Morgans Hotel (MHGC) 8-K Completion of Acquisition or Disposition of Assets

Exhibit 99.1

Morgans Hotel Group Co.
Unaudited Pro Forma Financial Information

The accompanying Unaudited Pro Forma Consolidated Financial Statements are presented to reflect that on May 23, 2011, Royalton LLC, a subsidiary of Morgans Hotel Group Co. (the “Company”), completed the sale of Royalton for $88.2 million to Royalton 44 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated (“FelCor”), and Morgans Holdings LLC, a subsidiary of the Company, completed the sale of Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor, pursuant to purchase and sale agreements entered into on April 2, 2011. The Company will continue to operate the hotels under 15-year management agreements with one 10-year extension option.

The Unaudited Pro Forma Consolidated Financial Statements include adjustments to reflect the effects of the sale of Royalton and Morgans and the repayment of the outstanding debt on the Company’s revolving credit facility, which was collateralized by Royalton and Morgans, along with Delano, and which terminated upon the sale of these two properties securing the facility. The Unaudited Pro Forma Consolidated Statements of Operations for the fiscal year ended December 31, 2010 and three months ended March 31, 2011 are presented as if the sales were completed as of January 1, 2010 and January 1, 2011, respectively. The Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2011 is presented as if the sales were consummated at March 31, 2011. The accompanying Unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the Company’s historical consolidated financial statements and related notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011.

Pro forma information is intended to provide investors with information about the continuing impact of a transaction by showing how a specific transaction might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. The adjustments made to historical financial information give effect to events that are directly attributable to the sales, are factually supportable, and expected to have a continuing impact. The Unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with Article 11 of Regulation S-X.

The Unaudited Pro Forma Consolidated Financial Statements set forth below are not fact and there can be no assurance that our actual results will not differ significantly from those set forth below or that the impact of the sales will not differ significantly from those presented below. Accordingly, the Unaudited Pro Forma Consolidated Financial Statements are presented for illustrative purposes only and do not purport to represent, and are not necessarily indicative of, what our actual financial position and results of operations would have been had the sales occurred on the dates indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and the Company makes no representations regarding the information set forth below or its ultimate performance compared to it.

Morgans Hotel Group Co.

Unaudited Pro Forma Consolidated Balance Sheet

(in thousands, except per share data)

												Revolving Credit
	Historical as of			Royalton Sale				Morgans Sale				Facility Repayment			Pro Forma as of
	March 31, 2011			(A)				(B)				(C)			March 31, 2011
ASSETS
Property and equipment, net	$	286,351		$	—			$	—			$	—		$	286,351
Goodwill		53,691			—				—				—			53,691
Investments in and advances to unconsolidated joint ventures		20,328			—				—				—			20,328
Assets held for sale, net		190,481			(71,785	)			(36,605	)			—			82,091
Cash and cash equivalents		5,962			83,790		D		49,210		D		(37,658	)		101,304
Restricted cash		29,883			—				—				—			29,883
Accounts receivable, net		5,318			—				—				—			5,318
Related party receivables		3,871			—				—				—			3,871
Prepaid expenses and other assets		5,872			—				—				—			5,872
Deferred tax asset, net		79,793			—		E		—		E		—			79,793
Other, net		11,210			—				—				(1,778	)		9,432
TOTAL ASSETS	$	692,760		$	12,005			$	12,605			$	(39,436	)	$	677,934
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Debt and capital lease obligations	$	571,471		$	—			$	—			$	(37,658	)	$	533,813
Accounts payable and accrued liabilities		26,572			—				—				—			26,572
Debt obligation, accounts payable and accrued liabilities of assets held for sale		108,297			(1,783	)			(778	)			—			105,736
Distributions and losses in excess of investment in unconsolidated joint ventures		1,728			—				—				—			1,728
Deferred gain on sale of Royalton		—			13,546		F		—				—			13,546
Deferred gain on sale of Morgans		—			—				13,769		F		—			13,769
Other liabilities		13,866			—				—				—			13,866
Total Liabilities		721,934			11,763				12,991				(37,658	)		709,030
Commitments and contingencies
Preferred securities, $.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at March 31, 2011		51,806			—				—				—			51,806
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at March 31, 2011		363			—				—				—			363
Additional paid-in capital		301,541			—				—				—			301,541
Treasury stock, at cost, 5,965,992 shares of common stock at March 31, 2011		(92,688	)		—				—				—			(92,688	)
Accumulated comprehensive loss		(1,434	)		—				—				—			(1,434	)
Accumulated deficit		(298,601	)		242				(386	)			(1,778	)		(300,523	)
Total Morgans Hotel Group Co. stockholders’ (deficit) equity		(39,013	)		242				(386	)			(1,778	)		(40,935	)
Noncontrolling interest		9,839			—				—				—			9,839
Total (deficit) equity		(29,174	)		242				(386	)			(1,778	)		(31,096	)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	692,760		$	12,005			$	12,605			$	(39,436	)	$	677,934

See accompanying notes to these unaudited pro forma consolidated financial statements.

Morgans Hotel Group Co.
Notes to Unaudited Pro Forma Consolidated Balance Sheet

The Unaudited Pro Forma Consolidated Balance Sheet reflects the effects of the sale of Royalton and Morgans and the repayment of the outstanding debt on the Company’s revolving credit facility as if these transactions had occurred on March 31, 2011. The Unaudited Pro Forma Consolidated Balance sheet:

(A) Reflects the disposition of Royalton and removal of the book value of the hotel property and equipment, goodwill allocated to the property, and other related assets and related liabilities, which have been classified as held for sale, associated with the hotel as a result of the disposition.

(B) Reflects the disposition of Morgans and removal of the book value of the hotel property and equipment, goodwill allocated to the property, and other related assets and related liabilities, which have been classified as held for sale, associated with the hotel as a result of the disposition.

(C) Reflects the repayment of the outstanding debt on the Company’s revolving credit facility with a portion of the proceeds received from the sale of the hotels and the write-off of deferred financing fees related to the debt. Royalton and Morgans, along with Delano, were collateral for the Company’s revolving credit facility, which terminated upon the sale of these two properties securing the facility.

(D) Reflects the cash proceeds from the sale of Royalton and Morgans, after estimated closing costs of $4.4 million on the sale of Royalton and $2.6 million on the sale of Morgans, or 5.0%, of the $88.2 million and $51.8 million, respectively, sales price.

(E) The Company expects to record a tax gain on the sale of Royalton and Morgans which will be offset by tax net operating loss carry forwards that the Company has recorded. The Company estimates that the tax gain will be approximately $80 million and that the projected tax savings will be approximately $34 million based on a corporate tax rate of approximately 41%. As a result, the balance of the deferred tax asset, net, will decrease in future periods after the close of the transactions.

(F) Reflects the book value gain from the sale of Royalton and Morgans. The Company will continue to manage the hotels pursuant to 15-year management agreements with one 10-year extension option. This gain will be amortized over the life of the management contract.

Morgans Hotel Group Co.
Unaudited Pro Forma Consolidated Statements of Operations

For the Three Months Ended March 31, 2011

(in thousands, except per share data)

				Disposition of
	Historical for the			Royalton-											Revolving Credit			Pro Forma for
	three months			Operating			Disposition of			Management Fees		Amortization of			Facility			the three months
	ended March 31,			Results			Morgans Operating			Earned		Deferred Gain			Repayment			ended
	2011			(A)			Results (B)			(C)		(D)			(E)			March 31, 2011
Revenues:
Rooms	$	31,034		$	(3,087	)	$	(1,905	)	$	—	$	—		$	—		$	26,042
Food and beverage		18,030			(1,144	)		(81	)		—		—			—			16,805
Other hotel operating		2,016			(105	)		(68	)		—		—			—			1,843
Total hotel revenues		51,080			(4,336	)		(2,054	)		—		—			—			44,690
Management fee — related party and other income		3,324			—			—			159		—			—			3,483
Total revenues		54,404			(4,336	)		(2,054	)		159		—			—			48,173
Operating Costs and Expenses:
Rooms		11,174			(1,485	)		(961	)		—		—			—			8,728
Food and beverage		15,102			(1,486	)		(106	)		—		—			—			13,510
Other departmental		1,211			(69	)		(38	)		—		—			—			1,104
Hotel selling, general and administrative		12,558			(1,209	)		(782	)		—		—			—			10,567
Property taxes, insurance and other		4,185			(471	)		(129	)		—		—			—			3,585
Total hotel operating expenses		44,230			(4,720	)		(2,016	)		—		—			—			37,494
Corporate expenses, including stock compensation of $4.0 million		10,834			—			—			—		—			—			10,834
Depreciation and amortization		8,373			(1,257	)		(687	)		—		—			—			6,429
Restructuring, development and disposal costs		4,593			(7	)		—			—		—			—			4,586
Total operating costs and expenses		68,030			(5,984	)		(2,703	)		—		—			—			59,343
Operating (loss) income		(13,626	)		1,648			649			159		—			—			(11,170	)
Interest expense, net		8,994			—			—			—		—			(1,370	)		7,624
Equity in loss of unconsolidated joint ventures		9,483			—			—			—		—			—			9,483
Gain on sale of Royalton		—			—			—			—		(226	)		—			(226	)
Gain on sale of Morgans		—			—			—			—		(229	)		—			(229	)
Other non-operating expenses (income)		1,390			—			—			—		—			—			1,390
(Loss) income before income tax expense		(33,493	)		1,648			649			159		455			1,370			(29,212	)
Income tax benefit		(135	)		—			—			—		—			—			(135	)
Net (loss) income from continuing operations		(33,358	)		1,648			649			159		455			1,370			(29,077	)
Income from discontinued operations, net of tax		490			—			—			—		—			—			490
Net (loss) income		(32,868	)		1,648			649			159		455			1,370			(28,587	)
Net loss attributable to noncontrolling interest		825			(60	)		(28	)		—		—			(41	)		696
Net (loss) income attributable to Morgans Hotel Group Co.		(34,043	)		1,588			621			159		455			1,329			(27,891	)
Preferred stock dividends and accretion		(2,187	)		—			—			—		—			—			(2,187	)
Net (loss) income attributable to common stockholders	$	(34,230	)	$	1,588		$	621		$	159	$	455		$	1,329		$	(30,078	)
(Loss) Income per share:
Basic and diluted continuing operations		(1.12	)																(0.99	)
Basin and diluted discontinued operations		0.02																	0.02
Basic and diluted attributable to common stockholders		(1.10	)																(0.97	)
Weighted average number of common shares outstanding:
Basic and diluted		31,103																	31,103

See accompanying notes to these unaudited pro forma consolidated financial statements.

Morgans Hotel Group Co.
Notes to Unaudited Pro Forma Consolidated Statements of Operations

The Unaudited Pro Forma Consolidated Statements of Operations for the three months ended March 31, 2011 reflects the effects of the sale of Royalton and Morgans and the repayment of the outstanding debt on the Company’s revolving credit facility as if these transactions had occurred on January 1, 2011. The Unaudited Pro Forma Consolidated Statement of Operations:

(A) Reflects the disposition of Royalton and reflects the necessary adjustments to remove the historical revenues and expenses of such operations, including depreciation and other costs.

(B) Reflects the disposition of Morgans and reflects the necessary adjustments to remove the historical revenues and expenses of such operations, including depreciation and other costs.

(C) Reflects the quarterly chain fees that the Company would have earned under its management agreements with FelCor during the period presented. No adjustment for management fees has been included for the three months ended March 31, 2011, as the Company would not have met certain performance hurdles necessary to earn such fees under the terms of the management agreements.

(D) Reflects the amortization of the deferred book value gain that will be recognized over 15-years, the life of the management contracts. For the three months ended March 31, 2011, the income represents a quarter of a full year of amortization.

(E) Reflects the elimination of interest expense and amortization of deferred financing costs related to the revolving credit facility, which was paid off with a portion of the proceeds from the sales of Royalton and Morgans. A portion of the sales proceeds was used to repay this debt which bore interest at a LIBOR floor of 1.0% plus 375 basis points.

Morgans Hotel Group Co.
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2010
(in thousands, except per share data)

				Disposition of
	Historical for the			Royalton-											Revolving Credit			Pro Forma for
	year ended			Operating			Disposition of			Management Fees		Amortization of			Facility			the year ended
	December 31,			Results			Morgans Operating			Earned		Deferred Gain			Repayment			December 31,
	2010			(A)			Results (B)			(C)		(D)			(E)			2010
Revenues:
Rooms	$	139,268		$	(15,952	)	$	(9,767	)	$	—	$	—		$	—		$	113,549
Food and beverage		69,451			(4,649	)		(363	)		—		—			—			64,439
Other hotel operating		9,313			(368	)		(248	)		—		—			—			8,697
Total hotel revenues		218,032			(20,969	)		(10,378	)		—		—			—			186,685
Management fee — related party and other income		18,338			—			—			803		—			—			19,141
Total revenues		236,370			(20,969	)		(10,378	)		803		—			—			205,826
Operating Costs and Expenses:
Rooms		42,620			(5,876	)		(3,710	)		—		—			—			33,034
Food and beverage		58,227			(5,880	)		(483	)		—		—			—			51,864
Other departmental		5,304			(222	)		(176	)		—		—			—			4,906
Hotel selling, general and administrative		48,216			(4,662	)		(2,889	)		—		—			—			40,665
Property taxes, insurance and other		16,233			(2,126	)		(619	)		—		—			—			13,488
Total hotel operating expenses		170,600			(18,766	)		(7,877	)		—		—			—			143,957
Corporate expenses, including stock compensation of $10.9 million		34,538			—			—			—		—			—			34,538
Depreciation and amortization		32,158			(4,880	)		(2,716	)		—		—			—			24,562
Restructuring, development and disposal costs		3,916			(260	)		—			—		—			—			3,656
Impairment loss on receivables from unconsolidated joint venture		5,549			—			—			—		—			—			5,549
Total operating costs and expenses		246,761			(23,906	)		(10,593	)		—		—			—			212,262
Operating (loss) income		(10,391	)		2,937			215			803		—			—			(6,436	)
Interest expense, net		41,346			—			—			—		—			(5,045	)		36,301
Interest expense on property held for non-sale disposition		1,137			—			—			—		—			—			1,137
Equity in loss of unconsolidated joint ventures		16,203			—			—			—		—			—			16,203
Gain on sale of Royalton		—			—			—			—		(832	)		—			(832	)
Gain on sale of Morgans		—			—			—			—		(878	)		—			(878	)
Other non-operating expenses (income)		33,076			(18	)		8			—		—			—			33,066
(Loss) income before income tax expense		(102,153	)		2,955			207			803		1,710			5,045			(91,433	)
Income tax benefit		(1,335	)		—			—			—		—			—			(1,335	)
Net (loss) income from continuing operations		(100,818	)		2,955			207			803		1,710			5,045			(90,098	)
Income from discontinued operations, net of tax		17,170			—			—			—		—			—			17,170
Net (loss) income		(83,648	)		2,955			207			803		1,710			5,045			(72,928	)
Net loss attributable to noncontrolling interest		2,239			(131	)		(42	)		—		—			(161	)		1,905
Net (loss) income attributable to Morgans Hotel Group Co.		(81,409	)		2,824			165			803		1,710			4,884			(71,023	)
Preferred stock dividends and accretion		(8,554	)		—			—			—		—			—			(8,554	)
Net (loss) income attributable to common stockholders		(89,963	)		2,824			165			803		1,710			4,884			(79,577	)
(Loss) Income per share:
Basic and diluted continuing operations		(3.50	)																(3.16	)
Basin and diluted discontinued operations		0.56																	0.56
Basic and diluted attributable to common stockholders		(2.94	)																(2.60	)
Weighted average number of common shares outstanding:
Basic and diluted		30,563																	30,563

See accompanying notes to these unaudited pro forma consolidated financial statements.

Morgans Hotel Group Co.
Notes to Unaudited Pro Forma Consolidated Statements of Operations

The Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2010 reflects the effects of the sale of Royalton and Morgans and the repayment of the outstanding debt on the Company’s revolving credit facility as if these transactions had occurred on January 1, 2010. The Unaudited Pro Forma Consolidated Statement of Operations:

(A) Reflects the disposition of Royalton and reflects the necessary adjustments to remove the historical revenues and expenses of such operations, including depreciation and other costs.

(B) Reflects the disposition of Morgans and reflects the necessary adjustments to remove the historical revenues and expenses of such operations, including depreciation and other costs.

(C) Reflects the annual chain fees that the Company would have earned under its management agreements with FelCor during the period presented. No adjustment for management fees has been included for the year ended December 31, 2010, as the Company would not have met certain performance hurdles necessary to earn such fees under the terms of the management agreements.

(D) Reflects the amortization of the deferred book value gain that will be recognized over 15-years, the life of the management contracts. For the year ended December 31, 2010, the income represents a full year of amortization.

(E) Reflects the elimination of interest expense and amortization of deferred financing costs related to the revolving credit facility, which was paid off with a portion of the proceeds from the sales of Royalton and Morgans. A portion of the sales proceeds was used to repay this debt which bore interest at a LIBOR floor of 1.0% plus 375 basis points.