Morgans Hotel Group Reports Fourth Quarter and Full Year 2010 Results

Mar 01, 2011, 16:44 ET from Morgans Hotel Group Co.

NEW YORK, March 1, 2011 /PRNewswire/ -- Morgans Hotel Group Co. (Nasdaq: MHGC) ("MHG" or the "Company") today reported financial results for the quarter and year ended December 31, 2010.

  • Adjusted EBITDA, was $18.4 million in the fourth quarter of 2010, an increase of 40.0% from the fourth quarter of 2009. For the full year 2010, Adjusted EBITDA was $53.0 million, an increase of 30.8% from 2009.
  • Operating margins for Owned Comparable Hotels increased by 440 basis points compared to the fourth quarter of 2009. Excluding unusual items in 2009, operating margins for Owned Comparable Hotels increased by 280 basis points. Operating margins for Owned Comparable Hotels increased by 250 basis points in 2010 compared to 2009.
  • The percentage increase in Adjusted EBITDA was 4.3x the percentage increase in revenue per available room ("RevPAR") for System-Wide Comparable Hotels for the fourth quarter of 2010. Excluding unusual items in 2009, the ratio was 3.0x. For the full year 2010, the ratio was 2.2x.
  • RevPAR for System-Wide Comparable Hotels increased by 5.2%, or 5.7% in constant dollars, in the fourth quarter of 2010 from the comparable period in 2009. The severe winter weather in December had a significant adverse impact on the New York, London and Miami markets resulting in a 10.2% RevPAR decline over the last two weeks of December. Prior to that, RevPAR was up 8.0%. For the full year, RevPAR for System-Wide Comparable Hotels increased by 9.7%, or 10.0% in constant dollars.
  • In February 2011, the Company opened the Mondrian in New York's SoHo neighborhood. The hotel consists of 270 rooms, two bars, an innovative sustainable seafood restaurant and spectacular views of the New York skyline.
  • MHG recently announced four new management agreements which include a Delano in Cabo San Lucas, Mexico, a Delano in Turkey, a Mondrian in Doha, Qatar and a hotel in New York to be branded with one of MHG's existing brands.

Fred Kleisner, CEO of Morgans Hotel Group, said: "2010 was a very good year and we were pleased to deliver increases in both RevPAR and EBITDA.  We posted continued growth in the fourth quarter, including exceptional growth in EBITDA.  With the improving hotel market, we expect favorable operating leverage and continued cost vigilance to allow us to deliver strong flow through from RevPAR to EBITDA in 2011. We remain excited about the prospects for the business; the new Mondrian SoHo becomes fully operational today and we recently announced four new management contracts for Morgans branded hotels in various markets around the world, underscoring the untapped potential of our brands.  We remain focused on executing our asset-light strategy and driving increased long-term value for shareholders."

Fourth Quarter 2010 Operating Results

Adjusted EBITDA for the fourth quarter of 2010 was $18.4 million, a $5.3 million or 40.0% increase from the fourth quarter of 2009 driven by improved operating margins due to RevPAR growth and a reduction in hotel operating expenses.

Operating margins for Owned Comparable Hotels increased by 440 basis points primarily due to lower selling, general and administrative expenses and reductions in real estate taxes due to successful appeals.  Excluding unusual items in 2009, which consisted of higher operating supply purchases to take advantage of extraordinary discounts, Owned Comparable Hotel operating margins increased by 280 basis points.

RevPAR at System-Wide Comparable Hotels increased by 5.2% (5.7% in constant dollars) in the fourth quarter of 2010 compared to the fourth quarter of 2009 driven by occupancy gains. The severe winter weather in December had a significant adverse impact on the New York, London and Miami markets during a popular vacation period resulting in a 10.2% RevPAR decline over the last two weeks of December. Prior to that, RevPAR for System-Wide Comparable Hotels was up 8.0%.

In New York, RevPAR increased by 5.9% with the majority of the increase driven by ADR. The adverse weather conditions affected results as RevPAR had increased by 8.0% prior to the storms.  

RevPAR increased by 11.4% in constant dollars at MHG's London hotels, despite the severe winter weather. All of the RevPAR increases were driven by ADR. Prior to the storms, RevPAR increased by 14.5% in constant dollars.

RevPAR increased by 1.6% at MHG's South Beach hotels. New York and Europe are the two primary feeder markets for our South Beach hotels and the difficult travel conditions resulted in a 13.2% RevPAR decline over the last two weeks of December. Prior to the storms, RevPAR increased by 5.1%.

RevPAR increased by approximately 5% in both Los Angeles and San Francisco, driven primarily by increases in occupancy,

MHG recorded a net loss of $6.7 million in the fourth quarter of 2010 compared to a loss of $51.3 million in the fourth quarter of 2009 as MHG reported higher operating income and lower interest expense in 2010.  The net loss in the fourth quarter of 2009 included higher impairment losses and a loss from discontinued operations.  

Balance Sheet and Liquidity

MHG's total consolidated debt at December 31, 2010, excluding the Clift lease and including the convertible notes at face value, is $586.0 million with a weighted average interest rate of 2.68%. As of December 31, 2010, MHG had $94 million of liquidity, which includes $89.0 million available under the line of credit. In addition, MHG has restricted cash of $28.8 million, primarily consisting of escrows for debt service, taxes, insurance and capital expenditures.  

Debt maturities in 2011 consist of $227.7 million secured by the Hudson hotel, $103.5 million secured by the Mondrian in LA hotel and $26.0 million under the line of credit secured by Delano, Royalton and Morgans. The Company is pursuing a number of options to finance the maturities including debt financing, asset sales and other sources. MHG believes that the combination of rising hotel cash flows and improving capital markets should provide sufficient capital to retire or refinance the debt and provide funds for growth.

MHG has net operating losses of approximately $220 million at December 31, 2010, which may be used to offset future income, including potential gains on the sale of assets or interests therein.    

As of December 31, 2010, MHG's total future capital commitments for development projects and joint ventures for the next 12 months are approximately $1.0 million, all of which relates to the Mondrian in SoHo.

In December 2010, the court granted MHG's motion for summary judgment and dismissed a complaint by the mezzanine lender on its former Scottsdale property seeking $15.9 million in damages. The lender appealed and the Company will continue to defend this lawsuit vigorously.

In January 2011, MHG transferred its interests in the property across the street from the Delano to an affiliate of the lender. As a result of the transaction, MHG was relieved of $10.5 million of non-recourse mortgage and mezzanine indebtedness that was previously consolidated on its balance sheet. The property across from Delano was a development property with no operations and generated no EBITDA.

Due to the continued difficulties in the Las Vegas market, the Hard Rock joint venture’s operating cash flows have not been sufficient to cover the aggregate debt service. There is a risk to MHG’s equity position and management agreement, which may be terminated by the lenders in the event of foreclosure or under certain other circumstances. The joint venture continues to be in discussions with the lenders to resolve the matter. MHG has consistently reduced its equity percentage in the Hard Rock joint venture over time, eventually writing off the entire investment in 2009. While the potential conclusion of the Hard Rock relationship would reduce MHG’s management fees in the short term, MHG has been focused on its existing brands such as Delano and Mondrian and has been successful in signing new and more secure contracts. MHG recently announced the opening of the Mondrian in SoHo and the signing of four new Morgans branded hotel management agreements including two for new Delano hotels.

Development Activity

In February 2011, MHG opened a new Mondrian hotel in the SoHo neighborhood in New York. This is MHG's third Mondrian hotel and it features 270 rooms, two exciting bars, an innovative seafood restaurant and spectacular views. The hotel is owned through a joint venture in which MHG has a 20% interest. MHG is managing the hotel under a 10 year contract with two 10 year extension options.  

In February 2011, MHG announced a new management agreement for a 265 room Mondrian hotel in Doha, Qatar. The hotel is located in the prestigious neighborhood of West Bay Lagoon and is currently under construction and due to open in 2013.

In February 2011, MHG announced a new management agreement for a 200 room Delano hotel at an exclusive resort on the Aegean Sea in Turkey. This will be Morgans' first hotel in the region and it is expected to open in 2013.

In February 2011, MHG announced a new management agreement for a 114 room Delano hotel in Mexico, on the beach at the tip of the Baja Peninsula in Cabo San Lucas. The hotel is currently under construction and is expected to open in 2013.

In February 2011, MHG announced a new management agreement for a 175 room hotel in New York in the Highline area. The hotel will be branded with one of Morgans' brands and is expected to open in 2014.  

MHG continues to focus on enhancing its existing assets and has been re-concepting several food and beverage venues to improve profitability.  In October 2010, MHG opened a new restaurant at Royalton, Forty Four, which features "The Cocktail Collective", a group of all-star bartenders from across the United States creating a unique cocktail menu.  Additionally, in May 2010, MHG opened a new restaurant at Hudson, Hudson Hall, reminiscent of an Ivy League mess hall.  MHG's event venue at Hudson, Good Units, which opened in early 2010, received all necessary licenses to hold additional events during the third quarter of 2010, and is continuing to host successful events.          

2011 Outlook

It continues to be difficult to predict results given the short term booking patterns and transient nature of the hotel business. As we have seen in recent months, travel patterns can be volatile making prior year comparisons challenging. In the first quarter of 2011 in particular, it's important to note that our results may be less than the first quarter of 2010, primarily due to last year's exceptional results in Miami which hosted the Super Bowl.

MHG believes that if the RevPAR increase at System-Wide Comparable Hotels for 2011 compared to 2010 is between 7% to 9% it should result in Adjusted EBITDA in the $52 million to $54 million range assuming our ownership levels remain the same. This reflects the addition of Mondrian in SoHo and assumes the termination of the Hard Rock management agreement.

Conference Call

MHG will host a conference call to discuss the fourth quarter financial results today at 5:00 PM Eastern time.

The call will be webcast live over the Internet at www.morganshotelgroup.com under the About Us, Investor Overview section.  Participants should follow the instructions provided on the website for the download and installation of audio applications necessary to join the webcast.  The call can also be accessed live over the phone by dialing (888) 802-8577 or (973) 935-8754 for international callers; the conference ID is 36254628. A replay of the call will be available two hours after the call and can be accessed by dialing (800) 642-1687 or (706) 645-9291 for international callers; the conference ID is 36254628. The replay will be available from March 1, 2011 through March 8, 2011.

Definitions

"Owned Comparable Hotels" includes all wholly-owned hotels operated by MHG except for hotels under renovation during the current or the prior year, development projects and discontinued operations.  Owned Comparable Hotels for the three and twelve months ended December 31, 2010 and 2009 excludes Mondrian Scottsdale, which was classified as a discontinued operation in 2010 and effective March 16, 2010 was no longer owned or managed by MHG.  

"System-Wide Comparable Hotels" includes all hotels operated by MHG except for hotels added or under renovation during the current or the prior year, development projects and discontinued operations.  System-Wide Comparable Hotels for the three and twelve  months ended December 31, 2010 and 2009 excludes the Hard Rock Hotel & Casino in Las Vegas ("Hard Rock"), which was under renovation and expansion in 2009, Mondrian Scottsdale, which was classified as a discontinued operation in 2010 and effective March 16, 2010 was no longer owned or managed by MHG, and Ames in Boston, the San Juan Water and Beach Club, and Hotel Las Palapas, which MHG began managing in the fourth quarter of 2009.

"Adjusted EBITDA" is adjusted earnings before interest, taxes, depreciation and amortization as further defined below.

About Morgans Hotel Group

Morgans Hotel Group Co. (Nasdaq: MHGC) is widely credited as the creator of the first "boutique" hotel and a continuing leader of the hotel industry's boutique sector.  Morgans Hotel Group operates and owns, or has an ownership interest in, Morgans, Royalton and Hudson in New York, Delano and Shore Club in South Beach, Mondrian in Los Angeles, South Beach and New York, Clift in San Francisco, Ames in Boston, and Sanderson and St Martins Lane in London. Morgans Hotel Group also manages hotels in Isla Verde, Puerto Rico and Playa del Carmen, Mexico.  Morgans Hotel Group has other property transactions in various stages of completion including a Delano in Cabo San Lucas, Mexico, a Delano in Turkey, a Mondrian in Doha, Qatar and a hotel in New York to be branded with one of MHG's existing brands. For more information please visit www.morganshotelgroup.com.

Forward-Looking and Cautionary Statements

This press release may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs and prediction of certain future events. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" "believe," "project," or other similar words or expressions. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results or other future events to differ materially from those expressed in any forward-looking statement. Important risks and factors that could cause our actual results to differ materially from those expressed in any forward-looking statements include, but are not limited to, the need for lender approval of any amendments to our loan agreements, economic, business, competitive market and regulatory conditions such as: a sustained downturn in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; continued tightness in the global credit markets; general volatility of the capital markets and our ability to access the capital markets; our ability to refinance our current outstanding debt and to repay outstanding debt as such debt matures; our ability to protect the value of our name, image and brands and our intellectual property;  risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; hostilities, including future terrorist attacks, or fear of hostilities that affect travel;  and  other risk factors discussed in MHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Quarterly Reports on form 10-Q for the quarters ended June 30, 2010 and September 30, 2010 and other documents filed by MHG with the Securities and Exchange Commission from time to time.  All forward-looking statements in this press release are made as of the date hereof, based upon information known to management as of the date hereof, and MHG assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized.

Income Statement






(In thousands, except per share amounts)








Three Months


Year Ended



Ended December 31,


Ended December 31,



2010

2009


2010

2009








Revenues :







Rooms


$                39,825

$                38,155


$             139,268

$              127,188

Food & beverage

18,389

18,203


69,451

73,278

Other hotel


2,583

2,724


9,313

9,512


Total hotel revenues

60,797

59,082


218,032

209,978

Management  and other fees

4,259

3,763


18,338

15,073


Total revenues

65,056

62,845


236,370

225,051








Operating Costs and Expenses :






Rooms


11,243

11,551


42,620

41,602

Food & beverage

15,701

14,636


58,227

56,492

Other departmental

1,470

1,711


5,304

6,159

Hotel selling, general and administrative

12,693

13,551


48,216

47,705

Property taxes, insurance and other

3,772

4,737


16,233

17,599


Total hotel operating expenses

44,879

46,186


170,600

169,557

Corporate expenses :







Stock based compensation

1,995

2,959


10,887

11,763


Other

5,273

5,261


23,651

21,751

Depreciation and amortization

8,629

7,344


32,158

29,623

Restructuring, development and disposal costs

986

4,063


3,916

6,083

Impairment loss on receivables from unconsolidated joint ventures

50

-


5,549

-


Total operating costs and expenses

61,812

65,813


246,761

238,777


Operating loss

3,244

(2,968)


(10,391)

(13,726)








Interest expense, net

8,288

13,292


41,346

48,557

Interest expense on hotel held for non sale disposition

288

318


1,137

844

Equity in loss of unconsolidated joint ventures

6,766

11,155


16,203

33,075

Impairment loss on property held for non sale disposition

-

-


-

11,913

Other non-operating (income) expense

(2,713)

(4,015)


33,076

(2,081)









Pre tax loss

(9,385)

(23,718)


(102,153)

(106,034)


Income tax expense (benefit)

(2,448)

17,820


(1,913)

(16,799)


Net loss from continuing operations

(6,937)

(41,538)


(100,240)

(89,235)









Income (loss) from discontinued operations, net of tax

$                         8

$               (11,212)


$               17,170

$               (12,370)









Net loss

(6,929)

(52,750)


(83,070)

(101,605)









Net loss attributable to noncontrolling interest

$                     188

$                  1,482


$                 2,221

$                  1,881









Net loss attributable to Morgans Hotel Group Co.

$                (6,741)

$               (51,268)


$             (80,849)

$               (99,724)









Preferred stock dividends and accretion

$                (2,197)

$                 (1,746)


$               (8,554)

$                 (1,746)









Net loss attributable to common stockholders

$                (8,938)

$               (53,014)


$             (89,403)

$             (101,470)









(Loss) income  per share:







Basic and diluted from continuing operations

$                  (0.30)

$                   (1.41)


$                 (3.49)

$                   (2.97)


Basic and diluted from discontinued operations

$                    0.00

$                   (0.37)


$                   0.56

$                   (0.41)


Basic and diluted attributable to common stockholders

$                  (0.30)

$                   (1.78)


$                 (2.93)

$                   (3.38)









Weighted average common shares outstanding - basic and diluted

30,284

29,714


30,563

30,017




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



Year





Ended Dec. 31,

%


Ended Dec. 31,

%


Ended Dec. 31,

%


Ended Dec. 31,

%




2010

2009

Change


2010

2009

Change


2010

2009

Change


2010

2009

Change


Morgans



















Occupancy

89.2%

92.8%

-3.9%






89.8%

87.0%

3.2%







ADR

$       318.33

$       301.92

5.4%






$    261.33

$       244.93

6.7%







RevPAR

$       283.95

$       280.18

1.3%






$    234.67

$       213.09

10.1%
























Royalton



















Occupancy

88.3%

91.9%

-3.9%






88.5%

87.1%

1.6%







ADR

$       367.29

$       335.61

9.4%






$    293.89

$       276.02

6.5%







RevPAR

$       324.32

$       308.43

5.2%






$    260.09

$       240.41

8.2%
























Hudson



















Occupancy

91.2%

87.4%

4.3%






88.6%

83.8%

5.7%







ADR

$       253.47

$       247.47

2.4%






$    213.33

$       199.96

6.7%







RevPAR

$       231.16

$       216.29

6.9%






$    189.01

$       167.57

12.8%
























Delano



















Occupancy

64.2%

62.3%

3.0%






61.1%

62.3%

-1.9%







ADR

$       470.67

$       504.26

-6.7%






$    479.93

$       488.30

-1.7%







RevPAR

$       302.17

$       314.15

-3.8%






$    293.24

$       304.21

-3.6%
























Mondrian LA


















Occupancy

69.2%

64.2%

7.8%






71.2%

63.4%

12.3%







ADR

$       247.25

$       253.31

-2.4%






$    257.38

$       264.22

-2.6%







RevPAR

$       171.10

$       162.63

5.2%






$    183.25

$       167.52

9.4%
























Clift



















Occupancy

81.1%

65.7%

23.4%






76.9%

65.5%

17.4%







ADR

$       179.52

$       212.15

-15.4%






$    187.22

$       200.70

-6.7%







RevPAR

$       145.59

$       139.38

4.5%






$    143.97

$       131.46

9.5%
























Total Owned Comparable Hotels


















Occupancy

83.4%

78.5%

6.2%






81.5%

76.0%

7.2%







ADR

$       270.46

$       275.84

-2.0%






$    244.39

$       241.78

1.1%







RevPAR

$       225.56

$       216.46

4.2%






$    199.18

$       183.75

8.4%










































St. Martins Lane


















Occupancy

77.6%

79.4%

-2.3%


77.6%

79.4%

-2.3%


76.1%

74.4%

2.3%


76.1%

74.4%

2.3%



ADR

$       394.37

$       364.87

8.1%


$    385.50

$    345.54

11.6%


$    359.88

$       322.57

11.6%


$    359.88

$    318.53

13.0%



RevPAR

$       306.03

$       289.71

5.6%


$    299.15

$    274.36

9.0%


$    273.87

$       239.99

14.1%


$    273.87

$    236.99

15.6%




















Sanderson



















Occupancy

79.3%

80.0%

-0.9%


79.3%

80.0%

-0.9%


76.8%

71.8%

7.0%


76.8%

71.8%

7.0%



ADR

$       467.31

$       419.35

11.4%


$    456.80

$    397.14

15.0%


$    419.50

$       386.29

8.6%


$    419.50

$    381.45

10.0%



RevPAR

$       370.58

$       335.48

10.5%


$    362.24

$    317.71

14.0%


$    322.18

$       277.36

16.2%


$    322.18

$    273.88

17.6%




















Shore Club



















Occupancy

54.5%

52.0%

4.8%






55.0%

50.8%

8.3%







ADR

$       278.66

$       302.18

-7.8%






$    284.65

$       307.09

-7.3%







RevPAR

$       151.87

$       157.13

-3.3%






$    156.56

$       156.00

0.4%
























Mondrian South Beach


















Occupancy

66.8%

62.2%

7.4%






59.4%

51.2%

16.0%







ADR

$       234.69

$       220.87

6.3%






$    232.19

$       221.11

5.0%







RevPAR

$       156.77

$       137.38

14.1%






$    137.92

$       113.21

21.8%
























System-wide Comparable Hotels


















Occupancy

78.1%

74.1%

5.4%


78.1%

74.1%

5.4%


75.8%

70.4%

7.7%


75.8%

70.4%

7.7%



ADR

$       287.48

$       288.01

-0.2%


$    286.29

$    285.28

0.4%


$    264.17

$       259.26

1.9%


$    264.17

$    258.69

2.1%



RevPAR

$       224.52

$       213.42

5.2%


$    223.59

$    211.44

5.7%


$    200.24

$       182.52

9.7%


$    200.24

$    182.12

10.0%




















Hard Rock  (2)


















Occupancy

72.5%

84.2%

-13.9%






78.3%

88.2%

-11.2%







ADR

$       118.66

$       113.09

4.9%






$    128.09

$       133.98

-4.4%







RevPAR

$         86.03

$         95.22

-9.7%






$    100.29

$       118.17

-15.1%
























Ames (3)



















Occupancy

70.4%

33.4%

n/m






67.8%

33.4%

n/m







ADR

$       229.00

$       174.96

n/m






$    217.14

$       174.96

n/m







RevPAR

$       161.22

$         58.44

n/m






$    147.22

$         58.44

n/m
























San Juan Water and Beach Club (4)


















Occupancy

44.0%

0.0%

n/m






59.1%

0.0%

n/m







ADR

$       115.52

$               -

n/m






$    129.80

$               -

n/m







RevPAR

$         50.83

$               -

n/m






$      76.71

$               -

n/m
























Hotel Las Palapas (4)


















Occupancy

51.1%

74.7%

n/m


51.1%

74.7%

n/m


56.0%

74.7%

n/m


56.0%

74.7%

n/m



ADR

$       143.88

$       175.40

n/m


$    140.12

$    180.23

n/m


$    140.25

$       175.40

n/m


$    139.31

$    180.23

n/m



RevPAR

$         73.52

$       130.95

n/m


$      71.60

$    134.63

n/m


$      78.54

$       130.95

n/m


$      78.01

$    134.63

n/m









































































 (1) Not included in the above table are discontinued operations.    


 (2) As customary in the gaming industry, we present average occupancy and average daily rate for the Hard Rock including  

 rooms provided on a complimentary basis which is not the practice in the lodging industry  


 (3) Ames opened in November 2009.  Statistics are for the period the hotel was open.    


 (4) MHG began managing these hotels in the fourth quarter of 2009.  Statistics are for the period MHG operated the hotels.  MHG anticipates that both hotels will be re-developed in the future into Morgans Hotel Group branded hotels, once funding is available to the hotel owners.  As the hotels are currently not branded hotels, MHG believes that the hotel operating data does not provide a meaningful depiction of the performance of Morgans Hotel Group branded hotels.    



Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

We believe that earnings before interest, income taxes, depreciation and amortization (EBITDA) is a useful financial metric to assess our operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between us and our competitors. Given the significant investments that we have made in the past in property and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. We believe that EBITDA will provide investors with a useful tool for assessing the comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures.

The Company's management has historically used adjusted EBITDA (Adjusted EBITDA) when evaluating the operating performance for the entire Company as well as for individual properties or groups of properties because we believe the Company's core business model is that of an owner and operator of hotels, and the inclusion or exclusion of certain items is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period.  As such, Adjusted EBITDA excludes other non-operating expenses (income) that do not relate to the on-going performance of our assets and excludes the operating performance of assets in which we do not have a direct or indirect fee simple ownership interest.  We exclude the following items from EBITDA to arrive at Adjusted EBITDA:

  • Other non-operating expenses (income), such as executive terminations not related to restructuring initiatives discussed below, costs of financings, litigation and settlement costs and other items such as proceeds from the sale of condominium units and related costs that relate to the financing and investing activities of our assets and not to the on-going operating performance of our assets, both consolidated and unconsolidated, and changes in fair market value of the warrants issued to investors in the Company;
  • Restructuring, development and disposal costs: these charges primarily relate to losses on asset disposals as part of major renovation projects and the write-off of abandoned development projects resulting primarily from events generally outside management's control such as the tightening of credit markets. We believe that these charges do not relate to the ongoing operating performance of our assets as measured by Adjusted EBITDA.
  • Impairment loss on development projects, hotels, investments in joint ventures and receivables from joint ventures: these charges do not relate to the ongoing operating performance of our assets as measured by Adjusted EBITDA.  To the extent that economic conditions do not continue to improve, we may incur additional non-cash impairment charges related to assets under development, wholly-owned assets, or investments in joint ventures.  We believe these adjustments are necessary to provide the most accurate measure of core operating results as a means to evaluate comparative results.  
  • The EBITDA related to leased hotels to more accurately reflect the operating performance of assets in which we have a direct or indirect fee simple ownership interest;
  • The EBITDA related to hotels reported as discontinued operations to more accurately reflect the operating performance of assets in which we expect to have an ongoing direct or indirect ownership interest; and
  • Stock-based compensation expense, as this is not necessarily an indication of the operating performance of our assets.

We also make an adjustment to EBITDA for hotels in which our percentage ownership interest has changed to facilitate period-over-period comparisons and to more accurately reflect the operating performance of assets based on our actual ownership.   In this respect, our method of calculating Adjusted EBITDA has changed from prior quarters, and calculations of Adjusted EBITDA will continue to vary from quarter to quarter to reflect changing ownership interests.

We believe Adjusted EBITDA provides management and our investors with a more accurate financial metric by which to evaluate our performance as it eliminates the impact of costs incurred related to investing and financing transactions.  Internally, the Company's management utilizes Adjusted EBITDA to measure the performance of our core on-going hotel operations and is used extensively during our annual budgeting process.  Management also uses Adjusted EBITDA as a measure in determining the value of acquisitions, expansion opportunities, and dispositions and borrowing capacity.  Adjusted EBITDA is a key metric which management evaluates prior to execution of any strategic investing or financing opportunity.  

The Company has historically reported Adjusted EBITDA to its investors and believes that this continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and to evaluate the results of its core on-going operations.    

The use of EBITDA and Adjusted EBITDA has certain limitations. Our presentation of EBITDA and Adjusted EBITDA may be different from the presentation used by other companies and therefore comparability may be limited. Depreciation expense for various long-term assets, interest expense, income taxes and other items have been and will be incurred and are not reflected in the presentation of EBITDA or Adjusted EBITDA. Each of these items should also be considered in the overall evaluation of our results. Additionally, EBITDA and Adjusted EBITDA do not reflect capital expenditures and other investing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation, interest and income tax expense, capital expenditures and other items both in our reconciliations to our GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA is not defined under accounting principles generally accepted in the United States, or U.S. GAAP, and EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. In addition, EBITDA is impacted by reorganization of businesses and other restructuring-related charges. When assessing our operating performance, you should not consider this data in isolation, or as a substitute for our net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do.

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

EBITDA Reconciliation






(In thousands)

Three Months


Year


Ended December 31,


Ended December 31,


2010

2009


2010

2009













Net loss

$                    (6,741)

$                (51,268)


$             (80,849)

$             (99,724)

Interest expense, net

8,576

13,610


42,483

49,401

Income tax (benefit) expense

(2,448)

17,820


(1,913)

(16,799)

Depreciation and amortization expense

8,629

7,344


32,158

29,623

Proportionate share of interest expense






from unconsolidated joint ventures

3,768

5,320


15,392

23,728

Proportionate share of depreciation expense






from unconsolidated joint ventures

1,953

2,328


11,884

8,439

Proportionate share of depreciation expense






of minority interests in consolidated joint ventures

(95)

(76)


(361)

(325)

Net income attributable to noncontrolling interest

(216)

(1,706)


(2,649)

(3,321)

Proportionate share of loss from unconsolidated






 joint ventures not recorded due to negative investment






 balances

(3,144)

(21,508)


(15,283)

(35,189)







EBITDA

10,282

(28,136)


862

(44,167)







Add : Other non operating expense

(2,713)

(4,015)


33,076

(2,081)

Add : Other non operating expense  from unconsolidated






 joint ventures

8,432

26,877


17,722

45,486

Add:  Restructuring, development and disposal costs

986

4,063


3,916

6,083

Add:  Impairment loss

50

-


5,549

11,913

Less : EBITDA from Clift, a leased hotel

(633)

(234)


(1,844)

(316)

Add : Stock based compensation

1,995

2,959


10,887

11,763

Less: (Loss) Income from hotel ownership changes






  and discontinued operations

(8)

11,625


(17,170)

11,843













Adjusted EBITDA

$                   18,391

$                  13,139


$               52,998

$               40,524









Owned Comparable Hotel Room Revenue Analysis

(In thousands, except percentages)


Three Months



Year





Ended December 31,

%


Ended December 31,

%




2010

2009

Change


2010

2009

Change












Morgans


$           2,979

$           2,937

1%


$           9,767

$           8,867

10%


Royalton


5,013

4,768

5%


15,952

14,747

8%


Hudson


17,724

16,530

7%


57,360

49,853

15%


Delano


5,392

5,606

-4%


20,780

21,539

-4%


Mondrian LA

3,733

3,546

5%


15,862

14,483

10%


Clift


4,984

4,768

5%


19,547

17,700

10%



Total Owned Comparable Hotels

$         39,825

$         38,155

4%


$       139,268

$       127,189

9%














Owned Comparable Hotel Revenue Analysis

(In thousands, except percentages)


Three Months



Year




Ended December 31,

%


Ended December 31,

%




2010

2009

Change


2010

2009

Change












Morgans


$           5,015

$           5,121

-2%


$         17,543

$         17,159

2%


Royalton


6,591

6,498

1%


20,969

20,375

3%


Hudson


22,304

20,015

11%


72,804

65,663

11%


Delano


11,255

11,539

-2%


43,628

44,814

-3%


Mondrian LA

7,424

7,324

1%


31,727

31,266

1%


Clift


8,208

8,586

-4%


31,361

30,702

2%



Total Owned Comparable Hotels

$         60,797

$         59,083

3%


$       218,032

$       209,979

4%




Hotel EBITDA Analysis








(In thousands, except percentages)










Three Months



Year




Ended December 31,

%


Ended December 31, (1)

%



2010

2009 (1)

Change


2010

2009

Change










Morgans


$           1,174

$              677

73%


$           1,811

$              490

270%

Royalton  


1,390

1,550

-10%


2,015

1,971

2%

Hudson


7,002

5,143

36%


17,432

13,142

33%

Delano


3,374

3,694

-9%


13,169

14,123

-7%

Mondrian LA

2,193

1,409

56%


10,349

9,039

14%

Clift


633

234

171%


1,844

316

484%


Owned Comparable Hotels

15,766

12,707

24%


46,620

39,081

19%










St Martins Lane

1,968

1,884

4%


5,867

5,242

12%

Sanderson


1,334

1,119

19%


3,972

3,204

24%

Shore Club


11

83

-87%


218

328

-34%

Mondrian South Beach

159

(54)

-394%


92

(1,232)

-107%


Joint Venture Comparable Hotels

3,472

3,032

15%


10,149

7,542

35%











Total System-Wide Comparable Hotels

19,238

15,739

22%


56,769

46,623

22%










Hard Rock - Joint Venture

645

(1,183)

-155%


3,162

1,348

135%

Ames - Joint Venture

103

(123)

n/m


114

(123)

n/m











Total Hotels

$         19,986

$         14,433

38%


$         60,045

$         47,848

25%



















(1)  Excludes Mondrian Scottsdale.  Mondrian Scottsdale was classified as a "discontinued operation" in 2010, and effective March 16, 2010, was no longer owned or managed by the Company.



Adjusted EBITDA and Debt Analysis






(In thousands)















Adjusted







EBITDA







Twelve Months







Ended


Outstanding Debt at



Consolidated Operations

Dec. 31, 2010


Dec. 31, 2010










Morgans


1,811





Royalton


2,015





Delano


13,169






Sub - total for Hotels Securing Revolver

16,995


$                26,008










Hudson


17,432


227,662



Mondrian LA

10,349


103,496










Management Fees

18,338





Corporate Expenses

(23,651)





Other Debt (1)

-


224,468











Total

$             39,463


581,634










Less: Cash




(5,250)



Net Debt




$              576,384

















(1)  Includes outstanding debt on convertible notes, trust preferred securities, and the promissory notes on the property
across the street from Delano Miami, and excludes the lease obligation at Clift.





















Proportionate







Share of







Adjusted EBITDA


Proportionate





Twelve Months


Share of



Ownership


Ended


Debt

Joint Venture Comparable Hotels (1)

Percentage


Dec. 31, 2010


Dec. 31, 2010








Sanderson and St. Martins Lane

50%


$                  9,839


$              77,306

Shore Club


7%


218


8,364

Mondrian South Beach

50%


92


47,309

Ames


31%


114


14,406








(1)  Includes information only for System-Wide Comparable Hotels that are owned by joint ventures



Balance Sheet




(In thousands)





Dec. 31,


Dec 31,


2010


2009





ASSETS:




Property and equipment, net

$            459,591


$              478,189

Goodwill

73,698


73,698

Investments in and advances to unconsolidated joint ventures

20,450


32,445

Investment in discontinued operation, net

-


23,977

Investment in property held for non-sale disposition, net

9,775


10,113

Cash and cash equivalents

5,250


68,956

Restricted cash

28,783


21,109

Accounts receivable, net

8,088


6,531

Related party receivables

3,834


9,522

Prepaid expenses and other assets

10,090


10,793

Deferred tax asset, net

82,438


83,980

Other, net

15,073


18,925

Total assets

$            717,070


$              838,238





LIABILITIES and STOCKHOLDERS' (DEFICIT) EQUITY:




Debt and capital lease obligations, net

$            662,275


$              688,513

Mortgage debt of discontinued operation

-


40,000

Mortgage debt of property held for non-sale disposition

10,500


10,500

Accounts payable and accrued liabilities

26,994


29,821

Accounts payable and accrued liabilities of discontinued operations

-


1,455

Accounts payable and accrued liabilities of property held for non-sale disposition

1,162


504

Distributions and losses in excess of investment in unconsolidated joint ventures

1,509


2,740

Other liabilities

13,866


41,294

Total liabilities

716,306


814,827





Total Morgans Hotel Group Co. stockholders’ (deficit) equity

(10,170)


9,020

Noncontrolling interest

10,934


14,391

Total stockholders' equity

764


23,411





Total liabilities and stockholders' equity

$            717,070


$              838,238



SOURCE Morgans Hotel Group Co.



RELATED LINKS

http://www.morganshotelgroup.com