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

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.

• 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.

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.

• 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.

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.

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.

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