August 05, 2013 at 16:30 PM EDT
Morgans Hotel Group Reports Second Quarter 2013 Results

NEW YORK, Aug. 5, 2013 /PRNewswire/ -- Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG" or the "Company") today reported financial results for the quarter ended June 30, 2013. 

Highlights

  • Adjusted EBITDA was $12.6 million in the second quarter of 2013, a $6.2 million, or 98.0% increase over the same period in 2012, due primarily to an increase in EBITDA at Hudson.
  • Operating margins at the Company's Owned Hotels and leased food and beverage operations increased approximately 600 basis points during the second quarter of 2013 as compared to the same period in 2012. 
  • Revenue per available room ("RevPAR") for System-Wide Comparable Hotels increased by 10.6% in constant dollars, or 9.9% in actual dollars, during the second quarter of 2013 from the comparable period in 2012, driven primarily by an increase in occupancy of 9.7%.
  • RevPAR at Hudson, the Company's non-comparable hotel located in New York City, increased by 30.2%, driven by a 25.8% increase in occupancy during the second quarter of 2013 as compared to the same period in 2012.  Hudson's strong operating performance was also positively impacted by its new restaurant, Hudson Common, which opened in February 2013.
  • In July 2013, the Company entered into a hotel management agreement for an approximately 211-room Delano-branded condo-hotel to be located in Cartagena, Colombia.  Upon completion and opening of the hotel, the Company will operate the hotel pursuant to a 20-year management agreement, with one 10-year extension option.  The hotel is scheduled to open in 2016. 

Second Quarter 2013 Operating Results

Adjusted EBITDA for the second quarter of 2013 was $12.6 million as compared to $6.3 million for the same period in 2012.  The increase was due primarily to a $3.8 million increase in EBITDA at Hudson and a $1.3 million increase in management fees. 

RevPAR at System-Wide Comparable Hotels increased by 10.6% in constant dollars, or 9.9% in actual dollars, in the second quarter of 2013 from the comparable period in 2012.  RevPAR for System-Wide Comparable Hotels located in the United States increased 8.6% during the second quarter of 2013 as compared to the same period in 2012. RevPAR for System-Wide Comparable Hotels located internationally increased 18.7% in constant dollars, or 15.1% in actual dollars, during the second quarter of 2013 as compared to the same period in 2012.

RevPAR from System-Wide Comparable Hotels in the Northeastern United States increased by 8.2% in the second quarter of 2013 as compared to the same period in 2012, with an increase in average daily rate ("ADR") of 5.4% and an increase in occupancy of 2.6%.  The RevPAR increase was led by a 12% increase in RevPAR at Mondrian SoHo, primarily due to gains in market share and strong demand. 

Room revenues at Hudson, a non-comparable hotel in New York City, increased by 35.1% in the second quarter of 2013 as compared to the same period in 2012, due to RevPAR gains, the addition of 32 new rooms, and a full inventory of guestrooms in service after completion of the hotels' renovation.  RevPAR at Hudson increased by 30.2%, driven by a 25.8% increase in occupancy during the second quarter of 2013 as compared to the same period in 2012 when the hotel was under renovation.  MHG was able to increase ADR at Hudson by 3.4%, despite the additional room inventory, due to gains in market share and strong demand.

RevPAR from System-Wide Comparable Hotels in Miami increased 1.6% in the second quarter of 2013 as compared to the same period in 2012.  The timing of Easter and Passover negatively impacted results, with Delano South Beach, our fee-owned hotel, the hardest hit with an 8.7% decrease in RevPAR during the second quarter of 2013 as compared to the same period in 2012.  Additionally, Delano South Beach experienced a decline in transient leisure business during the seasonally slower second quarter of 2013 as compared to the same period in 2012. 

The Company's System-Wide Comparable Hotels on the West Coast generated 17.8% RevPAR growth in the second quarter of 2013 as compared to the same period in 2012, led by Clift where RevPAR increased by 22.3%. In London, RevPAR increased by 18.7% in constant dollars, or 15.1% in actual dollars, during the second quarter of 2013, due to market share gains and a recovery in demand, which was soft in the second quarter of 2012 due to the lead up to the 2012 London Olympics.    

Food and beverage revenue increased by $6.0 million, or 42.0%, due to an increase in revenue of $1.7 million at Hudson, primarily attributable to Hudson Common, the new restaurant at Hudson which opened in February 2013, and the addition of two new leased restaurants at Mandalay Bay in Las Vegas. 

Management fees increased by 19.4% in the second quarter of 2013 as compared to the same period in 2012 due to a $0.9 million termination fee related to Ames in Boston and a 5.7% increase in fees at existing managed properties. 

Operating margins at the Company's Owned Hotels and consolidated food and beverage operations, which primarily includes Delano South Beach, Hudson, Clift, and restaurant leases at Mandalay Bay in Las Vegas, increased approximately 600 basis points during the second quarter of 2013 as compared to the same period in 2012.

Corporate expenses decreased by $0.4 million, or 5.0%, during the second quarter of 2013 as compared to the same period in 2012.  The Company continues to actively explore opportunities to reduce overhead costs. 

Interest expense increased by $3.4 million, or 40.9%, during the second quarter of 2013 as compared to the same period in 2012, primarily due to a higher debt level and higher interest rate under the new Hudson mortgage loan, which was entered into during late 2012, and increased borrowings under the Company's revolving line of credit during the three months ended June 30, 2013 as compared to the same period in 2012. 

During the quarter, the Company recorded a total of approximately $5.8 million in non-cash impairment charges in connection with receivables due from and other assets related to Mondrian SoHo and Delano Marrakech. 

MHG recorded a net loss of $16.2 million for the second quarter of 2013 compared to a net loss of $13.5 million for the second quarter of 2012, due primarily to non-cash impairment charges and restructuring costs, which offset a $5.3 million improvement in operating margins at the Company's owned operations.

Balance Sheet and Liquidity

MHG's total consolidated debt at June 30, 2013, excluding the Clift lease, was $464.8 million

At June 30, 2013, MHG had $9.8 million of cash and cash equivalents and $56.0 million available under its revolving credit facility. As of June 30, 2013, total restricted cash held pursuant to certain debt or lease requirements was $18.5 million.

As of June 30, 2013, the Company had approximately $312.7 million of remaining Federal tax net operating loss carryforwards to offset future income, including gains on future asset sales.

The Company's outstanding Series A preferred securities, which have a face value of $75.0 million, have an 8% dividend rate through October 15, 2014, a 10% dividend rate from October 15, 2014 to October 15, 2016, and a 20% dividend rate thereafter, with a 4% increase in the dividend rate for certain periods during which the Yucaipa Investors' nominee is not a director on the Company's Board.  As of July 14, 2013, the dividend rate became 12% as a result of the Yucaipa Investors' nominee not being elected or appointed to the Company's Board.  The Company has the option to accrue any and all dividend payments when declared by the Board of Directors. As of June 30, 2013, the Company had undeclared and unpaid dividends of $26.0 million.

Development

In July 2013, the Company entered into a hotel management agreement for an approximately 211-room Delano-branded hotel to be located in Cartagena, Colombia.  Upon completion and opening of the hotel, which is expected to have some condominium hotel units for sale, the Company will operate the hotel pursuant to a 20-year management agreement, with one 10-year extension option.  The hotel is scheduled to open in 2016. 

MHG currently has signed agreements for nine hotels that are scheduled to open over the next three years, with four of these hotels projected to open in 2014 – Mondrian London, Mondrian Doha, Delano Las Vegas and Mondrian Baha Mar.  Delano Moscow is currently under construction with a projected opening in 2015. 

Guidance

MHG is maintaining its projected RevPAR growth at System-wide Comparable Hotels of 8% to 10% in 2013.  The Company is not providing overall EBITDA guidance at this time. However, the Company believes that it could potentially increase EBITDA at Hudson by $10 million in 2013 given the $6 million of EBITDA lost in 2012 due to rooms out of service during renovations, the new SRO units, the opening of Hudson Common, and that there is potential for further EBITDA growth at Hudson from the upgraded room product.

Definitions

"System-Wide Comparable Hotels" includes all Morgans Hotel Group branded hotels operated by MHG, except for hotels added or under major renovation during the current or the prior year, development projects and discontinued operations.  System-Wide Comparable Hotels for the quarters ended June 30, 2013 and 2012 excludes Hudson, which was under renovation beginning in the fourth quarter of 2011 and continuing throughout 2012, Ames, which the Company no longer manages effective July 17, 2013, Delano Marrakech, which opened in September 2012, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel and, as of April 1, 2013, was no longer managed by the Company.   

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

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

"Yucaipa Investors" means Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P.

About Morgans Hotel Group

Morgans Hotel Group Co. (NASDAQ: MHGC) is widely credited as the creator of the first "boutique" hotel and a continuing leader of the hotel industry's boutique sector. Morgans Hotel Group operates Delano in South Beach and Marrakech, Mondrian in Los Angeles, South Beach and New York, Hudson in New York, Morgans and Royalton in New York, Shore Club in South Beach, Clift in San Francisco and Sanderson and St Martins Lane in London. Morgans Hotel Group has ownership interests or owns several of these hotels. Morgans Hotel Group has other property transactions in various stages of completion, including Delano properties in Las Vegas, Nevada; Cesme, Turkey; Moscow, Russia; and Cartagena, Colombia;  Mondrian properties in London, England; Istanbul, Turkey; Doha, Qatar and Baha Mar in Nassau, The Bahamas; and a Hudson in London, England. Morgans Hotel Group also owns a 90% controlling interest in The Light Group, a leading lifestyle food and beverage company. For more information please visit www.morganshotelgroup.com.

Forward-Looking and Cautionary Statements

This press release may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. 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 our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ materially from those expressed in any forward-looking statement. Important risks and factors that could cause our actual results to differ materially from those expressed in any forward-looking statements include, but are not limited to economic, business, competitive market and regulatory conditions such as: a sustained downturn in economic and market conditions, both in the U.S. and internationally, particularly as it impacts demand for travel, hotels, dining and entertainment; our levels of debt, our ability to refinance our current outstanding debt, repay outstanding debt or make payments on guaranties as they may become due, our ability to access the capital markets and the ability of our joint ventures to do the foregoing; our history of losses; our ability to compete in the "boutique" or "lifestyle" hotel segments of the hospitality industry and changes in the competitive environment in our industry and the markets where we invest; our ability to protect the value of our name, image and brands and our intellectual property; risks related to natural disasters, terrorist attacks, the threat of terrorist attacks and similar disasters; and other risk factors discussed in Morgans Hotel Group's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and other documents filed by Morgans Hotel Group 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 Morgans Hotel Group 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, 



2013

2012


2013

2012








Revenues :






Rooms


$ 31,454

$ 25,743


$ 57,353

$ 46,619

Food & beverage

20,278

14,277


39,499

29,376

Other hotel 

1,126

1,198


2,242

2,459


Total hotel revenues

52,858

41,218


99,094

78,454

Management and other fees

7,849

6,573


14,264

12,632


Total revenues

60,707

47,791


113,358

91,086








Operating Costs and Expenses :






Rooms


9,471

7,772


18,475

15,438

Food & beverage

14,880

11,865


28,867

24,595

Other departmental

794

919


1,616

1,826

Hotel selling, general and administrative

10,412

9,300


20,853

18,786

Property taxes, insurance and other

4,279

3,613


8,561

7,566


Total hotel operating expenses

39,836

33,469


78,372

68,211

Corporate expenses :







Stock based compensation

1,342

1,558


2,297

2,627


Other

7,023

7,393


13,418

14,000

Depreciation and amortization

6,780

5,897


13,421

11,610

Restructuring and disposal costs

5,256

760


6,152

1,656

Development costs

577

1,277


1,397

2,588

Impairment loss on receivables and other assets from managed hotel and unconsolidated joint venture

5,775

-


5,775

-


Total operating costs and expenses

66,589

50,354


120,832

100,692


Operating loss

(5,882)

(2,563)


(7,474)

(9,606)








Interest expense, net

11,560

8,203


22,849

16,004

Equity in loss of unconsolidated joint ventures

336

2,706


495

3,616

Gain on asset sales

(2,005)

(1,995)


(4,010)

(3,991)

Other non-operating expenses

181

1,919


479

2,462









Loss before income tax expense

(15,954)

(13,396)


(27,287)

(27,697)


Income tax expense 

236

121


436

314









Net loss

(16,190)

(13,517)


(27,723)

(28,011)









Net loss attributable to noncontrolling interest

182

124


298

337









Net loss attributable to Morgans Hotel Group Co.

$(16,008)

$(13,393)


$(27,425)

$(27,674)









Preferred stock dividends and accretion

(3,026)

(2,718)


(5,939)

(5,368)









Net loss attributable to common stockholders

$(19,034)

$(16,111)


$(33,364)

$(33,042)









Loss  per share:







Basic and diluted attributable to common stockholders

$    (0.59)

$    (0.52)


$    (1.03)

$    (1.06)









Weighted average common shares outstanding - basic and diluted

32,464

31,261


32,451

31,185








 

 

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,

%



2013

2012

Change


2013

2012

Change


2013

2012

Change


2013

2012

Change

BY REGION

































Northeast Comparable Hotels (1)

















Occupancy

89.3%

87.0%

2.6%






86.6%

78.2%

10.7%






ADR

$   339.33

$   321.95

5.4%






$   302.21

$   293.75

2.9%






RevPAR

$   303.02

$   280.10

8.2%






$   261.71

$   229.71

13.9%






















West Coast Comparable Hotels (2)

















Occupancy

87.7%

77.4%

13.3%






84.3%

75.3%

12.0%






ADR

$   256.60

$   246.73

4.0%






$   254.38

$   246.33

3.3%






RevPAR

$   225.04

$   190.97

17.8%






$   214.44

$   185.49

15.6%






















Miami Comparable Hotels (3)

















Occupancy

69.9%

64.3%

8.7%






77.0%

69.2%

11.3%






ADR

$   301.85

$   323.13

-6.6%






$   371.22

$   363.53

2.1%






RevPAR

$   210.99

$   207.77

1.6%






$   285.84

$   251.56

13.6%






















United States Comparable Hotels (4)

















Occupancy

81.3%

75.0%

8.4%






82.2%

73.8%

11.4%






ADR

$   297.98

$   297.49

0.2%






$   311.03

$   303.95

2.3%






RevPAR

$   242.26

$   223.12

8.6%






$   255.67

$   224.32

14.0%






















International Comparable Hotels (5)

















Occupancy

83.8%

71.7%

16.9%


83.8%

71.7%

16.9%


79.3%

70.3%

12.8%


79.3%

70.3%

12.8%


ADR

$   392.68

$   398.73

-1.5%


$ 404.21

$    398.15

1.5%


$   370.97

$   377.48

-1.7%


$ 379.82

$    378.41

0.4%


RevPAR

$   329.07

$   285.89

15.1%


$ 338.73

$    285.47

18.7%


$   294.18

$   265.37

10.9%


$ 301.20

$    266.02

13.2%



































System-wide Comparable Hotels  (6)

















Occupancy

81.7%

74.5%

9.7%


81.7%

74.5%

9.7%


81.7%

73.2%

11.6%


81.7%

73.2%

11.6%


ADR

$   313.43

$   312.79

0.2%


$ 315.31

$    312.70

0.8%


$   320.30

$   315.04

1.7%


$ 321.66

$    315.18

2.1%


RevPAR

$   256.07

$   233.03

9.9%


$ 257.61

$    232.96

10.6%


$   261.69

$   230.61

13.5%


$ 262.80

$    230.71

13.9%





































































(1)

Northeast Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Morgans, Royalton and Mondrian SoHo in New York.  Hudson is non-comparable during the periods presented, as Hudson was under major renovations beginning the fourth quarter of 2011 and continuing throughout 2012.  Ames in Boston is non-comparable during the periods presented as the hotel was no longer managed by the Company effective  July 17, 2013.


















(2)

West Coast Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Mondrian Los Angeles and Clift in San Francisco. 


















(3)

Miami Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Delano South Beach, Mondrian South Beach and Shore Club in South Beach, Florida.  


(4)

United States Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Morgans, Royalton, Mondrian SoHo, Mondrian Los Angeles, Clift, Delano South Beach, Mondrian South Beach and Shore Club.  Hudson is non-comparable during the periods presented, as Hudson was under renovation beginning in the fourth quarter of 2011 and continuing throughout 2012.  Ames is non-comparable during the periods presented as the hotel was no longer managed by the Company effective  July 17, 2013.


















(5)

International Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Sanderson and St Martins Lane in London.  Delano Marrakech is non-comparable for the periods presented, as MHG began managing it in September 2012 when the hotel opened.  Additionally, Hotel Las Palapas in Mexico is non-comparable, as this hotel is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company.  


















(6)

System-Wide Comparable Hotels include all Morgans Hotel Group branded hotels operated by MHG, except for hotels added or under major renovation during the current or the prior year, development projects and discontinued operations.  System-Wide Comparable Hotels for the quarters ended June 30, 2013 and 2012 excludes Hudson, which was under renovation beginning in the fourth quarter of 2011 and continuing throughout 2012, Ames, which the Company no longer manages effective July 17, 2013, Delano Marrakech, which opened in September 2012, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel, and as of April 1, 2013, was no longer managed by the Company.

 

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,

%



2013

2012

Change


2013

2012

Change


2013

2012

Change


2013

2012

Change

BY OWNERSHIP

































Owned Comparable Hotels (1)

















Occupancy

83.3%

74.5%

11.8%






81.2%

73.7%

10.2%






ADR

$   294.41

$   307.60

-4.3%






$   332.86

$   330.48

0.7%






RevPAR

$   245.24

$   229.16

7.0%






$   270.28

$   243.56

11.0%







































Joint Venture Comparable Hotels (2)

















Occupancy

76.9%

69.6%

10.5%






81.7%

70.3%

16.2%






ADR

$   289.42

$   289.49

0.0%






$   308.80

$   302.91

1.9%






RevPAR

$   222.56

$   201.49

10.5%






$   252.29

$   212.95

18.5%







































Managed Comparable Hotels (3)

















Occupancy

85.1%

79.0%

7.7%


85.1%

79.0%

7.7%


82.1%

75.6%

8.6%


82.1%

75.6%

8.6%


ADR

$   345.08

$   335.13

3.0%


$ 349.69

$    334.92

4.4%


$   322.54

$   315.82

2.1%


$ 326.01

$    316.17

3.1%


RevPAR

$   293.66

$   264.75

10.9%


$ 297.59

$    264.59

12.5%


$   264.81

$   238.76

10.9%


$ 267.65

$    239.02

12.0%



































System-wide Comparable Hotels 

















Occupancy

81.7%

74.5%

9.7%


81.7%

74.5%

9.7%


81.7%

73.2%

11.6%


81.7%

73.2%

11.6%


ADR

$   313.43

$   312.79

0.2%


$ 315.31

$    312.70

0.8%


$   320.30

$   315.04

1.7%


$ 321.66

$    315.18

2.1%


RevPAR

$   256.07

$   233.03

9.9%


$ 257.61

$    232.96

10.6%


$   261.69

$   230.61

13.5%


$ 262.80

$    230.71

13.9%



































Owned Hotels
















Hudson (4)

















Occupancy

92.6%

73.6%

25.8%






85.4%

66.8%

27.8%






ADR

$   258.00

$   249.40

3.4%






$   221.65

$   212.32

4.4%






RevPAR

$   238.91

$   183.56

30.2%






$   189.29

$   141.83

33.5%






















Delano South Beach 

















Occupancy

67.6%

71.5%

-5.5%






72.8%

71.3%

2.1%






ADR

$   449.65

$   465.46

-3.4%






$   553.35

$   528.28

4.7%






RevPAR

$   303.96

$   332.80

-8.7%






$   402.84

$   376.66

6.9%






















Clift


















Occupancy

91.4%

76.1%

20.1%






85.6%

74.9%

14.3%






ADR

$   234.52

$   230.27

1.8%






$   235.02

$   232.21

1.2%






RevPAR

$   214.35

$   175.24

22.3%






$   201.18

$   173.93

15.7%







































(1)

Owned Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Delano South Beach and Clift in San Francisco.  Hudson is non-comparable during the periods presented, as beginning in the fourth quarter 2011 and continuing throughout 2012, this owned hotel was under renovation.


















(2)

Joint Venture Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Mondrian South Beach, Shore Club and Mondrian SoHo.  Ames is non-comparable for the periods presented as effective April 26, 2013, the Company entered into an agreement with its joint venture partner pursuant to which, among other things, the Company assigned its equity interests in the joint venture to its joint venture partner.  Prior to April 26, 2013, the Company owned Ames through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31%.  Effective July 17, 2013, the Company no longer manages this hotel.  


















(3)

Managed Comparable Hotels for the quarters ended June 30, 2013 and 2012 consist of Sanderson, St Martins Lane, Morgans, Royalton, and Mondrian Los Angeles.  Managed hotels that are non-comparable for the periods presented are Delano Marrakech, which the Company began managing in September 2012, Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company, and Ames, which was no longer managed by the Company effective  July 17, 2013.


















(4)

Beginning in the fourth quarter of 2011 and continuing throughout 2012, this owned hotel was under major renovation. 


















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 and our joint ventures 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 food and beverage venues, 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 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 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, and losses on asset disposals as part of major renovation projects;
  • Development costs, such as costs incurred related to development transaction costs, internal development payroll, 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 loss on development projects and hotels and receivables from unconsolidated joint ventures.  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 our 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;
  • 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;
  • EBITDA related to hotels and food and beverage entities 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;  
  • Stock-based compensation expense, as this is not necessarily an indication of the operating performance of our assets; and
  • Gains recognized on asset sales, as we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets.  In addition, we believe 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.

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 may change from prior quarters, and calculations of Adjusted EBITDA could 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 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 in our reconciliations to our financial measures under accounting principles generally accepted in the United States, or U.S. GAAP, and/or in our consolidated financial statements, all of which should be considered when evaluating our 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 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.

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, 


2013

2012


2013

2012













Net loss attributable to Morgans Hotel Group Co.

$           (16,008)

$          (13,393)


$           (27,425)

$          (27,674)

Interest expense, net

11,560

8,203


22,849

16,004

Income tax expense 

236

121


436

314

Depreciation and amortization expense

6,780

5,897


13,421

11,610

Proportionate share of interest expense






 from unconsolidated joint ventures

3,358

1,475


4,856

2,820

Proportionate share of depreciation expense






 from unconsolidated joint ventures

596

939


1,304

1,881

Net loss attributable to noncontrolling interest

(486)

(423)


(833)

(879)

Proportionate share of loss from unconsolidated joint






  ventures not recorded due to negative investment balances

(3,343)

(1,327)


(4,541)

(2,663)







EBITDA 

2,693

1,492


10,067

1,413







Add : Other non operating expense 

181

1,919


479

2,462

Add : Other non operating expense from unconsolidated 






  joint ventures

484

2,399


732

3,074

Add:  Restructuring and disposal costs

5,256

760


6,152

1,656

Add:  Development costs

577

1,277


1,397

2,588

Add:  Impairment loss on receivables from managed hotels and unconsolidated joint venture

5,775

-


5,775

-

Less : EBITDA from Clift, a leased hotel

(1,744)

(1,067)


(2,878)

(2,534)

Add : Stock based compensation

1,342

1,558


2,297

2,627

Less:  Gain on asset sales

(2,005)

(1,995)


(4,010)

(3,991)







Adjusted EBITDA 

$            12,559

$             6,343


$            20,011

$             7,295













 











Hotel EBITDA Analysis (1)








(In thousands, except percentages)










Three Months



Six Months




Ended June 30, 

%


Ended June 30, 

%



2013

2012

Change


2013

2012

Change










Delano South Beach  

$      3,114

$      3,381

-8%


$     10,223

$      8,433

21%

Clift


1,744

1,067

63%


2,878

2,534

14%

Shore Club - Joint Venture

19

(9)

311%


276

141

96%

Mondrian South Beach - Joint Venture

54

31

74%


733

667

10%

Mondrian SoHo - Joint Venture

686

640

7%


943

712

32%











Owned and Joint Venture Comparable Hotels (2)

5,617

5,110

10%


15,053

12,487

21%










St Martins Lane food and beverage (3)

(108)

(384)

72%


-

(587)

100%

Sanderson food and beverage (3)

(116)

(328)

65%


(106)

(682)

84%

Las Vegas restaurant leases (4)

648

-

100%


768

-

100%

Ames (5)

-

118

-100%


(95)

(22)

-332%


Other Hotel and F&B EBITDA

424

(594)

171%


567

(1,291)

144%










Hudson (6)

7,739

3,962

95%


6,959

429

1522%




.




.



Total Hotel and F&B EBITDA 

$     13,780

$      8,478

63%


$     22,579

$     11,625

94%



















(1)  For joint venture hotels, represents MHG's share of the respective hotels' EBITDA, after management fees.        
        
(2)  Reflects System-Wide Comparable Hotels that are owned or partially owned by MHG.        
        
(3) In November 2011, MHG and Walton Street, each 50/50 joint venture partners, sold the joint venture entity that owned the Sanderson and St Martins Lane hotels.  Following the sale of the joint venture entity, MHG continues to own and operate the food and beverage venues at the hotels under a lease agreement with the hotel owner.  Amounts presented represent the respective hotels' food and beverage EBITDA, after management fees.

(4) Reflects EBITDA from the leasehold interests in three restaurants at Mandalay Bay in Las Vegas which the Company acquired in August 2012.  The three venues were re-concepted and renovated, with two opened as of June 30, 2013 and the third expected to open during the third quarter of 2013.       

(5) On April 26, 2013, the Company entered into an agreement with its joint venture partner pursuant to which, among other things, the Company assigned its equity interests in the joint venture to its joint venture partner.  Prior to April 26, 2013, the Company owned Ames through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31%.  Effective July 17, 2013, the Company no longer manages this hotel.          
             
(6) Beginning in the fourth quarter of 2011 and continuing throughout 2012, Hudson was under renovation.          
        










Owned Hotel Room Revenue Analysis








(In thousands, except percentages)










Three Months



Six Months




Ended June 30, 

%


Ended June 30, 

%



2013

2012

Change


2013

2012

Change










Hudson (1)

$     18,829

$     13,938

35%


$     29,656

$     21,538

38%

Delano South Beach 

5,368

5,875

-9%


14,151

13,307

6%

Clift


7,257

5,930

22%


13,546

11,774

15%


Total Owned Hotels

$     31,454

$     25,743

22%


$     57,353

$     46,619

23%




























Owned Hotel Revenue Analysis

Three Months



Three Months


(In thousands, except percentages)

Ended June 30, 

%


Ended June 30, 

%



2013

2012

Change


2013

2012

Change










Hudson (1)

$     23,196

$     16,508

41%


$     36,150

$     26,048

39%

Delano South Beach

10,295

11,477

-10%


26,384

25,513

3%

Clift


10,207

8,703

17%


20,010

17,796

12%


Total Owned Hotels

$     43,698

$     36,688

19%


$     82,544

$     69,357

19%



















(1) Beginning in the fourth quarter of 2011 and continuing throughout 2012, Hudson was under renovation.  


 

Balance Sheets




(In thousands)





June 30, 


December 31, 


2013


2012





ASSETS:




Property and equipment, net 

$       299,442


$        303,689

Goodwill 

66,572


66,572

Investments in and advances to unconsolidated joint ventures 

10,830


11,178

Cash and cash equivalents 

9,796


5,847

Restricted cash 

18,491


21,226

Accounts receivable, net 

18,983


16,592

Related party receivables 

3,337


5,754

Prepaid expenses and other assets 

9,752


8,691

Deferred tax asset, net 

78,758


78,758

Investment in TLG management contracts, net

26,585


29,469

Other, net 

38,124


43,379

Total assets 

$       580,670


$        591,155





LIABILITIES and STOCKHOLDERS' DEFICIT:




Debt and capital lease obligations, net 

$       555,057


$        538,143

Accounts payable and accrued liabilities 

37,331


34,627

Deferred gain on asset sales

137,429


141,401

Other liabilities 

14,506


14,301

Total liabilities 

744,323


728,472





Redeemable noncontrolling interest 

6,049


6,053

Commitments and contingencies








Total Morgans Hotel Group Co. stockholders' deficit 

(174,935)


(149,436)

Noncontrolling interest 

5,233


6,066

Total stockholders' deficit

(169,702)


(143,370)





Total liabilities, redeemable noncontrolling interest and stockholders' deficit

$       580,670


$        591,155









SOURCE Morgans Hotel Group Co.

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