Strategic Hotels & Resorts Reports First Quarter 2014 Financial Results Strong operating results lead to 19.5% increase in Comparable EBITDA and 220 basis points of EBITDA margin expansion PR Newswire CHICAGO, May 7, 2014 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 First Quarter metrics) 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) $12.2 $2.3 435.8% ^(a) 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 Please refer to the tables provided later in this press release for a reconciliation of net income/(loss) to Comparable FFO, Comparable FFO per (a) 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 oTotal consolidated revenues were $194.7 million in the first quarter of 2014, a 7.4 percent increase over the prior year period. oTotal 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. oTotal United States portfolio EBITDA margins expanded 220 basis points in the first quarter of 2014, compared to the first quarter of 2013. oComparable 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. oComparable 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. oNet 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. oGroup 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. oGroup 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 $0.50 - $0.60 $0.57 - $0.67 share 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 65,394 (23,322) discontinued operations 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 (849) 87 partnership Net loss attributable to the noncontrolling 4,041 3,852 interests in consolidated affiliates Net Income (Loss) attributable to SHR 226,982 (17,407) Preferred shareholder dividends (9,824) (6,041) Net Income (Loss) Attributable to SHR Common $ 217,158 $ (23,448) Shareholders Basic Income (Loss) Per Common Share: Income (loss) from continuing operations $ 0.29 $ (0.12) attributable to SHR common shareholders Income from discontinued operations attributable 0.76 0.01 to SHR common shareholders Net income (loss) attributable to SHR common $ 1.05 $ (0.11) shareholders Weighted average shares of common stock 206,983 206,981 outstanding Diluted Income (Loss) Per Common Share: Income (loss) from continuing operations $ 0.25 $ (0.13) attributable to SHR common shareholders Income from discontinued operations attributable 0.72 0.01 to SHR common shareholders Net income (loss) attributable to SHR common $ 0.97 $ (0.12) shareholders Weighted average shares of common stock 219,368 218,710 outstanding Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Consolidated Balance Sheets (in thousands, except share data) March 31, December 31, 2014 2013 Assets Investment in hotel properties, net $ 2,033,812 $ 1,795,338 Goodwill 38,128 38,128 Intangible assets, net of accumulated amortization 3,877 29,502 of $6,158 and $11,753 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 52,691 39,660 accounts of $486 and $606 Deferred financing costs, net of accumulated 6,800 8,478 amortization of $11,539 and $12,354 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 8,124 7,534 partnership 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 — 99,995 $25.00 per share plus accrued distributions and $103,704 in the aggregate) 8.25% Series B Cumulative Redeemable Preferred Stock ($0.01 par value per share; 3,615,375 shares issued and outstanding; liquidation preference 87,064 87,064 $25.00 per share plus accrued distributions and $90,384 in the aggregate) 8.25% Series C Cumulative Redeemable Preferred Stock ($0.01 par value per share; 3,827,727 shares issued and outstanding; liquidation preference 92,489 92,489 $25.00 per share plus accrued distributions and $95,693 in the aggregate) Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 2,058 2,056 205,792,726 and 205,582,838 shares of common stock issued and outstanding) 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 90,764 92,355 affiliates Total equity 938,225 802,868 Total liabilities, noncontrolling interests and $ 2,493,249 $ 2,337,151 equity Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Financial Highlights Supplemental Financial Data (in thousands, except per share information) March 31, 2014 ProRataShare 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 186,078 186,078 value) 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 DateSold SalesProceeds Four Seasons Punta Mita Resort Punta Mita, February 28, $ 203,197,000 and La Solana Mexico 2014 land parcel Marriott London London, March 31, 2014 $ 208,306,000 (a) Grosvenor Square England There was an outstanding balance of £67,301,000 ($112,150,000) on the (a) 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 12,760 16,032 expenses Operating income 5,007 4,255 Interest expense (1,326) (1,823) Interest income 2 2 Loss on early extinguishment of (272) — debt Foreign currency exchange gain 32 326 Income tax expense (833) (771) Gain on sale, net of tax 155,825 — Income from discontinued $ 158,435 $ 1,989 operations 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, Three Months Ended March 31, 2013 2014 Hotel del Fairmont Hotel del Fairmont Scottsdale Total Scottsdale Total Coronado Coronado Princess Princess Total revenues $ 34,042 $ 35,006 $ 69,048 $ 30,330 $ 30,956 $ 61,286 (100%) Property $ 9,559 $ 13,191 $ 22,750 $ 7,874 $ 9,569 $ 17,443 EBITDA (100%) Equity in (losses) earnings of unconsolidated affiliates (SHR ownership) Property $ 3,351 $ 6,595 $ 9,946 $ 2,864 $ 4,785 $ 7,649 EBITDA Depreciation and (1,955) (1,551) (3,506) (1,865) (1,840) (3,705) amortization Interest (1,900) (168) (2,068) (2,490) (194) (2,684) expense Other (4) (30) (34) (16) (8) (24) expenses, net Income taxes 230 — 230 94 — 94 Equity in (losses) earnings of $ (278) $ 4,846 $ 4,568 $ (1,413) $ 2,743 $ 1,330 unconsolidated affiliates EBITDA Contribution: Equity in (losses) earnings of $ (278) $ 4,846 $ 4,568 $ (1,413) $ 2,743 $ 1,330 unconsolidated affiliates Depreciation and 1,955 1,551 3,506 1,865 1,840 3,705 amortization Interest 1,900 168 2,068 2,490 194 2,684 expense Income taxes (230) — (230) (94) — (94) EBITDA $ 3,347 $ 6,565 $ 9,912 $ 2,848 $ 4,777 $ 7,625 Contribution FFO Contribution: Equity in (losses) earnings of $ (278) $ 4,846 $ 4,568 $ (1,413) $ 2,743 $ 1,330 unconsolidated affiliates Depreciation and 1,955 1,551 3,506 1,865 1,840 3,705 amortization FFO $ 1,677 $ 6,397 $ 8,074 $ 452 $ 4,583 $ 5,035 Contribution Investments in Unconsolidated Affiliates (Continued) (in thousands) Spreadover Debt InterestRate LoanAmount Maturity(a) LIBOR Hotel del Coronado CMBS Mortgage and 3.80 % 365bp $ 475,000 March2018 Mezzanine Cash and cash (9,799) equivalents Net Debt $ 465,201 (a) Includes extension options. Effective Caps LIBORCapRate NotionalAmount Maturity Date Hotel del Coronado CMBS Mortgage and March 2013 3.00 % $ 475,000 March 2015 Mezzanine Loan Caps 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) March 31, December 31, Security Deposit (b): 2014 2013 Marriott Hamburg $ 2,616 $ 2,611 (a) For the three months ended March31, 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 $ 217,158 $ (23,448) common shareholders Depreciation and 22,205 24,908 amortization—continuing operations Depreciation and 1,275 2,310 amortization—discontinued operations Interest expense—continuing operations 18,274 19,663 Interest expense—discontinued 1,326 1,823 operations 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 (3,675) (3,554) affiliates Adjustments from unconsolidated 5,290 6,316 affiliates Preferred shareholder dividends 9,824 6,041 EBITDA 293,849 34,756 Realized portion of deferred gain on (53) (51) sale-leaseback Gain on consolidation of affiliate (78,117) — Gain on sale of assets—discontinued (176,276) — operations Loss on early extinguishment of 272 — debt—discontinued operations Foreign currency exchange (gain) (2) 86 loss—continuing operations (a) Foreign currency exchange (32) (326) gain—discontinued operations (a) Activist shareholder costs 1,533 — Comparable EBITDA $ 41,174 $ 34,465 Foreign currency exchange gains or losses applicable to third-party and (a) 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 $ 217,158 $ (23,448) shareholders Depreciation and amortization—continuing 22,205 24,908 operations Depreciation and amortization—discontinued 1,275 2,310 operations Corporate depreciation (123) (131) Gain on consolidation of affiliate (78,117) — Gain on sale of assets, net of tax—discontinued (155,825) — operations Realized portion of deferred gain on (53) (51) sale-leaseback 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 (2,294) (2,298) swaps—continuing operations Non-cash mark to market of interest rate — (746) swaps—discontinued operations Loss on early extinguishment of 272 — debt—discontinued operations Foreign currency exchange (gain) loss—continuing (2) 86 operations (a) Foreign currency exchange gain—discontinued (32) (326) operations (a) Activist shareholder costs 1,533 — Excess of redemption liability over carrying 3,709 — amount of Series A Preferred Stock 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 Foreign currency exchange gains or losses applicable to third-party and (a) 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 InterestRate Spread(a) LoanAmount Maturity (b) North Beach Venture 5.00 % Fixed $ 1,469 January 2015 Bank credit facility 3.15 % 300 bp 30,000 June 2015 (c) Fairmont Scottsdale 0.51 % 36 bp 117,000 April 2015 Princess (d) Four Seasons 3.30 % 315 bp 130,000 July 2016 Washington, D.C. Westin St. Francis 6.09 % Fixed 209,588 June 2017 Fairmont Chicago 6.09 % Fixed 93,124 June 2017 JW Marriott Essex 4.75 % 400 bp 185,826 September House Hotel 2017 Hyatt Regency La Jolla 4.50% / 10.00% 400 bp / 89,306 December (e) Fixed 2017 InterContinental Miami 3.65 % 350 bp 85,000 July 2018 Loews Santa Monica 4.00 % 385 bp 108,500 July 2018 Beach Hotel InterContinental 5.61 % Fixed 143,943 August2021 Chicago 1,193,756 Unamortized discount (2,493 (d) $ 1,191,263 Spread over LIBOR (0.15% at March31, 2014). Interest on the JW Marriott (a) 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. On April 25, 2014, the Company entered into a new $300,000,000 secured (c) bank credit facility, which replaced the previous secured bank credit facility. 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 (d) 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. Interest on $72,000,000 is payable at LIBOR plus 4.00%, subject to a 0.50% (e) LIBOR floor, and interest on $17,306,000 is payable at a fixed rate of 10.00%. Interest Rate Swaps (f) FixedPayRate Notional Swap Effective Date Maturity AgainstLIBOR Amount February 2010 4.90 % $ 100,000 September 2014 February 2010 4.96 % 100,000 December2014 December 2010 5.23 % 100,000 December2015 February 2011 5.27 % 100,000 February2016 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 December31, 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 3.67 of greater than one year) (g) Excludes the amortization of deferred financing costs and the amortization of the interest rate swap costs. SOURCE Strategic Hotels & Resorts, Inc. Website: http://www.strategichotels.com Contact: COMPANY, Diane Morefield, EVP & Chief Financial Officer, Strategic Hotels & Resorts, (312) 658-5740, or Jonathan Stanner, Vice President, Capital Markets & Treasurer, Strategic Hotels & Resorts, (312) 658-5746
Strategic Hotels & Resorts Reports First Quarter 2014 Financial Results
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