Morgans Hotel Group reports fourth quarter and full year 2014 results

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Written by Linda Hohnholz

Morgans Hotel Group Co. today reported financial results for the quarter and year ended December 31, 2014.

Fourth Quarter Highlights

Morgans Hotel Group Co. today reported financial results for the quarter and year ended December 31, 2014.

Fourth Quarter Highlights

Adjusted EBITDA, defined below, was $17.7 million in the fourth quarter of 2014, an increase of $0.2 million, or 1%, from the same period in 2013.

Excluding The Light Group (“TLG”), the controlling interests of which the Company sold in January 2015, as discussed below, Adjusted EBITDA was $16.2 million for the fourth quarter of 2014, an increase of $0.1 million, or 0.7%, from the same period in 2013.

Operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 90 basis points during the fourth quarter of 2014 as compared to the same period in 2013, primarily as a result of cost saving initiatives implemented in 2014.
Revenue per available room (“RevPAR”) for System-Wide Comparable Hotels decreased by 0.8% on a year-over-year basis during the fourth quarter of 2014. System-Wide Comparable Hotels’ room revenues plus resort fees increased 1.1% during the fourth quarter of 2014 as compared to the same period in 2013.

In November 2014, the Company continued its global expansion with the opening of 10 Karakoy, a 71-room Morgans Original in Istanbul, Turkey. This marked the Company’s third new hotel opening in 2014, preceded by Delano Las Vegas and Mondrian London.

In the fourth quarter of 2014, the Company repaid and retired its outstanding $49.1 million of Convertible Notes and $19.1 million of TLG Promissory Notes held by the minority owners of TLG.
On January 23, 2015, the Company completed the sale of its equity interests in TLG for net proceeds of $32.8 million (the “TLG Equity Sale”). As a result, pro forma cash as of December 31, 2014 was $46.3 million.

The Company added two additional guestrooms at Hudson during the fourth quarter of 2014. These rooms, coupled with the 10 additional guestrooms added in the third quarter of 2014, bring the room count at Hudson to 878 as of December 31, 2014. The Company currently has 60 single room occupancy units (“SROs”) remaining at Hudson, which it intends to convert, together with other space in the hotel, into additional guest rooms in the future.

Full Year Highlights

Adjusted EBITDA was $55.1 million for the year ended 2014, a $2.9 million or 5.6% increase over the year ended 2013, due to EBTIDA growth at all of the Company’s Owned Hotels.

Excluding TLG, Adjusted EBITDA was $48.7 million, a $4.8 million or 10.9% increase for the year ended 2014 as compared to same period in 2013.

Operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 260 basis points for the year ended 2014 as compared to the same period in 2013, primarily as a result of cost saving initiatives implemented in 2014.

RevPAR for System-Wide Comparable Hotels increased 2.8% for the year ended December 31, 2014 as compared to the same period in 2013.

System-Wide Comparable Hotels’ room revenues plus resort fees increased 3.3% during 2014 as compared to the same period in 2013.

Jason T. Kalisman, Interim Chief Executive Officer, stated, “Throughout 2014, we continued to make progress against our plan of strengthening our balance sheet and delivering on our asset-light, brand focused strategy, leveraging our position as the leader in the international boutique hotel segment. We successfully refinanced the debt of Hudson and Delano on attractive terms, streamlined our cost-structure throughout the organization and sold our controlling interest in TLG โ€“ all of which has led to stronger financial positioning, value creation and a greater ability to grow our portfolio of one-of-a-kind brands. We’re extremely pleased with these achievements and the performance of our current operations and our key projects in 2014 โ€“ including Mondrian London and Delano Las Vegas.”

Fourth Quarter 2014 Operating Results

Adjusted EBITDA for the fourth quarter of 2014 was $17.7 million, an increase of $0.2 million, or 1.0%, over the same period in 2013.

Excluding TLG, the equity interests of which were sold in January 2015, Adjusted EBITDA was $16.2 million for the fourth quarter of 2014, an increase of $0.1 million, or 0.7%, from the same period in 2013.

EBITDA at the Company’s Owned Hotels experienced an approximately 1% increase during the fourth quarter of 2014 as compared to the same period in 2013 due primarily to an 11.3% increase at Delano South Beach, which was partially offset by a 4.4% decrease at Hudson.

RevPAR at System-Wide Comparable Hotels decreased by 0.8% in the fourth quarter of 2014 as compared to the same period in 2013, due to a 1.2% decrease in ADR offset in part by a 0.4% increase in occupancy. The Company implemented a resort fee at certain of its hotels in 2014. System-Wide Comparable Hotels’ room revenues plus resort fees increased 1.1% during the fourth quarter of 2014 as compared to the same period in 2013.

RevPAR from System-Wide Comparable Hotels in New York decreased 3.9% for the quarter ended December 31, 2014 over the same period in 2013, due to decreased ADR. Occupancy at the Company’s New York hotels stayed strong at 91.3%, remaining even with occupancy reported during the fourth quarter of 2013. RevPAR at Hudson decreased by 5.3% during the fourth quarter of 2014 as compared to 2013. Occupancy at Hudson was relatively even with an increase of 0.2% to 92.1% for the quarter. ADR at Hudson declined 5.5% during the quarter, primarily as a result of an increase in competitive room supply. Hudson’s room revenues plus resort fees decreased by 0.7% during the fourth quarter of 2014 as compared to the same period in 2013.

RevPAR from System-Wide Comparable Hotels in Miami decreased 4.4% in the fourth quarter of 2014 as compared to the fourth quarter of 2013. Delano South Beach experienced a RevPAR decrease of 4.9% during the fourth quarter of 2014 as compared to the same period in 2013, primarily due to market softness in October and November partially offset by a 4.4% ADR increase in December 2014 as compared to December 2013. EBITDA at Delano South Beach increased 11.3% in the fourth quarter of 2014, compared to the same period in 2013, primarily due to a strong food and beverage performance, the implementation of a resort fee in the latter half of 2014, and operating efficiencies. Delano’s room revenues plus resort fees decreased 1.7% in the fourth quarter of 2014 as compared to the same period in 2013.

The Company’s System-Wide Comparable Hotels on the West Coast generated 13.9% RevPAR growth in the fourth quarter of 2014 as compared to 2013, with a 21.5% RevPAR increase at Mondrian Los Angeles and a 9.2% RevPAR increase at Clift.

The Company’s managed hotels in London, Sanderson, St Martins Lane, and Mondrian London, are non-comparable during 2014 due to a major renovation of Sanderson and St Martins Lanes’ guestrooms and public spaces, and the opening of Mondrian London on September 30, 2014.

Management fees increased $0.7 million, or 13.1%, during the fourth quarter of 2014 as compared to the same period in 2013, primarily due to fees from the newly opened Mondrian London.

Hotel operating expenses decreased $2.8 million, or 6.5%, during the fourth quarter of 2014 as compared to the same period in 2013, primarily due to cost-saving initiatives implemented in May 2014. As a result, operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 90 basis points during the fourth quarter of 2014 as compared to the same period in 2013.

Corporate expenses, excluding stock compensation expense, were relatively flat with a 0.4% increase during the fourth quarter of 2014 as compared to the same period in 2013.

Interest expense increased by $0.8 million, or 7.2%, during the fourth quarter of 2014 as compared to the same period in 2013, primarily due to a larger debt balance outstanding during the fourth quarter of 2014 as compared to the fourth quarter of 2013.

The Company recorded a net loss of $6.7 million in the fourth quarter of 2014 compared to a net loss of $6.4 million in the fourth quarter of 2013.

Full Year Operating Results

For the full year 2014, Adjusted EBITDA was $55.1 million, an increase of 5.6% from 2013, primarily due to operational efficiencies in 2014. RevPAR at System-Wide Comparable Hotels increased by 2.8% in 2014 as compared to 2013, driven by a 1.8% increase in occupancy and 1.0% increase in ADR. Operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 260 basis points for the year ended 2014, as compared to the same period in 2013, primarily as a result of cost saving initiatives implemented in 2014. Corporate expenses, excluding stock compensation expense and The Light Group, were $19.0 million, a decrease of $2.8 million or 12.9% from 2013. The Company recorded a net loss of $50.7 million for the year ended December 31, 2014, compared to a net loss of $44.2 million for the year ended December 31, 2013 due primarily to increased interest expense offset by the positive impact of operational efficiencies.

Balance Sheet and Liquidity

The Company’s total consolidated debt at December 31, 2014 was $605.7 million, which includes $99.9 million of capital lease obligations related primarily to Clift.

At December 31, 2014, the Company had approximately $13.5 million in cash and cash equivalents and $13.9 million in restricted cash.

On January 23, 2015, the Company completed the TLG Equity Sale to Hakkasan Holdings LLC for $32.8 million, net of closing costs. Had the TLG Equity Sale been completed on December 31, 2014, pro forma cash and cash equivalents would have been approximately $46.3 million. As a result of the TLG Equity Sale, the assets and liabilities of TLG have been classified as held for sale on the Company’s December 31, 2014 and 2013 consolidated balance sheets.

During the fourth quarter of 2014, the Company repaid and retired the outstanding Convertible Notes of approximately $49.1 million and the TLG Promissory Notes of approximately $19.1 million, with cash on hand. In October 2014, the Company funded its Mondrian London key money obligation of approximately $15.3 million (ยฃ9.4 million).

As of December 31, 2014, the Company had approximately $391.0 million of remaining Federal tax net operating loss carryforwards to offset future income, including gains on asset sales.

Development

In November 2014, the Company continued its global expansion with the opening of 10 Karakoy, a 71-room Morgans Original in Istanbul, Turkey, which is subject to a franchise agreement. This marked the Company’s third new hotel opening in 2014, preceded by Delano Las Vegas and Mondrian London, both of which opened in September 2014.

Additionally, the Company has a management agreement for a Mondrian in Doha, Qatar which is expected to open in late 2015.

The Company added two additional guestrooms at Hudson during the fourth quarter of 2014. These rooms, coupled with the 10 additional guestrooms added in the third quarter of 2014, bring the room count at Hudson to 878 as of December 31, 2014. The total cost of these 12 new guestrooms was approximately $2.0 million. The Company currently has 60 SROs remaining at Hudson, and, together with other space in the hotel, it intends to convert into guest rooms in the future.

About the author

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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