Morgans Hotel Group Co. (MHGC)
Q1 2009 Earnings Call
May 4, 2009 5:00 pm ET
Jennifer Foley -
Rich Szymanski – Chief Financial Officer
David Hamamoto – Chairman of the Board
Fred Kleisner – President and Chief Executive Officer
Marc Gordon – Chief Investment Officer
Will Marks – JMP Securities
William Truelove – UBS
Steve Altebrando – Sidoti & Company
Maria [Slavens] – Oppenheimer & Co.
Previous Statements by MHGC
» Morgans Hotel Group Co. Q3 2009 Earnings Call Transcript
» Morgans Hotel Group Co. Q2 2009 Earnings Call Transcript
» Morgans Hotel Group Co. Q4 2008 Earnings Call Transcript
Good afternoon. Thank you for joining us on our first quarter 2009 conference call. Joining me on today's conference call are Fred Kleisner, President and Chief Executive Officer; Rich Szymanski, Chief Financial 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 forward-looking 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 Fred.
Thanks Jen. Good afternoon everyone and thanks for joining us today. As you all know, the fourth quarter of 2008 began one of the most difficult operating environments the hotel industry has seen in a very long time. Unfortunately, industry results continued to decline in the first three months of 2009. Macro economic trends have presented significant headwinds to the lodging sector. March concluded six successive months of declining industry results driven primarily by declining average daily rates.
That has been true across the entire industry. This is particularly true in the luxury segment. While Morgans distinguishes itself far from traditional brand managed or franchised luxury hotels by our focus on lifestyle, distinctive lodging experiences, we are not immune to the downturn in our industry. Clearly we do not have much control over the large economic and industry environment. However, we do have control over how we manage our cost structure, sales and revenue generation and our balance sheet.
This allows us to preserve and enhance shareholder value and that is exactly where our management team has been acutely focused. Despite continued economic pressure we have demonstrated financial stability thanks to proactive steps and continued efforts we have taken to strengthen our position. Regarding costs, through a multi-phase contingency plan put in place in the beginning of 2008 we have reduced hotel operating expenses by approximately $20 million which resulted in a 21% decline in operating costs at system-wide comparable hotels for the first quarter 2009 compared to 2008.
Additionally we have reduced corporate expenses by approximately $10 million. We expect we will reduce corporate expenses by over a third on an annual run rate basis. I will discuss in a moment also how we implemented further reductions commensurate with market trends in the first quarter of this year.
Allow me to review the strategies we followed. Early in 2008 we began a strategy to reduce our exposure in Las Vegas. We have significantly reduced this exposure by eliminating commitments on the Echelon project in 2008 and we are progressively reducing our ownership percentage in Hard Rock from 33.3% to an expected 14% by the end of 2009. We have not entered into any future funding commitments at Hard Rock since February 2008 and have no intention to do so.
Regarding balance sheet management, maintaining solid and sustainable liquidity position continues to be our top priority in this environment. We have described on prior calls as Rick will further detail later on this call we are taking decisive action to ensure we have sufficient cash and financial flexibility. Despite the difficulties of the current environment we are confident in the long-term potential of this company. Morgans has some of the strongest and most distinctive brands in the industry, compelling assets and a differentiated approach.
Our management team has been through difficult cycles in the past and I know we are taking all the necessary steps to get us through this challenging period while at the same time maintaining our unique brands, our hotels and our customer experience so that we are well positioned when the economy turns around.
With that said, there are several topics I would like to discuss on today’s call. First, I would like to review our first quarter results. Then I would like to briefly touch on our liquidity and balance sheet initiatives. After that I will provide a little more detail on our recent expense reduction initiatives along with a status update on current development projects.
Adjusted EBITDA was down 67% for the first quarter and rev par from our comparable hotels was down 36% in constant dollars driven by a continued slow down in key markets, particularly New York City. The pull back in demand across the industry led to a drop in average daily rate. We felt the effects of this pricing erosion in each of our New York Hotels, particularly at our Hudson in Mid-Town.
Given the environment these results were by no means unique within the sector. In this recession, high end hotels in major urban areas have fared far worse than the national average and Morgans is no exception. We have seen these trends before, most recently in the aftermath of 9/11. Inevitably the trends reverse and the category rebounds. Over the long term, owning or having investments in our unique lifestyle hotels in limited supply gateway markets has been and we believe will continue to be a compelling business proposition.