Strategic Hotel Capital, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
Three Months Ended Nine
Months Ended
September 30,
September 30,
2004 2003
2004 2003
Revenues:
Rooms
$44,544 $76,391 $215,937
$232,958
Food and beverage
25,030 35,992
110,148 117,057
Other hotel operating
revenue
9,798 12,993
36,994 40,454
79,372 125,376
363,079 390,469
Lease revenue
5,692 5,127
20,919 21,372
Total revenues
85,064 130,503
383,998 411,841
Operating Costs
and Expenses:
Rooms
11,314 20,419
54,922 59,695
Food and beverage
19,510 29,674
85,155 91,682
Other departmental
expenses
26,057 36,604
103,554 108,284
Management fees
2,997 4,163
13,285 13,861
Other property level
expenses
5,769 8,010
23,927 26,746
Lease expense
3,189
- 3,189
-
Depreciation and
amortization
10,753 19,988
50,810 62,444
Corporate expenses
4,299 4,755
24,493 16,272
Total operating costs
and expenses
83,888 123,613
359,335 378,984
Operating
income 1,176
6,890 24,663
32,857
Interest expense
6,254 28,083
57,097 82,384
Interest income
(43) (704)
(1,013) (2,332)
Loss on early
extinguishment of debt
17 2,977
21,963 14,528
Other (income) expenses,
net
(1,359) 1,722
684 5,032
Loss before income
taxes, minority
interests and
discontinued
operations
(3,693) (25,188) (54,068)
(66,755)
Income tax expense
(benefit)
405 (2,293)
760 (1,544)
Minority interests
(989) 155
(1,917) 2,834
Loss from continuing operations
(3,109) (23,050) (52,911)
(68,045)
Income from discontinued
operations
- 775
75,662 25,684
Net (Loss) Income
(3,109) (22,275)
22,751 (42,361)
Basic and Diluted (Loss)
Income Per Share:
Loss from continuing operations per
share $(0.11) $(1.21)
$(2.36) $(4.18) Income from discontinued
operations per share -
0.04 3.38
1.58 Net (loss) income per share
$(0.11) $(1.17)
$ 1.02 $(2.60)
Weighted-average
common shares
outstanding
28,689,288 19,007,969 22,379,762 16,297,666
The company's Consolidated Statements
of Operations for the third quarter and year to date 2004 include for the
entire period: the results of the 15 hotels currently owned and leased
by the company, referred to as the REIT Hotels; and before June 29, 2004,
the date of the IPO, the results of 7 other hotels, which were distributed
out of the company and in which the company no longer has an ownership
interest.
Strategic Hotel Capital, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheet
(In Thousands, Except Share Data)
September 30, June 30,
2004 2004
Assets
Property and equipment
$953,904 $844,709
Less accumulated depreciation
(210,616) (200,111)
Net property
and equipment
743,288 644,598
Goodwill and intangible assets (net
of
accumulated amortization of
$118 and $0) 73,614
55,224
Investment in hotel joint ventures
10,934 10,473
Cash and cash equivalents
32,123 58,765
Restricted cash and cash equivalents
27,114 21,105
Accounts receivable (net of allowance
for
doubtful accounts of $346 and
$348)
23,486 21,235
Deferred financing costs (net of accumulated
amortization of $724 and $0)
11,872 11,639
Other assets
75,602 67,250
Total assets
$998,033 $890,289
Liabilities and Owners' Equity Liabilities:
Accounts payable and accrued
expenses $56,159
$52,473
Distributions payable
8,721
-
Bank credit facility
50,000 31,500
Mortgages and other debt
payable
490,017 415,418
Deferred fees on management
contracts
2,377 2,421
Deferred gain on sale
of hotels
110,057 109,209
Total liabilities
717,331 611,021
Minority interests
66,554 79,591
Owners' equity:
Distributions to members
(246,808) (227,829)
Common shares ($0.01 par
value; 150,000,000
common shares authorized;
30,035,701 and
26,254,034 common
shares issued and
outstanding)
300 263
Additional paid-in capital
730,020 686,065
Deferred compensation
(2,193) (2,921)
Accumulated deficit
(262,455) (259,346)
Accumulated distributions
to owners
(6,652)
-
Accumulated other comprehensive
income 1,936
3,445
Total owners'
equity
214,148 199,677
Total liabilities
and owners' equity $998,033
$890,289
Strategic Hotel Capital, Inc. and Subsidiaries
Reconciliation of Net Income (Loss) to Funds from Operations
(FFO) and EBITDA
(Unaudited)
We present two non-GAAP financial
measures herein for the company that we believe are useful to investors
as key measures of our operating performance:
Funds from Operations, or FFO; and Earnings Before Interest
Expense, Taxes, Depreciation and Amortization, or EBITDA. Reconciliation
of these measures to net income (loss), the most directly comparable GAAP
measure, is set forth in the following tables.
We compute FFO in accordance with
standards established by the National Association of Real Estate Investment
Trusts, or NAREIT, which adopted a definition of FFO in order to promote
an industry-wide standard measure of REIT operating performance that would
not have certain drawbacks associated with net income under GAAP. NAREIT
defines FFO as net income (or loss) (computed in accordance with GAAP)
excluding gains (or losses) from sales of property plus real estate-related
depreciation and amortization, and after adjustments for our portion of
these items related to unconsolidated partnerships and joint ventures.
We also present diluted FFO, which is FFO less convertible debt interest
expense and minority interest expense on convertible minority interests.
We believe that the presentation of FFO and diluted FFO provides useful
information to investors regarding our results of operations because they
are measures of our ability to service debt, 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.
EBITDA represents net income (losses)
excluding: (i) interest expense, (ii) income tax expense, including deferred
income tax benefits and expenses applicable to our foreign subsidiaries
and income taxes applicable to sale of assets; and (iii) depreciation and
amortization. EBITDA also excludes interest expense, income tax expense
and depreciation and amortization of our equity method investments. EBITDA
is presented on a full participation basis, which means we have assumed
conversion of all minority interests into SHCI common shares. We
also present adjusted EBITDA, which eliminates the effect of realizing
deferred gains on our sale leasebacks. We believe EBITDA and adjusted
EBITDA are useful to an investor in evaluating our operating performance
because they provide 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 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 adjusted EBITDA as measures
in determining the value of acquisitions and dispositions.
We caution investors that amounts
presented in accordance with our definitions of FFO, diluted FFO, EBITDA
and adjusted 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, diluted FFO, EBITDA and adjusted EBITDA should
not be considered as an alternative measure of our net loss or operating
performance. FFO, diluted FFO, EBITDA and adjusted 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, diluted
FFO, EBITDA and adjusted 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 loss (income).
In addition, you should be aware that adverse economic and market conditions
might negatively impact our cash flow. Below, we include a quantitative
reconciliation of FFO, diluted FFO, EBITDA and adjusted EBITDA to the most
directly comparable GAAP financial performance measure, which is net income
(loss).
Three months ended Nine
months ended
September 30,
September 30,
2004 2003
2004 2003
(unaudited)
(In thousands)
Net (loss) income
$(3,109) $(22,275) $22,751
$(42,361)
Depreciation and
amortization-
continuing operations
10,753 19,988
50,810 62,444
Depreciation and
amortization-
discontinued
operations
- 1,256
- 4,508
Gain on sale of
assets-discontinued
operations
- (100)
(75,982) (21,073)
Realized portion of
deferred gain on sale
leasebacks
(1,122) -
(1,122) -
Deferred tax expense
on realized portion
of deferred gain on
sale leasebacks
322 -
322 -
Minority interest adjustments
(2,807) (113)
(2,931) (363)
Joint venture
adjustments
881 757
2,680 2,490
FFO
4,918 (487)
(3,472) 5,645
Convertible debt
interest expense
- 2,126
4,105 12,834
Convertible minority
interests
1,818 268
1,014 3,197
FFO-diluted
$6,736 $1,907
$1,647 $21,676
Net (loss) income
$(3,109) $(22,275) $22,751
$(42,361)
Depreciation and
amortization-
continuing
operations
10,753 19,988
50,810 62,444
Depreciation and
amortization-
discontinued
operations
- 1,256
- 4,508
Interest expense-
continuing operations
6,254 28,083
57,097 82,384
Interest expense-
discontinued operations
- 1,406
577 4,891
Income taxes
744 (411)
1,585 1,215
Minority interests
(989) 155
(1,917) 2,834
Joint venture
adjustments
1,505 776
6,203 4,617
EBITDA
$15,158 $28,978 $137,106
$120,532
Realized portion of
deferred gain on
sale leasebacks
(1,122) -
(1,122) -
Adjusted EBITDA
$14,036 $28,978 $135,984
$120,532
Strategic Hotel Capital, Inc. and Subsidiaries
Reconciliation of Net Income (Loss) to EBITDA and FFO
for 4th Quarter Forecast
Three months ended
December 31, 2004
Low-End High-End
of Range of Range
(in millions)
Net loss
$(1.6) $(0.8)
Depreciation and amortization
12.1 12.1
Interest expense
7.2 7.2
Income taxes
1.3 1.3
Minority interests
(0.5) (0.2)
Joint venture adjustments
1.5 1.5
EBITDA
20.0 21.1
Realized portion of deferred gain
on sale
leasebacks
(1.2) (1.2)
Adjusted EBITDA
$18.8 $19.9
Net loss
$(1.6) $(0.8)
Depreciation and amortization
12.1 12.1
Realized portion of deferred gain
on sale
leasebacks
(1.2) (1.2)
Deferred tax on realized deferred
gain
0.3 0.3
Minority interest adjustments
(3.0) (3.0)
Joint venture adjustments
0.7 0.7
FFO
7.3 8.1
Convertible minority interests
2.5 2.8
Diluted FFO
$9.8 $10.9
Strategic Hotel Capital, Inc. and Subsidiaries
Discussion of REIT Hotel Results and Operating Statistics
(Unaudited)
The company's Consolidated Statements
of Operations for the third quarter and year to date 2004 include for the
entire period: the results of the 15 hotels currently owned and leased
by the company, referred to as the REIT Hotels; and before June 29, 2004,
the closing date of the IPO, the results of 7 other hotels, which were
distributed out of the company and in which the company no longer has an
ownership interest.
The results of operations of the distributed
assets are not reflected as discontinued operations because we are deemed
to have continuing involvement as a result of our agreement to asset manage
those assets. As a result of this accounting presentation, we also
present for REIT hotels operating results (revenues, expenses, and adjusted
operating income) and selected operating statistics (RevPAR, average daily
rate, average occupancy and operating margins, the latter of which is a
non-GAAP financial measure). Reconciliation of adjusted operating
income to net income (loss), the most directly comparable GAAP measure,
is set forth in the following tables.
We present these hotel operating results
on a REIT hotel basis because we believe that doing so provides investors
and management with useful information for evaluating the period-to-period
performance of our hotels and facilitates comparisons with other hotel
REITs and hotel owners. In particular, these measures assist management
and investors in distinguishing whether increases or decreases in revenues
and/or expenses are due to operations at the REIT hotels or from the distributed
assets. While management believes that presentation of REIT hotel results
is a supplemental measure that provides useful information in evaluating
the ongoing performance of the company, this measure is not used to allocate
resources or to assess the operating performance of each of these hotels,
as these decisions are based on data for individual hotels and are not
based on REIT hotel results. For these reasons, we believe that REIT hotel
operating results, when combined with the presentation of GAAP operating
profit, revenues and expenses, provide useful information to investors
and management.
As a result of the elimination of
the non-REIT hotel operations, the REIT hotel operating results we present
do not represent our total revenues, expenses or operating profit in accordance
with GAAP. These results should not be used to evaluate our performance
as a whole. Our consolidated statements of operations include such amounts,
all of which should be considered by investors when evaluating our performance.
Strategic Hotel Capital, Inc. and Subsidiaries
Schedule of REIT Hotels
REIT Hotel
Location
Number of Rooms United States:
Hyatt Regency La Jolla at Aventine
La Jolla, CA
419
Hyatt Regency Phoenix
Phoenix, AZ
712
Hyatt Regency New Orleans
New Orleans, LA 1,184
Loews Santa Monica Beach Hotel
Santa Monica, CA
342
Hilton Burbank Airport and Convention
Center
Burbank, CA
488
Embassy Suites Lake Buena Vista
Resort
Lake Buena Vista, FL 333
Marriott Rancho Las Palmas Resort
Rancho Mirage, CA 444
Marriott Lincolnshire Resort
Lincolnshire, IL
390
Marriott Chicago Schaumburg
Schaumburg, IL
398
Ritz-Carlton Half Moon Bay
Half Moon Bay, CA 261
Total Number of United
States Rooms
4,971
European:
Paris Marriott Champs-Elysees (1)
Paris, France
192
Marriott Hamburg (2)
Hamburg, Germany
277
Inter.Continental Prague (3)
Prague, Czech Republic 372
Total Number of European
Rooms
841
Mexican:
Four Seasons Punta Mita Resort
Punta Mita, Mexico 140
Four Seasons Mexico City
Mexico City, Mexico 240
Total Number of Mexican
Rooms
380
Total Number
of Rooms
6,192
(1) On June 29, 2004, we eliminated
the collateralized guarantee related to the Paris Marriott Champs-Elysees
and no longer have continuing involvement as defined by generally accepted
accounting principles. Accordingly, a sale of the Paris Marriott
Champs-Elysees was recorded and the leaseback has now been recorded as
an operating lease as of June 29, 2004. SHCI eliminated the
finance obligation on the consolidated balance sheet and now records lease
expense instead of mortgage interest and depreciation expense.
(2) Subsequent to the February 2004
sale of the Hamburg Marriott, on March 1, 2004 we acquired the 65% interest
we did not previously own in the joint venture that leases the hotel.
On June 29, 2004, we eliminated the collateralized guarantee on the sale
leaseback related to the property and no longer have continuing involvement
which required treating the transaction as a financing. Accordingly, a
sale of the Hamburg Marriott was recorded and the leaseback has now been
recorded as an operating lease as of June 29, 2004. SHCI eliminated
the finance obligation on the consolidated balance sheet and now records
lease expense instead of mortgage interest and depreciation expense.
(3) We have a 35% interest in the
joint venture that owns the Inter.Continental Prague and account for our
investment under the equity method of accounting. Our equity in earnings
(loss) of the hotel joint venture is included in other expenses, net in
our consolidated statements of operations.
Strategic Hotel Capital, Inc. and Subsidiaries
Supplemental REIT Hotel Operating Data
(Unaudited)
Three months ended Nine
months ended
September 30,
September 30,
2004 2003
2004 2003
(Dollars in thousands)
REIT Hotel Revenues:
Room
$44,544 $38,949
$137,867 $127,743
Food and beverage
25,030 18,922
74,302 67,141
Other hotel operating
revenue
9,798 8,251
28,300 26,982
79,372 66,122
240,469 221,866
Lease revenue (1)
5,692 2,671
17,384 15,311
REIT hotel
revenues 85,064 68,793
257,853 237,177
REIT Hotel Expenses:
Room
11,314 8,979
31,009 27,272
Food and beverage
19,510 15,403
55,290 50,100
Other departmental
expenses
26,057 21,360
72,264 65,183
Management fees
2,997 2,732
10,364 9,850
Other property level
expenses
5,769 3,428
14,158 11,789
Lease expense
3,189
- 3,189
-
REIT hotel
expenses 68,836 51,902
186,274 164,194
REIT Hotel Adjusted
Operating Income
16,228 16,891
71,579 72,983
Interest expense, net
6,211 16,211
33,846 46,851
Loss on early
extinguishment of
debt
17 2,977
9,300 8,561
Other (income)
expenses, net (2)
(1,359) 1,722
684 5,032
Income (loss) before
income taxes and
minority interests
11,359 (4,019)
27,749 12,539
Income tax expense
(benefit)
405 (2,293)
760 (1,544)
Minority interests
(989) 155
(1,917) 2,834
REIT Hotel Net Income
(Loss)
11,943 (1,881)
28,906 11,249
REIT depreciation and
amortization
(10,753) (9,673)
(31,125) (29,262)
Corporate expenses
(4,299) (4,755)
(24,493) (16,272)
Non-REIT hotel results, net
- (6,741)
(26,199) (33,760)
Income from discontinued
operations
- 775
75,662 25,684
Net (Loss) Income
$(3,109) $(22,275) $22,751
$(42,361)
(1) Until March 1, 2004, the Hamburg
Marriott was accounted for under the equity method. After March 1,
2004 when we acquired our joint venture partner's 65% leasehold interest
in the property, we record lease revenue for the Hamburg Marriott.
Lease revenue for the three and nine months ended September 30, 2004 and
2003 includes revenues from the Hyatt Regency New Orleans until June 29,
2004 when we converted the Hyatt Regency New Orleans lease to a management
agreement. Prior to June 29, 2004, the Paris Marriott Champs-Elysees
was accounted for as a finance obligation and we consolidated its results
because of a continuing involvement in supporting the financing of the
property through a collateralized guarantee. On June 29, 2004, we
recorded a sale and leaseback related to the Paris Marriott Champs-Elysees.
Subsequent to June 29, 2004, we only earn lease revenue from the Hamburg
Marriott and the Paris Marriott Champs-Elysees.
(2) Other expenses, net includes our
equity in earnings or losses of our investments in the Prague hotel joint
venture for the three and nine months ended September 30, 2004 and 2003.
Earnings or losses from our investment in the Hamburg Marriott hotel joint
venture are included in the three and nine months ended September 30, 2003
and are included in the nine months ended September 30, 2004 until the
acquisition of our joint venture partner's interest in the property on
March 1, 2004.
Strategic Hotel Capital, Inc.
and Subsidiaries
Selected REIT Hotel Operating Statistics
The operating statistics below
do not include the Ritz-Carlton Half Moon Bay, which was acquired on August
24, 2004.
United States Hotels (as of September
30, 2004)
9 Properties
4,710 Rooms
Three months ended
Nine months ended
September 30,
September 30,
2004 2003 Change
2004 2003 Change
Average Daily Rate $129.54
$126.71 2.2% $140.35 $140.79
(0.3)%
Average Occupancy
66.1% 62.3% 3.8pts 69.1%
66.6% 2.5pts
RevPAR
$85.66 $78.90 8.6% $97.01
$93.76 3.5%
Operating Profit
Margin
28.0% 27.8% 0.2pts 33.4%
35.1% (1.7)pts
Mexican Hotels (as of September 30,
2004)
2 Properties
380 Rooms
Three months ended
Nine months ended
September 30,
September 30,
2004 2003 Change
2004 2003 Change
Average Daily Rate $268.48
$268.44 0.0% $346.07 $333.14
3.9%
Average Occupancy
61.3% 59.1% 2.2pts 67.4%
64.6% 2.8pts
RevPAR
$164.46 $158.71 3.6% $233.09
$215.06 8.4%
Operating Profit
Margin
28.0% 25.9% 2.1pts 40.5%
37.5% 3.0pts
Total North American Hotels (as
of September 30, 2004)
11 Properties
5,090 Rooms
Three months ended
Nine months ended
September 30,
September 30,
2004 2003 Change
2004 2003 Change
Average Daily Rate $139.41
$137.02 1.7% $155.64 $155.01
0.4%
Average Occupancy
65.8% 62.0% 3.8pts 69.0%
66.4% 2.6pts
RevPAR
$91.67 $84.98 7.9% $107.37
$102.99 4.3%
Operating Profit
Margin
28.0% 27.5% 0.5pts 34.5%
35.5% (1.0)pts
European Hotels (as of September 30,
2004)
3 Properties
841 Rooms
Three months ended Nine
months ended
September 30,
September 30,
2004 2003 Change
2004 2003 Change
Average Daily Rate $256.27
$231.39 10.8% $231.08 $217.96 6.0%
Average Occupancy
87.2% 85.8% 1.4 pts 81.1%
76.9% 4.2 pts
RevPAR
$223.59 $198.50 12.6% $187.42 $167.59
11.8%
Operating Profit
Margin
53.2% 54.3% (1.1) pts 48.9%
50.5%(1.6) pts
Total Hotels (as of September 30, 2004)
14 Properties
5,931 Rooms
Three months ended Nine months
ended
September 30,
September 30,
2004 2003 Change 2004
2003 Change
Average Daily Rate $160.79
$154.87 3.8% $168.11 $165.22 1.7%
Average Occupancy
68.9% 65.5% 3.4 pts 70.7%
67.9% 2.8 pts
RevPAR
$110.72 $101.37 9.2% $118.91 $112.25
5.9%
Operating Profit
Margin
34.0% 33.7% 0.3 pts 37.3%
38.1%(0.8) pts
Our portfolio breakdown between North
America and European hotels constitutes the differentiation between wholly
owned assets in the North American segment, and joint ventures and two
leaseholds in the European segment. |