Strategic Hotels & Resorts Reports Third Quarter 2012 Financial Results

Nov 07, 2012, 16:01 ET from Strategic Hotels & Resorts, Inc.

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

10.2

%

10.5

%

Common Equity / Total Enterprise Value

44.0

%

45.1

%

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

Discontinued Operations

The results of operations of hotels sold are classified as discontinued operations and segregated in the consolidated statements of operations for all periods presented. The following hotel was sold during 2011 (in thousands):

Hotel

Date Sold

Net Sales Proceeds

Paris Marriott Champs Elysees (Paris Marriott)

April 6, 2011

$

60,003

The following is a summary of income (loss) from discontinued operations for the three and nine months ended September 30, 2012 and 2011 (in thousands):

Three Months Ended September 30,

Nine Months Ended

September 30,

2012

2011

2012

2011

Hotel operating revenues

$

$

$

$

9,743

Operating costs and expenses

(54)

9,456

Operating income

54

287

Foreign currency exchange (loss) gain

(535)

51

Other income, net

326

Income tax expense

(379)

(Loss) gain on sale

(35)

100,930

Income (loss) from discontinued operations

$

$

19

$

(535)

$

101,215

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

Investments in Unconsolidated Affiliates

(in thousands)

On January 9, 2006, we purchased a 45% interest in the unconsolidated affiliate that owns the Hotel del Coronado. On February 4, 2011, we completed a recapitalization of the unconsolidated affiliate. As part of the recapitalization, a new unconsolidated affiliate was formed to own the Hotel del Coronado and to invest cash in the asset. Pursuant to the terms of the recapitalization, we became a limited partner in the new unconsolidated affiliate, and our ownership interest in the Hotel del Coronado decreased from 45% to 34.3%. On June 9, 2011, we completed a recapitalization of the Fairmont Scottsdale Princess hotel. As part of the recapitalization, our ownership interest in the Fairmont Scottsdale Princess hotel decreased from 100% to 50%. We account for these investments using the equity method of accounting.

Three Months Ended September 30, 2012

Three Months Ended September 30, 2011

Hotel del

Coronado

Fairmont Scottsdale

Princess

Total

Hotel del

Coronado

Fairmont Scottsdale

Princess

Total

Total revenues (100%)

$

44,978

$

10,607

$

55,585

$

43,417

$

10,280

$

53,697

Property EBITDA (100%)

$

14,560

$

(2,163)

$

12,397

$

16,995

$

(2,452)

$

14,543

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

Property EBITDA

$

4,994

$

(1,082)

$

3,912

$

5,830

$

(1,226)

$

4,604

Depreciation and amortization

(1,711)

(1,774)

(3,485)

(1,665)

(1,806)

(3,471)

Interest expense

(2,522)

(191)

(2,713)

(2,648)

(198)

(2,846)

Other expenses, net

(19)

(5)

(24)

(83)

(96)

(179)

Income taxes

(74)

(74)

(125)

(125)

Equity in earnings (losses) of unconsolidated affiliates

$

668

$

(3,052)

$

(2,384)

$

1,309

$

(3,326)

$

(2,017)

EBITDA Contribution:

Equity in earnings (losses) of unconsolidated affiliates

$

668

$

(3,052)

$

(2,384)

$

1,309

$

(3,326)

$

(2,017)

Depreciation and amortization

1,711

1,774

3,485

1,665

1,806

3,471

Interest expense

2,522

191

2,713

2,648

198

2,846

Income taxes

74

74

125

125

EBITDA Contribution

$

4,975

$

(1,087)

$

3,888

$

5,747

$

(1,322)

$

4,425

FFO Contribution:

Equity in earnings (losses) of unconsolidated affiliates

$

668

$

(3,052)

$

(2,384)

$

1,309

$

(3,326)

$

(2,017)

Depreciation and amortization

1,711

1,774

3,485

1,665

1,806

3,471

FFO Contribution

$

2,379

$

(1,278)

$

1,101

$

2,974

$

(1,520)

$

1,454

Nine Months Ended September 30, 2012

Nine Months Ended September 30, 2011

Hotel del

Coronado

Fairmont

Scottsdale

Princess

Total

Hotel del

Coronado

Fairmont

Scottsdale

Princess

Total

Total revenues (100%)

$

110,332

$

56,735

$

167,067

$

106,404

$

12,389

$

118,793

Property EBITDA (100%)

$

33,522

$

9,743

$

43,265

$

34,748

$

(3,196)

$

31,552

Equity in losses of unconsolidated affiliates (SHR ownership)

Property EBITDA

$

11,498

$

4,871

$

16,369

$

12,022

$

(1,598)

$

10,424

Depreciation and amortization

(5,098)

(5,321)

(10,419)

(4,963)

(2,257)

(7,220)

Interest expense

(7,544)

(589)

(8,133)

(7,382)

(248)

(7,630)

Other expenses, net

(62)

(44)

(106)

(1,547)

(640)

(2,187)

Income taxes

293

293

554

554

Equity in losses of unconsolidated affiliates

$

(913)

$

(1,083)

$

(1,996)

$

(1,316)

$

(4,743)

$

(6,059)

EBITDA Contribution

Equity in losses of unconsolidated affiliates

$

(913)

$

(1,083

$

(1,996)

$

(1,316)

$

(4,743)

$

(6,059)

Depreciation and amortization

5,098

5,321

10,419

4,963

2,257

7,220

Interest expense

7,544

589

8,133

7,382

248

7,630

Income taxes

(293)

(293)

(554)

(554)

EBITDA Contribution

$

11,436

$

4,827

$

16,263

$

10,475

$

(2,238)

$

8,237

FFO Contribution

Equity in losses of unconsolidated affiliates

$

(913)

$

(1,083)

$

(1,996)

$

(1,316)

$

(4,743)

$

(6,059)

Depreciation and amortization

5,098

5,321

10,419

4,963

2,257

7,220

FFO Contribution

$

4,185

$

4,238

$

8,423

$

3,647

$

(2,486)

$

1,161

Investments in Unconsolidated Affiliates (Continued)

(in thousands)

Debt

Interest Rate

Spread over

LIBOR

Loan Amount

Maturity (a)

Hotel del Coronado

CMBS Mortgage and Mezzanine

5.80

%

(b)

480 bp

(b)

$

425,000

March 2016

Cash and cash equivalents

(16,219)

Net Debt

$

408,781

Fairmont Scottsdale Princess

CMBS Mortgage

0.57

%

36 bp

$

133,000

April 2015

Cash and cash equivalents

(4,290)

Net Debt

$

128,710

(a) Includes extension options.

(b) Subject to a 1% LIBOR floor.

Caps

Effective

Date

LIBOR Cap Rate

Notional Amount

Maturity

Hotel del Coronado

CMBS Mortgage and Mezzanine Loan Caps

February 2011

2.00

%

$

425,000

February 2013

CMBS Mortgage and Mezzanine Loan Caps

February 2013

2.50

%

$

425,000

March 2013

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,

2012

2011

2012

2011

Paris Marriott (a):

Property EBITDA

$

$

$

$

3,455

Revenue (b)

$

$

$

$

3,455

Lease expense

(3,274)

Less: Deferred gain on sale-leaseback

(1,214)

Adjusted lease expense

(4,488)

EBITDA contribution from leasehold

$

$

$

$

(1,033)

Marriott Hamburg:

Property EBITDA

$

1,508

$

1,734

$

4,404

$

5,034

Revenue (b)

$

1,175

$

1,255

$

3,505

$

3,747

Lease expense

(1,114)

(1,249)

(3,425)

(3,702)

Less: Deferred gain on sale-leaseback

(49)

(42)

(150)

(151)

Adjusted lease expense

(1,163)

(1,291)

(3,575)

(3,853)

EBITDA contribution from leasehold

$

12

$

(36)

$

(70)

$

(106)

Total Leaseholds:

Property EBITDA

$

1,508

$

1,734

$

4,404

$

8,489

Revenue (b)

$

1,175

$

1,255

$

3,505

$

7,202

Lease expense

(1,114)

(1,249)

(3,425)

(6,976)

Less: Deferred gain on sale-leasebacks

(49)

(42)

(150)

(1,365)

Adjusted lease expense

(1,163)

(1,291)

(3,575)

(8,341)

EBITDA contribution from leaseholds

$

12

$

(36)

$

(70)

$

(1,139)

Security Deposit (c):

September 30, 2012

December 31, 2011

Marriott Hamburg

$

2,443

$

2,462

(a) On April 6, 2011, we sold our leasehold interest in the Paris Marriott hotel. The results of operations for the Paris Marriott hotel have been classified as discontinued operations for all periods presented.

(b) For the nine months ended September 30, 2011, Revenue for the Paris Marriott hotel represents Property EBITDA. For the three and nine months ended September 30, 2012 and 2011, Revenue for the Marriott Hamburg hotel represents lease revenue.

(c) 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 the Value Creation Plan expense. 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 the Value Creation Plan expense. 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 Loss Attributable to SHR Common Shareholders to EBITDA and Comparable EBITDA

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Net loss attributable to SHR common shareholders

$

(8,557)

$

(11,902)

$

(43,071)

$

(7,771)

Depreciation and amortization

25,649

25,526

76,416

86,222

Interest expense

19,942

21,838

58,627

67,148

Income taxes—continuing operations

(600)

867

215

279

Income taxes—discontinued operations

379

Noncontrolling interests

(17)

(16)

(126)

70

Adjustments from consolidated affiliates

(1,879)

(1,248)

(4,382)

(5,431)

Adjustments from unconsolidated affiliates

7,036

7,162

20,606

16,293

Preferred shareholder dividends

6,042

7,721

18,125

23,164

EBITDA

47,616

49,948

126,410

180,353

Realized portion of deferred gain on sale-leaseback—continuing operations

(49)

(42)

(150)

(151)

Realized portion of deferred gain on sale-leaseback—discontinued operations

(1,214)

Gain on sale of assets—continuing operations

(2,640)

Loss (gain) on sale of assets— discontinued operations

35

(100,930)

Loss on early extinguishment of debt

399

1,237

Loss on early termination of derivative financial instruments

29,242

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

996

209

1,169

(77)

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

535

(51)

Adjustment for Value Creation Plan

(2,013)

(6,921)

2,759

9,078

Comparable EBITDA

$

46,550

$

43,628

$

130,723

$

114,847

(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 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,

2012

2011

2012

2011

Net loss attributable to SHR common shareholders

$

(8,557)

$

(11,902)

$

(43,071)

$

(7,771)

Depreciation and amortization

25,649

25,526

76,416

86,222

Corporate depreciation

(260)

(279)

(789)

(868)

Gain on sale of assets—continuing operations