MHGC

Morgans Hotel Group Co. (MHGC)

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Morgans Hotel Group Co. (MHGC)

Q4 2008 Earnings Call

February 26, 2009 5:00 pm ET

Executives

Rich Szymanski – Chief Financial Officer

David Hamamoto – Chairman of the Board

Fred Kleisner – President and Chief Executive Officer

Marc Gordon – Chief Investment Officer

Analysts

Will Marks – JMP Securities

William Truelove – UBS

David Katz – Oppenheimer

Ryan [Malakar] – Morgan Stanley

Leon Cooperman – Omega Advisors

Steve Altebrando – Sidoti & Company

Presentation

Operator

Good afternoon. Welcome to the Morgans Hotel Group Company's fourth quarter 2008 earnings conference call. I would like to inform all participants that your lines will be in a listenonly mode. After the speakers' remarks, there will be a questionandanswer period. (Operator Instructions)

As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. I would now like to turn the call over to Mr. Rich Szymanski of Morgans Hotel Group. Please go ahead.

Rich Szymanski

Thank you. Good afternoon. Thank you for joining us on our fourth quarter 2008 conference call. Joining me on today's conference call are David Hamamoto, Chairman of the Board; Fred Kleisner, President and Chief Executive Officer; and Marc Gordon, Chief Investment Officer of Morgans Hotel Group.

Before we begin, I need to remind everyone that part of our discussion this afternoon will include forwardlooking statements. They are not guarantees of future performance; and therefore, undue reliance should not be placed upon them. We refer you to all the company's filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on the company's operating results, performance, and financial condition. With that, I will pass the call to David.

David Hamamoto

Thanks, Rich. Good afternoon. Before turning the call over to Fred for a discussion of the company's fourth quarter results, I'd like to make a few brief remarks. It should come as no surprise to anyone when I say that due to the significant downturn in the globe economy, the fourth quarter of 2008 became one of the most difficult operating environments the hotel industry has seen in a long time. This downward trend continued into the beginning of this year, and it is unlikely things will turn around in the near term.

In light of this, the Morgans management team and our dedicated employees continue to take a proactive and aggressive approach toward cost reductions in our balance sheet in order to ensure the financial stability of the business. With regard to cost reductions, we are taking all the necessary steps to right size the business for this difficult period while still maintaining excellent service and a unique experience for our clientele.

From a capital standpoint, we are taking decisive actions to manage our balance sheet and preserve our ability to fund our business through this economic storm. The company has limited capital commitments and no significant consolidated maturities in 2009 and three hotels that are currently unleveraged. In addition, as a preparatory measure for the possibility of a more severe downturn, we are pursuing other opportunities for additional liquidity to insure our financial position remains solid.

Morgans has some of the strongest brands in the industry, compelling assets, and an experienced management team with a track record and flexibility to successfully lead through this critical time. I am confident that Fred, Rich, and the rest of the team will continue to execute aggressively in the coming weeks and months ahead. I am also confident that they are effectively positioning the company so that we can realize the underlying validity of our brands and our properties when the economy turns around. With this, I will turn the call over to Fred.

Fred Kleisner

Thanks, David. Good afternoon, everyone. Thank you for joining us for our fourth quarter 2008 earnings conference call. There are several topics I'd like to address in today's call. First, I'd like to take a few moments to touch on the current economic and industry environment. Then I'd like to update you on our liquidity position and review our top line fourth quarter results. After that, I will provide you an update on our recent expense reductions and revenue enhancement initiatives.

As David mentioned, 2008 ended on a very difficult note, the fourth quarter being one of the most difficult quarters in the hotel industry in recent memory. The economy moved to crisis mode, commencing September 15. This led to a pullback in demand in the fourth quarter, and we've seen that trend continue and deepen as we entered the first two months of this year.

It's not something that is specific to Morgans, the hotel industry, or even this country. It is a worldwide crisis. Recovery will come, however, its timing at this time is not possible to predict. The only thing I know with certainty is that we have already instituted, as we've shown in our yearend results, appropriate and targeted steps to deal with this downturn and we're fully prepared to do more.

Focusing on the fourth quarter results for the hospitality sector, revPAR was down dramatically across the industry. The luxury segment in particular dropped 17% in the fourth quarter. Clearly, market conditions have called for aggressive action by companies throughout the hospitality industry.

Two of our top markets, New York and Las Vegas, experienced significant drop in demand in the fourth quarter. It's important to note that our properties generally fared better than their competitive sets due to the strength of our brands and the focused sales effort and our focus on revenue enhancement.

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