News for the Hospitality Executive
Morgans Hotel Group 4th Qtr 2010 Net Loss $6.7 million compared
to a loss of $51.3 million in the 4th Qtr 2009; System Wide RevPar up 5.2%
Hotel Operating Statistics
NEW YORK, March 1, 2011 -- Morgans Hotel Group Co. (Nasdaq: MHGC) ("MHG" or the "Company") today reported financial results for the quarter and year ended December 31, 2010.
Fred Kleisner, CEO of Morgans Hotel Group, said: "2010 was a very good year and we were pleased to deliver increases in both RevPAR and EBITDA. We posted continued growth in the fourth quarter, including exceptional growth in EBITDA. With the improving hotel market, we expect favorable operating leverage and continued cost vigilance to allow us to deliver strong flow through from RevPAR to EBITDA in 2011. We remain excited about the prospects for the business; the new Mondrian SoHo becomes fully operational today and we recently announced four new management contracts for Morgans branded hotels in various markets around the world, underscoring the untapped potential of our brands. We remain focused on executing our asset-light strategy and driving increased long-term value for shareholders."
Fourth Quarter 2010 Operating Results
Adjusted EBITDA for the fourth quarter of 2010 was $18.4 million, a $5.3 million or 40.0% increase from the fourth quarter of 2009 driven by improved operating margins due to RevPAR growth and a reduction in hotel operating expenses.
Operating margins for Owned Comparable Hotels increased by 440 basis points primarily due to lower selling, general and administrative expenses and reductions in real estate taxes due to successful appeals. Excluding unusual items in 2009, which consisted of higher operating supply purchases to take advantage of extraordinary discounts, Owned Comparable Hotel operating margins increased by 280 basis points.
RevPAR at System-Wide Comparable Hotels increased by 5.2% (5.7% in constant dollars) in the fourth quarter of 2010 compared to the fourth quarter of 2009 driven by occupancy gains. The severe winter weather in December had a significant adverse impact on the New York, London and Miami markets during a popular vacation period resulting in a 10.2% RevPAR decline over the last two weeks of December. Prior to that, RevPAR for System-Wide Comparable Hotels was up 8.0%.
In New York, RevPAR increased by 5.9% with the majority of the increase driven by ADR. The adverse weather conditions affected results as RevPAR had increased by 8.0% prior to the storms.
RevPAR increased by 11.4% in constant dollars at MHG's London hotels, despite the severe winter weather. All of the RevPAR increases were driven by ADR. Prior to the storms, RevPAR increased by 14.5% in constant dollars.
RevPAR increased by 1.6% at MHG's South Beach hotels. New York and Europe are the two primary feeder markets for our South Beach hotels and the difficult travel conditions resulted in a 13.2% RevPAR decline over the last two weeks of December. Prior to the storms, RevPAR increased by 5.1%.
RevPAR increased by approximately 5% in both Los Angeles and San Francisco, driven primarily by increases in occupancy,
MHG recorded a net loss of $6.7 million in the fourth quarter of 2010 compared to a loss of $51.3 million in the fourth quarter of 2009 as MHG reported higher operating income and lower interest expense in 2010. The net loss in the fourth quarter of 2009 included higher impairment losses and a loss from discontinued operations.
Balance Sheet and Liquidity
MHG's total consolidated debt at December 31, 2010, excluding the Clift lease and including the convertible notes at face value, is $586.0 million with a weighted average interest rate of 2.68%. As of December 31, 2010, MHG had $94 million of liquidity, which includes $89.0 million available under the line of credit. In addition, MHG has restricted cash of $28.8 million, primarily consisting of escrows for debt service, taxes, insurance and capital expenditures.
Debt maturities in 2011 consist of $227.7 million secured by the Hudson hotel, $103.5 million secured by the Mondrian in LA hotel and $26.0 million under the line of credit secured by Delano, Royalton and Morgans. The Company is pursuing a number of options to finance the maturities including debt financing, asset sales and other sources. MHG believes that the combination of rising hotel cash flows and improving capital markets should provide sufficient capital to retire or refinance the debt and provide funds for growth.
MHG has net operating losses of approximately $220 million at December 31, 2010, which may be used to offset future income, including potential gains on the sale of assets or interests therein.
As of December 31, 2010, MHG's total future capital commitments for development projects and joint ventures for the next 12 months are approximately $1.0 million, all of which relates to the Mondrian in SoHo.
In December 2010, the court granted MHG's motion for summary judgment and dismissed a complaint by the mezzanine lender on its former Scottsdale property seeking $15.9 million in damages. The lender appealed and the Company will continue to defend this lawsuit vigorously.
In January 2011, MHG transferred its interests in the property across the street from the Delano to an affiliate of the lender. As a result of the transaction, MHG was relieved of $10.5 million of non-recourse mortgage and mezzanine indebtedness that was previously consolidated on its balance sheet. The property across from Delano was a development property with no operations and generated no EBITDA.
Due to the continued difficulties in the Las Vegas market, the Hard Rock joint venture’s operating cash flows have not been sufficient to cover the aggregate debt service. There is a risk to MHG’s equity position and management agreement, which may be terminated by the lenders in the event of foreclosure or under certain other circumstances. The joint venture continues to be in discussions with the lenders to resolve the matter. MHG has consistently reduced its equity percentage in the Hard Rock joint venture over time, eventually writing off the entire investment in 2009. While the potential conclusion of the Hard Rock relationship would reduce MHG’s management fees in the short term, MHG has been focused on its existing brands such as Delano and Mondrian and has been successful in signing new and more secure contracts. MHG recently announced the opening of the Mondrian in SoHo and the signing of four new Morgans branded hotel management agreements including two for new Delano hotels.
In February 2011, MHG opened a new Mondrian hotel in the SoHo neighborhood in New York. This is MHG's third Mondrian hotel and it features 270 rooms, two exciting bars, an innovative seafood restaurant and spectacular views. The hotel is owned through a joint venture in which MHG has a 20% interest. MHG is managing the hotel under a 10 year contract with two 10 year extension options.
In February 2011, MHG announced a new management agreement for a 265 room Mondrian hotel in Doha, Qatar. The hotel is located in the prestigious neighborhood of West Bay Lagoon and is currently under construction and due to open in 2013.
In February 2011, MHG announced a new management agreement for a 200 room Delano hotel at an exclusive resort on the Aegean Sea in Turkey. This will be Morgans' first hotel in the region and it is expected to open in 2013.
In February 2011, MHG announced a new management agreement for a 114 room Delano hotel in Mexico, on the beach at the tip of the Baja Peninsula in Cabo San Lucas. The hotel is currently under construction and is expected to open in 2013.
In February 2011, MHG announced a new management agreement for a 175 room hotel in New York in the Highline area. The hotel will be branded with one of Morgans' brands and is expected to open in 2014.
MHG continues to focus on enhancing its existing assets and has been re-concepting several food and beverage venues to improve profitability. In October 2010, MHG opened a new restaurant at Royalton, Forty Four, which features "The Cocktail Collective", a group of all-star bartenders from across the United States creating a unique cocktail menu. Additionally, in May 2010, MHG opened a new restaurant at Hudson, Hudson Hall, reminiscent of an Ivy League mess hall. MHG's event venue at Hudson, Good Units, which opened in early 2010, received all necessary licenses to hold additional events during the third quarter of 2010, and is continuing to host successful events.
It continues to be difficult to predict results given the short term booking patterns and transient nature of the hotel business. As we have seen in recent months, travel patterns can be volatile making prior year comparisons challenging. In the first quarter of 2011 in particular, it's important to note that our results may be less than the first quarter of 2010, primarily due to last year's exceptional results in Miami which hosted the Super Bowl.
MHG believes that if the RevPAR increase at System-Wide Comparable Hotels for 2011 compared to 2010 is between 7% to 9% it should result in Adjusted EBITDA in the $52 million to $54 million range assuming our ownership levels remain the same. This reflects the addition of Mondrian in SoHo and assumes the termination of the Hard Rock management agreement.
MHG will host a conference call to discuss the fourth quarter financial results today at 5:00 PM Eastern time.
The call will be webcast live over the Internet at www.morganshotelgroup.com under the About Us, Investor Overview 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) 802-8577 or (973) 935-8754 for international callers; the conference ID is 36254628. A replay of the call will be available two hours after the call and can be accessed by dialing (800) 642-1687 or (706) 645-9291 for international callers; the conference ID is 36254628. The replay will be available from March 1, 2011 through March 8, 2011.
"Owned Comparable Hotels" includes all wholly-owned hotels operated by MHG except for hotels under renovation during the current or the prior year, development projects and discontinued operations. Owned Comparable Hotels for the three and twelve months ended December 31, 2010 and 2009 excludes Mondrian Scottsdale, which was classified as a discontinued operation in 2010 and effective March 16, 2010 was no longer owned or managed by MHG.
"System-Wide Comparable Hotels" includes all hotels operated by MHG except for hotels added or under renovation during the current or the prior year, development projects and discontinued operations. System-Wide Comparable Hotels for the three and twelve months ended December 31, 2010 and 2009 excludes the Hard Rock Hotel & Casino in Las Vegas ("Hard Rock"), which was under renovation and expansion in 2009, Mondrian Scottsdale, which was classified as a discontinued operation in 2010 and effective March 16, 2010 was no longer owned or managed by MHG, and Ames in Boston, the San Juan Water and Beach Club, and Hotel Las Palapas, which MHG began managing in the fourth quarter of 2009.
"Adjusted EBITDA" is adjusted earnings before interest, taxes, depreciation and amortization as further defined below.
About Morgans Hotel Group
Morgans Hotel Group Co. (Nasdaq: MHGC) is widely credited as the creator of the first "boutique" hotel and a continuing leader of the hotel industry's boutique sector. Morgans Hotel Group operates and owns, or has an ownership interest in, Morgans, Royalton and Hudson in New York, Delano and Shore Club in South Beach, Mondrian in Los Angeles, South Beach and New York, Clift in San Francisco, Ames in Boston, and Sanderson and St Martins Lane in London. Morgans Hotel Group also manages hotels in Isla Verde, Puerto Rico and Playa del Carmen, Mexico. Morgans Hotel Group has other property transactions in various stages of completion including a Delano in Cabo San Lucas, Mexico, a Delano in Turkey, a Mondrian in Doha, Qatar and a hotel in New York to be branded with one of MHG's existing brands. For more information please visit www.morganshotelgroup.com.
Forward-Looking and Cautionary Statements
This press release may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs and prediction of certain future events. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" "believe," "project," or other similar words or expressions. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results or other future events to differ materially from those expressed in any forward-looking statement. Important risks and factors that could cause our actual results to differ materially from those expressed in any forward-looking statements include, but are not limited to, the need for lender approval of any amendments to our loan agreements, economic, business, competitive market and regulatory conditions such as: a sustained downturn in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; continued tightness in the global credit markets; general volatility of the capital markets and our ability to access the capital markets; our ability to refinance our current outstanding debt and to repay outstanding debt as such debt matures; our ability to protect the value of our name, image and brands and our intellectual property; risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; and other risk factors discussed in MHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Quarterly Reports on form 10-Q for the quarters ended June 30, 2010 and September 30, 2010 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.
Non-GAAP Financial Measures
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 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.
The Company's management has historically used adjusted EBITDA (Adjusted EBITDA) when evaluating the operating performance for the entire Company as well as for individual properties or groups of properties because we believe the Company's core business model is that of an owner and operator of hotels, and the inclusion or exclusion of certain items is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period. As such, Adjusted EBITDA excludes other non-operating expenses (income) 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 direct or indirect fee simple ownership interest. We exclude the following items from EBITDA to arrive at Adjusted EBITDA:
We also make an adjustment to EBITDA for hotels in which our percentage ownership interest has changed to facilitate period-over-period comparisons and to more accurately reflect the operating performance of assets based on our actual ownership. In this respect, our method of calculating Adjusted EBITDA has changed from prior quarters, and calculations of Adjusted EBITDA will continue to vary from quarter to quarter to reflect changing ownership interests.
We believe Adjusted EBITDA provides management and our investors with a more accurate financial metric by which to evaluate our performance as it eliminates the impact of costs incurred related to investing and financing transactions. Internally, the Company's management utilizes Adjusted EBITDA to measure the performance of our core on-going hotel operations and is used extensively during our annual budgeting process. Management also uses Adjusted EBITDA as a measure in determining the value of acquisitions, expansion opportunities, and dispositions and borrowing capacity. Adjusted EBITDA is a key metric which management evaluates prior to execution of any strategic investing or financing opportunity.
The Company has historically reported Adjusted EBITDA to its investors and believes that this continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and to evaluate the results of its core on-going operations.
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 reflect 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 our 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), the most directly comparable U.S. GAAP measures, to EBITDA and Adjusted EBITDA for each of the respective periods indicated is as follows:
Hotel Group Co.