Morgans Hotel Group Reports Fourth Quarter And Full Year 2012 Results

NEW YORK, Feb. 28, 2013 /PRNewswire/ -- Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG" or the "Company") today reported financial results for the quarter and year ended December 31, 2012.  The Company will host a conference call to review the results on Friday, March 1, 2013 at 9:00 am.

  • Adjusted EBITDA was $12.7 million in the fourth quarter of 2012, a 47.9% increase over the same period in 2011 due primarily to 38.8% and 33.5% increases in EBITDA at Delano South Beach and Hudson, respectively, two of the Company's wholly-owned hotels.
  • Operating margins at the Company's Owned Hotels, which include Delano South Beach, Hudson and Clift, increased 700 basis points during the fourth quarter of 2012 as compared to the same period in 2011. 
  • Revenue per available room ("RevPAR") for System-Wide Comparable Hotels increased by 7.2% in actual dollars, or 6.6% in constant dollars, during the fourth quarter of 2012 from the comparable period in 2011.   RevPAR for System-Wide Comparable Hotels located in the United States increased 8.3% during the fourth quarter of 2012 as compared to the same period in 2011. 
  • RevPAR at the Company's three non-comparable Morgans Hotel Group hotels, Delano South Beach, Hudson and Mondrian SoHo, increased 17.8%, 5.7%, and 11.3%, respectively, during the fourth quarter of 2012 as compared to the same period in 2011. 
  • In November 2012, the Company entered into a new $180.0 million nonrecourse mortgage loan secured by Hudson. 

Michael Gross, CEO of the Company, said: "In the fourth quarter we began to see increasing benefits from investments in our product and service offerings, leading to significant improvement in year-over-year EBITDA performance.  At Hudson and Delano South Beach, where we completed significant renovations in 2012, results were particularly strong and operating margins were up 700 basis points in the fourth quarter.  We are seeing these positive fourth quarter trends continue into 2013, with January's System-Wide Comparable Hotels RevPAR up 18% over the prior year.  Our development pipeline continues to be strong and includes eight hotels scheduled to open over the next three years, three of which are scheduled to open in early 2014. We believe these new hotels will allow us to generate increasing EBITDA margins due to a high degree of operating leverage in our model. We are confident about the year ahead and remain focused on increasing returns at our existing properties, growing our management and brand portfolio globally, and increasing shareholder value."

Fourth Quarter 2012 Operating Results

Adjusted EBITDA for the fourth quarter of 2012 was $12.7 million, an increase of $4.1 million from the same period in 2011, due primarily to strong performances at Delano South Beach and Hudson, both of which underwent significant renovations during late 2011 and 2012.  EBITDA at Delano South Beach and Hudson increased by 38.8% and 33.5%, respectively, as the Company continues to focus on market share and margin improvement.  Additionally, the Company's Adjusted EBITDA was positively impacted by a full quarter of The Light Group's operating results. 

RevPAR at System-Wide Comparable Hotels increased by 7.2% in actual dollars, or 6.6% in constant dollars, in the fourth quarter of 2012 from the comparable period in 2011.  RevPAR for System-Wide Comparable Hotels located in the United States increased 8.3% during the fourth quarter of 2012 as compared to the same period in 2011. 

RevPAR from the System-Wide Comparable Hotels in the Northeastern United States, which consist of Morgans, Royalton and Ames, increased by 3.2% in the fourth quarter of 2012 as compared to the same period in 2011.  Each hotel in the region was affected differently by Hurricane Sandy but overall, business was strong, particularly in December 2012 with RevPAR increases of 9% or greater during the month at the Company's comparable New York City hotels.   For non-Comparable Hotels, Mondrian SoHo continues to ramp up with RevPAR increasing by 11.3% in the fourth quarter of 2012 from the comparable period in 2011, despite being closed for one week due to Hurricane Sandy. At Hudson, with all 834 guest rooms renovated, the hotel generated a 5.7% RevPAR increase during the fourth quarter of 2012, despite its restaurant being closed due to renovations.

RevPAR from the System-Wide Comparable Hotels in Miami, which consist of Mondrian South Beach and Shore Club, increased 13.2 % in the fourth quarter of 2012 as compared to the same period in 2011, driven by a 10.2% increase in occupancy. Delano South Beach, which is a non-comparable hotel in 2012, generated a 17.8% increase in RevPAR driven by a very strong December and holiday season.

The Company's two West Coast hotels generated an 8.5% RevPAR growth in the fourth quarter of 2012 as compared to the same period in 2011, led by Mondrian Los Angeles. In London, RevPAR increased by 3.5%, or 1.4% in constant dollars, during the fourth quarter of 2012, despite the difficult economic climate. 

Management fees increased by 47.5% in the fourth quarter of 2012 as compared to the same period in 2011.  This increase was primarily the result of the Company's acquisition of 90% of The Light Group in November 2011.   

Operating margins at the Company's Owned Hotels, which consist of Delano South Beach, Hudson and Clift, increased 700 basis points during the fourth quarter of 2012 as compared to the same period in 2011.

Interest expense increased by $6.9 million during the fourth quarter of 2012 as compared to the same period in 2011, primarily due to the write-off of deferred financing fees and payment of termination costs associated with the refinancing of the Hudson in November 2012.    

MHG recorded a net loss of $12.3 million for the fourth quarter of 2012 compared to a net loss of $17.1 million for the fourth quarter of 2011, due primarily to improved operating margins at Delano South Beach and Hudson and a full quarter of management fee income from The Light Group.

Full Year Operating Results

For the full year 2012, Adjusted EBITDA was $22.9 million, a decline of 23.2% from 2011, primarily due to the impact of the Company's sale of its ownership interests in Mondrian Los Angeles, Royalton, Morgans, Sanderson and St Martins Lane in 2011.  For the year, RevPAR for System-Wide Comparable Hotels increased by 4.3%, or 4.6% in constant dollars, in 2012 from the comparable period in 2011, driven primarily by a 3.4% increase in average daily rate ("ADR"), or 3.8% in constant dollars.  MHG recorded a net loss of $55.7 million for the year ended December 31, 2012 compared to a net loss of $85.4 million in the same period in 2011, which included approximately $21.0 million of impairment charges recognized related to the Company's unconsolidated joint ventures.  

Renovations

At Hudson, the Company spent most of 2012 renovating all the guest rooms and corridors and converting SRO units into new guest rooms.  The rooms renovation was completed in September 2012.  The Company also converted 32 SRO units into guest rooms during December 2012 and January 2013 at an estimated cost of approximately $150,000 per room, bringing the total number of guest rooms at Hudson to 866 as of January 31, 2013.  In November 2012, MHG launched Hudson Lodge, a winter pop-up venue at the hotel's private park.  Additionally, in February 2013, the Company opened a new restaurant at Hudson, Hudson Common, which is a modern-day beer hall and burger joint featuring a wide selection of local craft beers, inventive preparations of classic American fare, and soda shop-inspired specialty cocktails. In 2012, the Company spent approximately $27.7 million on room, corridor and restaurant renovations and has spent an additional approximately $4 million to complete these projects at Hudson in 2013.

Development

In September 2012, the Company opened Delano Marrakech, which marks the beginning of the rollout of its development pipeline.  MHG currently has signed management agreements for seven hotels and a license agreement for another, that are scheduled to open over the next three years, with three of these hotels scheduled to open in early 2014 – Mondrian London, Mondrian Doha and Delano Las Vegas.  In addition, Mondrian Baha Mar and Delano Moscow are currently under construction. 

With a strong infrastructure in place, the Company expects the incremental EBITDA margins for newly signed management agreements and hotels in its pipeline to approximate 90%. 

In August 2012, the Company acquired the leasehold interests in three restaurants at Mandalay Bay in Las Vegas from an existing tenant. The Company has recently opened two of these food and beverage venues.  Red Square, a premier dinner, cocktail, and nightlife destination, opened in December 2012 and Citizens Kitchen & Bar, which offers classic American comfort food, opened in January 2013.  MHG is also in the process of reconcepting the third restaurant at Mandalay Bay, which it plans to introduce in the second quarter of 2013. The Light Group manages, or will manage, these restaurants. 

Balance Sheet and Liquidity

MHG's total consolidated debt at December 31, 2012, excluding the Clift lease, was $449.0 million with a weighted average interest rate of 6.07%. At December 31, 2012, MHG had $5.8 million of cash and cash equivalents and $57.9 million available under its revolving credit facility.  As of December 31, 2012, total restricted cash held pursuant to certain debt or lease requirements was $21.2 million, which included $2.9 million for the completion of the Hudson SRO unit conversions and Hudson Common, all of which was released to MHG in February 2013. 

In November 2012, the Company entered into a new $180.0 million nonrecourse mortgage loan secured by Hudson. The proceeds were used to retire the previous mortgage loan on Hudson of $115.0 million, repay $36.0 million of indebtedness outstanding under the Company's credit facility, and fund reserves required under the new loan, with the remainder available for general corporate purposes.  The loan bears interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 0.50%) plus 840 basis points and matures on February 9, 2014. The Company has a one-year extension option that will permit it to extend the maturity date to February 9, 2015, if certain conditions are satisfied at the extension date. The new mortgage loan may be prepaid at any time, in whole or in part, subject to payment of a prepayment penalty for any prepayment prior to November 9, 2013. There is no prepayment premium after November 9, 2013.

As of December 31, 2012, MHG has approximately $282.6 million of remaining federal tax net operating loss carryforwards to offset future income, including gains on asset sales.  In addition, the Company has various state and local net operating losses of approximately $385.7 million, in aggregate, available to offset future taxable state or local income including gains on asset sales, to the extent available in the applicable state or local tax jurisdiction.  The Company has begun a sales process for Delano in South Beach and would use the proceeds from any sale for debt reduction, growth and general working capital purposes.  In addition, the Company believes it has significant value available to it in Hudson. 

Guidance

Looking ahead, based on the trends the Company is seeing in its markets, MHG projects RevPAR growth at System-wide Comparable Hotels to be in the 6% to 8% range in 2013.  The Company is not providing overall EBITDA guidance at this time. However, the Company believes that it could potentially add $8 to $10 million of EBITDA at Hudson in 2013 given the $6 million of EBITDA lost in 2012 due to rooms out of service, the new SRO units and the new restaurant, and that there is potential for further EBITDA growth at Hudson from the upgraded room product.

Conference Call

MHG will host a conference call to discuss the fourth quarter financial results on Friday, March 1, 2013 at 9:00AM Eastern time.

The call will be webcast live over the Internet and can be accessed 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 13839336. A replay of the call will be available two hours after the call and can be accessed by dialing (855) 859-2056   or (404) 537-3406 for international callers; the conference ID is 13839336. The replay will be available from March 1, 2013 through March 8, 2013.

Definitions

"System-Wide Comparable Hotels" includes all Morgans Hotel Group hotels operated by MHG, 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 quarter  and year ended December 31, 2012 and 2011 excludes Hudson and Delano South Beach, which were both undergoing renovations beginning in the third quarter of 2011 and continuing into 2012, the Hard Rock Hotel & Casino in Las Vegas ("Hard Rock"), which effective March 1, 2011 was no longer partially owned or managed by MHG, Mondrian SoHo, which opened in late February 2011, the San Juan Water and Beach Club, which was no longer managed by MHG effective July 13, 2011, Delano Marrakech, which opened in September 2012, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel.   

"EBITDA" means earnings before interest, income taxes, depreciation and amortization, as further defined below.

 "Adjusted EBITDA" means 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 Delano in South Beach and Marrakech, Mondrian in Los Angeles, South Beach and New York, Hudson in New York, Morgans and Royalton in New York, Shore Club in South Beach, Clift in San Francisco, Ames in Boston, Sanderson and St Martins Lane in London, and a hotel in Playa del Carmen, Mexico.  Morgans Hotel Group has ownership interests or owns several of these hotels. Morgans Hotel Group has other property transactions in various stages of completion, including Delano properties in Las Vegas, Nevada; Cesme, Turkey and Moscow, Russia; Mondrian properties in London, England; Istanbul, Turkey; Doha, Qatar and Nassau, The Bahamas; and a Hudson in London, England. Morgans Hotel Group also owns a 90% controlling interest in The Light Group, a leading lifestyle food and beverage company. 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 other 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 economic, business, competitive market and regulatory conditions such as:  a sustained downturn in economic and market conditions, particularly levels of spending for travel, hotels, dining and entertainment; our levels of debt, our ability to refinance current outstanding debt, repay outstanding debt or make payments on guaranties as they may become due, our ability to access the capital markets, and the ability of our joint ventures to do the foregoing; our ability to protect the value of our name, image and brands and our intellectual property; risks related to natural disasters, terrorist attacks, the threat of terrorist attacks and similar disasters; our ability to perform under management agreements and to resolve any disputes; and other risk factors discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, 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 the date hereof, 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.

 

Income Statements









(In thousands, except per share amounts)













Three Months


Year Ended






Ended December 31 ,


Ended December 31 ,






2012

2011


2012

2011











Revenues :










Rooms





$       31,616

$       29,400


$     102,546

$     120,351

Food & beverage





15,471

17,037


57,496

66,253

Other hotel 





1,551

1,420


5,046

6,440


Total hotel revenues




48,638

47,857


165,088

193,044

Management and other fees




6,159

4,176


24,831

14,288


Total revenues




54,797

52,033


189,919

207,332











Operating Costs and Expenses :









Rooms





8,717

8,504


31,973

37,626

Food & beverage





12,238

13,565


47,011

55,466

Other departmental




940

952


3,595

4,069

Hotel selling, general and administrative




8,720

10,328


37,055

43,629

Property taxes, insurance and other




4,288

4,339


15,819

16,475


Total hotel operating expenses



34,903

37,688


135,453

157,265

Corporate expenses :










Stock based compensation



(276)

1,698


4,513

9,082


Other




7,191

6,945


27,704

25,481

Depreciation and amortization




6,540

4,814


23,977

22,219

Restructuring and disposal costs




3,335

1,980


6,851

8,575

Development costs




1,595

1,793


5,783

5,716


Total operating costs and expenses


53,288

54,918


204,281

228,338


Operating income (loss)



1,509

(2,885)


(14,362)

(21,006)











Interest expense, net




14,650

7,731


38,998

35,514

Equity in loss of unconsolidated joint ventures



1,444

6,352


6,436

29,539

Gain on asset sales




(2,005)

(1,457)


(7,989)

(3,178)

Other non-operating (income) expenses




(282)

1,747


3,908

4,632












Pre tax loss




(12,298)

(17,258)


(55,715)

(87,513)


Income tax expense 




228

406


776

929


Net loss from continuing operations


(12,526)

(17,664)


(56,491)

(88,442)












Income from discontinued operations, net of tax

-

-


-

485












Net loss




(12,526)

(17,664)


(56,491)

(87,957)












Net loss attributable to noncontrolling interest


190

547


804

2,554












Net loss attributable to Morgans Hotel Group Co.

$      (12,336)

$      (17,117)


$      (55,687)

$      (85,403)












Preferred stock dividends and accretion


(2,920)

(3,237)


(11,124)

(9,938)












Net loss attributable to common stockholders

$      (15,256)

$      (20,354)


$      (66,811)

$      (95,341)












(Loss) income  per share:









Basic and diluted from continuing operations


$          (0.48)

$          (0.66)


$          (2.13)

$          (3.05)


Basic and diluted from discontinued operations

$                 -

$                 -


$                 -

$           0.02


Basic and diluted attributable to common stockholders

$          (0.48)

$          (0.66)


$          (2.13)

$          (3.03)












Weighted average common shares outstanding - basic and diluted

31,565

30,753


31,437

31,454











 

Selected Hotel Operating Statistics (1)

( In Actual Dollars)



( In Constant Dollars, if different)

( In Actual Dollars)



( In Constant Dollars, if different)





Three Months



Three Months



Year Ended



Year Ended






Ended December 31,

%


Ended December 31,

%


Ended December 31,

%


Ended December 31,

%





2012

2011

Change


2012

2011

Change


2012

2011

Change


2012

2011

Change

BY REGION





































Northeast Comparable Hotels (2)

















Occupancy


80.7%

81.4%

-0.9%






81.2%

82.2%

-1.2%






ADR



$   334.31

$   321.25

4.1%






$ 291.16

$    276.32

5.4%






RevPAR



$   269.79

$   261.50

3.2%






$ 236.42

$    227.14

4.1%
























West Coast Comparable Hotels (3)

















Occupancy


75.2%

73.2%

2.7%






77.3%

78.1%

-1.0%






ADR



$   254.07

$   240.65

5.6%






$ 253.46

$    241.09

5.1%






RevPAR



$   191.06

$   176.16

8.5%






$ 195.92

$    188.29

4.1%
























Miami Comparable Hotels (4)


















Occupancy


71.1%

64.5%

10.2%






66.6%

64.0%

4.1%






ADR



$   286.97

$   279.57

2.6%






$ 278.68

$    270.08

3.2%






RevPAR



$   204.04

$   180.32

13.2%






$ 185.60

$    172.85

7.4%
























United States Comparable Hotels (5)

















Occupancy


75.1%

72.1%

4.2%






74.5%

74.0%

0.7%






ADR



$   287.01

$   276.11

3.9%






$ 271.90

$    260.04

4.6%






RevPAR



$   215.54

$   199.08

8.3%






$ 202.57

$    192.43

5.3%
























International Comparable Hotels (6)

















Occupancy


81.1%

77.1%

5.2%


81.1%

77.1%

5.2%


75.7%

74.9%

1.1%


75.7%

74.9%

1.1%


ADR



$   391.85

$   398.10

-1.6%


$ 386.69

$    401.19

-3.6%


$ 403.25

$    404.56

-0.3%


$ 403.25

$     399.75

0.9%


RevPAR



$   317.79