Strategic Hotels & Resorts Reports First Quarter 2014 Financial Results - WSET.com - ABC13

Strategic Hotels & Resorts Reports First Quarter 2014 Financial Results

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SOURCE Strategic Hotels & Resorts, Inc.

Strong operating results lead to 19.5% increase in Comparable EBITDA and 220 basis points of EBITDA margin expansion

CHICAGO, May 7, 2014 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the first quarter ended March 31, 2014. 

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

First Quarter

Earnings Metrics

2014

2013

% Change

Net income/(loss) attributable to common shareholders

$217.2

$(23.4)

N/A

Net income/(loss) per diluted share

$0.97

$(0.12)

   N/A

Comparable funds from operations (Comparable FFO) (a)

$12.2

$2.3

435.8%

Comparable FFO per diluted share (a)

$0.06

$0.01

500.0%

Comparable EBITDA (a)

$41.2

$34.5

19.5%





Total United States Portfolio Operating Metrics (b)




Average Daily Rate (ADR)

$284.66

$270.76

5.1%

Occupancy

68.8%

68.1%

0.7 pts

Revenue per Available Room (RevPAR)

$195.96

$184.41

6.3%

Total RevPAR

$384.39

$352.05

9.2%

EBITDA Margins

20.2%

18.0%

220 bps



(a)

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

(b)

Operating statistics reflect results from the Company's Total United States portfolio (see Portfolio Definitions later in this press release).

"Our first quarter was highly productive from both an operating and transaction perspective," noted Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts, Inc.  "We experienced 6.3 percent RevPAR growth, which would have been approximately 9 percent when adjusted for displacement for several room renovation projects, and total RevPAR increased 9.2 percent on the strength of ancillary group revenue during the quarter. In addition, the Company executed the sale of both the Four Seasons Punta Mita Resort and the Marriott London Grosvenor Square hotel, and redeployed the capital to redeem the Series A preferred stock, acquire the remaining 50% joint venture interest in the Fairmont Scottsdale Princess resort and reduce outstanding debt by approximately $190 million.  We are extremely pleased with the results of the quarter and are increasing our guidance range for Total RevPAR growth to reflect the strength in non-rooms spending and raising our Comparable FFO per share guidance range to reflect our recent balance sheet activity.  All other guidance ranges are being maintained," summarized Gellein.

First Quarter Highlights

  • Total consolidated revenues were $194.7 million in the first quarter of 2014, a 7.4 percent increase over the prior year period.
  • Total United States portfolio RevPAR increased 6.3 percent in the first quarter of 2014, driven by a 5.1 percent increase in ADR and a 0.7 percentage point increase in occupancy compared to the first quarter of 2013.  Total RevPAR increased 9.2 percent between periods with non-rooms revenue increasing by 12.0 percent between periods.
  • Total United States portfolio EBITDA margins expanded 220 basis points in the first quarter of 2014, compared to the first quarter of 2013. 
  • Comparable FFO was $0.06 per diluted share in the first quarter of 2014, compared with $0.01 per diluted share in the prior year period, a 500.0 percent increase over the prior year period.    
  • Comparable EBITDA was $41.2 million in the first quarter of 2014, compared with $34.5 million in the prior year period, a 19.5 percent increase between periods.   
  • Net income attributable to common shareholders was $217.2 million, or $0.97 per diluted share, in the first quarter of 2014, compared with net loss attributable to common shareholders of $23.4 million, or $0.12 per diluted share, in the first quarter of 2013.  This increase included $233.9 million in gains from asset sales, net of taxes, and the consolidation of an affiliate during the quarter.
  • Group occupied room nights in the Total United States portfolio increased 6.3 percent, offsetting a 3.7 percent decrease in transient occupied room nights, in the first quarter of 2014 compared to the first quarter of 2013.  Group ADR increased 2.8 percent and transient ADR increased 7.3 percent compared to the first quarter of 2013. 
  • Group room nights currently booked for 2014 are 5.3 percent higher compared to room nights booked for 2013 at the same time last year, with rates 3.2 percent higher, resulting in an 8.7 percent RevPAR increase.

Preferred Equity Dividends & Redemption

On March 3, 2014, the Company's board of directors declared a quarterly dividend of $0.51563 per share of 8.25 percent Series B Cumulative Redeemable Preferred Stock paid on March 31, 2014 to shareholders of record as of the close of business on March 14, 2014 and a quarterly dividend of $0.51563 per share of 8.25 percent Series C Cumulative Redeemable Preferred Stock paid on March 31, 2014 to shareholders of record as of the close of business on March 14, 2014.

On April 3, 2014, the Company completed the redemption of all of the outstanding 4,148,141 shares of its 8.50 percent Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Shares").  The Series A Preferred Shares were redeemed at par value of $25.00 per share, plus accrued and unpaid dividends in the amount of $0.54896 per share, for a total redemption cost of $105,980,688.  The redemption of the Series A Preferred Shares eliminated approximately $6.5 million in dividend payments in 2014 and $8.8 million of dividend payments on an annual basis.

Transaction Activity

On February 28, 2014, the Company closed on the sale of the Four Seasons Punta Mita Resort and adjacent La Solana land parcel for $200.0 million.  The Company used the net proceeds after taxes to redeem the Series A Preferred Shares and reduce indebtedness under its revolving credit facility.

On March 31, 2014, the Company closed on the sale of the Marriott London Grosvenor Square hotel for £125.15 million ($207.7 million), or approximately £528,000 per key ($877,000).  Net proceeds from the transaction totaled approximately £57.9 million ($96.2 million), after the repayment of property-level net debt of £67.3 million ($112.2 million). 

Also on March 31, 2014, the Company closed on the acquisition of the remaining 50 percent ownership interest in the Fairmont Scottsdale Princess resort for approximately $90.6 million, representing a net purchase price of approximately $288.0 million, or $440,000 per key.

Subsequent Events

On April 21, 2014, the Company paid $22.7 million to terminate its $400.0 million notional value interest rate swap portfolio, which will reduce cash interest expense by approximately $11.5 million in 2014.  The swap portfolio had a weighted average LIBOR interest rate of 5.09 percent.  As a result of the swap terminations, the Company will record $8.9 million of non-cash interest expense in the last nine months of the year related to the amortization of the swaps' remaining Other Comprehensive Income ("OCI") balance.  This non-cash interest expense will be added back for purposes of reporting Comparable FFO and Comparable FFO per fully diluted share and is reflected in the Company's revised guidance ranges.

On April 25, 2014, the Company closed on a new $300.0 million stock secured credit facility with an accordion feature allowing for additional borrowing capacity up to $400.0 million.  The facility's interest rate is based upon a leverage-based pricing grid ranging from LIBOR plus 175 basis points to LIBOR plus 250 basis points.  The initial pricing is LIBOR plus 200 basis points, representing a 75 basis point decline from the Company's previous credit facility. 

2014 Guidance

Based on the results of the first quarter of 2014 and current forecasts for the remainder of the year, management is maintaining its guidance ranges for full year 2014 RevPAR growth, EBITDA margin expansion and Comparable EBITDA, and increasing its guidance range for full year 2014 Total RevPAR growth and Comparable FFO per fully diluted share.

For the full-year ending December 31, 2014, the Company is providing the following guidance ranges: 

Guidance Metrics

Previous Range


Revised Range

RevPAR

5.0% - 7.0%


5.0% - 7.0%

Total RevPAR

4.5% - 6.5%


5.0% - 7.0%

EBITDA Margin expansion

120 – 200 basis points


120 – 200 basis points

Comparable EBITDA

$210M - $230M


$210M - $230M

Comparable FFO per diluted share

$0.50 - $0.60


$0.57 - $0.67

Portfolio Definitions

Total United States portfolio hotel comparisons for the first quarter of 2014 are derived from the Company's hotel portfolio at March 31, 2014, consisting of all 15 properties located in the United States, including unconsolidated joint ventures.   

Earnings Call

The Company will conduct its first quarter 2014 conference call for investors and other interested parties on Thursday, May 8, 2014 at 10:00 a.m. Eastern Time (ET).  Interested individuals are invited to access the call by dialing 800.299.9086 (toll international: 617.786.2903 with passcode 15895989. 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/wznf5ahg/lan/en 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 2 p.m. ET on May 8, 2014 through 11:59 p.m. ET on May 15, 2014. To access the replay, 888.286.8010 (toll international: 617.801.6888) with passcode 76977708.  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.

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 and Europe. The Company currently has ownership interests in 16 properties with an aggregate of 7,862 rooms and 835,000 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.

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, 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, Mexico, or Germany 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; 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 2014 net income 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 Income Attributable to Common Shareholders

$221.4


$241.4

Depreciation and Amortization

118.4


118.4

Interest Expense

76.8


76.8

Income Taxes

2.0


2.0

Non-controlling Interests

1.1


1.1

Adjustments from Consolidated Affiliates

(16.1)


(16.1)

Adjustments from Unconsolidated Affiliates

17.2


17.2

Preferred Shareholder Dividends

17.6


17.6

Preferred Stock Redemption Liability

3.7


3.7

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Gain on Sale of Asset

(155.8)


(155.8)

Gain on Consolidation of Affiliate

(78.1)


(78.1)

Other Adjustments

2.0


2.0

Comparable EBITDA

$210.0


$230.0










Low Range


High Range

Net Income Attributable to Common Shareholders

$221.4


$241.4

Depreciation and Amortization

117.5


117.5

Realized Portion of Deferred Gain on Sale Leasebacks

(0.2)


(0.2)

Gain on Sale of Asset

(155.8)


(155.8)

Gain on Consolidation of Affiliate

(78.1)


(78.1)

Non-controlling Interests

0.9


0.9

Adjustments from Consolidated Affiliates

(8.6)


(8.6)

Adjustments from Unconsolidated Affiliates

9.2


9.2

Interest Rate Swap OCI Amortization

8.9


8.9

Preferred Stock Redemption Liability

3.7


3.7

Other Adjustments

1.6


1.6

Comparable FFO

$120.5


$140.5

Comparable FFO per Diluted Share

$0.57


$0.67





 





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

 

Consolidated Statements of Operations

(in thousands, except per share data)






Three Months Ended March 31,



2014


2013

Revenues:







Rooms


$

103,100



$

98,264


Food and beverage


70,017



62,057


Other hotel operating revenue


20,239



19,659


Lease revenue


1,299



1,200


Total revenues


194,655



181,180


Operating Costs and Expenses:







Rooms


33,707



31,763


Food and beverage


54,603



51,550


Other departmental expenses


53,579



51,181


Management fees


5,778



5,010


Other hotel expenses


15,678



14,889


Lease expense


1,258



1,176


Depreciation and amortization


22,205



24,908


Corporate expenses


7,193



5,763


Total operating costs and expenses


194,001



186,240


Operating income (loss)


654



(5,060)


Interest expense


(18,274)



(19,663)


Interest income


27



10


Equity in earnings of unconsolidated affiliates


4,445



1,345


Foreign currency exchange gain (loss)


2



(86)


Gain on consolidation of affiliate


78,117



-


Other income, net


423



132


Income (loss) before income taxes and discontinued operations


65,394



(23,322)


Income tax expense


(39)



(13)


Income (loss) from continuing operations


65,355



(23,335)


Income from discontinued operations, net of tax


158,435



1,989


Net Income (Loss)


223,790



(21,346)


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


(849)



87


Net loss attributable to the noncontrolling interests in consolidated affiliates


4,041



3,852


Net Income (Loss) attributable to SHR


226,982



(17,407)


Preferred shareholder dividends


(9,824)



(6,041)


Net Income (Loss) Attributable to SHR Common Shareholders


$

217,158



$

(23,448)


Basic Income (Loss) Per Common Share:







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


$

0.29



$

(0.12)


Income from discontinued operations attributable to SHR common shareholders


0.76



0.01


Net income (loss) attributable to SHR common shareholders


$

1.05



$

(0.11)


Weighted average shares of common stock outstanding


206,983



206,981


Diluted Income (Loss) Per Common Share:







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


$

0.25



$

(0.13)


Income from discontinued operations attributable to SHR common shareholders


0.72



0.01


Net income (loss) attributable to SHR common shareholders


$

0.97



$

(0.12)


Weighted average shares of common stock outstanding


219,368



218,710


 







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

 

Consolidated Balance Sheets

(in thousands, except share data)








March 31,

2014


December 31,

2013

Assets







Investment in hotel properties, net


$

2,033,812



$

1,795,338


Goodwill


38,128



38,128


Intangible assets, net of accumulated amortization of $6,158 and $11,753


3,877



29,502


Assets held for sale


-



135,901


Investment in unconsolidated affiliates


76,779



104,973


Cash and cash equivalents


166,892



73,655


Restricted cash and cash equivalents


81,698



75,916


Accounts receivable, net of allowance for doubtful accounts of $486 and $606


52,691



39,660


Deferred financing costs, net of accumulated amortization of $11,539 and $12,354


6,800



8,478


Prepaid expenses and other assets


32,572



35,600


Total assets


$

2,493,249



$

2,337,151


Liabilities, Noncontrolling Interests and Equity







Liabilities:







Mortgages and other debt payable, net of discount


$

1,161,263



$

1,163,696


Bank credit facility


30,000



110,000


Liabilities of assets held for sale


-



17,027


Accounts payable and accrued expenses


203,699



189,889


Preferred stock redemption liability


103,704



-


Distributions payable


2,277



-


Deferred tax liabilities


45,957



46,137


Total liabilities


1,546,900



1,526,749


Commitments and contingencies







Noncontrolling interests in SHR's operating partnership


8,124



7,534


Equity:







SHR's shareholders' equity:







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


-



99,995


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


87,064



87,064


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


92,489



92,489


Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 205,792,726 and 205,582,838 shares of common stock issued and outstanding)


2,058



2,056


Additional paid-in capital


1,696,148



1,705,306


Accumulated deficit


(1,007,970)



(1,234,952)


Accumulated other comprehensive loss


(22,328)



(41,445)


Total SHR's shareholders' equity


847,461



710,513


Noncontrolling interests in consolidated affiliates


90,764



92,355


Total equity


938,225



802,868


Total liabilities, noncontrolling interests and equity


$

2,493,249



$

2,337,151


 





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

 

Financial Highlights

 

Supplemental Financial Data

(in thousands, except per share information)






March 31, 2014



Pro Rata Share


Consolidated

Capitalization







Shares of common stock outstanding


205,793



205,793


Operating partnership units outstanding


797



797


Restricted stock units outstanding


1,619



1,619


Combined shares and units outstanding


208,209



208,209


Common stock price at end of period


$

10.19



$

10.19


Common equity capitalization


$

2,121,650



$

2,121,650


Preferred equity capitalization (at $25.00 face value)


186,078



186,078


Preferred stock redemption liability


103,704



103,704


Consolidated debt


1,193,755



1,193,755


Pro rata share of unconsolidated debt


172,900



-


Pro rata share of consolidated debt


(132,791)



-


Cash and cash equivalents


(166,892)



(166,892)


Total enterprise value


$

3,478,404



$

3,438,295


Net Debt / Total Enterprise Value


33.7

%


32.9

%

Preferred Equity / Total Enterprise Value


5.3

%


5.4

%

Common Equity / Total Enterprise Value


61.0

%


61.7

%

 









Discontinued Operations

(in thousands)


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 hotels were sold during the three months ended March 31, 2014:









Hotel


Location


Date Sold


Sales Proceeds


Four Seasons Punta Mita Resort and La Solana land parcel


Punta Mita, Mexico


February 28, 2014


$

203,197,000



Marriott London Grosvenor Square


London, England


March 31, 2014


$

208,306,000


(a)



(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.  The net proceeds we received were $96,156,000.

 




The following is a summary of income from discontinued operations for the three months ended March 31, 2014 and 2013 (in thousands):






Three Months Ended March 31,



2014


2013

Hotel operating revenues


$

17,767



$

20,287


Operating costs and expenses


11,485



13,722


Depreciation and amortization


1,275



2,310


Total operating costs and expenses


12,760



16,032


Operating income


5,007



4,255


Interest expense


(1,326)



(1,823)


Interest income


2



2


Loss on early extinguishment of debt


(272)



-


Foreign currency exchange gain


32



326


Income tax expense


(833)



(771)


Gain on sale, net of tax


155,825



-


Income from discontinued operations


$

158,435



$

1,989


 






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

 

Investments in Unconsolidated Affiliates

(in thousands)


We have a 36.4% ownership interest in the Hotel del Coronado hotel that we account for using the equity method of accounting. We had a 50.0% 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% ownership interest on March 31, 2014. For purposes of this analysis, the operating results reflect the 50.0% ownership interest we held in the Fairmont Scottsdale Princess hotel prior to March 31, 2014.








Three Months Ended March 31, 2014


Three Months Ended March 31, 2013



Hotel del

Coronado


Fairmont Scottsdale

Princess


Total


Hotel del

Coronado


Fairmont Scottsdale

Princess


Total

Total revenues (100%)


$

34,042



$

35,006



$

69,048



$

30,330



$

30,956



$

61,286


Property EBITDA (100%)


$

9,559



$

13,191



$

22,750



$

7,874



$

9,569



$

17,443


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













Property EBITDA


$

3,351



$

6,595



$

9,946



$

2,864



$

4,785



$

7,649


Depreciation and amortization


(1,955)



(1,551)



(3,506)



(1,865)



(1,840)



(3,705)


Interest expense


(1,900)



(168)



(2,068)



(2,490)



(194)



(2,684)


Other expenses, net


(4)



(30)



(34)



(16)



(8)



(24)


Income taxes


230



-



230



94



-



94


Equity in (losses) earnings of unconsolidated affiliates


$

(278)



$

4,846



$

4,568



$

(1,413)



$

2,743



$

1,330


EBITDA Contribution:



















Equity in (losses) earnings of unconsolidated affiliates


$

(278)



$

4,846



$

4,568



$

(1,413)



$

2,743



$

1,330


Depreciation and amortization


1,955



1,551



3,506



1,865



1,840



3,705


Interest expense


1,900



168



2,068



2,490



194



2,684


Income taxes


(230)



-



(230)



(94)



-



(94)


EBITDA Contribution


$

3,347



$

6,565



$

9,912



$

2,848



$

4,777



$

7,625


FFO Contribution:



















Equity in (losses) earnings of unconsolidated affiliates


$

(278)



$

4,846



$

4,568



$

(1,413)



$

2,743



$

1,330


Depreciation and amortization


1,955



1,551



3,506



1,865



1,840



3,705


FFO Contribution


$

1,677



$

6,397



$

8,074



$

452



$

4,583



$

5,035


 














Investments in Unconsolidated Affiliates (Continued)

(in thousands)














Debt


Interest Rate




Spread over

LIBOR




Loan Amount


Maturity (a)

Hotel del Coronado















CMBS Mortgage and Mezzanine


3.80

%




365 bp




$

475,000



March 2018

Cash and cash equivalents











(9,799)




Net Debt











$

465,201






(a)

Includes extension options.

 


Caps


Effective

Date


LIBOR Cap Rate


Notional Amount


Maturity

Hotel del Coronado











CMBS Mortgage and Mezzanine Loan Caps


March 2013


3.00

%


$

475,000



March 2015













 




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

 

Leasehold Information

(in thousands)






Three Months Ended March 31,



2014


2013

Marriott Hamburg:







Property EBITDA


$

1,512



$

1,396


Revenue (a)


$

1,299



$

1,200









Lease expense


(1,258)



(1,176)


Less: Deferred gain on sale-leaseback


(53)



(51)


Adjusted lease expense


(1,311)



(1,227)









Comparable EBITDA contribution from leasehold


$

(12)



$

(27)


 

Security Deposit (b):


March 31,

2014


December 31,

2013

Marriott Hamburg


$

2,616



$

2,611













(a)

For the three months ended March 31, 2014 and 2013, Revenue for the Marriott Hamburg hotel represents lease revenue.



(b)

The security deposit is recorded in prepaid expenses and other assets on the consolidated balance sheets.

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

Non-GAAP Financial Measures

We present five non-GAAP financial measures that we believe are useful to management and investors as key measures of our operating performance: Funds from Operations (FFO); FFO-Fully Diluted; Comparable FFO; Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA); and Comparable EBITDA.

EBITDA represents net income (or loss) attributable to SHR common shareholders excluding: (i) interest expense, (ii) income taxes, including deferred income tax benefits and expenses applicable to our foreign subsidiaries and income taxes applicable to sale of assets; (iii) depreciation and amortization; and (iv) preferred stock dividends. EBITDA also excludes interest expense, income taxes and depreciation and amortization of our unconsolidated affiliates. EBITDA is presented on a full participation basis, which means we have assumed conversion of all redeemable noncontrolling interests of our operating partnership into our common stock. We believe this treatment of noncontrolling interests provides useful information for management and our investors and appropriately considers our current capital structure. We also present Comparable EBITDA, which eliminates the effect of realizing deferred gains on our sale leasebacks, as well as the effect of gains or losses on sales of assets, early extinguishment of debt, impairment losses, foreign currency exchange gains or losses and certain other charges that are highly variable from year to year. We believe EBITDA and Comparable EBITDA are useful to management and investors in evaluating our operating performance because they provide management and investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe they help management and investors meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our asset base (primarily depreciation and amortization) from our operating results. Our management also uses EBITDA and Comparable EBITDA as measures in determining the value of acquisitions and dispositions.

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

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

 





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

 

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

(in thousands)






Three Months Ended March 31,



2014


2013

Net income (loss) attributable to SHR common shareholders


$

217,158



$

(23,448)


Depreciation and amortization-continuing operations


22,205



24,908


Depreciation and amortization-discontinued operations


1,275



2,310


Interest expense-continuing operations


18,274



19,663


Interest expense-discontinued operations


1,326



1,823


Income taxes-continuing operations


39



13


Income taxes-discontinued operations


833



771


Income taxes-sale of assets


20,451



-


Noncontrolling interests


849



(87)


Adjustments from consolidated affiliates


(3,675)



(3,554)


Adjustments from unconsolidated affiliates


5,290



6,316


Preferred shareholder dividends


9,824



6,041


EBITDA


293,849



34,756


Realized portion of deferred gain on sale-leaseback


(53)



(51)


Gain on consolidation of affiliate


(78,117)



-


Gain on sale of assets-discontinued operations


(176,276)



-


Loss on early extinguishment of debt-discontinued operations


272



-


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


(2)



86


Foreign currency exchange gain-discontinued operations (a)


(32)



(326)


Activist shareholder costs


1,533



-


Comparable EBITDA


$

41,174



$

34,465




(a)

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

 




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

 

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

Funds From Operations (FFO), FFO-Fully Diluted and Comparable FFO

(in thousands, except per share data)






Three Months Ended March 31,



2014


2013

Net income (loss) attributable to SHR common shareholders


$

217,158



$

(23,448)


Depreciation and amortization-continuing operations


22,205



24,908


Depreciation and amortization-discontinued operations


1,275



2,310


Corporate depreciation


(123)



(131)


Gain on consolidation of affiliate


(78,117)



-


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


(155,825)



-


Realized portion of deferred gain on sale-leaseback


(53)



(51)


Noncontrolling interests adjustments


(98)



(127)


Adjustments from consolidated affiliates


(1,835)



(1,641)


Adjustments from unconsolidated affiliates


3,506



3,706


FFO


8,093



5,526


Redeemable noncontrolling interests


947



40


FFO-Fully Diluted


9,040



5,566


Non-cash mark to market of interest rate swaps-continuing operations


(2,294)



(2,298)


Non-cash mark to market of interest rate swaps-discontinued operations


-



(746)


Loss on early extinguishment of debt-discontinued operations


272



-


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


(2)



86


Foreign currency exchange gain-discontinued operations (a)


(32)



(326)


Activist shareholder costs


1,533



-


Excess of redemption liability over carrying amount of Series A Preferred Stock


3,709



-


Comparable FFO


$

12,226



$

2,282


Comparable FFO per fully diluted share


$

0.06



$

0.01


Weighted average diluted shares (b)


209,583



209,895




(a)

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

(b)

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

 










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

 

Debt Summary

(dollars in thousands)










Debt


Interest Rate


Spread (a)


Loan Amount


Maturity (b)

North Beach Venture


5.00

%


Fixed


$

1,469



January 2015

Bank credit facility (c)


3.15

%


300 bp


30,000



June 2015

Fairmont Scottsdale Princess (d)


0.51

%


36 bp


117,000



April 2015

Four Seasons Washington, D.C.


3.30

%


315 bp


130,000



July 2016

Westin St. Francis


6.09

%


Fixed


209,588



June 2017

Fairmont Chicago


6.09

%


Fixed


93,124



June 2017

JW Marriott Essex House Hotel


4.75

%


400 bp


185,826



September 2017

Hyatt Regency La Jolla (e)


4.50% / 10.00%


400 bp / Fixed


89,306



December 2017

InterContinental Miami


3.65

%


350 bp


85,000



July 2018

Loews Santa Monica Beach Hotel


4.00

%


385 bp


108,500



July 2018

InterContinental Chicago


5.61

%


Fixed


143,943



August 2021








1,193,756




Unamortized discount (d)







(2,493











$

1,191,263


















(a)

Spread over LIBOR (0.15% at March 31, 2014). Interest on the JW Marriott Essex House Hotel loan is subject to a 0.75% LIBOR floor.  Interest on the Hyatt Regency La Jolla loan is subject to a 0.50% LIBOR floor.

(b)

Includes extension options.

(c)

On April 25, 2014, the Company entered into a new $300,000,000 secured bank credit facility, which replaced the previous secured bank credit facility.

(d)

On March 31, 2014, the Company acquired the remaining 50.0% equity interest in the Fairmont Scottsdale Princess hotel, increasing its equity ownership to 100.0%. In connection with the acquisition, the Company consolidated the hotel and assumed the mortgage loan secured by the Fairmont Scottsdale Princess hotel. The Company recorded the mortgage loan at its fair value, which included a debt discount of $2,493.000. The discount will be amortized on a straight-line basis through the loan's maturity date of April 2015 and will be included in interest expense in the consolidated statements of operations.

(e)

Interest on $72,000,000 is payable at LIBOR plus 4.00%, subject to a 0.50% LIBOR floor, and interest on $17,306,000 is payable at a fixed rate of 10.00%.


 








Interest Rate Swaps (f)








Swap Effective Date


Fixed Pay Rate

Against LIBOR


Notional

Amount


Maturity

February 2010


4.90

%


$

100,000



September 2014

February 2010


4.96

%


100,000



December 2014

December 2010


5.23

%


100,000



December 2015

February 2011


5.27

%


100,000



February 2016



5.09

%


$

400,000

















(f)

All interest rate swaps were terminated in April 2014 for $22,700,000.

 




Debt Summary (Continued)

(dollars in thousands)


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




Years ending December 31,


Amount

2014 (remainder)


$

3,279

2015


154,498

2016


139,783

2017


577,037

2018


185,015

Thereafter


134,144



1,193,756

Unamortized discount


(2,493



$

1,191,263




Percent of fixed rate debt including swaps


72.5

Weighted average interest rate including swaps (g)


6.16

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


3.67







(g)

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

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