Strategic Hotel Capital, Inc. Reports Fourth Quarter and Year End 2004 Financial Results
CHICAGO, Strategic Hotel Capital, Inc. (NYSE:SLH) today reported results for the fourth quarter and year ended December 31, 2004.
Highlights
-- Increase of 5.8 percent in 4Q04 North American same store RevPAR,
driven by a 4.7 percent increase in ADR and 1.1 percent increase in
occupancy over the comparable period in 2003.
-- Increase of 4.7 percent in FY04 North American same store RevPAR,
resulting from a 1.5 percent increase in ADR and 3.2 percent increase
in occupancy.
-- 6.4 percent increase in 4Q04 North American same store property EBITDA
to $21.5 million from $20.2 million in 4Q03.
-- 4Q04 North American same store property EBITDA margins improved to
23.6 percent from 22.8 percent in the comparable period in 2003.
-- Subsequent to year-end 2004, agreement signed to acquire an 85 percent
controlling interest in InterContinental hotels in Chicago and Miami
with an agreed upon aggregate value of $303.5 million.
For the fourth quarter the company recorded net loss of $(9.4) million or $(0.24) per share on a fully converted basis, Adjusted EBITDA of $7.5 million, and FFO of $(1.9) million or $(0.05) per share on a fully converted basis. Excluding an impairment loss of $12.7 million, representing $(0.32) per fully converted share, net income per share on a fully converted basis was $0.08 and FFO per share on a fully converted basis was $0.27. "Fully converted" per share results represent net income and funds from operations before minority interest adjustments, divided by the total number of shares, operating partnership units convertible into shares and restricted stock units.
For the year ended December 31, 2004, the company recorded a net income of $13.3 million or $0.33 per share on a fully converted basis, Adjusted EBITDA of $141.3 million, and FFO of $(0.3) million or $(0.01) per share on a fully converted basis. Excluding the impairment charge of $12.7 million, net income per share on a fully converted basis for the year was $0.65 and FFO per share on a fully converted basis for the year was $0.31. Due to the company's restructuring at its IPO, fiscal year and year-over-year comparisons are not representative of performance.
"Same store" hotel comparisons are derived from SLH's portfolio at December 31, 2004, excluding the Ritz-Carlton Half Moon Bay, which was acquired in August 2004, eliminating the effects of the Hyatt Regency New Orleans lease that was in existence prior to the IPO, and excluding the seven properties that were distributed as part of the IPO. Property EBITDA reflects property net operating income plus depreciation and amortization.
Laurence Geller, chief executive officer of Strategic Hotel Capital, commented, "Our decision to become a public company coincided with a fundamental improvement in the lodging industry. Given our strong portfolio, we feel we are well positioned to benefit from this recovery. We anticipate a continuation in the sector trends of increasing RevPAR and demand outpacing supply, particularly as they pertain to our focus on luxury urban and resort hotels. The healthy acquisition pipeline has presented us with solid opportunities and we look forward to capitalizing on these given our unique asset management strategies. The recent addition of Jim Mead to our management team provides us with the focus on a disciplined capital structure that completes our business model."
Portfolio Update
For the North American hotels, same store RevPAR for the fourth quarter increased 5.8 percent over the prior period in 2003, to $101.66 from $96.06. Full year 2004 North American same store RevPAR increased 4.7 percent to $105.86, driven by a 1.5 percent increase in ADR and 3.2 percent increase in occupancy. North American same store Total RevPAR, which includes revenues from food and beverage and other sources in addition to rooms, increased 3.0 percent to $185.31 for the fourth quarter and increased 2.7 percent to $186.03 for the full year 2004.
For the European hotels, same store RevPAR for the fourth quarter increased 11.1 percent over the fourth quarter of 2003, due to a 9.6 percent increase in ADR and a 1.4 percent increase in occupancy. For the full year 2004, same store RevPAR for the European hotels increased 11.7 percent over 2003, with an ADR increase of 6.9 percent and a 4.4 percent increase in occupancy. Operating results were positively impacted by foreign currency exchange rate fluctuations. European hotels contributed approximately $0.1 million to Adjusted EBITDA in the fourth quarter of 2004.
Acquisition Update
As previously announced, the company has signed an agreement to acquire an 85 percent controlling interest in the InterContinental hotels in Chicago and Miami with an agreed upon aggregate value of $303.5 million. The acquisition is anticipated to close in April 2005.
2005 Outlook
The company also announced initial earnings guidance for 2005. Management anticipates that for the full year 2005 Adjusted EBITDA will be in the range of $108.3 million to $113.3 million, net income (loss) will be in the range of $(1.9) million to $2.1 million, and FFO per share on a fully converted basis will be in the range of $1.35 to $1.45.
The company expects North American same store RevPAR growth in the range of 4.0 percent to 5.0 percent. North American same store Total RevPAR is expected to increase between 4.5 percent and 5.5 percent.
The following tables reconcile projected 2005 net income to projected FFO and Adjusted EBITDA.
Low Range High Range
(in millions)
Net (loss) income $(1.9) $2.1
Depreciation and amortization 57.2 57.2
Realized portion of deferred gain on sale leasebacks (4.5) (4.5)
Deferred tax on realized portion of deferred gain 1.3 1.3
Minority interest 0.9 1.9
Adjustments from unconsolidated affiliates 3.0 3.0
Funds from Operations (FFO) 56.0 61.0
FFO per Share (Fully converted) $1.35 $1.45
Low Range High Range
(in millions)
Net (loss) income $(1.9) $2.1
Depreciation and amortization 57.2 57.2
Interest expense 41.2 41.2
Equity capital costs 4.8 4.8
Income taxes 4.6 4.6
Minority interest 0.9 1.9
Adjustments from unconsolidated affiliates 6.0 6.0
Realized portion of deferred gain on sale leasebacks (4.5) (4.5)
Adjusted EBITDA 108.3 113.3
The company's 2005 guidance is based upon an assumed continued modest recovery in the lodging sector and several internal forecasts and assumptions, including, but not limited to:
-- Flat gross operating margins for the year;
-- Closing of the InterContinental Hotel (IHG) acquisitions in the second
quarter of 2005;
-- Budget for future additional acquisitions of between $150 million and
$200 million and an assumed disposition;
-- The level and timing of capital market activity to fund acquisitions;
-- 100-basis points increase in LIBOR;
-- Corporate expenses to remain approximately flat on a run rate basis
with those incurred in the third and fourth quarters of 2004,
inclusive of $1.2 million in Sarbanes Oxley compliance costs;
-- European hotels expected contribution of between $4.5 million to $5.0
million to Adjusted EBITDA; and
-- Company contribution to furniture, fixture and equipment reserves at
the properties owned at the end of 2004 and the two IHG acquisition
properties of approximately $20 million during 2005. In addition, the
company will invest approximately $15 million in owner funded
improvements, of which approximately 60 percent is estimated as
revenue enhancing expenditures.
For the first quarter 2005, management anticipates that Adjusted EBITDA will be in the range of $23.3 million to $24.5 million, net income will be in the range of $2.7 million to $3.6 million, and FFO per share on a fully converted basis will be in the range of $0.35 to $0.38. North American same store RevPAR growth is expected to be in the range of 2.5 percent and 3.5 percent, and North American same store Total RevPAR growth is expected to be in the range of 2.5 percent and 3.5 percent.
The following tables reconcile projected first quarter 2005 net income to projected FFO and Adjusted EBITDA.
Low Range High Range
(in millions)
Net income $2.7 $3.6
Depreciation and amortization 10.4 10.4
Realized portion of deferred gain on sale leasebacks (1.1) (1.1)
Deferred tax on realized portion of deferred gain 0.3 0.3
Minority interest 0.8 1.1
Adjustments from unconsolidated affiliates 0.7 0.7
Funds from Operations (FFO) $13.8 $15.0
FFO per Share (fully converted) $0.35 $0.38
Low Range High Range
(in millions)
Net income $2.7 $3.6
Depreciation and amortization 10.4 10.4
Interest expense 7.9 7.9
Income taxes 1.2 1.2
Minority interest 0.8 1.1
Adjustments from unconsolidated affiliates 1.4 1.4
Realized portion of deferred gain on sale leasebacks (1.1) (1.1)
Adjusted EBITDA $23.3 $24.5
Earnings Call and Supplemental Data
The company will conduct its quarterly conference call for investors and other interested parties on Thursday, March 3, 2005 at 11:00 a.m. Eastern Time (ET). Interested individuals are invited to listen to the call by telephone at 800-289-0569. To participate on the webcast, log on to http://www.shci.com/ or http://www.fulldisclosure.com/ 15 minutes before the call to download the necessary software. The company also produces supplemental financial data that includes detailed information regarding the operating results. This supplemental data is considered an integral part of this earnings release and together with the release, is available on the Strategic Hotel Capital website at http://www.shci.com/ . in the investor relations section.
Strategic Hotel Capital, Inc., is a real estate investment trust (REIT) which owns and asset manages high-end hotels and resorts. The company has ownership interests in 15 properties with an aggregate of 6,192 rooms. For further information, please visit the company's website at
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Years Ended
December 31, December 31,
2004 2003 2004 2003
Revenues:
Rooms $54,883 $85,020 $270,820 $317,978
Food and beverage 34,445 47,301 144,593 164,358
Other hotel operating
revenue 14,070 15,126 51,064 55,580
103,398 147,447 466,477 537,916
Lease revenue 3,314 6,266 24,233 27,638
Total revenues 106,712 153,713 490,710 565,554
Operating Costs and Expenses:
Rooms 12,839 22,550 67,761 82,245
Food and beverage 25,613 36,069 110,768 127,751
Other departmental
expenses 31,769 40,311 135,323 148,595
Management fees 3,860 5,434 17,145 19,295
Other property level
expenses 6,417 10,157 30,344 36,903
Lease expense 3,257 - 6,446 -
Depreciation and
amortization 10,653 20,217 61,463 82,661
Impairment losses on
goodwill and hotel
property 12,675 - 12,675 -
Corporate expenses 4,352 5,640 28,845 21,912
Total operating
costs and
expenses 111,435 140,378 470,770 519,362
Operating (loss)
income (4,723) 13,335 19,940 46,192
Interest expense (7,481) (25,007) (64,578) (107,391)
Interest income 257 311 1,270 2,643
Gain (loss) on early
extinguishment of debt 29 767 (21,934) (13,761)
Other income (expenses),
net 3,816 (2,549) 3,132 (7,581)
Loss before income
taxes, minority
interests And
discontinued
operations (8,102) (13,143) (62,170) (79,898)
Income tax (expense)
benefit (4,230) (992) (4,990) 552
Minority interests 2,914 (61) 4,831 (2,895)
Loss from continuing
operations (9,418) (14,196) (62,329) (82,241)
Income from
discontinued
operations - 363 75,662 26,047
Net (Loss) Income $(9,418) $(13,833) $13,333 $(56,194)
Basic and Diluted
(Loss) Income Per
Share:
Loss from
continuing
operations per
share $(0.31) $(0.74) $(2.55) $(4.84)
Income from
discontinued
operations per
share - 0.02 3.10 1.53
Net (loss) income
per share $(0.31) $(0.72) $0.55 $(3.31)
Weighted-average
common shares
outstanding 30,204 19,090 24,390 17,002
Our consolidated statements of operations for the three months and year
ended December 31, 2004 include the following: the results of the 15 hotel
interests currently owned or leased by the company, referred to as the
REIT Hotels; and before June 29, 2004, the date of the IPO, the results of
seven other hotels, which were distributed out of the company and in which
the company no longer has an ownership interest.
Consolidated Balance Sheets
(in thousands, except share data)
Years Ended
December 31,
2004 2003
Assets
Property and equipment $952,717 $1,881,840
Less accumulated depreciation (222,150) (472,645)
Net property and equipment 730,567 1,409,195
Goodwill 66,438 259,150
Intangible assets (net of accumulated
amortization of $87 and $0,
respectively) 1,613 -
Assets held for sale - 80,519
Investment in hotel joint ventures 12,060 23,392
Cash and cash equivalents 40,071 107,437
Restricted cash and cash equivalents 26,979 85,697
Accounts receivable (net of allowance for
doubtful accounts of $361 and $772,
respectively) 21,056 31,030
Deferred financing costs (net of accumulated
amortization of $1,420 and $8,609,
respectively) 11,178 29,247
Other assets 80,388 53,854
Total assets $990,350 $2,079,521
Liabilities and Owners' Equity
Liabilities:
Mortgages and other debt payable $489,140 $1,505,984
Bank credit facility 54,000 -
Convertible debt - 122,030
Accounts payable and accrued expenses 58,946 124,422
Distributions payable 8,709 -
Liabilities of assets held for sale - 68,153
Deferred fees on management contracts 2,333 12,256
Deferred gain on sale of hotels 119,616 -
Total liabilities 732,744 1,832,845
Minority interests 61,053 107,608
Owners' equity:
Members' capital - 875,767
Distributions to members - (439,377)
Common shares ($0.01 par value; 150,000,000
common shares authorized; 30,035,701 common
shares issued and outstanding) 300 -
Additional paid-in capital 483,691 -
Deferred compensation (1,731) -
Accumulated deficit (271,873) (285,206)
Accumulated distributions to owners (13,447) -
Accumulated other comprehensive loss (387) (12,116)
Total owners' equity 196,553 139,068
Total liabilities and owners' equity $990,350 $2,079,521
REIT Hotel Statements of Operations (a)
(in thousands, except per share data)
Three Months Ended Years Ended
December 31, December 31,
2004 2003 2004 2003
REIT Hotel Revenues:
Rooms $54,883 $42,037 $192,750 $169,780
Food and beverage 34,445 26,518 108,747 93,659
Other hotel operating
revenue 14,070 10,477 42,370 37,459
103,398 79,032 343,867 300,898
Lease revenue (b) 3,314 4,839 20,698 20,150
REIT hotel revenues 106,712 83,871 364,565 321,048
REIT Hotel Expenses:
Rooms 12,839 9,664 43,848 36,936
Food and beverage 25,613 19,331 80,903 69,431
Other departmental
expenses 31,769 24,276 104,033 89,459
Management fees 3,860 3,801 14,224 13,651
Other property level
expenses 6,417 4,166 20,575 15,955
Lease expense 3,257 - 6,446 -
REIT hotel expenses 83,755 61,238 270,029 225,432
REIT Hotel Adjusted
Operating Income 22,957 22,633 94,536 95,616
Interest expense, net (7,224) (13,647) (41,070) (60,498)
Gain (loss) on early
extinguishment of debt 29 767 (9,271) (7,794)
Other income (expenses),
net (c) 3,816 (2,549) 3,132 (7,581)
Income before income
taxes and minority
interests 19,578 7,204 47,327 19,743
Income tax (expense)
benefit (4,230) (992) (4,990) 552
Minority interests 2,914 (61) 4,831 (2,895)
REIT Hotel Net Income 18,262 6,151 47,168 17,400
REIT depreciation and
amortization (10,653) (9,828) (41,778) (39,090)
Impairment losses on
goodwill and hotel
property (12,675) - (12,675) -
Corporate expenses (4,352) (5,640) (28,845) (21,912)
Non-REIT hotel results,
net - (4,879) (26,199) (38,639)
Income from discontinued
operations - 363 75,662 26,047
Net (Loss) Income $(9,418) $(13,833) $ 13,333 $(56,194)