Company Results

Morgans Hotel Group Reports Second Quarter 2014 Results

Adjusted EBITDA was $14.8 million in the second quarter of 2014. Excluding termination fees in 2013, Adjusted EBITDA increased 26.7% over the same period in 2013 primarily driven by strong operating performance at the Company's Owned Hotels, including a 36.8% increase in EBITDA at Delano South Beach.

Morgans Hotel Group

Morgans Hotel Group Co. (NASDAQ: MHGC) reported financial results for the quarter ended June 30, 2014. 

Highlights

  • Adjusted EBITDA was $14.8 million in the second quarter of 2014.  Excluding termination fees in 2013, Adjusted EBITDA increased 26.7% over the same period in 2013 primarily driven by strong operating performance at the Company's Owned Hotels, including a 36.8% increase in EBITDA at Delano South Beach.
  • Revenue per available room ("RevPAR") for System-Wide Comparable Hotels increased by 6.4% on a year-over-year basis during the second quarter of 2014.
  • Operating margins at the Company's Owned Hotels and leased food and beverage operations increased approximately 320 basis points during the second quarter of 2014 as compared to the same period in 2013, primarily as a result of cost saving initiatives implemented in the second quarter. 
  • Corporate expenses, excluding stock compensation expense, decreased by $1.8 million, or 25.7%, during the second quarter of 2014 as compared to the same period in 2013, primarily due to the corporate workforce reduction in March 2014.

Jason T. Kalisman, Interim Chief Executive Officer, stated, "We are pleased with Morgans Hotel Group's continued progress during the second quarter, and believe that our improved results reflect the significant effort over the last year to return the Company to solid footing. With two high-profile properties scheduled to open in the third quarter, and our ongoing commitment to operational excellence, we are confident in Morgans' future prospects as we enter the second half of 2014."

Second Quarter 2014 Operating Results

Adjusted EBITDA for the second quarter of 2014 was $14.8 million, a 17.7% increase over the same period in 2013.  Excluding a termination fee related to Ames in Boston of $0.9 million, which was recorded in the second quarter of 2013, Adjusted EBITDA increased 26.7% in the second quarter of 2014 over the same period in 2013.  The Company's Owned Hotels generated strong operating results during the second quarter of 2014 as compared to the same period in 2013, led by 36.8% increase in EBITDA at Delano South Beach.

RevPAR at System-Wide Comparable Hotels, all of which are located in the United States, increased by 6.4% in the second quarter of 2014 from the comparable period in 2013, driven by a 3.4% increase in occupancy and 2.9% increase in average daily rate ("ADR"). 

RevPAR from System-Wide Comparable Hotels in New York increased 2.8% in the second quarter of 2014 over the same period in 2013, led by an increase in occupancy of 2.5%.  RevPAR at Hudson increased by 0.5% during the second quarter of 2014 as compared to the same period in 2013.  Occupancy at Hudson increased by 2.5% to 94.9% year-over-year reflecting strong demand, while ADR declined 1.9% as a major nearby competitor was under renovation in 2013 and fully operational in 2014.   Mondrian SoHo's RevPAR increased by 7.9% during the second quarter of 2014 as compared to the same period in 2013, driven by a 4.2% increase in ADR.

RevPAR from System-Wide Comparable Hotels in Miami increased 11.8% in the second quarter of 2014 as compared to the same period in 2013.  This increase was led by Delano South Beach, which experienced a RevPAR increase of 14.0% primarily as a result of a 9.5% increase in occupancy.

The Company's System-Wide Comparable Hotels on the West Coast generated 10.2% RevPAR growth in the second quarter of 2014 as compared to the same period in 2013, led by Clift, where RevPAR increased by 11.2%.

The Company's managed hotels in London, Sanderson and St Martins Lane, are non-comparable due to a major room renovation that began in the first quarter of 2014 resulting in a decrease in RevPAR of approximately 27.5% in average dollars due to rooms being out of service during the second quarter of 2014. 

Management fees decreased $2.0 million, or 25.4%, during the second quarter of 2014 as compared to the same period in 2013, due in part to a $0.9 million termination fee related to Ames in Boston that the Company received during the second quarter of 2013.   In addition, management fees declined as a result of a decrease in food and beverage management fees due primarily to revisions in the management fee structure with MGM effective January 1, 2014 to a more incentive based model. 

Hotel operating expenses increased by just 0.7% on a 5.2% increase in hotel revenues due primarily to cost-saving initiatives implemented in May 2014.  As a result, operating margins at the Company's Owned Hotels and leased food and beverage operations increased approximately 320 basis points during the second quarter of 2014 as compared to the same period in 2013.

Corporate expenses, excluding stock compensation expense, decreased by $1.8 million, or 25.7%, during the second quarter of 2014 as compared to the same period in 2013. This decline in expenses was primarily the result of cost saving initiatives undertaken by the Company, including the corporate workforce reduction in March 2014. 

Interest expense increased by $1.4 million, or 11.9%, during the second quarter of 2014 as compared to the same period in 2013, primarily due to the new financing secured by Hudson and Delano South Beach in February 2014, which resulted in a larger debt balance outstanding during the second quarter of 2014 as compared to the second quarter of 2013.  

The Company recorded a net loss of $9.7 million for the second quarter of 2014 compared to a net loss of $16.0 million for the second quarter of 2013 primarily due to improved operating results and margins and decreased corporate expenses.

Balance Sheet and Liquidity

The Company's total consolidated debt at June 30, 2014, excluding the Clift lease, was $615.6 million

At June 30, 2014, the Company had approximately $133.0 million in cash and cash equivalents.

In July and August 2014, the Company repurchased $11.7 million of outstanding Convertible Notes at a discount of approximately $0.1 million plus accrued interest.  As of August 7, 2014, the Company has $72.8 million of outstanding Convertible Notes, which mature on October 15, 2014.  The Company intends to utilize cash on hand to retire the Convertible Notes.

As of June 30, 2014, the Company had $391.0 million of remaining Federal tax net operating loss carryforwards to offset future income, including gains on future asset sales.

Development

At Hudson, the Company is currently converting eight additional single room dwelling units ("SROs"), together with other space, into 12 new guest rooms. The Company anticipates 10 of these new guestrooms will be completed in the third quarter in 2014, with the remaining two completed in the fourth quarter, at a total cost of approximately $2.3 million. After this conversion is complete, the Company will have 60 SROs remaining at Hudson, which it intends to convert into guest rooms in the future.

The Company currently expects to open two high-profile hotels in the third quarter of 2014.  Delano Las Vegas, a 1,117 room hotel at Mandalay Bay, is expected to open in early September and will be operated under a license agreement with MGM.  Mondrian London, a 359 room hotel on the South Bank of the Thames, is expected to open on September 30, 2014, and will be operated under a long-term management agreement. 

Additionally, the Company has a franchise agreement for 10 Karakoy, a 71-room Morgans Original in Istanbul, Turkey which is expected to open by the end of 2014 and a management agreement for a Mondrian in Doha, Qatar which is expected to open in the second quarter of 2015.

Definitions

"Adjusted EBITDA" means adjusted earnings before interest, taxes, depreciation and amortization as further defined below, as adjusted for certain items as described below in "Non-GAAP Financial Measures."

"EBITDA" means earnings before interest, income taxes, depreciation and amortization.

"Owned Hotels" includes Hudson in New York, Delano South Beach in Miami Beach, and Clift in San Francisco, which the Company leases under a long-term lease that is treated as a financing.

"System-Wide Comparable Hotels" includes all Morgans Hotel Group branded hotels operated by the Company, except for hotels added or under major renovation during the current or the prior year, development projects and discontinued operations.  System-Wide Comparable Hotels for the three and six months ended June 30, 2014 and 2013 exclude Sanderson and St Martins Lane in London, which both were under major renovations in the first quarter of 2014, Ames, which the Company no longer manages effective July 17, 2013, Delano Marrakech, which the Company no longer manages effective November 12, 2013, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel, and as of April 1, 2013, was no longer managed by the Company.

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 Delano in South Beach, Mondrian in Los Angeles, New York and South Beach, Hudson in New York, Morgans and Royalton in New York, Clift in San Francisco, Shore Club in South Beach and Sanderson and St Martins Lane in London. Morgans Hotel Group has ownership interests or owns several of these hotels. Morgans Hotel Group has other hotels in various stages of development to be operated under management or franchise agreements.  These include Delano properties in Las Vegas, Nevada and Moscow, Russia; Mondrian properties in London, England, and Doha, Qatar; and a Morgans Original in Istanbul, Turkey. Morgans Hotel Group also owns a 90% controlling interest in The Light Group, a leading lifestyle food and beverage company. 

Income Statements

(In thousands, except per share amounts)

Three Months

Six Months

Ended June 30, 

Ended June 30, 

2014

2013

2014

2013

Revenues :

Rooms

$       33,118

$       31,454

$       60,112

$          57,353

Food & beverage

21,004

20,278

42,925

39,499

Other hotel 

1,467

1,126

2,785

2,242

Total hotel revenues

55,589

52,858

105,822

99,094

Management and other fees

5,859

7,849

11,250

14,264

Total revenues

61,448

60,707

117,072

113,358

Operating Costs and Expenses :

Rooms

9,527

9,238

18,539

18,047

Food & beverage

15,028

14,694

30,568

28,508

Other departmental

797

794

1,569

1,616

Hotel selling, general and administrative

10,465

10,831

21,702

21,640

Property taxes, insurance and other

4,316

4,279

8,246

8,561

Total hotel operating expenses

40,133

39,836

80,624

78,372

Corporate expenses :

Stock based compensation

804

1,342

2,748

2,297

Other

5,215

7,023

11,153

13,418

Depreciation and amortization

6,681

6,780

15,083

13,421

Restructuring and disposal costs

3,981

5,256

11,224

6,152

Development costs

2,666

577

3,364

1,397

Impairment loss on receivables and other assets from managed hotel and unconsolidated joint venture

-

5,775

-

5,775

Total operating costs and expenses

59,480

66,589

124,196

120,832

Operating income (loss)

1,968

(5,882)

(7,124)

(7,474)

Interest expense, net

12,935

11,560

28,933

22,849

Equity in (income) loss of unconsolidated joint ventures

(2)

336

(4)

495

Gain on asset sales

(2,005)

(2,005)

(4,010)

(4,010)

Other non-operating expenses 

430

181

1,126

479

Loss before income tax expense

(9,390)

(15,954)

(33,169)

(27,287)

Income tax expense 

66

236

229

436

Net loss 

(9,456)

(16,190)

(33,398)

(27,723)

Net (income) loss attributable to noncontrolling interest

(263)

182

(456)

298

Net loss attributable to Morgans Hotel Group Co.

$        (9,719)

$      (16,008)

$      (33,854)

$         (27,425)

Preferred stock dividends and accretion

(3,987)

(3,026)

(8,354)

(5,939)

Net loss attributable to common stockholders

$      (13,706)

$      (19,034)

$      (42,208)

$         (33,364)

Loss  per share:

Basic and diluted attributable to common stockholders

$          (0.40)

$          (0.59)

$         (1.24)

$             (1.03)

Weighted average common shares outstanding - basic and diluted

34,184

32,464

33,927

32,451

 

Selected Hotel Operating Statistics 

( In Actual Dollars)

( In Constant Dollars, if different)

( In Actual Dollars)

( In Constant Dollars, if different)

Three Months

Three Months

Six Months

Six Months

Ended June 30,

%

Ended June 30,

%

Ended June 30,

%

Ended June 30,

%

2014

2013

Change

2014

2013

Change

2014

2013

Change

2014

2013

Change

BY REGION

Northeast Comparable Hotels (1)

Occupancy

93.6%

91.3%

2.5%

87.4%

85.8%

1.9%

ADR

$   289.42

$   288.71

0.2%

$   251.71

$   253.04

-0.5%

RevPAR

$   270.90

$   263.59

2.8%

$   219.99

$   217.11

1.3%

West Coast Comparable Hotels (2)

Occupancy

91.0%

87.7%

3.8%

87.5%

84.3%

3.8%

ADR

$   272.48

$   256.60

6.2%

$   270.80

$   254.38

6.5%

RevPAR

$   247.96

$   225.04

10.2%

$   236.95

$   214.44

10.5%

Miami Comparable Hotels (3)

Occupancy

73.5%

69.9%

5.2%

79.3%

77.0%

3.0%

ADR

$   321.05

$   301.85

6.4%

$   381.13

$   371.22

2.7%

RevPAR

$   235.97

$   210.99

11.8%

$   302.24

$   285.84

5.7%

United States Comparable Hotels (4)

Occupancy

87.8%

84.9%

3.4%

85.3%

83.2%

2.5%

ADR

$   292.37

$   284.18

2.9%

$   287.24

$   282.00

1.9%

RevPAR

$   256.70

$   241.27

6.4%

$   245.02

$   234.62

4.4%

International Comparable Hotels (5)

Occupancy

ADR

RevPAR

System-wide Comparable Hotels  (6)

Occupancy

87.8%

84.9%

3.4%

87.8%

84.9%

3.4%

85.3%

83.2%

2.5%

85.3%

83.2%

2.5%

ADR

$   292.37

$   284.18

2.9%

$ 292.37

$    284.18

2.9%

$   287.24

$   282.00

1.9%

$ 287.24

$    282.00

1.9%

RevPAR

$   256.70

$   241.27

6.4%

$ 256.70

$    241.27

6.4%

$   245.02

$   234.62

4.4%

$ 245.02

$    234.62

4.4%

(1)

Northeast Comparable Hotels for the periods ended June 30, 2014 and 2013 consist of Hudson, Morgans, Royalton and Mondrian SoHo in New York.  Ames in Boston is non-comparable during the periods presented as the hotel was no longer managed by the Company effective July 17, 2013.

(2)

West Coast Comparable Hotels for the periods ended June 30, 2014 and 2013 consist of Mondrian Los Angeles and Clift in San Francisco. 

(3)

Miami Comparable Hotels for the periods ended June 30, 2014 and 2013 consist of Delano South Beach, Mondrian South Beach and Shore Club in Miami Beach, Florida.  

(4)

United States Comparable Hotels for the periods ended June 30, 2014 and 2013 consist of Hudson, Morgans, Royalton, Mondrian SoHo, Mondrian Los Angeles, Clift, Delano South Beach, Mondrian South Beach and Shore Club.  Ames is non-comparable during the periods presented as the hotel was no longer managed by the Company effective  July 17, 2013.

(5)

 The Company has no International Comparable Hotels for the periods ended June 30, 2014 and 2013.  Sanderson and St Martins Lane in London  are non-comparable, as they both were under major renovations in the first quarter of 2014.  Delano Marrakech is non-comparable for the periods presented as the hotel was no longer managed by the Company effective November 12, 2013.  Additionally, Hotel Las Palapas in Mexico is non-comparable, as this hotel is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company.  

(6)

System-Wide Comparable Hotels include all Morgans Hotel Group branded hotels operated by the Company, except for hotels added or under major renovation during the current or the prior year, development projects and discontinued operations.  System-Wide Comparable Hotels for the periods ended June 30, 2014 and 2013 exclude Sanderson and St Martins Lane in London, which both were under renovations in the first quarter of 2014, Ames, which the Company no longer manages effective July 17, 2013, Delano Marrakech, which the Company no longer manages effective November 12, 2013, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel, and as of April 1, 2013, was no longer managed by the Company.

 

Selected Hotel Operating Statistics

( In Actual Dollars)

( In Constant Dollars, if different)

( In Actual Dollars)

( In Constant Dollars, if different)

Three Months

Three Months

Six Months

Six Months

Ended June 30,

%

Ended June 30,

%

Ended June 30,

%

Ended June 30,

%

2014

2013

Change

2014

2013

Change

2014

2013

Change

2014

2013

Change

BY OWNERSHIP

Owned Comparable Hotels (1)

Occupancy

92.1%

88.9%

3.6%

87.3%

83.7%

4.3%

ADR

$   275.82

$   271.48

1.6%

$   265.61

$   264.29

0.5%

RevPAR

$   254.03

$   241.35

5.3%

$   231.88

$   221.21

4.8%

Joint Venture Comparable Hotels (2)

Occupancy

84.8%

81.9%

3.5%

84.8%

85.6%

-0.9%

ADR

$   319.50

$   305.88

4.5%

$   313.08

$   299.56

4.5%

RevPAR

$   270.94

$   250.52

8.2%

$   265.49

$   256.42

3.5%

Managed Comparable Hotels (3)

Occupancy

82.1%

79.7%

3.0%

82.1%

80.8%

1.6%

ADR

$   308.63

$   295.83

4.3%

$   311.89

$   303.04

2.9%

RevPAR

$   253.39

$   235.78

7.5%

$   256.06

$   244.86

4.6%

System-wide Comparable Hotels 

Occupancy

87.8%

84.9%

3.4%

87.8%

84.9%

3.4%

85.3%

83.2%

2.5%

85.3%

83.2%

2.5%

ADR

$   292.37

$   284.18

2.9%

$ 292.37

$    284.18

2.9%

$   287.24

$   282.00

1.9%

$ 287.24

$    282.00

1.9%

RevPAR

$   256.70

$   241.27

6.4%

$ 256.70

$    241.27

6.4%

$   245.02

$   234.62

4.4%

$ 245.02

$    234.62

4.4%

Owned Hotels

Hudson

Occupancy

94.9%

92.6%

2.5%

88.2%

85.4%

3.3%

ADR

$   253.02

$   258.00

-1.9%

$   215.39

$   221.65

-2.8%

RevPAR

$   240.12

$   238.91

0.5%

$   189.97

$   189.29

0.4%

Delano South Beach 



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