News for the Hospitality Executive
Morgans Hotel Group Reports 2nd Qtr 2008 Net Loss of $730
Compared to a Net Income of $841 thousand in the Prior Year
Revenues Decreased to $81.3 million from $82.7 million in the Prior Year
|NEW YORK - Aug. 6, 2008--Morgans Hotel Group Co. (NASDAQ:
MHGC) ("MHG") today reported financial results for the second quarter ended
June 30, 2008.
-- Revenue per available room ("RevPAR") for Owned Comparable
(2) "System-Wide Comparable Hotels" includes all hotels operated by MHG except for hotels under renovation during the period or the relevant comparison period for the prior year and development projects. System-Wide Comparable Hotels for the second quarter of 2008 excludes Mondrian LA and Morgans, which were under renovation in the second quarter of 2008 and Royalton, which was under renovation in the second quarter of 2007, and the Hard Rock Hotel & Casino in Las Vegas ("Hard Rock"), which was added in February 2007 and under renovation/expansion in 2008.
(3) Adjusted earnings before interest, taxes, depreciation and amortization, as further described below.
"Our unique focus on key gateway markets and irreplaceable locations within those markets helped us drive RevPAR growth in excess of U.S. industry averages," said Fred Kleisner, President and Chief Executive Officer of MHG. "We saw RevPAR at Owned Comparable Hotels increase 4.4% over the comparable period last year, driven primarily by room revenue from international business and leisure travel, which rose by 26%. We proactively managed our expenses and improved operating margins at System-Wide Comparable Hotels by 200 basis points, and we've achieved these savings without sacrificing quality. We've maintained our market share in our competitive sets and registered increases in guest engagement scores. We will continue to carefully examine our costs while maintaining our high quality service.
"In addition, we are actively transforming our projects currently under construction into EBITDA-producing assets. The newly renovated Mondrian LA and Morgans are both scheduled to re-launch in early September 2008, which will complete all major renovations at our owned hotels. Our Mondrian South Beach project is scheduled to open in time for the Art Basel festival on December 4, and Mondrian SoHo, Ames Boston and the expansion at Hard Rock are all underway and expected to contribute to our EBITDA in 2009. With great hotels in some of the top performing markets, careful attention to costs and financial flexibility, we believe we are well positioned in this economic cycle."
Second Quarter Operating Results
RevPAR for MHG's System-Wide Comparable Hotels was $274.79, an increase of 2.8% (3.0% in constant dollars) for the second quarter of 2008 over the comparable period in 2007. RevPAR at Owned Comparable Hotels increased by 4.4% to $255.43.
EBITDA margins at System-Wide Comparable Hotels improved by 200 basis points as compared to the comparable period in 2007. MHG achieved this increase through a 1% reduction in comparable operating costs at these hotels due to the implementation of cost saving initiatives related to labor, marketing and other hotel level expenses.
Adjusted EBITDA from System-Wide Comparable Hotels increased by 14% from the comparable period in 2007 as a result of cost saving initiatives. Due to an estimated $4.0 million of EBITDA displacement at Mondrian LA, Morgans and Hard Rock, which were under renovation and classified as non-comparable hotels in the second quarter of 2008, Adjusted EBITDA decreased by 9.6% to $27.8 million.
During the quarter, MHG's percentage ownership interest at Hard Rock, based on cash contributions, was reduced from 33% to 27.4%, resulting in a weighted average of 29.8% for the quarter and a lower proportionate share of both Adjusted Debt and Adjusted EBITDA. Had the ownership percentage remained at 33.3%, Adjusted EBITDA for the second quarter of 2008 would have been approximately $500,000 higher than reported.
MHG's concentration in key international gateway cities such as New York, Miami and San Francisco drove RevPAR growth in excess of the U.S. industry average growth for the quarter. An increase in business from international guests offset declines in domestic travel. For the second quarter of 2008, international visitors represented 35.6% of room revenues at System-Wide Comparable Hotels in the U.S. as compared to 28.3% in comparable period in 2007.
MHG recorded a net loss of $0.7 million for the second quarter of 2008, compared to net income of $0.8 million in the comparable period in 2007, primarily due to non-cash stock compensation expense, depreciation and amortization.
Balance Sheet and Financing
As of June 30, 2008, consolidated debt was $729.8 million including $80.8 million of lease obligations related to Clift. MHG's cash and cash equivalents balance at June 30, 2008 was $72.9 million. As of June 30, 2008, there were no borrowings outstanding under MHG's revolving credit facility, which is secured by three owned hotels - Delano, Royalton and Morgans. All of MHG's long-term debt at June 30, 2008 was at fixed rates, either directly or as a result of hedging arrangements.
As of June 30, 2008, MHG's liquidity, measured by cash and cash equivalents and availability under its revolving credit facility, was $206 million. MHG believes that its joint venture with Boyd Gaming will be unable to secure financing at favorable rates and conditions by the September 15, 2008 deadline. As a result, MHG also expects to receive a return of its $30 million deposit related to the Echelon Project during the third quarter of 2008 and expects to be released from an incremental $45 million of future funding obligations. As of June 30, 2008, MHG estimates that its total future obligations in 2008 and 2009 for development projects currently consist of approximately $25 million for hotel renovation and expansion projects, and $20 to $30 million for joint venture projects.
On July 1, 2008, MHG's Board of Directors approved a $30 million stock repurchase plan. To date, MHG has repurchased 1.1 million shares of its common stock at an average price of $11.05 for a total of $12.2 million. As of August 5, 2008, there were approximately 31.1 million shares of MHG outstanding and approximately 1.0 million operating company units outstanding, which may be redeemed for common stock.
The following outlines MHG's development and renovation projects currently under construction and the expected completion dates of the projects.
MHG is also in the process of converting the first phase of approximately 20 single room occupancy ("SRO") units at Hudson into additional hotel rooms which it expects to complete in the first half of 2009. MHG intends to pursue the conversion of the remaining 80 SRO units into hotel rooms over the next several years.
As MHG previously announced on July 1, 2008, the deadline to obtain construction financing for the Echelon Project with Boyd Gaming was extended to September 15, 2008. Given Boyd's announcement that it was delaying the entire project and the difficulties in the credit markets, MHG believes that the joint venture will be unable to secure financing at favorable rates and conditions by September 15, 2008. MHG does not intend to further extend the joint venture agreement on its current terms but expects to evaluate future proposals relating to the project with Boyd. (see balance sheet and financing section)
Other Development Activity
The following projects are in various stages of design and assessment.
The Gale (expansion of Delano in South Beach)
Hudson unused space - Rooms & Banquets
Mondrian Palm Springs
Given the current state of the credit markets, obtaining adequate project financing may be challenging for some of MHG's projects, which could result in changes in the scope of projects, delays or cancellations.
MHG is reaffirming its Adjusted EBITDA outlook for 2008. The Adjusted EBITDA outlook remains unchanged except for an adjustment to reflect an expected 20% ownership interest in the Hard Rock joint venture for the remainder of the year (original guidance of $110 to $115 million assumed a 33.3% interest) resulting in a lower proportionate share of debt and Adjusted EBITDA.
System-Wide Comparable Hotel RevPAR Growth: 3% to 5%
The above amounts anticipate approximately $12.0 to $15.0 million in EBITDA displacement due to the renovations at Mondrian LA, Morgans and Hard Rock. Due to these renovations, MHG believes that the 2008 Adjusted EBITDA level is not indicative of the normalized "run rate" Adjusted EBITDA of the portfolio. With the completion of the Mondrian LA and Morgans renovations, expected in September 2008, EBITDA displacement is expected to decrease beginning in the fourth quarter of 2008.
Including amounts spent to date, MHG expects to spend a total of approximately $25.0 to $35.0 million to fund investments in unconsolidated joint ventures and approximately $45.0 to $50.0 million on renovations of existing hotels and expansion opportunities at owned assets, based on current estimates. MHG plans to fund the remainder of these expenditures from its existing cash and cash equivalents.
The outlook is based upon MHG's expectations for the U.S. economy, hotel
supply growth and demand levels in the luxury lodging sector and, in particular,
in MHG's markets. While trends in most of MHG's markets remain positive,
the uncertainty in the U.S. economy and the transient nature of MHG's business
make it difficult to forecast 2008 results with a high degree of accuracy.
In addition, MHG is undertaking a number of renovation construction projects
which may not be completed in the projected timeframe or may result in
higher revenue displacement than currently estimated by MHG.
About Morgans Hotel Group
Morgans Hotel Group Co. (NASDAQ: MHGC) operates and owns, or has an ownership interest in, Morgans, Royalton and Hudson in New York, Delano and The Shore Club in Miami, Mondrian in Los Angeles and Scottsdale, Clift in San Francisco, and Sanderson and St Martins Lane in London. MHG and an equity partner also own the Hard Rock Hotel & Casino in Las Vegas and related assets. MHG has other property transactions in various stages of completion, including projects in Miami Beach, Florida; Chicago, Illinois; SoHo, New York; Las Vegas, Nevada; Palm Springs, California; and Boston, Massachusetts. For more information please visit www.morganshotelgroup.com.
Forward-Looking and Cautionary Statements
Statements contained in this press release which are not historical facts are forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as "expects," "plans," "estimates," "projects," "intends," "believes," "guidance," and similar expressions that do not relate to historical matters. These forward-looking statements are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; risks related to natural disasters, such as earthquakes and hurricanes; risks associated with the acquisition, development and integration of properties; the seasonal nature of the hospitality business; changes in the tastes of our customers; increases in real property tax rates; increases in interest rates and operating costs; the impact of any material litigation; the loss of key members of our senior management; general volatility of the capital markets and our ability to access the capital markets; and changes in the competitive environment in our industry and the markets where we invest, and other risk factors discussed in MHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and other documents filed by MHG with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of the date hereof, based upon information known to management as of the date hereof, and MHG assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized.
Morgans Hotel Group
|Also See:||Morgans Hotel Group Partners with Oxford Lodging Advisory, the John Hardy Group and The Oasi Group to Build a 200 room Mondrian Hotel in Downtown Palm Springs, California / January 2008|
|Ed Scheetz, President and Chief Executive Officer of Morgans Hotel Group Resigns; Fred J. Kleisner Named Interim President and CEO / September 2007|