Strategic Hotels & Resorts, Inc. (BEE)

[Enterprising Investor]

Strategic Hotels & Resorts Reports First Quarter 2014 Financial Results (5/07/14)

Strong operating results lead to 19.5% increase in Comparable EBITDA and 220 basis points of EBITDA margin expansion

CHICAGO, May 7, 2014 /PRNewswire/ -- Strategic Hotels & Resorts, Inc. (NYSE: BEE) today reported results for the first quarter ended March 31, 2014.

"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

•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.

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:

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.

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