MHGC

Morgans Hotel Group Co. (MHGC)

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Morgans Hotel Group Co. (MHGC)

Q4 2012 Earnings Conference Call

March 01, 2013 9:00 am ET

Executives

Michael Gross - Chief Executive Officer

Richard Szymanski - Chief Financial Officer

Daniel R. Flannery - Chief Operating Officer

Michelle Reddin - Investor Relations

Analysts

Joel Simkins - Credit Suisse

William Marks - JMP Securities

Christopher Agnew - MKM Partners

Stephen Altebrando - Sidoti & Company

Presentation

Operator

Good morning and welcome to the Morgans Hotel Group Company Fourth Quarter 2012 Earnings Conference Call. My name is Paula and I will be your conference operator today. At this time, I would like to inform all participants that your lines will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer 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 Michelle Reddin of Morgans Hotel Group. Please go ahead.

Michelle Reddin

Thank you. Good morning. Thank you for joining us on our fourth quarter 2012 conference call. On the call today are; Chief Executive Officer, Michael Gross; Chief Financial Officer, Rich Szymanski; and Chief Operating Officer, Dan Flannery, all of Morgans Hotel Group.

Before we begin, I need to remind everyone that part of our discussion this morning will include forward-looking statements. They are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer you all to 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 Michael.

Michael Gross

Thanks, Michelle, and good morning everyone, and thanks for joining our fourth quarter 2012 earnings call. 2012 was an important year for the Company and we enter 2013 having strengthened our position as a leader in lifestyle hospitality management. During the year, we made significant upgrades to our physical properties and repositioned our hospitality offering. We completed major renovations at our two owned properties, Delano South Beach and Hudson. This further increases the already significant value in these iconic assets, and across our properties, we implemented new sales, revenue, and service programs.

In the fourth quarter, we began to see the benefits of our investments. Adjusted EBITDA was up 48% year-over-year and operating margins at our owned hotels increased by 700 basis points, and across the whole portfolio, we have seen a very strong start to 2013, with RevPAR up 18% in January at System-Wide Comparable Hotels and room revenues up by 23% at Hudson.

Let me quickly walk through some of the key financial highlights from our fourth quarter. At Delano South Beach, fourth quarter EBITDA was up almost 40% on RevPAR growth of 18%. In part, this reflects the fact that renovations were underway at Delano in the fourth quarter last year, but it also shows the increased earnings potential of this hotel following the property upgrade.

At Hudson, EBITDA was up over 30% and RevPAR growth was almost 6%, despite the impact of super storm Sandy and the fact that we were not operating a food and beverage venue at the hotel in the quarter due to renovations. I'm pleased to announce the final stage of Hudson's renovation was completed in January 2013 with the addition of 32 new rooms through SRO conversions, bringing the total number of rooms at the property to 866.

In February, we also launched a new food and beverage concept, Hudson Common, a modern-day beer hall and burger joint. When you consider them in 2012, Hudson generated roughly one quarter of its peak annual EBITDA and Delano South Beach generated two thirds. You can see that there is substantial headroom for growth here.

Our System-Wide Comparable Hotels, which excludes Delano South Beach, Hudson, and Mondrian SoHo, RevPAR growth recorded was up 7.2%, and performance at our U.S. based System-Wide Comparable Hotels was particularly strong, with RevPAR up 8.3% in the quarter.

We're very encouraged by these results and believe we will continue to benefit from upgrades that have been undertaken by property owners at a number of our managed hotels. For example, a new food and beverage venue will be launched in Morgans in New York later in the second quarter after several months of work. (indiscernible) rooms out of service during the first half of 2012 to install new HVAC systems and new digital phone and Internet services, and at Mondrian LA, the famous Skybar was revamped in spring last year.

Our results also benefited from the first full quarter contribution of the Light Group, which generated over $1.5 million of EBITDA in the fourth quarter. Not only did the Light Group contribute to EBITDA, but they've also been instrumental in developing our in-house food and beverage team located in New York. This in-house team was responsible for launching two food and beverage venues during 2012 at Mondrian SoHo and is actively working on repositioning several of our existing food and beverage outlets including at Hudson.

Overall, our results were strong across the board at our two owned properties where completed significant renovations this year, at our portfolio of managed hotels, and at our food and beverage operations. We're excited about the year ahead and believe we can continue to deliver strong results and build on the momentum we generated in the fourth quarter.

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