Morgans Hotel Group Co (MHGC)

[Enterprising Investor]

Morgans Hotel Group Reports First Quarter 2016 Results (5/09/16)

NEW YORK, May 09, 2016 (GLOBE NEWSWIRE) -- Morgans Hotel Group Co. (NASDAQ:MHGC) (the “Company” or “Morgans”) today reported financial results, in constant dollars where applicable, for the quarter ended March 31, 2016.

First Quarter 2016 Operating Results

Adjusted EBITDA, defined below, excluding the Company’s ownership interests in TLG and Mondrian SoHo, which the Company no longer held effective during the first quarter of 2015, was $8.1 million in the first quarter of 2016, compared to $9.5 million for the same period in 2015, a decrease of 14.5%. Adjusted EBITDA for the first quarter of 2015, including the ownership interests in TLG and Mondrian SoHo, was $9.7 million.

RevPAR at System-Wide Comparable Hotels decreased by 4.2% in the first quarter of 2016 as compared to the same period in 2015, due to a 7.7% decrease in average daily rate (“ADR”) offset by a 3.8% increase in occupancy. System-Wide Comparable Hotels room revenues plus resort and facility fees, which are not included in RevPAR, decreased by 2.3% quarter over quarter.

RevPAR from System-Wide Comparable Hotels in New York decreased 5.0% in the first quarter of 2016 as compared to the same period in 2015, due to a 5.6% decrease in ADR slightly offset by a 0.7% increase in occupancy. RevPAR at Hudson decreased 6.8% during the first quarter of 2016 as compared to the same period in 2015, driven by a 7.0% ADR decrease primarily due to new supply in New York City. Including facility fees, room revenues at Hudson decreased 4.2% quarter over quarter.

RevPAR from System-Wide Comparable Hotels in Miami decreased 16.0% in the first quarter of 2016 as compared to the first quarter of 2015 driven by an 18.3% decrease in ADR. Delano South Beach experienced a RevPAR decrease of 9.7% during the first quarter of 2016 as compared to the same period in 2015, due to a 15.0% decrease in ADR, which was primarily the result of new supply in South Beach. Including resort fees, rooms revenues at Delano decreased 7.2% quarter over quarter.

Clift’s RevPAR increased 7.9% in the first quarter of 2016 as compared to the first quarter of 2015 due to a 5.2% increase in occupancy and a 2.6% increase in ADR.

RevPAR from System-Wide Comparable Hotels in London, which includes Sanderson and Mondrian London, increased 9.8% during the first quarter of 2016 as compared to the same period in 2015, driven by an 11.9% increase in occupancy. St Martins Lane continues to be non-comparable, as the hotel was under major renovation in the first half of 2015.

Management fees decreased by $0.9 million in the first quarter of 2016 as compared to the same period in 2015 due primarily to the loss of Mondrian SoHo in April 2015 and the sale of TLG in January 2015. On a comparable basis, management fees decreased $0.2 million, or 6.9%.

Corporate expenses, excluding stock compensation expenses, decreased by $1.5 million, or 27.0% in the first quarter of 2016 as compared to the same period in 2015 primarily due to open positions and cost controls.

The Company recorded a net loss of $8.9 million in the first quarter of 2016 compared to a net loss of $12.8 million in the first quarter of 2015, primarily as a result of an impairment that the Company recorded in the first quarter of 2015.

Balance Sheet

The Company’s consolidated debt as of March 31, 2016, net of deferred financing costs of $4.0 million, was $574.3 million, which includes $101.9 million of capital lease obligations primarily related to Clift. Outstanding Series A preferred securities and undeclared dividends totaled $133.9 million.

At March 31, 2016, the Company had approximately $11.9 million in cash and cash equivalents and $15.3 million in restricted cash.

As of March 31, 2016, the Company had approximately $443.2 million of remaining Federal tax net operating loss carryforwards to offset future income.

Announced Sale of the Company

Separately, on May 9, 2016, and as described in the Form 8-K filed with the SEC on May 9, 2016, the Company entered into a definitive agreement under which the Company will be acquired by SBEEG Holdings LLC (“SBE”), a leading global lifestyle hospitality company. Under the terms of the agreement, SBE will acquire all of the outstanding shares of the Company’s common stock for $2.25 per share in cash. As part of the transaction, affiliates of The Yucaipa Companies (“Yucaipa”) will exchange $75.0 million of Series A preferred securities, accrued preferred dividends, and warrants for $75.0 million in preferred shares and an interest in the common equity in the acquirer and, following the closing, the leasehold interests in three restaurants in Las Vegas currently held by Morgans. The transaction, which was approved by the Company’s Board of Directors, is expected to close in the third or fourth quarter, and is subject to regulatory approvals, the assumption or refinancing of the Company’s mortgage loan agreements, and customary closing conditions, including approval of the transaction by the Company’s shareholders. Morgans shareholders representing approximately 29% of the Company’s outstanding shares of common stock have signed voting agreements in support of this transaction, including OTK Associates, Pine River Capital Management and Vector Group Ltd. Affiliates of Yucaipa have also signed a voting agreement in respect of their Series A preferred securities and warrants.

Investor Conference Call

In light of the Company’s announcement of the proposed acquisition by SBE, the Company’s first quarter earnings call, previously scheduled for today at 5:00 PM Eastern Time, has been cancelled.

Additional Definitions

“Adjusted EBITDA” means adjusted earnings before interest, taxes, depreciation and amortization, as further defined below.

“EBITDA” means earnings before interest, income taxes, depreciation and amortization.

“Owned Hotels” means Hudson in New York, Delano South Beach in Miami Beach and Clift in San Francisco, which the Company leases under a long-term lease.

“System-Wide Comparable Hotels” means all Morgans Hotel Group branded hotels operated by the Company, except for hotels added or under major renovation during the current or the prior year period, development projects and hotels no longer managed by the Company. System-Wide Comparable Hotels for the periods ended March 31, 2016 and 2015 exclude St Martins Lane in London, which was under major renovation in the first half of 2015, Mondrian SoHo, which the Company no longer managed effective April 27, 2015, and Delano Las Vegas and 10 Karaköy, both of which are licensed/franchised hotels.

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 Delano in South Beach, Mondrian in Los Angeles, South Beach and London, Hudson in New York, Morgans and Royalton in New York, Clift in San Francisco, Shore Club in South Beach and Sanderson and St Martins Lane in London. Morgans Hotel Group has ownership interests in several of these hotels. Morgans Hotel Group also licenses its brand through Delano in Las Vegas and 10 Karaköy in Istanbul, Turkey. Morgans Hotel Group has other hotels in various stages of development to be operated under management or franchise agreements, including a Mondrian property in Doha, Qatar and a Delano in Dubai. For more information please visit www.morganshotelgroup.com.

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