Morgans Hotel Group shares drop on 3Q results

NEW YORK - Shares of Morgans Hotel Group Co. dropped sharply Thursday afternoon, after the boutique hotel operator reported that its third-quarter losses narrowed, but failed to meet Wall Street's expectations.

For the quarter ended Sept. 30, Morgans said Wednesday it booked losses of nearly $9 million, or 29 cents per share, compared with a loss of $10 million, or 29 cents per share, in the prior year. The company's weighted average shares outstanding fell to $31.2 million, from $34.1 million during the period.

Quarterly revenue rose 8 percent to $77.7 million, from roughly $72.1 million in the third quarter of 2007.

Analysts polled by Thomson Financial forecast a loss of 14 cents per share on revenue of $75.8 million.

Shares fell sharply, losing 65 cents, or 13.9 percent, to $4.03 in afternoon trading.

Revenue per available room, or revpar, for owned hotels open at least one year jumped 9.5 percent, excluding properties under construction.

The New York-based company also said it implemented a restructuring plan last month to save $6 million in corporate expenses annually and $4 million in hotel operating expenses.

Morgans attributed its performance to its concentration in international gateway cities, like New York and Miami. The company said an increase in business from international guests offset declines in domestic travel.

Morgans Chief Executive Fred Kleisner said the company "has significant liquidity available, is generating significant cash-flow with limited financial commitments and no significant near-term consolidated debt maturities."

But the company now expects 2008 systemwide hotel revpar for hotels open at least one year to be flat or decline as much as 2 percent.

Oppenheimer & Co. analyst David Katz, who maintained a "Perform" rating on the stock, said Morgans' strategy of cost-cutting and liquidity preservation is "prudent," given the downward trends in the company's markets.

"Nevertheless, we believe that near-term weakening trends will limit the upside on the shares," he said. Katz expects the New York City market to weaken, in part due to turmoil in the financial markets. He expects a stronger U.S. dollar to depress international travel to the city, as well.

Katz also expressed concern about pressure on the company's room rates during the fourth quarter and in 2009. The analyst cited several discounts the company is offering to boost occupancy.

Despite the expected revpar declines, Thomas Weisel Partners analyst Jake Fuller said he expects 2009 to be an "up year" for the company. "Concern over leverage has put this stock on the back-burner, but we see no liquidity issues and remain comfortable in the growth story."

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