Morgans Hotel Group Reports Third Quarter 2012 Results

            Morgans Hotel Group Reports Third Quarter 2012 Results

PR Newswire

NEW YORK, Nov. 1, 2012

NEW YORK, Nov. 1, 2012 /PRNewswire/ -- Morgans Hotel Group Co. (NASDAQ: MHGC)
("MHG" or the "Company") today reported financial results for its third
quarter ended September 30, 2012. The Company will host a conference call to
review the quarter's results on Friday, November 2, 2012 at 10:30 am.

  oAdjusted EBITDA was $2.9 million in the third quarter of 2012. The
    Company's quarterly operating results reflect lower hotel revenues and
    operating expenses compared to the prior year's quarter primarily due to
    the impact of rooms out of service from the renovation work at Hudson.
  oRevenue per available room ("RevPAR") for System-Wide Comparable Hotels
    increased by 8.0% in constant dollars during the third quarter of 2012.
  oAt Hudson, the rooms renovation was completed at the end of September
    2012, and all guestrooms have been renovated and are now in service.
    Additionally, the Company is converting 32 single room dwelling units
    ("SRO units") into guestrooms, which are expected to be completed in
    December 2012, at a cost of approximately $150,000 per room.
  oIn August 2012, the Company announced an agreement with MGM Resorts
    International ("MGM") to convert the all-suite hotel at Mandalay Bay,
    THEhotel, into Delano Las Vegas, which will be managed by MGM. In
    addition, the Company acquired the leasehold interests in three
    restaurants at Mandalay Bay from an existing tenant for $15.0 million in
    cash at closing and a $10.6 million principal only promissory note to be
    paid over seven years. The venues will be reconcepted and managed by The
    Light Group ("TLG").
  oDuring the third quarter, the Company announced a new long-term management
    agreement for Delano Moscow, a 160 room hotel in Moscow, Russia, expected
    to open in 2015.
  oIn September, the Company opened its newest international property, Delano
    Marrakech, a 71-room hotel in Marrakech, Morocco.

Michael Gross, CEO of the Company, said: "During the third quarter, we made
additional progress executing our growth strategy, with the announcement of
Delano Las Vegas, in partnership with MGM, and Delano Moscow. The opening of
our new international property in September, Delano Marrakech, marks the
beginning of the rollout of our pipeline. We are excited about the momentum
in our management business.Together with our previously announced expansion
hotels, we will almost double the size of our portfolio when these hotels
open, which we believe will allow us to generate high EBTIDA margins due to
our scalable infrastructure. In addition, we completed our rooms and corridor
renovation at Hudson in September. Overall, we are encouraged by our progress
in the quarter and remain focused on executing our strategy and building
long-term shareholder value."

Third Quarter 2012 Operating Results

Adjusted EBITDA ^ for the third quarter of 2012 was $2.9 million, a decrease
of $2.0 million from the same period in 2011. Displacement due to rooms out
of service from the renovation work at Hudson resulted in a $1.4 million
decrease in EBITDA. 

RevPAR at System-Wide Comparable Hotels, which excludes Delano and Hudson,
increased by 8.0% in constant dollars (7.4% in actual dollars) in the third
quarter of 2012 from the comparable period in 2011.

In the Northeastern United States, RevPAR from the System-Wide Comparable
Hotels in the region, which consist of Morgans, Royalton and Ames, increased
by 4.6%. Additionally, despite the renovation work at Hudson, ADR increased by
4.0% for the three months ended September 30, 2012 as compared to the same
period in 2011. Mondrian SoHo, which opened in February 2011, generated an
8.9% RevPAR increase during the third quarter of 2012 as compared to the same
period in 2011, driven by 6.4% occupancy growth.

MHG's London hotels benefited from the Olympics during August 2012, which
resulted in an increase in RevPAR of 16.9% (14.5 % in actual dollars) during
the third quarter of 2012 as compared to the same period in 2011, primarily
driven by increased rates. Revenues in Miami during the third quarter were
relatively flat with a 0.6% increase in RevPAR during the third quarter of
2012 as compared to the same period in 2011. MHG's San Francisco hotel
experienced a RevPAR increase of 11.0%.

Management fees increased by 77.2% in the third quarter of 2012 as compared to
the same period in 2011. This increase was primarily the result of the
Company's acquisition of 90% of TLG in November 2011 and fees from new
management agreements related to the hotel properties sold in 2011.

In 2011, MHG sold its ownership interests in Mondrian Los Angeles, Royalton,
Morgans, Sanderson and St Martins Lane. MHG continues to manage these hotels
pursuant to long-term management agreements, and as a result, the gains on
sales are deferred and recognized over the initial terms of the respective
management agreements. During the three months ended September 30, 2012, the
Company amortized $2.0 million of deferred gains into income.

MHG recorded a net loss of $15.7 million for the third quarter of 2012
compared to a net loss of $24.8 million for the third quarter of 2011, which
included a $10.6 million impairment charge.

Renovations

At Hudson, as of September 30, 2012, all of the guestrooms have been renovated
and are back in service.The Company also plans to convert 32 SRO units into
guest rooms at an estimated cost of approximately $150,000 per room, and
expects to have these new rooms in service in December 2012 bringing the total
number of rooms at Hudson to 866. Additionally, the Company is making progress
with the new restaurant at Hudson, which is anticipated to open in early
2013. To date, the Company has spent approximately $24.0 million on room,
corridor and restaurant renovations, $6.0 million of which was spent in the
third quarter of 2012, and intends to spend an additional approximately $5 to
$6 million to complete these projects at Hudson.

Development Activity

On August 6, 2012, the Company announced an agreement with MGM to introduce
Delano Las Vegas, an all-suite hotel at Mandalay Bay. After MGM completes a
property renovation and redesign, THEhotel will be converted into Delano Las
Vegas. The conversion of THEhotel to Delano Las Vegas is expected to be
completed in late 2013 and will be funded by MGM. Delano Las Vegas will be
managed by MGM pursuant to a 10-year licensing agreement, with two 5-year
extensions at the Company's option, subject to performance thresholds. Under
the license agreement, the Company will earn a base fee, subject to increase
based on its development and brand expansion, and the Company can earn an
incentive fee based on Delano Las Vegas' RevPAR in its competitive set.

MHG also acquired the leasehold interests in three restaurants at Mandalay Bay
from an existing tenant for $15.0 million in cash at closing and a $10.6
million principal only promissory note to be paid over seven years. The venues
will be reconcepted and managed by TLG. The three restaurants will be operated
pursuant to 10-year operating leases with MGM, pursuant to which the Company
will pay minimum annual lease payments and a percentage rent based on cash
flow.

On August 16, 2012, the Company announced a new agreement for the management
of a 160-room Delano-branded hotel scheduled to open in 2015. The Company
will manage Delano Moscow pursuant to a 20-year management agreement, with one
ten-year extension option, subject to certain conditions. Under the Delano
Moscow agreement, MHG has agreed to contribute an aggregate of $10.0 million
in key money, of which $3.0 million was contributed in August 2012 upon the
signing of the management agreement, with the remaining $7.0 million to be
contributed prior to the hotel opening. The initial $3.0 million key money
contribution is refundable by the hotel owner if Delano Moscow does not open
by the predetermined opening date. Additionally, the Company provided a cash
flow guarantee to the owner that becomes payable if the hotel does not attain
specified levels of net operating profits set forth in the management
agreement up to certain maximum amounts for the first four years of the
contract. Such guarantee fundings, if any, are recoverable out of future hotel
cash flows and under certain other conditions.

In September 2012, the Company commenced the rollout of its hotel development
pipeline with the opening of its newest international property, the 71-room
Delano Marrakech. The self-contained luxury resort is located in the heart of
Marrakech, Morocco, and boasts four culinary destinations, a world-class spa,
three pools, luxury boutiques and a dynamic nightlife venue.

With a strong infrastructure in place, the Company expects the incremental
EBITDA margins for newly signed management agreements and hotels in its
pipeline to approximate 90%.

MHG now has signed management agreements for eight hotels, and a license
agreement for another, that are scheduled to open over the next three years,
with three of these hotels scheduled to open in the next eighteen months.
Seven of these hotels already have financing for construction or
redevelopment.

Balance Sheet and Liquidity

MHG's total consolidated debt at September 30, 2012, excluding the Clift
lease, was $416.0 million with a weighted average interest rate of 4.67%. At
September 30, 2012, MHG had $8.6 million of cash and cash equivalents and
$16.8 million available under its revolving credit facility, net of $52.0
million in outstanding borrowings, and $10.0 million of letters of credit
against the facility. As of September 30, 2012, total restricted cash was
$7.8 million.

MHG currently has approximately $269.0 million of remaining tax net operating
loss carryforwards to offset future income, including gains on future asset
sales. The Company has begun a sales process for Delano in South Beach and
would use the proceeds from any sale for debt reduction, growth and general
working capital purposes. In addition, the Company believes it has
significant value available to it in Hudson.

Subsequent Event

Subsequent to the third quarter, the Company's results have been impacted by
Hurricane Sandy. Though all four of MHG's New York properties were operating
during the storm and none of them appear to have suffered any significant
property damage, the Company has since had to close both Morgans and Mondrian
SoHo pending the restoration of power to lower Manhattan. Given the
widespread devastation Hurricane Sandy caused to the Northeastern United
States, it is also impossible to assess the impact of the storm on the
Company's results, although it can be expected to impact travel to the
Northeastern United States and travel from the Northeast region to other
locations where the Company operates hotels. Consequently, the Company is not
providing RevPAR expectations or projected EBITDA for 2012 at this time.

Conference Call

MHG will host a conference call to discuss the third quarter financial results
on Friday, November 2, 2012 at 10:30AM Eastern time.

The call will be webcast live over the Internet and can be accessed at
www.morganshotelgroup.com under the About Us, Investor Overview section.
Participants should follow the instructions provided on the website for the
download and installation of audio applications necessary to join the webcast.

The call can also be accessed live over the phone by dialing (888) 802-8577 or
(973) 935-8754 for international callers; the conference ID is 57989242. A
replay of the call will be available two hours after the call and can be
accessed by dialing (800) 585-8367 or (404) 537-3406for international
callers; the conference ID is 57989242. The replay will be available from
November 2, 2012 through November 9, 2012.

Definitions

"System-Wide Comparable Hotels" includes all Morgans Hotel Group hotels
operated by MHG except for hotels added or under major renovation during the
current or the prior year, development projects and discontinued operations.
System-Wide Comparable Hotels for the quarter ended September 30, 2012 and
2011 excludes Hudson and Delano, which were both undergoing renovations
beginning in the third quarter of 2011 and continuing into 2012, the Hard Rock
Hotel & Casino in Las Vegas ("Hard Rock"), which effective March 1, 2011 was
no longer partially owned or managed by MHG, Mondrian SoHo, which opened in
late February 2011, the San Juan Water and Beach Club, which was no longer
managed by MHG effective July 13, 2011, and Hotel Las Palapas, which is not a
Morgans Hotel Group branded hotel.

"EBITDA" means earnings before interest, income taxes, depreciation and
amortization, as further defined below.

"Adjusted EBITDA" means adjusted earnings before interest, taxes,
depreciation and amortization as further defined below.

About Morgans Hotel Group

Morgans Hotel Group Co. (NASDAQ: MHGC) is widely credited as the creator of
the first "boutique" hotel and a continuing leader of the hotel industry's
boutique sector. Morgans Hotel Group operates Delano in South Beach and
Marrakech, Mondrian in Los Angeles, South Beach and New York, Hudson in New
York, Morgans and Royalton in New York, Shore Club in South Beach, Clift in
San Francisco, Ames in Boston, Sanderson and St Martins Lane in London, and a
hotel in Playa del Carmen, Mexico. Morgans Hotel Group has ownership
interests in or owns several of these hotels. Morgans Hotel Group has other
property transactions in various stages of completion, including Delano
properties in Las Vegas, Nevada; Cesme, Turkey and Moscow, Russia; Mondrian
properties in London, England; Marrakech, Morocco; Istanbul, Turkey; Doha,
Qatar and Nassau, The Bahamas; and a Hudson in London, England. Morgans Hotel
Group also owns a 90% controlling interest in The Light Group, a leading
lifestyle food and beverage company. For more information please visit
www.morganshotelgroup.com.

Forward-Looking and Cautionary Statements

This press release may contain certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements relate to, among other things, the operating
performance of our investments and financing needs and prediction of certain
future other events. Forward-looking statements are generally identifiable by
use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" "believe," "project," or other similar words or expressions. These
forward-looking statements reflect our current views about future events and
are subject to risks, uncertainties, assumptions and changes in circumstances
that may cause our actual results or other future events to differ materially
from those expressed in any forward-looking statement. Important risks and
factors that could cause our actual results to differ materially from those
expressed in any forward-looking statements include, but are not limited to
economic, business, competitive market and regulatory conditions such as: a
sustained downturn in economic and market conditions, particularly levels of
spending in the business, travel and leisure industries; continued tightness
in the global credit markets; general volatility of the capital markets and
our ability to access the capital markets; our ability to refinance our
current outstanding debt and to repay outstanding debt as such debt matures;
our ability to protect the value of our name, image and brands and our
intellectual property; risks related to natural disasters, such as
earthquakes, volcanoes and hurricanes; hostilities, including future terrorist
attacks, or fear of hostilities that affect travel; and other risk factors
discussed in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2011, and other documents filed by the Company with the
Securities and Exchange Commission from time to time. All forward-looking
statements in this press release are made as of the date hereof, based upon
information known to management as of the date hereof, and the Company assumes
no obligations to update or revise any of its forward-looking statements even
if experience or future changes show that indicated results or events will not
be realized.

Income Statements
(In thousands, except per share
amounts)
                                    Three Months          Nine Months
                                    Ended September 30 ,  Ended September 30 ,
                                    2012       2011       2012       2011
Revenues :
Rooms                               $       $       $       $   
                                    24,311     26,432     70,930     90,951
Food & beverage                     12,649     15,575     42,025     49,216
Other hotel                        1,036      1,271      3,495      5,020
           Total hotel              37,996     43,278     116,450    145,187
           revenues
Management and other fees           6,040      3,408      18,672     10,112
           Total revenues           44,036     46,686     135,122    155,299
Operating Costs and Expenses :
Rooms                               7,818      8,263      23,256     29,122
Food & beverage                     10,178     13,664     34,773     41,901
Other departmental                  829        870        2,655      3,117
Hotel selling, general and          9,549      9,951      28,335     33,301
administrative
Property taxes, insurance and       3,965      4,247      11,531     12,136
other
           Total hotel operating    32,339     36,995     100,550    119,577
           expenses
Corporate expenses :
           Stock based              2,162      1,366      4,789      7,384
           compensation
           Other                    6,513      5,671      20,513     18,536
Depreciation and amortization       5,827      4,833      17,437     17,405
Restructuring, development and      3,460      2,125      7,704      10,518
disposal costs
           Total operating costs    50,301     50,990     150,993    173,420
           and expenses
           Operating loss           (6,265)    (4,304)    (15,871)   (18,121)
Interest expense, net               8,344      8,775      24,348     27,783
Equity in loss of unconsolidated    1,376      12,794     4,992      23,187
joint ventures
Gain on asset sales                 (1,993)    (1,101)    (5,984)    (1,721)
Other non-operating expenses        1,728      616        4,190      2,885
           Pre tax loss             (15,720)   (25,388)   (43,417)   (70,255)
           Income tax expense      234        230        548        523
           Net loss from            (15,954)   (25,618)   (43,965)   (70,778)
           continuing operations
           Income from discontinued -          -          -          485
           operations, net of tax
           Net loss                 (15,954)   (25,618)   (43,965)   (70,293)
           Net loss attributable
           to noncontrolling        277        799        614        2,007
           interest
           Net loss attributable to $        $        $        $  
           Morgans Hotel Group Co.  (15,677)  (24,819)  (43,351)  (68,286)
           Preferred stock          (2,836)    (2,285)    (8,204)    (6,701)
           dividends and accretion
           Net loss attributable    $        $        $        $  
           to common stockholders   (18,513)  (27,104)  (51,555)  (74,987)
           (Loss) income per
           share:
           Basic and diluted from   $      $      $      $    
           continuing operations    (0.59)    (0.89)    (1.65)    (2.41)
           Basic and diluted from   $      $      $      $    
           discontinued operations      -      -      -   0.02
           Basic and diluted        $      $      $      $    
           attributable to common   (0.59)    (0.89)    (1.65)    (2.39)
           stockholders
           Weighted average common
           shares outstanding -     31,208     30,617     31,283     31,359
           basic and diluted



Selected Hotel    ( In Actual           ( In Constant Dollars, ( In Actual            ( In Constant
Operating         Dollars)              if different)          Dollars)               Dollars, if
Statistics (1)                                                                        different)
                  Three Months          Three Months           Nine Months            Nine Months
                  Ended         %       Ended          %       Ended          %       Ended         %
                  September 30,         September 30,          September 30,          September 30,
                  2012   2011   Change  2012   2011    Change  2012   2011    Change  2012   2011   Change
Clift
       Occupancy  85.0%  89.2%  -4.7%                          78.3%  80.1%   -2.2%
       ADR        $     $     16.5%                          $      $      10.7%
                  252.16 216.41                                239.48 216.36
       RevPAR     $     $     11.0%                          $      $      8.2%
                  214.34 193.04                                187.51 173.30
St. Martins
Lane (2)
       Occupancy  82.0%  83.3%  -1.6%   82.0%  83.3%   -1.6%   76.8%  73.9%   3.9%    76.8%  73.9%  3.9%
       ADR        $     $     15.1%   $      $      17.4%   $      $      1.2%    $      $    3.5%
                  440.21 382.44         439.46 374.19         388.57 384.09         388.33 375.08
       RevPAR     $     $     13.3%   $      $      15.6%   $      $      5.1%    $      $    7.6%
                  360.97 318.57         360.36 311.70         298.42 283.84         298.24 277.18
Sanderson (2)
       Occupancy  79.7%  76.9%  3.6%    79.7%  76.9%   3.6%    69.9%  74.5%   -6.2%   69.9%  74.5%  -6.2%
       ADR        $     $     12.0%   $      $      14.3%   $      $      -0.3%   $      $    2.0%
                  486.08 433.81         485.26 424.45         435.88 437.41         435.62 427.15
       RevPAR     $     $     16.1%   $      $      18.5%   $      $      -6.5%   $      $    -4.3%
                  387.41 333.60         386.75 326.40         304.68 325.87         304.50 318.23
Shore Club
       Occupancy  59.3%  56.6%  4.8%                           63.8%  62.0%   2.9%
       ADR        $     $     -2.8%                          $      $      -1.0%
                  219.10 225.43                                284.60 287.42
       RevPAR     $     $     1.8%                           $      $      1.9%
                  129.93 127.59                                181.57 178.20
Mondrian South
Beach
       Occupancy  57.6%  62.8%  -8.3%                          66.9%  65.8%   1.7%
       ADR        $     $     6.8%                           $      $      8.2%
                  202.18 189.37                                264.90 244.90
       RevPAR     $     $     -2.1%                          $      $      10.0%
                  116.46 118.92                                177.22 161.14
Ames
       Occupancy  84.6%  80.3%  5.4%                           76.7%  73.6%   4.2%
       ADR        $     $     4.1%                           $      $      9.0%
                  254.40 244.28                                241.67 221.75
       RevPAR     $     $     9.7%                           $      $      13.6%
                  215.22 196.16                                185.36 163.21
Morgans (3)
       Occupancy  82.6%  85.7%  -3.6%                          79.1%  85.8%   -7.8%
       ADR        $     $     2.4%                           $      $      4.6%
                  283.09 276.54                                275.47 263.38
       RevPAR     $     $     -1.3%                          $      $      -3.6%
                  233.83 236.99                                217.90 225.98
Royalton (3)
       Occupancy  87.6%  86.7%  1.0%                           86.0%  86.3%   -0.3%
       ADR        $     $     4.7%                           $      $      5.6%
                  303.83 290.18                                298.67 282.73
       RevPAR     $     $     5.8%                           $      $      5.3%
                  266.16 251.59                                256.86 244.00
Mondrian LA (3)
       Occupancy  80.9%  80.8%  0.1%                           77.7%  79.1%   -1.8%
       ADR        $     $     -3.2%                          $      $      -2.0%
                  288.02 297.43                                275.09 280.74
       RevPAR     $     $     -3.0%                          $      $      -3.7%
                  233.01 240.32                                213.74 222.07
System-wide
Comparable
Hotels
       Occupancy  76.2%  76.8%  -0.8%   76.2%  76.8%   -0.8%   74.2%  74.5%   -0.4%   74.2%  74.5%  -0.4%
       ADR        $     $     8.3%    $      $      8.9%    $      $      3.7%    $      $    4.3%
                  296.09 273.48         295.94 271.82         292.74 282.43         292.69 280.70
       RevPAR     $     $     7.4%    $      $      8.0%    $      $      3.2%    $      $    3.9%
                  225.62 210.03         225.51 208.76         217.21 210.41         217.18 209.12
Hudson (4)
       Occupancy  74.1%  92.9%  -20.2%                         69.3%  88.1%   -21.3%
       ADR        $     $     4.0%                           $      $      6.4%
                  230.73 221.96                                218.94 205.78
       RevPAR     $     $     -17.1%                         $      $      -16.3%
                  170.97 206.20                                151.73 181.29
Delano
(4)
       Occupancy  58.9%  58.9%  0.0%                           67.2%  66.8%   0.6%
       ADR        $     $     -3.8%                          $      $      -0.2%
                  366.07 380.65                                480.51 481.43
       RevPAR     $     $     -3.8%                          $      $      0.4%
                  215.62 224.20                                322.90 321.60
Mondrian SoHo
(5)
       Occupancy  84.6%  79.5%  6.4%                           77.7%  78.2%   -0.6%
       ADR        $     $     2.3%                           $      $      4.2%
                  305.86 298.95                                303.52 291.25
       RevPAR     $     $     8.9%                           $      $      3.5%
                  258.76 237.67                                235.84 227.76
Hotel Las
Palapas (6)
       Occupancy  50.9%  45.0%  13.1%   50.9%  45.0%   13.1%   68.1%  63.7%   6.9%    68.1%  63.7%  6.9%
       ADR        $     $     5.6%    $      $      13.4%   $      $      3.0%    $      $    13.6%
                  136.16 128.89         134.60 118.68         150.99 146.66         150.31 132.32
       RevPAR     $    $    19.5%   $     $     28.3%   $      $     10.1%   $      $    21.4%
                  69.31  58.00          68.51  53.41          102.82 93.42          102.36 84.29
       Not included in the above table are the operating
(1)    statistics of San Juan Water and Beach Club, which the
       Company ceased managing effective July 13, 2011, and
       Hard Rock Hotel & Casino, which the Company ceased
       managing effective March 1, 2011.
       MHG and Walton MG London Hotels Investors V, L.L.C.,
(2)    each 50/50 joint venture partners, sold the Sanderson
       and St Martins Lane hotels in November 2011. MHG
       continues to manage these hotels pursuant to long-term
       management agreements.
       MHG sold these hotels in May 2011 and continues to
(3)    manage the hotels pursuant to long-term management
       agreements.
       Beginning in the third quarter of 2011 and continuing
(4)    into 2012, these owned hotels were under major
       renovation.
       MHG began managing this hotel when it opened in
(5)    February 2011. Statistics are for the period MHG
       operated the hotel.
       This hotel is not a Morgans Hotel Group branded hotel
(6)    and MHG believes that the hotel operating data for this
       hotel does not provide a meaningful depiction of the
       performance of its branded hotels.



Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

We believe that earnings before interest, income taxes, depreciation and
amortization (EBITDA) is a useful financial metric to assess our operating
performance before the impact of investing and financing transactions and
income taxes. It also facilitates comparison between us and our competitors.
Given the significant investments that we have made in the past in property
and equipment, depreciation and amortization expense comprises a meaningful
portion of our cost structure. We believe that EBITDA will provide investors
with a useful tool for assessing the comparability between periods because it
eliminates depreciation and amortization expense attributable to capital
expenditures.

The Company's management has historically used adjusted EBITDA (Adjusted
EBITDA) when evaluating the operating performance for the entire Company as
well as for individual properties or groups of properties because we believe
the Company's core business model is that of an owner and operator of hotels,
and the inclusion or exclusion of certain items is necessary to provide the
most accurate measure of on-going core operating results and to evaluate
comparative results period over period. As such, Adjusted EBITDA excludes
other non-operating expenses (income) that do not relate to the on-going
performance of our assets and excludes the operating performance of assets in
which we do not have a direct or indirect fee simple ownership interest. We
exclude the following items from EBITDA to arrive at Adjusted EBITDA:

  oOther non-operating expenses (income), such as executive terminations not
    related to restructuring initiatives, costs of financings, transaction
    costs related to business acquisitions and sales, litigation and
    settlement costs and other items such as proceeds from the sale of
    condominium units and related costs that relate to the financing and
    investing activities of our assets and not to the on-going operating
    performance of our assets, both consolidated and unconsolidated, changes
    in the fair value of promissory notes issued in connection with the
    acquisition of the 90% controlling interest in The Light Group, and
    non-cash impairment charges recognized by unconsolidated joint ventures in
    which the Company is an equity investee;
  oRestructuring, development and disposal costs: these charges primarily
    relate to losses on asset disposals as part of major renovation projects,
    the write-off of abandoned development projects resulting primarily from
    events generally outside management's control, such as the tightening of
    credit markets, and severance costs related to restructuring initiatives.
    We believe that these charges do not relate to the ongoing operating
    performance of our assets as measured by Adjusted EBITDA;
  oImpairment loss on development projects and hotels and receivables from
    unconsolidated joint ventures: these charges do not relate to the ongoing
    operating performance of our assets as measured by Adjusted EBITDA. To
    the extent that economic conditions do not continue to improve, we may
    incur additional non-cash impairment charges related to our assets under
    development, wholly-owned assets, or our investments in joint ventures.
    We believe these adjustments are necessary to provide the most accurate
    measure of core operating results as a means to evaluate comparative
    results;
  oEBITDA related to leased hotels to more accurately reflect the operating
    performance of assets in which we have a direct or indirect fee simple
    ownership interest;
  oEBITDA related to hotels reported as discontinued operations to more
    accurately reflect the operating performance of assets in which we expect
    to have an ongoing direct or indirect ownership interest; 
  oStock-based compensation expense, as this is not necessarily an indication
    of the operating performance of our assets; and
  oGains recognized on asset sales, as we believe that including them in
    Adjusted EBITDA is not consistent with reflecting the ongoing performance
    of our assets. In addition, we believe material gains or losses from the
    net book value of disposed assets is not particularly meaningful given
    that the depreciated asset value on which the gains are calculated often
    does not reflect market value of the assets.

We also make an adjustment to EBITDA for hotels in which our percentage
ownership interest has changed to facilitate period-over-period comparisons
and to more accurately reflect the operating performance of assets based on
our actual ownership. In this respect, our method of calculating Adjusted
EBITDA has changed from prior quarters, and calculations of Adjusted EBITDA
will continue to vary from quarter to quarter to reflect changing ownership
interests.

We believe Adjusted EBITDA provides management and our investors with a more
accurate financial metric by which to evaluate our performance as it
eliminates the impact of costs incurred related to investing and financing
transactions. Internally, the Company's management utilizes Adjusted EBITDA
to measure the performance of our core on-going hotel operations and is used
extensively during our annual budgeting process. Management also uses
Adjusted EBITDA as a measure in determining the value of acquisitions,
expansion opportunities, and dispositions and borrowing capacity. Adjusted
EBITDA is a key metric which management evaluates prior to execution of any
strategic investing or financing opportunity.

The Company has historically reported Adjusted EBITDA to its investors and
believes that this continued inclusion of Adjusted EBITDA provides consistency
in its financial reporting and enables investors to perform more meaningful
comparisons of past, present and future operating results and to evaluate the
results of its core on-going operations.

The use of EBITDA and Adjusted EBITDA has certain limitations. Our
presentation of EBITDA and Adjusted EBITDA may be different from the
presentation used by other companies and therefore comparability may be
limited. Depreciation expense for various long-term assets, interest expense,
income taxes and other items have been and will be incurred and are not
reflected in the presentation of EBITDA or Adjusted EBITDA. Each of these
items should also be considered in the overall evaluation of our results.
Additionally, EBITDA and Adjusted EBITDA do not reflect capital expenditures
and other investing activities and should not be considered as a measure of
our liquidity. We compensate for these limitations by providing the relevant
disclosure of our depreciation, interest and income tax expense, capital
expenditures and other items both in our reconciliations to our financial
measures under accounting principles generally accepted in the United States,
or U.S. GAAP, and in our consolidated financial statements, all of which
should be considered when evaluating our performance. The term EBITDA is not
defined under U.S. GAAP and EBITDA is not a measure of net income, operating
income, operating performance or liquidity presented in accordance with U.S.
GAAP. In addition, EBITDA is impacted by reorganization of businesses and
other restructuring-related charges. When assessing our operating performance,
you should not consider this data in isolation, or as a substitute for our net
income, operating income or any other operating performance measure that is
calculated in accordance with U.S. GAAP. In addition, our EBITDA may not be
comparable to EBITDA or similarly titled measures utilized by other companies
since such other companies may not calculate EBITDA in the same manner as we
do.

A reconciliation of net income (loss), the most directly comparable U.S. GAAP
measures, to EBITDA and Adjusted EBITDA for each of the respective periods
indicated is as follows:

EBITDA Reconciliation
(In thousands)                    Three Months            Nine Months
                                  Ended September 30,    Ended September 30,
                                  2012       2011         2012       2011
Net loss attributable to Morgans  $      $        $       $    
Hotel Group Co.                    (15,677) (24,819)    (43,351)  (68,286)
Interest expense, net             8,344      8,775        24,348     27,783
Income tax expense               234        230          548        523
Depreciation and amortization     5,827      4,833        17,437     17,405
expense
Proportionate share of interest
expense
from unconsolidated joint        1,388      1,863        4,208      6,579
ventures
Proportionate share of
depreciation expense
from unconsolidated joint        668        1,599        2,549      5,177
ventures
Proportionate share of
depreciation expense
of noncontrolling interests in   -          -            -          (183)
consolidated joint ventures
Net loss attributable to          (526)      (799)        (1,405)    (2,210)
noncontrolling interest
Proportionate share of (loss)
income from unconsolidated joint
 ventures not recorded due to    (1,270)    (5,103)      (3,933)    1,904
negative investment balances
EBITDA                           (1,012)    (13,421)     401        (11,308)
Add : Other non operating         1,728      616          4,190      2,885
expense
Add : Other non operating
expense from unconsolidated
 joint ventures                  629        17,070       3,703      17,827
Add: Restructuring, development  3,460      2,125        7,704      10,518
and disposal costs
Less : EBITDA from Clift, a       (2,112)    (1,772)      (4,646)    (3,901)
leased hotel
Add : Stock based compensation    2,162      1,366        4,789      7,384
Less: Gain on asset sales        (1,993)    (1,101)      (5,984)    (1,721)
Less: Loss (income) from          -          -            -          (485)
discontinued operations
Adjusted EBITDA                  $      $       $      $    
                                    2,862  4,883      10,157      21,199
Impact of Asset Sales and
Terminated Joint Venture
Interests:
                                  $      $       $      $    
Sold Hotels EBITDA (1)                   (696)        -     2,705
                                  -
Sold Hotels Management Fees -     759        778          2,019      1,193
Post-Sale (2)
Joint Venture Asset Sales (3)     -          2,040        -          6,041
Hard Rock Hotel & Casino EBITDA   -          -            -          300
(4)
Hard Rock Hotel & Casino          -          -            -          832
Management Fees (5)
Impact to Adjusted EBITDA, After  $      $       $      $    
Asset Sales and Hard Rock                 2,122       2,019     11,071
                                  759
(1) Reflects the EBITDA of Mondrian Los Angeles,
Royalton and Morgans, the three hotels sold by the
Company in May 2011, through their respective dates of
sale. This hotel EBITDA is not reduced by any internal
management fees earned prior to the date of sale, as
these are eliminated in consolidation.
(2) Reflects the management fees earned by the Company
from the date of sale of each of Mondrian Los Angeles,
Royalton and Morgans through the end of the periods.
(3) Reflects the EBITDA of Sanderson and St Martins
Lane, the two London hotels the Company owned through a
50/50 joint venture until November 2011, when the joint
venture was sold. The amounts reflected are the
Company's 50% share of the hotels' EBITDA. MHG
continues to manage these hotels.
(4) Reflects the EBITDA of the hotel for the period the
Company owned a minority interest. Effective March 1,
2011, the Company no longer had an ownership interest in
this hotel.
(5) Reflects the management fees earned by the Company
during the period it operated the hotel. Effective March
1, 2011, the Company ceased managing this hotel.



Hotel EBITDA Analysis (1)
(In thousands, except
percentages)
                                Three Months            Nine Months
                                Ended September %       Ended September %
                                30,                    30,
                                2012    2011    Change  2012     2011   Change
Clift                           $     $     19%     $      $    19%
                                2,112  1,772          4,646   3,901
Shore Club                      (45)    (73)    -38%    96       164    -41%
Mondrian South Beach           (487)   (253)   92%     180      377    -52%
Ames                           160     73      -119%   138      103    -34%
              Owned and Joint
              Venture           1,740   1,519   15%     5,060    4,545  11%
              Comparable Hotels
              (2)
Morgans (3)                     -       (683)   n/m     -        (837)  n/m
Royalton (3)                    -       (33)    n/m     -        221    n/m
Mondrian Los Angeles (3)        -       20      n/m     -        3,321  n/m
St Martins Lane (4)             (7)     1,284   -101%   (594)    3,623  -116%
Sanderson (4)                   (252)   756     -133%   (934)    2,418  -139%
              Sold Hotels       (259)   1,344   -119%   (1,528)  8,746  -117%
              Total System-Wide 1,481   2,863   -48%    3,532    13,291 -73%
              Comparable Hotels
Hudson (5)                      2,672   4,054   34%     3,101    8,230  62%
Delano (5)                      1,248   1,562   -20%    9,681    10,700 -10%
Hard Rock - Joint Venture (6)   -       -       n/m     -        300    n/m
Mondrian SoHo - Joint Venture   411     393     5%      1,123    860    31%
(7)
                                        .
              Total Hotels     $     $     -34%    $      $    -48%
                                5,812  8,872          17,437   33,381
(1) For joint venture hotels, represents MHG's share of the
respective hotels' EBITDA, after management fees.
(2) Reflects System-Wide Comparable Hotels that are
owned or partially owned by MHG.
(3) In May 2011, MHG sold these three hotels.
Information is for the period MHG owned the hotels,
and is not reduced by any internal management fees
earned prior to the date of sale, as these are
eliminated in consolidation.
(4) In November 2011, MHG and Walton Street, each 50/50
joint venture partners, sold the joint venture entity
that owned the Sanderson and St Martins Lane hotels.
Amounts in 2011 represent MHG's share of the respective
hotels' EBITDA, after management fees. Amounts in 2012
represent MHG's respective hotels' food and beverage
EBITDA, after management fees. Following the sale of
the joint venture entity, MHG continues to own and
operate the food and beverage venues at the hotels
under a lease agreement with the hotel owner.
(5) Beginning in the third quarter of 2011 and
continuing into 2012, these owned hotels were under
renovation. The renovation at Delano was completed
during the second quarter of 2012 and the room and
corridor renovation at Hudson was completed in late
September 2012.
(6) MHG had a minority ownership interest in this
hotel until March 1, 2011. Information is for the
period MHG had an ownership interest in the hotel.
(7) This hotel opened in February 2011. Information
is for the period the hotel was open.



Owned Hotel Room Revenue Analysis
(In thousands, except percentages)
                              Three Months              Nine Months
                              Ended September   %       Ended September %
                              30,                      30,
                              2012     2011     Change  2012    2011    Change
Hudson (1)                    $      $      -17%    $      $      -16%
                              13,129   15,827           34,667 41,294
Delano (1)                    3,850    4,001    -4%     17,157  17,040  1%
Clift                         7,332    6,603    11%     19,106  17,601  9%
               Total Owned    $      $      -8%     $      $      -7%
               Hotels (2)     24,311   26,431           70,930 75,935
Owned Hotel Revenue Analysis  Three Months              Nine Months
(In thousands, except         Ended September   %       Ended September %
percentages)                  30,                      30,
                              2012     2011     Change  2012    2011    Change
Hudson (1)                    $      $      -23%    $      $      -21%
                              15,084   19,500           41,132 51,781
Delano (1)                    7,806    8,313    -6%     33,319  34,305  -3%
Clift                         10,046   9,412    7%      27,842  26,593  5%
               Total Owned    $      $      -12%    $      $      -9%
               Hotels (2)     32,936   37,225           102,293 112,679
(1) Beginning in the third quarter of 2011 and
continuing into 2012, these owned hotels were under
renovation. The renovation at Delano was completed
during the second quarter of 2012 and the room and
corridor renovation at Hudson was completed in late
September 2012.
(2) Does not include revenue from the three hotels
sold in May 2011, Royalton, Morgans or Mondrian Los
Angeles, for the period owned during the year ended
December 31, 2011, as these hotels are no longer owned
hotels.



Balance Sheets
(In thousands)
                                 September 30,         December 31,
                                 2012                   2011 ^(1)
                                                        (restated)
ASSETS:
Property and equipment, net     $    304,233        $    289,169
Goodwill                        66,572                 66,572
Investments in and advances to   11,630                 10,201
unconsolidated joint ventures
Cash and cash equivalents       8,554                  28,855
Restricted cash                 7,810                  9,938
Accounts receivable, net        14,113                 10,827
Related party receivables       5,514                  4,142
Prepaid expenses and other       7,594                  5,293
assets
Deferred tax asset, net         78,779                 78,778
Other, net                      72,221                 51,669
Total assets                    $    577,020        $    555,444
LIABILITIES and STOCKHOLDERS'
DEFICIT:
Debt and capital lease           $    504,603        $    439,905
obligations, net
Accounts payable and accrued     39,130                 36,576
liabilities
Deferred gain on asset sales     143,427                148,760
Other liabilities               15,052                 14,394
Total liabilities               702,212                639,635
Redeemable noncontrolling        6,395                  5,448
interest
Commitments and contingencies
Total Morgans Hotel Group Co.    (138,006)              (97,463)
stockholders' deficit
Noncontrolling interest         6,419                  7,824
Total stockholders' deficit      (131,587)              (89,639)
Total liabilities, redeemable
noncontrolling interest and      $    577,020        $    555,444
stockholders' deficit
(1) The 2011 balance sheet has been restated for the final purchase price
allocation of the Company's acquisiton of a 90% controlling interest in
The Light Group, which was acquired in November 2011.



SOURCE Morgans Hotel Group Co.

Website: http://www.morganshotelgroup.com
Contact: Richard Szymanski, Morgans Hotel Group Co., +1-212-277-4188; or Neil
Maitland, The Abernathy MacGregor Group, +1-212-371-5999
 
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