Morgans Hotel Group Reports Second Quarter 2009 Results
|
|
Morgans Hotel Group Reports Second Quarter 2009 Results
|
Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-08-11
- Announces Successful Amendment of Credit Facility -
Morgans Hotel Group Co. (NASDAQ: MHGC) (“MHG”) today reported financial results for the second quarter ended June 30, 2009.
* Revenue per available room (“RevPAR”) for System-Wide Comparable Hotels decreased 36.8% in constant dollars in the second quarter from the comparable period in 2008. Adjusted EBITDA for the second quarter was $11.3 million, a decrease of 59% from the comparable period in 2008.
* On August 5th, MHG announced the successful amendment of its revolving credit facility. This includes, among other things, the elimination of the leverage test, a reduction of the debt service coverage ratio to 0.90x from 1.75x, and an adjustment to the borrowing base test that is expected to allow MHG to access substantial liquidity for the life of the credit facility.
* As a result of the cost reduction plans, EBITDA at System-Wide Comparable Hotels during the second quarter declined at a rate of 1.8 times the related RevPAR percentage change, beating industry norms.
* MHG achieved a 19.8% reduction in operating expenses at System-Wide Comparable Hotels and a 37% reduction in corporate expenses in the second quarter of 2009 from the comparable period in 2008. Through our multi-phase contingency plans implemented beginning in early 2008, we estimate that we have reduced hotel operating expenses and corporate expenses by approximately $20 million and $10 million, respectively, on an annualized basis.
* With the completion of the redesigned Mondrian Los Angeles and Morgans properties in September 2008, MHG has no significant deferred capital expenditure requirements at its owned hotels.
* In April, Hard Rock opened a new and expanded Joint Music Venue and added approximately 65,000 square feet of meeting and convention space. The new north tower, consisting of 490 rooms, opened in July and the casino expansion and south tower, consisting of 374 rooms, are projected to open in late 2009 or early 2010.
* Boston Ames and Mondrian SoHo are currently targeted to open in the fourth quarter of 2009 and the middle of 2010, respectively.
Fred Kleisner, President and CEO of Morgans Hotel Group, said: “While the economic and operating environment remains difficult, we are beginning to see trends stabilize. We saw some returns in occupancy in the second quarter and modest, but nevertheless meaningful, pockets of promise across the business. As we move forward through this pressured economic and industry environment we remain focused on maintaining cost controls, strengthening our financial position and preserving, and ultimately growing, shareholder value. The amendment to our credit facility we reached with our lenders is a very positive step for the Company and signifies our strong lender support and their confidence in us and our business. We are confident that we are taking all the right steps to get us through this challenging period while at the same time positioning the company for long-term growth.”
Second Quarter 2009 Operating Results
RevPAR at System-Wide Comparable Hotels decreased by 39.5% (36.8% in constant dollars) in the second quarter of 2009 compared to the second quarter of 2008. Occupancy declined by 12.5% and average daily rate (“ADR”) declined by 30.9% (27.9% in constant dollars) compared to the same period in the prior year.
MHG recorded a net loss of $10.1 million in the second quarter of 2009 compared to a net loss of $1.1 million in the second quarter of 2008.
Balance Sheet and Liquidity
As of June 30, 2009, consolidated debt excluding the Clift lease obligation was $776.5 million and cash and cash equivalents were $165.2 million, which includes approximately $139.3 million MHG had borrowed under its revolving credit facility.
On August 5, 2009, MHG announced that it had successfully completed an amendment to its existing line of credit. Among other things the amendment:
* Eliminates the corporate leverage test;
* Reduces the corporate fixed charge coverage test to 0.90x from 1.75x;
* Amends the borrowing base tests so that, among other changes, a minimum of 35% of appraised value on the New York properties securing the facilities will be available; and
* Cleans up a variety of other provisions at the subsidiary level that could have triggered technical defaults.
The facility’s size was reduced from $220 million to $125 million and the full $125 million is currently available to be borrowed. The Company believes that, without the amendment, it would have had limited availability, if any, under the facility for the remainder of the term. Upon closing, the Company reduced its outstanding borrowings under the facility to $23.9 million and has approximately $11.1 million of outstanding letters of credit associated with the facility. The facility is secured by three of the Company’s hotels: Delano, Royalton and Morgans. The interest rate is LIBOR plus 3.75% with a LIBOR floor of 1.0% and the maturity is October 5, 2011.
The facility is led by Wells Fargo/Wachovia. Other lenders in the facility include Citibank, Aareal, Bank of America, Allied Irish, KBC Bank and Midfirst.
In June 2009, the $40 million non-recourse mortgage and mezzanine loans at Mondrian Scottsdale matured and were not repaid. MHG is continuing to operate Mondrian Scottsdale and accruing interest. MHG is discussing various options with the lenders. MHG does not intend to commit significant monies toward the repayment of the loans or the funding of operating deficits.
The Mondrian South Beach joint venture’s non-recourse mortgage and mezzanine loans matured on August 1, 2009 and were not repaid by the joint venture. MHG is continuing to operate Mondrian South Beach. The joint venture is in discussion with the lender to extend the maturity.
MHG estimates that its total future capital commitments for development projects for the remainder of 2009 will be approximately $13 million, primarily to fund the outstanding letters of credit at Hard Rock. With the re-launch of Mondrian Los Angeles and Morgans in September 2008, all major renovation projects have been completed and there are no significant deferred capital expenditure requirements at our owned hotels.
Additionally, MHG intends to utilize its net operating losses of approximately $100 million to offset future income, including potential gains on the sale of assets or interest therein as part of its long-term strategy to reduce its ownership interests in hotels.
Development Activity
MHG’s projects currently under construction are the Hard Rock expansion, the Boston Ames and the Mondrian SoHo, all of which are expected to be completed between the fourth quarter of 2009 and the middle of 2010.
2009 Outlook
The global economic downturn has had a significant adverse impact on demand, particularly since the middle of September 2008. Given the continuing uncertainty about the depth and duration of the economic crisis, we are not comfortable defining a specific RevPAR target or range for the year. However, we can provide a framework for Adjusted EBITDA given certain RevPAR declines. For example, if RevPAR for the year were to decline on average 25-30%, we would expect 2009 Adjusted EBITDA to be between $40-50 million. This is based on a ratio of EBITDA percentage decline to RevPAR percentage decline between 1.5 and 2.0 times, which is consistent with the ratio we have achieved over the past three quarters.
Conference Call
MHG will host a conference call to discuss the second 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 Corporate Info, 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 23399960. 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 23399960. The replay will be available from August 10, 2009 through August 17, 2009.
Definitions
“Owned Comparable Hotels” includes all wholly-owned hotels operated by MHG except for hotels under renovation during the current or the prior year and development projects. Owned Comparable Hotels for 2009 excludes Mondrian Los Angeles and Morgans, which were under renovation in 2008.
“System-Wide Comparable Hotels” includes all hotels operated by MHG except for hotels under renovation during the current or the prior year and development projects. System-Wide Comparable Hotels for 2009 excludes Mondrian Los Angeles and Morgans, which were under renovation in 2008, the Hard Rock Hotel & Casino in Las Vegas (“Hard Rock”), which has been under renovation and expansion since 2008, and Mondrian South Beach, which opened in December 2008.
“Adjusted EBITDA” is adjusted earnings before interest, taxes, depreciation and amortization as further defined below.
|
|
