Morgan’s Hotel Group Reports $13.4 Million Second Quarter Net Loss
By Brian Major
July 31, 2012 10:00 PM
Morgan’s Hotel Group Co. reported adjusted EBITDA for the second quarter was $6.3 million. But the company said its quarterly operating results reflect lower hotel revenues, operating expenses and interest expense due to the sale of ownership interests in five hotels during 2011 and an EBITDA decline of $2.1 million at Hudson due to the impact of rooms out of service from the ongoing renovations. Overall, Morgan’s recorded a net loss of $13.4 million for the second quarter of 2012 compared to a net loss of $11.4 million for the second quarter of 2011.
Revenue per available room (revPAR) for System-Wide Comparable Hotels, excluding Mondrian Los Angeles, Morgan’s and Sanderson, which were each impacted by non-room renovations during the quarter, increased by 2.9 percent in constant dollars during the second quarter of 2012. At Hudson, the rooms renovation is approximately 70 percent complete, and the company anticipates all rooms will be renovated and in service in September 2012. In addition, Morgan’s is increasing the number of single room dwelling units (SRO), which will be converted into guestrooms, from 23 to 31, at a cost of approximately $150,000 per room, to be completed in October 2012. With a growing number of newly renovated rooms available for guests, average daily rate (ADR) increased by 10.9% during the second quarter of 2012, as compared to the same period in 2011.
Since the end of the first quarter, Morgan’s announced three new long-term management agreements for the following hotels: Delano Marrakech, a 73-room hotel in Morocco, expected to open in September 2012; Mondrian Marrakech, a 69-room hotel in Morocco, expected to open in late 2013; and Hudson London at Great Scotland Yard, a 234-room hotel expected to open in early 2015.
“During the second quarter, we made significant progress executing our growth strategy and we are excited about the momentum in our management business,” said Michael Gross, CEO of Morgan’s. “We recently signed three new management contracts that, together with our previously announced expansion hotels, will increase the size of our portfolio by almost 50 percent when they open. We have significant operating leverage that we expect will allow us to generate high EBITDA margins from the growth of our management business, and we are optimistic about the pace of new deals going forward. In addition, we are nearly complete with renovations to our existing properties with the Hudson set to re-launch in the third-quarter. Overall, we are encouraged by our progress in the quarter and remain focused on executing our strategy and building long-term shareholder value."
Adjusted EBITDA for the second quarter of 2012 was $6.3 million, a decrease of $5.4 million from the same period in 2011. During 2011, the Company sold its ownership interests in five hotels while retaining management, resulting in a $3.5 million decrease in EBITDA during the second quarter ended June 30, 2012 as compared to the same period in 2011. In addition, displacement due to rooms out of service from the ongoing renovations at Hudson resulted in a $2.1 million decrease in EBITDA.
RevPAR at System-Wide Comparable Hotels, which excludes Delano and Hudson, decreased by 0.6 percent in constant dollars in the second quarter of 2012 from the comparable period in 2011. Three of the company's System-Wide Comparable Hotels, Morgan’s, Mondrian Los Angeles and Sanderson, also underwent some non-room renovation work during the second quarter of 2012, which impacted revPAR. Excluding the results of all hotels under renovation, revPAR increased by 2.9 percent in constant dollars.
By region, demand was strong in the Northeast U.S. with System-Wide Comparable Hotel revPAR, at Morgan’s, Royalton and Ames, increasing by 7.7 percent. Additionally, despite the ongoing renovations at Hudson, ADR increased by 10.9 percent for the three months ended June 30, 2012 as compared to the same period in 2011. Mondrian SoHo, which opened in February 2011, generated an 11.8 percent revPAR increase during the second quarter of 2012 as compared to the same period in 2011, driven by 9.6 percent ADR growth.
Revenues in Miami during the second quarter of 2012 were affected by bad weather in Florida in April but recovered in May and June. For example, Delano's revPAR declined by 5.1 percent in April 2012, and grew by 10 percent in May and 7.1 percent in June, compared to the same months in 2011. Morgan’s’ West Coast hotels were affected by the closure of SkyBar at Mondrian Los Angeles due to renovations which were completed in May 2012. The company’s London hotels were adversely impacted by the ongoing European economic crises, lower demand in the pre-Olympics period and air conditioning repairs at Sanderson, which were completed in May 2012.
Morgan’s also recorded decreases in total operating expenses and interest expense during the second quarter of 2012 primarily as a result of the May 2011 sales of Mondrian Los Angeles, Royalton and Morgan’s. The company continues to manage these hotels pursuant to long-term management agreements, and as a result, the gains on sales are deferred and recognized over the initial terms of the respective management agreements. In addition, due to the company's sale of its interest in the joint venture that owned Sanderson and St Martins Lane, which Morgan’s continues to manage pursuant to long-term management agreements, the gain on the sale of its joint venture interest was deferred and will be recognized over the life of the management agreements. During the three months ended June 30, 2012, the company amortized $2 million of deferred gains into income.