Morgans Hotel Group Reports Fourth Quarter And Full Year 2014 Results

NEW YORK, March 13, 2015 (hospitalitybusinessnews.com) — 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 – 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 – 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 (£9.4 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.

 

Income Statements

(In thousands, except per share amounts)

Three Months

Year 

Ended December 31, 

Ended December 31, 

2014

2013

2014

2013

Revenues :

Rooms

$       33,021

$       33,520

$     123,781

$         120,823

Food & beverage

21,056

24,372

82,233

84,085

Other hotel 

2,093

1,479

6,225

4,863

Total hotel revenues

56,170

59,371

212,239

209,771

Management fee-related parties and other income

6,213

5,495

22,722

26,715

Total revenues

62,383

64,866

234,961

236,486

Operating Costs and Expenses :

Rooms

9,437

9,326

37,333

36,624

Food & beverage

15,613

17,428

60,447

61,763

Other departmental

942

839

3,311

3,261

Hotel selling, general and administrative

10,320

11,254

41,724

43,942

Property taxes, insurance and other

4,395

4,698

16,549

17,339

Total hotel operating expenses

40,707

43,545

159,364

162,929

Corporate expenses :

Stock based compensation

351

525

3,447

4,077

Other

4,652

4,632

22,583

23,549

Depreciation and amortization

6,981

6,839

28,875

27,374

Restructuring and disposal costs

2,162

3,500

14,531

11,451

Development costs

781

619

4,709

2,987

Impairment loss on receivables and other assets from managed hotel and unconsolidated joint venture

87

6,029

Total operating costs and expenses

55,634

59,747

233,509

238,396

Operating income (loss)

6,749

5,119

1,452

(1,910)

Interest expense, net

12,391

11,556

54,308

45,990

Equity in (income) loss of unconsolidated joint ventures

(2)

55

(9)

828

Gain on asset sales

(2,005)

(2,005)

(8,020)

(8,020)

Other non-operating expenses 

1,785

1,437

3,735

2,726

Loss before income tax expense

(5,420)

(5,924)

(48,562)

(43,434)

Income tax expense 

1,130

175

1,481

716

Net loss 

(6,550)

(6,099)

(50,043)

(44,150)

Net income attributable to noncontrolling interest

(177)

(303)

(681)

(5)

Net loss attributable to Morgans Hotel Group 

$        (6,727)

$        (6,402)

$      (50,724)

$         (44,155)

Preferred stock dividends and accretion

(3,879)

(4,340)

(15,827)

(14,316)

Net loss attributable to common stockholders

$      (10,606)

$      (10,742)

$      (66,551)

$         (58,471)

Loss  per share:

Basic and diluted attributable to common stockholders

$          (0.31)

$          (0.32)

$         (1.95)

$             (1.78)

Weighted average common shares outstanding – basic and diluted

34,370

33,555

34,133

32,867

 

Selected Hotel Operating Statistics 

( In Actual Dollars)

( In Constant Dollars, if different)

( In Actual Dollars)

( In Constant Dollars, if different)

Three Months

Three Months

Year

Year

Ended December 31,

%

Ended December 31,

%

Ended December 31,

%

Ended December 31,

%

2014

2013

Change

2014

2013

Change

2014

2013

Change

2014

2013

Change

BY REGION

Northeast Comparable Hotels (1)

Occupancy

91.3%

91.3%

0.0%

89.7%

88.6%

1.2%

ADR

$   293.33

$   305.14

-3.9%

$   265.89

$   269.76

-1.4%

RevPAR

$   267.81

$   278.59

-3.9%

$   238.50

$   239.01

-0.2%

West Coast Comparable Hotels (2)

Occupancy

87.9%

80.5%

9.2%

89.3%

84.9%

5.2%

ADR

$   262.30

$   251.37

4.3%

$   273.16

$   257.65

6.0%

RevPAR

$   230.56

$   202.35

13.9%

$   243.93

$   218.74

11.5%

Miami Comparable Hotels (3)

Occupancy

62.6%

68.1%

-8.1%

70.2%

70.7%

-0.7%

ADR

$   392.40

$   377.34

4.0%

$   357.14

$   347.47

2.8%

RevPAR

$   245.64

$   256.97

-4.4%

$   250.71

$   245.66

2.1%

United States Comparable Hotels (4)

Occupancy

83.2%

82.9%

0.4%

84.6%

83.1%

1.8%

ADR

$   305.34

$   309.07

-1.2%

$   287.20

$   284.33

1.0%

RevPAR

$   254.04

$   256.22

-0.8%

$   242.97

$   236.28

2.8%

International Comparable Hotels (5)

Occupancy

ADR

RevPAR

System-wide Comparable Hotels  (6)

Occupancy

83.2%

82.9%

0.4%

83.2%

82.9%

0.4%

84.6%

83.1%

1.8%

84.6%

83.1%

1.8%

ADR

$   305.34

$   309.07

-1.2%

$ 305.34

$    309.07

-1.2%

$   287.20

$   284.33

1.0%

$ 287.20

$    284.33

1.0%

RevPAR

$   254.04

$   256.22

-0.8%

$ 254.04

$    256.22

-0.8%

$   242.97

$   236.28

2.8%

$ 242.97

$    236.28

2.8%

(1)

Northeast Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Hudson, Morgans, Royalton and Mondrian SoHo in New York.  Ames in Boston is non-comparable during the periods presented as the hotel was no longer managed by the Company effective July 17, 2013.

(2)

West Coast Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Mondrian Los Angeles and Clift in San Francisco.  Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM Resorts International (“MGM”). 

(3)

Miami Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Delano South Beach, Mondrian South Beach and Shore Club in Miami Beach, Florida.  

(4)

United States Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Hudson, Morgans, Royalton, Mondrian SoHo, Mondrian Los Angeles, Clift, Delano South Beach, Mondrian South Beach and Shore Club.  Ames is non-comparable during the periods presented as the hotel was no longer managed by the Company effective  July 17, 2013, and Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM.

(5)

The Company has no International Comparable Hotels for the periods ended December 31, 2014 and 2013.  Sanderson and St Martins Lane in London  are non-comparable, as they both were under major renovation during 2014.  Mondrian London, which opened on September 30, 2014, is also non-comparable.  10 Karaköy, which opened in November 2014 and is subject to a franchise agreement is non-comparable.  Delano Marrakech is non-comparable for the periods presented as the hotel was no longer managed by the Company effective November 12, 2013.  Additionally, Hotel Las Palapas in Mexico is non-comparable, as this hotel is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company.  

(6)

System-Wide Comparable Hotels include 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, development projects and discontinued operations.  System-Wide Comparable Hotels for the periods ended December 31, 2014 and 2013 exclude Sanderson and St Martins Lane in London, which both were under renovations during 2014, Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM, Mondrian London, which opened on September 30, 2014, 10 Karaköy, which opened in November 2014 and is subject to a franchise agreement, Ames, which the Company no longer manages effective July 17, 2013, Delano Marrakech, which the Company no longer manages effective November 12, 2013, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel, and as of April 1, 2013, was no longer managed by the Company.

 

Selected Hotel Operating Statistics

( In Actual Dollars)

( In Constant Dollars, if different)

( In Actual Dollars)

( In Constant Dollars, if different)

Three Months

Three Months

Year

Year

Ended December 31,

%

Ended December 31,

%

Ended December 31,

%

Ended December 31,

%

2014

2013

Change

2014

2013

Change

2014

2013

Change

2014

2013

Change

BY OWNERSHIP

Owned Comparable Hotels (1)

Occupancy

87.6%

86.5%

1.3%

88.2%

85.6%

3.0%

ADR

$   283.89

$   294.03

-3.4%

$   267.78

$   269.94

-0.8%

RevPAR

$   248.69

$   254.34

-2.2%

$   236.18

$   231.07

2.2%

Joint Venture Comparable Hotels (2)

Occupancy

77.8%

79.6%

-2.3%

81.5%

81.8%

-0.4%

ADR

$   358.20

$   346.38

3.4%

$   318.34

$   306.20

4.0%

RevPAR

$   278.68

$   275.72

1.1%

$   259.45

$   250.47

3.6%

Managed Comparable Hotels (3)

Occupancy

78.5%

78.4%

0.1%

80.1%

79.4%

0.9%

ADR

$   317.43

$   315.91

0.5%

$   306.34

$   298.18

2.7%

RevPAR

$   249.18

$   247.67

0.6%

$   245.38

$   236.75

3.6%

System-wide Comparable Hotels 

Occupancy

83.2%

82.9%

0.4%

83.2%

82.9%

0.4%

84.6%

83.1%

1.8%

84.6%

83.1%

1.8%

ADR

$   305.34

$   309.07

-1.2%

$ 305.34

$    309.07

-1.2%

$   287.20

$   284.33

1.0%

$ 287.20

$    284.33

1.0%

RevPAR

$   254.04

$   256.22

-0.8%

$ 254.04

$    256.22

-0.8%

$   242.97

$   236.28

2.8%

$ 242.97

$    236.28

2.8%

Owned Hotels

Hudson

Occupancy

92.1%

91.9%

0.2%

90.9%

89.0%

2.1%

ADR

$   251.72

$   266.27

-5.5%

$   229.25

$   236.44

-3.0%

RevPAR

$   231.83

$   244.70

-5.3%

$   208.39

$   210.43

-1.0%

Delano South Beach 

Occupancy

65.2%

69.1%

-5.6%

70.6%

68.6%

2.9%

ADR

$   575.52

$   571.20

0.8%

$   520.41

$   524.66

-0.8%

RevPAR

$   375.24

$   394.70

-4.9%

$   367.41

$   359.92

2.1%

Clift

Occupancy

88.8%

83.2%

6.7%

91.1%

86.7%

5.1%

ADR

$   250.91

$   245.34

2.3%

$   255.55

$   244.88

4.4%

RevPAR

$   222.81

$   204.12

9.2%

$   232.81

$   212.31

9.7%

(1)

Owned Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Hudson, Delano South Beach, and Clift in San Francisco.  

(2)

Joint Venture Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Mondrian South Beach and Mondrian SoHo.  Ames is non-comparable for the periods presented as effective April 26, 2013, the Company entered into an agreement with its joint venture partner pursuant to which, among other things, the Company assigned its equity interests in the joint venture to its joint venture partner.  Prior to April 26, 2013, the Company owned Ames through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31%.  Effective July 17, 2013, the Company no longer manages this hotel.  Shore Club is non-comparable for the periods presented as effective December 30, 2013, the Company no longer had a meaningful ownership interest in the hotel. Prior to December 30, 2013, the Company owned Shore Club through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 7%. The Company continues to manage Shore Club.  Effective March 6, 2015, the Company no longer holds any equity interest in Mondrian SoHo.  

(3)

Managed Comparable Hotels for the periods ended December 31, 2014 and 2013 consist of Morgans, Royalton, Shore Club, and Mondrian Los Angeles.  Managed hotels that are non-comparable for the periods presented are Sanderson and St Martins Lane in London, which both were under renovations during 2014, Mondrian London, which opened on September 30, 2014, Delano Marrakech, which was no longer managed by the Company effective November 12, 2013, Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company, and Ames, which was no longer managed by the Company effective  July 17, 2013.

 

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

The Company believes that EBITDA is a useful financial metric to assess its operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between the Company and its competitors. Given the significant investments that the Company and its joint ventures have made in the past in property and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. The Company believes 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 it believes the Company’s core business model is that of an owner and operator of hotels, and the inclusion or exclusion of certain 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 expense (income) that does not relate to the on-going performance of our assets.  The Company excludes the following items from EBITDA to arrive at Adjusted EBITDA:

  • Other non-operating expenses, such as costs associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, transaction costs related to business acquisitions, changes in the fair value of debt and equity instruments, miscellaneous litigation and settlement costs and other expenses that relate to the financing and investing activities of the Company;
  • Restructuring and disposal costs, which include expenses incurred related to the Company’s corporate restructuring initiatives, such as professional fees, litigation and settlement costs, executive terminations and severance costs related to such restructuring initiatives, including the March 2014 corporate office termination plan and proxy contests, and gains or losses on asset disposals as part of major renovation projects or restructuring;
  • Development costs, including transaction costs related to the acquisition or termination of projects, internal development payroll and other costs and pre-opening expenses incurred related to new concepts at existing hotel and the development of new hotels, and the write-off of abandoned development projects previously capitalized;
  • Impairment loss on development projects and hotels and receivables from unconsolidated joint ventures and managed hotels. The Company may incur additional non-cash impairment charges related to assets under development, wholly-owned assets, or our investments in joint ventures. The Company believes these adjustments are necessary to provide the most accurate measure of core operating results as a means to evaluate comparative results;
  • EBITDA related to hotels and food and beverage entities reported as discontinued operations to more accurately reflect the operating performance of assets in which the Company expects to have an ongoing direct or indirect ownership interest;
  • Stock-based compensation expense, as this is not necessarily an indication of the operating performance of the Company’s assets; and
  • Gains recognized on asset sales, as the Company believes that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of its assets. In addition, the Company believes material gains or losses from the net book value of disposed assets is not particularly meaningful given that the depreciated asset value on which the gains are calculated often does not reflect market value of the assets.

The Company also makes an adjustment to EBITDA for hotels in which its percentage ownership interest has changed to facilitate period-over-period comparisons and to more accurately reflect the operating performance of assets based on its actual ownership.  In this respect, the Company’s method of calculating Adjusted EBITDA may change from prior periods, and calculations of Adjusted EBITDA could continue to vary from quarter to quarter to reflect changing ownership interests.

The Company believes Adjusted EBITDA provides management and its 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 its core on-going operations and is used extensively during its 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. The Company’s 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 the Company’s results. Additionally, EBITDA and Adjusted EBITDA do not reflect capital expenditures and other investing activities and should not be considered as a measure of the Company’s liquidity. The Company compensates for these limitations by providing the relevant disclosure of its depreciation, interest and income tax expense, capital expenditures and other items in its reconciliations to its financial measures under U.S. GAAP and/or in its consolidated financial statements, all of which should be considered when evaluating its performance. The term EBITDA is not defined under 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 the Company’s operating performance, you should not consider this data in isolation, or as a substitute for the Company’s net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP.

A reconciliation of net loss, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for each of the respective periods indicated is as follows:

 

EBITDA Reconciliation

(In thousands)

Three Months

Year

Ended December 31, 

Ended December 31, 

2014

2013

2014

2013

Net loss attributable to Morgans Hotel Group Co.

$             (6,727)

$            (6,402)

$           (50,724)

$          (44,155)

Interest expense, net

12,391

11,556

54,308

45,990

Income tax expense 

1,130

175

1,481

716

Depreciation and amortization expense

6,981

6,839

28,875

27,374

Proportionate share of interest expense

 from unconsolidated joint ventures

1,154

(311)

4,598

6,311

Proportionate share of depreciation expense

 from unconsolidated joint ventures

385

88

1,567

1,944

Net (income) loss attributable to noncontrolling interest

(13)

116

(111)

(988)

Proportionate share of loss from unconsolidated joint

  ventures not recorded due to negative investment balances

(858)

872

(4,988)

(6,192)

EBITDA 

14,443

12,933

35,006

31,000

Other non operating expenses 

1,785

1,437

3,735

2,726

Other non operating expense from unconsolidated 

  joint ventures

171

435

1,652

1,892

Restructuring and disposal costs

2,162

3,500

14,531

11,451

Development costs

781

619

4,709

2,987

Impairment loss on receivables from managed hotel and                                                                                                                 unconsolidated joint venture

87

6,029

Stock based compensation expense

351

525

3,447

4,077

Gain on asset sales

(2,005)

(2,005)

(8,020)

(8,020)

Adjusted EBITDA 

$            17,688

$           17,531

$            55,060

$           52,142

Adjusted EBITDA, Excluding The Light Group

$            16,195

$           16,079

$            48,723

$           43,939

 

 

Hotel EBITDA Analysis (1)

(In thousands, except percentages)

Three Months

Year

Ended December 31, 

%

Ended December 31, 

%

2014

2013

Change

2014

2013

Change

Hudson 

$      7,881

$      8,244

-4%

$     21,788

$     20,851

4%

Delano South Beach  

5,470

4,913

11%

19,426

16,423

18%

Clift

1,393

1,415

-2%

7,734

7,010

10%

Owned Comparable Hotels (2)

14,744

14,572

1%

48,948

44,284

11%

Mondrian SoHo – Joint Venture

875

760

15%

2,753

2,484

11%

Mondrian South Beach – Joint Venture (3)

(22)

227

-110%

84

504

-83%

Shore Club (4)

98

-100%

290

-100%

St Martins Lane food and beverage (5)

238

-100%

0%

Sanderson food and beverage (5)

146

-100%

0%

Las Vegas restaurant leases (6)

720

925

-22%

3,987

2,555

56%

Ames (7)

0%

(95)

-100%

Other Hotel and F&B EBITDA

1,573

2,394

166%

6,824

5,738

219%

.

.

Total Hotel and F&B EBITDA 

$     16,317

$     16,966

-4%

$     55,772

$     50,022

11%

(1)  For joint venture hotels, represents the Company’s share of the respective hotels’ EBITDA, after management fees.

(2)  Reflects the Company’s comparable owned hotels.  

(3)  Effective March 6, 2015, the Company no longer holds any equity ownership in Mondrian SoHo.  

(4) Effective December 30, 2013, the Company no longer had a meaningful ownership interest in Shore Club. Prior to December 30, 2013, the Company owned Shore Club through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 7%. The Company continues to manage Shore Club. 

(5) The Company owned 100% of the food and beverge joint venture entity which leased and operated all food and beverage venues located at Sanderson and St Martins Lane.  MHG continued to own and operate the food and beverage venues at the hotels under a lease agreement with the hotel owner.  Effective January 1, 2014, the Company transferred all of its ownerhship interest in the food and beverage venues at St Martins Lane to the hotel owner.  The Company will continue to manage the transferred food and beverage venues. The Company continues to lease and operate certain food and beverage venues at Sanderson. Amounts presented represent the respective hotels’ food and beverage EBITDA, after management fees.  

(6) Reflects EBITDA from the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas which the Company acquired in August 2012.  The three venues were re-concepted and renovated and opened in December 2012, February 2013 and July 2013, respectively.  

(7) On April 26, 2013, the Company entered into an agreement with its joint venture partner pursuant to which, among other things, the Company assigned its equity interests in the joint venture to its joint venture partner.  Prior to April 26, 2013, the Company owned Ames through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31%.  Effective July 17, 2013, the Company no longer manages this hotel.  

 

 

Owned Hotel Room Revenue Analysis

(In thousands, except percentages)

Three Months

Year

Ended December 31, 

%

Ended December 31, 

%

2014

2013

Change

2014

2013

Change

Hudson

$     18,701

$     19,489

-4%

$     66,144

$     66,505

-1%

Delano South Beach 

6,695

7,045

-5%

26,019

25,485

2%

Clift

7,625

6,986

9%

31,618

28,833

10%

Total Owned Hotels

$     33,021

$     33,520

-1%

$   123,781

$   120,823

2%

Owned Hotel Revenue Analysis

Three Months

Year

(In thousands, except percentages)

Ended December 31, 

%

Ended December 31, 

%

2014

2013

Change

2014

2013

Change

Hudson 

$     24,178

$     24,073

0%

$     85,177

$     81,534

4%

Delano South Beach

13,027

13,048

0%

48,840

47,504

3%

Clift

10,962

10,496

4%

44,061

42,102

5%

Total Owned Hotels

$     48,167

$     47,617

1%

$   178,078

$   171,140

4%

 

 

Balance Sheets

(In thousands)

December 31, 

December 31, 

2014

2013

ASSETS:

Property and equipment, net 

$       277,825

$        292,496

Goodwill 

54,057

54,057

Investments in and advances to unconsolidated joint ventures 

10,492

10,492

Assets held for sale

34,284

41,668

Cash and cash equivalents 

13,493

10,025

Restricted cash 

13,939

22,144

Accounts receivable, net 

10,475

13,833

Related party receivables 

3,560

3,694

Prepaid expenses and other assets 

8,493

10,162

Deferred tax asset, net 

77,204

78,758

Other assets, net 

47,422

33,878

Total assets 

$       551,244

$        571,207

LIABILITIES and STOCKHOLDERS’ DEFICIT:

Debt and capital lease obligations, net 

$       605,743

$        541,940

Debt of assets held for sale

18,811

Accounts payable and accrued liabilities 

32,524

39,340

Accounts payable and accrued liabilities of assets held for sale

1,128

2,287

Deferred gain on asset sales

125,398

133,419

Other liabilities 

13,866

13,891

Total liabilities 

778,659

749,688

Redeemable noncontrolling interest 

5,042

4,953

Commitments and contingencies

Total Morgans Hotel Group Co. stockholders’ deficit 

(233,006)

(183,924)

Noncontrolling interest 

549

490

Total deficit

(232,457)

(183,434)

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

$       551,244

$        571,207

 

Share Button
About the Author