LAS VEGAS Morgans Hotel Group is warning investors that its Hard Rock Hotel & Casino Las Vegas is in danger of being foreclosed on, saying the property’s operating cash flow has been insufficient to cover debt service this year.
Morgans says that there have been some months where ownership had to use reserve funds to service debt on the 1,500-key resort just off the Las Vegas Strip. “Unless the market improves markedly, or the joint venture generates additional liquidity, there is a risk to MHG’s equity position and management agreement, which may be terminated by the lenders in the event of foreclosure or under certain other circumstances,” the company reports in its third quarter earnings statement.
Hard Rock is owned by Morgans and equity partner CDLJ Merchant Banking Partners. Earlier this year, the property completed a US$750 million expansion.
Across the entirety of its portfolio, New York City-based Morgans reports a third quarter net loss of US$37.1 million, or US$1.30 a share, compared with a loss of US$27.8 million, or 92 cents per share, for the same period last year. RevPAR increased by 10% in the third quarter year over year, led by a 12.1% increase at its New York hotels and a 16.2% increase at its London hotels. ADR increased by 5.8% in constant dollars, accounting for more than half of the RevPAR increase.
“We delivered double-digit RevPAR growth for the third consecutive quarter, demonstrating once again our unique positioning and ability to outpace overall industry averages,” says Morgans CEO Fred Kleisner. “Our ability to quickly and effectively raise rates led to strong ADR increases, which accounted for a significant portion of our RevPAR growth in key markets, particularly New York and London. Disciplined cost management and positive operating leverage drove meaningful improvement in margins.
“We ended the third quarter in a stronger financial position, having completed several capital transactions that enhance our balance sheet and liquidity position. With the completion of the Hudson and Mondrian LA loan extensions, we have successfully extended or refinanced all significant near-term consolidated maturities. With these restructurings behind us, we are pursuing new opportunities to drive revenue and further improve our market positioning that we believe will drive long-term growth and shareholder value.”