Hotel Online  Special Report

Morgans Hotel Group Reports a First Quarter 2006 Net Loss
of $16.9 million on Revenues of $64.1 million 
Hotel Operating Statistics
NEW YORK - May 8, 2006 -- Morgans Hotel Group Co. (NASDAQ: MHGC), a fully integrated hospitality company that owns and operates boutique hotels in gateway cities under brands such as Delano and Mondrian, today reported financial results for the first quarter 2006.

First quarter 2006 metrics are in line with the Company's expectations. Revenue per available room (RevPAR) for owned hotels was $196.25, a 4.1% increase over first quarter 2005 and a 23.8% increase over first quarter 2004. Total revenues, which include food and beverage, other hotel revenues and management fees, increased 2.9% to $64.1 million as compared to $62.3 million in the first quarter of 2005. As anticipated, adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) was $17.4 million.

Mr. W. Edward Scheetz, President and Chief Executive Officer stated, "Our results for the first quarter of 2006 were in line with our expectations. RevPAR at our hotels continues to grow, up almost 25% from two years ago, which illustrates the continued strength of both our brands and our markets. We continue to see positive trends in all of our markets, New York, Miami, Los Angeles, San Francisco, and London, and so we expect continued growth. We are also very excited to have closed on our first acquisition since our IPO, the 194 room James Hotel in Scottsdale, Arizona which we have re-branded as the Mondrian Scottsdale. Over the coming months, we will begin renovations to make the hotel reflective of the Mondrian brand standard and expect to complete renovations by year-end 2006. We look forward to the Mondrian Scottsdale's contribution to profitability. We are also very optimistic about our acquisitions pipeline. We are seeing attractive acquisition opportunities in our current markets and our target markets. Our brands are strong, our markets are strong, we have a new hotel in our portfolio and a robust acquisition pipeline. Morgans Hotel Group is well positioned for growth in 2006 and beyond."

First Quarter Operating Results

RevPAR for the company's owned hotels was $196.25 for the first quarter 2006, a 4.1% increase over the comparable period in 2005. The increase in RevPAR was driven by strong performances at the Clift hotel in San Francisco and the Mondrian hotel in Los Angeles, which posted RevPAR growth of nearly 17% and 7%, respectively.

The RevPAR growth for the Company's owned hotels was driven by average daily rate (ADR) growth, which increased by 7.1%, or $19.01, to $286.49 for the first quarter of 2006, from $267.49 for the first quarter of 2005. Occupancy at the Company's owned portfolio was 68.5% in the first quarter 2006 as compared to 70.5% in the first quarter of 2005. We are pushing rate at our properties, and expect increased occupancy to follow.

Our London hotels, which we own through a 50/50 joint venture, posted very strong first quarter results, underscoring the strength of the London market. In constant dollars, the Company's Sanderson and St. Martins Lane posted RevPAR growth of 7.0% and 15.2%, respectively, for the first quarter of 2006. However, the strength of the US dollar relative to the British pound offset this improvement.
The net loss for the first quarter of 2006 was $16.9 million, compared to a net loss of $2.8 million in the first quarter of 2005. However, the first quarter of 2006 included one-time, non-cash charges of $15.6 million associated with the Company's initial public offering. Net loss adjusted for these one-time items is $1.3 million, a $1.5 million improvement over first quarter 2005.

The second quarter has started off strongly. The Company's properties performed well in April with RevPAR growth of 7.5% for the entire portfolio. London experienced the most growth, with a RevPAR increase of 12%. Other cities also posted strong RevPAR growth; New York at 9.1% and Miami at 8.1%.

Balance Sheet and Financing

As of March 31, 2006, adjusted long-term debt was $483.4 million. Cash and cash equivalents were $60.3 million, and cash reserves were $33.6 million, resulting in net debt of $389.5 million. The Company's weighted average debt maturity was 4.4 years and its weighted average interest rate was 5.8%. The Company also has an undrawn $125 million revolving credit facility.

Development Activity

On May 3, 2006, the Company completed the purchase of the Mondrian Scottsdale, formerly known as the James hotel with a final payment of $43.2 million, bringing the total purchase price to $47.8 million. The Company funded the acquisition with proceeds from the IPO and intends to secure mortgage financing on the property. The Company intends to upgrade the property over the next several months to bring it to the level of our Mondrian. We also plan to open an Asia de Cuba restaurant and a Skybar at the property. We expect to complete the repositioning by the end of 2006.

In January 2006, the Company entered into a 50/50 joint venture with Boyd Gaming Corporation (NYSE: BYD - News) to develop two flagship hotels with a total of 1,600 rooms in Las Vegas on the Strip bearing the Company's Delano and Mondrian brands. We have continued to work with Boyd on pre-development of the hotels. The project is expected to be completed in 2010.

In January 2006, the Company completed the acquisition of the property across from the Delano Miami Hotel for approximately $14.3 million. The Company expects to convert the property into additional guest rooms and additional guest facilities and have the property in operation by the end of 2007.

Guidance For 2006

The statements below are the Company's outlook or forecast for the Company's business for the fiscal year ending December 31, 2006. Based upon the Company's expectations for continued improvement of the U.S. economy, moderate supply growth, further rate improvement in the luxury lodging and consumer service sectors, recent joint-venture announcements, along with planned expense increases, the Company continues to expect to meet the following financial targets for the full year 2006:

RevPAR Growth:          8.0% to 10.0%
Total Revenues:         $280 million to $290 million
Adjusted EBITDA:        $85 million to $90 million

Adjusted EBITDA for 2006 includes costs of approximately $2.0 million related to public company expenses and excludes non-cash stock compensation expense which is estimated to be approximately $7.5 million in 2006.

The Company anticipates spending approximately $10 million for the upgrade to the Delano over the summer and approximately $4 to $5 million for the renovation and re-branding of Mondrian Scottsdale. In addition, maintenance capital expenditures for 2006 are estimated to be approximately $10 to $12 million.

Morgans Hotel Group Co.
Unaudited Income Statement (in $ 000s) 

Three Months Ended

3/31/06   3/31/05    Change

Rooms                                        36,816    35,352       4%
Food & beverage                              21,985    21,495
Other hotel                                   3,081     2,905
   Total hotel revenues                      61,882    59,752       4%
Management fees                               2,207     2,500
   Total revenues                            64,089    62,252       3%

Operating Costs and Expenses:
Rooms                                        10,061     9,571
Food & beverage                              14,062    13,560
Other departmental                            1,164       920
Hotel, selling, general and administrative   13,212    12,680
Property taxes, insurance and other           3,677     3,080
   Total hotel operating expenses            42,176    39,811       6%
Corporate expenses:
   Stock based compensation                   1,052
   Other                                      4,618     3,839
Depreciation                                  5,325     6,880
   Total operating costs and expenses        53,171    50,530       5%
   Operating income                          10,918    11,722      -7%

Interest expense, net                        14,584    11,714
Equity in loss of unconsolidated joint
 ventures                                       376     1,809
Minority interest in joint ventures           1,405     1,240
Other non-operating (income) loss                42      (433)

   Pre tax loss                              (5,489)   (2,608)   -110%
   Income taxes                              11,386       183
   Net loss before minority interest in
    MHGC                                    (16,875)   (2,791)   -505%

Shares Outstanding                           33,500

Loss per share (1)                            (0.36)

(1) Loss per share represents the loss for Morgan's Hotel Group Co.
    from February 17, 2006, the date of the IPO, to March 31, 2006
    over the number of shares outstanding in that period.

Morgans Hotel Group, Co.
Unaudited Hotel Operating Statistics
                                          Three Months Ended       %
                                          3/31/06   3/31/05     Change
                Occupancy                    81.0%     83.5%     -3.0%
                ADR                        265.83    249.46       6.6%
                RevPAR                     215.32    208.30       3.4%

                Occupancy                    85.3%     87.4%     -2.4%
                ADR                        289.57    263.96       9.7%
                RevPAR                     247.00    230.70       7.1%

                Occupancy                    75.8%     80.4%     -5.7%
                ADR                        217.36    197.79       9.9%
                RevPAR                     164.76    159.02       3.6%

                Occupancy                    82.0%     84.9%     -3.4%
                ADR                        586.78    587.89      -0.2%
                RevPAR                     481.16    499.12      -3.6%

                Occupancy                    81.2%     80.8%      0.5%
                ADR                        318.89    299.77       6.4%
                RevPAR                     258.94    242.21       6.9%

                Occupancy                    63.7%     61.8%      3.1%
                ADR                        241.82    213.49      13.3%
                RevPAR                     154.04    131.94      16.8%

Total Owned
                Occupancy                    68.5%     70.5%     -2.8%
                ADR                        286.49    267.48       7.1%
                RevPAR                     196.25    188.57       4.1%

St. Martins Lane
                Occupancy                    73.2%     69.0%      6.1%
                ADR                        345.18    369.02      -6.5%
                RevPAR                     252.67    254.62      -0.8%

                Occupancy                    73.5%     65.0%     13.1%
                ADR                        423.63    448.75      -5.6%
                RevPAR                     311.37    291.69       6.7%

Shore Club
                Occupancy                    75.4%     80.6%     -6.5%
                ADR                        429.61    405.40       6.0%
                RevPAR                     323.93    326.75      -0.9%

Total Joint Venture
                Occupancy                    74.3%     73.5%      1.1%
                ADR                        402.59    403.45      -0.2%
                RevPAR                     299.12    296.54       0.9%

Total Company
                Occupancy                    75.5%     76.9%     -1.8%
                ADR                        316.20    301.40       4.9%
                RevPAR                     238.73    231.78       3.0%
EBITDA and Adjusted EBITDA
We believe that earnings before interest, income taxes, depreciation and amortization (EBITDA) is a useful financial metric to assess our operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between us and our competitors. Given the significant investments that we have made in the past in property, plant and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. We believe that EBITDA will provide investors with a useful tool for assessing the comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures.
We disclose Adjusted EBITDA because we believe it provides a meaningful comparison to our EBITDA as it excludes other non-operating (income) expenses that do not relate to the on-going performance of our assets and excludes the operating performance of assets in which we do not have a fee simple ownership interest.
The use of EBITDA and Adjusted EBITDA has certain limitations. Our presentation of EBITDA and Adjusted EBITDA may be different from the presentation used by other companies and therefore comparability may be limited. Depreciation expense for various long-term assets, interest expense, income taxes and other items have been and will be incurred and are not reflected in the presentation of EBITDA or Adjusted EBITDA. Each of these items should also be considered in the overall evaluation of our results. Additionally, EBITDA and Adjusted EBITDA do not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation, interest and income tax expense, capital expenditures and other items both in our reconciliations to the GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA is not defined under accounting principles generally accepted in the United States, or U.S. GAAP, and EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. In addition, EBITDA is impacted by reorganization of businesses and other restructuring-related charges. When assessing our operating performance, you should not consider this data in isolation, or as a substitute for, our net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do.

A reconciliation of net income (loss) and operating income (loss), the
most directly comparable U.S. GAAP measures, to EBITDA and Adjusted 
EBITDA for each of the respective periods indicated is as

Morgans Hotel Group, Co.
Unaudited EBITDA Reconciliation
(in $ 000s)
                                                  Three Months Ended
                                                 3/31/06      3/31/05

Net income (loss)                                (16,875)      (2,791)
Interest expense,net                              14,584       11,714
Income tax expense                                11,386          183
Depreciation and amortization expense              5,325        6,880
Proportionate share of interest expense
 from unconsolidated joint ventures                1,599        1,864
Proportionate share of depreciation expense
 from unconsolidated joint ventures                1,233        2,006
Proportionate share of depreciation expense
 of consolidated joint ventures                     (130)        (158)


EBITDA                                            17,122       19,698

Other non operating expense (income)                  42         (433)
Less: Clift                                         (836)        (640)
Add: Stock based compensation                      1,052            -

Adjusted EBITDA                                   17,380       18,625

Morgans Hotel Group, Co.
Reconciliation of Operating Income to  Adjusted EBITDA
(unaudited, in $ 000s)
                                                  Three Months Ended
                                                 3/31/06      3/31/05

Operating Income                                  10,918       11,722

Depreciation                                       5,325        6,880
EBITDA from joint ventures                         2,456        2,061
Minority interest                                 (1,535)      (1,398)
Other non-operating income (loss)                    (42)         433

EBITDA                                            17,122       19,698

Other non-operating (income) loss                     42         (433)
Less: Clift                                         (836)        (640)
Add: Stock based compensation                      1,052

Adjusted EBITDA                                   17,380       18,625

Morgans Hotel Group, Co.
Unaudited Room Revenue Analysis
(in $ 000s)
                                          Three Months Ended      %
                                          3/31/06    3/31/05    Change

Morgans                                     2,190      2,118        3%
Royalton                                    3,755      3,507        7%
Hudson                                     11,917     11,486        4%
Delano                                      8,398      8,760       -4%
Mondrian                                    5,520      5,167        7%
Clift                                       5,036      4,314       17%
         Total Owned                       36,816     35,352        4%

Hotel Revenue Analysis
                                          Three Months Ended      %
                                          3/31/06    3/31/05    Change

Morgans                                     4,971      4,874        2%
Royalton                                    5,134      4,816        7%
Hudson                                     15,989     15,765        1%
Delano                                     16,495     16,511        0%
Mondrian                                   10,713     10,124        6%
Clift                                       8,580      7,662       12%
         Total Owned                       61,882     59,752        4%

Morgans Hotel Group, Co.
Unaudited EBITDA Analysis
(in $ 000s)
                                          Three Months Ended      %
                                          3/31/06    3/31/05    Change

Morgans                                       817        889       -8%
Royalton                                      944      1,028       -8%
Hudson                                      4,590      4,943       -7%
Delano                                      7,048      7,549       -7%
Mondrian                                    3,936      3,494       13%
Clift                                         836        640       31%
         Total Owned                       18,171     18,543       -2%

St Martins Lane                             1,264      1,117       13%
Sanderson                                     857        611       40%
Shore Club                                    335        333        1%
         Total Joint Venture                2,456      2,061       19%

Management Fees                             2,207      2,500      -12%
Corporate Expenses                         (5,670)    (3,839)      48%

         Total Company                     17,164     19,265      -11%

Less Clift                                   (836)      (640)      31%
Less: Stock Based Compensation              1,052          -

Adjusted EBITDA                            17,380     18,625       -7%

Morgans Hotel Group, Co.
Unaudited Balance Sheet
(in $ 000s)
                                              Mar 31         Dec 31
                                               2006           2005
                                            -----------    -----------

Cash                                            60,306         21,835
Cash reserves                                   33,601         32,754
Property and equipment                         437,724        426,927
Goodwill                                        73,698         73,698
Accounts receivable                             11,754         10,567
Prepaid expenses and other assets               11,607         12,687
Investments in joint ventures                    7,754          7,529
Other assets                                    28,500         20,278
                                            -----------    -----------
         Total assets                          664,944        606,275

Long-term debt                                 381,482        584,492
Capital lease obligations - Clift               76,111         75,140
Accounts payable and accrued expenses           33,279         32,309
Other liabilities                               21,394         23,751
Deferred income taxes                           10,561              -
                                            -----------    -----------
         Total liabilities                     522,827        715,692
Minority interests                              20,646          1,156
Stockholders'equity (deficit)                  121,471       (110,573)
                                            -----------    -----------
         Total liabilities and equity
          (deficit)                            664,944        606,275

Conference Call
The Company will host a conference call to discuss the financial results for the first quarter 2006, today at 5:00 PM Eastern time. Hosting the call will be Mr. W. Edward Scheetz, President and Chief Executive Officer, and Mr. Richard Szymanski, Chief Financial Officer.

The call will be webcast live over the Internet at under the About Us, Investor Relations section. Participants should follow the instructions provided on the website for the download and installation of audio applications necessary to join the webcast. The call can also be accessed live over the phone by dialing (888) 802-2266 or (913) 312-1270 for international callers.

A replay of the call will be available one hour after the call and can be accessed by dialing (888) 203-1112 or (719) 457-0820 for international callers; the password is 6784403. The replay will be available from May 8, 2006 through May 15, 2006.

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; the completion of transactions and the integration of properties with our existing business; 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; 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 Morgans Hotel Group Co.'s Annual Report on Form 10-K and other documents filed by the Company with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of today, based upon information known to management as of the date hereof, and the Company 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.

About Morgans Hotel Group

Morgans Hotel Group Co. (Nasdaq: MHGC - News), which is widely credited with establishing and developing the rapidly expanding boutique hotel sector, owns and operates 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 has other property transactions in various stages of completion including projects in Miami Beach, Florida, and Las Vegas, Nevada, and continues to vigorously pursue its strategy of developing unique properties at various price points in international gateway cities in the United States, Europe, South America, Asia and around the world. For more information, please visit


Morgans Hotel Group Co
Brad Cohen, 888-277-4158

Also See: Morgans Hotel Group Co. Reports Net loss for the 4th Qtr 2005 of $4.1 million; Anticipates Spending $20 to $25 million for Upgrades of Hotels and the Re-branding of Mondrian Scottsdale / Hotel Operating Statistics / March 2006
Morgans Hotel Group Co. Acquires the 194-room James Hotel in Scottsdale; Will Re-Brand as Mondrian Scottsdale, Don Jacinto Named General Manager / May 2006

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