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| Morgans Hotel Group Reports First Quarter 2008 Results |
NEW YORK--(BUSINESS WIRE)--May 8, 2008--Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG") today reported financial results for the first quarter ended March 31, 2008.
Highlights
-- Revenue per available room ("RevPAR") growth for Owned
Comparable Hotels(1) increased by 5.6% over the first quarter
of 2007.
-- RevPAR for System-Wide Comparable Hotels(2) increased by 1.5%
over the comparable period in 2007. Excluding the impact of
the Super Bowl in Miami in 2007 and Phoenix in 2008, RevPAR
for System-Wide Comparable Hotels increased by 5.4% over the
comparable period in 2007.
-- Room revenues from international guests at System-Wide
Comparable Hotels in the U.S. increased by approximately 32%
to 31.7% of revenues in the first quarter of 2008 as compared
to 24.1% in the comparable period in 2007.
-- Adjusted earnings before interest, taxes, depreciation and
amortization ("Adjusted EBITDA," as further described below)
increased by 1.5% from the prior year period to $21.6 million.
Excluding Mondrian LA, which was under renovation during the
first quarter of 2008, Adjusted EBITDA increased by 12.5%.
-- Operating expense increases at System-Wide Comparable Hotels
during the first quarter of 2008 were limited to 2% over the
same period in the prior year due to the implementation of
contingency plans put in effect in anticipation of an economic
slowdown.
-- We repurchased 1.2 million shares of company stock for $19.2
million in the first quarter of 2008.
-- We began operating the casino at the Hard Rock Hotel & Casino
in March 2008 and generated a year over year revenue increase
of 9.7% at the casino in April 2008 over the comparable period
in 2007.
(1) "Owned Comparable Hotels" includes all wholly owned hotels operated by MHG except for hotels added during or after the relevant comparison period for the prior year, hotels under renovation and development projects. Owned Comparable Hotels for the first quarter of 2008 excludes Mondrian LA, which was under renovation in the first quarter of 2008. (2) "System-Wide Comparable Hotels" includes all hotels operated by MHG except for hotels added during or after the relevant comparison period for the prior year, hotels under renovation and development projects. System-Wide Comparable Hotels for the first quarter of 2008 excludes Mondrian LA which was under renovation in the first quarter of 2008, and the Hard Rock Hotel & Casino in Las Vegas ("Hard Rock"), which was added in February 2007. "The diverse sources of demand in our markets along with a focus on cost containment enabled us to deliver a strong performance," said Fred Kleisner, President and Chief Executive Officer of MHG. "The impact of the Super Bowl made comparisons challenging. Excluding this five day period in both years, our System-Wide Comparable Hotel RevPAR growth was 5.4%, well in excess of domestic industry averages. International travel to our System-Wide Comparable Hotels in the U.S. increased by 32% and this helped offset declines in domestic business. We also implemented a cost containment plan which enabled us to limit our expense growth. We believe that we are well positioned in this current uncertain economic environment." "We are keenly focused on transforming our development projects into EBITDA producing assets. We are on track to complete the Mondrian LA and Morgans renovations by the end of the third quarter. Our Mondrian South Beach project is scheduled to open in late 2008 and we have begun construction work at Mondrian SoHo and the expansion at Hard Rock. We are making progress on owned projects like the Gale in South Beach and the unused space at Hudson. We look forward to the growth that we expect these projects to generate in the coming years. With a cash balance of $81 million at March 31, 2008 and three unencumbered assets in attractive locations, we believe we have the resources for growth." First Quarter Operating Results RevPAR for MHG's System-Wide Comparable Hotels was $277.82, an increase of 1.5% for the first quarter of 2008 over the comparable period in 2007. RevPAR at Owned Comparable Hotels increased by 5.6% to $252.54. The results for the quarter were affected by the Super Bowl which was held in Miami in 2007 and Phoenix in 2008. Excluding the impact of these events in both years, RevPAR at System-Wide Comparable Hotels increased by 5.4% in the first quarter of 2008 as compared to the same period in 2007. Results for the first quarter of 2008 also included the negative impact of the timing of Easter which occurred in March in 2008 as compared to April in 2007. Adjusted EBITDA increased by 1.5% to $21.6 million. EBITDA margins at System-Wide Comparable Hotels were even with the prior year. Strong international business along with positive market trends drove results in San Francisco, New York and Miami. Excluding the impact of the Super Bowl, RevPAR at Delano and Shore Club in South Beach rose by 9.4% and 4.8%, respectively. The increase in business from our international guests offset declines in domestic travel. For the first quarter of 2008, international visitors represented 31.7% of room revenues at System-Wide Comparable Hotels in the U.S. as compared to 24.1% in the prior year's quarter. MHG recorded a net loss of $7.0 million for the first quarter of 2008, compared to net income of $0.4 million for the first quarter of 2007 primarily due to one-time non-operating income in 2007 and an increase in equity in losses at unconsolidated joint ventures in 2008. Balance Sheet and Financing As of March 31, 2008, consolidated debt, which includes long-term debt and capital lease obligations, was $729.5 million including $80.5 million of lease obligations related to Clift. In addition, MHG had cash and cash equivalents of $81.3 million. There were no borrowings outstanding under MHG's $225 million revolving credit facility which is secured by three of MHG's owned hotels, Delano, Royalton and Morgans. All of MHG's long-term debt at March 31, 2008 was at fixed rates, either directly or as a result of hedging arrangements. As of March 31, 2008, MHG had approximately $268.9 million invested in non-EBITDA producing assets including consolidated assets, equity investments in joint ventures and its proportionate share of joint venture debt. These projects included Mondrian South Beach, excess land and branding rights at Hard Rock, Mondrian Las Vegas, Delano Las Vegas, the Gale, Mondrian SoHo and Mondrian Chicago. In the first quarter of 2008, MHG repurchased 1.2 million shares of its common stock at an average price of $16.54 for a total of $19.2 million. Development Activity The following outlines the anticipated opening dates of MHG's new projects and expected completion dates of its renovation projects:
2008 2009 2010
------ ------ ------
Mondrian Los Angeles Renovations x
Morgans Renovations x
Mondrian South Beach x
Hard Rock Expansion x
Mondrian SoHo x
The Gale x
Hudson unused space x
Mondrian Chicago x
Delano Las Vegas x
Mondrian Las Vegas x
Mondrian Palm Springs x
All of the projects expected to be completed in 2008 and 2009 have financing in place. Given the current state of the credit markets, obtaining adequate project financing may be challenging for some of our joint venture projects, which could result in changes in the scope of projects, delays or cancellations. Guidance For 2008 MHG is reiterating its guidance for 2008 which it previously disclosed in March 2008. The outlook is based upon MHG's expectations for the U.S. economy, hotel supply growth and demand levels in the luxury lodging sector and, in particular, in MHG's markets. While trends in most of the company's markets remain positive, the uncertainty in the U.S. economy and the transient nature of the company's business makes it difficult to forecast 2008 results with a high degree of accuracy. In addition, the company is undertaking a number of renovation construction projects which may not be completed in the projected timeframe or may result in higher revenue displacement than currently estimated by the company.
2008 Guidance:
-------------------------------------------
System-Wide Comparable Hotel RevPAR Growth: 5% to 7%
Adjusted EBITDA: $110 million to $115
million
The above amounts anticipate approximately $12.0 to $15.0 million in EBITDA displacement due to the renovations planned at Mondrian LA, Morgans and Hard Rock. Due to these renovations, MHG believes that the 2008 Adjusted EBITDA level is not indicative of the normalized "run rate" Adjusted EBITDA of the portfolio. Based on current estimates, in 2008 MHG plans to spend approximately $75.0 million to fund equity investments in unconsolidated joint ventures of which approximately $50.0 million relates to the Echelon joint venture with Boyd Gaming. MHG also plans to spend approximately $50.0 million in 2008 on renovations of existing hotels and expansion opportunities at owned assets. The guidance also assumes a 33% interest in the Hard Rock joint venture. MHG's ownership interest based on cash contributions was 32% at March 31, 2008 and is expected to decrease further, resulting in a lower proportionate share of both Adjusted EBITDA and Adjusted Debt. MHG does not currently anticipate funding its pro-rata share of such equity requirements. MHG plans to fund the above expenditures from its existing cash and cash equivalents and cash flow from operations after the funding of routine capital expenditures. Conference Call MHG will host a conference call to discuss the first 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 800-683-1525 or 973-872-3197 for international callers; the password is 45774481. 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 password is 45774481. The replay will be available from May 8, 2008 through May 15, 2008. About Morgans Hotel Group Morgans Hotel Group Co. (NASDAQ: MHGC) operates and owns, or has an ownership interest in, Morgans, Royalton and Hudson in New York, Delano and The Shore Club in Miami, Mondrian in Los Angeles and Scottsdale, Clift in San Francisco, and Sanderson and St Martins Lane in London. MHG and an equity partner also own the Hard Rock Hotel & Casino in Las Vegas and related assets. MHG has other property transactions in various stages of completion, including projects in Miami Beach, Florida; Chicago, Illinois; SoHo, New York; Las Vegas, Nevada; and Palm Springs, California. For more information please visit www.morganshotelgroup.com. Forward-Looking and Cautionary Statements Statements contained in this press release which are not historical facts are forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as "expects," "plans," "estimates," "projects," "intends," "believes," "guidance," and similar expressions that do not relate to historical matters. These forward-looking statements are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; risks related to natural disasters, such as earthquakes and hurricanes; risks associated with the acquisition, development and integration of properties; the seasonal nature of the hospitality business; changes in the tastes of our customers; increases in real property tax rates; increases in interest rates and operating costs; the impact of any material litigation; the loss of key members of our senior management; general volatility of the capital markets and our ability to access the capital markets; and changes in the competitive environment in our industry and the markets where we invest, and other risk factors discussed in MHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, 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 Three Months
(In Thousands, except per share amounts) Ended Mar. 31,
2008 2007
----------- -----------
Revenues:
Rooms $ 46,155 $ 45,263
Food & beverage 26,570 25,557
Other hotel 3,473 3,646
----------- -----------
Total hotel revenues 76,198 74,466
Management fees - related parties 4,536 3,956
----------- -----------
Total revenues 80,734 78,422
Operating Costs and Expenses:
Rooms 13,169 12,627
Food & beverage 19,367 17,542
Other departmental 2,085 2,027
Hotel, selling, general and
administrative 15,772 15,358
Property taxes, insurance and other 4,054 5,697
----------- -----------
Total hotel operating expenses 54,447 53,251
Corporate expenses :
Stock based compensation 2,935 2,322
Other 7,402 6,733
Depreciation and amortization 6,091 4,807
----------- -----------
Total operating costs and expenses 70,875 67,113
Operating income 9,859 11,309
Interest expense, net 10,505 10,599
Equity in loss of unconsolidated joint
ventures 8,045 4,654
Minority interest in joint ventures 1,391 1,102
Other non-operating expense (income) 1,062 (5,723)
----------- -----------
Pre tax (loss) income (11,144) 677
Income tax (benefit) expense (3,940) 228
----------- -----------
Net (loss) income before minority
interest (7,204) 449
Minority interest (225) 13
Net (loss) income $ (6,979) $ 436
Weighted average common shares -
diluted 32,292 32,749
(Loss) income per share $ (0.22) $ 0.01
Hotel Operating (In Constant
Statistics (In Actual Dollars, if
Dollars) different)
Three Months Three Months
Ended Mar. 31, % Ended Mar. 31, %
2008 2007 Change 2008 2007 Change
-------- -------- ------ -------- -------- ------
Morgans
Occupancy 79.9% 84.5% -5.4%
ADR $311.23 $277.66 12.1%
RevPAR $248.67 $234.62 6.0%
Royalton
Occupancy 81.0% 88.4% -8.4%
ADR $368.02 $305.48 20.5%
RevPAR $297.91 $270.07 10.3%
Hudson
Occupancy 85.3% 87.2% -2.2%
ADR $246.54 $228.08 8.1%
RevPAR $210.37 $198.98 5.7%
Delano
Occupancy 86.7% 84.5% 2.7%
ADR $683.80 $705.17 -3.0%
RevPAR $592.99 $595.66 -0.4%
Clift
Occupancy 69.9% 64.0% 9.1%
ADR $266.93 $260.16 2.6%
RevPAR $186.53 $166.61 12.0%
Mondrian Scottsdale
Occupancy 61.2% 64.4% -5.1%
ADR $283.45 $245.16 15.6%
RevPAR $173.33 $157.98 9.7%
Total Owned -
Comparable
Occupancy 79.1% 79.9% -1.0%
ADR $319.10 $299.18 6.7%
RevPAR $252.54 $239.04 5.6%
St. Martins Lane
Occupancy 77.6% 77.0% 0.8% 77.6% 77.0% 0.8%
ADR $425.36 $425.54 0.0% $425.36 $430.60 -1.2%
RevPAR $330.16 $327.84 0.7% $330.16 $331.73 -0.5%
Sanderson
Occupancy 72.6% 74.1% -2.1% 72.6% 74.1% -2.1%
ADR $495.74 $487.20 1.8% $495.74 $492.99 0.6%
RevPAR $359.66 $360.87 -0.3% $359.66 $365.16 -1.5%
Shore Club
Occupancy 71.5% 72.9% -1.9%
ADR $495.24 $551.30 -10.2%
RevPAR $353.85 $401.68 -11.9%
System-wide -
Comparable
Occupancy 77.7% 78.5% -1.0% 77.7% 78.5% -1.0%
ADR $357.69 $348.86 2.5% $357.69 $349.59 2.3%
RevPAR $277.82 $273.68 1.5% $277.82 $274.25 1.3%
Mondrian LA
Occupancy 52.9% 82.0% -35.5%
ADR $345.55 $325.70 6.1%
RevPAR $182.80 $267.04 -31.5%
Hard Rock (1) (2)
Occupancy 94.0% 94.1% -0.1%
ADR $184.40 $192.30 -4.1%
RevPAR $173.41 $180.99 -4.2%
(1) For comparison purposes, information for 2007 includes January
2007 when MHG did not operate the hotel.
(2) As is customary for companies in the gaming industry, Hard Rock
presents average occupancy rate and average daily rate
including rooms provided on a complimentary basis. Like most
operators of hotels in the non-gaming lodging industry, MHG
does not follow this practice at its other hotels, where
average occupancy rate and average daily rate are presented net
of rooms provided on a complimentary basis.
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, plant 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. We disclose Adjusted EBITDA because we believe it provides a meaningful comparison to our EBITDA as it excludes other non-operating (income) expenses 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 fee simple ownership interest. It also excludes stock-based compensation expense. 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. Adjusted Debt We disclose Adjusted Debt because we believe it provides a more meaningful comparison to our Adjusted EBITDA and is a useful tool to assess the value of MHG. Adjusted Debt is defined as long-term debt and capital lease obligations under U.S. GAAP less the lease obligation related to Clift. 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
Ended Mar. 31,
2008 2007
-------- --------
Net income (loss) $(6,979) $ 436
Interest expense, net 10,505 10,599
Income tax expense (3,940) 228
Depreciation and amortization expense 6,091 4,807
Proportionate share of interest expense
from unconsolidated joint ventures 8,488 6,508
Proportionate share of depreciation expense
from unconsolidated joint ventures 2,945 2,125
Proportionate share of depreciation expense
of consolidated joint ventures (99) (102)
Minority interest (225) 13
-------- --------
EBITDA 16,786 24,614
Add : Other non operating expense (income) 1,062 (5,723)
Add : Other non operating expense
from joint ventures 2,333 1,253
Less : Clift (1,532) (1,204)
Add : Stock based compensation 2,935 2,322
-------- --------
Adjusted EBITDA $21,584 $21,262
Room Revenue Analysis Three Months
(In Thousands, except percentages) Ended Mar. 31, %
2008 2007 Change
------- ------- ------
Morgans $ 2,557 $ 2,387 7%
Royalton 4,555 4,108 11%
Hudson 15,410 14,417 7%
Delano 10,469 10,454 0%
Clift 6,162 5,443 13%
Mondrian Scottsdale 3,060 2,759 11%
------- ------- ------
Total Owned - Comparable 42,213 39,568 7%
Mondrian LA 3,942 5,695 -31%
Total Owned $46,155 $45,263 2%
Hotel Revenue Analysis Three Months
(In Thousands, except percentages) Ended Mar. 31, %
2008 2007 Change
------- ------- ------
Morgans $ 5,381 $ 5,178 4%
Royalton 6,505 5,632 16%
Hudson 20,341 19,114 6%
Delano 19,999 18,953 6%
Clift 10,354 9,899 5%
Mondrian Scottsdale 5,549 4,675 19%
------- ------- ------
Total Owned - Comparable 68,129 63,451 7%
Mondrian LA 8,069 11,015 -27%
Total Owned $76,198 $74,466 2%
Hotel EBITDA Analysis Three Months
(In Thousands, except percentages) Ended Mar. 31, %
2008 2007 Change
------- -------- ------
Morgans $ 865 $ 781 11%
Royalton 880 1,035 -15%
Hudson 5,766 5,657 2%
Delano 8,477 8,121 4%
Clift 1,532 1,204 27%
Mondrian Scottsdale - Owned 1,263 (487)
------- --------
Owned Comparable Hotels 18,783 16,311 15%
St Martins Lane 1,982 2,012 -1%
Sanderson 1,000 870 15%
Shore Club 367 403 -9%
------- -------- ------
Joint Venture Comparable Hotels 3,349 3,285 2%
Total System-Wide Comparable Hotels 22,132 19,596 13%
Mondrian LA - Owned 1,817 3,699 -51%
Hard Rock - Joint Venture 2,031 1,949 4%
Total Hotels 25,980 25,244 3%
Balance Sheet
(In Thousands)
Mar. 31, Dec. 31,
2008 2007
-------- --------
Cash $ 81,293 $122,712
Restricted cash 30,539 28,604
Property and equipment 544,230 535,609
Goodwill 73,698 73,698
Accounts receivable 15,631 13,755
Prepaid expenses and other assets 10,858 11,369
Investments in joint ventures 107,565 110,208
Other assets 53,189 47,168
-------- --------
Total assets 917,003 943,123
Long-term debt 648,996 649,107
Capital lease obligations - Clift 80,464 80,092
Accounts payable and accrued expenses 30,055 36,126
Other liabilities 35,945 27,979
-------- --------
Total liabilities 795,460 793,304
Minority interests 19,920 19,833
Stockholders' equity 101,623 129,986
-------- --------
Total liabilities and equity $917,003 $943,123
======== ========
Adjusted Debt
(In Thousands)
A reconciliation of long-term debt and capital lease obligations, the most directly comparable U.S. GAAP measure, to Adjusted Debt is indicated as follows:
Mar. 31,
2008
---------
Adjusted Debt - Consolidated
---------------------------------------------------------
Long term debt and capital lease obligations $729,460
Less: Clift Capitalized Lease (80,464)
---------
Adjusted Debt - Consolidated 648,996
Other Data
(In Thousands)
Proportionate Share of Debt - Joint Ventures
----------------------------------------------------------
London $104,273
Shore Club 8,589
Mondrian South Beach 46,763
Hard Rock 261,868
Mondrian SoHo 17,980
---------
Proportionate share of debt - joint ventures 439,473
Investments in Non-EBITDA Producing Assets (1)
----------------------------------------------------------
The Gale $ 17,862
Mondrian South Beach - represents equity investment of $20.8
million 67,538
and proportionate share of debt of $46.8 million
Hard Rock - proportionate share of excess land,
intellectual
property rights and expansion costs 114,527
Deposit and initial investment in Echelon Las Vegas 44,002
Mondrian SoHo - equity investment of $5.1 million and
proportionate 23,031
share of debt of $18.0 million
Mondrian Chicago - equity investment 1,049
Other deposits 885
---------
Investments in Non-EBITDA Producing Assets $268,894
(1) The equity investments listed in the table represent the cash
invested in the joint ventures. The following is the balance
shown in the financial statements, which includes equity in
income or losses of unconsolidated joint ventures :
Amount
---------
Mondrian South Beach 14,890
Hard Rock 30,384
Echelon Las Vegas 42,640
Mondrian SoHo 5,051
Mondrian Chicago 1,049
CONTACT: Joele Frank, Wilkinson Brimmer Katcher
Eric Brielmann / Andi Salas
212-355-4449
SOURCE: Morgans Hotel Group Co.
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