Morgans Hotel Group Reports Fourth Quarter 2009 Results
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Morgans Hotel Group Reports Fourth Quarter 2009 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 2010-02-26
Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG" or the "Company") today reported financial results for the fourth quarter ended December 31, 2009.
Fourth Quarter 2009 Highlights
* Revenue per available room ("RevPAR") for System-Wide Comparable Hotels decreased by 13.6%, or 14.3% in constant dollars, in the fourth quarter from the comparable period in 2008.
* MHG's hotels in London and Los Angeles, two of the four markets where MHG has significant real estate ownership, reported year over year RevPAR increases.
* Adjusted EBITDAfor the fourth quarter was $12.8 million, a decrease of 44.0% from the comparable period in 2008. Excluding unusual items, Adjusted EBITDA decreased by 32.5%.
* In October 2009, MHG issued $75 million of preferred securities to an affiliate of The Yucaipa Companies, LLC ("Yucaipa"). Proceeds have been retained in cash and cash equivalents, significantly strengthening MHG's liquidity.
* In October 2009, MHG entered into an agreement with one of its lenders effectively extending the mezzanine loan on the Hudson hotel property in New York City to October 2013.
* In November 2009, MHG secured an amendment to the indenture related to its trust preferred securities to permanently eliminate the sole financial covenant.
* MHG opened the Ames in Boston in November 2009.
* In December 2009, the Hard Rock joint venture's two non-recourse loans, one of which is secured by the hotel and casino and the other by 11-acres of unused land, were amended so that these loans are extendable to February 2014.
* Also in December 2009, Hard Rock opened the new HRH Tower, consisting of 374 custom suites and the casino expansion. The pool expansion will be opened in the second quarter of 2010 for the summer season.
* MHG began managing the San Juan Beach and Water Club in Isla Verde, Puerto Rico, in October 2009 and Hotel Las Palapas in Playa del Carmen, Mexico, in December 2009.
* In January 2010, the Company extended the maturity on the $10.5 million interest only non-recourse promissory notes on the property across the street from Delano Miami until January 24, 2011.
* Mondrian SoHo is currently targeted to open in the second half of 2010.
Fred Kleisner, CEO of Morgans Hotel Group, said: "Despite a difficult economy, we made solid progress in 2009 both financially and operationally. We significantly restructured our balance sheet, addressed key maturities and added almost $200 million in liquidity. On the property front, we added three new properties to our portfolio and have substantially completed a major renovation and expansion at another property. While we still have more work to do, we believe that, because of our irreplaceable brands in gateway markets as well as the operating leverage now built into our business, we are well positioned to come back faster and stronger as the economy turns around. As a result, we are confident in our ability to build long-term shareholder value."
Fourth Quarter 2009 Operating Results
MHG recorded a net loss of $51.3 million in the fourth quarter of 2009, which includes non-cash pre-tax impairment charges of $26.3 million, discussed further below. Excluding impairment charges in the fourth quarters of 2009 and 2008, our pre-tax net loss was $17.0 million for the fourth quarter 2009 compared to a pre-tax net loss of $24.4 million in the fourth quarter of 2008.
RevPAR at System-Wide Comparable Hotels decreased by 13.6% (14.3% in constant dollars) in the fourth quarter of 2009 compared to the fourth quarter of 2008. Occupancy declined by 1.6% and average daily rate ("ADR") declined by 12.2% (12.9% in constant dollars) compared to the same period in the prior year.
Management fees increased by $0.4 million or 10.2% in the fourth quarter of 2009 over the comparable period in 2008, primarily due to the Hard Rock expansion.
Excluding the reversal of a $3.9 million bonus accrual which was recorded in the fourth quarter of 2008, corporate expenses before stock compensation expense declined by $1.7 million or 24.7% in the fourth quarter of 2009.
Given the current economic environment, in the fourth quarter of 2009, MHG recorded non-cash impairment charges of $26.3 million consisting of $18.5 million related to Mondrian Scottsdale, which is recorded as an impairment loss on hotel held for non-sale disposition, and $7.8 million, corresponding to the Company's share of an impairment charge recorded by the Mondrian South Beach joint venture, which is recorded in the Company's equity in loss of unconsolidated joint venture.
Balance Sheet and Liquidity
As of December 31, 2009, MHG had $167.0 million of liquidity comprised of $69.0 million of cash and cash equivalents and approximately $98.0 million, net of outstanding borrowings and letters of credit, available under the line of credit. Consolidated debt, excluding the Clift lease obligation and Mondrian Scottsdale, which is in foreclosure proceedings, was $615.8 million.
On October 15, 2009, MHG issued to Yucaipa $75 million of preferred securities. The preferred securities have an 8% dividend rate for the first five years, a 10% rate for years six through seven, and a 20% rate for years thereafter. MHG has the option to accrue any and all dividend payments. MHG also has the option to redeem the preferred securities at any time without any pre-payment penalty.
In addition, MHG issued to Yucaipa warrants to purchase 12.5 million shares of MHG's common stock at an exercise price of $6.00 per share, subject to certain anti-dilution adjustments, and exercisable utilizing a cashless exercise method only, resulting in a net share issuance. As a result of the cashless exercise method, the number of shares issuable on exercise will depend on the price of the common stock at that time. Based on the shares of MHG's common stock outstanding today, the maximum number of shares issuable under these warrants would never represent more than 29.99% of MHG's outstanding shares. The warrants have a 7 ½ year term.
In October 2009, MHG entered into an agreement with one of its lenders which holds, among other loans, the mezzanine loan on MHG's Hudson hotel property in New York City. The Hudson mezzanine loan was to mature on July 12, 2010 and provided for a 15-month extension at MHG's option, subject to satisfaction of certain conditions. Under the new agreement, MHG paid an aggregate of $11.2 million to (i) reduce the principal balance of the mezzanine loan from $32.5 million to $26.5 million, (ii) acquire interests in $4.5 million of certain of MHG's other debt obligations, (iii) pay fees, and (iv) obtain a forbearance from the mezzanine lender until October 12, 2013 from exercising any remedies resulting from a maturity default, subject only to maintaining certain interest rate caps and making an additional aggregate payment of $1.3 million to purchase additional interests in certain of our other debt obligations prior to October 11, 2011. MHG believes these transactions will have the practical effect of extending the Hudson mezzanine loan by three years and three months beyond its scheduled maturity of July 12, 2010. The mezzanine lender also has agreed to cooperate with MHG in its efforts to seek an extension of the $217 million Hudson mortgage loan, which is also set to mature on July 12, 2010, and to consent to certain refinancings and other modifications of the Hudson mortgage loan.
In November 2009, MHG secured an amendment to the indenture related to its trust preferred securities to permanently eliminate the sole financial covenant. In exchange for the permanent removal of the covenant, MHG paid a one-time fee of $2.0 million.
In December 2009, MHG's Hard Rock joint venture amended the loan secured by the hotel and casino so that it is extendable to February 2014. In addition, the non-recourse loan, secured by approximately 11-acres of unused land owned by a Hard Rock subsidiary, was also amended so that is extendable until February 2014.
In January 2010, the Company obtained a maturity extension until January 24, 2011 on the $10.5 million interest only non-recourse promissory notes on the property across the street from the Delano Miami.
As of December 31, 2009, MHG estimates that its total future capital commitments for development projects and joint ventures for the next 12 months are approximately $7 million.
Additionally, MHG intends to utilize its tax net operating losses of approximately $139 million to offset future income, including potential gains on the sale of assets or interests therein as part of MHG's long-term strategy to reduce its ownership interests in hotels.
Development Activity
In October 2009, MHG began managing the San Juan Water and Beach Club Hotel, a 78-room beachfront hotel in Isla Verde, Puerto Rico, under a 10-year management agreement. MHG plans to operate the San Juan Water and Beach Club Hotel as an independent hotel pending re-development into a Morgans Hotel Group branded property.
In December 2009, MHG began managing Hotel Las Palapas, located in the Playa del Carmen resort area, pursuant to a five-year management agreement with one five-year renewal option. Hotel Las Palapas is a 75-key beachfront hotel that is owned by affiliates of Walton Street Capital ("Walton"). Walton plans to convert the site into a Morgans Hotel Group branded hotel when economic conditions improve. Morgans and Walton are already joint venture partners in the ownership of two other hotels - the Sanderson and St Martins Lane hotels in London.
Mondrian SoHo is currently under construction. This hotel is expected to be completed in the second half of 2010.
2010 Outlook
The global economic downturn has had a significant adverse impact on the hotel industry and it continues to be very difficult for MHG to predict what will happen in the future, especially given the short term booking patterns and transient nature of the hotel business in addition to a still uncertain economic environment. Given the continuing uncertainty, MHG is not comfortable defining a specific RevPAR target or range for the year, but will provide the following framework:
* First, assuming that RevPAR is even with 2009 and given built-in growth from new hotels and hotel expansions, MHG would expect Adjusted EBITDA to be in the $45 million range.
* Second, while the Company is seeing signs of improving conditions in its markets, it still does not have the visibility to be comfortable forecasting the timing and pace of the recovery. However, as a framework, MHG estimates that each percentage point increase in RevPAR would impact Adjusted EBITDA by approximately $1.0 million to $1.5 million.
Conference Call
MHG will host a conference call to discuss the fourth 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 (888) 802-8577 or (973) 935-8754 for international callers; the conference ID is 54910417. A replay of the call will be available approximately 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 54910417. The replay will be available from February 25, 2010 through March 4, 2010.
Definitions
"Owned Comparable Hotels" includes all wholly-owned hotels operated by MHG except for hotels under renovation during the current or the prior year, development projects and hotels in foreclosure proceedings. Owned Comparable Hotels for 2009 excludes Mondrian Los Angeles and Morgans, which were under renovation in 2008, and Mondrian Scottsdale, which was in foreclosure proceedings as of December 31, 2009.
"System-Wide Comparable Hotels" includes all hotels operated by MHG except for hotels added or under renovation during the current or the prior year, development projects and hotels in foreclosure proceedings. 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, Mondrian South Beach, which opened in December 2008, Mondrian Scottsdale, which was in foreclosure proceedings as of December 31, 2009 and management of Ames in Boston, the San Juan Water and Beach Club, and Hotel Las Palapas, which MHG began managing in the fourth quarter of 2009.
"Adjusted EBITDA" is adjusted earnings before interest, taxes, depreciation and amortization as further defined below.
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