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Morgans Hotel Group Co. (MHGC)
Q3 2009 Earnings Call
October 26, 2009 5:00 pm ET
Michelle Reddin – Investor Relations
Frederick J. Kleisner – Chief Executive Officer
Marc Gordon – President
Richard Szymanski – Chief Financial Officer
William Marks - JMP Securities
David Katz - Oppenheimer & Co.
Previous Statements by MHGC
» Morgans Hotel Group Co. Q2 2009 Earnings Call Transcript
» Morgans Hotel Group Co. Q1 2009 Earnings Call Transcript
» Morgans Hotel Group Co. Q4 2008 Earnings Call Transcript
I would now like to turn the call over to Michelle Reddin of Morgans Hotel Group. Please go ahead.
Thank you. Good afternoon. Thank you for joining us on our third quarter 2009 conference call. Joining me on today’s conference call are Fred Kleisner, the Chief Executive Officer; Marc Gordon, President; and Rich Szymanski, Chief Financial 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 as to future performance and therefore undue reliance should not be placed upon them. We refer to all of 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’ll pass the call to Fred.
Frederick J. Kleisner
Thanks Michelle and good afternoon everyone. Thanks for joining us on our third quarter 2009 conference call.
During the call today I’d like to first give you an update on the industry environment and our top line results for the quarter. I’ll also briefly discuss the proactive steps we’re taking to strengthen our capital structure and enhance shareholder value, which in the last two months alone has added $200 million of liquidity to our balance sheet. Marc will provide more detail on the recently announced balance sheet transactions and also talk about our development pipeline. After that Rich will walk you through the details of the quarter and related matters. At the conclusion we’ll be glad to take your questions.
Let’s begin with the overall operating environment. While business conditions remain challenging, we continue to see preliminary signs of recovery across the industry. The rate of decline in the lodging sector has slowed and we are beginning to see indications of return of demand in key markets. Most notably, in the form of improving occupancies in those markets. In fact, the rate of decline slowed meaningfully during the quarter itself.
Results at Morgans are directionally the same as general industry trends. The rate of decline in the adjusted EBITDA and RevPAR has slowed, although we’re nevertheless down significantly year-over-year. For the third quarter RevPAR from our comparable hotels was down 31% in constant dollars. Adjusted EBITDA was down 55%. During the quarter we saw continued improvement. September results were better than August with year-over-year RevPAR declining 23% in September. And we are seeing that sequential improvement continue in October.
We’re encouraged by the positive signs and returning demand. However, we still have work to do and our focus on maintaining efficiencies will not waver. Rates remain under pressure, booking windows remain short and we expect to see a slow recovery.
As I mentioned earlier, occupancies in certain key markets are up and approaching prior year levels. In New York, our core market, occupancies were at 91% for the quarter. In the first weeks of September we saw an upward trend in average daily rate as well, particularly due to high profile events including New York’s fashion show week in September, the United Nations General Assembly, and the United States Tennis Open. In particular, we were encouraged that fashion week in September showed meaningful improvement in traffic and excitement versus fashion week in February this year. We see that as another positive significantly of returning demand.
Our London properties also showed noticeable improvement in the third quarter. RevPAR declines were in the mid single digits, down approximately 6%. This was driven by continued limited supply and improving demand in this market.
We also saw improving results in Los Angeles, where RevPAR at Mondrian L.A. was down approximately 12% year-over-year compared to a decline in its competitive set of 27.9%. The strong relative performance of our all new Mondrian LA is particularly welcome news given the presence of several also all new competitors in its competitive set.
In Las Vegas, the Hard Rock Hotel and Casino opened its 490 room Paradise Tower, which drove a 7% increase in revenues at the hotel. We saw a continuation of high demand on weekends and we’re seeing an increase in midweek demand as well, driven by the opening of the new Hard Rock Convention Center. Hard Rock’s RevPAR decline continues to be less than that of the Las Vegas strip.
In contrast, Miami and San Francisco markets continued to face significant headwinds in the third quarter. In Miami, an increase in competitive supply combined with seasonally low periods in domestic U.S. demand and a moderation in European summer and South American winter travel affected all South Beach properties including ours. The San Francisco market also continued to face challenges. While the number of conventions remains stable, attendance was down significantly. This drop in group demand has resulted in a lack of compression across the San Francisco market.