29,047

 

Total assets

 

$

2,447,710

   

$

2,086,689

 

Liabilities, Noncontrolling Interests and Equity

       

Liabilities:

       

Mortgages and other debt payable

 

$

1,185,347

   

$

1,000,385

 

Bank credit facility

 

124,000

   

50,000

 

Accounts payable and accrued expenses

 

245,149

   

249,179

 

Distributions payable

 

6,042

   

72,499

 

Deferred tax liabilities

 

47,305

   

47,623

 

Total liabilities

 

1,607,843

   

1,419,686

 

Noncontrolling interests in SHR's operating partnership

 

5,129

   

4,583

 

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 $105,907 and $130,148 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 $92,249 and $112,775 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 $97,667 and $119,377 in the aggregate)

 

92,489

   

92,489

 

Common shares ($0.01 par value per share; 350,000,000 and 250,000,000 common shares authorized; 204,308,710 and 185,627,199 common shares issued and outstanding)

 

2,043

   

1,856

 

Additional paid-in capital

 

1,735,395

   

1,634,067

 

Accumulated deficit

 

(1,215,567)

   

(1,190,621)

 

Accumulated other comprehensive loss

 

(58,261)

   

(70,652)

 

Total SHR's shareholders' equity

 

743,158

   

654,198

 

Noncontrolling interests in consolidated affiliates

 

91,580

   

8,222

 

Total equity

 

834,738

   

662,420

 

Total liabilities, noncontrolling interests and equity

 

$

2,447,710

   

$

2,086,689

 

 

 

 

 

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

 

Financial Highlights

Supplemental Financial Data

(in thousands, except per share information)

 

   

September 30, 2012

   

Pro Rata Share

 

Consolidated

Capitalization

       

Common shares outstanding

 

204,309

   

204,309

 

Operating partnership units outstanding

 

853

   

853

 

Restricted stock units outstanding

 

1,370

   

1,370

 

Value Creation Plan units outstanding under the deferral program

 

1,239

   

1,239

 

Combined shares and units outstanding

 

207,771

   

207,771

 

Common stock price at end of period

 

$

6.01

   

$

6.01

 

Common equity capitalization

 

$

1,248,704

   

$

1,248,704

 

Preferred equity capitalization (at $25.00 face value)

 

289,102

   

289,102

 

Consolidated debt

 

1,309,347

   

1,309,347

 

Pro rata share of unconsolidated debt

 

212,275

   

 

Pro rata share of consolidated debt

 

(138,648)

   

 

Cash and cash equivalents

 

(82,048)

   

(82,048)

 

Total enterprise value

 

$

2,838,732

   

$

2,765,105

 

Net Debt / Total Enterprise Value

 

45.8

%

 

44.4

%

Preferred Equity / Total Enterprise Value