Company Results

Strategic Hotels & Resorts First Quarter 2014 Revenues Up 7.4 Percent

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.

Strategic Hotels

Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the first quarter ended March 31, 2014. 

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.

($ 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.

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.   

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.

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)



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