RevPAR for System-Wide Comparable Hotels decreased 36.0% in constant dollars in the first quarter from the comparable period in 2008.
Morgans Hotel Group Co. (NASDAQ: MHGC) (“MHG”) today reported financial results for the first quarter ended March 31, 2009.
– Revenue per available room (“RevPAR”) for System-Wide Comparable Hotels decreased 36.0% in constant dollars in the first quarter from the comparable period in 2008.
– Adjusted EBITDA for the first quarter was $7.1 million, a decrease of 67% from the comparable period in 2008.
– EBITDA at System-Wide Comparable Hotels during the first quarter decreased by 63% from the comparable period in 2008, a rate of 1.6 times the related RevPAR percentage change.
– MHG achieved a 21% reduction in operating expenses at System-Wide Comparable Hotels and a 16% reduction in corporate expenses in the first quarter of 2009 from the comparable period in 2008.
– Additional restructuring initiatives were implemented in January and March 2009. Through our multi-phase contingency plans implemented in the beginning of 2008, we estimate that we have reduced hotel operating expenses and corporate expenses by approximately $20 million and $10 million, respectively, on an annualized basis.
– With the completion of the redesigned Mondrian Los Angeles and Morgans properties in September 2008, MHG has no significant deferred capital expenditure requirements at its owned hotels.
– In April, Hard Rock opened a new and expanded Joint Concert Hall and added approximately 65,000 square feet of meeting space. The north tower consisting of 490 rooms is scheduled to open in the summer of 2009 and the casino expansion and south tower consisting of 374 rooms are projected to open in late 2009 or early 2010.
– Boston Ames and Mondrian SoHo are currently targeted to open in the fourth quarter of 2009 or early 2010.
Fred Kleisner, President and CEO of Morgans Hotel Group, said: “In an increasingly difficult environment, we continued to manage our cost structure and balance sheet in a proactive and aggressive manner to preserve shareholder value. We implemented an additional $10 million in annualized cost savings in the first quarter of 2009 and ended the first quarter with over $87 million in cash on hand. We are confident that we are taking all the right steps to get us through this challenging period, while at the same time maintaining our unique brand experience so that we are well positioned for growth when the economy turns around.”
First Quarter 2009 Operating Results
RevPAR at System-Wide Comparable Hotels decreased by 39.2% (36.0% in constant dollars) in the first quarter of 2009 compared to the first quarter of 2008. Occupancy declined by 17.7% and average daily rate (“ADR”) declined by 26.2% compared to the same period in the prior year.
Interest expense reflects the adoption of a new accounting pronouncement requiring proceeds from the issuance of convertible notes to be allocated between debt and equity components resulting in a debt discount that is amortized over the life of the debt as additional interest expense. The adoption of this pronouncement resulted in $0.6 million of additional interest expense in the first quarter of 2009 and a retroactive $0.6 million increase in interest expense in the first quarter of 2008.
MHG recorded a net loss of $10.6 million in the first quarter of 2009 compared to a net loss of $7.5 million in the first quarter of 2008.
Balance Sheet and Liquidity
As of March 31, 2009, consolidated debt excluding the Clift lease obligation was $688.4 million and cash and cash equivalents were $86.6 million. As of March 31, 2009, we had borrowed $51.7 million under our revolving credit facility, which is secured by three owned hotels – Delano, Royalton and Morgans. MHG’s only near-term consolidated maturity consists of a $40 million non-recourse mortgage at Mondrian Scottsdale which is due in June 2009. We do not intend to invest significant additional capital in this hotel.
During the first quarter of 2009, MHG funded $4.2 million of equity on the Ames Boston project. As a result, MHG estimates that its total future capital commitments for development projects has been reduced to approximately $15 million. With the re-launch of Mondrian Los Angeles and Morgans in September 2008, all major renovation projects have been completed and there are no significant deferred capital expenditure requirements at our owned hotels.
Additionally, MHG expects to utilize its net operating losses of approximately $80 million to offset future income and gains on the sale of assets as part of its long-term strategy to reduce its ownership interests in hotels.
MHG’s projects currently under construction are the Hard Rock expansion, the Boston Ames and the Mondrian SoHo, all of which are expected to be completed in the fourth quarter of 2009 or early 2010.
The global economic downturn has had a significant adverse impact on demand, particularly since the middle of September 2008. Given the continuing uncertainty about the depth and duration of the economic crisis, we are not comfortable defining a specific RevPAR target or range for the year. However, we can provide a framework for Adjusted EBITDA given certain RevPAR declines. For example, if RevPAR for the year were to decline on average 20-25%, we would expect 2009 Adjusted EBITDA to be between $45-60 million. This is based on a ratio of EBITDA percentage decline to RevPAR percentage decline between 1.5 and 2.0 times, a ratio we have achieved over the past two quarters.