Company Results

Strategic Hotels & Resorts Reports Second Quarter 2014 Financial Results

Total consolidated revenues were $276.2 million in the second quarter of 2014, a 21.6 percent increase over the prior year period.

Strategic Hotels

Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the second quarter ended June 30, 2014. 

"Building upon the positive momentum from the first quarter, we drove continued high performance among all our key metrics in the first half of 2014, perhaps most notably within group room nights and related ancillary spend," said Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts, Inc.  "Total RevPAR grew 7.2% while EBITDA margins expanded 170 basis points leading to a 14.3% increase in Comparable EBITDA and a 50.0% increase in Comparable FFO per share in the second quarter; which were all above consensus estimates. From a transactional perspective, the Company has completed nearly $2.7 billion in gross transactions since the beginning of the year, with second quarter highlights including the acquisition of the remaining interest in the iconic Hotel del Coronado, raising or refinancing nearly $1.0 billion of capital and retiring $200 million of high cost preferred equity.  This has allowed us to continue building the highest quality portfolio in the industry, while lowering our cost of capital and further deleveraging our balance sheet.   I remain very optimistic about the second half of the year, which is why we have upwardly revised the lower end of our guidance ranges."

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

Second Quarter

Earnings Metrics

2014

2013

% Change

Net income attributable to common shareholders

$80.8

$3.3

2,369.2%

Net income per diluted share

$0.35

$0.01

3,400.0%

Comparable funds from operations (Comparable FFO) (a)

$48.1

$28.7

67.8%

Comparable FFO per diluted share (a)

$0.21

$0.14

50.0%

Comparable EBITDA (a)

$68.9

$60.3

14.3%

Total United States Portfolio Operating Metrics (b)

Average Daily Rate (ADR)

$296.15

$282.24

4.9%

Occupancy

79.6%

79.3%

 0.3 pts

Revenue per Available Room (RevPAR)

$235.68

$223.80

5.3%

Total RevPAR

$447.26

$417.10

7.2%

EBITDA Margins

28.1%

26.4%

170 bps

(a)

Please refer to the tables provided later in this press release for a reconciliation of net income attributable to common shareholders 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 which is derived from the Company's hotel portfolio at June 30, 2014, consisting of all 15 properties located in the United States.

Second Quarter Highlights

  • Total consolidated revenues were $276.2 million in the second quarter of 2014, a 21.6 percent increase over the prior year period.
  • Net income attributable to common shareholders was $80.8 million, or $0.35 per diluted share, in the second quarter of 2014, compared with $3.3 million, or $0.01 per diluted share, in the second quarter of 2013.
  • Comparable FFO was $0.21 per diluted share in the second quarter of 2014, compared with $0.14 per diluted share in the prior year period, a 50.0 percent increase over the prior year period.    
  • Comparable EBITDA was $68.9 million in the second quarter of 2014, compared with $60.3 million in the prior year period, a 14.3 percent increase between periods.   
  • Total United States portfolio RevPAR increased 5.3 percent in the second quarter of 2014, driven by a 4.9 percent increase in ADR and a 0.3 percentage point increase in occupancy compared to the second quarter of 2013.  Total RevPAR increased 7.2 percent between periods with non-rooms revenue increasing by 9.4 percent between periods.
  • Transient occupied room nights in the Total United States portfolio increased 0.6 percent in the second quarter 2014 and group occupied room nights were flat compared to the second quarter of 2013.  Transient ADR increased 5.5 percent compared to the second quarter of 2013 and group ADR increased 3.9 percent.
  • Total United States portfolio EBITDA margins expanded 170 basis points in the second quarter of 2014, compared to the second quarter of 2013. 
  • Group room nights currently booked for 2014 are 7.2 percent higher compared to room nights booked for 2013 at the same time last year, with rates 3.2 percent higher, resulting in a 10.6 percent RevPAR increase.

The Company reported financial results for the six month period ended June 30, 2014 as follows:

  • Total consolidated revenues were $470.8 million for the six month period ended June 30, 2014, a 15.3 percent increase over the prior year period.
  • Net income attributable to common shareholders was $298.0 million, or $1.30 per diluted share, compared with net loss attributable to common shareholders of $20.2 million, or $0.11 per diluted share, for the six month period ended June 30, 2013.
  • Comparable FFO was $0.28 per diluted share compared with $0.15 per diluted share in the six month period ended June 30, 2013.    
  • Comparable EBITDA was $110.1 million compared with $94.8 million for the six month period ended June 30, 2013, a 16.2 percent increase between periods.   

Preferred Dividends & Redemptions

On April 3, 2014, the Company completed the redemption of all of the outstanding 4,148,141 shares of its 8.50% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Shares") at a redemption price of $25.00 per share, plus accrued and unpaid dividends in the amount of $0.54896 per share, for a total redemption cost of $106.0 million.  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.

On June 2, 2014, the Company's board of directors declared a quarterly dividend of $0.51563 per share of 8.25% Series B Cumulative Redeemable Preferred Stock and 8.25% Series C Cumulative Redeemable Preferred Stock, which was paid on June 30, 2014 to shareholders of record as of the close of business on June 16, 2014.

On July 3, 2014, the Company completed the redemption of all of the outstanding 3,827,727 shares of its 8.25% Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Shares") at a redemption price of $25.00 per share, plus accrued and unpaid dividends in the amount of $0.01719 per share, for a total redemption cost of $95.8 million.  The redemption of the Series C Preferred Shares eliminated approximately $3.9 million in dividend payments in 2014 and $7.9 million in dividend payments on an annual basis.

Transaction Activity

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. 

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. 

On May 29, 2014, the Company closed on a $120.0 million loan secured by the Loews Santa Monica Beach Hotel.  The loan bears interest at a floating rate of LIBOR plus 255 basis points and has a seven-year term, including extension options.

On June 2, 2014, the Company closed on an underwritten public offering of 41.4 million shares of common stock at a public offering price of $10.50 per share, including 5.4 million shares of common stock issued pursuant to the exercise in full of the underwriters' over-allotment option.  The Company received $416.8 million from the offering after deducting underwriting discounts and commissions and transaction expenses related to the offering.  The Company used the net proceeds from the offering to fund the acquisition of the 63.6 percent ownership interest in the Hotel del Coronado that it did not previously own from its joint venture partner, to redeem all of the issued and outstanding Series C Preferred Shares, and for general corporate purposes.

On June 11, 2014, the Company closed on the acquisition of the 63.6 percent ownership interest in the Hotel del Coronado that it did not previously own for $210.0 million in cash and became fully obligated under the entire $475.0 million loan encumbering the property.

On June 30, 2014, the Company closed on a $120.0 million loan secured by the Four Seasons Washington, D.C. hotel.  The loan bears interest at a floating rate of LIBOR plus 225 basis points and has a five-year term, including extension options.

2014 Guidance

Based on the results of the first six months of 2014 and current forecasts for the remainder of the year, management is raising the lower end of its guidance ranges for full year 2014 RevPAR growth, Total RevPAR growth, EBITDA margin expansion, Comparable EBITDA 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%

5.5% - 7.0%

Total RevPAR

5.0% - 7.0%

5.5% - 7.0%

EBITDA Margin expansion

120 – 200 basis points

150 – 200 basis points

Comparable EBITDA

$230M - $250M

$235M - $250M

Comparable FFO per diluted share

$0.59 - $0.68

$0.62 - $0.68

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 7,865 rooms and 835,000 square feet of meeting space.

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

 

Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Revenues:

Rooms

$

148,874

$

127,484

$

251,974

$

225,748

Food and beverage

100,028

79,966

170,045

142,023

Other hotel operating revenue

25,942

18,491

46,181

38,150

Lease revenue

1,319

1,160

2,618

2,360

Total revenues

276,163

227,101

470,818

408,281

Operating Costs and Expenses:

Rooms

41,268

36,087

74,975

67,850

Food and beverage

67,077

57,289

121,680

108,839

Other departmental expenses

66,238

53,285

119,817

104,466

Management fees

9,241

6,447

15,019

11,457

Other hotel expenses

15,572

15,234

31,250

30,123

Lease expense

1,260

1,206

2,518

2,382

Depreciation and amortization

28,058

24,691

50,263

49,599

Corporate expenses

7,198

7,209

14,391

12,972

Total operating costs and expenses

235,912

201,448

429,913

387,688

Operating income

40,251

25,653

40,905

20,593

Interest expense

(19,587)

(19,460)

(37,861)

(39,123)

Interest income

50

20

77

30

Equity in earnings of unconsolidated affiliates

826

1,456

5,271

2,801

Foreign currency exchange (loss) gain

(8)

84

(6)

(2)

Gain on consolidation of affiliates

65,349

143,466

Other income, net

795

745

1,218

877

Income (loss) before income taxes and discontinued operations

87,676

8,498

153,070

(14,824)

Income tax expense

(207)

(72)

(246)

(85)

Income (loss) from continuing operations

87,469

8,426

152,824

(14,909)

Income from discontinued operations, net of tax

604

329

159,039

2,318

Net Income (Loss)

88,073

8,755

311,863

(12,591)

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

(281)

(36)

(1,130)

51

Net loss attributable to the noncontrolling interests in consolidated affiliates

217

597

4,258

4,449

Net Income (Loss) attributable to SHR

88,009

9,316

314,991

(8,091)

Preferred shareholder dividends

(7,169)

(6,042)

(16,993)

(12,083)

Net Income (Loss) Attributable to SHR Common Shareholders

$

80,840

$

3,274

$

297,998

$

(20,174)

Basic Income (Loss) Per Common Share:

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

$

0.36

$

0.02

$

0.65

$

(0.11)

Income from discontinued operations attributable to SHR common shareholders

0.74

0.01

Net income (loss) attributable to SHR common shareholders

$

0.36

$

0.02

$

1.39

$

(0.10)

Weighted average shares of common stock outstanding

222,013

206,061

214,450

205,849

Diluted Income (Loss) Per Common Share:

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

$

0.35

$

0.01

$

0.60

$

(0.12)

Income from discontinued operations attributable to SHR common shareholders

0.70

0.01

Net income (loss) attributable to SHR common shareholders

$

0.35

$

0.01

$

1.30

$

(0.11)

Weighted average shares of common stock outstanding

233,463

219,227

225,900

217,006

 

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

 

Consolidated Balance Sheets

(in thousands, except share data)

June 30, 2014

December 31, 2013

Assets

Investment in hotel properties, net

$

2,722,752

$

1,795,338

Goodwill

38,128

38,128

Intangible assets, net of accumulated amortization of $3,716 and $11,753

91,635

29,502

Assets held for sale

135,901

Investment in unconsolidated affiliates

22,910

104,973

Cash and cash equivalents

245,468

73,655

Restricted cash and cash equivalents

91,480

75,916

Accounts receivable, net of allowance for doubtful accounts of $466 and $606

67,241

39,660

Deferred financing costs, net of accumulated amortization of $12,686 and $12,354

9,852

8,478

Deferred tax assets

2,134

Prepaid expenses and other assets

46,646

35,600

Total assets

$

3,338,246

$

2,337,151

Liabilities, Noncontrolling Interests and Equity

Liabilities:

Mortgages and other debt payable, net of discount

$

1,636,450

$

1,163,696

Bank credit facility

110,000

Liabilities of assets held for sale

17,027

Accounts payable and accrued expenses

204,171

189,889

Preferred stock redemption liability

95,693

Distributions payable

128

Deferred tax liabilities

45,778

46,137

Total liabilities

1,982,220

1,526,749

Commitments and contingencies

Noncontrolling interests in SHR's operating partnership

9,336

7,534

Equity:

SHR's shareholders' equity:

8.50% Series A Cumulative Redeemable Preferred Stock ($0.01 par value per share; 0 and 4,148,141 shares issued and outstanding; liquidation preference $25.00 per share plus accrued distributions and $0 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 $90,446 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 $95,759 and $95,693 in the aggregate)

92,489

Common stock ($0.01 par value per share; 350,000,000 shares of common stock authorized; 247,371,386 and 205,582,838 shares of common stock issued and outstanding)

2,474

2,056

Additional paid-in capital

2,105,749

1,705,306

Accumulated deficit

(919,961)

(1,234,952)

Accumulated other comprehensive loss

(19,176)

(41,445)

Total SHR's shareholders' equity

1,256,150

710,513

Noncontrolling interests in consolidated affiliates

90,540

92,355

Total equity

1,346,690

802,868

Total liabilities, noncontrolling interests and equity

$

3,338,246

$

2,337,151

 

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

 

Financial Highlights

 

Supplemental Financial Data

(in thousands, except per share information)

June 30, 2014

Pro Rata Share

Consolidated

Capitalization

Shares of common stock outstanding

247,371

247,371

Operating partnership units outstanding

797

797

Restricted stock units outstanding

1,446

1,446

Combined shares and units outstanding

249,614

249,614

Common stock price at end of period

$

11.71

$

11.71

Common equity capitalization

$

2,922,980

$

2,922,980

Preferred equity capitalization (at $25.00 face value)

90,384

90,384

Preferred stock redemption liability

95,693

95,693

Consolidated debt

1,638,319

1,638,319

Pro rata share of consolidated debt

(132,568)

Cash and cash equivalents

(245,468)

(245,468)

Total enterprise value

$

4,369,340

$

4,501,908

Net Debt / Total Enterprise Value

31.0

%

33.1

%

Preferred Equity / Total Enterprise Value

2.1

%

2.0

%

Common Equity / Total Enterprise Value

66.9

%

64.9

%

 

 

 

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

 

Discontinued Operations

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 six months ended June 30, 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 and six months ended June 30, 2014 and 2013 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Hotel operating revenues

$

$

17,064

$

17,767

$

37,351

Operating costs and expenses

11,778

11,485

25,500

Depreciation and amortization

2,306

1,275

4,616

Total operating costs and expenses

14,084

12,760

30,116

Operating income

2,980

5,007

7,235

Interest expense

(1,819)

(1,326)

(3,642)

Interest income

1

2

3

Loss on early extinguishment of debt

(272)

Foreign currency exchange (loss) gain

(138)

32

188

Income tax expense

(695)

(833)

(1,466)

Gain on sale, net of tax

604

156,429

Income from discontinued operations

$

604

$

329

$

159,039

$

2,318

 

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

 

Investments in Unconsolidated Affiliates

(in thousands)

We had a 36.4% equity ownership interest in the Hotel del Coronado that we accounted for using the equity method of accounting until we acquired the remaining 63.6% equity ownership interest not previously owned by us on June 11, 2014. We had a 50.0% equity 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% equity ownership interest not previously owned by us on March 31, 2014. For purposes of this analysis, the operating results reflect the 36.4% equity ownership interest we held in the Hotel del Coronado prior to June 11, 2014 and the 50.0% equity ownership interest we held in the Fairmont Scottsdale Princess hotel prior to March 31, 2014.

Three Months Ended June 30, 2014

Three Months Ended June 30, 2013

Hotel del

Coronado

Fairmont Scottsdale

Princess

Total

Hotel del

Coronado

Fairmont Scottsdale

Princess

Total

Total revenues (100%)

$

33,821

$

$

33,821

$

37,758

$

24,204

$

61,962

Property EBITDA (100%)

$

11,202

$

$

11,202

$

11,946

$

5,504

$

17,450

Equity in earnings of unconsolidated affiliates (SHR ownership)

Property EBITDA

$

4,075

$

$

4,075

$

4,345

$

2,752

$

7,097

Depreciation and amortization

(1,572)

(1,572)

(1,886)

(1,632)

(3,518)

Interest expense

(1,518)

(1,518)

(1,944)

(196)

(2,140)

Other expenses, net

(18)

(18)

(7)

(11)

(18)

Income taxes

(87)

(87)

(31)

(31)

Equity in earnings of unconsolidated affiliates

$

880

$

$

880

$

477

$

913

$

1,390

EBITDA Contribution:

Equity in earnings of unconsolidated affiliates

$

880

$

$

880

$

477

$

913

$

1,390

Depreciation and amortization

1,572

1,572

1,886

1,632

3,518

Interest expense

1,518

1,518

1,944

196

2,140

Income taxes

87

87

31

31

EBITDA Contribution

$

4,057

$

$

4,057

$

4,338

$

2,741

$

7,079

FFO Contribution:

Equity in earnings of unconsolidated affiliates

$

880

$

$

880

$

477

$

913

$

1,390

Depreciation and amortization

1,572

1,572

1,886

1,632

3,518

FFO Contribution

$

2,452

$

$

2,452

$

2,363

$

2,545

$

4,908

 

Six Months Ended June 30, 2014

Six Months Ended June 30, 2013

Hotel del

Coronado

Fairmont

Scottsdale

Princess

Total

Hotel del

Coronado

Fairmont

Scottsdale

Princess

Total

Total revenues (100%)

$

67,863

$

35,006

$

102,869

$

68,087

$

55,160

$

123,247

Property EBITDA (100%)

$

20,761

$

13



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