Strategic Hotels & Resorts Reports Third Quarter 2015 Financial Results

CHICAGO, Nov. 5, 2015 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the third quarter ended September 30, 2015. 

"We are pleased to report another solid quarter of operating results which translated into attractive growth in our key financial metrics. Looking forward, we are also pleased to report continued strong group pace into 2016," commented Raymond L. "Rip" Gellein, Chairman and Chief Executive Officer of Strategic Hotels & Resorts.  "Importantly, we continue to make progress towards closing our previously announced merger with Blackstone," summarized Gellein.   

Third Quarter Highlights

• Total consolidated revenues were $354.4 million in the third quarter of 2015, a 16.1 percent increase over the prior year period.  The increase was primarily driven by the acquisitions of the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort and the Four Seasons Hotel Austin.
• Net income attributable to common shareholders was $23.3 million, or $0.08 per diluted share, in the third quarter of 2015, compared with $21.0 million, or $0.07 per diluted share, in the third quarter of 2014. 
• Comparable FFO was $0.25 per diluted share in the third quarter of 2015, compared with $0.23 per diluted share in the prior year period, an 8.7 percent increase over the prior year period.    
• Comparable EBITDA was $89.2 million in the third quarter of 2015, compared with $75.2 million in the prior year period, an 18.6 percent increase between periods as a result of the Company's acquisition activity and same store growth.
• Same Store United States portfolio RevPAR increased 3.3 percent in the third quarter of 2015, driven by a 3.0 percent increase in ADR and a 0.2 percentage point increase in occupancy compared to the third quarter of 2014.  Total RevPAR increased 3.3 percent between periods, with non-rooms revenue increasing 3.4 percent between periods. 
• Total United States portfolio RevPAR increased 4.2 percent in the third quarter of 2015, driven by a 3.2 percent increase in ADR and a 0.7 percentage point increase in occupancy compared to the third quarter of 2014.  Total RevPAR increased 4.2 percent between periods, with non-rooms revenue increasing 4.1 percent between periods.
• Group occupied room nights in the Total United States portfolio decreased 3.3 percent in the third quarter 2015 while transient occupied room nights increased 3.8 percent compared to the third quarter of 2014.  Group ADR increased 4.0 percent and transient ADR increased 1.8 percent compared to the third quarter of 2014.
• Same Store United States and Total United States portfolio EBITDA margins expanded 50 basis points and 70 basis points, respectively, in the third quarter of 2015, compared to the third quarter of 2014.  EBITDA margins in both years have been adjusted to exclude the amortization of the below market hotel management agreement related to the Hotel del Coronado, and other adjustments related to the adoption of the USALI Eleventh Revised Edition to improve comparability between years.

Year to Date Highlights

• Total consolidated revenues were $1,036.6 million for the nine month period ended September 30, 2015, a 33.6 percent increase over the prior year period.  This increase was primarily driven by the acquisitions of the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort and the Four Seasons Hotel Austin, as well as the consolidation of the Hotel del Coronado and the Fairmont Scottsdale Princess resort.  
• Comparable net income attributable to common shareholders was $45.8 million, or $0.16 per diluted share for the nine month period ended September 30, 2015, compared with $319.0 million, or $1.32 per diluted share, for the nine month period ended September 30, 2014.  The year-over-year decrease in net income was primarily the result of 2014 gains on sales of assets totaling $156.5 million, or $0.66 per diluted share and one-time gains of $143.5 million, or $0.60 per diluted share related to the consolidation of the Fairmont Scottsdale Princess resort and the Hotel del Coronado recorded in 2014.
• Comparable FFO was $0.70 per diluted share in the nine month period ended September 30, 2015, compared with $0.51 per diluted share in the nine month period ended September 30, 2014, a 37.3 percent increase over the prior year period as a result of the Company's acquisition and financing activities.   
• Comparable EBITDA was $251.7 million for the nine month period ended September 30, 2015 compared with $185.3 million for the nine month period ended September 30, 2014, a 35.9 percent increase between periods as a result of the Company's acquisition activity and same store growth.

Transaction Activity

On July 24, 2015, the Company acquired the remaining 49 percent ownership interest in the JW Marriott Essex House Hotel.  Pursuant to the terms of the joint venture agreements, the Company's joint venture partner, affiliates of KSL Capital Partners, LLC ("KSL"), exercised a contractual put option of their equity interests in the asset and the Company issued KSL an aggregate of 6,595,449 shares of common stock priced at $12.82 per share, or an implied valuation of $84.6 million.

Merger Agreement

On September 8, 2015, the Company announced that it entered into a definitive agreement (the "Merger Agreement") with affiliates of Blackstone Real Estate Partners VIII L.P., under which Blackstone would acquire all outstanding shares of common stock of Strategic Hotels & Resorts, Inc. for $14.25 per share in cash, and all of the outstanding membership units of the Company's subsidiary, Strategic Hotels Funding, L.L.C., not held by the Company, for $14.25 per unit in cash (the "Mergers").

2015 Guidance

Management has suspended the issuance of earnings guidance in light of the Company entering into a definitive merger agreement with affiliates of Blackstone Real Estate Partners VIII L.P.

Portfolio Definitions

Same Store United States portfolio hotel comparisons for the third quarter of 2015 are derived from the Company's hotel portfolio at September 30, 2015, consisting of 14 properties located in the United States, but excluding the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort, and the Four Seasons Hotel Austin which were acquired on December 9, 2014, January 29, 2015, and May 12, 2015, respectively.

Total United States portfolio hotel comparisons for the third quarter of 2015 are derived from the Company's hotel portfolio as of September 30, 2015, consisting of all 17 properties located in the United States, including the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort, and the Four Seasons Hotel Austin, which were acquired on December 9, 2014, January 29, 2015, and May 12, 2015, respectively.   

Total United States portfolio hotel comparisons for the full year 2015 are derived from the Company's current hotel portfolio, consisting of 17 properties located in the United States, including the Four Seasons Resort Scottsdale at Troon North, the Montage Laguna Beach resort, and the Four Seasons Hotel Austin which were acquired on December 9, 2014, January 29, 2015, and May 12, 2015, respectively, but excluding the Hyatt Regency La Jolla, which was sold on May 21, 2015.

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. The Company currently has ownership interests in 17 properties with an aggregate of 7,921 rooms and 847,000 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.

Forward Looking Statements

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 failure to satisfy conditions to completion of the mergers described above (the "Mergers"), including receipt of stockholder approval; the failure of the Mergers to close for any other reason; the occurrence of any change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the merger agreement entered into with affiliates of Blackstone Real Estate Partners VIII L.P. (the "Merger Agreement"); the outcome of the legal proceedings that have been, or may be, instituted against the Company and others following the announcement of the Company entering into the Merger Agreement; risks that the proposed Mergers disrupt current plans and operations including potential difficulties in relationships with employees; the amounts of the costs, fees, expenses and charges relating to the Mergers; the effects of economic conditions and disruptions in financial markets 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 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; contagious disease outbreaks; 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.

Additional Information Regarding the Transaction and Where to Find It

This press release does not constitute an offer to sell or the solicitation of an offer to buy the Company's securities or the solicitation of any vote or approval.  The proposed merger of the Company involving BRE Diamond Hotel Holdings LLC, BRE Diamond Hotel LLC, BRE Diamond Hotel Acquisition LLC, the Company and Strategic Hotels Funding L.L.C. will be submitted to the stockholders of the Company for their consideration at a special meeting of stockholders of the Company on December 8, 2015, at 10:00 a.m. Central Time. In connection therewith, the Company has filed and will continue to file relevant materials with the Securities and Exchange Commission (the "SEC"), including a definitive proxy statement that was filed with the SEC on October 19, 2015, and was first mailed to stockholders of the Company on or about October 26, 2015.  BEFORE MAKING ANY VOTING OR ANY INVESTMENT DECISION, INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the definitive proxy statement, any amendments or supplements thereto and other documents containing important information about the Company, as such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by the Company will be available free of charge on the Company's website at www.strategichotels.com under the heading "Financial Information" within the "Investor Relations" portion of the Company's website. Stockholders of the Company may also obtain a free copy of the definitive proxy statement and the filings with the SEC incorporated by reference in the proxy statement by contacting the Company's Investor Relations Department at 312-658-5000.

Participants in the Solicitation

The Company and its directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of the Company is set forth in its proxy statement for its 2015 annual meeting of stockholders, which was filed with the SEC on April 10, 2015, its annual report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the SEC on February 24, 2015, and in subsequent documents filed with the SEC, each of which can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation of the stockholders of the Company and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the definitive proxy statement and other relevant materials filed with the SEC.

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

Disposition of Hotel Properties

Effective January 1, 2015, we adopted new accounting guidance which amends the requirements for reporting discontinued operations.  Under the guidance, only disposals that represent a strategic shift that has (or will have) a major effect on our results of operations will qualify as discontinued operations.

Asset Held for Sale

On August 19, 2015, we entered into an agreement with an unaffiliated third party to sell the Marriott Lincolnshire Resort for $20,650,000.  The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2015.  The hotel's assets and liabilities have been classified as held for sale on the accompanying consolidated balance sheet as of September 30, 2015.  The disposition of the Marriott Lincolnshire Resort will not represent a strategic shift that will have a major effect on our results of operations; therefore, the hotel's results of operations are included in continuing operations for all periods presented.

2015 Disposition

On May 21, 2015, the Company, along with its joint venture partner, sold the Hyatt Regency La Jolla hotel for sales proceeds of approximately $118,293,000.  The $89,228,000 mortgage loan secured by the hotel was repaid at the time of closing.  A $40,594,000 gain on the sale was recorded in other income, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2015.  The portion of the gain attributable to the joint venture partner was $16,640,000, which is reflected in net loss (income) attributable to the noncontrolling interests in consolidated affiliates in the condensed consolidated statements of operations for the three and nine months ended September 30, 2015.  The disposition of the Hyatt Regency La Jolla hotel does not represent a strategic shift that has had a major effect on the Company's results of operations; therefore, the hotel's results of operations are included in continuing operations for all periods presented.

2014 Dispositions

Prior to January 1, 2015, and the adoption of the new accounting guidance that changed the criteria for reporting discontinued operations, the Company sold the following hotels:

The results of operations of hotels sold prior to January 1, 2015 are classified as discontinued operations and segregated in the consolidated statements of operations for all periods presented. The following is a summary of income from discontinued operations, net of tax, for the three and nine months ended September 30, 2014 (in thousands):

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) attributable to SHR common shareholders; 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 attributable to SHR common shareholders in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT. 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 attributable to SHR common shareholders 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 on non-depreciable assets, 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 attributable to SHR common shareholders, 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. 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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 attributable to SHR common shareholders, 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.

2015 Debt Repayments

On April 9, 2015, we repaid the $117,000,000 mortgage loan secured by the Fairmont Scottsdale Princess hotel.

On May 21, 2015, we sold the Hyatt Regency La Jolla hotel and repaid the $89,288,000 mortgage loan secured by the hotel at the time of closing. We recorded a $193,000 loss on early extinguishment of debt, which included the write off of unamortized deferred financing costs.

On May 27, 2015, we repaid the $209,558,000 mortgage loan secured by the Westin St. Francis hotel and the $93,124,000 mortgage loan secured by the Fairmont Chicago hotel using proceeds from the new mortgage loan secured by the Ritz-Carlton Half Moon Bay hotel and proceeds from the $300,000,000 unsecured term loan. We recorded a $34,014,000 loss on early extinguishment of debt, which included prepayment penalties of $32,917,000 and the write off of unamortized deferred financing costs.

SOURCE Strategic Hotels & Resorts, Inc.

Related Links

http://www.strategichotels.com