Morgans Hotel Group Reports Second Quarter 2010 Results
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Morgans Hotel Group Reports Second Quarter 2010 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 2010-08-06
Morgans Hotel Group Co. (Nasdaq: MHGC) ("MHG" or the "Company") today reported financial results for the quarter ended June 30, 2010.
Adjusted EBITDAfor the second quarter was $14.0 million, a $2.3 million or 19.7% increase from the second quarter of 2009. On a comparable basis, Adjusted EBITDA increased by 25%.
Revenue per available room ("RevPAR") for System-Wide Comparable Hotels increased by 13.3%, or 14.0% in constant dollars, in the second quarter of 2010 from the comparable period in 2009 led by a 23.1% increase at MHG's New York hotels.
The RevPAR increase at System-Wide Comparable Hotels was due to a 9.2% increase in occupancy and a 3.8% (4.4% in constant dollars) increase in average daily rate ("ADR").
Management fees increased by $1.2 million, or 32.1%, in the second quarter of 2010 over the comparable period in 2009.
Gross operating profit margins at Owned Comparable Hotels increased by 310 basis points in the second quarter of 2010 over the comparable period in 2009. The percentage increase in EBITDA was 2.3 times the percentage RevPAR increase at System-Wide Comparable Hotels.
On July 15, 2010, MHG's London joint venture that owns Sanderson and St Martins Lane successfully refinanced in full the 100 million pounds Sterling mortgage debt secured by the hotels with a new loan maturing in July 2015 at an interest rate reduced by approximately 100 basis points.
On July 31, 2010, the MHG joint venture that is developing a Mondrian in SoHo procured additional funding to complete development of the hotel and successfully extended the maturity of the debt financing secured by the hotel property for up to five years through extension options, subject to certain conditions.
Fred Kleisner, CEO of Morgans Hotel Group, said: "We delivered strong results for the second quarter, outperforming industry growth averages across all key performance metrics, demonstrating once again that Morgans is well positioned to come back faster and stronger than the industry as the economy improves. RevPAR was up 13% for the quarter, more than doubling the industry average, driven by rising occupancies as well as a significant improvement in ADR, which showed positive growth for the first time since 2008. We also continued to make excellent progress in strengthening our balance sheet, as illustrated most recently by the London and Mondrian in SoHo loan extensions. As we move into the second half of the year, we are confident in the prospects of our key markets and we remain focused on driving increased long-term value for our shareholders."
Second Quarter 2010 Operating Results
RevPAR at System-Wide Comparable Hotels increased by 13.3% (14.0% in constant dollars) in the second quarter of 2010 compared to the second quarter of 2009 due to a strong recovery in corporate travel. Occupancy increased by 9.2% and ADR increased by 3.8% (4.4% in constant dollars) compared to the same period in 2009. This is the first quarter MHG has experienced an increase in ADR since the second quarter of 2008.
In New York, our flagship market, RevPAR increased by 23.1%. Occupancy was 94% compared to 87% in the second quarter of 2009. As a result of this high occupancy level, we were able to drive a 14.1% increase in ADR which accounted for over 60% of the RevPAR increase. RevPAR increased by 18.0% in constant dollars at our London hotels, driven by a 9.9% increase in ADR. Mondrian Los Angeles generated a 9.8% RevPAR increase with occupancy up six percentage points. RevPAR at our Miami hotels was relatively flat, increasing by 0.3%.
Management fees increased by $1.2 million, or 32.1%, in the second quarter of 2010 over the comparable period in 2009, primarily due to the Hard Rock expansion in 2009 which resulted in 865 new rooms and additional restaurant, bar and banquet space. In addition, in the fourth quarter of 2009, we opened Ames in Boston and began managing two additional hotels - The San Juan Water and Beach Club in Puerto Rico and Hotel Las Palapas in Playa del Carmen, Mexico.
Adjusted EBITDAfor the second quarter of 2010 was $14.0 million, a $2.3 million or 19.7% increase from the second quarter of 2009. This reflects a lower ownership percentage at Hard Rock in the second quarter of 2010. Had the ownership percentage been constant, the percentage increase in Adjusted EBITDA would have been 25%.
MHG recorded a net loss of $21.1 million in the second quarter of 2010 compared to a loss of $10.1 million in the second quarter of 2009 due to a non-cash, pre-tax, impairment charge of $8.3 million related to Mondrian SoHo in 2010, and a $7.0 million tax benefit recorded in the second quarter of 2009 for which there was no comparable tax benefit recorded in 2010.
Balance Sheet and Liquidity
As of June 30, 2010, MHG had $134.4 million of liquidity comprised of $37.7 million of cash and cash equivalents and approximately $96.7 million, net of outstanding borrowings and letters of credit, available under its line of credit. Consolidated debt, excluding the Clift lease obligation, was $616.9 million.
On July 9, 2010, MHG entered into forbearance agreements with the lenders which hold the $217.0 and $120.5 first mortgage loans secured by its Hudson and Mondrian Los Angeles hotels, respectively. The forbearance agreements effectively extend the maturities of the loans until September 12, 2010 allowing MHG and the lenders additional time to complete the negotiation and documentation of the appropriate amendments to further extend the loans. The first mortgage loans were scheduled to mature on July 12, 2010 with options to extend the maturities to October 2011 provided that certain conditions were met. In October 2009, the Company entered into a forbearance agreement with the holder of the $26.5 million Hudson mezzanine loan that it believes effectively extended the maturity of that loan to 2013.
On July 15, 2010, MHG's London joint venture that owns Sanderson and St Martins Lane, successfully refinanced in full the mortgage debt secured by the hotels with a new loan maturing in July 2015. The previous loan was scheduled to mature in November 2010. The new financing, provided by Aareal Bank, is a 100 million pounds Sterling loan that is non-recourse to MHG and is secured by the two London hotels. The joint venture also entered into a swap agreement that effectively fixes the interest rate at 5.22% for the term of the loan, a reduction in interest rate of approximately 100 basis points.
As of June 30, 2010, MHG estimates that its total future capital commitments for development projects and joint ventures for the next 12 months are approximately $5.0 million, which includes approximately $3.2 million to fund the completion of Mondrian in SoHo. MHG intends to utilize its tax net operating losses of approximately $180 million to offset future income, including potential gains on the sale of assets or interests therein.
Development Activity
MHG continues to focus on enhancing its existing assets and is re-concepting several food and beverage venues to improve profitability. In May 2010, MHG opened a new restaurant at Hudson, Hudson Hall, and in July 2010, MHG closed the restaurant at Royalton for a renovation and concept change. It is expected that Royalton's new restaurant and expanded bar will open in September 2010, for New York's Fashion Week.
On July 31, 2010, MHG's joint venture that is developing a Mondrian in SoHo procured additional funding to complete development of the hotel. The parties amended the debt financing on the property, among other things, to provide for extensions of the maturity date of the mortgage loan secured by the hotel for up to five years through extension options, subject to certain conditions. In addition to new funds being provided by the lender, MHG's financial and developer partner in the joint venture, Cape Advisors, is making cash and other contributions to the joint venture, and MHG will provide up to $3.2 million of additional funds to complete the project. MHG's contribution will be treated as a loan with priority over the equity. Mondrian in SoHo is expected to open in January 2011 with a restaurant, bar, and other facilities. MHG has a 10-year management contract with two 10-year extension options to operate the hotel upon completion.
2010 Outlook
It continues to be very difficult to predict what will happen for the remainder of the year given the short term booking patterns and transient nature of the hotel business in addition to a still uncertain economic environment. That said, MHG is providing the following framework for its results:
First, given its built-in growth from new hotels and hotel expansions, if RevPAR increases by 8%-10% in 2010 compared to 2009, MHG would expect Adjusted EBITDA to be in the $53 million to $55 million range, assuming no further changes in ownership percentage interests in our hotels.
Second, while the pace of recovery has been faster and stronger than anticipated to date, MHG still does not have the visibility to be comfortable forecasting how this will progress during the remainder of the year. However, as a framework based on the Company's existing portfolio, MHG estimates that each incremental percentage point change in RevPAR would result in a change in Adjusted EBITDA of $1.0 million to $1.5 million.
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 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 86840881. 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 86840881. The replay will be available from August 5, 2010 through August 12, 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 discontinued operations. Owned Comparable Hotels for the three and six months ended June 30, 2010 and 2009 excludes Mondrian Scottsdale, which was classified as a discontinued operation in 2010 and effective March 16, 2010 was no longer owned or managed by MHG.
"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 discontinued operations. System-Wide Comparable Hotels for the three and six months ended June 30, 2010 and 2009 excludes the Hard Rock Hotel & Casino in Las Vegas ("Hard Rock"), which was under renovation and expansion in 2009, Mondrian Scottsdale, which was classified as a discontinued operation in 2010 and effective March 16, 2010 was no longer owned or managed by MHG, and 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.
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 and owns, or has an ownership interest in, Morgans, Royalton and Hudson in New York, Delano and Shore Club in South Beach, Mondrian in Los Angeles and South Beach, Clift in San Francisco, Ames in Boston, and Sanderson and St Martins Lane in London. Morgans Hotel Group and an equity partner also own the Hard Rock Hotel & Casino in Las Vegas and related assets. Morgans Hotel Group also manages hotels in Isla Verde, Puerto Rico and Playa del Carmen, Mexico. Morgans Hotel Group has other property transactions in various stages of completion, including projects in SoHo, New York and Palm Springs, California. 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 and prediction of certain future events. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" "believe," "project," 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 or other future events 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, the need for lender approval of any amendments to our loan agreements, economic, business, competitive market and regulatory conditions such as: a sustained downturn in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; continued tightness in the global credit markets; general volatility of the capital markets and our ability to access the capital markets; our ability to refinance our current outstanding debt and to repay outstanding debt as such debt matures; our ability to protect the value of our name, image and brands and our intellectual property; risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; and other risk factors discussed in MHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and other documents filed by MHG 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 MHG 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 Statement
(In thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
2010 2009 2010 2009
---- ---- ---- ----
Revenues :
Rooms $35,093 $30,137 $64,343 $57,007
Food & beverage 17,549 18,403 35,045 36,959
Other hotel 2,444 2,150 4,653 4,504
----- ----- ----- -----
Total hotel revenues 55,086 50,690 104,041 98,470
Management and other fees 5,103 3,863 9,532 7,312
----- ----- ----- -----
Total revenues 60,189 54,553 113,573 105,782
Operating Costs and
Expenses :
Rooms 10,291 9,918 20,316 19,628
Food & beverage 14,184 13,826 28,100 27,693
Other departmental 1,260 1,483 2,512 2,964
Hotel selling, general and
administrative 11,811 11,164 23,248 22,186
Property taxes, insurance
and other 4,711 4,078 8,811 8,293
----- ----- ----- -----
Total hotel operating
expenses 42,257 40,469 82,987 80,764
Corporate expenses :
Stock based compensation 2,790 2,505 6,588 5,574
Other 6,430 4,983 12,637 11,214
Depreciation and
amortization 8,011 8,116 15,356 15,045
Restructuring, development
and disposal costs 1,189 653 1,866 1,531
----- --- ----- -----
Total operating costs and
expenses 60,677 56,726 119,434 114,128
Operating loss (488) (2,173) (5,861) (8,346)
Interest expense, net 12,680 11,768 25,297 22,949
Equity in loss of
unconsolidated joint
ventures 7,739 1,895 8,002 2,438
Other non-operating
expense 241 496 15,318 1,065
--- --- ------ -----
Pre tax loss (21,148) (16,332) (54,478) (34,798)
Income tax expense
(benefit) 131 (6,969) 299 (15,125)
--- ------ --- -------
Net loss before
noncontrolling interest (21,279) (9,363) (54,777) (19,673)
Net income (loss)
attributable to
noncontrolling interest 434 (115) 581 (418)
Net loss from continuing
operations $(20,845) $(9,478) $(54,196) $(20,091)
(Loss) income from
discontinued operations $(226) $(579) $17,165 $(552)
Net loss $(21,071) $(10,057) $(37,031) $(20,643)
Preferred stock dividends
and accretion $2,114 $- $4,192 $-
Net loss attributable to
common stockholders $(23,185) $(10,057) $(41,223) $(20,643)
(Loss) income per share:
Basic and diluted from
continuing operations $(0.75) $(0.32) $(1.92) $(0.67)
Basic and diluted from
discontinued operations $(0.01) $(0.02) $0.56 $(0.02)
Basic and diluted
attributable to common
stockholders $(0.76) $(0.34) $(1.36) $(0.69)
Weighted average common
shares outstanding -
basic and diluted 30,484 29,745 30,395 29,742
Selected Hotel Operating
Statistics (1) ( In Actual Dollars)
Three Months
Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans
Occupancy 94.2% 89.1% 5.7%
ADR $251.92 $222.51 13.2%
RevPAR $237.31 $198.26 19.7%
Royalton
Occupancy 92.6% 89.4% 3.6%
ADR $279.54 $247.57 12.9%
RevPAR $258.85 $221.33 17.0%
Hudson
Occupancy 94.3% 86.7% 8.8%
ADR $212.51 $183.98 15.5%
RevPAR $200.40 $159.51 25.6%
Delano
Occupancy 62.4% 64.5% -3.3%
ADR $437.21 $455.98 -4.1%
RevPAR $272.82 $294.11 -7.2%
Mondrian LA
Occupancy 74.6% 68.7% 8.6%
ADR $258.80 $255.98 1.1%
RevPAR $193.06 $175.86 9.8%
Clift
Occupancy 73.1% 65.4% 11.8%
ADR $183.10 $183.21 -0.1%
RevPAR $133.85 $119.82 11.7%
Total Owned Comparable
Hotels
Occupancy 84.4% 78.4% 7.7%
ADR $238.51 $223.88 6.5%
RevPAR $201.30 $175.52 14.7%
St. Martins Lane
Occupancy 75.8% 70.1% 8.1%
ADR $346.50 $311.81 11.1%
RevPAR $262.65 $218.58 20.2%
Sanderson
Occupancy 71.1% 66.9% 6.3%
ADR $393.04 $392.46 0.1%
RevPAR $279.45 $262.56 6.4%
Shore Club
Occupancy 57.5% 54.0% 6.5%
ADR $255.31 $280.45 -9.0%
RevPAR $146.80 $151.44 -3.1%
Mondrian South Beach
Occupancy 54.5% 41.0% 32.9%
ADR $201.10 $219.70 -8.5%
RevPAR $109.60 $90.08 21.7%
System-wide Comparable
Hotels
Occupancy 77.2% 70.7% 9.2%
ADR $252.19 $243.01 3.8%
RevPAR $194.69 $171.81 13.3%
Hard Rock (2)
Occupancy 81.8% 92.3% -11.4%
ADR $145.52 $165.14 -11.9%
RevPAR $119.04 $152.42 -21.9%
Ames (3)
Occupancy 79.9% 0.0% n/m
ADR $217.80 $- n/m
RevPAR $174.02 $- n/m
Selected Hotel Operating ( In Constant Dollars, if
Statistics (1) different)
Three Months
Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans
Occupancy
ADR
RevPAR
Royalton
Occupancy
ADR
RevPAR
Hudson
Occupancy
ADR
RevPAR
Delano
Occupancy
ADR
RevPAR
Mondrian LA
Occupancy
ADR
RevPAR
Clift
Occupancy
ADR
RevPAR
Total Owned Comparable
Hotels
Occupancy
ADR
RevPAR
St. Martins Lane
Occupancy 75.8% 70.1% 8.1%
ADR $354.53 $307.44 15.3%
RevPAR $268.73 $215.52 24.7%
Sanderson
Occupancy 71.1% 66.9% 6.3%
ADR $402.15 $386.96 3.9%
RevPAR $285.93 $258.88 10.4%
Shore Club
Occupancy
ADR
RevPAR
Mondrian South Beach
Occupancy
ADR
RevPAR
System-wide Comparable
Hotels
Occupancy 77.2% 70.7% 9.2%
ADR $253.19 $242.42 4.4%
RevPAR $195.46 $171.39 14.0%
Hard Rock (2)
Occupancy
ADR
RevPAR
Ames (3)
Occupancy
ADR
RevPAR
Selected Hotel Operating ( In Actual
Statistics (1) Dollars)
Six Months
Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans
Occupancy 90.6% 81.5% 11.2%
ADR $233.92 $221.28 5.7%
RevPAR $211.93 $180.34 17.5%
Royalton
Occupancy 90.0% 83.6% 7.7%
ADR $260.05 $250.56 3.8%
RevPAR $234.05 $209.47 11.7%
Hudson
Occupancy 85.7% 78.2% 9.6%
ADR $189.87 $177.97 6.7%
RevPAR $162.72 $139.17 16.9%
Delano
Occupancy 62.7% 65.0% -3.5%
ADR $545.16 $527.57 3.3%
RevPAR $341.82 $342.92 -0.3%
Mondrian LA
Occupancy 68.6% 58.7% 16.9%
ADR $264.40 $269.53 -1.9%
RevPAR $181.38 $158.21 14.6%
Clift
Occupancy 66.7% 58.6% 13.8%
ADR $191.30 $199.14 -3.9%
RevPAR $127.60 $116.70 9.3%
Total Owned Comparable
Hotels
Occupancy 78.2% 71.3% 9.7%
ADR $237.13 $234.19 1.3%
RevPAR $185.44 $166.98 11.1%
St. Martins Lane
Occupancy 74.5% 69.1% 7.8%
ADR $335.37 $299.14 12.1%
RevPAR $249.85 $206.71 20.9%
Sanderson
Occupancy 72.8% 66.1% 10.1%
ADR $383.31 $365.06 5.0%
RevPAR $279.05 $241.30 15.6%
Shore Club
Occupancy 60.6% 54.3% 11.6%
ADR $315.54 $336.88 -6.3%
RevPAR $191.22 $182.93 4.5%
Mondrian South Beach
Occupancy 57.3% 47.5% 20.6%
ADR $262.22 $252.38 3.9%
RevPAR $150.25 $119.78 25.4%
System-wide Comparable
Hotels
Occupancy 73.7% 66.6% 10.7%
ADR $260.66 $256.34 1.7%
RevPAR $192.11 $170.72 12.5%
Hard Rock (2)
Occupancy 79.7% 90.8% -12.2%
ADR $130.28 $150.41 -13.4%
RevPAR $103.83 $136.57 -24.0%
Ames (3)
Occupancy 59.8% 0.0% n/m
ADR $203.04 $- n/m
RevPAR $121.42 $- n/m
Selected Hotel Operating ( In Constant Dollars, if
Statistics (1) different)
Six Months
Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans
Occupancy
ADR
RevPAR
Royalton
Occupancy
ADR
RevPAR
Hudson
Occupancy
ADR
RevPAR
Delano
Occupancy
ADR
RevPAR
Mondrian LA
Occupancy
ADR
RevPAR
Clift
Occupancy
ADR
RevPAR
Total Owned Comparable
Hotels
Occupancy
ADR
RevPAR
St. Martins Lane
Occupancy 74.5% 69.1% 7.8%
ADR $335.37 $305.75 9.7%
RevPAR $249.85 $211.27 18.3%
Sanderson
Occupancy 72.8% 66.1% 10.1%
ADR $383.31 $373.13 2.7%
RevPAR $279.05 $246.64 13.1%
Shore Club
Occupancy
ADR
RevPAR
Mondrian South Beach
Occupancy
ADR
RevPAR
System-wide Comparable
Hotels
Occupancy 73.7% 66.6% 10.7%
ADR $260.66 $257.26 1.3%
RevPAR $192.11 $171.34 12.1%
Hard Rock (2)
Occupancy
ADR
RevPAR
Ames (3)
Occupancy
ADR
RevPAR
(1) Not included in the above table are the San Juan Water and Beach
Club and Hotel Las Palapas, which we began operating in the fourth
quarter of 2009. We anticipate that both hotels will be re-
developed in
the future into Morgans Hotel Group branded hotels, once funding is
available to the hotel owners. As the hotels are currently not
branded hotels, we believe that including hotel operating data for
these hotels
with hotel operating data for our Morgans Hotel Group branded hotels
would not provide a meaningful view of the performance of our
portfolio of branded hotels. Also not included are discontinued
operations.
(2) As customary in the gaming industry, we present average
occupancy and average daily rate for the Hard Rock including rooms
provided on a complimentary basis which is not the practice in the
lodging industry
(3) Ames opened in November 2009. Statistics are for the period the
hotel was open.
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 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 the inclusion or exclusion of certain recurring and non-recurring 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 expenses (income) that do 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 executive terminations not related to restructuring initiatives discussed below, costs of financings and litigation and settlement costs and other items that relate to the financing and investing activities of our assets and not to the on-going operating performance of our assets, both consolidated and unconsolidated, and changes in fair market value of the warrants issued to investors in the Company;
Restructuring, development and disposal costs: these charges primarily relate to losses on asset disposals as part of major renovation projects and the write-off of abandoned development projects resulting primarily from events generally outside management's control such as the tightening of credit markets. We reasonably believe that a substantial portion of these items will not recur in future years and that these charges do not relate to the ongoing operating performance of our assets as measured by Adjusted EBITDA.
Impairment loss on development projects, hotels and investments in joint ventures: these charges do not relate to the ongoing operating performance of our assets as measured by Adjusted EBITDA. 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 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.
The 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;
The EBITDA related to hotels classified as "hotels held for non-sale disposition" or "discontinued operations" to more accurately reflect the operating performance of assets in which we expect to have an ongoing direct or indirect fee simple ownership interest; and
Stock-based compensation expense recognized, as this is not necessarily an indication of the operating performance of our assets.
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 hotel 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 both in our reconciliations to our GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA is not defined under accounting principles generally accepted in the United States, or 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. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do.
A reconciliation of net income (loss), the most directly comparable U.S. GAAP measures, 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,
-------------- --------------
2010 2009 2010 2009
---- ---- ---- ----
Net loss $(21,071) $(10,057) $(37,031) $(20,643)
Interest expense,
net 12,680 11,768 25,297 22,949
Income tax expense
(benefit) 131 (6,969) 299 (15,125)
Depreciation and
amortization
expense 8,011 8,116 15,356 15,045
Proportionate
share of interest
expense
from
unconsolidated
joint ventures 3,496 6,205 7,371 12,607
Proportionate
share of
depreciation
expense
from
unconsolidated
joint ventures 2,170 1,966 5,611 4,004
Proportionate
share of
depreciation
expense
of minority
interests in
consolidated
joint ventures (89) (75) (179) (166)
Net income
attributable to
noncontrolling
interest (690) (314) (1,218) (668)
Proportionate
share of loss
from
unconsolidated
joint ventures not
recorded due to
negative
investment
balances (2,407) (4,252) (6,403) (9,658)
------ ------ ------ ------
EBITDA 2,231 6,388 9,103 8,345
Add : Other non
operating expense 241 496 15,318 1,065
Add : Other non
operating expense
from
unconsolidated
joint ventures 7,411 848 7,507 560
Add:
Restructuring,
development and
disposal costs 1,189 653 1,866 1,531
Less : EBITDA from
Clift, a leased
hotel (53) 260 22 536
Add : Stock based
compensation 2,790 2,505 6,588 5,574
Less: (Loss)
Income from
discontinued
operations 226 579 (17,165) 552
--- --- ------- ---
Adjusted EBITDA $14,035 $11,729 $23,239 $18,163
======= ======= ======= =======
Owned Comparable Hotel Room
Revenue Analysis Three Months
(In thousands, except percentages) Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans $2,463 $2,058 20%
Royalton 3,956 3,383 17%
Hudson 15,161 11,715 29%
Delano 4,814 5,190 -7%
Mondrian LA 4,165 3,792 10%
Clift 4,534 4,000 13%
----- ----- ---
Total Owned Comparable Hotels $35,093 $30,138 16%
======= ======= ===
Owned Comparable Hotel Room
Revenue Analysis Six Months
(In thousands, except percentages) Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans $4,375 $3,723 18%
Royalton 7,113 6,370 12%
Hudson 24,475 20,336 20%
Delano 12,004 12,048 0%
Mondrian LA 7,778 6,782 15%
Clift 8,598 7,748 11%
----- ----- ---
Total Owned Comparable Hotels $64,343 $57,007 13%
======= ======= ===
Owned Comparable Hotel Revenue
Analysis Three Months
(In thousands, except percentages) Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans $4,303 $3,973 8%
Royalton 5,215 4,690 11%
Hudson 19,230 15,894 21%
Delano 10,494 10,854 -3%
Mondrian LA 8,397 8,424 0%
Clift 7,447 6,854 9%
----- ----- ---
Total Owned Comparable Hotels $55,086 $50,689 9%
======= ======= ===
Owned Comparable Hotel Revenue
Analysis Six Months
(In thousands, except percentages) Ended June 30, %
2010 2009 Change
---- ---- ------
Morgans $8,244 $7,814 6%
Royalton 9,766 9,137 7%
Hudson 31,163 27,921 12%
Delano 24,780 25,045 -1%
Mondrian LA 15,475 14,832 4%
Clift 14,613 13,720 7%
------ ------ ---
Total Owned Comparable Hotels $104,041 $98,469 6%
======== ======= ===
Hotel EBITDA Analysis
(In thousands, except percentages)
Three Months
Ended June 30, %
2010 2009 (1) Change
---- ------- ------
Morgans $412 $(40) n/m
Royalton 518 297 74%
Hudson 5,529 3,604 53%
Delano 3,099 3,243 -4%
Mondrian LA 3,118 2,973 5%
Clift 53 (260) n/m
--- ---- ---
Owned Comparable Hotels 12,729 9,817 30%
St Martins Lane 1,295 1,050 23%
Sanderson 692 663 4%
Shore Club 44 76 -42%
Mondrian South Beach (118) (356) n/m
---- ---- ---
Joint Venture
Comparable Hotels 1,913 1,433 33%
Total System-Wide
Comparable Hotels 14,642 11,250 30%
Hard Rock - Joint Venture 920 1,423 -35%
Ames - Joint Venture 77 - n/m
--- --- ---
Total Hotels $15,639 $12,673 23%
======= ======= ===
Six Months
Ended June 30, (1) %
2010 2009 Change
---- ---- ------
Morgans $395 $(280) n/m
Royalton 323 57 n/m
Hudson 6,039 4,331 39%
Delano 8,664 8,620 1%
Mondrian LA 5,107 4,487 14%
Clift (22) (536) n/m
--- ---- ---
Owned Comparable Hotels 20,506 16,679 23%
St Martins Lane 2,393 2,064 16%
Sanderson 1,363 1,203 13%
Shore Club 251 262 -4%
Mondrian South Beach 337 (330) n/m
--- ---- ---
Joint Venture
Comparable Hotels 4,344 3,199 36%
Total System-Wide
Comparable Hotels 24,850 19,878 25%
Hard Rock - Joint Venture 1,837 1,827 1%
Ames - Joint Venture (140) - n/m
---- --- ---
Total Hotels $26,547 $21,705 22%
======= ======= ===
(1) Excludes Mondrian Scottsdale. Mondrian Scottsdale was
classified as a "discontinued operation" in 2010, and effective
March 16, 2010, was no
longer owned or managed by the Company.
Adjusted EBITDA and Debt Analysis
(In thousands)
Adjusted
EBITDA
Twelve
Months
Outstanding
Ended Debt at
June 30,
Consolidated Operations 2010 June 30, 2010
----------------------- --------- -------------
Morgans $1,165
Royalton 2,237
Delano 14,167
------
Sub -total for Hotels Securing
Revolver 17,569 $23,508
Hudson 14,850 249,608
Mondrian LA 9,659 120,500
Management Fees 17,292
Corporate Expenses (23,174)
Other Debt (1) - 223,329
-------
Total $36,196 616,945
------- -------
Less: Cash (37,739)
-------
Net Debt $579,206
--------
(1) Includes outstanding debt on convertible notes, trust preferred
securities, and the promissory notes
on the property across the street from Delano Miami, and excludes the
lease obligation at Clift.
Proportionate
Share of
Adjusted
EBITDA Proportionate
Twelve Months Share of
Ownership Ended Debt
Joint Venture Comparable
Hotels (1) Percentage June 30, 2010 June 30, 2010
------------------------ ---------- ------------- -------------
Sanderson and St. Martins
Lane 50% $8,935 $74,840
Shore Club 7% 317 8,364
(1) Includes information only for System-Wide Comparable Hotels
that are owned by joint ventures
Balance Sheet
(In thousands)
June 30, Dec 31,
2010 2009
---- ----
ASSETS:
Property and equipment, net $480,868 $488,189
Goodwill 73,698 73,698
Investments in and advances to unconsolidated
joint ventures 27,105 32,445
Investment in discontinued operation, net - 23,977
Cash and cash equivalents 37,739 68,994
Restricted cash 33,369 21,109
Accounts receivable, net 6,897 6,531
Related party receivables 9,629 9,522
Prepaid expenses and other assets 9,795 10,862
Deferred tax asset, net 80,240 83,980
Other, net 15,062 18,931
------ ------
Total assets $774,402 $838,238
======== ========
LIABILITIES and EQUITY:
Long-term debt and capital lease
obligations, net $703,029 $699,013
Mortgage debt of discontinued operation - 40,000
Accounts payable and accrued liabilities 27,496 30,325
Accounts payable and accrued liabilities of
discontinued operations 8 1,455
Distributions and losses in excess of
investment in unconsolidated joint ventures 1,584 2,740
Other liabilities 46,549 41,294
------ ------
Total liabilities 778,666 814,827
Total Morgans Hotel Group Co. stockholders'
(deficit) equity (16,983) 9,020
Noncontrolling interest 12,719 14,391
------ ------
Total (deficit) equity (4,264) 23,411
------ ------
Total liabilities and equity $774,402 $838,238
======== ========
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