Morgans Hotel Group Co. (
reported third quarter 2012 loss per share of 59 cents,
substantially higher than the Zacks consensus Estimate of a loss
of 29 cents. However, the loss narrowed from the year-ago loss of
Total revenue came in at $44.0 million, down 5.7% year over year.
The decrease was attributable to a 12.2% decline in total hotel
revenues, partially offset by 77.2% increase in management fees.
Also, revenues missed the Zacks Consensus Estimate of $46.0
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, RevPar, or revenue per
available room (excluding the results of all hotels under
renovation), increased 8.0% in constant dollars and 7.4% in
actual dollars on year-over-year basis. The growth was strong in
the company's hotels in London (14.5% in actual dollars).
On a regional basis, the revenue growth for the company's brand
hotels in London was strongly impacted by the strong demand
during the Olympics and increase in rates. In the Northeast U.S.
hotels, RevPAR increased by 4.6% and San Francisco hotels enjoyed
a RevPAR increase of 11.0%. However, RevPAR for Morgan's hotels
in Miami were flat year-on-year during the quarter.
The company reported an operating loss of $6.3 million, which
widened from the year-ago loss of $4.3 million.
Renovations and Developments
During the reported quarter, the company completed full
renovation of the guest rooms of Hudson brand hotel in New York.
The company expects to change 32 SRO (single room dwelling) units
into guest rooms, which is expected to complete by December 2012,
thus totaling the total number of rooms at Hudson to 866. In
addition, the company is in progress to open a new restaurant in
Hudson by early 2013.
Morgans Hotel Group has been very active on the development front
during the reported quarter. The company signed an agreement with
MGM Resorts International (
to convert the THEhotel at Mandalay Bay into Delano Las Vegas,
expected to complete by 2013. In addition, the company penned a
new long term deal for the management of Delano Moscow, a 160
room hotel in Russia, which is slated to open in 2015.
Also during the quarter, the Company opened its newest
international property, the 71-room Delano Marrakech in Morocco.
As of September 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
Morgans Hotel Group ended the third quarter with cash and cash
equivalents of $8.6 million and total consolidated debt
(excluding the Clift lease) of $416.0 million. The company had
$16.8 million available under its revolving credit facility.
Considering the third quarter result, we remain cautious about
the company's growth going forward. The company has substantially
missed the Zacks earnings estimate over the last 11 consecutive
quarters. However, the ongoing hotel expansion will likely lead
the company to generate high EBITDA margin in coming years.
Currently, the Zacks Consensus Estimate for 2012 and 2013 are
pegged at loss of $1.54 and 87 cents, respectively.
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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