Strategic Reports 3Q 2008 Results

Comparable EBITDA was $55.8 million compared with $69.6 million

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. November 07, 2008

NOVEMBER 7, 2008. Strategic Hotels & Resorts (NYSE:BEE) today reported results for the third quarter ended September 30, 2008.

Third Quarter Company Highlights

o Comparable funds from operations (Comparable FFO) totaled $0.31 per diluted share versus $0.39 per diluted share from the prior year. Contribution from residential sales was immaterial during the quarter compared with $0.03 per diluted share in the prior period.

o Comparable EBITDA was $55.8 million compared with $69.6 million in the prior year. Residential sales contributed a $0.2 million loss during the quarter compared with a $5.9 million gain in the prior period.

o Closed on the disposition of the Hyatt Regency in Phoenix, Arizona for a gross sales price of $96.0 million yielding an 11.0% unleveraged IRR over the company's ownership period.

Operating Results

o North American total revenue per available room (Total RevPAR) decreased 4.0 percent and revenue per available room (RevPAR) decreased 3.3 percent driven by a 4.8 point decrease in occupancy and a 2.8 percent increase in average daily rate (ADR) during the third quarter of 2008.

o EBITDA margins contracted 240 basis points in North America.

o European Same Store Total RevPAR increased 7.8 percent and RevPAR increased 5.0 percent driven by a 12.1 percent increase in ADR.

Chief executive officer Laurence Geller remarked, "Our focus during the third quarter was on gaining market share and continuing our increasingly aggressive expense control initiatives. We commenced these initiatives during the third quarter of 2007 as we reacted to the signs of a downward trend in lodging indicators, the severity of which significantly increased during the past few months. We remain steadfast in our commitment to gaining market share, reducing expenses and to being diligent stewards of capital."

Financial Results

The company reported a net loss available to common shareholders of $64.8 million, or $0.86 per diluted share for the third quarter of 2008, compared with net income available to common shareholders of $68.5 million, or $0.91 per diluted share for the third quarter of 2007.

Third quarter 2008 results reflect impairments and other charges totaling $96.7 million. In connection with the company's decision not to proceed with its contracted purchase of hotel development space at the Aqua Building in Chicago, the company recorded a charge of $35.2 million, which includes the loss of a $28.0 million deposit and the write-off of approximately $7.2 million of previously incurred planning and development costs. In addition, the company recorded a $57.8 million impairment of goodwill and other intangible assets at the Fairmont Scottsdale and Ritz-Carlton Laguna Niguel hotels and wrote-off $3.6 million in planning costs related to capital projects.

For the nine-month period ending September 30, 2008, the company reported a net loss available to common shareholders of $60.2 million, or $0.80 per diluted share, compared with net income available to common shareholders of $33.6 million, or $0.45 per diluted share in the prior year period.

Adjusted EBITDA for the third quarter of 2008 was a $1.6 million loss compared with income of $136.1 million for the third quarter of 2007. Comparable EBITDA for the third quarter of 2008 was $55.8 million compared with $69.6 million in the third quarter of 2007. Residential sales contributed a loss of $0.2 million to third quarter results compared with a $5.9 million gain in the prior period.

For the nine-month period ending September 30, 2008, Adjusted EBITDA was $132.3 million compared with $226.1 million in the prior year period. Comparable EBITDA for the nine-month period was $185.6 million compared with $205.1 million in the prior period. Residential sales for the nine-month period were $0.8 million compared with $12.1 million in the prior period.

Funds from Operations (FFO) for the third quarter of 2008 was a $71.2 million loss, or $0.94 per diluted share, compared with income of $10.7 million, or $0.14 per diluted share in the third quarter of 2007. Comparable FFO for the third quarter of 2008 was $23.2 million, or $0.31 per diluted share, compared with $29.6 million, or $0.39 per diluted share in the third quarter of 2007. Residential sales contributed a loss of $0.2 million to third quarter results compared with a $2.6 million gain, or $0.03 per diluted share in the prior period.

For the nine-month period ending September 30, 2008, FFO was a $9.4 million loss, or $0.12 per diluted share, compared with income of $28.3 million, or $0.37 per diluted share in the prior year period. Comparable FFO for the nine-month period was $84.1 million, or $1.10 per diluted share, compared with $92.0 million, or $1.20 per diluted share in the prior period. Residential sales for the nine-month period were $0.5 million, or $0.01 per diluted share, compared with $6.2 million, or $0.08 per diluted share, in the prior period.

Quarterly Distribution

The Board of Directors previously declared on September 8, 2008 a quarterly dividend of $0.24 per share of common stock, payable to shareholders of record as of the close of business on September 30, 2008. The dividend was paid on October 10, 2008. Additionally, for shareholders of record as of September 19, 2008, the Board declared a quarterly dividend of $0.53125 per share of 8.50 percent Series A Cumulative Redeemable Preferred Stock, $0.51563 per share of 8.25 percent Series B Cumulative Redeemable Preferred Stock, and $0.51563 per share of 8.25 percent Series C Cumulative Redeemable Preferred Stock. The preferred stock dividends were paid on September 30, 2008.

The Board of Directors elected to suspend the quarterly dividend to holders of shares of common stock as a measure to preserve liquidity due to the declining economic environment for hotel operations, no projected taxable distribution requirement and uncertainty regarding operating cash flows for 2009. The elimination of the dividend would equate to approximately $90 million in cash flow savings through the end of 2009.

Laurence Geller commented, "The velocity of change in the underlying economic situation combined with the difficulty in forecasting future economic conditions, particularly in the lodging sector, mandates conservatism in our plans for both our operations and our balance sheet. Consistent with the capital conservation measures we have recently taken, we believe the suspension of our dividend is a prudent step in enhancing current financial flexibility and better positioning the company to manage through this period of economic turbulence. We understand the importance of the dividend and will continue to evaluate the company's dividend policy on a regular basis."

2008 Outlook

Management remains cautious about the remainder of the year and has lowered its full year 2008 guidance. For planning purposes, the company currently assumes that 2008 North American RevPAR and Total RevPAR will decline between 3.5 percent and 5.5 percent which would result in Comparable EBITDA in the range of $227.3 million to $233.3 million, Comparable FFO in the range of $92.9 million to $98.9 million, and Comparable FFO per diluted share in the range of $1.22 to $1.30.