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Morgans Hotel Group Co. (MHGC)
Q2 2009 Earnings Call
August 10, 2009 5:00 pm ET
Michelle Reddin –Investor Relations
Fred Kleisner – President and Chief Executive Officer
Marc Gordon – Chief Investment Officer
Rich Szymanski – Chief Financial Officer
David Katz – Oppenheimer & Co.
Will Marks – JMP Securities
Steve Altebrando – Sidoti & Company
Previous Statements by MHGC
» Morgans Hotel Group Co. Q3 2009 Earnings Call Transcript
» Morgans Hotel Group Co. Q1 2009 Earnings Call Transcript
» Morgans Hotel Group Co. Q4 2008 Earnings Call Transcript
Good afternoon. Thank you for joining us on our second quarter 2009 conference call. Joining me on today's conference call are: Fred Kleisner, President and Chief Executive Officer; Marc Gordon, Chief Investment Officer; and Rich Szymanski, Chief Financial Officer and 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.
Good afternoon and thanks for joining us for our second quarter 2009 conference call. Once again, in the second quarter economic trends presented significant headwinds for the hotel industry. The ongoing pullback in demand led to continued declines in average daily rate across the industry with the urban and high-end segments being hit particularly hard.
While the operating environment remains difficult, revenue per available room declines are moderating somewhat, driven by a slight rebound in occupancy. Rates, however, remain under pressure.
These trends suggest to us that we are at or near the bottom of the down swing. The industry in general continues to show negative year-over-year comparisons, however, the declines are stabilizing.
As a further sign of relief, U.S. unemployment rate declined in July for the first time in over a year. The jobs report released by the U.S. Department of Labor on Friday is the least bad we've seen since August of 2008 and the trajectory of decline has slowed substantially. Furthermore, there was an actual year-over-year growth in leisure and hospitality sector where employment rose marginally.
Similarly, at Morgans the pace of decline appears to be stabilizing. Our second quarter results were on par with those we reported in the first quarter. For six successive months, from October 2008 to March 2009, we saw RevPAR declines expand month after month. We are no longer seeing this trend.
Adjusted EBITDA was down 59% in the second quarter and RevPAR from our comparable hotels was down 37% in constant dollars. Consistent with industry trends, occupancy across our hotels is generally improving, however the rates continue to be a challenge.
The booking windows remain short across our operations. Those who make decisions to book hotel accommodations continue to do so in a very short term.
We also continue to be effected in the second quarter by the slowdown in New York City. While average daily rate remained under pressure and mid-week corporate bookings continued to be a challenge, occupancy rates are beginning to improve. Leisure travelers from Europe continue to favor New York as a destination, particularly in the summertime. Our New York City hotels operated at 87% occupancy in the second quarter and that trend has continued, and even improved, in the third quarter. A return in occupancy is typically the first sign of a returning market.
In Miami, the summer business trends are challenging with leisure travelers hesitant to book discretionary travel. Miami has traditionally enjoyed high demand from South American countries in the summer. We have seen a moderation in that demand as well.
Having said all this, we do see pockets of promise emerging within our portfolio. Despite an L.A. market that is declining at roughly the same rate as other major markets, our Mondrian L.A. property has done very well. As a result of our renovation, we achieved a year-over-year increase in revenue per available room and our RevPAR index is in excess of our competitive set.
At Morgans' in New York, another recently renovated property, we are seeing results that are outperforming our competitive set. We are also seeing signs of stability in our London hotels. And in addition, the Hard Rock Hotel and Casino in Las Vegas, with its exciting new venues, go also down year-over-year as outperforming its peers on the Las Vegan strip.
On July 30, taking advantage of the high summer weekend demand, we opened our 490-unit Paradise Tower. This followed the successful opening in April of our 65,000 square foot convention center and Las Vegas' newest and best music venue, The Joint at Hard Rock.
As we continue to navigate through this difficult operating environment, laser-focus on cost savings and liquidity remain our top priorities. With regard to cost savings, our team has implemented extensive and rigorous reductions in both corporate and property level over the last year. Most importantly, we've maintained those efficiencies through the second quarter and continue to do so.
On a run rate basis, we have reduced hotel operating expenses in excess of $20.0 million and corporate expenses by approximately $10.0 million annually. As we have told you previously, these cuts were executed carefully to insure there would be limited impact on the quality of our customers' experience. In fact, we have been successful.