Morgans Hotel Group Co. (MHGC) reported its second quarter 2010 loss from continuing operations of 75 cents per share, highly disappointing as compared with the Zacks Consensus Estimate of a loss of 29 cents and the year-ago quarter’s loss of 32 cents. The wider-than-expected losses were due to the expense related to the development of the hotel Mondrian in SoHo and absence of tax benefit recorded in second quarter 2009.
Total revenue rose 10.3% year over year to $60.2 million. Adjusted EBITDA soared 19.7% from the prior-year quarter to $14.0 million.
Inside the Headline Numbers
The RevPAR (Revenue per Available Room) for system-wide comparable hotels jumped 13.3% (up 14.0% on a constant-dollar basis), due to a rise in occupancy and average daily rate (ADR), which were positive for the first time since 2008 as economy is reviving, resulting in a rise in business travel and leisure demand.
The majority of RevPAR increase was led by Morgans Hotel Group’s New York-based hotels, as it reported a RevPAR increase of 23.1%. In Morgans Hotel Group’s London-based hotels RevPAR leaped 18% on a constant-dollar basis, at Mondrian Los Angeles RevPAR escalated 9.8% and at Miami hotels RevPAR inched up 3.0%.
Management fees rose 32.1% year over year to $1.2 million in the quarter. Operating margins at owned comparable hotels were up 310 bps year over year in the quarter.
Financial Position
As of June 30, 2010, Morgans Hotel Group had cash and cash equivalents of $37.7 million and net outstanding debt of $579.2 million.
The company expects capital expenditure of $5.0 million for the next 12 months, which includes $3.2 million to fund the completion of Mondrian in SoHo .
Outlook
The company said if RevPAR rises in a range of 8% to 10% in fiscal 2010, it estimates Adjusted EBITDA in the range of $53 million to $55 million in 2010.
Our Take
With a gradual recovery of the global economy, the hotels and lodging industry is experiencing an increase in demand and most of the companies posted positive results. Morgans Hotel Group’s close competitors Marriott International Inc. (MAR), Starwood Hotels & Resorts Worldwide Inc. (HOT) and Wyndham Worldwide Corp. (WYN)reported their second quarter earnings higher than the Zacks Consensus Estimate . Marriott’s second quarter 2010 earnings of 31 cents per share were ahead of the Zacks Consensus Estimate of 28 cents. Even Starwood’s second quarter earnings of 35 cents topped the Zacks Consensus Estimate by 10 cents and Wyndham’s second quarter 2010 earnings of 51 cents per share, surpassed the Zacks Consensus Estimate of 41 cents. Thus, Morgans Hotel Group’s second quarter results were quiet disappointing.
We currently have a Zacks #3 Rank on the stock, which translates into a short-term Hold rating.
