Morgans Hotel Group Reports Third Quarter 2008 Results
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Morgans Hotel Group Reports Third Quarter 2008 Results
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2008-11-13
Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG") today reported financial results for the third quarter ended September 30, 2008
Highlights
-- Revenue per available room ("RevPAR") for Owned Comparable
Hotels(1) increased by 9.5% over the comparable period in
2007, compared to the domestic industry average decrease of
1.1%.
-- RevPAR for System-Wide Comparable Hotels(2) increased by 1.9%
(3.5% in constant dollars) over the comparable period in 2007.
-- EBITDA margins at System-Wide Comparable Hotels increased by
90 basis points over the comparable period in 2007. MHG
achieved a 1% reduction in operating expenses due to the
implementation of plans put into effect in the first quarter
of 2008 in anticipation of an economic slowdown.
-- Adjusted EBITDA(3) excluding hotels under renovation increased
by 7.8% over the comparable period in 2007, a growth rate of
4.0 times the related RevPAR growth rate.
-- A restructuring plan was implemented in October 2008 which is
projected to result in approximately $10 million in annual
cost savings including approximately $6 million in corporate
expenses.
-- In September 2008, MHG received a return of its $30 million
deposit on the Echelon project in Las Vegas and eliminated
approximately $41 million of future funding obligations for
the project.
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(1)"Owned Comparable Hotels" includes all wholly-owned hotels operated
by MHG except for hotels under renovation during the period or the
relevant comparison period for the prior year and development
projects. Owned Comparable Hotels for the third quarter of 2008
excludes Mondrian Los Angeles and Morgans, which were under
renovation in the third quarter of 2008, and Royalton, which was
under renovation in the third quarter of 2007.
(2)"System-Wide Comparable Hotels" includes all hotels operated by MHG
except for hotels under renovation during the period or the
relevant comparison period for the prior year and development
projects. System-Wide Comparable Hotels for the third quarter of
2008 excludes Mondrian Los Angeles and Morgans, which were under
renovation in the third quarter of 2008, Royalton, which was under
renovation in the third quarter of 2007, and the Hard Rock Hotel &
Casino in Las Vegas ("Hard Rock"), which was added in February
2007 and under renovation/expansion in 2008.
(3)Adjusted earnings before interest, taxes, depreciation and
amortization, as further described below.
-- MHG authorized a $30 million stock repurchase program on July
1, 2008, and completed the program in October 2008.
-- MHG's liquidity, as measured by cash and cash equivalents and
availability under its revolving credit facility, was
approximately $242.1 million at September 30, 2008.
-- With the completion of the redesigned Mondrian Los Angeles and
Morgans properties in September 2008, MHG has no significant
deferred capital requirements at its owned hotels.
-- Mondrian South Beach is currently on schedule to open in time
for the 2008/2009 winter season.
-- The construction of Mondrian SoHo and Ames Boston and the
expansion of Hard Rock are all currently on schedule to open
in the latter half of 2009.
"Due to proactive cost saving initiatives and strong performance at our core properties, we delivered solid results in the third quarter, outperforming our peers despite the slowdown in the economy," said Fred Kleisner, President and CEO of MHG. "RevPAR at Owned Comparable Hotels increased 9.5% for the quarter, compared to a domestic industry average decrease of 1.1% for the same period, demonstrating the strength of our underlying business model and brands. Additionally, we have built-in EBITDA growth for 2009 from recently completed renovations and four development and expansion projects, each of which has financing in place."
"We are in a very strong position in terms of our balance sheet, cash and financial obligations. The company has significant liquidity available, is generating significant cash-flow with limited financial commitments and no significant near-term consolidated debt maturities. We are very confident in our ability to manage, and continue to expand, the business through the current downturn. We believe our unique assets, combined with effective cost saving initiatives, strong liquidity and built-in EBITDA growth, position us well for long-term value creation."
Third Quarter Operating Results
RevPAR for MHG's System-Wide Comparable Hotels was $246.65, an increase of 1.9% (3.5% in constant dollars) for the third quarter of 2008 over the comparable period in 2007. RevPAR at Owned Comparable Hotels increased by 9.5% to $237.91, led by Delano and Hudson.
EBITDA margins at System-Wide Comparable Hotels improved by 90 basis points as compared to the comparable period in 2007. MHG achieved this increase through a 1% reduction in comparable operating costs at these hotels due to the implementation of cost saving initiatives related to labor, marketing and other hotel level expenses.
Adjusted EBITDA excluding hotels under renovation increased by 7.8% from the comparable period in 2007 as a result of cost saving initiatives. Due to an estimated $4.0 million of EBITDA displacement at Mondrian LA, Morgans and Hard Rock, which were under renovation and classified as non-comparable hotels in the third quarter of 2008, Adjusted EBITDA decreased by 11.7% to $21.2 million.
During the quarter, MHG's percentage ownership interest at Hard Rock, based on cash contributions, was reduced from 27.4% to 20.5%, resulting in a weighted average of 22.9% for the quarter and a lower proportionate share of both Adjusted Debt and Adjusted EBITDA. Had MHG's percentage interest remained at the 2007 level of 33.3%, Adjusted EBITDA would have been approximately $1.0 million higher in the third quarter of 2008.
MHG's concentration in key international gateway cities such as New York, Miami and San Francisco drove RevPAR growth in excess of the U.S. industry average growth for the quarter. An increase in business from international guests offset declines in domestic travel.
MHG recorded a net loss of $9.0 million for the third quarter of 2008, compared to a net loss of $10.0 million in the comparable period in 2007.
Balance Sheet and Liquidity
As of September 30, 2008, consolidated debt excluding the Clift lease obligation was $648.9 million. MHG's cash and cash equivalents balance at September 30, 2008 was $59.7 million. As of September 30, 2008, MHG's liquidity, measured by cash and cash equivalents and availability under its revolving credit facility, was $242.1 million. As of September 30, 2008, there were no borrowings outstanding under MHG's revolving credit facility, which is secured by three owned hotels - Delano, Royalton and Morgans. All of MHG's long-term debt at September 30, 2008 was at fixed rates, either directly or as a result of hedging arrangements.
As of September 30, 2008, MHG estimates that its total future commitments in 2008 and 2009 for development projects currently consist of approximately $30 million. These include approximately $10 million for Mondrian South Beach during the fourth quarter of 2008, $5 million of which has been funded to date, $11 million to fund the letter of credit posted for the Hard Rock expansion in 2009, and approximately $4 million for the creation of 30 new hotel rooms from the conversion of SRO ("Single Room Occupancy") rental units at Hudson in 2009. With the re-launch of Mondrian Los Angeles and Morgans in September 2008, all major renovations have been completed and there are no significant deferred capital requirements at our owned hotels.
In October 2008, MHG completed its $30 million stock repurchase plan authorized on July 1, 2008 of which approximately $14.5 million was expended during the third quarter. In total, approximately 2.8 million shares were repurchased by the Company under this plan. As of November 5, 2008, there were approximately 29.4 million shares of MHG outstanding and approximately 1.0 million operating company units outstanding, which may be redeemed for common stock.
MHG is also in the process of converting the first phase of approximately 30 SRO units at Hudson into additional hotel rooms which it expects to complete in the first half of 2009. MHG intends to pursue the conversion of the remaining 70 SRO units into hotel rooms over the next several years.
2008 Outlook
The global economic environment has had an adverse impact on travel since the middle of September and it is difficult to predict future results. Through September 2008, the Company was on target to achieve its Adjusted EBITDA guidance of $97 million to $100 million for 2008. However due to the recent trends in the economy and the slowdown we have experienced in travel and demand in our markets, MHG is lowering its 2008 guidance as follows:
MHG will host a conference call to discuss the third 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 69508338. 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 69508338. The replay will be available from November 5, 2008 through November 12, 2008.
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