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8-K - FORM 8-K - Morgans Hotel Group Co. | c16549e8vk.htm |
Exhibit 99.1
Morgans Hotel Group Co.
Unaudited Pro Forma Financial Information
Unaudited Pro Forma Financial Information
The accompanying Unaudited Pro Forma Consolidated Financial Statements are presented to reflect
that on May 3, 2011, Mondrian Holdings LLC (Mondrian Holdings), a subsidiary of Morgans Hotel
Group Co. (the Company), completed the sale of Mondrian Los Angeles for $137.0 million to
Wolverines Owner LLC, an affiliate of Pebblebrook Hotel Trust, pursuant to a purchase and sale
agreement entered into on April 22, 2011. The parties have agreed that the Company will continue to
operate the hotel under a 20-year management agreement with one 10-year extension option.
The Unaudited Pro Forma Consolidated Financial Statements include adjustments to reflect the
effects of the sale of Mondrian Los Angeles and the repayment of mortgage debt on the sold
property. The Unaudited Pro Forma Consolidated Statement of Operations for the fiscal year ended
December 31, 2010 is presented as if the sale was completed as of January 1, 2010 and the Unaudited
Pro Forma Consolidated Balance Sheet as of December 31, 2010 is presented as if the sale was
consummated at December 31, 2010. The accompanying Unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the Companys historical consolidated financial
statements and related notes thereto, and Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in the Companys Annual Report on form 10-K for the
year ended December 31, 2010.
Pro forma information is intended to provide investors with information about the continuing impact
of a transaction by showing how a specific transaction might have affected historical financial
statements, illustrating the scope of the change in the historical financial position and results
of operations. The adjustments made to historical financial information give effect to events that
are directly attributable to the sale, are factually supportable, and expected to have a continuing
impact. The Unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with
Article 11 of Regulation S-X.
The Unaudited Pro Forma Consolidated Financial Statements set forth below are not fact and there
can be no assurance that our actual results will not differ significantly from those set forth
below or that the impact of the sale will not differ significantly from those presented below.
Accordingly, the Unaudited Pro Forma Consolidated Financial Statements are presented for
illustrative purposes only and do not purport to represent, and are not necessarily indicative of,
what our actual financial position and results of operations would have been had the sale occurred
on the dates indicated, nor are they indicative of our future financial position or results of
operations. Readers are cautioned not to place undue reliance on such information and the Company
makes no representations regarding the information set forth below or its ultimate performance
compared to it.
Morgans Hotel Group Co.
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands, except per share data)
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands, except per share data)
Historical as of | Pro Forma | Pro Forma as of | ||||||||||
December 31, 2010 | Adjustments | December 31, 2010 | ||||||||||
ASSETS |
||||||||||||
Property and equipment, net |
$ | 459,591 | $ | (70,716 | ) A | $ | 388,875 | |||||
Goodwill |
73,698 | (9,842 | ) A | 63,856 | ||||||||
Investments in and advances to
unconsolidated subsidiaries |
20,450 | 31 | A | 20,481 | ||||||||
Investment in property held for
non-sale disposition |
9,775 | | 9,775 | |||||||||
Cash and cash equivalents |
5,250 | 37,226 | C | 42,476 | ||||||||
Restricted cash |
28,783 | (9,202 | ) B | 19,581 | ||||||||
Accounts receivable, net |
8,088 | (650 | ) A | 7,438 | ||||||||
Related party receivables |
3,834 | | 3,834 | |||||||||
Prepaid expenses and other assets |
10,090 | (812 | ) A | 9,278 | ||||||||
Deferred tax asset, net |
80,144 | | D | 80,144 | ||||||||
Other, net |
15,073 | (1,286 | ) A | 13,787 | ||||||||
TOTAL ASSETS |
$ | 714,776 | $ | (55,251 | ) | $ | 659,525 | |||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||||||
Debt and capital lease obligations |
$ | 662,275 | $ | (103,496 | ) B | $ | 558,779 | |||||
Mortgage debt of property held
for non-sale disposition |
10,500 | | 10,500 | |||||||||
Accounts payable and accrued
liabilities |
27,269 | (1,746 | ) A | 25,523 | ||||||||
Accounts payable and accrued
liabilities of property held for non-sale disposition |
1,162 | | 1,162 | |||||||||
Distributions and losses in
excess of investment in
unconsolidated joint ventures |
1,509 | | 1,509 | |||||||||
Deferred gain on sale of Mondrian
Los Angeles |
| 53,242 | E | 53,242 | ||||||||
Other liabilities |
13,866 | | 13,866 | |||||||||
Total Liabilities |
716,581 | (52,000 | ) | 664,581 | ||||||||
Commitments and contingencies |
||||||||||||
Preferred securities, $.01 par
value; liquidation preference
$1,000 per share, 75,000 shares
authorized and issued at December
31, 2010 |
51,118 | | 51,118 | |||||||||
Common stock, $.01 par value;
200,000,000 shares authorized;
36,277,495 shares issued at
December 31, 2010 |
363 | | 363 | |||||||||
Additional paid-in capital |
297,554 | | 297,554 | |||||||||
Treasury stock, at cost,
5,985,045 shares of common stock
at December 31, 2010 |
(92,688 | ) | | (92,688 | ) | |||||||
Accumulated comprehensive loss |
(3,194 | ) | | (3,194 | ) | |||||||
Accumulated deficit |
(265,874 | ) | (3,220 | ) E | (269,094 | ) | ||||||
Total Morgans Hotel Group Co.
stockholders deficit |
(12,721 | ) | (3,220 | ) | (15,941 | ) | ||||||
Noncontrolling interest |
10,916 | (31 | ) A | 10,885 | ||||||||
Total deficit |
(1,805 | ) | (3,251 | ) | (5,056 | ) | ||||||
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIT |
$ | 714,776 | $ | (55,251 | ) | $ | 659,525 | |||||
See accompanying notes to these unaudited pro forma consolidated financial statements.
Morgans Hotel Group Co.
Notes to Unaudited Pro Forma Consolidated Balance Sheet
Notes to Unaudited Pro Forma Consolidated Balance Sheet
The Unaudited Pro Forma Consolidated Balance Sheet assumes the following occurred on December 31,
2010:
(A) Reflects the disposition of Mondrian Los Angeles and the removal of the book value of the hotel
property and equipment, goodwill allocated to the property, and other related assets and
liabilities associated with the hotel as a result of the disposition. Also, reflects the
assignment of the Companys economic interest in 8440 LLC (8440) and Sunset Restaurant LLC
(Sunset and, together with 8440, the F&B Entities), its subsidiaries associated with the hotels
food and beverage operations, to the new owners.
(B) Reflects the repayment of the outstanding mortgage debt on Mondrian Los Angeles with a portion of the
proceeds received from the sale of the hotel and restricted cash held in escrow accounts related to the outstanding debt.
(C) Reflects the cash proceeds from the sale of Mondrian Los Angeles, after the above mentioned working capital adjustments, repayment of the outstanding mortgage debt of $103.5 million, and estimated closing
costs of $5.5 million, or 4.0%, of the $137.0 million sales price.
(D) The Company expects to record a tax gain on the sale of Mondrian Los Angeles which will be
offset by tax net operating loss carry forwards that the Company has recorded. The Company
estimates that the tax gain will be approximately $86 million and that the projected tax savings
will be approximately $36 million based on a corporate tax rate of approximately 41%. As a result,
the balance of the deferred tax asset, net, will decrease in future periods after the close of the
transaction.
(E) Reflects the book value gain from the sale of Mondrian Los Angeles. The Company will continue
to manage the hotel pursuant to a 20-year management contract. This gain will be amortized over
the life of the management contract.
Morgans Hotel Group Co.
Unaudited Pro Forma Consolidated Statement of Operations
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share data)
Disposition of | ||||||||||||||||||||
Mondrian Los | ||||||||||||||||||||
Historical for the | Angeles | Pro Forma for | ||||||||||||||||||
year ended | Operating | Amortization of | the year ended | |||||||||||||||||
December 31, | Results and | Management | Deferred | December 31, | ||||||||||||||||
2010 | Debt (A) | Fees Earned (B) | Gain (C) | 2010 | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Rooms |
$ | 139,268 | $ | (15,862 | ) | $ | | $ | | $ | 123,406 | |||||||||
Food and beverage |
69,451 | (13,632 | ) | | | 55,819 | ||||||||||||||
Other hotel operating |
9,313 | (2,233 | ) | | | 7,080 | ||||||||||||||
Total hotel revenues |
218,032 | (31,727 | ) | | | 186,305 | ||||||||||||||
Management fee related party
and other income |
18,338 | | 1,745 | | 20,083 | |||||||||||||||
Total revenues |
236,370 | (31,727 | ) | 1,745 | | 206,388 | ||||||||||||||
Operating Costs and Expenses: |
||||||||||||||||||||
Rooms |
42,620 | (4,046 | ) | | | 38,574 | ||||||||||||||
Food and beverage |
58,227 | (8,089 | ) | | | 50,138 | ||||||||||||||
Other departmental |
5,304 | (774 | ) | | | 4,530 | ||||||||||||||
Hotel selling, general and
administrative |
48,216 | (6,924 | ) | | | 41,292 | ||||||||||||||
Property taxes, insurance and
other |
16,233 | (2,046 | ) | | | 14,187 | ||||||||||||||
Total hotel operating expenses |
170,600 | (21,879 | ) | | | 148,721 | ||||||||||||||
Corporate expenses, including
stock compensation of $10.9
million |
34,538 | | | | 34,538 | |||||||||||||||
Depreciation and amortization |
32,158 | (5,331 | ) | | | 26,827 | ||||||||||||||
Restructuring, development and
disposal costs |
3,916 | (11 | ) | | | 3,905 | ||||||||||||||
Impairment loss on receivables
from unconsolidated joint
venture |
5,549 | | | | 5,549 | |||||||||||||||
Total operating costs and
expenses |
246,761 | (27,221 | ) | | | 219,540 | ||||||||||||||
Operating (loss) income |
(10,391 | ) | (4,506 | ) | 1,745 | | (13,152 | ) | ||||||||||||
Interest expense, net |
41,346 | (5,458 | ) | | | 35,888 | ||||||||||||||
Interest expense on property
held for non-sale disposition |
1,137 | | | | 1,137 | |||||||||||||||
Equity in loss of
unconsolidated joint ventures |
16,203 | | | | 16,203 | |||||||||||||||
Gain on sale of Mondrian Los
Angeles |
| | | (2,662 | ) | (2,662 | ) | |||||||||||||
Other non-operating expenses
(income) |
33,076 | (121 | ) | | | 32,955 | ||||||||||||||
(Loss) income before income tax
expense |
(102,153 | ) | 1,073 | 1,745 | 2,662 | (96,673 | ) | |||||||||||||
Income tax benefit |
(1,335 | ) | | | | (1,335 | ) | |||||||||||||
Net (loss) income from
continuing operations |
(100,818 | ) | 1,073 | 1,745 | 2,662 | (95,338 | ) | |||||||||||||
Income (loss) from discontinued
operations, net of tax |
17,170 | | | | 17,170 | |||||||||||||||
Net (loss) income |
(83,648 | ) | 1,073 | 1,745 | 2,662 | (78,168 | ) | |||||||||||||
Net loss (income) attributable
to noncontrolling interest |
2,239 | (79 | ) | | | 2,160 | ||||||||||||||
Net (loss) income attributable
to Morgans Hotel Group Co. |
(81,409 | ) | 994 | 1,745 | 2,662 | (76,008 | ) | |||||||||||||
Preferred stock dividends and
accretion |
(8,554 | ) | | | | (8,554 | ) | |||||||||||||
Net (loss) income attributable
to common stockholders |
$ | (89,963 | ) | $ | 994 | $ | 1,745 | $ | 2,662 | $ | (84,562 | ) | ||||||||
(Loss) Income per share: |
||||||||||||||||||||
Basic and diluted continuing
operations |
$ | (3.50 | ) | $ | (3.33 | ) | ||||||||||||||
Basin and diluted
discontinued operations |
$ | 0.56 | $ | 0.56 | ||||||||||||||||
Basic and diluted
attributable to common
stockholders |
$ | (2.94 | ) | $ | (2.77 | ) | ||||||||||||||
Weighted average number of
common shares outstanding: |
||||||||||||||||||||
Basic and diluted |
30,563 | 30,563 |
See accompanying notes to these unaudited pro forma consolidated financial statements.
Morgans Hotel Group Co.
Notes to Unaudited Pro Forma Consolidated Statement of Operations
Notes to Unaudited Pro Forma Consolidated Statement of Operations
The Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2010
assumes the following occurred on January 1, 2010:
(A) Reflects the disposition of Mondrian Los Angeles and the transfer of the Companys economic
interests in the F&B Entities and reflects the necessary adjustments to remove the historical
revenues and expenses of such operations, including depreciation and other costs. Also reflects
the elimination of interest expense and amortization of deferred financing costs related to
mortgage debt, which was paid off with a portion of the proceeds from the sale of the hotel and restricted cash held in escrow accounts related to the debt. Approximately $103.5 million of sales proceeds and restricted cash held in escrow accounts were used to repay this mortgage debt
which bore interest at LIBOR (0.26% at December 31, 2010) plus 164 basis points.
(B) Reflects the yearly management and chain fees that the Company earned managing the hotel
calculated in accordance with the management agreement.
(C) Reflects the amortization of the deferred book value gain that will be recognized over
20-years, the life of the management contract. The income represents a full year of amortization.