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Morgans Misses, Loss Widens Y/Y

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Morgans Hotel Group Co. (MHGC) reported second quarter 2012 loss per share of 52 cents, substantially missing the Zacks consensus Estimate of a loss of 35 cents. The loss also widened from the year-ago loss of 45 cents.

Quarter Highlights

Total revenue came in at $47.8 million, down 11.8% year over year. The decrease was attributable to an 18.9% decline in total hotel revenues, partially offset by 94.5% increase in management fees. However, revenue marginally surpassed the Zacks Consensus Estimate of $47.0 million.

During the reported quarter, management fees were primarily driven by company's acquisition of 90% of The Light Group in November 2011 and fees from new management agreements related to sale of assets.

For System-Wide Comparable Hotels, revenue per available room (RevPAR) (excluding the results of all hotels under renovation), increased 2.9% in constant dollars and 2.2% in actual dollars on year-over-year basis. The growth was strong in the Northeast U.S. (up 7.7% year over year).

On a regional basis, the revenue growth for the company’s brand hotels in London were negatively impacted by the continuing European economic crisis, low demand in the pre-Olympics period and increase in other expenses related to day-to-day operations of hotels. Morgan’s hotels in Miami and West coast of the U.S. were also affected adversely during the quarter due to bad weather and renovation activity, respectively.

The company reported operating loss of $2.6 million, which widened from the year-ago loss of $0.2 million.
Renovations and Developments

During the reported quarter, the company completed 70% renovation of the guestrooms of Hudson brand hotel in New York. Along with this, the company also has plans to add new rooms and undergo other major renovations in this hotel. By the end of the quarter, the company has spent around $17.5 million on room and corridor renovations, of which $6.8 million was spent in the reported quarter. The company also expects to spend an additional $12 to $13 million going forward for the completion of overall renovations in the Hudson.  

In addition, the owners of hotels managed by Morgans Hotel Group have invested in renovation and hotel repositioning in first half of 2012. The company has completed the renovation of Mondrian brand hotel in Los Angeles and Sanderson brand hotel in London. The company expects to open a restaurant at the Morgans brand hotel in New York, after the renovation scheduled for third quarter of 2012 is completed.

Morgans Hotel Group has been very active on the development front during the reported quarter. The company signed three new long-term management agreements for development of Delano Marrakech and Mondrian Marrakech in Morocco and of Hudson London in Great Scotland Yard area of London.

As of June 30, 2012, Morgans Hotel Group has signed management agreements for eight hotels, slated to open by 2015. The company expects to open three of these hotels in the next eighteen months.


Morgans Hotel Group ended the second quarter with cash and cash equivalents of $8.2 million. It had $52.0 million available under its revolving credit facility.


For the third quarter of 2012, the company estimates approximately $1 million of EBITDA displacement due to renovation of rooms at the Hudson brand hotel in New York.

For 2012, company expects System-Wide Comparable Hotels RevPAR (excluding the results of all hotels under renovation) to increase in the range of 6% - 8%.

Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at loss of $1.58 and $1.30, respectively.

Morgans Hotel Group competes with the likes of Starwood Hotels & Resorts Worldwide Inc. (HOT), which reported its second quarter 2012 adjusted earnings of 70 cents per share, widely surpassing the Zacks Consensus Estimate. Morgans Hotel Group currently carries a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.

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