EBITDA from Owned Comparable Hotels increased by 26% in the second quarter of 2011 as compared to the same period in 2010, driven by a 13.5% RevPAR increase. Operating margins at Owned Comparable Hotels increased by 340 basis points.
NEW YORK, Aug. 2, 2011 Morgans Hotel Group Co. (NASDAQ: MHGC) today reported financial results for the quarter ended June 30, 2011.
Michael Gross, CEO of the Company, said: "We are moving quickly to become a global leader in lifestyle hospitality management. The goal is and always will be clear: to drive growth and long term shareholder value. Four months into the new management structure, we've acted swiftly to position ourselves for success. Asset sales and a new $100 million credit facility have allowed us to address key short-term debt maturities while providing liquidity to grow. Second quarter results outperformed industry averages across all our markets and we're particularly pleased with the early success of the Mondrian SoHo, which we view as a reflection of our brands' untapped growth potential. We're excited about our robust development pipeline that is already beginning to show results, as reflected by the just-announced Mondrian management agreement at Baha Mar."
Second Quarter 2011 Operating Results
Adjusted EBITDA for the second quarter of 2011 was $11.8 million, a decrease of 14.8% from the same period in 2010. Excluding the EBITDA contribution from the three hotels MHG sold in May 2011 and from Hard Rock Hotel & Casino in Las Vegas, which the Company managed and partially owned until March 2011, Adjusted EBITDA increased by $3.7 million from the second quarter of 2010. This increase was due to strong operating results in all of the Company's major markets and the rapid ramp-up at our new Mondrian hotel in New York's SoHo neighborhood.
RevPAR at System-Wide Comparable Hotels increased by 16.1% (14.4% in constant dollars) in the second quarter of 2011 compared to the second quarter of 2010 driven primarily by gains in ADR, which increased by 11.1% (9.4% in constant dollars).
Results were strong across all the Company's major markets, led by its South Beach hotels, which continue to benefit from both strong domestic and international travel. At MHG's key EBITDA contributors, Delano's RevPAR increased by 22.0%, the London hotels' RevPAR increased 19.2% (9.0% in constant dollars) despite a significant amount of rooms out of service at St Martins Lane due to a replacement of the air conditioning system, and Hudson's RevPAR increased 7.3%. Mondrian SoHo, in its first full quarter, posted an occupancy rate of 84.3% during the three months ended June 30, 2011 and ADR of $297.31.
Primarily as a result of the sale in May 2011 of Mondrian Los Angeles, Royalton and Morgans, MHG recorded a decrease of 7.7% in total hotel revenues during the second quarter of 2011 as compared to the same period in 2010. At MHG's Comparable Owned Hotels, which includes Hudson, Delano and Clift, RevPAR increased 13.5% in the three months ended June 30, 2011 as compared to the same period in 2010.
The Company also recorded decreases in operating expenses, depreciation and amortization and interest expense during the second quarter of 2011 as a result of the May 2011 sale of these three hotels. MHG continues to manage these hotels pursuant to long-term management agreements, and as a result, the gains on sales are deferred and recognized over the initial term of the respective management agreements. During the three months ended June 30, 2011, the Company recorded $0.6 million of this gain as income.
Operating margins at Comparable Owned Hotels increased by 340 basis points in the second quarter of 2011 compared to the same period last year. The strong margin expansion was driven by increases in ADR, which accounted for approximately 70% of the RevPAR growth at the Company's Comparable Owned Hotels.
MHG recorded a net loss of $11.4 million in the second quarter of 2011 compared to a loss of $21.1 million in the second quarter of 2010 due primarily to the decreases in interest expense and the Company's equity in loss of unconsolidated joint ventures.
Balance Sheet and Liquidity
During the second quarter, MHG took significant steps in transforming its balance sheet to provide the Company with capital to grow.
In May 2011, the Company completed the sales of Mondrian Los Angeles, Royalton and Morgans for aggregate net proceeds of $268.1 million. The Company used the proceeds, along with cash in escrow, to retire the $103.5 million mortgage on Mondrian Los Angeles and the outstanding balance on the Company's revolving credit facility for which Royalton, Morgans and Delano South Beach served as collateral. Net proceeds after this repayment of debt was approximately $133 million. The Company utilized $145 million of tax net operating loss carryforwards to offset the gain on asset sales.
In July 2011, the Company entered into a new $100 million senior secured revolving credit facility with additional borrowing capacity up to $110 million. The facility's interest rate is LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. The facility matures in three years and is secured by Delano in South Beach. The credit facility contains standard financial covenants, including a minimum fixed charge coverage ratio of 1.05x in the first year and 1.10x thereafter. This provides MHG with capacity to help finance growth and to reinvest in its existing hotels.
As a result of the hotel sales, MHG's total consolidated debt at June 30, 2011, excluding the Clift lease, was $448.9 million with a weighted average interest rate of 2.71%. At June 30, 2011, MHG had $109.6 million of cash and cash equivalents and $22.3 million of restricted cash.
MHG's total pro forma liquidity as of June 30, 2011, giving effect to the new $100 million revolving credit facility as if it had closed on June 30, 2011, would have been $209.6 million. The Company intends to utilize this liquidity to refinance outstanding debt on Hudson, provide capital for new hotels and to renovate existing hotels.
After the sale of the three hotels in May 2011, MHG currently has approximately $140 million of remaining tax net operating loss carry forwards to offset future income, including gains on future asset sales.
Development Activity
MHG is focused on growing its portfolio, primarily with its core brands, in major gateway markets and key resort destinations and intends to utilize the majority of its liquidity to fund new hotel growth.
In August, MHG entered into a hotel management and residential licensing agreement for a 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. This hotel is expected to represent the fifth Mondrian hotel in the expansion of the Company's iconic brand. Upon completion and opening of the hotel, MHG will operate Mondrian at Baha Mar pursuant to a 20-year management agreement. The hotel is scheduled to open in late 2014. MHG is required to fund approximately $10 million of key money just prior to and at opening of the hotel. At signing, this amount was funded into escrow and the Company is in the process of replacing this obligation with a $10 million standby letter of credit for up to 48 months.
In June 2011, the Company acquired from affiliates of CGM the 50% interests CGM owned in MHG's food and beverage joint ventures with CGM for approximately $20 million. The joint ventures operated certain restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassesses its food and beverage strategy.
At its existing hotels, MHG intends to spend approximately $5 to $7 million on projects at Delano which are expected to have a positive EBITDA impact. This includes upgrades to Delano's exclusive bungalows and suites, improvements to the public areas and additional meeting space. The Company anticipates this work will be performed in the third quarter and early fourth quarter to minimize revenue displacement and to have the upgraded facilities completed and available for the peak travel season in South Beach.
MHG is currently reviewing the scope of renovation work to be completed at Hudson, which is planned to commence during New York's seasonally slow first quarter of 2012. As part of this renovation, the Company intends to convert 16 SRO units into guest rooms at a cost of approximately $2 million, or $125,000 per room, significantly below recent trading prices of hotel rooms in New York City.
2011 Outlook
MHG's outlook is based on trends in its markets, although various factors, including uncertainty in the economy and volatility in travel and weather patterns, could result in changes to this outlook.
MHG expects that the RevPAR increase at System-Wide Comparable Hotels for 2011 compared to 2010 should be at the high-end of our previous guidance of an increase of 7% to 9%. MHG is confident in its ability to generate strong flow-through to EBITDA, although the Company is not providing further detail on projected EBITDA at this time, given the transitional nature of this year and multiple moving parts as it moves toward a brand and management focused business model.
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Income Statements (In thousands, except per share amounts) |
|||||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||
|
2011 |
2010 |
2011 |
2010 |
||||
|
Revenues : |
|||||||
|
Rooms |
$ 33,485 |
$ 35,093 |
$ 64,519 |
$ 64,343 |
|||
|
Food & beverage |
15,611 |
17,549 |
33,641 |
35,045 |
|||
|
Other hotel |
1,733 |
2,444 |
3,749 |
4,653 |
|||
|
Total hotel revenues |
50,829 |
55,086 |
101,909 |
104,041 |
|||
|
Management and other fees |
3,380 |
5,103 |
6,704 |
9,532 |
|||
|
Total revenues |
54,209 |
60,189 |
108,613 |
113,573 |
|||
|
Operating Costs and Expenses : |
|||||||
|
Rooms |
9,685 |
10,291 |
20,859 |
20,316 |
|||
|
Food & beverage |
13,135 |
14,184 |
28,237 |
28,100 |
|||
|
Other departmental |
1,036 |
1,260 |
2,247 |
2,512 |
|||
|
Hotel selling, general and administrative |
10,792 |
11,811 |
23,350 |
23,248 |
|||
|
Property taxes, insurance and other |
3,704 |
4,711 |
7,889 |
8,811 |
|||
|
Total hotel operating expenses |
38,352 |
42,257 |
82,582 |
82,987 |
|||
|
Corporate expenses : |
|||||||
|
Stock based compensation |
2,031 |
2,790 |
6,018 |
6,588 |
|||
|
Other |
6,018 |
6,430 |
12,865 |
12,637 |
|||
|
Depreciation and amortization |
4,199 |
8,011 |
12,572 |
15,356 |
|||
|
Restructuring, development and disposal costs |
3,800 |
1,189 |
8,393 |
1,866 |
|||
|
Total operating costs and expenses |
54,400 |
60,677 |
122,430 |
119,434 |
|||
|
Operating loss |
(191) |
(488) |
(13,817) |
(5,861) |
|||
|
Interest expense, net |
10,014 |
12,389 |
19,008 |
24,739 |
|||
|
Equity in loss of unconsolidated joint ventures |
910 |
7,739 |
10,393 |
8,002 |
|||
|
Gain on asset sales |
(620) |
- |
(620) |
- |
|||
|
Other non-operating expense |
879 |
163 |
2,269 |
15,192 |
|||
|
Pre tax loss |
(11,374) |
(20,779) |
(44,867) |
(53,794) |
|||
|
Income tax expense |
428 |
279 |
293 |
573 |
|||
|
Net loss from continuing operations |
(11,802) |
(21,058) |
(45,160) |
(54,367) |
|||
|
(Loss) Income from discontinued operations, net of tax |
(5) |
(447) |
485 |
16,755 |
|||
|
Net loss |
(11,807) |
(21,505) |
(44,675) |
(37,612) |
|||
|
Net loss attributable to noncontrolling interest |
383 |
434 |
1,208 |
581 |
|||
|
Net loss attributable to Morgans Hotel Group Co. |
$ (11,424) |
$ (21,071) |
$ (43,467) |
$ (37,031) |
|||
|
Preferred stock dividends and accretion |
(2,229) |
(2,114) |
(4,416) |
(4,192) |
|||
|
Net loss attributable to common stockholders |
$ (13,653) |
$ (23,185) |
$ (47,883) |
$ (41,223) |
|||
|
(Loss) income per share: |
|||||||
|
Basic and diluted from continuing operations |
$ (0.45) |
$ (0.75) |
$ (1.55) |
$ (1.91) |
|||
|
Basic and diluted from discontinued operations |
$ (0.00) |
$ (0.01) |
$ 0.02 |
$ 0.55 |
|||
|
Basic and diluted attributable to common stockholders |
$ (0.45) |
$ (0.76) |
$ (1.53) |
$ (1.36) |
|||
|
Weighted average common shares outstanding - basic and diluted |
30,498 |
30,484 |
31,255 |
30,395 |
|||
|
Selected Hotel Operating Statistics (1) |
( In Actual Dollars) |
( In Constant Dollars, if different) |
( In Actual Dollars) |
( In Constant Dollars, if different) |
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|
Three Months |
Three Months |
Six Months |
Six Months |
||||||||||||||
|
Ended June 30, |
% |
Ended June 30, |
% |
Ended June 30, |
% |
Ended June 30, |
% |
||||||||||
|
2011 |
2010 |
Change |
2011 |
2010 |
Change |
2011 |
2010 |
Change |
2011 |
2010 |
Change |
||||||
|
Hudson |
|||||||||||||||||
|
Occupancy |
95.6% |
94.3% |
1.4% |
85.7% |
85.7% |
0.0% |
|||||||||||
|
ADR |
$ 224.96 |
$ 212.51 |
5.9% |
$ 196.86 |
$ 189.87 |
3.7% |
|||||||||||
|
RevPAR |
$ 215.06 |
$ 200.40 |
7.3% |
$ 168.71 |
$ 162.72 |
3.7% |
|||||||||||
|
Delano |
|||||||||||||||||
|
Occupancy |
71.6% |
62.4% |
14.7% |
70.9% |
62.7% |
13.1% |
|||||||||||
|
ADR |
$ 464.78 |
$ 437.21 |
6.3% |
$ 524.01 |
$ 545.16 |
-3.9% |
|||||||||||
|
RevPAR |
$ 332.78 |
$ 272.82 |
22.0% |
$ 371.52 |
$ 341.82 |
8.7% |
|||||||||||
|
Clift |
|||||||||||||||||
|
Occupancy |
77.1% |
73.1% |
5.5% |
75.5% |
66.7% |
13.2% |
|||||||||||
|
ADR |
$ 217.56 |
$ 183.10 |
18.8% |
$ 216.34 |
$ 191.30 |
13.1% |
|||||||||||
|
RevPAR |
$ 167.74 |
$ 133.85 |
25.3% |
$ 163.34 |
$ 127.60 |
28.0% |
|||||||||||
|
Total Owned Comparable Hotels |
|||||||||||||||||
|
Occupancy |
87.4% |
84.3% |
3.7% |
80.9% |
77.5% |
4.4% |
|||||||||||
|
ADR |
$ 250.46 |
$ 228.81 |
9.5% |
$ 241.38 |
$ 230.14 |
4.9% |
|||||||||||
|
RevPAR |
$ 218.90 |
$ 192.89 |
13.5% |
$ 195.28 |
$ 178.36 |
9.5% |
|||||||||||
|
St Martins Lane |
|||||||||||||||||
|
Occupancy |
69.5% |
75.8% |
-8.3% |
69.5% |
75.8% |
-8.3% |
69.1% |
74.5% |
-7.2% |
69.1% |
74.5% |
-7.2% |
|||||
|
ADR |
$ 417.83 |
$ 346.50 |
20.6% |
$ 413.91 |
$ 375.34 |
10.3% |
$ 385.02 |
$ 335.37 |
14.8% |
$ 385.02 |
$ 355.05 |
8.4% |
|||||
|
RevPAR |
$ 290.39 |
$ 262.65 |
10.6% |
$ 287.67 |
$ 284.51 |
1.1% |
$ 266.05 |
$ 249.85 |
6.5% |
$ 266.05 |
$ 264.51 |
0.6% |
|||||
|
Sanderson |
|||||||||||||||||
|
Occupancy |
77.4% |
71.1% |
8.9% |
77.4% |
71.1% |
8.9% |
73.2% |
72.8% |
0.5% |
73.2% |
72.8% |
0.5% |
|||||
|
ADR |
$ 470.36 |
$ 393.04 |
19.7% |
$ 465.95 |
$ 425.75 |
9.4% |
$ 439.31 |
$ 383.31 |
14.6% |
$ 439.31 |
$ 405.80 |
8.3% |
|||||
|
RevPAR |
$ 364.06 |
$ 279.45 |
30.3% |
$ 360.65 |
$ 302.71 |
19.1% |
$ 321.57 |
$ 279.05 |
15.2% |
$ 321.57 |
$ 295.42 |
8.9% |
|||||
|
Shore Club |
|||||||||||||||||
|
Occupancy |
64.7% |
57.5% |
12.5% |
64.8% |
60.6% |
6.9% |
|||||||||||
|
ADR |
$ 289.43 |
$ 255.31 |
13.4% |
$ 314.96 |
$ 315.54 |
-0.2% |
|||||||||||
|
RevPAR |
$ 187.26 |
$ 146.80 |
27.6% |
$ 204.09 |
$ 191.22 |
6.7% |
|||||||||||
|
Mondrian South Beach |
|||||||||||||||||
|
Occupancy |
64.1% |
54.5% |
17.6% |
67.4% |
57.3% |
17.6% |
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