Morgans Hotel Group pushes sale

Troubled owner of Delano, Hudson Hotel brands searching hard for potential buyers

Jun.June 22, 2015 03:00 PM

From the New York website: For more than two years, Morgans Hotel Group – which owns the Delano, Mondrian and Hudson Hotel brands – weathered financial losses, leadership turnover and shareholder battles.

Now, it appears the hotel group is close to being sold.

It’s not the first time that Morgans was for sale. As far back as 2013, executives said they were pursuing “strategic alternatives” for the company. But a series of recent changes at the top illustrates a new push to sell.

In late May, interim CEO Jason Kalisman, the grandson of real estate giant Alfred Taubman, resigned from his post as interim CEO. At that time, Vector Group Chair Howard Lorber, who sat on the board, was tapped as chairman, and CFO Richard Szymanski took on Kalisman’s duties. Earlier in the month, Morgans also tapped former Goldman Sachs real estate exec Jonathan Langer, a former board member, to work as a consultant to the board’s Special Transaction Committee.

“The chances of a big transaction, or a deal to sell the company or the hotels, is closer than we ever were in the past,” said Kim Opiatowski, an analyst at APB Financial Group.

In particular, Langer’s new role illustrates the company’s commitment to find a buyer for the business, its assets or parts of the company. According to Morgans’ most recent quarterly filing, the company is paying him $375,000 quarterly, half in cash and the other half in company stock. It’s also giving him $500,000 in cash and stock for his consulting work for the company over the past year.

According to Opiatowski, both Langer and Lorber are known for being “transactional” and “getting things done.” She added: “The fact that Langer specifically stepped off the board and took the consulting role may mean he has something very specific in mind.”

During the company’s first-quarter earnings call on May 11, a week and a half before he stepped down, Kalisman stressed that the board was “really trying to push this to a conclusion.” Morgans reported a loss of $12.8 million on revenue of $53.3 million during the first quarter.

“The company needs to do something transformative, whether it’s selling itself or merging with someone,” Kalisman added. “I don’t think Morgans as it stands today can continue for the long term.”

A potential deal isn’t likely to close before August, however, since Morgans currently holds a mortgage loan backed by the Hudson Hotel in New York and the Delano South Beach. The loan doesn’t mature until next year, but it has a prepayment penalty through August 9.

Morgans owns and operates 14 hotels in New York, Miami, Los Angeles, San Francisco, Las Vegas, London and Istanbul.

In New York, it owns the 878-room Hudson and operates the 117-room Morgans Hotel in Times Square and the 168-room Royalton Hotel, just north of Bryant Park. (It operated the Mondrian Soho until April, when Morgans was ousted from its management agreement by new owner Alex Sapir.)

At the Hudson, occupancy was nearly 77 percent – down 5.4 percent year-over-year – during the first quarter. Its revenue per available room, or RevPAR, was $119.12, down 14.3 percent year-over-year.

Investors have pressured Morgans to sell the business several times over the past few years. Most notably, Ron Burkle and his Yucaipa Cos. backed such a plan in 2013. “Stop playing with the company as though it’s your new toy,” Burkle wrote in a letter to Kalisman, who was then chair. Yucaipa later made an unsolicited bid for the company.

After Morgans rejected Yucaipa’s bid, OTK Associates, controlled by the Taubman and Olshan families, wrested control of Morgans, but said they would “appropriately evaluate and pursue strategic alternatives” for the company.

Morgans has, effectively, been in play ever since.

Today, Burkle and Yucaipa are, by far, Morgans’ largest shareholders with a 36.5 percent stake in the company. OTK owns a 13.1 percent stake.

Lorber’s Vector Group is another major shareholder, though, with a 7.4 percent stake. Since March, Lorber has personally acquired more than 17,000 shares, valued at $118,000 based on a stock price of $6.83 per share at the end of the day Thursday.

According to Miami-based Vector’s proxy statement, filed with the Securities and Exchange Commission, Lorber’s total compensation in 2014 was $29.6 million. He owns 6 million shares of Vector’s stock, or 5.1 percent.

Reached by phone on Friday, Lorber told The Real Deal, “We’re in the process of speaking to potential buyers.”

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