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Morgans Hotel Group reports Q2 2013 results

Morgans Hotel Group Co. (NASDAQ: MHGC) yesterday reported financial results for the quarter ended June 30, 2013. 

Source:
Date:
Updated:
Morgans Hotel Group Co
Tuesday, August 6, 2013
Tuesday, August 6, 2013

MHGNEW YORK, Aug. 5, 2013 /PRNewswire/ — Morgans Hotel Group Co. (NASDAQ: MHGC) today reported financial results for the quarter ended June 30, 2013.

Highlights

  • Adjusted EBITDA was $12.6 million in the second quarter of 2013, a $6.2 million, or 98.0% increase over the same period in 2012, due primarily to an increase in EBITDA at Hudson.
  • Operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 600 basis points during the second quarter of 2013 as compared to the same period in 2012.
  • Revenue per available room (“RevPAR”) for System-Wide Comparable Hotels increased by 10.6% in constant dollars, or 9.9% in actual dollars, during the second quarter of 2013 from the comparable period in 2012, driven primarily by an increase in occupancy of 9.7%.
  • RevPAR at Hudson, the Company’s non-comparable hotel located in New York City, increased by 30.2%, driven by a 25.8% increase in occupancy during the second quarter of 2013 as compared to the same period in 2012.  Hudson’s strong operating performance was also positively impacted by its new restaurant, Hudson Common, which opened in February 2013.
  • In July 2013, the Company entered into a hotel management agreement for an approximately 211-room Delano-branded condo-hotel to be located in Cartagena, Colombia.  Upon completion and opening of the hotel, the Company will operate the hotel pursuant to a 20-year management agreement, with one 10-year extension option.  The hotel is scheduled to open in 2016.


Second Quarter 2013 Operating Results
Adjusted EBITDA for the second quarter of 2013 was $12.6 million as compared to $6.3 million for the same period in 2012.  The increase was due primarily to a $3.8 million increase in EBITDA at Hudson and a $1.3 million increase in management fees.

RevPAR at System-Wide Comparable Hotels increased by 10.6% in constant dollars, or 9.9% in actual dollars, in the second quarter of 2013 from the comparable period in 2012.  RevPAR for System-Wide Comparable Hotels located in the United States increased 8.6% during the second quarter of 2013 as compared to the same period in 2012. RevPAR for System-Wide Comparable Hotels located internationally increased 18.7% in constant dollars, or 15.1% in actual dollars, during the second quarter of 2013 as compared to the same period in 2012.

RevPAR from System-Wide Comparable Hotels in the Northeastern United States increased by 8.2% in the second quarter of 2013 as compared to the same period in 2012, with an increase in average daily rate (“ADR”) of 5.4% and an increase in occupancy of 2.6%.  The RevPAR increase was led by a 12% increase in RevPAR at Mondrian SoHo, primarily due to gains in market share and strong demand.

Room revenues at Hudson, a non-comparable hotel in New York City, increased by 35.1% in the second quarter of 2013 as compared to the same period in 2012, due to RevPAR gains, the addition of 32 new rooms, and a full inventory of guestrooms in service after completion of the hotels’ renovation.  RevPAR at Hudson increased by 30.2%, driven by a 25.8% increase in occupancy during the second quarter of 2013 as compared to the same period in 2012 when the hotel was under renovation.  MHG was able to increase ADR at Hudson by 3.4%, despite the additional room inventory, due to gains in market share and strong demand.

RevPAR from System-Wide Comparable Hotels in Miami increased 1.6% in the second quarter of 2013 as compared to the same period in 2012.  The timing of Easter and Passover negatively impacted results, with Delano South Beach, our fee-owned hotel, the hardest hit with an 8.7% decrease in RevPAR during the second quarter of 2013 as compared to the same period in 2012.  Additionally, Delano South Beach experienced a decline in transient leisure business during the seasonally slower second quarter of 2013 as compared to the same period in 2012.

The Company’s System-Wide Comparable Hotels on the West Coast generated 17.8% RevPAR growth in the second quarter of 2013 as compared to the same period in 2012, led by Clift where RevPAR increased by 22.3%. In London, RevPAR increased by 18.7% in constant dollars, or 15.1% in actual dollars, during the second quarter of 2013, due to market share gains and a recovery in demand, which was soft in the second quarter of 2012 due to the lead up to the 2012 London Olympics.

Food and beverage revenue increased by $6.0 million, or 42.0%, due to an increase in revenue of $1.7 million at Hudson, primarily attributable to Hudson Common, the new restaurant at Hudson which opened in February 2013, and the addition of two new leased restaurants at Mandalay Bay in Las Vegas.

Management fees increased by 19.4% in the second quarter of 2013 as compared to the same period in 2012 due to a $0.9 million termination fee related to Ames in Boston and a 5.7% increase in fees at existing managed properties.

Operating margins at the Company’s Owned Hotels and consolidated food and beverage operations, which primarily includes Delano South Beach, Hudson, Clift, and restaurant leases at Mandalay Bay in Las Vegas, increased approximately 600 basis points during the second quarter of 2013 as compared to the same period in 2012.

Corporate expenses decreased by $0.4 million, or 5.0%, during the second quarter of 2013 as compared to the same period in 2012.  The Company continues to actively explore opportunities to reduce overhead costs.

Interest expense increased by $3.4 million, or 40.9%, during the second quarter of 2013 as compared to the same period in 2012, primarily due to a higher debt level and higher interest rate under the new Hudson mortgage loan, which was entered into during late 2012, and increased borrowings under the Company’s revolving line of credit during the three months ended June 30, 2013 as compared to the same period in 2012.

During the quarter, the Company recorded a total of approximately $5.8 million in non-cash impairment charges in connection with receivables due from and other assets related to Mondrian SoHo and Delano Marrakech.

MHG recorded a net loss of $16.2 million for the second quarter of 2013 compared to a net loss of $13.5 million for the second quarter of 2012, due primarily to non-cash impairment charges and restructuring costs, which offset a $5.3 million improvement in operating margins at the Company’s owned operations.

Balance Sheet and Liquidity
MHG’s total consolidated debt at June 30, 2013, excluding the Clift lease, was $464.8 million.

At June 30, 2013, MHG had $9.8 million of cash and cash equivalents and $56.0 million available under its revolving credit facility. As of June 30, 2013, total restricted cash held pursuant to certain debt or lease requirements was $18.5 million.

As of June 30, 2013, the Company had approximately $312.7 million of remaining Federal tax net operating loss carryforwards to offset future income, including gains on future asset sales.

The Company’s outstanding Series A preferred securities, which have a face value of $75.0 million, have an 8% dividend rate through October 15, 2014, a 10% dividend rate from October 15, 2014 to October 15, 2016, and a 20% dividend rate thereafter, with a 4% increase in the dividend rate for certain periods during which the Yucaipa Investors’ nominee is not a director on the Company’s Board.  As of July 14, 2013, the dividend rate became 12% as a result of the Yucaipa Investors’ nominee not being elected or appointed to the Company’s Board.  The Company has the option to accrue any and all dividend payments when declared by the Board of Directors. As of June 30, 2013, the Company had undeclared and unpaid dividends of $26.0 million.

Development
In July 2013, the Company entered into a hotel management agreement for an approximately 211-room Delano-branded hotel to be located in Cartagena, Colombia.  Upon completion and opening of the hotel, which is expected to have some condominium hotel units for sale, the Company will operate the hotel pursuant to a 20-year management agreement, with one 10-year extension option.  The hotel is scheduled to open in 2016.

MHG currently has signed agreements for nine hotels that are scheduled to open over the next three years, with four of these hotels projected to open in 2014 – Mondrian London, Mondrian Doha, Delano Las Vegas and Mondrian Baha Mar.  Delano Moscow is currently under construction with a projected opening in 2015.

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