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8-K/A - FORM 8-K AMENDMENT - STRATEGIC HOTELS & RESORTS, INCd8ka.htm

Exhibit 99.1

UNAUDITED PRO FORMA FINANCIAL INFORMATION

On June 9, 2011, Strategic Hotels & Resorts, Inc. (SHR) recapitalized the Fairmont Scottsdale Princess hotel. As part of the recapitalization, SHR contributed the Fairmont Scottsdale Princess hotel (the Disposition) plus cash to a newly formed joint venture with an unaffiliated third party. As a result, SHR has a 50% ownership interest in the Fairmont Scottsdale Princess hotel, which it will account for as an equity method investment. The following unaudited pro forma financial information gives effect to the Disposition of the Fairmont Scottsdale Princess hotel. The historical financial information as of March 31, 2011 and for the three months then ended has been derived from SHR’s unaudited financial statements included in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 and the historical financial information for the year ended December 31, 2010 has been derived from SHR’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2010.

The unaudited pro forma balance sheet data as of March 31, 2011 is presented as if the Disposition had occurred on March 31, 2011. The unaudited pro forma statements of operations data for the three months ended March 31, 2011 and for the year ended December 31, 2010 are presented as if the Disposition had occurred on January 1, 2010.

The unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what SHR’s results of operations would actually have been if the transactions had in fact occurred on the earlier date discussed above. It also does not project or forecast SHR’s consolidated results of operations for any future date or period.


Strategic Hotels & Resorts, Inc. (SHR)

Unaudited Pro Forma Consolidated Balance Sheet

March 31, 2011

(in thousands)

 

           Fairmont Scottsdale        
     SHR     Princess     SHR  
     Historical     Disposition (1a)     Pro Forma  

Assets

      

Investments in hotel properties, net

   $ 1,913,569      $ (178,717   $ 1,734,852   

Goodwill

     40,359          40,359   

Intangible assets, net

     33,350          33,350   

Assets held for sale

     45,143          45,143   

Investment in unconsolidated affiliates

     100,438        31,993 (1b)      132,431   

Cash and cash equivalents

     68,475        (34,864 )(1c)      30,943   
       (2,668  

Restricted cash and cash equivalents

     41,408        (4,707     36,701   

Accounts receivable, net

     51,096        (3,987     47,109   

Deferred financing costs, net

     3,101        (123     2,978   

Deferred tax assets

     5,830          5,830   

Other assets

     37,438        (2,315     35,123   
                        

Total assets

   $ 2,340,207      $ (195,388   $ 2,144,819   
                        

Liabilities, Noncontrolling Interests and Equity

      

Liabilities:

      

Mortgages and other debt payable

   $ 1,121,458      $ (180,000 )(1d)    $ 941,458   

Bank credit facility

     7,000          7,000   

Liabilities of assets held for sale

     95,417          95,417   

Accounts payable and accrued expenses

     281,560        (15,388     266,172   

Deferred tax liabilities

     48,736          48,736   

Deferred gain on sale of hotels

     4,029          4,029   
                        

Total liabilities

     1,558,200        (195,388     1,362,812   

Noncontrolling interests in SHR’s operating partnership

     5,505          5,505   

Equity:

      

SHR’s shareholders’ equity:

      

8.50% Series A Cumulative Redeemable Preferred Stock

     108,206          108,206   

8.25% Series B Cumulative Redeemable Preferred Stock

     110,775          110,775   

8.25% Series C Cumulative Redeemable Preferred Stock

     138,940          138,940   

Common shares

     1,748          1,748   

Additional paid-in capital

     1,694,880          1,694,880   

Accumulated deficit

     (1,212,980       (1,212,980

Accumulated other comprehensive loss

     (100,432       (100,432
                        

Total SHR’s shareholders’ equity

     741,137        —          741,137   

Noncontrolling interests in consolidated affiliates

     35,365          35,365   
                        

Total equity

     776,502        —          776,502   
                        

Total liabilities, noncontrolling interests and equity

   $ 2,340,207      $ (195,388   $ 2,144,819   
                        


Notes to Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2011

 

1. Fairmont Scottsdale Princess Disposition – On June 9, 2011, SHR disposed of 50% of its ownership interest in the Fairmont Scottsdale Princess hotel and began accounting for its remaining 50% ownership interest as an equity method investment. The following pro forma adjustments were made to account for this transaction:

 

  a) Reflects the elimination of consolidated accounts recorded on Fairmont Scottsdale Princess.

 

  b) Reflects the $32.0 million original investment in SHR’s 50% ownership interest, which includes its cash contribution and net deficit of the contributed hotel.

 

  c) Reflects $34.9 million of cash paid for the investment in SHR’s 50% ownership interest, net of a $1.0 million fee received from the joint venture partner.

 

  d) Commensurate with the Disposition, the new joint venture retired the $40.0 million mezzanine debt and $7.0 million principal was paid down on the $140.0 million mortgage debt. The remaining $133.0 million mortgage on the hotel is held by the joint venture.


Strategic Hotels & Resorts, Inc. (SHR)

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2010

(in thousands, except per share amounts)

 

           Fairmont Scottsdale        
     SHR     Princess     SHR  
     Historical     Disposition (1a)     Pro Forma  

Revenues:

      

Rooms

   $ 362,559      $ (30,259   $ 332,300   

Food and beverage

     238,762        (28,906     209,856   

Other hotel operating revenue

     79,981        (10,545     69,436   

Lease revenue

     4,991          4,991   
                        

Total revenues

     686,293        (69,710     616,583   

Operating Costs and Expenses:

      

Rooms

     105,142        (9,176     95,966   

Food and beverage

     171,279        (18,449     152,830   

Other departmental expenses

     199,336        (25,313     174,023   

Management fees

     22,911        (3,485     19,426   

Other hotel expenses

     48,781        (5,637     43,144   

Lease expense

     4,566          4,566   

Depreciation and amortization

     130,601        (23,347     107,254   

Impairment losses and other charges

     141,858          141,858   

Corporate expenses

     34,692          34,692   
                        

Total operating costs and expenses

     859,166        (85,407     773,759   
                        

Operating loss

     (172,873     15,697        (157,176

Interest expense

     (86,285     1,853        (84,432

Interest income

     430          430   

Loss on early extinguishment of debt

     (925       (925

Loss on early termination of derivative financial instruments

     (18,263       (18,263

Equity in earnings of unconsolidated affiliates

     13,025        (8,366 )(1b)      4,659   

Foreign currency exchange loss

     (1,410       (1,410

Other income, net

     2,398        (818     1,580   
                        

Loss before income taxes

     (263,903     8,366        (255,537

Income tax expense

     (1,408       (1,408
                        

Loss from continuing operations

   $ (265,311   $ 8,366      $ (256,945
                        

Amounts Attributable to SHR:

      
                        

Loss from continuing operations

   $ (265,306   $ 8,305 (1c)    $ (257,001
                        

Loss from continuing operations attributable to SHR common shareholders per share:

      

Basic:

   $ (2.41     $ (2.34 )(2) 

Diluted:

   $ (2.41     $ (2.34 )(2) 


Notes to Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2010

 

1. Fairmont Scottsdale Princess Disposition – On June 9, 2011, SHR disposed of 50% of its ownership interest in the Fairmont Scottsdale Princess hotel and began accounting for its remaining 50% ownership interest as an equity method investment. The following pro forma adjustments were made to account for this transaction:

 

  a) Reflects the elimination of consolidated accounts recorded on Fairmont Scottsdale Princess.

 

  b) Reflects the $8.4 million recognition of equity in losses for SHR’s 50% ownership interest, excluding an impairment charge related to the hotel, which was included in SHR’s consolidated results.

 

  c) Reflects the impact to loss from continuing operations attributable to SHR, which includes an adjustment to noncontrolling interests to give effect to the weighted average interest in the operating partnership owned by others.

 

2. Loss From Continuing Operations Attributable to SHR Common Shareholders Per Share Calculation – The following table calculates the pro forma weighted average basic and diluted loss from continuing operations attributable to SHR common shareholders per share:

 

     (In thousands, except per
share amounts)
 
     Basic     Diluted  

Historical and pro forma basic and diluted weighted average shares outstanding for the year ended December 31, 2010

     122,933        122,933   
                

Pro forma loss from continuing operations attributable to SHR for the year ended December 31, 2010

   $ (257,001   $ (257,001

Historical preferred shareholder dividend

     (30,886     (30,886
                

Pro forma loss from continuing operations attributable to SHR common shareholders for the year ended December 31, 2010

   $ (287,887   $ (287,887
                

Pro forma loss from continuing operations attributable to SHR common shareholders per share for the year ended December 31, 2010 – basic and diluted

   $ (2.34   $ (2.34


Strategic Hotels & Resorts, Inc. (SHR)

Unaudited Pro Forma Consolidated Statement of Operations

For the Three Months Ended March 31, 2011

(in thousands, except per share amounts)

 

           Fairmont Scottsdale        
     SHR     Princess     SHR  
     Historical     Disposition (1a)     Pro Forma  

Revenues:

      

Rooms

   $ 91,470      $ (12,573   $ 78,897   

Food and beverage

     62,882        (9,595     53,287   

Other hotel operating revenue

     19,973        (3,190     16,783   

Lease revenue

     1,215          1,215   
                        

Total revenues

     175,540        (25,358     150,182   

Operating Costs and Expenses:

      

Rooms

     26,627        (2,743     23,884   

Food and beverage

     46,007        (5,497     40,510   

Other departmental expenses

     50,673        (6,931     43,742   

Management fees

     5,774        (1,268     4,506   

Other hotel expenses

     13,358        (1,548     11,810   

Lease expense

     1,196          1,196   

Depreciation and amortization

     30,605        (3,615     26,990   

Corporate expenses

     14,477          14,477   
                        

Total operating costs and expenses

     188,717        (21,602     167,115   
                        

Operating loss

     (13,177     (3,756     (16,933

Interest expense

     (19,548     450        (19,098

Interest income

     32          32   

Equity in (losses) earnings of unconsolidated affiliates

     (1,600     1,617 (1b)      17   

Foreign currency exchange gain

     139          139   

Other income, net

     3,925        72        3,997   
                        

Loss before income taxes

     (30,229     (1,617     (31,846

Income tax benefit

     1,648          1,648   
                        

Loss from continuing operations

   $ (28,581   $ (1,617   $ (30,198
                        

Amounts Attributable to SHR:

      
                        

Loss from continuing operations

   $ (27,847   $ (1,609 )(1c)    $ (29,456
                        

Loss from continuing operations attributable to SHR common shareholders per share:

      

Basic:

   $ (0.23     $ (0.24 )(2) 

Diluted:

   $ (0.23     $ (0.24 )(2) 


Notes to Unaudited Pro Forma Consolidated Statement of Operations

For the Three Months Ended March 31, 2011

 

1. Fairmont Scottsdale Princess Disposition – On June 9, 2011, SHR disposed of 50% of its ownership interest in the Fairmont Scottsdale Princess hotel and began accounting for its remaining 50% ownership interest as an equity method investment. The following pro forma adjustments were made to account for this transaction:

 

  a) Reflects the elimination of consolidated accounts recorded on Fairmont Scottsdale Princess.

 

  b) Reflects the $1.6 million recognition of equity in earnings for SHR’s remaining 50% ownership interest.

 

  c) Reflects the impact to loss from continuing operations attributable to SHR, which includes an adjustment to noncontrolling interests to give effect to the weighted average interest in the operating partnership owned by others.

 

2. Loss From Continuing Operations Attributable to SHR Common Shareholders Per Share Calculation – The following table calculates the pro forma weighted average basic and diluted loss from continuing operations attributable to SHR common shareholders per share:

 

     (In thousands, except per
share amounts)
 
     Basic     Diluted  

Historical and pro forma basic and diluted weighted average shares outstanding for the three months ended March 31, 2011

     157,333        157,333   
                

Pro forma loss from continuing operations attributable to SHR for the three months ended March 31, 2011

   $ (29,456   $ (29,456

Historical preferred shareholder dividend

     (7,721     (7,721
                

Pro forma loss from continuing operations attributable to SHR common shareholders for the three months ended March 31, 2011

   $ (37,177   $ (37,177
                

Pro forma loss from continuing operations attributable to SHR common shareholders per share for the three months ended March 31, 2011 – basic and diluted

   $ (0.24   $ (0.24