Strategic Hotels & Resorts Reports Fourth Quarter and Full Year 2010 Results; Significant Balance Sheet Restructuring Continues

CHICAGO, Feb. 23, 2011 /PRNewswire/ -- Strategic Hotels & Resorts (NYSE: BEE) today reported results for the fourth quarter and full year ended December 31, 2010.  Additionally, the Company announced that it has entered into an agreement to sell its leasehold interest in the Paris Marriott Champs Elysees for total proceeds of euro 39.7 million (approximately $54.4 million).

Chief Executive Officer Laurence Geller remarked, "2010 was a pivotal and successful year for the Company.  We consistently executed upon our stated strategy, resulting in the anticipated convergence of our key operating metrics which turned positive last spring.  Moreover, we executed a number of well-timed, strategic initiatives that strengthened our balance sheet, including the $350 million secondary offering completed in May.  Among the other accomplishments we achieved in 2010 was the continuance of our planned, methodical exit of Europe, highlighted by the December closing of the InterContinental Prague and the agreement to sell our interest in the Marriott Champs Elysees in Paris on attractive terms.

"In 2011, our competitive position is growing even stronger.  Our unique portfolio of high-end properties are in excellent physical condition and are competing in markets where there is negligible new supply.  We remain focused on aggressively pursuing the final stage of our disciplined balance sheet restructuring while simultaneously growing rate, occupancy, market share, and margins. Our strategy will continue to produce meaningful financial results and support our goal of providing exceptional shareholder returns," concluded Geller.

Fourth Quarter Highlights

• Comparable funds from operations (Comparable FFO) was a loss of $0.01 per diluted share compared with a loss of $0.05 per diluted share in the prior year period.  Excluding a $5.7 million charge related to the Company's long-term incentive compensation (Value Creation Plan or VCP), Comparable FFO was $0.03 per diluted share in the fourth quarter of 2010.  
• Comparable EBITDA was $28.7 million compared with $32.5 million in the prior year period.  Excluding the $5.7 million charge related to the Company's VCP, Comparable EBITDA totaled $34.5 million in the fourth quarter of 2010, a 6.2 percent increase between periods.  
• North American revenue per available room (RevPAR) increased 8.1 percent, driven by a 3.3 percentage point increase in occupancy and a 2.8 percent increase in average daily rate (ADR), compared to the fourth quarter 2009.  Total revenue per available room (Total RevPAR) increased 8.7 percent with non-rooms revenue increasing by 9.3 percent between periods.
• European RevPAR increased 5.0 percent (9.9 percent in constant dollars), driven by a 2.0 percentage point increase in occupancy and a 2.4 percent increase in ADR (7.2 percent increase in constant dollars) between periods. European Total RevPAR increased 1.0 percent in the fourth quarter over the prior year period (5.7 percent in constant dollars).  The European portfolio excludes results from the InterContinental Prague, which was sold in the fourth quarter, and the Paris Marriott Champs Elysees which is currently under contract for sale.
• North American EBITDA margins expanded 450 basis points compared to the fourth quarter of 2009.  Excluding certain one-time property tax refunds received during the quarter and adjusting for cancellation fees, EBITDA margins expanded 210 basis points in the fourth quarter.

Full Year 2010 Highlights

• Comparable FFO was a loss of $0.05 per diluted share compared with a loss of $0.30 per diluted share in the prior year period.  Excluding a $12.6 million charge related to the Company's VCP, Comparable FFO was $0.05 per diluted share for the full year 2010.  
• Comparable EBITDA was $119.4 million compared with $120.0 million in the prior year period.  Excluding the $12.6 million charge related to the Company's VCP, Comparable EBITDA was $132.0 million for the full year 2010, a 10.0 percent increase over the prior year.
• North American RevPAR increased 4.7 percent, driven by a 2.2 percentage point increase in occupancy and a 1.2 percent increase in ADR, compared to the full year 2009.  Total RevPAR increased 4.3 percent with non-rooms revenue increasing by 3.9 percent between years.
• European RevPAR increased 12.1 percent (15.3 percent in constant dollars), driven by a 1.1 percentage point increase in occupancy and a 10.5 percent increase in ADR (13.6 percent increase in constant dollars) between periods. European Total RevPAR increased 7.8 percent in 2010 (10.8 percent in constant dollars).  The European portfolio excludes results from the InterContinental Prague, which was sold in the fourth quarter, and the Paris Marriott Champs Elysees, which is currently under contract for sale.
• North American EBITDA margins expanded 130 basis points compared to the full year 2009.  Excluding certain one-time property tax refunds received during the fourth quarter and adjusting for cancellation fees, EBITDA margins expanded 200 basis points in 2010.

Other Financial Results

The Company reported fourth quarter and full year 2010 earnings results as follows:

• Net loss attributable to common shareholders was $134.8 million, or $0.89 per diluted share, in the fourth quarter of 2010, compared with net loss attributable to common shareholders of $72.2 million, or $0.96 per diluted share, in the fourth quarter of 2009.
• For the full year, net loss attributable to common shareholders was $261.9 million, or $2.13 per diluted share, compared with a net loss attributable to common shareholders of $274.8 million, or $3.65 per diluted share for the full year 2009.

2010 Dispositions and Capital Markets Review

• In December, the Company entered into an agreement to sell its leasehold interest in the Paris Marriott Champs Elysees hotel for euro 26.5 million ($36.3 million).  The Company also expects to receive an additional euro 13.2 million ($18.1 million) related to the release of an existing leasehold guarantee and other closing adjustments for total proceeds of euro 39.7 million (approximately $54.4 million).  The transaction is subject to certain closing conditions and management can make no guarantee of closing.  Net of lease expense, the property contributed $3.3 million to Comparable EBITDA and FFO in 2010 and was classified as held for sale in the fourth quarter and full year financial statements.  The hotel also contributed approximately $0.4 million in incremental corporate G&A expense in 2010.
• In December, the Company closed on the disposition of the InterContinental Prague for total consideration of approximately euro 106.1 million ($141.4 million), which represents the assignment of the property's third party debt and the interest rate swap liability related to the third party indebtedness.  In addition, approximately euro 2.0 million ($2.7 million) of restricted cash related to the property was released to the Company.  
• In June, the Company completed a cash tender offer to retire 100 percent of the aggregate principal amount of the $180 million, 3.50 percent Exchangeable Senior Notes due 2012 at par, plus accrued and unpaid interest.
• In May, the Company closed on the sale of 75.9 million shares of common stock at a public offering price of $4.60 per share.  Net proceeds to the Company, after deducting underwriting discounts and commissions and expenses related to the offering, were $331.8 million.
• In May, the Company closed on a seven-year, $317.8 million, non-recourse cross-collateralized mortgage agreement secured by the Westin St. Francis and Fairmont Chicago hotels with a fixed interest rate of 6.09 percent.

Impairment Losses and Other Charges

Fourth quarter and full year 2010 results include impairment and other charges totaling $141.9 million.  These charges include an impairment to the Fairmont Scottsdale Princess of $101.3 million and a $40.6 million impairment to the Company's original investment in the Hotel del Coronado.  These one-time, non-cash charges have been excluded from Comparable EBITDA, FFO and FFO per share metrics.

Subsequent Events

• The Company signed a letter agreement to acquire the Four Seasons Jackson Hole and Four Seasons Silicon Valley from The Woodbridge Company Limited (Woodbridge) in exchange for 15.2 million shares of common stock at an agreed upon issuance price of $6.25 per share, or an implied valuation of $95.0 million.  On a full year basis, the hotels are forecasted to earn a combined $8.6 million of EBITDA in 2011, representing an 11.0 times EBITDA multiple.  
• In addition, the Company signed an agreement to privately place and issue 8.0 million shares of common stock at $6.25 per share to Woodbridge resulting in total gross proceeds of $50.0 million.
• The Company completed a recapitalization of the joint venture that owns the Hotel del Coronado.  Under terms of the agreement, a new joint venture has been established between the Company, Blackstone Real Estate Advisors (Blackstone) and KSL Resorts.  As part of the recapitalization, which valued the hotel at approximately $590 million, the Company invested approximately $57 million to retain a 34.3 percent ownership position in the joint venture and will remain as asset manager of the hotel.  Blackstone is a 60 percent owner and general partner of the joint venture.  A $425 million debt financing was originated by Deutsche Bank.
• The Company amended its revolving credit facility to increase total borrowing capacity.  Terms of the amendment include an increase of the advance rate from 45 percent to 55 percent of the borrowing base assets' appraised values, a reduction in the debt service coverage ratio constant from 8 percent to 7 percent and a reduction of the debt service coverage ratio limit from 1.3 times to 1.2 times.  In exchange, the Company agreed to reduce the total committed facility from $400 million to $350 million and reduce the maximum total leverage covenant from 80 percent to 70 percent.  Pro forma for the amendment, the Company would have had availability on the revolving credit facility of approximately $320 million at year-end.  The Company currently has $52 million outstanding on the credit facility.
• The Company sold its 50 percent interest in BuyEfficient, an electronic purchasing platform, for $9.0 million.  The Company originally made a 50 percent investment in the entity in December 2007 in partnership with Sunstone Hotel Investors, Inc.
• The Company terminated $125 million of interest rate swaps for a total termination cost of $4.2 million.

2011 Guidance

For the full year 2011, the Company anticipates that Comparable EBITDA will be in the range of $135.0 million to $150.0 million and Comparable FFO in the range of ($0.02) and $0.07 per fully diluted share.

The Company's 2011 guidance includes the following assumptions:

• Same Store North American RevPAR and Total RevPAR growth in the range of 7.0 to 9.0 percent.  Same Store operating metrics include North American hotels which are included in the Company's consolidated financial results but exclude the Fairmont Scottsdale Princess;  
• Same Store North American gross operating profit margins between 31 percent and 32 percent and EBITDA margins between 21 percent and 22 percent;
• Corporate G&A expenses in the range of $21.0 to $23.0 million, excluding any expense from the Company's Value Creation Plan.  The midpoint of the range is approximately flat with 2010 corporate expenses, excluding VCP expense, and a 27 percent reduction from the 2007 peak;
• For guidance purposes only, the Fairmont Scottsdale Princess is assumed to contribute zero to Comparable EBITDA and FFO beyond the maturity of the property's debt financing in September.  The property is forecasted to contribute $7.1 million to Comparable EBITDA in the first eight months of 2011;
• Disposition of the Paris Marriott Champs Elysees leasehold position to close at the end of the first quarter;  
• Acquisition of the Four Seasons Silicon Valley and Four Seasons Jackson Hole to close at the end of the first quarter.  The two assets are expected to contribute $6.0 million to Comparable EBITDA and FFO in the last three quarters of 2011;
• Issuance of 23.2 million shares of common equity in exchange for the Four Seasons Silicon Valley and Four Seasons Jackson Hole and $50 million in gross proceeds to be used to pay down outstanding indebtedness.  Weighted average diluted shares outstanding for 2011 assumed to be approximately 170 million;
• Consolidated interest expense in the range of $95 million to $100 million, including approximately $25 million of non-cash interest expense, primarily related to swap financing amortization costs;
• Capital expenditures totaling approximately $69 million, including spending of $47 million from property furniture, fixtures and equipment (FF&E) reserves and an additional $22 million of owner-funded spending;
• No additional planned acquisition, disposition or capital raising activity.

Portfolio Definitions

North American hotel comparisons for the fourth quarter and full year 2010 are derived from the Company's hotel portfolio at December 31, 2010, consisting of properties in which operations are included in the consolidated results of the Company.  

European hotel comparisons for the fourth quarter and full year 2010 are derived from the Company's European owned and leased hotel properties at December 31, 2010, consisting of the Marriott London Grosvenor Square and the Marriott Hamburg.  The InterContinental Prague, which was sold in the fourth quarter of 2010, and Paris Marriott Champs Elysees, which is currently under contract for sale, are excluded from the European portfolio comparisons.

Earnings Call

The Company will conduct its fourth quarter and full-year 2010 conference call for investors and other interested parties on Thursday, February 24, 2011 at 10:00 a.m. Eastern Time (ET).  Interested individuals are invited to listen to the call by telephone at 888-713-4205 (toll international: 617-213-4862) with pass code 23050644.  To participate on the web cast, log on to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=176522&eventID=3689615 15 minutes before the call to download the necessary software.  For those unable to listen to the call live, a taped rebroadcast will be available beginning at 1:00 p.m. ET on February 24, 2011, through 11:59 p.m. ET on March 3, 2011. To access the replay, dial 888-286-8010 (toll international: 617-801-6888) and request replay pin number 40124729. 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 fourth quarter information section.

About the Company

Strategic Hotels & Resorts, Inc. is a real estate investment trust (REIT) which owns and provides value-enhancing asset management of high-end hotels and resorts in the United States, Mexico and Europe. The Company currently has ownership interests in 16 properties with an aggregate of 7,630 rooms. 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 our future financial results, stabilization in the lodging space, positive trends in the lodging industry and our continued focus on improving profitability.  Actual results could differ materially from the Company's projections. Factors that may contribute to these differences include, but are not limited to the following:   failure to reach agreement with Woodbridge on all business terms and the failure to execute definitive agreements; failure to complete and close on transactions in light of due diligence findings or the failure of closing conditions to be satisfied; ability to obtain, refinance or restructure debt or comply with covenants contained in our debt facilities demand for hotel rooms in our current and proposed market areas; availability of capital; ability to obtain, refinance or restructure debt or comply with covenants contained in our debt facilities; rising interest rates and operating costs; rising insurance premiums; cash available for capital expenditures; competition; economic conditions generally and in the real estate market specifically, including deterioration of economic conditions and the extent of its effect on business and leisure travel and the lodging industry; ability to dispose of existing properties in a manner consistent with our disposition strategy; risks related to natural disasters; the effect of threats of terrorism and increased security precautions on travel patterns and hotel bookings; the outbreak of hostilities and international political instability; legislative or regulatory changes, including changes to laws governing the taxation of REITs; and changes in generally accepted accounting principles, policies and guidelines applicable to REITs.

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 we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The following tables reconcile projected 2011 net loss attributable to common shareholders to projected Comparable EBITDA, Comparable FFO and Comparable FFO per diluted share (in millions, except per share data):

The following tables reconcile projected second quarter through fourth quarter and full year 2011 net income attributable to common shareholders to projected Comparable EBITDA and Comparable FFO for the Four Seasons Jackson Hole and Four Seasons Silicon Valley (in millions):

The following tables reconcile projected 2011 net loss attributable to common shareholders to projected Comparable EBITDA and Comparable FFO for the Fairmont Scottsdale Princess for the period between January 1st and August 31st (in millions):

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

Non-GAAP Financial Measures

In addition to REIT hotel income, five other non-GAAP financial measures are presented for the Company 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. A reconciliation of these measures to net loss attributable to SHR common shareholders, the most directly comparable GAAP measure, is set forth in the following tables.

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which 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 plus real estate-related depreciation and amortization, and after adjustments for our portion of these items related to unconsolidated partnerships and joint ventures. We also present FFO - Fully Diluted, which is FFO plus income or loss on income attributable to convertible noncontrolling interests. 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 other non-recurring charges. 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.  Comparable FFO per diluted share, in accordance with NAREIT, is adjusted for the effects of dilutive securities.  Dilutive securities may include shares granted under share-based compensation plans, operating partnership units and exchangeable debt securities.  No effect is shown for securities that are anti-dilutive.

EBITDA represents net 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; and (iii) depreciation and amortization. EBITDA also excludes interest expense, income taxes and depreciation and amortization of our equity method investments. EBITDA is presented on a full participation basis, which means we have assumed conversion of all convertible noncontrolling interests of our operating partnership into our common stock and includes preferred dividends.  We believe this treatment of noncontrolling interests provides more 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 other non-recurring charges. 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 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 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 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 loss attributable to SHR common shareholders.

SOURCE Strategic Hotels & Resorts, Inc.