CHICAGO, Aug. 5 /PRNewswire-FirstCall/ -- Strategic Hotels & Resorts (NYSE:BEE) today reported results for the second quarter ended June 30, 2009. Second Quarter Recap -- Comparable funds from operations (Comparable FFO) was a loss of $0.03 per diluted share compared with income of $0.48 per diluted share in the prior year. -- Quarterly Comparable EBITDA was $33.6 million compared with $74.1 million in the prior year. -- North American total revenue per available room (Total RevPAR) decreased 28.7 percent and revenue per available room (RevPAR) decreased 30.6 percent driven by a 9.6 percentage point decrease in occupancy and a 20.7 percent decrease in average daily rate (ADR). Non-rooms revenue declined by 26.4 percent. -- The company's two Mexican properties were adversely impacted by events surrounding the H1N1 virus outbreak. Excluding these hotels, North American Total RevPAR would have decreased 25.5 percent and RevPAR would have decreased 27.3 percent. -- European Total RevPAR decreased 28.0 percent (14.0 percent in constant dollars) and RevPAR decreased 25.2 percent (10.8 percent in constant dollars). -- North American gross operating profit (GOP) and EBITDA margins contracted 810 basis points and 950 basis points, respectively. Excluding the company's Mexican assets, North American GOP and EBITDA margins would have contracted 690 basis points and 820 basis points, respectively. Chief Executive Officer Laurence Geller remarked, "We have recently seen some improvement in certain leading indicators and an overall increase in confidence pertaining to future economic conditions. Nevertheless, our financial results continue to be heavily influenced by the lingering recession and general weakness in the hotel industry, which is particularly acute in higher-end assets. While we saw declines in every segment of our business, the falloff in group activity was especially costly as we were forced to replace lost group occupancy with discounted transient business, leading to a significant decline in average rates and sharp contraction in profit margins. During this challenging period we remained vigilant in controlling costs and, despite the drop in rates, are pleased to have achieved our stated objective of limiting our portfolio's year-over-year percentage decline in EBITDA relative to its percentage decline in revenue to under a two-to-one ratio. We also continue to make progress on lowering corporate overhead costs as we reported corporate expenses of $5.5 million for the quarter, a 28 percent reduction from a year ago." Financial Results The company reported second quarter 2009 financial results as follows: -- Net loss attributable to common shareholders was $86.0 million, or $1.14 per diluted share, compared with net income attributable to common shareholders of $10.6 million, or $0.14 per diluted share, for the second quarter of 2008. -- Comparable EBITDA was $33.6 million compared with $74.1 million for the second quarter of 2008. -- FFO was a loss of $52.8 million, or $0.70 per diluted share, compared with income of $40.6 million, or $0.53 per diluted share, in the second quarter of 2008. Comparable FFO was a loss of $2.5 million, or $0.03 per diluted share, compared with income of $36.4 million, or $0.48 per diluted share, in the second quarter of 2008. The company reported financial results for the six month period ending June 30, 2009 as follows: -- Net loss attributable to common shareholders was $129.2 million, or $1.72 per diluted share, compared with net income attributable to common shareholders of $2.6 million, or $0.04 per diluted share, for the six month period ending June 30, 2008. -- Comparable EBITDA was $56.3 million compared with $129.8 million for the six month period ending June 30, 2008. -- FFO was a loss of $63.4 million, or $0.84 per diluted share, compared with income of $59.9 million, or $0.79 per diluted share, in the six months ending June 30, 2008. Comparable FFO was a loss of $13.9 million, or $0.18 per diluted share, compared with income of $58.9 million, or $0.77 per diluted share, in the six month period ending June 30, 2008. Impairment Losses and Other Charges Second quarter 2009 results include impairment of goodwill and other charges totaling $49.8 million, including impairment of goodwill of $41.9 million and write-offs of $7.9 million related to the abandonment of certain capital projects. These one-time charges have been excluded from Comparable EBITDA, FFO and FFO per share metrics. Liquidity As of the end of the second quarter, the company had $398.4 million available on its $400.0 million bank credit facility against $261.3 million total outstanding, leaving $137.1 million of liquidity. Certain financial covenants limit availability on the facility, including cash flow generated by five borrowing base assets, calculated on a trailing twelve month basis. These hotels include the Four Seasons in Mexico City and Punta Mita, both of which have been impacted by the H1N1 virus outbreak during the second quarter, security concerns associated with traveling to Mexico and general economic weakness. As a result, availability on the facility is projected to be further restricted in future quarters, thus putting increased pressure on the company's liquidity position. Mr. Geller commented, "The spread, and perceived threat, of the H1N1 virus had a serious negative impact on our two Mexican assets. RevPAR at these hotels declined 57.7% during the second quarter and EBITDA decreased $7.2 million from the prior period. We are cognizant of the restrictions this puts on the availability on our bank credit facility and constantly monitor our liquidity position." Subsequent Event The company entered into a joint venture agreement on its existing 60-acre ocean front land parcel near the Four Seasons Punta Mita Resort in Nayarit, Mexico with Cantiles de Mita, S.A. de C.V., a wholly owned subsidiary of DINE, the master developer of Punta Mita and original seller of the land parcel. In exchange for a 50 percent interest in the land, the company is released from its final installment payment of $17.5 million due in August 2009 and receives a preferred position which entitles the company to receive the first $12.0 million of distributions generated from the project with any excess distributions split equally among the partners. Earnings Call The company will conduct its second quarter 2009 conference call for investors and other interested parties on August 6, 2009 at 10:00 a.m. Eastern Time (ET). Interested individuals are invited to listen to the call by telephone at 888-713-4214 (toll international: 617-213-4866) with pass code 19665792. To participate on the web cast, log on to http://www.strategichotels.com/ or https://www.theconferencingservice.com/prereg/key.process?key=PEXWEGEC3 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 1:00 p.m. ET on August 6, 2009, through 11:59 p.m. ET on August 13, 2009. To access the replay, dial 888-286-8010 (toll international: 617-801-6888) and request replay pin number 67405958. 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 http://www.strategichotels.com/ within the second quarter information section. Portfolio Definitions North American hotel comparisons for the second quarter 2009 are derived from the company's hotel portfolio at June 30, 2009, consisting of properties in which operations are included in the consolidated results of the company. European hotel comparisons for the second quarter 2009 are derived from the company's European owned and leased hotel properties at June 30, 2009. 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, Mexico and Europe. The company currently has ownership interests in 19 properties with an aggregate of 8,358 rooms. For a list of current properties and for further information, please visit the company's website at http://www.strategichotels.com/. This press release contains forward-looking statements about Strategic Hotels & Resorts (the "Company"). Except for historical information, the matters discussed in this press release are forward-looking statements subject to certain risks and uncertainties. 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: economic conditions generally and in the real estate market specifically, including further deterioration of the current global economic downturn and the extent of its effect on business and leisure travel and the lodging industry; demand for hotel rooms in our current and proposed market areas; outbreak of contagious diseases such as the H1N1 virus; our liquidity and refinancing demands; availability of capital; the recovery of financing markets and our ability to obtain or refinance debt; our ability to comply with covenants contained in our debt facilities; rising interest rates and operating costs; rising insurance premiums; cash available for capital expenditures; competition; ability to dispose of existing properties in a manner consistent with our disposition strategy and liquidity needs; delays and cost overruns in construction and development; demand for hotel condominiums; marketing challenges associated with entering new lines of business; risks related to natural disasters; the effect of threats of terrorism and increased security precautions on travel patterns and hotel bookings; the outbreak of hostilities and international political instability; legislative or regulatory changes, including changes to laws governing the taxation of REITs; and changes in generally accepted accounting principles, policies and guidelines applicable to REITs. Additional risks are discussed in the Company's filings with the Securities and Exchange Commission, including those appearing in the Company's most recent form 10-K and subsequent 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 we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Consolidated Statements of Operations (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- Revenues: Rooms $104,627 $148,320 $201,213 $278,600 Food and beverage 60,644 91,157 117,750 170,281 Other hotel operating revenue 26,179 29,074 51,970 56,228 ------ ------ ------ ------ 191,450 268,551 370,933 505,109 Lease revenue 1,169 1,402 2,289 2,689 ----- ----- ----- ----- Total revenues 192,619 269,953 373,222 507,798 ------- ------- ------- ------- Operating Costs and Expenses: Rooms 28,902 35,448 56,191 68,573 Food and beverage 44,129 59,777 86,956 116,520 Other departmental expenses 54,143 64,216 109,381 126,778 Management fees 7,659 11,047 14,422 20,656 Other hotel expenses 13,933 15,317 27,715 31,359 Lease expense 4,159 4,534 8,125 8,861 Depreciation and amortization 35,211 30,197 69,314 57,800 Impairment losses and other charges 49,755 - 50,214 - Corporate expenses 5,456 7,566 15,880 14,996 ----- ----- ------ ------ Total operating costs and expenses 243,347 228,102 438,198 445,543 ------- ------- ------- ------- Operating (loss) income (50,728) 41,851 (64,976) 62,255 Interest expense (26,259) (22,662) (50,225) (45,504) Interest income 98 459 512 1,054 Loss on early extinguishment of debt - - (883) - Equity in earnings of joint ventures 432 1,582 571 803 Foreign currency exchange (loss) gain (1,109) 4,687 906 1,478 Other income (expenses), net 82 (177) 43 (439) --- ---- --- ---- (Loss) income before income taxes, distributions in excess of noncontrolling interest capital, loss on sale of noncontrolling interests in hotel properties and discontinued operations (77,484) 25,740 (114,052) 19,647 Income tax expense (682) (6,435) (782) (6,647) Distributions in excess of noncontrolling interest capital - (784) - (784) --- ---- --- ---- (Loss) income before loss on sale of noncontrolling interests in hotel properties and discontinued operations (78,166) 18,521 (114,834) 12,216 Loss on sale of noncontrolling interests in hotel properties - (41) - (46) --- --- --- --- (Loss) income from continuing operations (78,166) 18,480 (114,834) 12,170 Income from discontinued operations, net of tax - 2,068 - 7,268 --- ----- --- ----- Net (loss) income (78,166) 20,548 (114,834) 19,438 Net loss (income) attributable to the noncontrolling interests in SHR's operating partnership 1,007 (254) 1,453 (252) Net income attributable to the noncontrolling interests in consolidated affiliates (1,101) (2,006) (348) (1,109) ------ ------ ---- ------ Net (loss) income attributable to SHR (78,260) 18,288 (113,729) 18,077 Preferred shareholder dividends (7,722) (7,722) (15,443) (15,443) ------ ------ ------- ------- Net (loss) income attributable to SHR common shareholders $(85,982) $10,566 $(129,172) $2,634 ======== ======= ========= ====== Basic (Loss) Income Per Share: (Loss) income from continuing operations attributable to SHR common shareholders $(1.14) $0.11 $(1.72) $(0.06) Income from discontinued operations attributable to SHR common shareholders - 0.03 - 0.10 --- ---- --- ---- Net (loss) income attributable to SHR common shareholders $(1.14) $0.14 $(1.72) $0.04 ====== ===== ====== ===== Weighted average common shares outstanding 75,381 75,000 75,166 74,991 ====== ====== ====== ====== Diluted (Loss) Income Per Share: (Loss) income from continuing operations attributable to SHR common shareholders $(1.14) $0.11 $(1.72) $(0.06) Income from discontinued operations attributable to SHR common shareholders - 0.03 - 0.10 --- ---- --- ---- Net (loss) income attributable to SHR common shareholders $(1.14) $0.14 $(1.72) $0.04 ====== ===== ====== ===== Weighted average common shares outstanding 75,381 75,048 75,166 74,991 ====== ====== ====== ====== Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Consolidated Balance Sheets (in thousands, except share data) June 30, December 31, 2009 2008 ---- ---- Assets Investment in hotel properties, net $2,369,540 $2,383,860 Goodwill 80,081 120,329 Intangible assets, net of accumulated amortization of $4,003 and $3,096 35,254 32,277 Investment in joint ventures 81,938 82,122 Cash and cash equivalents 69,432 80,954 Restricted cash and cash equivalents 20,229 37,358 Accounts receivable, net of allowance for doubtful accounts of $2,512 and $2,203 64,734 70,945 Deferred financing costs, net of accumulated amortization of $8,885 and $6,655 14,871 10,375 Deferred tax assets 37,612 38,260 Other assets 47,184 52,687 ------ ------ Total assets $2,820,875 $2,909,167 ========== ========== Liabilities and Shareholders' Equity Liabilities: Mortgages and other debt payable $1,317,258 $1,301,535 Exchangeable senior notes, net of discount 167,241 165,155 Bank credit facility 260,500 206,000 Accounts payable and accrued expenses 197,534 281,918 Deferred tax liabilities 33,654 34,236 Deferred gain on sale of hotels 102,227 104,251 ------- ------- Total liabilities 2,078,414 2,093,095 Noncontrolling interests in SHR's operating partnership 4,555 5,330 Equity: SHR's shareholders' equity: 8.50% Series A Cumulative Redeemable Preferred Stock ($0.01 par value; 4,488,750 shares issued and outstanding; liquidation preference $25.00 per share) 108,206 108,206 8.25% Series B Cumulative Redeemable Preferred Stock ($0.01 par value; 4,600,000 shares issued and outstanding; liquidation preference $25.00 per share) 110,775 110,775 8.25% Series C Cumulative Redeemable Preferred Stock ($0.01 par value; 5,750,000 shares issued and outstanding; liquidation preference $25.00 per share) 138,940 138,940 Common shares ($0.01 par value; 150,000,000 common shares authorized; 75,167,096 and 74,410,012 common shares issued and outstanding) 750 744 Additional paid-in capital 1,232,971 1,228,774 Accumulated deficit (823,992) (710,263) Accumulated other comprehensive loss (55,418) (93,637) ------- ------- Total SHR's shareholders' equity 712,232 783,539 Noncontrolling interests in consolidated affiliates 25,674 27,203 ------ ------ Total equity 737,906 810,742 ------- ------- Total liabilities and equity $2,820,875 $2,909,167 ========== ========== Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) FINANCIAL HIGHLIGHTS Supplemental Financial Data (in thousands, except per share information) June 30, 2009 ------------- Pro Rata Share Consolidated -------------- ------------ Capitalization -------------- Common shares outstanding 75,167 75,167 Operating partnership units outstanding 971 971 Stock options outstanding 885 885 Restricted stock units outstanding 861 861 --- --- Combined shares, options and units outstanding 77,884 77,884 Common stock price at end of period $1.11 $1.11 ----- ----- Common equity capitalization $86,451 $86,451 Preferred equity capitalization (at $25.00 face value) 370,236 370,236 Consolidated debt (excludes discount on exchangeable senior notes) 1,757,758 1,757,758 Pro rata share of unconsolidated debt 282,825 - Pro rata share of consolidated debt (107,065) - Cash and cash equivalents (69,432) (69,432) ------- ------- Total enterprise value $2,320,773 $2,145,013 ========== ========== Net Debt / Total Enterprise Value 80.3% 78.7% Preferred Equity / Total Enterprise Value 16.0% 17.3% Common Equity / Total Enterprise Value 3.7% 4.0% Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Investment in the Hotel del Coronado (in thousands) On January 9, 2006, we purchased a 45% interest in the joint venture that owns the Hotel del Coronado. We account for this investment using the equity method of accounting. Three Months Ended Six Months Ended June 30, June 30, ---------- ---------- 2009 2008 2009 2008 ---- ---- ---- ---- Total revenues (100%) $30,006 $39,411 $58,198 $74,269 Property EBITDA (100%) $9,441 $14,703 $17,947 $26,151 Equity in earnings of joint venture (SHR 45% ownership) Property EBITDA $4,248 $6,616 $8,076 $11,768 Depreciation and amortization (1,922) (1,747) (3,825) (3,647) Interest expense (1,970) (3,577) (4,031) (7,988) Other income (expense), net 41 (6) (142) (34) Income taxes (13) (38) 200 302 --- --- --- --- Equity in earnings of joint venture $384 $1,248 $278 $401 ==== ====== ==== ==== EBITDA Contribution from investment in Hotel del Coronado Equity in earnings of joint venture $384 $1,248 $278 $401 Depreciation and amortization 1,922 1,747 3,825 3,647 Interest expense 1,970 3,577 4,031 7,988 Income taxes 13 38 (200) (302) --- --- ---- ---- EBITDA Contribution for investment in Hotel del Coronado $4,289 $6,610 $7,934 $11,734 ====== ====== ====== ======= FFO Contribution from investment in Hotel del Coronado Equity in earnings of joint venture $384 $1,248 $278 $401 Depreciation and amortization 1,922 1,747 3,825 3,647 ----- ----- ----- ----- FFO Contribution for investment in Hotel del Coronado $2,306 $2,995 $4,103 $4,048 ====== ====== ====== ====== Interest Spread over Loan Debt Rate LIBOR Amount Maturity ---- ---- ----- ------ -------- CMBS Mortgage and Mezzanine 2.39% 208 bp $610,000 January 2011 (a) Revolving Credit Facility 2.81% 250 bp 18,500 January 2011 (a) ------ 628,500 Cash and cash equivalents (50,446) ------- Net Debt $578,054 ======== (a) Includes extension options. Effective LIBOR Notional Cap Date Cap Rate Amount Maturity --- ---- -------- ------ -------- CMBS Mortgage and Mezzanine Loan and Revolving Credit Facility Cap January 2009 5.0% $630,000 May 2009 CMBS Mortgage and Mezzanine Loan and Revolving Credit Facility Cap June 2009 3.0% $630,000 January 2010 CMBS Mortgage and Mezzanine Loan and Revolving Credit Facility Cap February 2010 5.0% $630,000 January 2011 Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Leasehold Information (in thousands) Three Months Ended Six Months Ended June 30, June 30, ---------- ---------- 2009 2008 2009 2008 ---- ---- ---- ---- Paris Marriott Champs Elysees: Property EBITDA $4,645 $6,092 $7,252 $10,096 Revenue (a) $4,645 $6,092 $7,252 $10,096 Lease Expense (2,985) (3,213) (5,847) (6,272) Less: Deferred Gain on Sale Leaseback (1,146) (1,315) (2,246) (2,579) ------ ------ ------ ------ Adjusted Lease Expense (4,131) (4,528) (8,093) (8,851) ---- ------ ----- ------ EBITDA Contribution from Leasehold $514 $1,564 $(841) $1,245 ==== ====== ===== ====== Marriott Hamburg: Property EBITDA $1,422 $1,668 $2,775 $3,229 Revenue (a) $1,169 $1,402 $2,289 $2,689 Lease Expense (1,174) (1,321) (2,278) (2,589) Less: Deferred Gain on Sale Leaseback (53) (61) (104) (119) --- --- ---- ---- Adjusted Lease Expense (1,227) (1,382) (2,382) (2,708) ---- --- ---- ---- EBITDA Contribution from Leasehold $(58) $20 $(93) $(19) ==== === ==== ==== Total Leaseholds: Property EBITDA $6,067 $7,760 $10,027 $13,325 Revenue (a) $5,814 $7,494 $9,541 $12,785 Lease Expense (4,159) (4,534) (8,125) (8,861) Less: Deferred Gain on Sale Leaseback (1,199) (1,376) (2,350) (2,698) ------ ------ ------ ------ Adjusted Lease Expense (5,358) (5,910) (10,475) (11,559) ---- ------ ----- ------ EBITDA Contribution from Leasehold $456 $1,584 $(934) $1,226 ==== ====== ===== ====== June 30, December 31, Security Deposits (b): 2009 2008 ---- ---- Paris Marriott Champs Elysees $13,568 $15,507 Marriott Hamburg 7,015 6,984 ----- ----- Total $20,583 $22,491 ======= ======= (a) For the three and six months ended June 30, 2009 and 2008, Revenue for the Paris Marriott Champs Elysees represents Property EBITDA. For the three and six months ended June 30, 2009 and 2008, Revenue for the Marriott Hamburg represents lease revenue. (b) The security deposits are recorded in other assets on the consolidated balance sheets. Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Non-GAAP Financial Measures In addition to REIT hotel income, five other non-GAAP financial measures are presented for the Company that we believe are useful to management and investors as key measures of our operating performance: Funds from Operations (FFO); FFO - Fully Diluted; Comparable FFO; Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA); and Comparable EBITDA. A reconciliation of these measures to net loss attributable to SHR common shareholders, 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. NAREIT defines FFO as net income (or loss) (computed in accordance with GAAP) excluding losses or gains from sales of depreciable 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 FFO - Fully Diluted, which is FFO plus income or loss on income attributable to convertible noncontrolling interests. 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, foreign currency exchange gains or losses and other non-recurring charges. We believe that the presentation of FFO, 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. Comparable FFO per diluted share, in accordance with NAREIT, is adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under share-based compensation plans, operating partnership units and exchangeable debt securities. No effect is shown for securities that are anti-dilutive. EBITDA represents net loss attributable to SHR common shareholders 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 convertible noncontrolling interests of our operating partnership into our common stock and includes preferred dividends. We believe this treatment of noncontrolling interests provides more 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 other non-recurring charges. 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 caution investors that amounts presented in accordance with our definitions of FFO, 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, FFO - Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA should not be considered as an alternative measure of our net loss or operating performance. FFO, 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, 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 loss attributable to SHR common shareholders. In addition, you should be aware that adverse economic and market conditions might negatively impact our cash flow. Below, we have provided a quantitative reconciliation of FFO, FFO - Fully Diluted, Comparable FFO, EBITDA, and Comparable EBITDA to the most directly comparable GAAP financial performance measure, which is net loss attributable to SHR common shareholders, and provide an explanatory description by footnote of the items excluded from FFO, FFO - Fully Diluted, and EBITDA. Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Reconciliation of Net (Loss) Income Attributable to SHR Common Shareholders to EBITDA and Comparable EBITDA (in thousands) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- Net (loss) income attributable to SHR common shareholders $(85,982) $10,566 $(129,172) $2,634 Depreciation and amortization - continuing operations 35,211 30,197 69,314 57,800 Depreciation and amortization - discontinued operations - 461 - 1,151 Interest expense - continuing operations 26,259 22,662 50,225 45,504 Income taxes - continuing operations 682 6,435 782 6,647 Income taxes - discontinued operations - (265) - (175) Noncontrolling interests (1,007) 254 (1,453) 252 Adjustments from consolidated affiliates (a) (2,741) (2,601) (4,305) (4,272) Adjustments from unconsolidated affiliates 3,925 5,608 7,824 11,597 Preferred shareholder dividends 7,722 7,722 15,443 15,443 ----- ----- ------ ------ EBITDA (15,931) 81,039 8,658 136,581 Realized portion of deferred gain on sale leasebacks (1,199) (1,376) (2,350) (2,698) Loss (gain) on sale of assets - continuing operations 7 (17) 5 (134) Loss (gain) on sale of assets - discontinued operations - 2 - (414) Loss on sale of noncontrolling interests in hotel properties - 41 - 46 Impairment losses and other charges 49,755 - 50,214 - Impairment losses and other charges - adjustments from consolidated affiliates (169) - (169) - Foreign currency exchange loss (gain) (b) 1,109 (4,687) (906) (1,478) Hyatt Regency La Jolla noncontrolling interest (a) - (1,703) - (2,883) Distributions in excess of noncontrolling interest capital - 784 - 784 Loss on early extinguishment of debt - - 883 - --- --- --- --- Comparable EBITDA $33,572 $74,083 $56,335 $129,804 ======= ======= ======= ======== (a) The noncontrolling interest partner's share of the Hyatt Regency La Jolla's property EBITDA is not deducted from net income attributable to SHR common shareholders under GAAP accounting rules for the three and six months ended June 30, 2008. Under new accounting rules effective January 1, 2009, the noncontrolling interest partner's share of the Hyatt Regency La Jolla's property EBITDA is included in adjustments from consolidated affiliates for the three and six months ended June 30, 2009. (b) Foreign currency exchange gains or losses applicable to third-party and inter-company debt and certain balance sheet items held by foreign subsidiaries. Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Reconciliation of Net (Loss) Income Attributable to SHR Common Shareholders to Funds From Operations (FFO), FFO - Fully Diluted and Comparable FFO (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- Net (loss) income attributable to SHR common shareholders $(85,982) $10,566 $(129,172) $2,634 Depreciation and amortization - continuing operations 35,211 30,197 69,314 57,800 Depreciation and amortization - discontinued operations - 461 - 1,151 Corporate depreciation (304) (300) (608) (592) Loss (gain) on sale of assets - continuing operations 7 (17) 5 (134) Loss (gain) on sale of assets - discontinued operations - 2 - (414) Loss on sale of noncontrolling interests in hotel properties - 41 - 46 Realized portion of deferred gain on sale leasebacks (1,199) (1,376) (2,350) (2,698) Deferred tax expense on realized portion of deferred gain on sale leasebacks 358 410 701 804 Noncontrolling interests adjustments (472) (415) (929) (802) Adjustments from consolidated affiliates (a) (1,860) (1,361) (3,692) (2,636) Adjustments from unconsolidated affiliates 1,954 1,747 3,889 3,647 ----- ----- ----- ----- FFO (52,287) 39,955 (62,842) 58,806 Convertible noncontrolling interests (535) 669 (524) 1,054 ---- --- ---- ----- FFO - Fully Diluted (52,822) 40,624 (63,366) 59,860 Impairment losses and other charges 49,755 - 50,214 - Impairment losses and other charges - adjustments from consolidated affiliates (169) - (169) - Foreign currency exchange loss (gain), net of tax (b) 761 (3,838) (1,416) 78 Hyatt Regency La Jolla noncontrolling interest (a) - (1,193) - (1,782) Distributions in excess of noncontrolling interest capital - 784 - 784 Loss on early extinguishment of debt - - 883 - --- --- --- --- Comparable FFO $(2,475) $36,377 $(13,854) $58,940 ======= ======= ======== ======= Comparable FFO per diluted share $(0.03) $0.48 $(0.18) $0.77 ====== ===== ====== ===== Weighted average diluted shares 75,381 76,024 75,166 76,129 ====== ====== ====== ====== (a) The noncontrolling interest partner's share of the Hyatt Regency La Jolla's property FFO is not deducted from net income attributable to SHR common shareholders under GAAP accounting rules for the three and six months ended June 30, 2008. Under new accounting rules effective January 1, 2009, the noncontrolling interest partner's share of the Hyatt Regency La Jolla's property EBITDA is included in adjustments from consolidated affiliates for the three and six months ended June 30, 2009. (b) Foreign currency exchange gains or losses applicable to third-party and inter-company debt and certain balance sheet items held by foreign subsidiaries. Strategic Hotels & Resorts, Inc. and Subsidiaries (SHR) Debt Summary (dollars in thousands) Interest Loan Debt Rate Spread (a) Amount Maturity (b) ---- ---- --------- ------ ----------- Punta Mita land parcel promissory note N/A N/A $17,257 August 2009 Bank credit facility 4.06% 375 bp 260,500 March 2011 Westin St. Francis 1.01% 70 bp 220,000 August 2011 Fairmont Scottsdale 0.87% 56 bp 180,000 September 2011 InterContinental Chicago 1.37% 106 bp 121,000 October 2011 InterContinental Miami 1.04% 73 bp 90,000 October 2011 InterContinental Prague (c) 2.30% 120 bp (c) 145,902 March 2012 Loews Santa Monica Beach Hotel 0.94% 63 bp 118,250 March 2012 Ritz-Carlton Half Moon Bay 0.98% 67 bp 76,500 March 2012 Exchangeable senior notes, net of discount (d) 3.50% Fixed 167,241 April 2012 Fairmont Chicago 1.01% 70 bp 123,750 April 2012 Hyatt Regency La Jolla 1.31% 100 bp 97,500 September 2012 Marriott London Grosvenor Square (e) 2.29% 110 bp (e) 127,099 October 2013 ------- $1,744,999 ========== (a) Spread over LIBOR (0.31% at June 30, 2009). (b) Includes extension options, excluding the conditional one-year extension option on the bank credit facility. (c) Principal balance of euro 104,000,000 at June 30, 2009. Spread over three-month EURIBOR (1.10% at June 30, 2009). (d) Reflects the cash coupon. (e) Principal balance of 77,250,000 pounds Sterling at June 30, 2009. Spread over three-month GBP LIBOR (1.19% at June 30, 2009). U.S. Interest Rate Swaps Fixed Pay Rate Against Notional Swap Effective Date LIBOR Amount Maturity ------------------- ----- ------ -------- April 2005 4.59% $75,000 April 2012 June 2005 4.12% 50,000 June 2012 June 2006 5.50% 75,000 June 2013 August 2006 5.42% 100,000 August 2013 March 2007 4.84% 100,000 July 2012 March 2009 0.70% 50,000 September 2009 March 2009 0.78% 50,000 December 2009 March 2009 0.90% 75,000 April 2010 March 2009 1.12% 50,000 December 2010 March 2009 1.38% 50,000 August 2011 March 2009 0.64% 50,000 September 2009 March 2009 1.02% 50,000 December 2010 March 2009 0.64% 50,000 December 2009 March 2009 1.04% 100,000 February 2011 March 2009 1.22% 50,000 August 2011 ---- ------ 2.60% $975,000 ==== ======== European Interest Rate Swap Fixed Pay Rate Against GBP Swap Effective Date LIBOR (f) Notional Amount Maturity ------------------- -------- --------------- -------- October 2007 3.22% - 5.72% 77,250 pounds Sterling October 2013 Fixed Pay Rate Against Swap Effective Date EURIBOR Notional Amount Maturity ------------------- ------- --------------- -------- September 2008 4.53% euro 104,000 March 2012 Forward-Starting Interest Rate Swaps Fixed Pay Rate Against Notional Swap Effective Date LIBOR Amount Maturity ------------------- ----- ------ -------- September 2009 4.90% $100,000 September 2014 December 2009 4.96% 100,000 December 2014 April 2010 5.42% 75,000 April 2015 December 2010 5.23% 100,000 December 2015 February 2011 5.27% 100,000 February 2016 ------- $475,000 ======== At June 30, 2009, future scheduled debt principal payments (including non-conditional extension options) are as follows: Years ended December 31, Amount ------------------------ ------ 2009 $17,257 2010 7,766 2011 879,266 2012 736,537 2013 116,932 Thereafter - --- 1,757,758 Less discount on exchangeable senior notes (12,759) ------- Total $1,744,999 ========== Percent of fixed rate debt including U.S. and European swaps 82.1% Weighted average interest rate including U.S. and European swaps (g) 3.63% Weighted average maturity of fixed rate debt (debt with maturity of greater than one year) 3.77 (f) In April 2009, we modified the GBP LIBOR interest rate swap agreement, which adjusts the fixed pay rate from 5.72% to 3.22% for the period from January 15, 2009 through January 17, 2011. (g) Excludes the amortization of deferred financing costs, amortization of the discount on the exchangeable senior notes and the amortization of the interest rate swap costs. DATASOURCE: Strategic Hotels & Resorts, Inc. CONTACT: Ryan Bowie, Vice President and Treasurer of Strategic Hotels & Resorts, +1-312-658-5766 Web Site: http://www.strategichotels.com/

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