Exhibit 99.1
Contacts:
Eric Brielmann / Andi Salas
Joele Frank, Wilkinson Brimmer Katcher
212.355.4449
MORGANS HOTEL GROUP REPORTS
FIRST QUARTER 2007 RESULTS
-Strong RevPAR Growth-
-Significant EBITDA and Margin Growth-
NEW YORK, NY — May 8, 2007 — Morgans Hotel Group Co. (NASDAQ: MHGC) (“MHG”) today reported financial results for the first quarter 2007.
Highlights
For the first quarter 2007, revenue per available room (“RevPAR”) for Comparable Hotels(1) increased by 18.0% from the first quarter 2006. The increase was driven by growth in both average daily rate (“ADR”) and occupancy. Comparable Hotel ADR rose by 11.6% to $353.02 and occupancy grew by 5.7% to 79.8% for the first quarter. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA,” as further described below) increased by 22% from the prior year period to $21.3 million. One-time charges included approximately $1.6 million of expenses related to the opening of Mondrian Scottsdale, the completion of the Hard Rock transaction and the opening of a new restaurant, Suka, at Sanderson in London. Excluding one-time charges, Adjusted EBITDA rose by 32%.
“Our first quarter results reflect the strength of our properties and the enduring appeal of our brands,” said Ed Scheetz, President and Chief Executive Officer of MHG. “Our strategy of focusing on ‘hot’ urban markets with differentiated products and a strong client base has put us ahead of the industry, as demonstrated by our RevPAR growth at our Comparable Hotels during the first quarter, which is well in excess of industry averages.”
“Our Mondrian Scottsdale and Hard Rock acquisitions, as well as our renovations at Delano, are already making significant contributions toward EBITDA growth. In addition, we are working with top designers and introducing new restaurant concepts as we continue to renovate our more mature properties. The recent renovations at Delano helped drive ADR growth of approximately 20% there during the first quarter. Over the next several months, we are starting significant renovations at both Royalton and Mondrian Los Angeles, and we look forward to meaningful increases in ADR at those properties upon completion. As we have said
(1) “Comparable Hotels” includes all hotels operated by MHG except for hotels added during or after the relevant comparison period for the prior year, hotels under renovation and development projects. Comparable Hotels for the first quarter 2007 excludes Mondrian Scottsdale and the Hard Rock Hotel & Casino in Las Vegas (the “Hard Rock”), which were added after the first quarter 2006.
many times, we are thrilled to be operating in Las Vegas, the ultimate entertainment destination. In the first two months of operation, the Hard Rock has already contributed approximately $3.3 million in EBITDA, including $1.3 million in management fees, to our results. We are also moving rapidly forward with the announced expansion and renovation project at the Hard Rock.” Recent trends at Hard Rock have been very encouraging.
“We are very proud of what we have accomplished so far in 2007. With the combination of the strength of our properties and aggressive renovation and expansion plans, we believe we are well positioned for the future.”
First Quarter Operating Results
RevPAR for MHG’s Comparable Hotels was $281.71, an increase of 18.0%, or 15.8% excluding the effects of currency fluctuations (“Constant Dollars”), for the first quarter 2007 over the comparable period in 2006, reflecting significant increases in both ADR and occupancy. The growth in RevPAR was driven by an increase of 23.9% at MHG’s two operating Miami hotels, 23.2% at MHG’s two London hotels (10.4% in Constant Dollars) and 17.0% at MHG’s three New York hotels driven largely by Hudson. Adjusted EBITDA margins at Comparable Hotels increased by 150 basis points as compared to the first quarter 2006.
From February 2, 2007, the date when MHG began operating the Hard Rock hotel through March 31, 2007, the Hard Rock achieved a 96% occupancy rate and an ADR of $195. This represents a 7.4% RevPAR increase over the comparable period in 2006 when it was operated by prior management.
MHG recorded net income of $0.4 million for the first quarter of 2007, compared to a net loss of $15.9 million for the first quarter of 2006. The results were impacted by lower interest expense in the first quarter of 2007 of $4.0 million, due to the retirement of debt and non-operating income of $6.1 million net of costs, due to consideration received in connection with the sale of MHG’s partner’s interest in the London joint venture based on excess working capital levels at the joint venture. In addition, the first quarter of 2006 was impacted by higher taxes of $10.8 million primarily due to deferred taxes on the cumulative differences in the basis of net assets upon the conversion to a C corporation in connection with the February 2006 IPO.
Balance Sheet and Financing
As of March 31, 2007, consolidated debt, which includes long-term debt and capital lease obligations, was $581.0 million including $79.0 million of lease obligations related to the Clift. Approximately 96% of MHG’s long-term debt at March 31, 2007 was at fixed rates, either directly or as a result of hedging arrangements, and carried a weighted average interest rate of 6.1% with an average maturity of six years. As of March 31, 2007, MHG had $25.0 million of outstanding borrowings under its $225 million revolving credit facility.
As of March 31, 2007, MHG had approximately $227.7 million invested in non-EBITDA producing assets including equity investments, deposits and its proportionate share of joint venture debt. These projects include Mondrian South Beach, excess land and branding rights at the Hard Rock, Echelon Place and the property across from Delano.
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In December 2006, MHG’s Board of Directors authorized the repurchase of up to $50 million worth of MHG stock. Through March 31, 2007, MHG had repurchased approximately 1.5 million shares at an average price of $17.48 per share for a total repurchase of $26.2 million.
Development Activity
In January 2007, MHG announced the opening of Mondrian Scottsdale. The property, which MHG purchased in May 2006 and rebranded as Mondrian, has undergone dramatic renovations during the last several quarters, including the addition of an Asia de Cuba restaurant and Skybar lounge, intended to bring the hotel up to MHG’s best-in-class brand standard and enhance the property’s profitability.
On February 5, 2007, MHG announced the completion of the acquisition of the Hard Rock Hotel & Casino in Las Vegas. On March 12, 2007, MHG announced a large-scale expansion and renovation project for the property with its equity partner, DLJ Merchant Banking Partners (“DLJMB”). The project, which is expected to result in the addition of approximately 950 guest rooms, approximately 60,000 square feet of meeting and convention space, and approximately 35,000 square feet of casino space, is expected to be completed in 2009. In addition, the project includes the expansion of the Hard Rock’s award-winning pool, several prominent new food and beverage outlets, a new and larger “Joint” live entertainment venue, 30,000 square feet of new retail space, as well as a new spa and health club. MHG’s preliminary estimates are that the expansion will cost approximately $700 to $750 million.
Also during the first quarter of 2007, MHG announced a new partner, Walton Street Capital, for the joint venture that owns Sanderson and St Martins Lane in London. Walton Street purchased the 50% joint venture interest from MHG’s previous partner, Burford Hotels Limited, for a price which equates to approximately $900,000 per room.
Guidance For 2007
The statements below represent MHG’s outlook for its business for the fiscal year ending December 31, 2007. Based upon the first quarter 2007 results and upon MHG’s expectations for continued strength in the U.S. economy, moderate supply growth, further rate improvement in the luxury lodging sector and expected inflation, MHG is increasing its Comparable Hotel RevPAR growth target and reiterating its total revenues and adjustable EBITDA expectations for the full year 2007 as follows:
2007 Guidance:
Comparable Hotel RevPAR Growth: | | 9% to 11% (increase from prior guidance of 8% to 10%) |
Total Revenues: | | In excess of $300 million |
Adjusted EBITDA: | | In excess of $110 million |
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Due to the ramp up at the Hard Rock and Mondrian Scottsdale and the renovations at existing hotels, MHG believes that the projected 2007 Adjusted EBITDA level is not indicative of the normalized “run rate” Adjusted EBITDA of the portfolio and that there are significant opportunities for growth in our existing portfolio.
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Conference Call
MHG will host a conference call to discuss the first quarter financial results today at 5:00 PM Eastern time.
The call will be webcast live over the Internet at www.morganshotelgroup.com under the About Us, Investor Overview section. Participants should follow the instructions provided on the website for the download and installation of audio applications necessary to join the webcast.
The call can also be accessed live over the phone by dialing 877-704-5386 or 913-312-1302 for international callers. A replay of the call will be available two hours after the call and can be accessed by dialing 888-203-1112 or 719-457-0820 for international callers; the password is 2748161. The replay will be available from May 8, 2007 through May 15, 2007.
About Morgans Hotel Group
Morgans Hotel Group Co. (Nasdaq: MHGC), which is widely credited with establishing and developing the rapidly expanding boutique hotel sector, operates and owns or has an ownership interest in Morgans, Royalton and Hudson in New York, Delano and The Shore Club in Miami, Mondrian in Los Angeles and Scottsdale, Clift in San Francisco, and Sanderson and St Martins Lane in London. In February 2007, MHG and an equity partner acquired the Hard Rock Hotel & Casino in Las Vegas and related assets. MHG has other property transactions in various stages of completion including projects in Miami Beach, Florida, and Las Vegas, Nevada, and continues to vigorously pursue its strategy of developing unique properties at various price points in international gateway cities in the United States, Europe, South America, Asia and around the world. For more information please visit www.morganshotelgroup.com.
Forward-Looking and Cautionary Statements
Statements contained in this press release which are not historical facts are forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as “expects,” “plans,” “estimates,” “projects,” “intends,” “believes,” “guidance,” and similar expressions that do not relate to historical matters. These forward-looking statements are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; risks related to natural disasters, such as earthquakes and hurricanes; the integration of the Hard Rock Hotel & Casino and other acquired properties with our existing business; the seasonal nature of the hospitality business; changes in the tastes of our customers; increases in real property tax rates; increases in interest rates and operating costs; general volatility of the capital markets and our ability to access the capital markets; and changes in the competitive environment in our industry and the markets where we invest, and other risk factors discussed in MHG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other documents filed by MHG with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of the date hereof, based upon information known to management as of the date hereof, and MHG assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized.
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Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We believe that earnings before interest, income taxes, depreciation and amortization (EBITDA) is a useful financial metric to assess our operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between us and our competitors. Given the significant investments that we have made in the past in property, plant and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. We believe 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.
We disclose Adjusted EBITDA because we believe it provides a meaningful comparison to our EBITDA as it excludes other non-operating (income) expenses that do not relate to the on-going performance of our assets and excludes the operating performance of assets in which we do not have a fee simple ownership interest. It also excludes stock-based compensation expense.
The use of EBITDA and Adjusted EBITDA has certain limitations. Our 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 our results. Additionally, EBITDA and Adjusted EBITDA do not reflect capital expenditures and other investing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation, interest and income tax expense, capital expenditures and other items both in our reconciliations to our GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA is not defined under accounting principles generally accepted in the United States, or 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 our operating performance, you should not consider this data in isolation, or as a substitute for, our net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do.
Adjusted Net Debt
We disclose Adjusted Net Debt because we believe it provides a more meaningful comparison to our Adjusted EBITDA and is a useful tool to assess the value of MHG. Adjusted Net Debt is defined as debt under U.S. GAAP less the lease obligation related to Clift, plus our proportionate share of debt of unconsolidated joint ventures, less cash and cash equivalents, less non-EBITDA producing assets at cost.
EBITDA Reconciliation | | | | | |
(In Thousands) | | | |
| | 1st Qtr | |
| | 2007 | | 2006 (1) | |
| | | | | |
Net income (loss) | | $ | 436 | | $ | (15,884 | ) |
Interest expense,net | | 10,599 | | 14,584 | |
Income tax expense | | 229 | | 10,751 | |
Depreciation and amortization expense | | 4,807 | | 5,325 | |
Proportionate share of interest expense from unconsolidated joint ventures | | 6,508 | | 1,599 | |
Proportionate share of depreciation expense from unconsolidated joint ventures | | 2,125 | | 1,233 | |
Proportionate share of depreciation expense of consolidated joint ventures | | (102 | ) | (130 | ) |
Less : Minority interest | | 13 | | (356 | ) |
| | | | | |
| | | | | |
EBITDA | | 24,615 | | 17,122 | |
| | | | | |
Add : Other non operating expense (income) | | (5,723 | ) | 42 | |
Add : Other non operating expense (income) from unconsolidated joint ventures | | 1,253 | | | |
Less : Clift | | (1,204 | ) | (836 | ) |
Add : Stock based compensation | | 2,322 | | 1,052 | |
| | | | | |
Adjusted EBITDA | | $ | 21,263 | | $ | 17,380 | |
(1) Includes results of our predecessor from January 1, 2006 through February 16, 2006.
