Morgans Hotel Group Reports Second Quarter 2008 Results
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Morgans Hotel Group Reports Second 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 2008-08-07
- RevPAR Growth in Excess of U.S. Average -
- Significant Margin Improvement -
- 2008 EBITDA Outlook Reaffirmed -
Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG") today reported financial results for the second quarter ended June 30, 2008.
Highlights
-- Revenue per available room ("RevPAR") for Owned Comparable
Hotels(1) increased by 4.4% over the comparable period in
2007, well in excess of the domestic industry average growth
for the quarter of 1.2%.
-- RevPAR for System-Wide Comparable Hotels(2) increased by 2.8%
(3.0% in constant dollars) over the comparable period in 2007.
-- EBITDA margins at System-Wide Comparable Hotels increased by
200 basis points over the comparable period in 2007. MHG
achieved a 1% reduction in operating expenses due to the
implementation of contingency plans put into effect in the
first quarter of 2008 in anticipation of an economic slowdown.
-- Adjusted EBITDA(3) at System-Wide Comparable Hotels increased
by 14% over the comparable period in 2007, a growth rate of
5.0 times the related RevPAR growth rate.
-- Room revenues from international guests at System-Wide
Comparable Hotels in the U.S. increased to 35.6% of room
revenues as compared to 28.3% in the comparable period in
2007.
-- MHG authorized a $30 million stock repurchase program on July
1, 2008, and has repurchased 1.1 million shares of Company
stock for $12.2 million to date under the program.
-- MHG's liquidity, as measured by cash and cash equivalents and
availability under its revolving credit facility, was
approximately $206 million at June 30, 2008.
-- The renovations at Mondrian LA and Morgans will be completed
in September and MHG is unveiling the redesigned properties on
September 4 and September 10, respectively.
-- Mondrian South Beach is currently on schedule to open prior to
the Art Basel festival on December 4, 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.
(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 second quarter of 2008 excludes Mondrian LA and Morgans, which were under renovation in the second quarter of 2008, and Royalton, which was under renovation in the second 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 second quarter of 2008 excludes Mondrian LA and Morgans, which were under renovation in the second quarter of 2008 and Royalton, which was under renovation in the second 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.
"Our unique focus on key gateway markets and irreplaceable locations within those markets helped us drive RevPAR growth in excess of U.S. industry averages," said Fred Kleisner, President and Chief Executive Officer of MHG. "We saw RevPAR at Owned Comparable Hotels increase 4.4% over the comparable period last year, driven primarily by room revenue from international business and leisure travel, which rose by 26%. We proactively managed our expenses and improved operating margins at System-Wide Comparable Hotels by 200 basis points, and we've achieved these savings without sacrificing quality. We've maintained our market share in our competitive sets and registered increases in guest engagement scores. We will continue to carefully examine our costs while maintaining our high quality service.
"In addition, we are actively transforming our projects currently under construction into EBITDA-producing assets. The newly renovated Mondrian LA and Morgans are both scheduled to re-launch in early September 2008, which will complete all major renovations at our owned hotels. Our Mondrian South Beach project is scheduled to open in time for the Art Basel festival on December 4, and Mondrian SoHo, Ames Boston and the expansion at Hard Rock are all underway and expected to contribute to our EBITDA in 2009. With great hotels in some of the top performing markets, careful attention to costs and financial flexibility, we believe we are well positioned in this economic cycle."
Second Quarter Operating Results
RevPAR for MHG's System-Wide Comparable Hotels was $274.79, an increase of 2.8% (3.0% in constant dollars) for the second quarter of 2008 over the comparable period in 2007. RevPAR at Owned Comparable Hotels increased by 4.4% to $255.43.
EBITDA margins at System-Wide Comparable Hotels improved by 200 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 from System-Wide Comparable Hotels increased by 14% 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 second quarter of 2008, Adjusted EBITDA decreased by 9.6% to $27.8 million.
During the quarter, MHG's percentage ownership interest at Hard Rock, based on cash contributions, was reduced from 33% to 27.4%, resulting in a weighted average of 29.8% for the quarter and a lower proportionate share of both Adjusted Debt and Adjusted EBITDA. Had the ownership percentage remained at 33.3%, Adjusted EBITDA for the second quarter of 2008 would have been approximately $500,000 higher than reported.
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. For the second quarter of 2008, international visitors represented 35.6% of room revenues at System-Wide Comparable Hotels in the U.S. as compared to 28.3% in comparable period in 2007.
MHG recorded a net loss of $0.7 million for the second quarter of 2008, compared to net income of $0.8 million in the comparable period in 2007, primarily due to non-cash stock compensation expense, depreciation and amortization.
Balance Sheet and Financing
As of June 30, 2008, consolidated debt was $729.8 million including $80.8 million of lease obligations related to Clift. MHG's cash and cash equivalents balance at June 30, 2008 was $72.9 million. As of June 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 June 30, 2008 was at fixed rates, either directly or as a result of hedging arrangements.
As of June 30, 2008, MHG's liquidity, measured by cash and cash equivalents and availability under its revolving credit facility, was $206 million. MHG believes that its joint venture with Boyd Gaming will be unable to secure financing at favorable rates and conditions by the September 15, 2008 deadline. As a result, MHG also expects to receive a return of its $30 million deposit related to the Echelon Project during the third quarter of 2008 and expects to be released from an incremental $45 million of future funding obligations. As of June 30, 2008, MHG estimates that its total future obligations in 2008 and 2009 for development projects currently consist of approximately $25 million for hotel renovation and expansion projects, and $20 to $30 million for joint venture projects.
On July 1, 2008, MHG's Board of Directors approved a $30 million stock repurchase plan. To date, MHG has repurchased 1.1 million shares of its common stock at an average price of $11.05 for a total of $12.2 million. As of August 5, 2008, there were approximately 31.1 million shares of MHG outstanding and approximately 1.0 million operating company units outstanding, which may be redeemed for common stock.
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