Morgans Hotel Group Co. (
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.
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MORGANS HOTEL (MHGC): Free Stock Analysis
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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
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
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. (
, 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.