Morgans Hotel Group Reports Second Quarter 2015 Results

Aug 05, 2015, 07:30 ET from Morgans Hotel Group Co.

NEW YORK, Aug. 5, 2015 /PRNewswire/ -- Morgans Hotel Group Co. (NASDAQ: MHGC) (the "Company") today reported financial results for the quarter ended June 30, 2015. 

Second Quarter Highlights

  • Adjusted EBITDA was $12.6 million in the second quarter of 2015 as compared to $16.8 million for the same period in 2014. 
  • Excluding The Light Group ("TLG"), which was sold in January 2015, Adjusted EBITDA was $12.5 million for the second quarter of 2015, a decrease of $1.9 million, or 13.0%, from the same period in 2014. 
  • Revenue per available room ("RevPAR") for System-Wide Comparable Hotels decreased by 5.7% during the second quarter of 2015 as compared to the second quarter of 2014.  System-Wide Comparable Hotels' room revenues plus resort fees, implemented at certain hotels in the second half of 2014, decreased 2.2% during the second quarter of 2015 as compared to the same period in 2014. 
  • Total hotel operating expenses at the Company's Owned Hotels and leased food and beverage operations decreased $0.8 million, or 2.0%, primarily due to focused and ongoing cost control efforts in hotel general and administrative expenses.
  • In May 2015, the Company signed a long-term management agreement for Mondrian Dubai which is currently expected to open in 2018 and will be the Company's fifth Mondrian hotel.

Second Quarter 2015 Operating Results

Adjusted EBITDA, defined below, for the second quarter of 2015 was $12.6 million compared to $16.8 million for the same period in 2014.  Excluding TLG, Adjusted EBITDA was $12.5 million for the second quarter of 2015, a decrease of $1.9 million, or 13.0%, from the same period in 2014. 

RevPAR at System-Wide Comparable Hotels decreased by 5.7% in the second quarter of 2015 as compared to the same period in 2014, due to a 1.1% decrease in occupancy and a 4.6% decrease in average daily rate ("ADR").  System-Wide Comparable Hotels' room revenues plus resort fees, implemented at certain hotels in the second half of 2014, decreased 2.2% during the second quarter of 2015 as compared to the same period in 2014.  Revenues declined due to increased supply in New York and Miami, as well as the stronger U.S. dollar which has negatively impacted leisure demand in the United States and resulted in lower ADR.

RevPAR from System-Wide Comparable Hotels in New York decreased 9.8% for the quarter ended June 30, 2015 as compared to the same period in 2014, due to an 8.7% decrease in ADR and a 1.2% decrease in occupancy.  RevPAR at Hudson decreased by 9.7% during the second quarter of 2015 as compared to the same period in 2014, driven primarily by a 9.3% ADR decrease. Hudson's room revenues plus resort fees decreased by 4.1% during the second quarter of 2015 as compared to the same period in 2014.    

RevPAR from System-Wide Comparable Hotels in Miami decreased 5.7% in the second quarter of 2015 as compared to the second quarter of 2014.  Delano South Beach experienced a RevPAR decrease of 8.9% during the second quarter of 2015 as compared to the same period in 2014.  Delano's room revenues plus resort fees decreased 3.8% in the second quarter of 2015 as compared to the same period in 2014.    

The Company's System-Wide Comparable Hotels on the West Coast generated 2.4% RevPAR growth in the second quarter of 2015 as compared to 2014, driven by Mondrian Los Angeles.  Although Clift's RevPAR was flat in the second quarter of 2015 as compared to the same period in 2014, EBITDA increased 14.6% due primarily to cost saving initiatives.      

The Company's managed hotels in London are non-comparable between 2015 and 2014 due to a major renovation of Sanderson and St Martins Lanes' guestrooms in 2014 and 2015, which are now complete, as well as the opening of Mondrian London on September 30, 2014.  

Excluding TLG, management fees increased $0.2 million, or 7.0%, during the second quarter of 2015 as compared to the same period in 2014, primarily due to the addition of Mondrian London, Delano Las Vegas and 10 Karaköy, which was partially offset by the termination of the Mondrian SoHo management agreement in April 2015. 

Despite relatively flat occupancy, total hotel operating expenses at the Company's Owned Hotels and leased food and beverage operations decreased $0.8 million, or 2.0%, primarily due to focused and ongoing cost control efforts in hotel general and administrative expenses.  

Excluding TLG, corporate expenses, excluding stock compensation expense, decreased $0.5 million, or 10.3%, during the second quarter of 2015 as compared to the same period in 2014, due primarily to the Company's continuing efforts to manage overhead. 

Interest expense decreased by $1.0 million, or 7.6%, during the second quarter of 2015 as compared to the same period in 2014, primarily due to the elimination of interest expense related to the Company's convertible notes, which were repaid in October 2014.   

The Company recorded a net loss of $6.6 million in the second quarter of 2015 compared to a net loss of $9.7 million in the second quarter of 2014, primarily as a result of increased operating income and lower interest expense. 

Balance Sheet

The Company's total consolidated debt at June 30, 2015 was $606.0 million, which included $100.7 million of capital lease obligations related primarily to Clift. 

At June 30, 2015, the Company had approximately $33.0 million in cash and cash equivalents and $13.4 million in restricted cash.    

As of June 30, 2015, the Company had approximately $420.1 million of remaining Federal tax net operating loss carryforwards to offset future income.

Development

In May 2015, the Company signed a long-term management agreement for Mondrian Dubai, which is currently scheduled to open in 2018.  Located in the Burj Khalifa region of Dubai, Mondrian Dubai is expected to have 235-rooms, of which approximately one third are expected to be condo hotel units.  There are no capital commitments or cash flow guarantees required under this agreement. Mondrian Dubai will mark the Company's fifth Mondrian hotel.

The Company has signed management agreements for five hotels in various stages of development, including two hotels under construction consisting of Mondrian Doha, scheduled to open in late 2015, and Delano Dubai, scheduled to open in 2017.

Investor Conference Call

The Company will host a conference call to review its second quarter 2015 results on Wednesday, August 5, 2015 at 9:00 AM Eastern time. The call will be webcast live over the Internet and will be accessible at www.morganshotelgroup.com under the Investors 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 will also be accessible live over the phone by dialing (877) 876-9175 (within the U.S.) or (785) 424-1668 (outside the U.S.) and providing the following passcode: 1859311.  A playback of the conference call will be available beginning at 12:00 PM Eastern time, Wednesday, August 5, 2015, through August 12, 2015.  To access the playback, please dial (888) 203-1112 (within U.S.) or (719) 457-0820 (outside U.S.) and enter passcode 1859311.

Additional Definitions

"Adjusted EBITDA" means adjusted earnings before interest, taxes, depreciation and amortization, as further defined below. During the third quarter of 2014, the Company changed its definition of Adjusted EBITDA to include the operating results of Clift, an owned hotel. Management believes the inclusion of Clift, which is subject to a 99-year lease and accounted for as a financing, is a more accurate depiction of the Company's operating results and is consistent with the Company's presentation of Clift in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). Prior periods have been restated to include Clift's operating results in Adjusted EBITDA.  

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

"Owned Hotels" means Hudson in New York, Delano South Beach in Miami Beach and Clift in San Francisco, which the Company leases under a long-term lease.

"System-Wide Comparable Hotels" means 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 period, development projects and hotels no longer managed by the Company.  System-Wide Comparable Hotels for the quarters ended June 30, 2015 and 2014 exclude Sanderson and St Martins Lane in London, which were both under major renovations during 2014, Mondrian London, Delano Las Vegas and 10 Karaköy, all of which are newly opened hotels in 2014, and Mondrian SoHo, which the Company no longer managed effective April 27, 2015.

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, South Beach and London, 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 also licenses its brand through Delano in Las Vegas and 10 Karakoy in Istanbul, Turkey.  Morgans Hotel Group has other hotels in various stages of development to be operated under management or franchise agreements, including a Mondrian property in Doha, Qatar and a Delano in Dubai. 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. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue" or other similar words or expressions.   These forward-looking statements reflect the Company's current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause its actual results to differ materially from those expressed in any forward-looking statement. Forward-looking statements in this press release include, without limitation, statements regarding the Company's expectation related to its ability to grow in the future and expected hotel openings and its development efforts, including the opening of new hotels in the future.

Important risks and factors that could cause the Company's 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 downturn in economic and market conditions, both in the U.S. and internationally, particularly as it impacts demand for travel, hotels, dining and entertainment; the Company's levels of debt, its ability to refinance its current outstanding debt, repay outstanding debt or make payments on guaranties as they may become due, general volatility of the capital markets and the Company's ability to access the capital markets and the ability of its joint ventures to do the foregoing; the impact of financial and other covenants in the Company's loan agreements and other debt instruments that limit the Company's ability to borrow and restrict its operations; the Company's history of losses; the Company's ability to compete in the "boutique" or "lifestyle" hotel segments of the hospitality industry and changes in the competitive environment in the Company's industry and the markets where it invests; the Company's ability to protect the value of its name, image and brands and its intellectual property; risks related to natural disasters, terrorist attacks, the threat of terrorist attacks and similar disasters; risks related to the Company's international operations, such as global economic conditions, political or economic instability, compliance with foreign regulations and satisfaction of international business and workplace requirements; the Company's ability to timely fund the renovations and capital improvements necessary to maintain its properties at the quality of the Morgans Hotel Group and associated brands; risks associated with the acquisition, development and integration of properties and businesses; the risks of conducting business through joint venture entities over which the Company may not have full control; the Company's ability to perform under management agreements and to resolve any disputes with owners of properties that the Company manages but does not wholly own; potential terminations of management agreements; the impact of any material litigation, claims or disputes, including labor disputes; the seasonal nature of the hospitality business and other aspects of the hospitality industry that are beyond the Company's control; the Company's ability to comply with complex U.S. and international regulations, including regulations related to the environment, labor, food and beverage operations and data privacy; the Company's ability to maintain effective and competitive technology platforms; ownership of a substantial block of the Company's common stock by a small number of investors and the ability of such investors to influence key decisions; the impact of any dividend payments or accruals on the Company's preferred securities on its cash flow and the value of its common stock; the impact of any strategic alternatives considered by the Board of Directors and/or pursued by the Company; the impact of changes in the Company's management team, including the recent resignation of its interim chief executive officer; and other risk factors discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the Securities and Exchange Commission (the "SEC") on March 13, 2015, and other documents filed by the Company with the SEC 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

Six Months 

Ended June 30, 

Ended June 30, 

2015

2014

2015

2014

Revenues :

Rooms

$       30,991

$       33,118

$       56,787

$          60,112

Food and beverage

19,573

21,004

40,990

42,925

Other hotel 

2,138

1,308

4,223

2,470

Total hotel revenues

52,702

55,430

102,000

105,507

Management fee-related parties and other income

3,508

5,859

7,516

11,250

Total revenues

56,210

61,289

109,516

116,757

Operating Costs and Expenses :

Rooms

9,414

9,413

18,298

18,305

Food and beverage

13,822

14,838

28,405

30,149

Other departmental

1,129

797

2,219

1,569

Hotel selling, general and administrative

10,418

10,769

20,570

22,355

Property taxes, insurance and other

4,411

4,157

8,294

7,931

Total hotel operating expenses

39,194

39,974

77,786

80,309

Corporate expenses :

Stock based compensation

578

804

922

2,748

Other

4,341

5,215

10,025

11,153

Depreciation and amortization

5,563

6,681

11,200

15,083

Restructuring and disposal costs

593

3,981

2,542

11,224

Development costs

457

2,666

605

3,364

Loss on receivables from unconsolidated joint venture

550

-

550

-

Total operating costs and expenses

51,276

59,321

103,630

123,881

Operating income (loss)

4,934

1,968

5,886

(7,124)

Interest expense, net

11,955

12,935

23,782

28,933

Impairment loss and equity in income of unconsolidated joint ventures

(2)

(2)

3,888

(4)

Gain on asset sales

(2,086)

(2,005)

(5,794)

(4,010)

Other non-operating expenses 

1,552

430

3,207

1,126

Loss before income tax expense

(6,485)

(9,390)

(19,197)

(33,169)

Income tax expense 

169

66

295

229

Net loss 

(6,654)

(9,456)

(19,492)

(33,398)

Net loss (income) attributable to noncontrolling interest

13

(263)

27

(456)

Net income (loss) attributable to Morgans Hotel Group 

$        (6,641)

$        (9,719)

$      (19,465)

$         (33,854)

Preferred stock dividends and accretion

(4,075)

(3,987)

(7,985)

(8,354)

Net loss attributable to common stockholders

$      (10,716)

$      (13,706)

$      (27,450)

$         (42,208)

Loss  per share:

Basic and diluted attributable to common stockholders

$          (0.31)

$          (0.40)

$         (0.80)

$             (1.24)

Weighted average common shares outstanding - basic and diluted

34,492

34,184

34,440

33,927

 

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,

%

2015

2014

Change

2015

2014

Change

2015

2014

Change

2015

2014

Change

BY REGION

Northeast Comparable Hotels (1)

Occupancy

92.9%

94.0%

-1.2%

84.6%

87.4%

-3.2%

ADR

$   248.31

$   271.94

-8.7%

$   214.99

$   235.32

-8.6%

RevPAR

$   230.68

$   255.62

-9.8%

$   181.88

$   205.67

-11.6%

West Coast Comparable Hotels (2)

Occupancy

91.2%

91.0%

0.2%

89.6%

87.5%

2.4%

ADR

$   278.40

$   272.48

2.2%

$   280.84

$   270.80

3.7%

RevPAR

$   253.90

$   247.96

2.4%

$   251.63

$   236.95

6.2%

Miami Comparable Hotels (3)

Occupancy

71.7%

73.5%

-2.4%

77.5%

79.3%

-2.3%

ADR

$   310.30

$   321.05

-3.3%

$   371.92

$   381.13

-2.4%

RevPAR

$   222.49

$   235.97

-5.7%

$   288.24

$   302.24

-4.6%

United States Comparable Hotels (4)

Occupancy

86.4%

87.4%

-1.1%

83.8%

85.1%

-1.5%

ADR

$   270.76

$   283.92

-4.6%

$   273.68

$   283.26

-3.4%

RevPAR

$   233.94

$   248.15

-5.7%

$   229.34

$   241.05

-4.9%

International Comparable Hotels (5)

Occupancy

ADR

RevPAR

System-wide Comparable Hotels  (6)

Occupancy

86.4%

87.4%

-1.1%

86.4%

87.4%

-1.1%

83.8%

85.1%

-1.5%

83.8%

85.1%

-1.5%

ADR

$   270.76

$   283.92

-4.6%

$ 270.76

$    283.92

-4.6%

$   273.68

$   283.26

-3.4%

$ 273.68

$    283.26

-3.4%

RevPAR

$   233.94

$   248.15

-5.7%

$ 233.94

$    248.15

-5.7%

$   229.34

$   241.05

-4.9%

$ 229.34

$    241.05

-4.9%

(1)

Northeast Comparable Hotels for the periods ended June 30, 2015 and 2014 consist of Hudson, Morgans and Royalton in New York.  Mondrian SoHo, which effective April 27, 2015 the Company no longer managed, is non-comparable for the periods presented. 

(2)

West Coast Comparable Hotels for the periods ended June 30, 2015 and 2014 consist of Mondrian Los Angeles and Clift in San Francisco.  Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM Resorts International ("MGM"). 

(3)

Miami Comparable Hotels for the periods ended June 30, 2015 and 2014 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, 2015 and 2014 consist of Hudson, Morgans, Royalton, Mondrian Los Angeles, Clift, Delano South Beach, Mondrian South Beach and Shore Club.  Delano Las Vegas is non-comparable as this hotel opened in September 2014 and is subject to a license agreement and managed by affiliates of MGM.  Mondrian SoHo, which effective April 27, 2015 the Company no longer managed, is non-comparable for the periods presented. 

(5)

The Company has no International Comparable Hotels for the periods ended June 30, 2015 and 2014.  Sanderson and St Martins Lane in London are non-comparable, as they both were under major renovation during 2014.  Mondrian London, which opened on September 30, 2014, is also non-comparable.  10 Karaköy, which opened in November 2014 and is subject to a franchise agreement is non-comparable.  

(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, 2015 and 2014 exclude Sanderson and St Martins Lane in London, which both were under renovations during 2014, Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM, Mondrian London, which opened on September 30, 2014, 10 Karaköy, which opened in November 2014 and is subject to a franchise agreement, and Mondrian SoHo, which effective April 27, 2015, the Company no longer managed.

 

 

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,

%

2015

2014

Change

2015

2014

Change

2015

2014

Change

2015

2014

Change

BY OWNERSHIP

Owned Comparable Hotels (1)

Occupancy

90.8%

92.1%

-1.4%

85.3%

87.3%

-2.3%

ADR

$   259.88

$   275.82

-5.8%

$   254.85

$   265.61

-4.1%

RevPAR

$   235.97

$   254.03

-7.1%

$   217.39

$   231.88

-6.2%

Joint Venture Comparable Hotels (2)

Occupancy

77.7%

75.2%

3.3%

81.9%

81.8%

0.1%

ADR

$   247.01

$   244.12

1.2%

$   301.15

$   298.63

0.8%

RevPAR

$   191.93

$   183.58

4.5%

$   246.64

$   244.28

1.0%

Managed Comparable Hotels (3)

Occupancy

81.0%

82.1%

-1.3%

81.7%

82.1%

-0.5%

ADR

$   297.64

$   308.63

-3.6%

$   301.10

$   311.89

-3.5%

RevPAR

$   241.09

$   253.39

-4.9%

$   246.00

$   256.06

-3.9%

System-wide Comparable Hotels 

Occupancy

86.4%

87.4%

-1.1%

86.4%

87.4%

-1.1%

83.8%

85.1%

-1.5%

83.8%

85.1%

-1.5%

ADR

$   270.76

$   283.92

-4.6%

$ 270.76

$    283.92

-4.6%

$   273.68

$   283.26

-3.4%

$ 273.68

$    283.26

-3.4%

RevPAR

$   233.94

$   248.15

-5.7%

$ 233.94

$    248.15

-5.7%

$   229.34

$   241.05

-4.9%

$ 229.34

$    241.05

-4.9%

Owned Hotels

Hudson

Occupancy

94.5%

94.9%

-0.4%

85.8%

88.2%

-2.7%

ADR

$   229.47

$   253.02

-9.3%

$   196.22

$   215.39

-8.9%

RevPAR

$   216.85

$   240.12

-9.7%

$   168.36

$   189.97

-11.4%

Delano South Beach 

Occupancy

69.8%

74.0%

-5.7%

72.9%

79.9%

-8.8%

ADR

$   452.07

$   468.32

-3.5%

$   549.74

$   544.74

0.9%

RevPAR

$   315.54

$   346.56

-8.9%

$   400.76

$   435.25

-7.9%

Clift

Occupancy

92.8%

95.1%

-2.4%

90.5%

89.2%

1.5%

ADR

$   257.54

$   250.67

2.7%

$   262.10

$   250.73

4.5%

RevPAR

$   239.00

$   238.39

0.3%

$   237.20

$   223.65

6.1%

(1)

Owned Comparable Hotels for the periods ended June 30, 2015 and 2014 consist of Hudson, Delano South Beach, and Clift in San Francisco.  

(2)

Joint Venture Comparable Hotels for the periods ended June 30, 2015 and 2014 consist of Mondrian South Beach.  Mondrian SoHo is non-comparable for the periods presented as effective March 6, 2015, the Company no longer held any equity interests in the Mondrian SoHo joint venture. 

(3)

Managed Comparable Hotels for the periods ended June 30, 2015 and 2014 consist of Morgans, Royalton, Shore Club, and Mondrian Los Angeles.  Managed hotels that are non-comparable for the periods presented are Sanderson and St Martins Lane in London, which both were under renovations during 2014, Mondrian London, which opened on September 30, 2014, and Mondrian SoHo, which effective April 27, 2015, the Company no longer managed.  

 

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

The Company believes that EBITDA is a useful financial metric to assess its operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between the Company and its competitors. Given the significant investments that the Company and its joint ventures have made in the past in property and equipment, depreciation and amortization expense comprises a meaningful portion of its cost structure. The Company believes 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 when evaluating the operating performance for the entire Company as well as for individual properties or groups of properties because it believes 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 expense (income) that does not relate to the on-going performance of the Company's assets.  The Company excludes the following items from EBITDA to arrive at Adjusted EBITDA:

  • Other non-operating expenses, such as costs, associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, transaction costs related to business acquisitions, changes in the fair value of debt and equity instruments, miscellaneous litigation and settlement costs and other expenses that relate to the financing and investing activities of the Company;
  • Restructuring and disposal costs, which include expenses incurred related to the Company's corporate restructuring initiatives, such as professional fees, litigation and settlement costs, executive terminations and severance costs related to such restructuring initiatives, including the March 2014 corporate office termination plan and proxy contests, and gains or losses on asset disposals as part of major renovation projects or restructuring;
  • Development costs, including transaction costs related to the acquisition or termination of projects, internal development payroll and other costs and pre-opening expenses incurred related to new concepts at existing hotel and the development of new hotels, and the write-off of abandoned development projects previously capitalized;
  • Impairment losses on development projects and unconsolidated joint ventures.  The Company may incur additional non-cash impairment charges related to assets under development, wholly-owned assets, or its investments in joint ventures, including impairment related to uncollectible receivables from development projects and unconsolidated joint ventures.  The Company believes these adjustments are necessary to provide the most accurate measure of core operating results as a means to evaluate comparative results;
  • EBITDA related to hotels and food and beverage entities reported as discontinued operations to more accurately reflect the operating performance of assets in which the Company expects to have an ongoing direct or indirect ownership interest; 
  • Stock-based compensation expense, as this is not necessarily an indication of the operating performance of the Company's assets; and
  • Gains recognized on asset sales, as the Company believes that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of its assets.  In addition, the Company believes material gains or losses from the net book value of disposed assets is not particularly meaningful given that the depreciated asset value on which the gains are calculated often does not reflect market value of the assets.

The Company also makes an adjustment to EBITDA for hotels in which its percentage ownership interest has changed to facilitate period-over-period comparisons and to more accurately reflect the operating performance of assets based on its actual ownership.  In this respect, the Company's method of calculating Adjusted EBITDA may change from prior periods, and calculations of Adjusted EBITDA could continue to vary from quarter to quarter to reflect changing ownership interests.

The Company believes Adjusted EBITDA provides management and its investors with a more accurate financial metric by which to evaluate its 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 its core on-going operations and is used extensively during its annual budgeting process.  Management also uses Adjusted EBITDA as a measure in determining the value of acquisitions, expansion opportunities, and dispositions and borrowing capacity, and evaluating executive inventive compensation.  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. The Company's 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 the Company's results. Additionally, EBITDA and Adjusted EBITDA do not reflect capital expenditures and other investing activities and should not be considered as a measure of the Company's liquidity. The Company compensates for these limitations by providing the relevant disclosure of its depreciation, interest and income tax expense, capital expenditures and other items in its reconciliations to its financial measures under U.S. GAAP and/or in its consolidated financial statements, all of which should be considered when evaluating its performance. The term EBITDA is not defined under 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 the Company's operating performance, you should not consider this data in isolation, or as a substitute for the Company's net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP.

A reconciliation of net loss, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for each of the respective periods indicated is as follows:

 

EBITDA Reconciliation

(In thousands)

Three Months

Six Months

Ended June 30, 

Ended June 30, 

2015

2014

2015

2014

Net loss attributable to Morgans Hotel Group Co.

$             (6,641)

$            (9,719)

$           (19,465)

$          (33,854)

Interest expense, net

11,955

12,935

23,782

28,933

Income tax expense 

169

66

295

229

Depreciation and amortization expense

5,563

6,681

11,200

15,083

Proportionate share of interest expense from unconsolidated joint ventures

381

1,143

1,110

2,288

Proportionate share of depreciation expense from unconsolidated joint ventures

117

534

488

925

Net income attributable to noncontrolling interest

(13)

(20)

(41)

(73)

Proportionate share of loss from unconsolidated joint ventures not recorded due to negative investment balances

(1,050)

(1,340)

(1,912)

(2,799)

EBITDA 

10,481

10,280

15,457

10,732

Other non operating expenses 

1,552

430

3,207

1,126

Other non operating expense from unconsolidated joint ventures

472

602

879

1,218

Restructuring and disposal costs

593

3,981

2,542

11,224

Development costs

457

2,666

605

3,364

Impairment loss on development project and unconsolidated joint venture 

550

-

4,442

-

Stock based compensation expense

578

804

922

2,748

Gain on asset sales

(2,086)

(2,005)

(5,794)

(4,010)

Adjusted EBITDA 

$            12,597

$           16,758

$            22,260

$           26,402

Adjusted EBITDA, Excluding The Light Group

$            12,512

$           14,379

$            22,175

$           22,142

 

Hotel EBITDA Analysis (1)

(In thousands, except percentages)

Three Months

Six Months 

Ended June 30, 

%

Ended June 30, 

%

2015

2014

Change

2015

2014

Change

Hudson 

$      6,706

$      8,218

-18%

$      5,598

$      7,360

-24%

Delano South Beach  

3,872

4,261

-9%

12,045

12,211

-1%

Clift

2,270

1,981

15%

4,755

3,426

39%

Owned Comparable Hotels (2)

12,848

14,460

-11%

22,398

22,997

-3%

Mondrian South Beach - Joint Venture 

(78)

18

-533%

457

492

-7%

Mondrian SoHo (3)

-

925

-100%

112

1,145

-90%

Las Vegas restaurant leases (4)

662

995

-33%

1,817

2,259

-20%

Other Hotel and F&B EBITDA

584

1,938

130%

2,386

3,896

161%

Total Hotel and F&B EBITDA 

$     13,432

$     16,398

-18%

$     24,784

$     26,893

-8%

(1)  For joint venture hotel, represents the Company's share of the respective hotels' EBITDA, after management fees.

(2)  Reflects the Company's comparable owned hotels.

(3)  Effective March 6, 2015, the Company no longer holds any equity ownership in Mondrian SoHo, and effective April 27, 2015, the Company no longer managed this hotel.  For 2015, EBITDA reflects the Company's share of Mondrian SoHo's EBITDA, after management fees, for the period from January 1, 2015 through March 5, 2015.         

(4) Reflects EBITDA from the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas which the Company acquired in August 2012.

 

 

Owned Hotel Room Revenue Analysis

(In thousands, except percentages)

Three Months

Six Months 

Ended June 30, 

%

Ended June 30, 

%

2015

2014

Change

2015

2014

Change

Hudson

$     17,331

$     18,931

-8%

$     26,745

$     29,767

-10%

Delano South Beach 

5,574

6,120

-9%

14,074

15,288

-8%

Clift

8,086

8,067

0%

15,968

15,057

6%

Total Owned Hotels

$     30,991

$     33,118

-6%

$     56,787

$     60,112

-6%

Owned Hotel Revenue Analysis

Three Months

Six Months 

(In thousands, except percentages)

Ended June 30, 

%

Ended June 30, 

%

2015

2014

Change

2015

2014

Change

Hudson 

$     22,857

$     24,365

-6%

$     36,295

$     38,926

-7%

Delano South Beach

10,841

11,131

-3%

27,025

27,743

-3%

Clift

10,769

11,030

-2%

21,931

21,363

3%

Total Owned Hotels

$     44,467

$     46,526

-4%

$     85,251

$     88,032

-3%

 

Balance Sheets

(In thousands)

June 30, 

December 31, 

2015

2014

ASSETS:

Property and equipment, net 

$       269,949

$        277,825

Goodwill 

54,057

54,057

Investments in and advances to unconsolidated joint ventures 

6,600

10,492

Assets held for sale

-

34,284

Cash and cash equivalents 

32,994

13,493

Restricted cash 

13,391

13,939

Accounts receivable, net 

9,470

10,475

Related party receivables 

2,735

3,560

Prepaid expenses and other assets 

10,822

8,493

Deferred tax asset, net 

77,592

77,204

Other assets, net 

42,940

47,422

Total assets 

$       520,550

$        551,244

LIABILITIES and STOCKHOLDERS' DEFICIT:

Debt and capital lease obligations, net 

$       606,052

$        605,743

Accounts payable and accrued liabilities 

31,076

32,524

Accounts payable and accrued liabilities of assets held for sale

-

1,128

Deferred gain on asset sales

121,388

125,398

Other liabilities 

13,866

13,866

Total liabilities 

772,382

778,659

Redeemable noncontrolling interest 

-

5,042

Commitments and contingencies

Total Morgans Hotel Group Co. stockholders' deficit 

(252,340)

(233,006)

Noncontrolling interest 

508

549

Total deficit

(251,832)

(232,457)

Total liabilities, redeemable noncontrolling interest and stockholders' deficit

$       520,550

$        551,244

 

 

Contacts: Investors Richard Szymanski Morgans Hotel Group Co. 212.277.4188

Media Daniel Gagnier/ Nathaniel Garnick Sard Verbinnen & Co 212.687.8080

SOURCE Morgans Hotel Group Co.



RELATED LINKS

https://www.morganshotelgroup.com