10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2014

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33738

Morgans Hotel Group Co.

(Exact name of registrant as specified in its charter)

Delaware	16-1736884
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
475 Tenth Avenue New York, New York	10018
(Address of principal executive offices)	(Zip Code)

212-277-4100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of November 6, 2014 was 34,377,788.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGANS HOTEL GROUP CO. CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013	5
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE PERIODS ENDED SEPTEMBER 30, 2014 and 2013	6
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED SEPTEMBER 30, 2014 and 2013	7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 4. CONTROLS AND PROCEDURES	55
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	56
ITEM 1A. RISK FACTORS	58
ITEM 6. EXHIBITS	58

2

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. References to “we,” “our” and the “Company” refer to Morgans Hotel Group Co. together in each case with our consolidated subsidiaries and any predecessor entities unless the context suggests otherwise.

We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. 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 to differ materially from those expressed in any forward-looking statement. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding our expectations with respect to:

— our future financial performance, including selling, general and administrative expenses, capital expenditures, income taxes and our expected available cash and use of cash and net operating loss carryforwards;

— the use of the available cash;

— the future impact of the reductions in our workforce effected in 2014;

— our business operations, including entering into new management, franchise or licensing agreements and enhancing the value of existing hotels and management agreements; and

— the outcome of litigation to which the Company is a party.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 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, the risks discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and other documents we file with the Securities and Exchange Commission from time to time. 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 downturn in economic and market conditions, both in the U.S. and internationally, particularly as it impacts demand for travel, hotels, dining and entertainment;

— our levels of debt, our ability to refinance our current outstanding debt, repay outstanding debt or make payments on guaranties as they may become due, general volatility of the capital markets and our ability to access the capital markets, and the ability of our joint ventures to do the foregoing;

— the impact of financial and other covenants in our loan agreements and other debt instruments that limit our ability to borrow and restrict our operations;

— our history of losses;

— our ability to compete in the “boutique” or “lifestyle” hotel segments of the hospitality industry and changes in the competitive environment in our industry and the markets where we invest;

— our ability to protect the value of our name, image and brands and our intellectual property;

— risks related to natural disasters, terrorist attacks, the threat of terrorist attacks and similar disasters;

— risks related to our international operations, such as global economic conditions, political or economic instability, compliance with foreign regulations and satisfaction of international business and workplace requirements;

— our ability to timely fund the renovations and capital improvements necessary to sustain the quality of the properties of Morgans Hotel Group and associated brands;

— risks associated with the acquisition, development and integration of properties and businesses;

— the risks of conducting business through joint venture entities over which we may not have full control;

— our ability to perform under management agreements and to resolve any disputes with owners of properties that we manage but do not wholly own;

— potential terminations of management agreements;

3

— the impact of any material litigation, claims or disputes, including labor disputes;

— the seasonal nature of the hospitality business and other aspects of the hospitality industry that are beyond our control;

— our ability to comply with complex U.S. and international regulations, including regulations related to the environment, labor, food and beverage operations and data privacy;

— ownership of a substantial block of our common stock by a small number of investors and the ability of such investors to influence key decisions;

— the impact of any dividend payments or accruals on our preferred securities on our cash flow and the value of our common stock;

— the impact of any strategic alternatives considered by the special transaction committee of our Board of Directors and/or pursued by the Company; and

— other risks discussed in our Annual Report on Form 10-K in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Result of Operations.”

We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

4

Morgans Hotel Group Co.

Consolidated Balance Sheets

(in thousands, except per share data)

	September 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Property and equipment, net	$	281,316		$	292,629
Goodwill		66,572			66,572
Investments in and advances to unconsolidated joint ventures		10,492			10,492
Cash and cash equivalents		96,284			10,025
Restricted cash		16,234			22,144
Accounts receivable, net		15,388			18,384
Related party receivables		3,811			3,694
Prepaid expenses and other assets		7,962			10,409
Deferred tax asset, net		78,896			78,758
Investment in TLG management contracts, net		19,376			23,702
Other assets, net		35,937			34,398
Total assets	$	632,268		$	571,207
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations	$	673,638		$	560,751
Accounts payable and accrued liabilities		38,642			41,627
Deferred gain on asset sales		127,403			133,419
Other liabilities		13,866			13,891
Total liabilities		853,549			749,688
Redeemable noncontrolling interest		4,606			4,953
Commitments and contingencies
Preferred stock, $0.01 par value; liquidation preference $1,000 per share, 75,000 shares    authorized and issued at September 30, 2014 and December 31, 2013, respectively		65,675			62,004
Common stock, $0.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at    September 30, 2014 and December 31, 2013, respectively		363			363
Additional paid-in capital		241,346			252,810
Treasury stock, at cost, 1,899,707 and 2,703,181 shares of common stock at    September 30, 2014 and December 31, 2013, respectively		(23,708	)		(37,086	)
Accumulated other comprehensive loss		(202	)		(10	)
Accumulated deficit		(509,753	)		(462,005	)
Total Morgans Hotel Group Co. stockholders’ deficit		(226,279	)		(183,924	)
Noncontrolling interest		392			490
Total deficit		(225,887	)		(183,434	)
Total liabilities, redeemable noncontrolling interest and stockholders’ deficit	$	632,268		$	571,207

See accompanying notes to these consolidated financial statements.

5

Morgans Hotel Group Co.

Consolidated Statements of Comprehensive Loss

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013			Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Revenues:
Rooms	$	30,648		$	29,950		$	90,760		$	87,303
Food and beverage		18,252			20,214			61,177			59,713
Other hotel		1,347			1,142			4,132			3,384
Total hotel revenues		50,247			51,306			156,069			150,400
Management fee-related parties and other income		5,259			6,956			16,509			21,220
Total revenues		55,506			58,262			172,578			171,620
Operating Costs and Expenses:
Rooms		9,357			9,253			27,896			27,298
Food and beverage		14,266			15,827			44,834			44,335
Other departmental		800			806			2,369			2,422
Hotel selling, general and administrative		9,702			11,046			31,404			32,688
Property taxes, insurance and other		3,908			4,080			12,154			12,641
Total hotel operating expenses		38,033			41,012			118,657			119,384
Corporate expenses, including stock compensation of $0.3 million,    $1.3 million, $3.1 million, and $3.6 million, respectively		7,126			6,754			21,027			22,469
Depreciation and amortization		6,811			7,114			21,894			20,535
Restructuring and disposal costs		1,145			1,799			12,369			7,951
Development costs		564			971			3,928			2,368
Impairment loss on receivables and other assets from managed hotel    and unconsolidated joint venture		—			167			—			5,942
Total operating costs and expenses		53,679			57,817			177,875			178,649
Operating income (loss)		1,827			445			(5,297	)		(7,029	)
Interest expense, net		12,984			11,585			41,917			34,434
Equity in (income) loss of unconsolidated joint ventures		(3	)		278			(7	)		773
Gain on asset sales		(2,005	)		(2,005	)		(6,015	)		(6,015	)
Other non-operating expenses		824			810			1,950			1,289
Loss before income tax expense		(9,973	)		(10,223	)		(43,142	)		(37,510	)
Income tax expense		122			105			351			541
Net loss		(10,095	)		(10,328	)		(43,493	)		(38,051	)
Net (income) loss attributable to noncontrolling    interest		(48	)		-			(504	)		298
Net loss attributable to Morgans Hotel Group		(10,143	)		(10,328	)		(43,997	)		(37,753	)
Preferred stock dividends and accretion		3,594			4,037			11,948			9,976
Net loss attributable to common stockholders		(13,737	)		(14,365	)		(55,945	)		(47,729	)
Other comprehensive income (loss):
Unrealized gain (loss) on valuation of swap/cap agreements, net of tax		16			9			(191	)		41
Comprehensive loss	$	(13,721	)	$	(14,356	)	$	(56,136	)	$	(47,688	)
Loss per share:
Basic and diluted attributable to common stockholders	$	(0.40	)	$	(0.44	)	$	(1.64	)	$	(1.46	)
Weighted average number of common shares outstanding:
Basic and diluted		34,267			32,693			34,047			32,590

See accompanying notes to these consolidated financial statements.

6

Morgans Hotel Group Co.

Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended September 30,
	2014			2013
	(unaudited)
Cash flows from operating activities:
Net loss	$	(43,493	)	$	(38,051	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		14,884			15,224
Amortization of other costs		7,009			5,311
Amortization and write off of deferred financing costs		5,714			4,563
Amortization of discount on convertible notes		1,030			1,707
Amortization of deferred gain on asset sales		(6,015	)		(6,015	)
Stock-based compensation		3,096			3,552
Accretion of interest		2,383			2,158
Equity in (income) losses from unconsolidated joint ventures		(7	)		773
Impairment loss on receivables from managed hotel and unconsolidated joint venture		—			5,942
Impairment loss and loss on disposal of assets		—			273
Gain on transfer and disposal of assets		(280	)		—
Change in fair value of TLG Promissory Notes		5			60
Change in fair value of interest rate caps, net		—			42
Changes in assets and liabilities:
Accounts receivable, net		2,642			(2,801	)
Related party receivables		(117	)		874
Restricted cash		7,189			(1,095	)
Prepaid expenses and other assets		2,258			(640	)
Accounts payable and accrued liabilities		(1,494	)		4,476
Net cash used in operating activities		(5,196	)		(3,647	)
Cash flows from investing activities:
Additions to property and equipment		(3,949	)		(9,056	)
Additions to leasehold interests		—			(208	)
Investment in hotel development		3,000			(375	)
Investments in and settlement related to unconsolidated joint ventures		—			(151	)
(Deposits) withdrawals from capital improvement escrows, net		(1,279	)		1,700
Distributions from unconsolidated joint ventures		6			7
Net cash used in investing activities		(2,222	)		(8,083	)
Cash flows from financing activities:
Proceeds from debt		450,000			22,000
Payments on debt and capital lease obligations		(341,542	)		(6,998	)
Debt issuance costs		(13,271	)		(265	)
Cash paid in connection with vesting of stock based awards		(797	)		(545	)
Distributions to holders of noncontrolling interests in consolidated subsidiaries		(713	)		(703	)
Net cash provided by financing activities		93,677			13,489
Net increase in cash and cash equivalents		86,259			1,759
Cash and cash equivalents, beginning of year		10,025			5,847
Cash and cash equivalents, end of year	$	96,284		$	7,606
Supplemental disclosure of cash flow information:
Cash paid for interest	$	34,848		$	26,273
Cash paid for taxes	$	564		$	150
Non cash financing activities:
Write off of discount on convertible debt	$	726		$	—

See accompanying notes to these consolidated financial statements.

7

Morgans Hotel Group Co.

Notes to Unaudited Consolidated Financial Statements

1. Organization and Formation Transaction

Morgans Hotel Group Co., a Delaware corporation (the “Company”), was incorporated on October 19, 2005. The Company operates, owns, acquires and redevelops boutique hotels primarily in gateway cities and select resort markets in the United States, Europe and other international locations, and nightclubs, restaurants, pool lounges, bars and other food and beverage venues in many of the hotels it operates, as well as in hotels and casinos operated by MGM Resorts International (“MGM”) in Las Vegas.

The Morgans Hotel Group Co. predecessor comprised the subsidiaries and ownership interests that were contributed as part of the formation and structuring transactions from Morgans Hotel Group LLC, now known as Residual Hotel Interest LLC (“Former Parent”), to Morgans Group LLC (“Morgans Group”), the Company’s operating company. The Former Parent also contributed all the membership interests in its hotel management business to Morgans Group in return for 1,000,000 membership units in Morgans Group exchangeable for shares of the Company’s common stock.

The Company has one reportable operating segment; it operates, owns, acquires, develops and redevelops boutique hotels, nightclubs, restaurants, pool lounges, bars and other food and beverage venues in many of the hotels it operates, as well as in hotels and casinos operated by MGM in Las Vegas. During the nine months ended September 30, 2014 and 2013, the Company derived 5.5% and 10.5% of its total revenues from international locations, respectively. The assets at these international locations were not significant during the periods presented.

Hotels

The Company’s hotels as of September 30, 2014 were as follows:

Hotel Name	Location	Number of Rooms		Ownership
Hudson	New York, NY		876		(1	)
Morgans	New York, NY		117		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		263		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		214		(5	)
Shore Club	Miami Beach, FL		308		(6	)
Mondrian Los Angeles	Los Angeles, CA		236		(2	)
Clift	San Francisco, CA		372		(7	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Mondrian London at Sea Containers	London, England		359		(2	)
Delano Las Vegas	Las Vegas, Nevada		1,117		(8	)

(1) The Company owns 100% of Hudson through its subsidiary, Henry Hudson Holdings LLC, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building. As of September 30, 2014, Hudson had 876 guest rooms and 60 single room dwelling units (“SROs”).

(2) Operated under a management contract.

(3) Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 20% at September 30, 2014. See note 4.

(4) Wholly-owned hotel.

(5) Operated as a condominium hotel under a management contract and owned through a 50/50 unconsolidated joint venture. As of September 30, 2014, 261 hotel residences had been sold, of which 140 are in the hotel rental pool and are included in the hotel room count, and 74 hotel residences remain to be sold. See note 4.

(6) Operated under a management contract. Until December 30, 2013, the Company held a minority ownership interest of approximately 7% and accounted for the hotel as an unconsolidated joint venture. As of September 30, 2014, the Company had an immaterial contingent profit participation equity interest in Shore Club. See note 4.

(7) The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.

(8) A licensed hotel managed by MGM.  

8

Food and Beverage Operations

The Company owns and operates certain food and beverage venues at its owned, leased and managed hotels.  As of September 30, 2014, the Company owned and managed the food and beverage venues at Hudson and Clift and owned the food and beverage venues at Delano South Beach, which are managed by TLG, defined and discussed further below.  Additionally, the Company leases and manages all but one of the Sanderson food and beverage venues.   As a result, these food and beverage venues are included in the Company’s consolidated financial statements.

Effective January 1, 2014, the Company transferred all of its ownership interest in the food and beverage venues at St Martins Lane to the hotel owner. The Company will continue to manage the transferred food and beverage venues. The Company recorded a gain of $0.3 million related to these transfers in its consolidated financial statements for the nine months ended September 30, 2014. Prior to January 1, 2014, the Company leased and managed all of the St Martins Lane food and beverage venues, which were included in the Company’s consolidated financial statements.

The Company also owns three food and beverage venues subject to leasehold agreements at Mandalay Bay in Las Vegas, which are included the Company’s consolidated financial statements as of September 30, 2014.

The Light Group Acquisition

On November 30, 2011, pursuant to purchase agreements entered into on November 17, 2011, certain of the Company’s subsidiaries completed the acquisition of 90% of the equity interests in TLG Acquisition LLC (“TLG Acquisition,” and together with its subsidiaries, “TLG”), for a purchase price of $28.5 million in cash and up to $18.0 million in notes (the “TLG Promissory Notes”) convertible into shares of the Company’s common stock at $9.50 per share subject to the achievement of certain earnings before interest, tax, depreciation and amortization (“EBITDA”) targets for the acquired business (“The Light Group Transaction”), as discussed in note 6. The TLG Promissory Notes were allocated $16.0 million to Andrew Sasson and $2.0 million to Andy Masi, the remaining 10% equity owners of TLG, and bear annual interest payments of 8% (increasing to 18% on December 1, 2014, as described in note 6).

TLG develops, redevelops and operates nightclubs, restaurants, pool lounges, bars, and other food and beverage venues. TLG is a leading lifestyle food and beverage management company, which operates numerous venues primarily in Las Vegas pursuant to management agreements with MGM. The primary assets of TLG consist of its management and similar agreements with various MGM affiliates. Additionally, TLG manages the food and beverage operations at Delano South Beach.

Each of TLG’s venues is managed by a subsidiary of TLG Acquisition. Through the Company’s ownership of TLG, it recognizes management fees in accordance with the applicable management agreement which generally provides for base management fees as a percentage of gross sales, and incentive management fees as a percentage of net profits, as calculated pursuant to the management agreements. TLG’s management agreements are typically structured as 10-year initial term contracts (effective the opening date of each respective venue) with renewal options. In addition to TLG’s management of the food and beverage operations at Delano South Beach, TLG currently manages 18 venues in Las Vegas, including 13 for MGM, 2 for affiliates of The Yucaipa Companies, LLC (“Yucaipa”) and Andrew Sasson, and 3 for a subsidiary of the Company located at Delano South Beach. Under TLG’s management agreements, all costs associated with the construction, build-out, furniture, fixtures and equipment, operating supplies, equipment and daily operational expenses are typically borne by the owner or lessor of the venue. TLG’s management agreements may be subject to early termination in specified circumstances. For example, the management agreements generally contain, among other covenants, a performance test that stipulates a minimum level of operating performance, and restrictions or requirements related to suitability, capacity, financial stability and compliance with laws and material terms. In 2013, TLG failed performance tests at certain venues, and as a result, the Company agreed with MGM to amend the calculation of base and incentive management fees at all MGM venues effective January 1, 2014, agreed to reductions in the minimum level of operating performance, and agreed to a termination effective April 1, 2014 of TLG’s management agreement for Brand Steakhouse. Additionally, many of the management agreements also require that Mr. Masi, whose employment contract expires December 31, 2014, remain employed by or under contract to TLG.

TLG owns the trade name, service mark or other intellectual property rights associated with the names of most of its nightclubs, restaurants, pool lounges, and bars.

Concurrent with the closing of The Light Group Transaction, the operating agreement of TLG Acquisition was amended and restated to provide that Morgans Group, which holds 90% of the membership interests in TLG Acquisition, would be the managing member and that Messrs. Sasson and Masi, each of whom holds a 5% membership interest in TLG Acquisition, would be non-managing members of TLG Acquisition. Messrs. Sasson and Masi, however, have approval rights over, among other things, certain fundamental transactions involving TLG Acquisition.

9

Each of Messrs. Sasson and Masi have the right to require Morgans Group to purchase his equity interest in TLG at any time after November 30, 2014 at a purchase price equal to his percentage equity ownership interest multiplied by the product of seven times the EBITDA from non-Morgans business (“Non-Morgans EBITDA”) for the preceding 12 months, subject to certain adjustments (the “Sasson-Masi Put Options”). In addition, Morgans Group has the right to require each of Messrs. Sasson and Masi to sell his 5% equity interest in TLG at any time after November 30, 2017 at a purchase price equal to his percentage equity ownership interest multiplied by the product of seven times the Non-Morgans EBITDA for the preceding 12 months, subject to certain adjustments. The Company initially accounted for the redeemable noncontrolling interest at fair value in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classified the noncontrolling interest in temporary equity in accordance with the Securities and Exchange Commission’s guidance as codified in ASC 480-10, Distinguishing Liabilities from Equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The change in the redemption value does not impact the Company’s earnings or earnings per share. The Company recorded an obligation of $4.6 million related to the Sasson-Masi Put Options, which is recorded as redeemable noncontrolling interest on the September 30, 2014 consolidated balance sheet.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates all wholly-owned subsidiaries and variable interest entities in which the Company is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Entities which the Company does not control through voting interest and entities which are variable interest entities of which the Company is not the primary beneficiary, are accounted for under the equity method.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.

Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Restricted Cash

As required by certain debt and lease agreements, restricted cash consists of cash held in escrow accounts for taxes, ground rent, insurance premiums, and debt service or lease payments.

The Hudson/Delano 2014 Mortgage Loan, defined and discussed below in note 6, provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash flows from Hudson and Delano South Beach are deposited into accounts controlled by the lenders from which debt service and operating expenses, including management fees, are paid and from which other reserve accounts may be funded. Any excess amounts will be retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. As of September 30, 2014, the debt yield ratio exceeded the required threshold.  

As further required by the debt and lease agreements related to hotels owned by the Company or one of its subsidiaries, the Company must set aside 4% of the hotels’ revenues in restricted escrow accounts for the future periodic replacement or refurbishment of furniture, fixtures and equipment. As replacements occur, the Company or its subsidiary is eligible for reimbursement from these escrow accounts.

As of September 30, 2014, restricted cash also consisted of cash held in escrow for insurance program escrows.

10

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant business decisions such as buying, selling or financing nor is it the primary beneficiary under ASC 810-10, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. Once the Company’s investment balance in an unconsolidated joint venture is zero, the Company suspends recording additional losses. For investments in which there is recourse or unfunded commitments to provide additional equity, distributions and losses in excess of the investment are recorded as a liability. As of September 30, 2014, there were no liabilities required to be recorded related to these investments.

Investment in TLG Management Contracts, net

Investment in TLG management contracts represents the value of the TLG management contracts. TLG operates numerous nightclubs, restaurants, pool lounges, and bar venues primarily in Las Vegas pursuant to management agreements with MGM. The management contract assets are being amortized, using the straight line method, over the life of each applicable management contract.

Other Assets

In August 2012, the Company entered into a 10-year licensing agreement with MGM, with two five-year extensions at the Company’s option subject to performance thresholds, to convert THEhotel to Delano Las Vegas, which is managed by MGM. Delano Las Vegas opened in September 2014.  In addition, the Company acquired the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas from an existing tenant for $15.0 million in cash at closing and a deferred, principal-only $10.6 million promissory note (“Restaurant Lease Note”) to be paid over seven years, which the Company recorded at fair value as of the date of issuance of $7.5 million, as discussed in note 6. The venues have been reconcepted and renovated and are managed by TLG. The three food and beverage venues are being operated pursuant to 10-year operating leases with an MGM affiliate, pursuant to which the Company pays minimum annual lease payments and a percentage rent based on cash flow. The Company allocated the total consideration paid, or to be paid, to the license agreement and the restaurant leasehold asset based on their respective fair values. The Company amortizes the fair value of the license agreement, using the straight line method, over the 10-year life of the license agreement, and the fair value of the restaurant leasehold interests, using the straight line method, over the 10-year life of the operating leases.

Further, as of September 30, 2014, other assets primarily consist of deferred financing costs which are being amortized, using the straight line method, which approximates the effective interest rate method, over the terms of the related debt agreements.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance. The Company has established a reserve on its deferred tax assets based on anticipated future taxable income and tax strategies which may include the sale of property or an interest therein.

All of the Company’s foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Income taxes for the three and nine months ended September 30, 2014 and 2013, were computed using the Company’s effective tax rate.

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Credit-risk-related Contingent Features

The Company entered into agreements with each of its derivative counterparties in connection with the interest rate caps and hedging instruments related to the 2.375% Senior Subordinated Convertible Notes (the “Convertible Notes”), as discussed in note 6, which were outstanding as of September 30, 2014 and which matured and were repaid in full on October 15, 2014. The agreements provided that in the event the Company either defaulted or was capable of being declared in default on any of its indebtedness, the Company could also be declared in default on its derivative obligations. These Convertible Notes Call Options and Convertible Notes Warrants, as discussed and defined in note 6, expired when the Convertible Notes were repaid in October 2014.

The Company has entered into warrant agreements with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P., (collectively, the “Yucaipa Investors”), as discussed in note 9, to purchase a total of 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share (the “Yucaipa Warrants”). In addition, the Yucaipa Investors have certain consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the Yucaipa Warrants 6,250,000 shares of the Company’s common stock. The Yucaipa Warrants are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820-10, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2014 and December 31, 2013, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Accordingly, all derivatives have been classified as Level 2 fair value measurements. As of September 30, 2014, the Company had three interest rate caps outstanding and the fair value of these interest rate caps was $0.2 million.

In connection with The Light Group Transaction, the Company provided Messrs. Sasson and Masi with the Sasson-Masi Put Options. Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classified the noncontrolling interest in temporary equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption

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value, which approximates fair value, each period. The Company has determined that the majority of the inputs used to value the Sasson-Masi Put Options fall within Level 3 of the fair value hierarchy. Accordingly, the Sasson-Masi Put Options have been classified as Level 3 fair value measurements.

In connection with the three restaurant leases in Las Vegas, the Company issued the Restaurant Lease Note to be paid over seven years. The Restaurant Lease Note does not bear interest except in the event of default, as defined by the agreement. In accordance with ASC 470, Debt, the Company imputed interest on the Restaurant Lease Note, which is recorded at fair value on the accompanying consolidated balance sheets. On the date of grant, the Company determined the fair value of the Restaurant Lease Note to be $7.5 million imputing an interest rate of 10%. The Company has determined that the majority of the inputs used to value the Restaurant Lease Note fall within Level 2 of the fair value hierarchy, which accordingly has been classified as Level 2 fair value measurements.

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold, or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and fixed and variable rate debt. Management believes the carrying amounts of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of September 30, 2014 and December 31, 2013 due to the short-term maturity of these instruments or variable market interest rates on certain debt instruments.

The Company had fixed rate debt of $123.1 million and $247.1 million as of September 30, 2014 and December 31, 2013, respectively, which included the Company’s trust preferred securities, TLG Promissory Notes, excluding accrued interest, Restaurant Lease Note, discussed above, and the Convertible Notes at face value, as discussed in note 6.  This fixed rate debt had a fair market value at September 30, 2014 and December 31, 2013 of approximately $136.0 million and $217.7 million, respectively, using market rates.

Stock-based Compensation

The Company accounts for stock based employee compensation using the fair value method of accounting described in ASC 718-10. For share grants, total compensation expense is based on the price of the Company’s stock at the grant date. For option grants, the total compensation expense is based on the estimated fair value using the Black-Scholes option-pricing model. Compensation expense is recorded ratably over the vesting period.

Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less any dividends on unvested restricted common stock, by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less dividends on unvested restricted common stock, by the weighted-average number of shares of common stock outstanding during the period, plus other potentially dilutive securities, such as unvested shares of restricted common stock and warrants.

Redeemable Noncontrolling Interest

Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classifies the noncontrolling interest in temporary equity in accordance with the Securities and Exchange Commission’s guidance as codified in ASC 480-10, Distinguishing Liabilities from Equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The change in the redemption value does not impact the Company’s earnings or earnings per share.

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Noncontrolling Interest

The Company follows ASC 810-10, when accounting and reporting for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a subsidiary. Under ASC 810-10, the Company reports noncontrolling interests in subsidiaries as a separate component of stockholders’ equity (deficit) in the consolidated financial statements and reflects net income (loss) attributable to the noncontrolling interests and net income (loss) attributable to the common stockholders on the face of the consolidated statements of comprehensive loss.

The membership units owned by the Former Parent in Morgans Group are presented as a noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $0.4 million and $0.5 million as of September 30, 2014 and December 31, 2013, respectively. The noncontrolling interest in Morgans Group is: (i) increased or decreased by the holders of membership interests’ pro rata share of Morgans Group’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by exchanges of membership units for the Company’s common stock; and (iv) adjusted to equal the net equity of Morgans Group multiplied by the holders of membership interests’ ownership percentage immediately after each issuance of units of Morgans Group and/or shares of the Company’s common stock and after each purchase of treasury stock through an adjustment to additional paid-in capital. Net income or net loss allocated to the noncontrolling interest in Morgans Group is based on the weighted-average percentage ownership throughout the period. As of September 30, 2014, there were 75,446 membership units outstanding, each of which is exchangeable for a share of the Company’s common stock.

Reclassifications

Certain prior period financial statement amounts have been reclassified to conform to the current period presentation.

3. Income (Loss) Per Share

The Company applies the two-class method as required by ASC 260-10, Earnings per Share (“ASC 260-10”). ASC 260-10 requires the net income per share for each class of stock (common stock and preferred stock) to be calculated assuming 100% of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. To the extent the Company has undistributed earnings in any calendar quarter, the Company will follow the two-class method of computing earnings per share.

Basic earnings (loss) per share is calculated based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share include the effect of potential shares outstanding, including dilutive securities. Potential dilutive securities may include shares and options granted under the Company’s stock incentive plan and membership units in Morgans Group, which may be exchanged for shares of the Company’s common stock under certain circumstances. The 75,446 Morgans Group membership units (which may be converted to cash, or at the Company’s option, common stock) held by third parties at September 30, 2014, Yucaipa Warrants (as defined in note 9) issued to the Yucaipa Investors, unvested restricted stock units, LTIP Units (as defined in note 8), stock options, OPP LTIP Units (as defined in note 8) and shares issuable upon conversion of outstanding Convertible Notes have been excluded from the diluted net income (loss) per common share calculation, as there would be no effect on reported diluted net income (loss) per common share.

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The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data). The Company has not had any undistributed earnings in any calendar quarter presented. Therefore, the Company does not present earnings per share following the two-class method.

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013
Numerator:
Net loss	$	(10,095	)	$	(10,328	)
Net (income) loss attributable to noncontrolling interest		(48	)		-
Net loss attributable to Morgans Hotel Group Co.		(10,143	)		(10,328	)
Less: preferred stock dividends and accretion		3,594			4,037
Net loss attributable to common stockholders	$	(13,737	)	$	(14,365	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		34,267			32,693
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		34,267			32,693
Basic and diluted loss available to common stockholders per common share	$	(0.40	)	$	(0.44	)

	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Numerator:
Net loss	$	(43,493	)	$	(38,051	)
Net (income) loss attributable to noncontrolling interest		(504	)		298
Net loss attributable to Morgans Hotel Group Co.		(43,997	)		(37,753	)
Less: preferred stock dividends and accretion		11,948			9,976
Net loss attributable to common stockholders	$	(55,945	)	$	(47,729	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		34,047			32,590
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		34,047			32,590
Basic and diluted loss available to common stockholders per common share	$	(1.64	)	$	(1.46	)

4. Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures and its equity in income (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

Entity	As of September 30, 2014		As of December 31, 2013
Mondrian Istanbul	$	10,392	$	10,392
Other		100		100
Total investments in and advances to unconsolidated joint    ventures	$	10,492	$	10,492

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Equity in income (losses) of unconsolidated joint ventures

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013			Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Mondrian South Beach food and    beverage—MC South Beach	$	—	$	(281	)	$	—	$	(629	)
Other		3		3			7		(144	)
Total	$	3	$	(278	)	$	7	$	(773	)

Mondrian South Beach

On August 8, 2006, the Company entered into a 50/50 joint venture to renovate and convert an apartment building on Biscayne Bay in Miami Beach into a condominium hotel, Mondrian South Beach, which opened in December 2008. The Company operates Mondrian South Beach under a long-term management contract.

The Mondrian South Beach joint venture acquired the existing building and land for a gross purchase price of $110.0 million. An initial equity investment of $15.0 million from each of the 50/50 joint venture partners was funded at closing, and subsequently each member also contributed $8.0 million of additional equity. The Company and an affiliate of its joint venture partner provided additional mezzanine financing of approximately $22.5 million in total to the joint venture through a new 50/50 mezzanine financing joint venture to fund completion of the construction in 2008. Additionally, the Mondrian South Beach joint venture initially received nonrecourse mortgage loan financing of approximately $124.0 million at a rate of LIBOR plus 3.0%. A portion of this mortgage debt was paid down, prior to the amendments discussed below, with proceeds obtained from condominium sales. In April 2008, the Mondrian South Beach joint venture obtained a mezzanine loan from the mortgage lenders of $28.0 million bearing interest at LIBOR plus 6.0%.

In April 2010, the Mondrian South Beach ownership joint venture amended the nonrecourse mortgage financing and mezzanine loan agreements secured by Mondrian South Beach or related equity interests and extended the maturity date for up to seven years through one-year extension options until April 2017, subject to certain conditions. Among other things, the amendment allowed the joint venture to accrue all interest through April 2012, accrue a portion of the interest thereafter, extend the mezzanine loan to April 2027 if the mortgage loan is retired, and provide the ability to provide seller financing to qualified condominium buyers with up to 80% of the condominium purchase price. The Company and an affiliate of its joint venture partner each provided an additional $2.75 million to the joint venture through the mezzanine financing joint venture resulting in total mezzanine financing provided by the mezzanine financing joint venture of $28.0 million. The amendment also provides that this $28.0 million joint venture mezzanine financing invested in the property be, in effect, on par with the lender’s mezzanine debt after the repayment of the mortgage debt such that the mezzanine financing joint venture receives the first $5.5 million of net cash flow, the lender mezzanine financing receives the next $5.5 million, and the remaining proceeds are distributed equally between the joint venture mezzanine loan and the lender mezzanine loan.  

In March 2014, the joint venture exercised its option to extend the outstanding mortgage and mezzanine debt until April 2015. As of September 30, 2014, the joint venture’s outstanding nonrecourse mortgage loan was $24.1 million and the outstanding mezzanine loan was $28.0 million. In addition, the outstanding mezzanine debt owed to affiliates of the joint venture partners was $28.0 million.

The joint venture is in the process of selling units as condominiums, subject to market conditions, and unit buyers will have the opportunity to place their units into the hotel’s rental program. As of September 30, 2014, 261 hotel residences had been sold, of which 140 are in the hotel rental pool and are included in the hotel room count, and 74 hotel residences remain to be sold. In addition to hotel management fees, the Company could also realize fees from the sale of condominium units, although there can be no assurances of any sales in the future.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Management determined that the Company is not the primary beneficiary of this variable interest entity as the Company does not have a controlling financial interest in the entity.

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Because the Company has written its investment value in the joint venture to zero, for financial reporting purposes, the Company believes its maximum exposure to losses as a result of its involvement in the Mondrian South Beach variable interest entity is limited to its outstanding management fees and related receivables and $14.0 million of advances in the form of mezzanine financing, excluding guarantees and other contractual commitments.

The Company is not committed to providing financial support to this variable interest entity, other than as contractually required, and all future funding is expected to be provided by the joint venture partners in accordance with their respective percentage interests in the form of capital contributions or loans, or by third parties.

Morgans Group and affiliates of its joint venture partner have provided certain guarantees and indemnifications to the Mondrian South Beach lenders. See note 7.

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. The Company initially contributed $5.0 million for a 20% equity interest in the joint venture. Mondrian SoHo opened in February 2011 and has 263 guest rooms, a restaurant, bar and other facilities. Under the terms of the hotel management agreement executed between the Company and the joint venture in June 2007, the Company has a contract to manage the hotel for a 10-year term beginning on the date the hotel opened for business, which was in February 2011, with two 10-year extension options.

The joint venture obtained a loan of $195.2 million to acquire and develop the hotel, which matured in June 2010. On July 31, 2010, the mortgage loan secured by the hotel was amended to, among other things, provide for extensions of the maturity date to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, based on ratios of net operating income to debt service for specified periods ended September 30th of each year. The joint venture satisfied the extension conditions in 2011, but did not satisfy the conditions in November 2012. In January 2013, the lender initiated foreclosure proceedings and litigation is ongoing, although a court appointed referee issued a report in August 2014 setting the amount due on the loan ($250.5 million as of August 18, 2014, plus interest accruing at a daily rate of approximately $84,000, as of August 18, 2014) and determining the property should be sold as one parcel.  On September 15, 2014, the lender filed a motion to confirm the referee’s report in the foreclosure action and for proposed judgment of foreclosure and sale.  That motion is fully briefed and pending, but the court has not yet entered a judgment of foreclosure and sale, as discussed further in note 7, “—Litigations Regarding Mondrian SoHo.” As of September 30, 2014, the Mondrian SoHo joint venture’s outstanding mortgage debt secured by the hotel was $196.0 million.  In addition, as of August 18, 2014, the court appointed referee calculated deferred interest through the date of default of $20.8 million and default interest of $33.4 million.

In December 2011, the Mondrian SoHo joint venture was determined to be a variable interest entity as a result of upcoming debt maturity and cash shortfalls, and because its equity was considered insufficient to permit the entity to finance its own activities. However, the Company determined that it was not the primary beneficiary and, therefore, consolidation of this joint venture is not required. The Company continues to account for its investment in Mondrian SoHo using the equity method of accounting. Because the Company has written its investment value in the joint venture to zero, for financial reporting purposes, the Company believes its maximum exposure to losses as a result of its involvement in the Mondrian SoHo variable interest entity is limited to its outstanding management fees and related receivables and advances in the form of priority loans, excluding guarantees and other contractual commitments.

Certain affiliates of the Company’s joint venture partner have provided certain guarantees and indemnifications to the Mondrian SoHo lenders for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates in certain circumstances. See note 7.

Food and Beverage Venture at Mondrian South Beach

In June 2011, the Company acquired its former joint venture partner’s ownership interest in the food and beverage venture at Mondrian South Beach.  As a result, the Company’s ownership interest in this food and beverage venture effectively increased to 75%, and the accounting for this investment was reevaluated in accordance with ASC 810-10. The Company concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in the joint venture is accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing.

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The Company accounted for this investment under the equity method of accounting through December 31, 2013, until its recording of losses was suspended. As of September 30, 2014, the Company’s investment in this food and beverage venture was zero. Because the Company has written its investment value in the joint venture to zero, for financial reporting purposes, the Company believes its maximum exposure to losses as a result of its involvement in the food and beverage venture at Mondrian South Beach is limited to any outstanding receivables, which was immaterial as of September 30, 2014.

Ames

On June 17, 2008, the Company, Normandy Real Estate Partners, and Ames Hotel Partners entered into a joint venture agreement as part of the development of the Ames hotel in Boston. Ames opened on November 19, 2009.

The Company contributed a total of approximately $12.1 million in equity for an approximately 31% interest in the ownership joint venture. The joint venture obtained a loan for $46.5 million secured by the hotel, which matured on October 9, 2012 and the mortgage lender served the joint venture with a notice of event of default stating that the nonrecourse mortgage refinancing on the property was not repaid when it matured.

On April 26, 2013, the joint venture closed on a new loan agreement with the mortgage lenders that provided for a reduction of the mortgage debt and an extension of maturity in return for a cash paydown. The Company did not contribute to the cash paydown and instead entered into an agreement with its joint venture partner, as discussed further in note 7.

In May 2013, the hotel owner exercised its right to terminate the Company’s management agreement effective July 17, 2013, and on July 17, 2013 the management agreement terminated. The Company received cash of $1.8 million, of which $0.9 million was recorded in management fee-related parties and other income on the consolidated statements of comprehensive loss during each of the second and third quarters of the year ended December 31, 2013.

Prior to the Company assigning its equity interests in the joint venture to its joint venture partner, net income or loss and cash distributions or contributions were allocated to the partners in accordance with their respective ownership interests. The Company accounted for this investment under the equity method of accounting.

Shore Club

On December 30, 2013, Shore Club was sold to HFZ Capital Group. Phillips International, an affiliate of Shore Club’s former owner, retains an ownership stake. The new owner has publicly stated that it may convert a substantial part of the hotel to condos, and the Company could be replaced as hotel manager. To date, the Company has received no notice of termination of its management agreement, and intends to continue to operate the hotel pursuant to that agreement. However, no assurance can be provided that the Company will continue to do so in the future. As of September 30, 2014, the Company had only an immaterial contingent profit participation equity interest in Shore Club.

Mondrian Istanbul

In December 2011, the Company entered into a hotel management agreement for an approximately 122-room Mondrian-branded hotel to be located in the Old City area of Istanbul, Turkey. In December 2011 and January 2012, the Company contributed an aggregate of $10.3 million in the form of equity and key money and has a 20% ownership interest in the joint venture owning the hotel. The Company has no additional funding commitments in connection with this project.

Due to the Company’s joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, the Company exercised its put option under the joint venture agreement that requires the Company’s joint venture partner to buy back the Company’s equity interests in the Mondrian Istanbul joint venture. The Company’s rights under that joint venture agreement are secured by, among other things, a mortgage on the property. In February 2014, the Company issued a notice of default to its joint venture partner, as they failed to buy back the Company’s equity interests by the contractual deadline, and further notified its joint venture partner that the Company plans to begin foreclosure proceedings as a result of the event of default. The Company initiated foreclosure proceedings on March 11, 2014. The Company’s joint venture partner, and through such joint venture partner, the joint venture itself, have objected to the foreclosure proceeding, as a result of which, the foreclosure proceeding is currently stayed. Additionally, in June 2014, the joint venture purported to notify the Company that it had terminated the hotel management agreement. The Company has objected to such purported notices and intends to vigorously defend against any lawsuit that may result. In addition, the Company has initiated proceedings in an English court seeking payment of the put option amount against the individual shareholders behind the joint venture partner.  The parties are also seeking various other judicial remedies in Turkey.

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5. Other Liabilities

Other liabilities consist of the following (in thousands):

	As of September 30, 2014		As of December 31, 2013
Designer fee claim	$	13,866	$	13,866
OPP LTIP Units Liability (note 8)		—		25
	$	13,866	$	13,891

Designer Fee Claim

As of September 30, 2014 and December 31, 2013, other liabilities consisted of a liability related to a designer fee claim. The Former Parent had an exclusive service agreement with a hotel designer, pursuant to which the designer has made various claims related to the agreement. Although the Company is not a party to the agreement, it may have certain contractual obligations or liabilities to the Former Parent in connection with the agreement. According to the agreement, the designer was owed a base fee for each designed hotel, plus 1% of gross revenues, as defined in the agreement, for a 10-year period from the opening of each hotel. In addition, the agreement also called for the designer to design a minimum number of projects for which the designer would be paid a minimum fee. A liability amount has been estimated and recorded in these consolidated financial statements before considering any defenses and/or counter-claims that may be available to the Company or the Former Parent in connection with any claim brought by the designer. The estimated costs of the design services were capitalized as a component of the applicable hotel in prior years and were amortized over the five-year estimated life of the related design elements.

6. Debt and Capital Lease Obligations

Debt and capital lease obligations consists of the following (in thousands):

Description	As of September 30, 2014		As of December 31, 2013		Interest rate at September 30, 2014
Hudson/Delano Mortgage (a)	$	450,000	$	—	5.80% (LIBOR + 5.65%)
Notes secured by Hudson (a)		—		180,000
Clift debt (b)		93,396		91,486	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes (d)		49,015		170,698	2.375%
TLG Promissory Notes (e)		19,096		18,807	(f)
Restaurant Lease Note (f)		5,926		6,551	(h)
Capital lease obligations (g)		6,105		6,109	(g)
Revolving credit facility (h)		—		37,000
Debt and capital lease obligation	$	673,638	$	560,751

(a) Mortgage Agreements

Hudson/Delano 2014 Mortgage Loan

On February 6, 2014, subsidiaries of the Company entered into a new mortgage financing with Citigroup Global Markets Realty Corp. and Bank of America, N.A., as lenders, consisting of $300.0 million nonrecourse mortgage notes and $150.0 million mezzanine loans resulting in an aggregate principal amount of $450.0 million, secured by mortgages encumbering Delano South Beach and Hudson and pledges of equity interests in certain subsidiaries of the Company (collectively, the “Hudson/Delano 2014 Mortgage Loan”).

The net proceeds from the Hudson/Delano 2014 Mortgage Loan were applied to (1) repay $180.0 million of outstanding mortgage debt under the prior mortgage loan secured by Hudson (the “Hudson 2012 Mortgage Loan”), (2) repay $37.0 million of indebtedness under the Company’s $100.0 million senior secured revolving credit facility secured by Delano South Beach (the “Delano Credit Facility”), (3) provide cash collateral for reimbursement obligations with respect to a $10.0 million letter of credit under the Delano Credit Facility which was returned to the Company in June 2014, as discussed in note 7, and (4) fund reserves

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required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital, and the repayment of other indebtedness, subject to certain minimum unencumbered asset requirements.

The Hudson/Delano 2014 Mortgage Loan bears interest at a reserve adjusted blended rate of 30-day LIBOR plus 565 basis points. The Company maintains interest rate caps for the principal amount of the Hudson/Delano 2014 Mortgage Loan that caps the LIBOR rate on the debt under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the initial maturity date.

The Hudson/Delano 2014 Mortgage Loan matures on February 9, 2016. The Company has three, one-year extension options that will permit the Company to extend the maturity date of the Hudson/Delano 2014 Mortgage Loan to February 9, 2019, if certain conditions are satisfied at the respective extension dates, including delivery by the borrowers of a business plan and budget for the extension term reasonably satisfactory to the lenders and achievement by the Company of a specified debt yield. The second and third extensions would also require the payment of an extension fee in an amount equal to 0.25% of the then outstanding principal amount under the Hudson/Delano 2014 Mortgage Loan. A minimum unencumbered assets requirement may also be required if certain other indebtedness (as same may be amended, supplemented, modified, refinanced or replaced) becomes due during the extension term. The Company may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield.

The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part, subject to payment of a prepayment premium for any prepayment prior to August 9, 2015. There is no prepayment premium after August 9, 2015.

The Hudson/Delano 2014 Mortgage Loan is assumable under certain conditions, and provides that either one of the encumbered hotels may be sold, subject to prepayment of the Hudson/Delano 2014 Mortgage Loan at a specified release price and satisfaction of certain other conditions.

The Hudson/Delano 2014 Mortgage Loan contains restrictions on the ability of the borrowers to incur additional debt or liens on their assets and on the transfer of direct or indirect interests in Hudson or Delano South Beach and the owners of Hudson and Delano South Beach and other affirmative and negative covenants and events of default customary for multiple asset commercial mortgage-backed securities loans. The Hudson/Delano 2014 Mortgage Loan is nonrecourse to the Company’s subsidiaries that are the borrowers under the loan, except pursuant to certain carveouts detailed therein. In addition, the Company has provided a customary environmental indemnity and nonrecourse carveout guaranty under which it would have liability with respect to the Hudson/Delano 2014 Mortgage Loan if certain events occur with respect to the borrowers, including voluntary bankruptcy filings, collusive involuntary bankruptcy filings, changes to the Hudson capital lease without prior written consent of the lender, violations of the restrictions on transfers, incurrence of additional debt, or encumbrances of the property of the borrowers. The nonrecourse carveout guaranty requires the Company to maintain minimum unencumbered assets (as defined in the nonrecourse carveout guaranty) until the Company’s outstanding Convertible Notes and TLG Promissory Notes are repaid, extended, refinanced or replaced beyond the term of the Hudson/Delano 2014 Mortgage Loan. The Convertible Notes were repaid upon maturity in October 2014.  Further, the nonrecourse carveout guaranty prohibits the payment of dividends on or repurchase of the Company’s common stock. As of September 30, 2014, the Company was in compliance with these covenants.

On April 8, 2014, the Hudson/Delano 2014 Mortgage Loan was amended to reallocate the principal amount and interest rate spread of the $300.0 million nonrecourse mortgage notes. This technical amendment had no impact on the total outstanding principal amount of the nonrecourse mortgage notes or the blended interest rate of the Hudson/Delano 2014 Mortgage Loan.

Hudson Mortgage and Mezzanine Loan

On November 14, 2012, certain of the Company’s subsidiaries entered into the Hudson 2012 Mortgage Loan, a mortgage financing with UBS Real Estate Securities Inc., as lender, consisting of a $180.0 million nonrecourse mortgage loan, secured by Hudson, which was fully-funded at closing.

The Hudson 2012 Mortgage Loan bore interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 0.50%) plus 840 basis points. The Company maintained an interest rate cap for the amount of the Hudson 2012 Mortgage Loan that capped the 30-day LIBOR rate on the debt under the Hudson 2012 Mortgage Loan at approximately 2.5% through the maturity date.

In connection with the Hudson/Delano 2014 Mortgage Loan, the Hudson 2012 Mortgage Loan was terminated after repayment of the outstanding debt thereunder in February 2014.

(b) Clift Debt

In October 2004, Clift Holdings LLC (“Clift Holdings”), a subsidiary of the Company, sold the Clift hotel to an unrelated party for $71.0 million and then leased it back for a 99-year lease term. Under this lease, Clift Holdings is required to fund operating

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shortfalls including the lease payments and to fund all capital expenditures. This transaction did not qualify as a sale due to the Company’s continued involvement and therefore is treated as a financing.

The lease agreement provides for base annual rent of approximately $6.0 million per year until October 2014. Thereafter, base rent increases at five-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum increase of 20% at October 2014, and a maximum increase of 20% and a minimum increase of 10% at each five-year rent increase date thereafter. As a result of the first such increase, effective October 14, 2014, the annual rent increased to $7.6 million.  The lease is nonrecourse to the Company.

Morgans Group also entered into an agreement, dated September 17, 2010, whereby Morgans Group agreed to guarantee losses of up to $6.0 million suffered by the lessors in the event of certain “bad boy” type acts. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to this guarantee.

(c) Liability to Subsidiary Trust Issuing Preferred Securities

On August 4, 2006, a newly established trust formed by the Company, MHG Capital Trust I (the “Trust”), issued $50.0 million in trust preferred securities in a private placement. The Company owns all of the $0.1 million of outstanding common stock of the Trust. The Trust used the proceeds of these transactions to purchase $50.1 million of junior subordinated notes issued by the Company’s operating company and guaranteed by the Company (the “Trust Notes”) which mature on October 30, 2036. The sole assets of the Trust consist of the Trust Notes. The terms of the Trust Notes are substantially the same as preferred securities issued by the Trust. The Trust Notes and the preferred securities have a fixed interest rate of 8.68% until October 2016, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum. The Trust Notes are redeemable by the Trust, at the Company’s option, at par, and the Company has not redeemed any Trust Notes. To the extent the Company redeems the Trust Notes, the Trust is required to redeem a corresponding amount of preferred securities.

The Company has identified that the Trust is a variable interest entity under ASC 810-10. Based on management’s analysis, the Company is not the primary beneficiary of the trust. Accordingly, the Trust is not consolidated into the Company’s financial statements. The Company accounts for the investment in the common stock of the Trust under the equity method of accounting.

In the event the Company were to undertake a transaction that was deemed to constitute a transfer of its properties and assets substantially as an entirety within the meaning of the indenture, the Company may be required to repay the Trust Notes prior to their maturity or obtain the trustee’s consent in connection with such transfer.

(d) Convertible Notes

On October 17, 2007, the Company issued $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes in a private offering. Net proceeds from the offering were approximately $166.8 million.

From April 21, 2010 to July 21, 2010, the Yucaipa Investors purchased $88.0 million of the Convertible Notes from third parties. On February 28, 2014, the Company entered into a Note Repurchase Agreement with the Yucaipa Investors, pursuant to which it repurchased the Convertible Notes owned by them for an amount equal to their principal balance plus accrued interest. The Company used cash on hand, including proceeds of the Hudson/Delano 2014 Mortgage Loan, for this repurchase. Additionally, during the third quarter of 2014, the Company used cash on hand to repurchase an aggregate of $35.4 million of outstanding Convertible Notes at an aggregate discount of approximately $0.1 million plus accrued interest. The repurchased Convertible Notes were retired upon repurchase.

On October 15, 2014, the Convertible Notes matured and the Company repaid the outstanding principal amount of $49.1 million with cash on hand.  The Convertible Notes were retired upon repayment.

The Company followed ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), which clarifies the accounting for convertible notes payable. ASC 470-20 requires the proceeds from the issuance of convertible notes to be allocated between a debt component and an equity component. The debt component is measured based on the fair value of similar debt without an equity conversion feature, and the equity component is determined as the residual of the fair value of the debt deducted from the original proceeds received. The resulting discount on the debt component is amortized over the period the debt is expected to be outstanding as additional interest expense. The equity component, recorded as additional paid-in capital, was determined to be $9.0 million, which represented the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million as of the date of issuance of the Convertible Notes.

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In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions (the “Convertible Notes Call Options”) with respect to the Company’s common stock with Merrill Lynch Financial Markets, Inc. and Citibank, N.A. These call options were exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which the Company would receive shares of the Company’s common stock from Merrill Lynch Financial Markets, Inc. and Citibank, N.A equal to the number of shares issuable to the holders of the Convertible Notes upon conversion. Also in connection with the sale of the Convertible Notes, the Company also entered into separate warrant transactions with Merrill Lynch Financial Markets, Inc. and Citibank, N.A., whereby the Company issued warrants (the “Convertible Notes Warrants”) to purchase 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. These Convertible Notes Call Options and Convertible Notes Warrants expired when the Convertible Notes were repaid in October 2014. The Company recorded the purchase of the Convertible Note Call Options, net of the related tax benefit of approximately $20.3 million, as a reduction of additional paid-in capital and the proceeds from the Convertible Notes Warrants as an addition to additional paid-in capital in accordance with ASC 815-30, Derivatives and Hedging, Cash Flow Hedges.

(e) TLG Promissory Notes

On November 30, 2011, pursuant to purchase agreements entered into on November 17, 2011, certain of the Company’s subsidiaries completed the acquisition of 90% of the equity interests in TLG for a purchase price of $28.5 million in cash and up to $18.0 million of TLG Promissory Notes, which are convertible into shares of the Company’s common stock at $9.50 per share.  The TLG Promissory Notes were allocated $16.0 million to Mr. Sasson and $2.0 million to Mr. Masi.

The payment of $18.0 million was based on TLG achieving EBITDA of at least $18.0 million from Non-Morgans EBITDA during the period starting on January 1, 2012 and ending on March 31, 2014, with ratable reduction of the payment if less than $18.0 million of EBITDA was earned. The fair value of the TLG Promissory Notes was estimated each quarter utilizing a Monte Carlo simulation to estimate the probability of the performance conditions being satisfied. The EBITDA targets had been achieved at September 30, 2014 and the fair value of the TLG Promissory Notes of $18.0 million plus accrued interest of $1.1 million is reflected in the Company’s September 30, 2014 consolidated financial statements.

The TLG Promissory Notes mature on November 30, 2015 and may be voluntarily prepaid, in full or in part, at any time. At either Messrs. Sasson’s or Masi’s options, the TLG Promissory Notes are payable in cash or in common stock of the Company valued at $9.50 per share. Each of the TLG Promissory Notes earns interest at an annual rate of 8%, and if the notes are not paid or converted on or before November 30, 2014, the interest rate increases to 18%. The TLG Promissory Notes provide that 75% of the accrued interest is payable quarterly in cash and the remaining 25% accrues and is included in the principal balance which is payable at maturity. Morgans Group has guaranteed payment of the TLG Promissory Notes and interest.

As discussed further in note 7, on August 5, 2013, Messrs. Sasson and Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition and Morgans Group alleging, among other things, breach of contract and an event of default under the TLG Promissory Notes as a result of the Company’s failure to repay the TLG Promissory Notes following an alleged “Change of Control” of the Company in connection with the election of directors at the Company’s 2013 Annual Meeting. On September 26, 2013, the Company filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted the Company’s motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and the Company’s opposition brief was due August 29, 2014. The oral argument on the motion occurred on October 29, 2014 and the Company is awaiting the court’s ruling.  

(f) Restaurant Lease Note

As discussed in note 2, in August 2012, the Company acquired the leasehold interests in three food and beverage venues at Mandalay Bay from an existing tenant for $15.0 million in cash at closing and the issuance of a principal-only $10.6 million Restaurant Lease Note to be paid over seven years. The Restaurant Lease Note does not bear interest except in the event of default, as defined in the agreement. In accordance with ASC 470, Debt, the Company imputed interest on the Restaurant Lease Note, which was recorded at its fair value of $7.5 million as of the date of issuance. At September 30, 2014, the balance outstanding recorded on the Restaurant Lease Note was $5.9 million.

(g) Capital Lease Obligations

The Company has leased two condominium units at Hudson from unrelated third-parties, which are reflected as capital leases. One of the leases requires the Company to make annual payments, currently $649,728 (subject to increases due to increases in the Consumer Price Index), through November 2096. This lease also allows the Company to purchase, at its option, the unit at fair market

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value after November 2015. The second lease requires the Company to make annual payments, currently $365,490 (subject to increases due to increases in the Consumer Price Index), through December 2098.

The Company has allocated both lease payments between the land and building based on their estimated fair values. The portion of the payments allocated to the building has been capitalized at the present value of the future minimum lease payments. The portion of the payments allocable to the land is treated as operating lease payments. The imputed interest rate on both of these leases is 8%, which is based on the Company’s incremental borrowing rate at the time the lease agreement was executed. The capital lease obligations related to the units amounted to approximately $6.1 million as of September 30, 2014 and December 31, 2013, respectively. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.

(h) Delano Credit Facility

On July 28, 2011, the Company and certain of its subsidiaries (collectively, the “Borrowers”), entered into a secured credit agreement with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent, and the lenders party thereto.

The credit agreement provided commitments for the Delano Credit Facility, a $100.0 million revolving credit facility and included a $15.0 million letter of credit sub-facility. The interest rate applicable to loans outstanding on the Delano Credit Facility was a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate, as defined in the agreement, plus 3.00%. In addition, a commitment fee of 0.50% applied to the unused portion of the commitments under the Delano Credit Facility.

In connection with the closing of the Hudson/Delano 2014 Mortgage Loan, described more fully above, the Delano Credit Facility was terminated after repayment of the outstanding debt thereunder in February 2014.

7. Commitments and Contingencies

Hotel Development Related Commitments

In order to obtain long-term management, franchise and license contracts, the Company has committed to contribute capital in various forms on hotel development projects. These include equity investments, key money, and cash flow guarantees to hotel owners. The cash flow guarantees generally have a stated maximum amount of funding and a defined term. The terms of the cash flow guarantees to hotel owners generally require the Company to fund if the hotels do not attain specified levels of operating profit. Oftentimes, cash flow guarantees to hotel owners may be recoverable as loans repayable to the Company out of future hotel cash flows and/or proceeds from the sale of hotels.

The following table details, as of September 30, 2014 and December 31, 2013, the Company’s key money, equity investment and debt financing commitments for hotels under development as well as potential funding obligations under cash flow guarantees at operating hotels and hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum amount cannot be determined (in thousands):

	As of September 30, 2014 (1)		As of December 31, 2013 (1)
Key money, equity investment and debt financing commitments (2)	$	15,514	$	22,499
Key money commitments related to terminated project (3)		—		10,000
Cash flow guarantees		5,000		13,000
Cash flow guarantees in dispute (4)		8,000		8,000
Total maximum future funding commitments	$	28,514	$	53,499
Amounts due within one year (5)	$	15,514	$	25,499

(1) The currency translation is based on an exchange rate of the applicable local currency to U.S. dollar using the exchange rate as of the end of the applicable reporting period.

(2) As of September 30, 2014 and December 31, 2013, these commitments consist of key money commitments. The Company had no equity or debt financing commitments at September 30, 2014 and December 31, 2013.

(3) As of December 31, 2013, amount reflects the funding of $10.0 million in key money for Mondrian at Baha Mar, which the Company is not obligated to fund due to the termination of the related management agreement in June 2014, discussed further below.

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(4) Reflects an $8.0 million performance cash flow guarantee related to Delano Marrakech, which the Company believes it is not obligated to fund due to the owner’s defaults under the management agreement terms. The Company has terminated its management agreement effective November 12, 2013, discussed further below.

(5) As of September 30, 2014, amount primarily consists of £9.4 million (or approximately $15.3 million at the exchange rate as of September 30, 2014) in key money for Mondrian London. As of December 31, 2013, amount represents key money for Mondrian London and Mondrian at Baha Mar. The Company is not obligated to fund the key money for Mondrian Baha Mar due to the termination of the related management agreement in June 2014, discussed further below.

On September 30, 2014, Mondrian London at Sea Containers opened.  As a result, the Company funded its £9.4 million key money obligation (or approximately $15.2 million at the exchange rate as of the payment date) in October 2014 with cash on hand.  The Company also paid approximately $3.0 million of value added tax which the Company expects to recover from the taxing authority.  

In September 2014, the Company and the hotel owners mutually agreed to terminate the Delano Moscow management agreement.  As a result, the Company was relieved of its $10.0 million key money obligation, of which $3.0 million had already been funded and was refunded back to the Company in September 2014.  The Company was also relieved of its $8.0 million potential cash flow guarantee.  All of these amounts are no longer included in the September 30, 2014 commitment table above.

In June 2014, the Mondrian at Baha Mar management agreement was terminated due to the failure of hotel owner to obtain a non-disturbance agreement from its lender as required by the management agreement, among other things.

In September 2012, the Company opened Delano Marrakech, a 71-room hotel in Marrakech, Morocco. The management agreement included certain cash flow guarantees by the Company which stipulate certain minimum levels of operating performance and could result in potential future funding obligations related to Delano Marrakech, which are in dispute and disclosed in the hotel commitments and guarantees table above. As discussed further below, the Company and the hotel owner are in litigation surrounding the termination of the hotel management agreement, performance-based cash flow guarantee and related matters. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014.  

In January 2014, the Company signed a franchise agreement for 10 Karakoy, a Morgans Original branded hotel in Istanbul, Turkey. The hotel, which is currently under development, is being converted from office and retail space, is expected to have 71 rooms and open in November 2014. The Company has a $0.3 million key money obligation, which is included in the table above and will be funded upon the hotel opening.

The Company has signed management, license or franchise agreements for new hotels which are in the development stage. As of September 30, 2014, these included the following:

	Expected Room Count		Anticipated Opening		Initial Term
Hotels Currently Under Construction or Renovation:
10 Karakoy, a Morgans Original, Istanbul (1)		71		2014	15 years
Mondrian Doha		270		2015	30 years
Other Signed Agreements:
Mondrian Istanbul		122			20 years
Delano Aegean Sea		150			20 years
Delano Cartagena		211			20 years

(1) Hotel is subject to a license or franchise agreement.

There can be no assurances that any or all of the Company’s projects listed above will be developed as planned. If adequate project financing is not obtained, these projects may need to be limited in scope, deferred or cancelled altogether, and to the extent the Company has previously funded key money, an equity investment or debt financing on a cancelled project, the Company may be unable to recover the amounts funded.

For example, due to the Company’s joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, the Company exercised its put option under the joint venture agreement and initiated foreclosure proceedings, as discussed further in note 4 and Part II, “Item 1. Legal Proceedings.”

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Other Guarantees to Hotel Owners

As discussed above, the Company has provided certain cash flow guarantees to hotel owners in order to secure management contracts.

The Company’s hotel management agreements for Royalton and Morgans contain cash flow guarantee performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance limited to the Company’s earned base fees. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of September 30, 2014, approximately $0.7 million was accrued as a reduction to management fees related to these performance test provisions. The Company’s maximum potential amount of future fundings related to the Royalton and Morgans performance guarantee cannot be determined as of September 30, 2014, but under the hotel management agreements is limited to the Company’s base fees earned.

Operating Joint Venture Hotels Commitments and Guarantees

The following details obligations the Company has or may have related to its operating joint venture hotels as of September 30, 2014.

Mondrian South Beach Mortgage and Mezzanine Agreements. Morgans Group and affiliates of its joint venture partner have agreed to provide standard nonrecourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard nonrecourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of its joint venture partner also agreed to guarantee the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability in connection with certain third-party actions. Morgans Group and affiliates of its joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of its joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of its joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2014, there were remaining payables outstanding to vendors of approximately $0.3 million. Pursuant to a letter agreement with the lenders for the Mondrian South Beach loan, the joint venture agreed that these payables, many of which are currently contested or under dispute, will not be paid from operating funds but only from tax abatements and settlements of certain lawsuits. In the event funds from tax abatements and settlements of lawsuits are insufficient to repay these amounts in a timely manner, the Company and its joint venture partner are required to fund the shortfall amounts.

The Company and affiliates of its joint venture partner also have each agreed to purchase approximately $14.0 million of condominium units under certain conditions, including an event of default. In the event of a default under the lender’s mortgage or mezzanine loan, the joint venture partners are each obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the lender’s mezzanine loan, or the then outstanding principal balance of the lender’s mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to the construction completion or the condominium purchase guarantees.

Mondrian SoHo. Certain affiliates of the Company’s joint venture partner have agreed to provide a standard nonrecourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its own gross negligence or willful misconduct. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to this indemnity.

Ames. On April 26, 2013, the joint venture closed on a new loan agreement with the mortgage lenders that provided for a reduction of the mortgage debt and an extension of maturity in return for a cash paydown. The Company did not contribute to the cash paydown and instead entered into an agreement with its joint venture partner pursuant to which, among other things, (1) the Company assigned its equity interests in the joint venture to its joint venture partner, (2) the Company agreed to give its joint venture partner the right to terminate its management agreement upon 60 days’ prior notice in return for an aggregate payment of $1.8 million, and (3) a creditworthy affiliate of the Company’s joint venture partner has assumed all or a portion of the Company’s potential liability with respect to historic tax credit guaranties, with the Company’s liability for any tax credit guaranties capped, in any event, at $3.0 million in the aggregate. The potential liability for historic tax credit guaranties relates to approximately $16.9 million of federal and state historic rehabilitation tax credits that Ames qualified for at the time of its development. As of September 30, 2014, there had been no

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triggering event that would require the Company to accrue any potential liability related to the historic tax credit guarantee. In May 2013, the hotel owner exercised its right to terminate the Company’s management agreement and it was terminated on July 17, 2013. The termination fee totaling $1.8 million was recorded by the Company in the second and third quarters of 2013.

Guaranteed Loans and Commitments

The Company has made guarantees to lenders and lessors of its owned and leased hotels, namely related to the Hudson/Delano 2014 Mortgage Loan and Clift lease payments, as discussed further in note 6.

Litigations Regarding Mondrian SoHo

On January 16, 2013, German American Capital Corporation (“GACC” or the “lender”), the lender for the mortgage loans on Mondrian SoHo, filed a complaint in the Supreme Court of the State of New York, County of New York against Sochin Downtown Realty, LLC, the joint venture that owns Mondrian SoHo (“Sochin JV”), Morgans Management, the manager for the hotel, Morgans Group, Happy Bar LLC and MGMT LLC, seeking foreclosure including, among other things, the sale of the mortgaged property free and clear of the management agreement, entered into between Sochin JV and Morgans Management on June 27, 2007, as amended on July 30, 2010. According to the complaint, Sochin JV defaulted by failing to repay the approximately $217.0 million outstanding on the loans when they became due on November 15, 2012. Cape Advisors Inc. indirectly owns 80% of the equity interest in Sochin JV and Morgans Group indirectly owns the remaining 20% equity interest.

On March 11, 2013, the Company moved to dismiss the lender’s complaint on the grounds that, among other things, the Company’s management agreement is not subject to foreclosure. On April 2, 2013, the lender opposed the Company’s motion to dismiss and cross-moved for summary judgment. On August 12, 2013, the court heard oral argument on both motions, as well as a third motion brought by the Company to strike an affirmation submitted by lender’s attorney. On January 27, 2014, the court granted Morgans Management’s motion to dismiss on the ground that Morgans Management was not a proper party to the foreclosure action and that a management contract does not constitute an interest in real property subject to foreclosure, and denied lender’s motion for summary judgment as moot. On March 20, 2014, the lender moved for summary judgment against the remaining defendants, seeking foreclosure on four mortgages secured by Mondrian SoHo. By order dated May 27, 2014, the trial court granted the motion for summary judgment to a limited extent, ordering the appointment of a referee to compute the amount but stating that a motion for summary judgment of foreclosure and sale is premature. By decision entered on July 28, 2014, the court referred the matter to a Referee to ascertain and compute the amount due to the lender for principal, interest, and other disbursements and to determine whether the property should be sold in one parcel.  On August 6, 2014, the Referee set a hearing on the issues for August 18, 2014, and subsequently issued her report setting the amount due on the loan ($250.5 million, plus interest accruing at a daily rate of approximately $84,000, as of August 18, 2014) and determining the property should be sold as one parcel. On September 15, 2014, the lender filed a motion to confirm the Referee’s report and for judgment of foreclosure and sale, along with the Referee’s Report of Amount Due attached as an exhibit, and a proposed judgment of foreclosure and sale.  That motion is fully briefed and pending, but the court has not yet entered a judgment of foreclosure and sale.

On February 25, 2013, the Sochin JV filed a complaint in the Delaware Court of Chancery against Morgans Management and Morgans Group, seeking, among other things, a declaration that Sochin JV had terminated the management agreement for the hotel. In addition, the Company, through its equity affiliate, filed a separate action against Sochin JV and its parent in the Delaware Court of Chancery for, among other things, breaching fiduciary duties and their joint venture agreement for failing to obtain consent prior to the termination. That action was subsequently consolidated with the joint venture’s termination action.  On April 30, 2013, Morgans Management filed a lawsuit against Sochin JV and the majority member of Sochin JV’s parent and its affiliate in New York Supreme Court for damages based on the wrongful attempted termination of the management agreement, defamation, and breach of fiduciary and other obligations under the parties’ joint venture agreement.  On September 20, 2013, the Delaware Court of Chancery ruled that Sochin JV properly terminated the hotel management agreement on agency principles, that Morgans Management must vacate the hotel forthwith or on whatever other timetable the hotel owner chooses, and that certain claims by the Company’s equity affiliate are dismissed but not its breach of fiduciary duty claim. 

On May 9, 2014, both of the above-referenced actions in Delaware and the above-reference action in New York were dismissed with prejudice by agreement among the parties.  Under the terms of the settlement, if the joint venture does not seek to remove the Company as manager of Mondrian SoHo prior to December 31, 2020, then the Company will be deemed to have released all claims against the joint venture under the Management Agreement.  Under the terms of the settlement, the joint venture may demand that Morgans vacate Mondrian SoHo on 90 days’ prior notice; in the event the joint venture provides notice of its intention to remove the Company as manager of Mondrian SoHo, all of the Company’s claims against the joint venture (including for breach of the hotel management agreement) would be revived. The joint venture’s rights under the settlement are not assignable without the Company’s written consent.

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On October 24, 2014, the Company filed suit in the Supreme Court of the State of New York seeking a declaration that the mortgage lenders to the Mondrian SoHo debt cannot remove Morgans Management as hotel manager following the conclusion of the foreclosure proceedings involving the building's ownership and its possible sale.  The action seeks to protect and enforce the Company's  long-term hotel management contract for Mondrian SoHo, regardless of the outcome of the current foreclosure proceedings.  The Company also seeks damages against the lenders and purported buyer of the property should Morgans Management be terminated as manager of the hotel.  The lawsuit does not affect the foreclosure proceedings, and Morgans does not oppose the lenders’ efforts to foreclose on Mondrian SoHo.

Litigation Regarding Delano Marrakech

In June 2013, the Company served the owner of Delano Marrakech with a notice of default for, among other things, failure to pay fees and reimbursable expenses and to operate the hotel in accordance with the standards under the management agreement. In September 2013, the Company served notice of termination of its management agreement for Delano Marrakech following the failure by the owner of Delano Marrakech to remedy numerous breaches of the agreement. As a result, the Company discontinued all affiliation with the hotel, including removal of the Delano name, and terminated management of the property, effective November 12, 2013. Pursuant to the management agreement, in the event of an owner default, the Company has no further obligations under the performance-based cash flow guarantee. In addition, as a result of the breaches by the hotel owner, the Company has asserted a claim for losses and damages against the owner that is currently estimated at in excess of $30.0 million, including interest. The owner of the hotel is disputing the circumstances surrounding termination and therefore its liability for this amount. On April 17, 2014, the owner submitted a counterclaim against the Company under both the performance-based cash flow guarantee and for loss of profits. The total counterclaim made by the owner is in excess of $119.0 million, excluding interest. The Company considers the counterclaim made by the owner to be entirely without merit and intends to vigorously defend itself. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014.  

Litigation Regarding TLG Promissory Notes

On August 5, 2013, Messrs. Andrew Sasson and Andy Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition LLC and Morgans Group LLC relating to the $18.0 million TLG Promissory Notes. See note 1 and note 6 regarding the background of the TLG Promissory Notes. The complaint alleges, among other things, a breach of contract and an event of default under the TLG Promissory Notes as a result of the Company’s failure to repay the TLG Promissory Notes following an alleged “Change of Control” that purportedly occurred upon the election of the Company’s current Board of Directors on June 14, 2013. The complaint sought payment of Mr. Sasson’s $16.0 million TLG Promissory Note and Mr. Masi’s $2.0 million TLG Promissory Note, plus interest compounded to principal, as well as default interest, and reasonable costs and expenses incurred in the lawsuit. On September 26, 2013, the Company filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted the Company’s motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and the Company’s opposition brief was due August 29, 2014. The oral argument on the motion occurred on October 29, 2014 and the Company is awaiting the court’s ruling.  

Litigation Regarding 2013 Deleveraging Transaction, Proxy Litigation Between Mr. Burkle and OTK and Certain of the Company’s Current Directors, and Litigation Regarding Yucaipa Board Observer Rights

On May 5, 2014, the Company and affiliates of Yucaipa, among other litigants, executed and submitted to the Delaware Court of Chancery a Stipulation of Settlement (the “Settlement Stipulation”) which contemplates the partial settlement and dismissal of the Delaware Shareholder Derivative Action and the complete settlement and dismissal of the New York Securities Action, the Proxy Action and the Board Observer Action, all defined below. On July 23, 2014, the Delaware Court of Chancery approved the Settlement Stipulation, which, pursuant to its terms, became effective on August 25, 2014 (the “Effective Date”).

The Settlement Stipulation provided for the partial settlement and dismissal with prejudice of the action entitled OTK Associates, LLC v. Friedman, et al., C.A. No. 8447-VCL (Del. Ch.) (the “Delaware Shareholder Derivative Action”) and the complete settlement and dismissal with prejudice of the actions entitled Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., et al., Index No. 652294/2013 (NY Sup.) (the “New York Securities Action”); Burkle v. OTK Associates, LLC, et al., Case No. 13-CIV-4557 (S.D.N.Y.) (the “Proxy Action”); and Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., Index No. 653455/2013 (NY Sup.) (the “Board Observer Action”) (the foregoing four actions are collectively referred to as the “Actions”).

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The Settlement Stipulation provided, among other things, for the following:

— The Company paid the Yucaipa parties in the New York Securities Action an amount equal to $3.0 million (which was previously escrowed) for attorneys’ fees and expenses incurred by Mr. Burkle in his defense of the Delaware Shareholder Derivative Action (the “Securities Action Payment”).

— The Company paid the reasonable and necessary attorneys’ fees and expenses incurred by Messrs. Friedman, Gault and Sasson (collectively, the “Settling Former Directors”) in defending the Delaware Shareholder Derivative Action.  The Settling Former Directors’ assigned to the Company any claims they have against the Company’s insurers relating to any such unpaid amounts. The Company’s insurers covered these attorneys’ fees and expenses.

— OTK and current director Jason T. Kalisman applied to the Delaware Court of Chancery for an award of payment from the Company of the reasonable and necessary fees and expenses incurred by their counsel in connection with the Delaware Shareholder Derivative Action, excluding those fees and expenses encompassed in the court’s October 31, 2013 order in the Delaware Shareholder Derivative Action. In its July 23, 2014 order approving the Settlement Stipulation, the Delaware Court of Chancery awarded an aggregate amount of approximately $6.5 million (to be reduced by the prior interim award of approximately $2.7 million) to OTK and current director Jason T. Kalisman for their counsel fees and expenses incurred in connection with the Delaware Shareholder Derivative Action which was paid by the Company with insurance proceeds.

— Plaintiffs and defendants in each of the Actions, apart from the former directors who chose not to participate in Settlement Stipulation and against whom the Delaware Shareholder Derivative Action continues, exchanged customary releases which release the parties and certain of their affiliates from claims arising from the subject matters of each of the Actions.

— Each of the Actions was dismissed with prejudice and on the merits with each party bearing its own costs, except as to the former directors who have not settled, against whom the Delaware Shareholder Derivative Action continues or as specified in the Settlement Stipulation.

The Company’s insurers have paid a majority of the costs that the Company was obligated to pay under the Settlement Stipulation.  

On October 3, 2014, the Company entered into a Memorandum of Understanding with OTK and Thomas L. Harrison (the “Harrison Settlement”) to settle the claims against Mr. Harrison in the Delaware Shareholder Derivative Action and also to settle claims Mr. Harrison has asserted against the Company in Harrison v. Morgans Hotel Group Co., C. A. No. 10100-VCL (Del. Ch.) (the “Harrison Advancement Action”), in which Mr. Harrison seeks an order requiring the Company to advance his expenses (including attorneys’ fees) incurred in connection with the Delaware Shareholder Derivative Action and further seeks indemnification of the expenses (including attorneys’ fees) he has incurred in connection with his efforts to enforce his claims to advancement.  The Harrison Settlement is subject to approval by the Delaware Court of Chancery.  Pursuant to the Harrison Settlement, in October 2014, the Company advanced to Mr. Harrison a portion of the fees and expenses for which he has sought advancement and paid a portion of the amounts for which Mr. Harrison seeks indemnification related to the Harrison Advancement Action.  As part of the consideration for the release of the claims against Mr. Harrison in the Delaware Shareholder Derivative Action, if the Harrison Settlement is approved by the Court of Chancery, Mr. Harrison would waive his claims to recover the remaining amounts for which he has sought advancement and indemnification in the Harrison Advancement Action.  If the Delaware Court of Chancery approves the Harrison Settlement, both the Harrison Advancement Action and the claims against Mr. Harrison in the Delaware Shareholder Derivative Action will be dismissed with prejudice, the parties to the settlement will exchange customary releases, and the only remaining defendant in the Delaware Shareholder Derivative Action will be Michael D. Malone, a former director of the Company.

As of September 30, 2014, the Company has paid approximately $0.4 million of costs that were not covered by insurance proceeds.  The Company had established an accrual to cover certain contingencies related to its obligations under the Settlement Stipulation, which were adequate to cover these costs.  The Company does not expect that the net amount of any remaining payments the Company will make under the terms of the Settlement Stipulation, the Harrison Settlement, or any other settlement with the former directors who have not settled will be material to financial position of the Company, and as of September 30, 2014, the Company believes its accruals are adequate to cover its contingencies relating to these matters.

Other Litigation

From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. The Company is not currently a party to any legal or administrative proceedings, other than as noted above, the adverse outcome of which, individually or in the aggregate, the Company believes would have a material impact on the Company’s financial condition, results of operations or cash flow.

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8. Omnibus Stock Incentive Plan

On February 9, 2006, the Board of Directors of the Company adopted the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan. Subsequently and on several occasions, the Company’s Board of Directors adopted, and stockholders approved, amendments to the Omnibus Stock Incentive Plan (the “Stock Plan”), to namely increase the number of shares reserved for issuance under the plan. As of September 30, 2014, the Stock Plan had 14,610,000 shares reserved for issuance.

The Stock Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, including restricted stock units (“RSUs”) and other equity-based awards, including membership units in Morgans Group which are structured as profits interests (“LTIP Units”), or any combination of the foregoing. The eligible participants in the Stock Plan include directors, officers and employees of the Company. Awards other than options and stock appreciation rights reduce the shares available for grant by 1.7 shares for each share subject to such an award.

On August 14, 2014, the Company issued an aggregate of 77,922 RSUs to the Company’s non-employee directors under the Stock Plan. These grants become 100% vested on May 14, 2015, provided that upon a non-employee director’s resignation from the Board of Directors, other than as a consequence of the director’s bad acts, the vesting of any RSUs will be on a pro rated basis as of the resignation date. The estimated fair value of each such RSU granted was based on the closing price of the Company’s common stock on the grant date.

In addition, the Company has granted, or may grant, RSUs to certain executives, employees or non-employee directors as part of future annual equity grants or to newly hired or promoted employees from time to time.

A summary of stock-based incentive awards as of September 30, 2014 is as follows (in units, or shares, as applicable):

	Restricted Stock Units			LTIP Units			Stock Options
Outstanding as of January 1, 2014		888,461			1,134,610			1,424,740
Granted during 2014		271,701			—			—
Distributed/exercised during 2014		(710,939	)		(193,453	)		—
Forfeited during 2014		(101,756	)		—			(300,000	)
Outstanding as of September 30, 2014		347,467			941,157			1,124,740
Vested as of September 30, 2014		—			941,157			1,124,740

Total stock compensation expense, which is included in corporate expenses on the accompanying consolidated statements of comprehensive loss, was $0.3 million, $1.3 million, $3.1 million, and $3.6 million for the three and nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014 and December 31, 2013, there were approximately $1.8 million and $3.4 million, respectively, of total unrecognized compensation costs related to unvested share awards, excluding outstanding OPP LTIP Units, as discussed below. As of September 30, 2014, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 1.1 years.

Outperformance Award Program

In March 2011, the Compensation Committee of the Board of Directors of the Company implemented an Outperformance Award Program, which was a long-term incentive plan intended to provide the Company’s senior management with the ability to earn cash or equity awards based on the Company’s level of return to stockholders over a three-year period, the Company issued a new series of outperformance long-term incentive units (the “OPP LTIP Units”).

Pursuant to the Outperformance Award Program, each of the senior managers then employed by the Company had the right to receive, an award (an “Award”), in each case reflecting the participant’s right to receive a participating percentage (the “Participating Percentage”) in an outperformance pool if the Company’s total return to stockholders (including stock price appreciation plus dividends) increased by more than 30% (representing a compounded annual growth rate of approximately 9% per annum) over a three-year period from March 20, 2011 to March 20, 2014, of a new series of outperformance long-term incentive units as described below, subject to vesting and the achievement of certain performance targets.

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The total return to stockholders was calculated based on the average closing price of the Company’s common shares on the 30 trading days ending on the Final Valuation Date (as defined below). The baseline value of the Company’s common shares for purposes of determining the total return to stockholders was $8.87, the closing price of the Company’s common shares on March 18, 2011.

The Company determined, as of March 20, 2014, that the total outperformance pool had no value, as the valuation on that day did not exceed $11.53, therefore all existing Awards of OPP LTIP Units were forfeited.

As the Company had the ability to settle the vested OPP LTIP Units with cash, these Awards were not considered to be indexed to the Company’s stock price and were accounted for as liabilities at fair value prior to their forfeiture on March 20, 2014.

9. Preferred Securities and Warrants

Preferred Securities and Warrants Held by Yucaipa Investors

On October 15, 2009, the Company entered into a Securities Purchase Agreement with the Yucaipa Investors. Under the agreement, the Company issued and sold to the Yucaipa Investors (i) $75.0 million of preferred stock comprised of 75,000 shares of the Company’s Series A preferred securities, $1,000 liquidation preference per share, and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share, or the Yucaipa Warrants, which are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.

The Series A preferred securities have an 8% dividend rate through October 15, 2014, a 10% dividend rate from October 15, 2014 to October 15, 2016, and a 20% dividend rate thereafter. For so long as the Yucaipa Investors collectively own or have the right to purchase through exercise of the Yucaipa Warrants (assuming a cash rather than a cashless exercise) 875,000 shares of the Company’s common stock, the Company has agreed to use its reasonable best efforts to cause its Board of Directors to nominate and recommend to the Company’s stockholders the election of a person nominated by the Yucaipa Investors as a director of the Company and to use its reasonable best efforts to ensure that the Yucaipa Investors’ nominee is elected to the Company’s Board of Directors at each such meeting. If that nominee is not elected as a director at a meeting of stockholders, the Yucaipa Investors have certain Board of Director observer rights. Further, if the Company does not, within 30 days from the date of such meeting, create an additional seat on the Board of Directors and make available such seat to the nominee, the dividend rate on the Series A preferred securities increases by 4% during any time that a Yucaipa Investors’ nominee is not a member of the Company’s Board of Directors. From July 14, 2013 through May 14, 2014, the dividend rate was 12% as a result of the Yucaipa Investors’ nominee not being elected or appointed to the Company’s Board of Directors.

On May 14, 2014, at the Company’s annual shareholder meeting, a Board of Directors nominee representing the Yucaipa Investors was elected as a director of the Company and the dividend rate on the Series A preferred securities returned to the stated rate of 8%. Currently, the dividend rate on the Series A preferred securities is 10%.

The Company has the option to accrue any and all dividend payments. The cumulative unpaid dividends have a dividend rate equal to the dividend rate on the Series A preferred securities. As of September 30, 2014, the Company had undeclared and unpaid dividends of approximately $40.4 million.

The Company has the option to redeem any or all of the Series A preferred securities at par at any time. The Series A preferred securities have limited voting rights and only vote on the authorization to issue senior preferred securities, amendments to their certificate of designations and amendments to the Company’s charter that adversely affect the Series A preferred securities. In addition, the Yucaipa Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the Yucaipa Warrants 6,250,000 shares of the Company’s common stock, including (subject to certain exceptions and limitations):

— the sale of substantially all of the Company’s assets to a third party;

— the acquisition by the Company of a third party where the equity investment by the Company is $100.0 million or greater;

— the acquisition of the Company by a third party; or

— any change in the size of the Company’s Board of Directors to a number below 7 or above 9.

The Yucaipa Investors are subject to certain standstill arrangements as long as they beneficially own over 15% of the Company’s common stock.

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As discussed in note 2, the Yucaipa Warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. In accordance with ASC 815-10-15, the Yucaipa Warrants are accounted for as equity instruments indexed to the Company’s stock. The Yucaipa Investors’ right to exercise the Yucaipa Warrants to purchase 12,500,000 shares of the Company’s common stock expires in April 2017.

The exercise price and number of shares subject to the Yucaipa Warrants are both subject to anti-dilution adjustments.

The Company calculated the fair value of the Series A preferred securities at its net present value by discounting dividend payments expected to be paid on the shares over a seven-year period using a 17.3% rate. The Company determined that the market discount rate of 17.3% was reasonable based on the Company’s best estimate of what similar securities would most likely yield when issued by entities comparable to the Company at that time.

The initial carrying value of the Series A preferred securities was recorded at its net present value less costs to issue on the date of issuance. The carrying value will be periodically adjusted for accretion of the discount. As of September 30, 2014, the value of the preferred securities was $65.7 million, which includes cumulative accretion of $17.6 million.

The Company calculated the estimated fair value of the Yucaipa Warrants using the Black-Scholes valuation model, as discussed in note 2.

Convertible Notes Held by Yucaipa Investors

On April 21, 2010, the Company entered into a Waiver Agreement with the Yucaipa Investors, pursuant to which the Yucaipa Investors were permitted to purchase up to $88.0 million in aggregate principal amount of the Convertible Notes within six months of April 21, 2010 and subject to the limitations and conditions set forth therein. From April 21, 2010 to July 21, 2010, the Yucaipa Investors purchased $88.0 million of the Convertible Notes from third parties. On February 28, 2014, the Company entered into a Note Repurchase Agreement with the Yucaipa Investors, pursuant to which the Company repurchased the $88.0 million of Convertible Notes owned by them. Following the closing under the Note Repurchase Agreement, these Convertible Notes were retired.

10. Related Party Transactions

The Company earned management fees, chain services fees and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures. These fees totaled approximately $1.0 million, $2.4 million, $3.4 million, and $7.2 million for the three and nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014 and December 31, 2013, the Company had receivables from these affiliates of approximately $3.8 million and $3.7 million, respectively, which are included in related party receivables on the accompanying consolidated balance sheets.

As of September 30, 2014 and December 31, 2013, the TLG Promissory Notes and accrued interest due to Messrs. Sasson and Masi had aggregate fair values of approximately $19.1 million and $18.8 million, respectively, as discussed in note 6, which are included in debt and capital lease obligations on the accompanying consolidated balance sheets. During the three and nine months ended September 30, 2014 and 2013, the Company recorded $0.3 million, $0.4 million, $1.1 million, and $1.1 million, respectively, of interest expense related to the TLG Promissory Notes.

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11. Other Expenses

Restructuring and disposal costs

These expenses primarily relate to costs incurred related to the Company’s corporate restructuring initiatives, such as professional fees, litigation and settlement costs, executive terminations and severance costs related to such restructuring initiatives, including the plan of termination implemented in March 2014 (the “Termination Plan”) that resulted in a workforce reduction of the Company’s corporate office employees, proxy contests, and gains and losses on asset disposals as part of major renovation projects. Restructuring and disposal costs consist of the following (in thousands):

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Restructuring costs	$	1,113	$	939	$	4,208		$	6,121
Severance and related costs		29		827		8,395			1,620
(Gain) loss on asset disposal and other costs		3		33		(234	)		210
Total	$	1,145	$	1,799	$	12,369		$	7,951

As a result of the Termination Plan, which constituted a plan of termination under ASC 420, Exit or Disposal Cost Obligations, the Company recorded a charge of approximately $7.1 million in the first quarter of 2014 related to the cost of one-time termination benefits which have been or are expected to be paid in cash, which were recorded as ‘Severance and Related Costs’ in the above table. The Company also recorded a charge of approximately $1.8 million of non-cash stock compensation expense relating to the severance of former executives, which is included in Corporate Expense on the Company’s consolidated statement of comprehensive loss.

Development costs

These expenses primarily relate to transaction costs related to the acquisition or termination of projects, internal development payroll and other costs and pre-opening expenses incurred related to new concepts at existing hotel and the development of new hotels, and the write-off of abandoned development projects previously capitalized. Certain prior year amounts have been reclassified to conform to the current year presentation. Development costs consist of the following (in thousands):

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Transaction costs	$	259	$	364	$	2,839	$	574
Internal development payroll and other		298		386		647		1,056
Pre-opening expenses		7		221		442		738
Total	$	564	$	971	$	3,928	$	2,368

12. Deferred Gain on Asset Sales

In 2011, the Company sold Mondrian Los Angeles, Royalton, Morgans, and its 50% equity interest in the joint venture that owned Sanderson and St Martins Lane. The Company continues to operate all of these hotels under long-term management agreements.

In accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales. the Company evaluated its accounting for the gain on sales of these assets, noting that the Company continues to have significant continuing involvement in the hotels as a result of long-term management agreements and shares in risks and rewards of ownership. Accordingly, the Company recorded deferred gains of approximately $152.4 million related to the sales of Royalton, Morgans, Mondrian Los Angeles, and the Company’s equity interests in Sanderson and St Martins Lane, which are deferred and recognized as a gain on asset sales over the initial term of the related management agreements. Gain on asset sales for the three and nine months ended September 30, 2014 and 2013 were $2.0 million, $2.0 million, $6.0 million, and $6.0 million, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Forward Looking Statements” in this report, “Risk Factors” in Item IA, and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Overview

We are a fully integrated lifestyle hospitality company that operates, owns, acquires, develops and redevelops boutique hotels, primarily in gateway cities and select resort markets in the United States, Europe and other international locations, and nightclubs, restaurants, pool lounges, bars and other food and beverage venues in many of the hotels we operate, as well as in hotels and casinos operated by MGM in Las Vegas.

The historical financial data presented herein is the historical financial data for:

— our three owned hotels, consisting, as of September 30, 2014, of Hudson in New York, Delano South Beach in Miami Beach, and Clift in San Francisco (which we lease under a long-term lease that is treated as a financing) (collectively, our “Owned Hotels”), comprising approximately 1,450 rooms;

— our owned food and beverage operations, consisting, as of September 30, 2014, of the food and beverage operations located at our Owned Hotels, certain food and beverage operations located at Sanderson, in London, and food and beverage venues at Mandalay Bay in Las Vegas (collectively, our “Owned F&B Operations”);

— our two joint venture hotels, consisting, as of September 30, 2014, of Mondrian South Beach in Miami Beach and Mondrian SoHo in New York, (together, our “Joint Venture Hotels”) comprising approximately 500 rooms and our investment in the food and beverage venture at Mondrian South Beach in Miami Beach (the “F&B Venture”);

— our seven managed hotels, consisting, as of September 30, 2014, of Royalton and Morgans in New York, Shore Club in Miami Beach, Mondrian in Los Angeles, Sanderson, St Martins Lane, and Mondrian London in London (collectively, our “Managed Hotels”), comprising approximately 1,550 rooms;

— our licensed hotel, consisting, as of September 30, 2014 of Delano Las Vegas, comprising 1,117 rooms;

— our 90% controlling interest in TLG Acquisition, which operates certain locations of our nightclub and food and beverage management business. TLG develops, redevelops and operates numerous venues primarily in Las Vegas pursuant to management agreements with MGM, including nightclubs, restaurants, pool lounges and bars;

— our investments in certain hotels under development and other proposed properties.

Our corporate strategy is to achieve growth as a boutique hotel management and brand company by leveraging our management experience and one-of-a-kind luxury brands for expansion into major gateway markets and key resort destinations in both domestic and international markets. We intend to achieve growth primarily through the pursuit of new long-term management agreements and, in select situations where we believe third-party managers have the experience and resources to satisfy our high branding standards, franchise or licensing agreements.

Additionally, we also intend to enhance the value of our existing hotels and management agreements through targeted renovation and expansion projects. We believe that by pursuing this targeted strategy, while remaining open and flexible to unique opportunities, we will strengthen our position as a leader in lifestyle hospitality management.

Management, Franchise, and License Agreements. Although our hotel management agreements and franchise or license agreements are generally long-term, they may be subject to early termination in specified circumstances, or we may agree to early termination as circumstances require. Certain of our hotel management agreements and franchise or license agreements contain performance tests that stipulate certain minimum levels of operating performance. We may disagree with hotel owners on how the performance criteria are calculated and whether they have been met. In addition, some courts have applied principles of agency law and related fiduciary standards to managers of third-party hotel properties (or have interpreted hotel management agreements as “personal services contracts”). This means, among other things, that property owners may assert the right to terminate management agreements even where the agreements provide otherwise, and some courts have upheld such assertions regarding management agreements and may do so in the future.

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Several of our hotels are also subject to mortgage and mezzanine debt, and in some instances our management, franchise or license fee is subordinated to the debt. Some of our management agreements also may be terminated by the lenders on foreclosure or certain other related events. With some of our existing management, franchise and license agreements we have negotiated, and with all of our new management, franchise and license agreements for hotels under development we attempt to negotiate, non-disturbance agreements or similar protections with the mortgage lender, or to require that such agreements be entered into upon securing of financing, in order to protect our agreements in the event of foreclosure. However, we are not always successful in imposing these requirements, and some of our new development projects and existing hotels do not have non-disturbance or similar protections, which may make the related agreements subject to termination by the lenders on foreclosure or certain other related events. Even if we have such non-disturbance protections in place, they may be subject to conditions and may be difficult or costly to enforce in a foreclosure situation.

We may also terminate hotel management, franchise or license agreements as circumstances require or as we deem appropriate. For example, in September 2014, we and the hotel owners mutually agreed to terminate the Delano Moscow management agreement and, as a result, we were relieved of our key money and possible cash flow commitment obligations.  

TLG’s management agreements may be subject to early termination in specified circumstances. For example, the management agreements generally contain, among other covenants, a performance test that stipulates a minimum level of operating performance, and restrictions or requirements related to suitability, capacity, financial stability and compliance with laws and material terms. In 2013, TLG failed performance tests at certain venues, and as a result, TLG agreed with MGM to amend the calculation of base and incentive management fees for all of TLG’s management agreements with MGM effective January 1, 2014, agreed to reductions in minimum levels of operating performance, and agreed to a termination effective April 1, 2014 of TLG’s management agreement for Brand Steakhouse. Many of the management agreements also require that Mr. Masi, whose employment contract expires December 31, 2014, remain employed by or under contract to TLG. We can provide no assurance that we will satisfy these conditions.

In September 2014, both Mondrian London at Sea Containers, a 359-room hotel, and Delano Las Vegas, a 1,117-room hotel opened.  The Mondrian London is subject to a management agreement and Delano Las Vegas is a licensed hotel which is managed by MGM.

Joint Ventures and Non-Wholly Owned Entities. We own partial interests in the Joint Venture Hotels and the F&B Venture. We account for these investments using the equity method as we believe we do not exercise control over significant asset decisions such as buying, selling or financing nor are we the primary beneficiary of the entities. Under the equity method, we increase our investment in unconsolidated joint ventures for our proportionate share of net income and contributions and decrease our investment balance for our proportionate share of net losses and distributions. Once our investment balance in an unconsolidated joint venture is zero, we suspend recording additional losses.

Factors Affecting Our Results of Operations

Revenues. Changes in our hotel revenues are most easily explained by three performance indicators that are commonly used in the hospitality industry:

— Occupancy;

— Average daily rate (“ADR”); and

— RevPAR, which is the product of ADR and average daily occupancy, but does not include food and beverage revenue, other hotel operating revenue such as telephone, parking and other guest services, or management fee revenue.

Our revenues are derived from the operation of hotels, as well as the operation of nightclub, restaurant, pool lounges, and bar venues. Specifically, our revenue consists of:

— Rooms revenue. Occupancy and ADR are the major drivers of rooms revenue.

— Food and beverage revenue. Most of our food and beverage revenue is driven by occupancy of our hotels and the popularity of our bars and restaurants with our local customers. In June 2011, we acquired from affiliates of CGM the 50% interests CGM owned in our prior food and beverage joint ventures at certain hotels (the “CGM Transaction”). As a result of the CGM Transaction, we now record 100% of the food and beverage revenue and related expenses at Delano South Beach and certain food and beverage venues at Sanderson. Additionally, we record revenue and related expenses at the three food and beverage venues at Mandalay Bay in Las Vegas for which we acquired the leasehold interest in August 2012. The first of these restaurants opened in late December 2012, the second restaurant opened in February 2013 and the third restaurant opened in July 2013.

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— Other hotel revenue. Other hotel revenue, which consists of ancillary revenue such as internet, telephone, parking, spa, entertainment and other guest services, is principally driven by hotel occupancy.

— Management fee revenue and other income. We earn hotel management fees under our hotel management agreements. These fees may include management fees as well as reimbursement for allocated chain services. Additionally, we own a 90% controlling investment in TLG, which operates numerous venues primarily in Las Vegas pursuant to management agreements with various MGM affiliates. Each of TLG’s venues is managed by an affiliate of TLG, which receives fees under a management agreement for the venue. Through our ownership of TLG, we recognize management fees in accordance with the applicable management agreement, which generally provide for base management fees as a percentage of gross sales, and incentive management fees as a percentage of net profits, as calculated pursuant to the management agreements. We earn license fees under our franchise and license agreements.

Fluctuations in revenues, which tend to correlate with changes in gross domestic product, are driven largely by general economic and local market conditions but can also be impacted by major events, such as terrorist attacks or natural disasters, which in turn affect levels of business and leisure travel.

The seasonal nature of the hospitality business can also impact revenues. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter. However, prevailing economic conditions can cause fluctuations which impact seasonality.

In addition to economic conditions, supply is another important factor that can affect revenues. Room rates, occupancy and food and beverage revenues tend to fall when supply increases, unless the supply growth is offset by an equal or greater increase in demand.

Finally, competition within the hospitality industry, which includes our hotels and our restaurants, nightclubs, pool lounges, bars and other food and beverage venues, can affect revenues. Competitive factors in the hospitality industry include name recognition, quality of service, convenience of location, quality of the property or venue, pricing, and range and quality of nightlife, food and beverage services and amenities offered. In addition, all of our hotels, restaurants, nightclubs pool lounges, and bars are located in areas where there are numerous competitors, many of whom have substantially greater resources than us. New or existing competitors could offer significantly lower rates and pricing or more convenient locations, services or amenities or significantly expand, improve or introduce new service offerings in markets in which our hotels, restaurants, nightclubs, pool lounges, bars, and other food and beverage venues compete, thereby posing a greater competitive threat than at present. If we are unable to compete effectively, we would lose market share, which could adversely affect our revenues.

Operating Costs and Expenses. Our operating costs and expenses consist of the costs to provide hotel and food and beverage services, costs to operate our hotel and food and beverage management companies, and costs associated with the ownership of our assets, including:

— Rooms expense. Rooms expense includes the payroll and benefits for the front office, housekeeping, concierge and reservations departments and related expenses, such as laundry, rooms supplies, travel agent commissions and reservation expense. Like rooms revenue, occupancy is a major driver of rooms expense, which has a significant correlation with rooms revenue.

— Food and beverage expense. Similar to food and beverage revenue, occupancy of the hotels in which we operate food and beverage venues, and the popularity of our restaurants, nightclubs, pool lounges, bars and other food and beverage venues, are the major drivers of food and beverage expense, which has a significant correlation with food and beverage revenue.

— Other departmental expense. Occupancy is the major driver of other departmental expense, which includes telephone and other expenses related to the generation of other hotel revenue.

— Hotel selling, general and administrative expense. Hotel selling, general and administrative expense consist of administrative and general expenses, such as payroll and related costs, travel expenses and office rent, advertising and promotion expenses, comprising the payroll of the hotel sales teams, the global sales team and advertising, marketing and promotion expenses for our hotel properties, utility expense and repairs and maintenance expenses, comprising the ongoing costs to repair and maintain our hotel properties.

— Property taxes, insurance and other. Property taxes, insurance and other consist primarily of insurance costs and property taxes.

— Corporate expenses, including stock compensation. Corporate expenses consist of the cost of our corporate offices, including the corporate office of TLG, net of any cost reimbursements, which consists primarily of payroll and related costs, stock-based compensation expenses, office rent and legal and professional fees and costs associated with being a public company.

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— Depreciation and amortization expense. Hotel properties are depreciated using the straight-line method over estimated useful lives of 39.5 years for buildings and five years for furniture, fixtures and equipment. We also record amortization expense related to our other assets, such as the TLG management contracts we acquired as part of our acquisition of TLG in November 2011 and the three restaurant leases in Las Vegas that we purchased in August 2012.

— Restructuring and disposal costs include costs incurred related to our corporate restructuring initiatives, such as professional fees, litigation and settlement costs, executive terminations and severance costs related to such restructuring initiatives, including the Termination Plan and the proxy contests, and losses on asset disposals as part of major renovation projects.

— Development costs include transaction costs related to the acquisition or termination of projects, internal development payroll and other costs and pre-opening expenses incurred related to new concepts at existing hotel and the development of new hotels, and the write-off of abandoned development projects previously capitalized.

— Impairment loss on receivables and other assets from unconsolidated joint venture and managed hotel includes impairment costs incurred related to receivables deemed uncollectible from an unconsolidated joint venture and managed hotel and other assets related to such managed hotel which have been deemed to have no value.

Other Items

— Interest expense, net. Interest expense, net includes interest on our debt and amortization of financing costs and is presented net of interest income.

— Equity in (income) loss of unconsolidated joint ventures. Equity in (income) loss of unconsolidated joint ventures constitutes our share of the net profits and losses of our Joint Venture Hotels, our F&B Venture and our investments in hotels under development in which we have an equity interest. Further, we and our joint venture partners review our Joint Venture Hotels and F&B Venture for other-than-temporary declines in market value. In this analysis of fair value, we use discounted cash flow analysis to estimate the fair value of our investment taking into account expected cash flow from operations, holding period and net proceeds from the dispositions of the property. Any decline that is not expected to be recovered is considered other-than-temporary and an impairment charge is recorded as a reduction in the carrying value of the investment.

— Gain on asset sales. We recorded deferred gains related to the sales of Royalton, Morgans, Mondrian Los Angeles, and our ownership interests in Sanderson and St Martins Lane, as discussed in note 12 of our consolidated financial statements. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement.

— Other non-operating expenses include costs associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, transaction costs related to business acquisitions, changes in the fair value of certain debt and equity instruments, miscellaneous litigation and settlement costs and other expenses that relate to our financing and investing activities.

— Income tax expense (benefit). All of our foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented. We are subject to Federal and state income taxes. Income taxes for the three and nine months ended September 30, 2014 and 2013 were computed using our calculated effective tax rate. We also recorded net deferred taxes related to cumulative differences in the basis recorded for certain assets and liabilities. We established a reserve on the deferred tax assets based on the ability to utilize net operating loss carryforwards.

— Noncontrolling interest income (loss). Noncontrolling interest is the income (loss) attributable to the holders of membership units in Morgans Group, our operating company, owned by Residual Hotel Interest LLC, our former parent, as discussed in note 1 of our consolidated financial statements and the 10% ownership interest in TLG that is held by certain prior owners of TLG.

— Preferred stock dividends and accretion. Dividends attributable to our outstanding preferred stock and the accretion of the fair value discount on the issuance of the preferred stock are reflected as adjustments to our net loss to arrive at net loss attributable to common stockholders, as discussed in note 9 of our consolidated financial statements.

Most categories of variable operating expenses, such as operating supplies, and certain labor, such as housekeeping, fluctuate with changes in occupancy. Increases in RevPAR attributable to increases in occupancy are accompanied by increases in most categories of variable operating costs and expenses. Increases in RevPAR attributable to improvements in ADR typically only result in increases in limited categories of operating costs and expenses, primarily credit card and travel agent commissions. Thus, improvements in ADR have a more significant impact on improving our operating margins than occupancy.

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Notwithstanding our efforts to reduce variable costs, there are limits to how much we can accomplish because we have significant costs that are relatively fixed costs, such as depreciation and amortization, labor costs and employee benefits, insurance, real estate taxes, interest and other expenses associated with owning hotels that do not necessarily decrease when circumstances such as market factors cause a reduction in our hotel revenues.

Recent Trends and Developments

Recent Trends. Lodging demand and revenues are primarily driven by growth in gross domestic product, business investment and employment growth. Beginning in 2010, the U.S. and global economies began improving from the recent recessionary period, and that improvement has continued into 2014 as businesses and consumers regained confidence. However, the economic recovery continues to be modest, as uncertainty remains as to its sustainability and the effects of continued weakness in certain areas of global economies.

The pace of new lodging supply has increased over the past several years as many projects initiated before the economic downturn came to fruition and new projects commenced as the economy recovered. For example, we witnessed new competitive luxury and boutique properties opening between 2008 and into 2014 in some of our markets, particularly in New York, Miami, and London which have impacted our performance in these markets and may continue to do so.

RevPAR at System-Wide Comparable Hotels, all of which are located in the United States and includes all Morgans Hotel Group branded hotels operated by us, except for hotels added or under major renovation during the current or the prior year, development projects and hotels no longer managed by us, increased by 3.7% in the third quarter of 2014 from the comparable period in 2013, driven by a 1.8% increase in occupancy and 1.9% increase in ADR.  

RevPAR from System-Wide Comparable Hotels in New York increased 1.5% in the third quarter of 2014 over the same period in 2013, due to an increase in occupancy of 1.6% to 92.7%.  RevPAR at Hudson increased by 1.3% during the third quarter of 2014 as compared to the same period in 2013.  Occupancy at Hudson increased by 1.8% to 94.9% year-over-year reflecting strong demand.  ADR at Hudson declined 0.5% primarily as a result of an increase in competitive room supply, as a nearby competitor was undergoing a renovation in 2013 that was completed in 2014.  Food and beverage revenues at Hudson were up 7.8%, reflecting the continued success of Hudson Common.  Mondrian SoHo’s RevPAR increased by 4.6% during the third quarter of 2014 as compared to the same period in 2013, primarily due to increased market share.

RevPAR from System-Wide Comparable Hotels in Miami was flat in the third quarter of 2014 as compared to the same period in 2013.  Delano South Beach experienced a RevPAR decrease of 6.0% during the third quarter of 2014 as compared to the same period in 2013 primarily due to the World Cup’s impact on European and Latin American travel in July and lower group business in August. The softness in July and August was partially offset by a strong RevPAR increase in September.  

Our System-Wide Comparable Hotels on the West Coast generated 11.2% RevPAR growth in the third quarter of 2014 as compared to the same period in 2013, with a 16.8% RevPAR increase at Mondrian Los Angeles and a 7.6% RevPAR increase at Clift.

Our managed hotels in London, Sanderson and St Martins Lane, are non-comparable due to a major room and common area renovation that began in the first quarter of 2014 resulting in a decrease in RevPAR of approximately 8.8% in average dollars due to rooms being out of service during the third quarter of 2014.  The majority of the guestroom renovations at Sanderson are complete and renovation on the remaining guestrooms at St Martins Lane will resume in the first quarter of 2015.  

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Operating Results

Comparison of Three Months Ended September 30, 2014 to Three Months Ended September 30, 2013

The following table presents our operating results for the three months ended September 30, 2014 and 2013, including the amount and percentage change in these results between the two periods. The consolidated operating results for the three months ended September 30, 2014 are comparable to the consolidated operating results for the three months ended September 30, 2013, with the exception of the September 2014 openings of Mondrian London, a managed hotel, and Delano Las Vegas, a licensed hotel, the transfer of our ownership interest in the food and beverage venues at St Martins Lane in London deemed to be effective January 1, 2014, the termination of our management agreement at Ames in July 2013, and the termination of our management agreement for Delano Marrakech effective November 12, 2013. The consolidated operating results are as follows:

	Three Months Ended
	September 30, 2014			September 30, 2013			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	30,648		$	29,950		$	698			2.3	%
Food and beverage		18,252			20,214			(1,962	)		-9.7	%
Other hotel		1,347			1,142			205			18.0	%
Total hotel revenues		50,247			51,306			(1,059	)		-2.1	%
Management fee-related parties and other income		5,259			6,956			(1,697	)		-24.4	%
Total revenues		55,506			58,262			(2,756	)		-4.7	%
Operating Costs and Expenses:
Rooms		9,357			9,253			104			1.1	%
Food and beverage		14,266			15,827			(1,561	)		-9.9	%
Other departmental		800			806			(6	)		-0.7	%
Hotel selling, general and administrative		9,702			11,046			(1,344	)		-12.2	%
Property taxes, insurance and other		3,908			4,080			(172	)		-4.2	%
Total hotel operating expenses		38,033			41,012			(2,979	)		-7.3	%
Corporate expenses, including stock compensation		7,126			6,754			372			5.5	%
Depreciation and amortization		6,811			7,114			(303	)		-4.3	%
Restructuring and disposal costs		1,145			1,799			(654	)		-36.4	%
Development costs		564			971			(407	)		-41.9	%
Impairment loss on receivables and other assets    from unconsolidated joint venture and    managed hotel		—			167			(167	)		-100.0	%
Total operating costs and expenses		53,679			57,817			(4,138	)		-7.2	%
Operating income		1,827			445			1,382			(1	)
Interest expense, net		12,984			11,585			1,399			12.1	%
Equity in (income) loss of unconsolidated joint    ventures		(3	)		278			(281	)		-101.1	%
Gain on asset sales		(2,005	)		(2,005	)		—			0.0	%
Other non-operating expenses		824			810			14			1.7	%
Loss before income tax expense		(9,973	)		(10,223	)		250			-2.4	%
Income tax expense		122			105			17			16.2	%
Net loss		(10,095	)		(10,328	)		233			-2.3	%
Net income attributable to non controlling    interest		(48	)		-			(48	)		(1	)
Net loss attributable to Morgans Hotel Group		(10,143	)		(10,328	)		185			-1.8	%
Preferred stock dividends and accretion		3,594			4,037			(443	)		-11.0	%
Net loss attributable to common stockholders	$	(13,737	)	$	(14,365	)	$	628			-4.4	%

(1) Not meaningful.

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Total Hotel Revenues. Total hotel revenues decreased 2.1% to $50.2 million for the three months ended September 30, 2014 compared to $51.3 million for the three months ended September 30, 2013. This decrease was primarily due to decreased food and beverage revenues, as discussed further below.  

The components of RevPAR from our Owned Hotels for the three months ended September 30, 2014 and 2013 are summarized as follows (in actual dollars):

	Three Months Ended
	September 30, 2014			September 30, 2013			Change ($)			Change (%)
Occupancy		90.5	%		88.5	%		—			2.3	%
ADR	$	256		$	257		$	(1	)		-0.2	%
RevPAR	$	232		$	227		$	5			2.1	%

Rooms revenue increased 2.3% to $30.6 million for the three months ended September 30, 2014 compared to $30.0 million for the three months ended September 30, 2013. This increase was primarily due to increases in occupancy and ADR at Clift in San Francisco during the three months ended September 30, 2014 as compared to the same period in 2013.

Food and beverage revenue decreased 9.7% to $18.3 million for the three months ended September 30, 2014 compared to $20.2 million for the three months ended September 30, 2013. This decrease was primarily due to a decrease of $2.1 million related to the effective transfer of the food and beverage venues at St Martins Lane in London to the hotel owner effective January 1, 2014.  Slightly offsetting this decrease was an increase of approximately $0.5 million from our leased food and beverage venues at Mandalay Bay in Las Vegas, due to the opening of the third restaurant in July 2013.

Other hotel revenue increased 18.0% to $1.3 million for the three months ended September 30, 2014 compared to $1.1 million for the three months ended September 30, 2013. This increase was primarily due to increased internet revenues at Hudson during the three months ended September 30, 2014 as compared to the same period in 2013, which was the result of a change in strategy regarding internet pricing that became effective January 1, 2014.

Management Fee—Related Parties and Other Income. Management fee—related parties and other income decreased by 24.4% to $5.3 million for the three months ended September 30, 2014 compared to $7.0 million for the three months ended September 30, 2013. Approximately $0.9 million of this decrease was due to a termination fee related to Ames that we received during the third quarter of 2013. Excluding one-time items, management fees primarily decreased as a result of a decrease in fees from TLG primarily due to revisions in the management fee structure with MGM effective January 1, 2014.

The components of RevPAR from such comparable managed hotels, which includes Morgans, Royalton, Shore Club, and Mondrian Los Angeles, and excludes Mondrian London, which opened on September 30, 2014, for the three months ended September 30, 2014 and 2013 are summarized as follows (in actual dollars):

	Three Months Ended
	September 30, 2014			September 30, 2013			Change ($)		Change (%)
Occupancy		77.8	%		77.6	%		—		0.3	%
ADR	$	284		$	270		$	14		4.9	%
RevPAR	$	221		$	210		$	11		5.2	%

Operating Costs and Expenses

Rooms expense increased 1.1% to $9.4 million for the three months ended September 30, 2014 compared to $9.3 million for the three months ended September 30, 2013. This increase is slightly less than the increase in rooms revenue, discussed above, due to restructuring initiatives implemented on May 1, 2014.

Food and beverage expense decreased 9.9% to $14.3 million for the three months ended September 30, 2014 compared to $15.8 million for the three months ended September 30, 2013. This is consistent with the decrease in food and beverage revenue, discussed above, and is primarily due to a decrease in food and beverage expenses related to the effective transfer of the food and beverage venues at St Martins Lane in London to the hotel owner January 1, 2014. Slightly offsetting this decrease was an increase in expenses associated with the leased food and beverage venues at Mandalay Bay in Las Vegas due to the opening of the third restaurant in July 2013.

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Other departmental expense was relatively flat with a slight decrease of 0.7% to $0.8 million for the three months ended September 30, 2014 compared to $0.8 million for the three months ended September 30, 2013.

Hotel selling, general and administrative expense decreased 12.2% to $9.7 million for the three months ended September 30, 2014 compared to $11.0 million for the three months ended September 30, 2013 primarily as a result of the restructuring initiatives implemented on May 1, 2014.

Property taxes, insurance and other expense decreased 4.2% to $3.9 million for the three months ended September 30, 2014 compared to $4.1 million for the three months ended September 30, 2013.  This decrease was primarily due to real estate tax refund received at Clift during the third quarter of 2014 for which there was no comparable refund received during the three months ended September 30, 2013.  

Corporate expenses, including stock compensation increased 5.5% to $7.1 million for the three months ended September 30, 2014 compared to $6.8 million for the three months ended September 30, 2013. This increase was primarily due to costs incurred in connection with the settlement of two litigation matters at TLG, offset by a decrease in stock compensation expense due to fewer stock grants being awarded in 2014.  

Depreciation and amortization decreased 4.3% to $6.8 million for the three months ended September 30, 2014 compared to $7.1 million for the three months ended September 30, 2013. This decrease was primarily due to certain assets becoming fully depreciated at Hudson and Clift.

Restructuring and disposal costs decreased 36.4% to $1.1 million for the three months ended September 30, 2014 compared to $1.8 million for the three months ended September 30, 2013. This decrease was primarily due to severance and related fees incurred during the three months ended September 30, 2013 relating to the departure of our former Chief Executive Officer in August 2013.  

Development costs decreased 41.9% to $0.6 million for the three months ended September 30, 2014 compared to $1.0 million for the three months ended September 30, 2013. This decrease was primarily due to preopening costs related to the Hudson bar, Henry, which opened during the third quarter of 2013 after renovation and reconcepting.  

Impairment loss on receivables and other assets from unconsolidated joint venture and managed hotel was zero for the three months ended September 30, 2014 compared to $0.2 million for the three months ended September 30, 2013. During the three months ended September 30, 2013, we impaired certain outstanding receivables due from Delano Marrakech, as management concluded that collection of these receivables was uncertain. There were no comparable impairment charges in 2014.

Interest expense, net increased 12.1% to $13.0 million for the three months ended September 30, 2014 compared to $11.6 million for the three months ended September 30, 2013. This increase was primarily due to the Hudson/Delano 2014 Mortgage Loan, which closed in February 2014, and resulted in a larger debt balance outstanding during the third quarter of 2014 as compared the same period in 2013.

Equity in (income) loss of unconsolidated joint ventures resulted in an immaterial gain for the three months ended September 30, 2014 compared to a loss of $0.3 million for the three months ended September 30, 2013. We no longer record our share of equity in earnings or losses on a majority of our unconsolidated joint ventures, as we have written our investment balances down to zero due to impairments recorded in prior periods.

The components of RevPAR from our comparable Joint Venture Hotels for the three months ended September 30, 2014 and 2013, which includes Mondrian South Beach and Mondrian SoHo and excludes Shore Club, in which we have only an immaterial contingent profit participation equity interest as of September 30, 2014, are summarized as follows:

	Three Months Ended
	September 30, 2014			September 30, 2013			Change ($)		Change (%)
Occupancy		78.6	%		76.4	%		—		2.9	%
ADR	$	290		$	279		$	11		4.0	%
RevPAR	$	228		$	213		$	15		7.0	%

Other non-operating expenses increased 1.7% to $0.8 million for the three months ended September 30, 2014 as compared to $0.8 million for the three months ended September 30, 2013.

Income tax expense was relatively flat at $0.1 million for the three months ended September 30, 2014 as compared to $0.1 million for the three months ended September 30, 2013.

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Comparison of Nine Months Ended September 30, 2014 to Nine Months Ended September 30, 2013

The following table presents our operating results for the nine months ended September 30, 2014 and 2013, including the amount and percentage change in these results between the two periods. The consolidated operating results for the nine months ended September 30, 2014 are comparable to the consolidated operating results for the nine months ended September 30, 2013, with the exception of the September 2014 opening of Mondrian London, a managed hotel, and Delano Las Vegas, a licensed hotel, the transfer of our ownership interest in the food and beverage venues at St Martins Lane in London deemed to be effective January 1, 2014, the transfer of our ownership interest in Ames in April 2013, the termination of our management agreement at Ames in July 2013, the termination of our management agreement at Las Palapas in March 2013, and the termination of our management agreement for Delano Marrakech effective November 12, 2013. The consolidated operating results are as follows:

	Nine Months Ended
	September 30, 2014			September 30, 2013			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	90,760		$	87,303		$	3,457			4.0	%
Food and beverage		61,177			59,713			1,464			2.5	%
Other hotel		4,132			3,384			748			22.1	%
Total hotel revenues		156,069			150,400			5,669			3.8	%
Management fee-related parties and other income		16,509			21,220			(4,711	)		-22.2	%
Total revenues		172,578			171,620			958			0.6	%
Operating Costs and Expenses:
Rooms		27,896			27,298			598			2.2	%
Food and beverage		44,834			44,335			499			1.1	%
Other departmental		2,369			2,422			(53	)		-2.2	%
Hotel selling, general and administrative		31,404			32,688			(1,284	)		-3.9	%
Property taxes, insurance and other		12,154			12,641			(487	)		-3.9	%
Total hotel operating expenses		118,657			119,384			(727	)		-0.6	%
Corporate expenses, including stock compensation		21,027			22,469			(1,442	)		-6.4	%
Depreciation and amortization		21,894			20,535			1,359			6.6	%
Restructuring and disposal costs		12,369			7,951			4,418			55.6	%
Development costs		3,928			2,368			1,560			65.9	%
Impairment loss on receivables and other assets    from unconsolidated joint venture and    managed hotel		—			5,942			(5,942	)		-100.0	%
Total operating costs and expenses		177,875			178,649			(774	)		-0.4	%
Operating loss		(5,297	)		(7,029	)		1,732			-24.6	%
Interest expense, net		41,917			34,434			7,483			21.7	%
Equity in (income) loss of unconsolidated joint    ventures		(7	)		773			(780	)		-100.9	%
Gain on asset sales		(6,015	)		(6,015	)		—			0.0	%
Other non-operating expenses		1,950			1,289			661			51.3	%
Loss before income tax expense		(43,142	)		(37,510	)		(5,632	)		15.0	%
Income tax expense		351			541			(190	)		-35.1	%
Net loss		(43,493	)		(38,051	)		(5,442	)		14.3	%
Net (income) loss attributable to non controlling    interest		(504	)		298			(802	)		(1	)
Net loss attributable to Morgans Hotel Group		(43,997	)		(37,753	)		(6,244	)		16.5	%
Preferred stock dividends and accretion		11,948			9,976			1,972			19.8	%
Net loss attributable to common stockholders	$	(55,945	)	$	(47,729	)	$	(8,216	)		17.2	%

(1) Not meaningful.

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Total Hotel Revenues. Total hotel revenues increased 3.8% to $156.1 million for the nine months ended September 30, 2014 compared to $150.4 million for the nine months ended September 30, 2013. This increase was primarily due to increased occupancy at our Owned Hotels. The components of RevPAR from our Owned Hotels for the nine months ended September 30, 2014 and 2013 are summarized as follows (in actual dollars):

	Nine Months Ended
	September 30, 2014			September 30, 2013			Change ($)		Change (%)
Occupancy		88.4	%		85.3	%		—		3.6	%
ADR	$	262		$	262		$	—		0.3	%
RevPAR	$	232		$	223		$	9		3.9	%

Rooms revenue increased 4.0% to $90.8 million for the nine months ended September 30, 2014 compared to $87.3 million for the nine months ended September 30, 2013. This increase was primarily due to increases in occupancy at Delano South Beach and increases in occupancy and ADR at Clift in San Francisco during the nine months ended September 30, 2014 as compared to the same period in 2013.

Food and beverage revenue increased 2.5% to $61.2 million for the nine months ended September 30, 2014 compared to $59.7 million for the nine months ended September 30, 2013. This increase was primarily due to an increase of approximately $6.3 million from our three leased food and beverage venues at Mandalay Bay in Las Vegas, the first of which opened in late December 2012, the second restaurant opened in February 2013 and the third restaurant opened in July 2013. The increase was also due to increases in revenues of approximately $2.3 million at Hudson due to Hudson Common, the restaurant at Hudson which opened in February 2013, and Henry, a bar at Hudson which opened during the third quarter of 2013. Offsetting these increases was a decrease of approximately $7.0 million related to the effective transfer of the food and beverage venues at St Martins Lane in London to the hotel owner effective January 1, 2014.

Other hotel revenue increased 22.1% to $4.1 million for the nine months ended September 30, 2014 compared to $3.4 million for the nine months ended September 30, 2013. This increase was primarily due to increased internet revenues at Hudson during the nine months ended September 30, 2014 as compared to the same period in 2013, which was the result of a change in strategy regarding internet pricing that became effective January 1, 2014.

Management Fee—Related Parties and Other Income. Management fee—related parties and other income decreased by 22.2% to $16.5 million for the nine months ended September 30, 2014 compared to $21.2 million for the nine months ended September 30, 2013. Approximately $2.3 million of this decrease was due to a termination fees related to Hotel Las Palapas and Ames that we received during the nine months ended September 30, 2013. Excluding one-time items, management fees primarily decreased as a result of a decrease in fees from TLG primarily due to revisions in the management fee structure with MGM effective January 1, 2014. Additionally, we experienced a decrease in management fees from managed hotels, primarily due to the loss of the Ames management contract, major renovations at Sanderson and St Martins Lane which began during the first quarter of 2014, and lower technical service fees.

The components of RevPAR from such comparable managed hotels, which includes Morgans, Royalton, Shore Club, and Mondrian Los Angeles, and excludes Mondrian London, which opened on September 30, 2014 and Delano Las Vegas, a licensed hotel, for the nine months ended September 30, 2014 and 2013 are summarized as follows (in actual dollars):

	Nine Months Ended
	September 30, 2014			September 30, 2013			Change ($)		Change (%)
Occupancy		80.7	%		79.7	%		—		1.3	%
ADR	$	303		$	292		$	11		3.6	%
RevPAR	$	244		$	233		$	11		4.9	%

Operating Costs and Expenses

Rooms expense increased 2.2% to $27.9 million for the nine months ended September 30, 2014 compared to $27.3 million for the nine months ended September 30, 2013. This increase is less than the increase in rooms revenue, discussed above, due to restructuring initiatives implemented on May 1, 2014.

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Food and beverage expense increased 1.1% to $44.8 million for the nine months ended September 30, 2014 compared to $44.3 million for the nine months ended September 30, 2013. This is consistent with the increase in food and beverage revenue, discussed above, and is primarily due to the expenses associated with the three leased food and beverage venues at Mandalay Bay in Las Vegas, at Hudson Common, the restaurant at Hudson which opened in February 2013, and Henry, a bar at Hudson which opened during the third quarter of 2013. Slightly offsetting these increases was a decrease in food and beverage expenses related to the effective transfer of the food and beverage venues at St Martins Lane in London to the hotel owner January 1, 2014.

Other departmental expense decreased 2.2% to $2.4 million for the nine months ended September 30, 2014 compared to $2.4 million for the nine months ended September 30, 2013. This slight decrease was primarily the result of decreased expenses related to the operation of the spa at Delano South Beach. Effective January 1, 2014, the spa at Delano South Beach was leased to a third party operator.

Hotel selling, general and administrative expense decreased 3.9% to $31.4 million for the nine months ended September 30, 2014 compared to $32.7 million for the nine months ended September 30, 2013. This decrease was primarily due to a decrease in advertising and promotional expenses due to cost-control measures taken during the nine months ended September 30, 2014. Slightly offsetting this decrease was an increase in heat, light and power and other related costs at Hudson during the first half of 2014 as a result of Hudson’s increased occupancy and an unusually cold winter in New York City in 2014.  

Property taxes, insurance and other expense decreased 3.9% to $12.2 million for the nine months ended September 30, 2014 compared to $12.6 million for the nine months ended September 30, 2013. This is primarily due to real estate tax refunds received at Delano South Beach during the second quarter of 2014 and Clift during the third quarter of 2014 for which there was no comparable refunds received during the same periods in 2013.     

Corporate expenses, including stock compensation decreased 6.4% to $21.0 million for the nine months ended September 30, 2014 compared to $22.5 million for the nine months ended September 30, 2013. This decrease was primarily due to savings resulting from our implementation of the plan of termination (the “Termination Plan”) in March 2014 that resulted in a workforce reduction of our corporate office employees.

Depreciation and amortization increased 6.6% to $21.9 million for the nine months ended September 30, 2014 compared to $20.5 million for the nine months ended September 30, 2013. This increase was primarily due to the increased depreciation related to the renovation of certain food and beverage outlets at Hudson in 2013 and the conversion of single room dwelling units (“SROs”) into new guest rooms at Hudson in early 2013.

Restructuring and disposal costs increased 55.6% to $12.4 million for the nine months ended September 30, 2014 compared to $8.0 million for the nine months ended September 30, 2013. This increase was primarily due to severance and related costs incurred in early 2014 relating to the Termination Plan. Costs incurred during 2013 primarily related to legal and advisory fees incurred in connection with the 2013 Deleveraging Transaction, discussed further in note 7 to our consolidated financial statements.

Development costs increased 65.9% to $3.9 million for the nine months ended September 30, 2014 compared to $2.4 million for the nine months ended September 30, 2013. This increase was primarily due to costs incurred in 2014 related to the termination of the management agreement for Mondrian at Baha Mar and costs associated with the initiation of foreclosure proceedings related to Mondrian Istanbul, as discussed further in note 7 to our consolidated financial statements.

Impairment loss on receivables and other assets from unconsolidated joint venture and managed hotel was zero for the nine months ended September 30, 2014 compared to $5.9 million for the nine months ended September 30, 2013. During the nine months ended September 30, 2013, we impaired certain outstanding receivables due from Mondrian SoHo and Delano Marrakech, as management concluded that collection of these receivables was uncertain, and we impaired the balance of our key money investment in Delano Marrakech. There were no comparable impairment charges in 2014.

Interest expense, net increased 21.7% to $41.9 million for the nine months ended September 30, 2014 compared to $34.4 million for the nine months ended September 30, 2013. This increase was primarily due to a $2.2 million exit fee related to the repayment of the Hudson 2012 Mortgage Loan in February 2014, defined below, and the Hudson/Delano 2014 Mortgage Loan, which closed in February 2014, resulting in a larger debt balance outstanding during the first nine months of 2014 as compared the same period in 2013.

Equity in (income) loss of unconsolidated joint ventures resulted in an immaterial gain for the nine months ended September 30, 2014 compared to a loss of $0.8 million for the nine months ended September 30, 2013. We no longer record our share of equity in earnings or losses on a majority of our unconsolidated joint ventures, as we have written our investment balances down to zero due to impairments recorded in prior periods.

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The components of RevPAR from our comparable Joint Venture Hotels for the nine months ended September 30, 2014 and 2013, which includes Mondrian South Beach and Mondrian SoHo and excludes Ames, in which we no longer owned any equity interests effective April 26, 2013, and Shore Club, in which we have only an immaterial contingent profit participation equity interest as of September 30, 2014, are summarized as follows:

	Nine Months Ended
	September 30, 2014			September 30, 2013			Change ($)		Change (%)
Occupancy		82.7	%		82.5	%		—		0.2	%
ADR	$	306		$	293		$	13		4.3	%
RevPAR	$	253		$	242		$	11		4.5	%

Other non-operating expenses increased 51.3% to $2.0 million for the nine months ended September 30, 2014 as compared to $1.3 million for the nine months ended September 30, 2013. This increase was primarily due to settlement and litigation related costs incurred in 2014.

Income tax expense decreased 35.1% to $0.4 million for the nine months ended September 30, 2014 as compared to $0.5 million for the nine months ended September 30, 2013. This slight decrease was primarily due to reduced tax rates and a decline in operating results at our foreign subsidiary.

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Liquidity and Capital Resources

As of September 30, 2014, we had approximately $96.3 million in cash and cash equivalents. During the third quarter of 2014, we used cash on hand to repurchase an aggregate of $35.4 million of outstanding 2.375% Senior Subordinated Convertible Notes (“Convertible Notes”) prior to maturity at a discount of approximately $0.1 million plus accrued interest. The repurchased Convertible Notes were retired upon repurchase. As of September 30, 2014, there were $49.1 million of Convertible Notes outstanding.  

In October 2014, we used cash on hand to repay the remaining $49.1 million outstanding Convertible Notes, which matured on October 15, 2014, and fund the $15.2 million Mondrian London key money payment on October 10, 2014.  

We intend to utilize our liquidity, along with our operating cash flow, to satisfy our short-term and long-term liquidity requirements, as described in more detail below, and for general corporate purposes. We believe we have sufficient cash to meet these obligations.

We believe the credit and equity markets will be available to us in the future to fund additional short-term and long-term liquidity requirements. However, there can be no assurances that we will be able to access any of these sources on terms acceptable to us or at all. For example, our ability to obtain additional debt is dependent upon a number of factors, including our degree of leverage, borrowing restrictions imposed by existing lenders and general market conditions. We will continue to explore various options from time to time as necessary for our liquidity requirements or advantageous in pursuing our business strategy.

Liquidity Requirements

Short-Term Liquidity Requirements. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred by us or our consolidated subsidiaries within the next 12 months and believe those requirements currently consist primarily of funds necessary to pay scheduled debt maturities and operating expenses and other expenditures directly associated with our properties, including the funding of our reserve accounts, and capital commitments associated with certain of our development projects and existing hotels.

Our remaining outstanding Convertible Notes, as described under “—Debt,” with a face value of $49.1 million on September 30, 2014, matured on October 15, 2014 and were repaid with cash on hand.  

Additionally, the TLG Promissory Notes, which are obligations related to our acquisition of TLG, mature in November 2015, although we may consider retiring the TLG Promissory Notes, in full or in part, prior to the November 2015 maturity due to the increase in the interest rate from 8% to 18% in November 2014. At September 30, 2014, the balance of the TLG Promissory Notes was $19.1 million, which includes the original principal balance plus deferred interest of $1.1 million.

Also as part of our acquisition of TLG, each of Messrs. Sasson and Masi received the right to require Morgans Group to purchase his 5% equity interest in TLG at any time after November 30, 2014 at a purchase price equal to his percentage equity ownership interest multiplied by the product of seven times the Non-Morgans EBITDA for the preceding 12 months, subject to certain adjustments (the “Sasson-Masi Put Options”). The estimated aggregate purchase price for the Sasson-Masi Put Options, which become exercisable in December 2014, is approximately $4.5 million based on the contractual formula applied as of September 30, 2014.

We are focused on growing our portfolio, primarily with our core brands, in major gateway markets and key resort destinations. In order to obtain long-term management contracts, we have committed to contribute capital in various forms on hotel development projects. These include equity investments, key money and cash flow guarantees to hotel owners. The cash flow guarantees generally have a stated maximum amount of funding and a defined term. The terms of the cash flow guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of operating profit. See note 7 to our consolidated financial statements included elsewhere in this report for more information. Often, cash flow guarantees to hotel owners may be recoverable as loans repayable to us out of future hotel cash flows and/or proceeds from the sale of hotels. As of September 30, 2014, our short-term key money funding obligations were $15.5 million, which represents £9.4 million (or approximately $15.2 million at the exchange rate as of the payment date) in key money for Mondrian London, which we funded in October 2014 after the hotel opened, and $0.3 million in key money for 10 Karakoy, a Morgans Original branded hotel in Istanbul, Turkey, which will be funded upon the hotel opening in November 2014.  We also paid approximately $3.0 million of value added tax related to the Mondrian London key money payment, which the Company expects to recover from the taxing authority.  

On May 5, 2014, we and affiliates of The Yucaipa Companies, LLC (“Yucaipa”), among other litigants, executed and submitted to the Delaware Court of Chancery a Stipulation of Settlement (the “Settlement Stipulation”) which contemplated the partial settlement and dismissal of the Delaware Shareholder Derivative Action (as defined below) and the complete settlement and dismissal

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of the New York Securities Action, the Proxy Action and the Board Observer Action. On July 23, 2014, the Delaware Court of Chancery approved the Settlement Stipulation, which became effective on August 25, 2014.  Our insurers have paid a majority of the costs that we were obligated to pay under the Settlement Stipulation.  On October 3, 2014, we entered into a memorandum of understanding with OTK and Thomas L. Harrison, a former Director, (the “Harrison Settlement”) to settle the claims against Mr. Harrison in the Delaware Shareholder Derivative Action and also to settle claims Mr. Harrison has asserted against us in a separate action. The Harrison Settlement is subject to approval by the Delaware Court of Chancery.  Pursuant to the Harrison Settlement, in October 2014, we advanced to Mr. Harrison a portion of the fees and expenses for which he has sought advancement and has paid a portion of the amounts for which Mr. Harrison seeks indemnification related to the Harrison Advancement Action.  See Part II, “Item 1. Legal Proceedings” for further discussion of these actions.  Former director Michael D. Malone chose not to participate in Settlement Stipulation and the Delaware Shareholder Derivative Action continues against him and we may incur fees and expenses in that continuing litigation which may be subject to recovery from our insurers. We do not expect that the net amount of any remaining payments we will make under the terms of the Settlement Stipulation, the Harrison Settlement, or any other settlement with the former directors who have not settled will be material to our financial position.

We are obligated to maintain reserve funds for capital expenditures at our Owned Hotels as determined pursuant to our debt or lease agreements related to such hotels. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Such agreements typically require us to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash.

In addition to reserve funds for capital expenditures, our Owned Hotels debt and lease agreements also require us to deposit cash into escrow accounts for taxes, insurance and debt service or lease payments, among other things.

Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred by us or our consolidated subsidiaries beyond the next 12 months and believe these requirements consist primarily of funds necessary to pay scheduled debt maturities, obligations under preferred securities, renovations at our Owned Hotels and Owned F&B Operations and other non-recurring capital expenditures that need to be made periodically with respect to our properties, the costs associated with acquisitions and development of properties under contract, and new acquisitions and development projects that we may pursue.

Our Series A preferred securities have an 8% dividend rate until October 15, 2014, a 10% dividend rate from October 15, 2014 to October 15, 2016, and a 20% dividend rate thereafter, with a 4% increase in the dividend rate during certain periods in which the Yucaipa Investors’ nominee to our Board of Directors has not been elected as a director or subsequently appointed as a director by our Board of Directors. On May 14, 2014, at our annual shareholder meeting, a Board of Directors nominee representing the Yucaipa Investors was elected as a director of the Company. Currently, the dividend rate on the Series A preferred securities is 10%.

We have the option to accrue any and all dividend payments, and as of September 30, 2014, have not declared any dividends. The cumulative unpaid dividends also have a dividend rate equal to the then applicable dividend rate on the Series A preferred securities. As of September 30, 2014, we have undeclared dividends of approximately $40.4 million. We have the option to redeem any or all of the Series A preferred securities at any time.

Other long-term liquidity requirements include our obligations under the Hudson/Delano 2014 Mortgage Loan, our trust preferred securities, which mature in October 2036 and the Clift lease, each as described under “—Debt.” In the event we were to undertake a transaction that was deemed to constitute a transfer of our properties and assets substantially as an entirety within the meaning of the indenture, we may be required to repay the trust preferred securities prior to their maturity or obtain the trustee’s consent in connection with such transfer.

Additionally, as our new managed and franchised hotels are developed, to the extent we have committed to contribute key money, equity or debt, these amounts will generally come due prior to or on the hotel opening. As of September 30, 2014, we did not have any equity or debt financing commitments relating to hotel development projects. As of September 30, 2014, our potential funding under cash flow guarantees at operating hotels and hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum cannot be determined, was $13.0 million, which includes an $8.0 million performance-based cash flow guarantee related to Delano Marrakech, which we believe we are not obligated to fund. See note 7 to our consolidated financial statements included elsewhere in this report for more information. In September 2013, we served notice of termination of our management agreement for Delano Marrakech following the failure by the owner of Delano Marrakech to remedy numerous breaches of the agreement. As a result, we have discontinued all affiliation with the hotel, including removal of the Delano name, and terminated management of the property, effective November 12, 2013. Pursuant to the management agreement, in the event of an owner default, we have no further obligations under the performance-based cash flow guarantee. As discussed further in Part II, “Item 1. Legal Proceedings,” we are in litigation with the hotel owner surrounding the termination of the hotel management

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agreement, performance-based cash flow guarantee and related matters. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014.  

Financing has not been obtained for some of our hotel development projects, and there can be no assurances that any or all of our new hotel projects will be developed as planned. If adequate project financing is not obtained, these projects may need to be limited in scope, deferred or cancelled altogether, and to the extent we have previously funded key money, an equity investment or debt financing on a cancelled project, we may be unable to recover the amounts funded.

Sources of Liquidity. Historically, we have satisfied our short-term and long-term liquidity requirements through various sources of capital, including our existing working capital, cash provided by operations, equity and debt offerings, credit facilities, long-term mortgages and mezzanine loans on our properties, and cash generated through asset dispositions.

As of September 30, 2014, we had approximately $372.7 million of remaining Federal tax net operating loss carryforwards to offset future income, including gains on future asset sales. We believe we have significant value available to us in Delano South Beach and Hudson, and that the tax basis of these assets is significantly less than their fair values. As of September 30, 2014, we estimate that the tax basis of Delano South Beach is approximately $54.2 million and the tax basis in Hudson is approximately $137.2 million.

Other Liquidity Matters

In addition to our expected short-term and long-term liquidity requirements, our liquidity could also be affected by certain other potential liquidity matters, including at our Joint Venture Hotels, as discussed below.

Mondrian South Beach Mortgage and Mezzanine Agreements. As of September 30, 2014, the joint venture’s outstanding nonrecourse mortgage debt was $24.1 million and mezzanine debt was $28.0 million. The joint venture also has an additional $28.0 million of mezzanine debt owed to affiliates of the joint venture partners. The lender’s nonrecourse mortgage loan and mezzanine loan related to Mondrian South Beach matured on August 1, 2009. In April 2010, the Mondrian South Beach ownership joint venture amended the nonrecourse financing and mezzanine loan agreements secured by Mondrian South Beach or related equity interests and extended the maturity date for up to seven years through one-year extension options until April 2017, subject to certain conditions. In March 2014, the joint venture exercised its option to extend the outstanding mortgage and mezzanine debt until April 2015.

Morgans Group and affiliates of our joint venture partner have agreed to provide standard nonrecourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard nonrecourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of our joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability in connection with certain third-party actions. Morgans Group and affiliates of our joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of our joint venture partner at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of our joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2014, there were remaining payables outstanding to vendors of approximately $0.3 million. Pursuant to a letter agreement with the lenders for the Mondrian South Beach loan, the joint venture agreed that these payables, many of which are currently contested or under dispute, will not be paid from operating funds but only from tax abatements and settlements of certain lawsuits. In the event funds from tax abatements and settlements of lawsuits are insufficient to repay these amounts in a timely manner, we and our joint venture partner are required to fund the shortfall amounts.

We and affiliates of our joint venture partner also have each agreed to purchase approximately $14.0 million of condominium units under certain conditions, including an event of default. In the event of a default under the lender’s mortgage or mezzanine loan, the joint venture partners are each obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the lender’s mezzanine loan, or the then outstanding principal balance of the lender’s mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. We have not recognized a liability related to the construction completion or the condominium purchase guarantees as no triggering event has occurred.

Mondrian SoHo. As of September 30, 2014, the Mondrian SoHo joint venture’s outstanding mortgage debt secured by the hotel was $196.0 million.  In addition, as of August 18, 2014, the court appointed referee calculated deferred interest through the date of

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default of $20.8 million and default interest of $33.4 million.  The joint venture did not satisfy the extension conditions in 2012 and the loan matured on November 15, 2012. In January 2013, the lender initiated foreclosure proceedings and litigation is ongoing, as discussed further in Part II, “Item 1. Legal Proceedings.”

Additionally, there have been and, due to the fact that the lender controls all of the cash flow, may continue to be cash shortfalls from the operations of the hotel from time to time which have required additional fundings by us and our joint venture partner.

Certain affiliates of our joint venture partner provided a standard nonrecourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its respective gross negligence or willful misconduct.

Ames. On April 26, 2013, the joint venture closed on a new loan agreement with the mortgage lenders that provides for a reduction of the mortgage debt and an extension of maturity in return for a cash paydown. We did not contribute to the cash paydown and instead entered into an agreement with our joint venture partner pursuant to which, among other things, (1) we assigned our equity interests in the joint venture to our joint venture partner, (2) we agreed to give our joint venture partner the right to terminate our management agreement upon 60 days’ prior notice in return for an aggregate payment of $1.8 million, and (3) a creditworthy affiliate of our joint venture partner has assumed all or a portion of our liability with respect to historic tax credit guaranties, with our liability for any tax credit guaranties capped, in any event, at $3.0 million in the aggregate. The potential liability for historic tax credit guaranties relates to approximately $16.9 million of federal and state historic rehabilitation tax credits that Ames qualified for at the time of its development. As of September 30, 2014, there has been no triggering event that would require us to accrue any potential liability related to the historic tax credit guarantee. Effective July 17, 2013, we no longer manage Ames.

Mondrian Istanbul. Additionally, due to our joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, we exercised our put option under the joint venture agreement that requires our joint venture partner to buy back our equity interests in the Mondrian Istanbul joint venture. Our rights under that joint venture agreement are secured by, among other things, a mortgage on the property. In February 2014, we issued a notice of default to our joint venture partner, as they failed to buy back our equity interests by the contractual deadline, and further notified our joint venture partner that we plan to begin foreclosure proceedings as a result of the event of default. We initiated foreclosure proceedings on March 11, 2014. Our joint venture partner, and through such joint venture partner, the joint venture itself, have objected to the foreclosure proceeding, as a result of which, the foreclosure proceeding is currently stayed. Additionally, in June 2014, the joint venture purported to notify us that it had terminated the hotel management agreement. We have objected to such purported notices and intend to vigorously defend against any lawsuit that may result. In addition, we have initiated proceedings in an English court seeking payment of the put option amount against the individual shareholders behind the joint venture partner.  The parties are also seeking various other judicial remedies in Turkey.

Potential Litigation. We may have potential liability in connection with certain claims by a designer for which we have accrued $13.9 million as of September 30, 2014, as discussed in note 5 of our consolidated financial statements.

We are also defendants to lawsuits in which plaintiffs have made claims for monetary damages against us. See Part II, “Item 1. Legal Proceedings.”

Other Possible Uses of Capital. As we pursue our growth strategy, we may continue to invest in new management, franchise and license agreements through key money, equity or debt investments. To fund any such future investments, we may from time to time pursue various potential financing opportunities available to us.

We have a number of additional development projects signed or under consideration, some of which may require equity investments, key money or credit support from us. In addition, through certain cash flow guarantees, we may have potential future fundings for operating hotels and hotels under development, as discussed in note 7 of our consolidated financial statements.

Comparison of Cash Flows for the Nine Months Ended September 30, 2014 to September 30, 2013

Operating Activities. Net cash used in operating activities was $5.2 million for the nine months ended September 30, 2014 as compared to net cash used in operating activities of $3.6 million for the nine months ended September 30, 2013. Certain amounts which were previously included in restricted cash under the Hudson 2012 Mortgage Loan were returned to the Company in February 2014 in connection with the Hudson/Delano 2014 Mortgage Loan and are included in operating cash on our consolidated balance sheet. This increase in cash was slightly offset by payments made related to the Termination Plan in 2014.  

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Investing Activities. Net cash used in investing activities amounted to $2.2 million for the nine months ended September 30, 2014 as compared to net cash used in investing activities of $8.1 million for the nine months ended September 30, 2013. The decrease in cash used was primarily related to the funding of renovations in certain food and beverage venues at Hudson that were ongoing during the nine months ended September 30, 2013, which were concluded in 2013. Additionally, during September 2014, we received $3.0 million of previously funded key money, plus reimbursables, related to the Delano Moscow management agreement which was terminated in September 2014, as discussed further in note 7 of our consolidated financial statements.  

Financing Activities. Net cash provided by financing activities amounted to $93.7 million for the nine months ended September 30, 2014 as compared to net cash provided by financing activities of $13.5 million for the nine months ended September 30, 2013. This increase in cash provided was primarily due to proceeds received from the Hudson/Delano 2014 Mortgage Loan in February 2014, discussed below in “—Debt.”

Debt

Hudson/Delano 2014 Mortgage Loan. On February 6, 2014, certain of our subsidiaries entered into a new mortgage financing with Citigroup Global Markets Realty Corp. and Bank of America, N.A., as lenders, consisting of nonrecourse mortgage and mezzanine loans in the aggregate principal amount of $450.0 million, secured by mortgages encumbering Delano South Beach and Hudson and pledges of equity interests in certain of our subsidiaries (collectively, the “Hudson/Delano 2014 Mortgage Loan”). The net proceeds from the Hudson/Delano 2014 Mortgage Loan were applied to (1) repay $180 million of outstanding mortgage debt under the prior mortgage loan secured by Hudson (the “Hudson 2012 Mortgage Loan”), (2) repay $37 million of indebtedness under our $100.0 million senior secured revolving credit facility secured by Delano South Beach (the “Delano Credit Facility”), (3) provide cash collateral for reimbursement obligations with respect to a $10.0 million letter of credit under the Delano Credit Facility which was returned to the Company in June 2014, and (4) fund reserves required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital, and the repayment of other indebtedness, subject to certain minimum unencumbered asset requirements.

The Hudson/Delano 2014 Mortgage Loan bears interest at a reserve adjusted blended rate of 30-day LIBOR plus 565 basis points. We maintain interest rate caps for the principal amount of the Hudson/Delano 2014 Mortgage Loan that caps the LIBOR rate on the debt under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the initial maturity date of the loan.

The Hudson/Delano 2014 Mortgage Loan matures on February 9, 2016. We have three, one-year extension options that will permit us to extend the maturity date of the Hudson/Delano 2014 Mortgage Loan to February 9, 2019, if certain conditions are satisfied at the respective extension dates, including delivery by the borrowers of a business plan and budget for the extension term reasonably satisfactory to the lenders and achievement by us of a specified debt yield. The second and third extensions would also require the payment of an extension fee in an amount equal to 0.25% of the then outstanding principal amount under the Hudson/Delano 2014 Mortgage Loan. A minimum unencumbered assets requirement may also be required if certain other indebtedness (as same may be amended, supplemented, modified, refinanced or replaced) becomes due during the extension term. We may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield.

The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part, subject to payment of a prepayment premium for any prepayment prior to August 9, 2015. There is no prepayment premium after August 9, 2015.

The Hudson/Delano 2014 Mortgage Loan is assumable under certain conditions, and provides that either one of the encumbered hotels may be sold, subject to prepayment of the Hudson/Delano 2014 Mortgage Loan at a specified release price and satisfaction of certain other conditions.

The Hudson/Delano 2014 Mortgage Loan contains restrictions on the ability of the borrowers to incur additional debt or liens on their assets and on the transfer of direct or indirect interests in Hudson or Delano South Beach and the owners of Hudson and Delano South Beach and other affirmative and negative covenants and events of default customary for multiple asset commercial mortgage-backed securities loans. The Hudson/Delano 2014 Mortgage Loan is nonrecourse to our subsidiaries that are the borrowers under the loan, except pursuant to certain carveouts detailed therein. In addition, we have provided a customary environmental indemnity and nonrecourse carveout guaranty under which we would have liability with respect to the Hudson/Delano 2014 Mortgage Loan if certain events occur with respect to the borrowers, including voluntary bankruptcy filings, collusive involuntary bankruptcy filings, changes to the Hudson capital lease without prior written consent of the lender, violations of the restrictions on transfers, incurrence of additional debt, or encumbrances of the property of the borrowers. The nonrecourse carveout guaranty requires us to maintain minimum unencumbered assets (as defined in the nonrecourse carveout guaranty) until the Convertible Notes and TLG Promissory Notes are repaid, extended, refinanced or replaced beyond the term of the Hudson/Delano 2014 Mortgage Loan. The Convertible Notes were repaid upon maturity in October 2014.  Further, the nonrecourse carveout guaranty prohibits the payment of dividends on or repurchase of our common stock. As of September 30, 2014, we were in compliance with these covenants.

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On April 8, 2014, the Hudson/Delano 2014 Mortgage Loan was amended to reallocate the principal amount and interest rate spread of the $300.0 million nonrecourse mortgage notes. This technical amendment had no impact on the outstanding principal amount of the nonrecourse mortgage notes or the blended interest rate of the Hudson/Delano 2014 Mortgage Loan.

Hudson 2012 Mortgage Loan. On November 14, 2012, certain of our subsidiaries which own Hudson entered into a new mortgage financing with UBS Real Estate Securities Inc., as lender, consisting of a $180.0 million nonrecourse mortgage loan, secured by Hudson, that was fully-funded at closing.

The Hudson 2012 Mortgage Loan bore interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 0.50%) plus 840 basis points. We maintained an interest rate cap for the amount of the Hudson 2012 Mortgage Loan that capped the LIBOR rate on the debt under the Hudson 2012 Mortgage Loan at approximately 2.5% through the maturity date.

The Hudson 2012 Mortgage Loan was scheduled to mature on February 9, 2014, with extension options that would have permitted us to extend the maturity date of the Hudson 2012 Mortgage Loan to February 9, 2015, if certain conditions were satisfied at the extension date. There was no prepayment premium to prepay the Hudson 2012 Mortgage Loan after November 9, 2013. In connection with the closing of Hudson/Delano 2014 Mortgage Loan, described more fully above, the Hudson 2012 Mortgage Loan was prepaid and terminated on February 6, 2014.

Delano Credit Facility. On July 28, 2011, we and certain of our subsidiaries, including Beach Hotel Associates LLC, entered into the Delano Credit Facility with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent, and the lenders party thereto.

The Delano Credit Facility provided commitments for a $100 million revolving credit facility and included a $15 million letter of credit sub-facility. The interest rate applicable to loans under the Delano Credit Facility was a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate, as set forth in the agreement, plus 3.00%. In addition, a commitment fee of 0.50% applied to the unused portion of the commitments under the Delano Credit Facility.

In connection with the closing of the Hudson/Delano 2014 Mortgage Loan, described more fully below, the Delano Credit Facility was terminated on February 6, 2014 after repayment of the outstanding debt thereunder.

Notes to a Subsidiary Trust Issuing Preferred Securities. In August 2006, we formed a trust, MHG Capital Trust I (the “Trust”), to issue $50.0 million of trust preferred securities in a private placement. The sole assets of the Trust consist of the trust notes due October 30, 2036 issued by Morgans Group and guaranteed by Morgans Hotel Group Co. The trust notes have a 30-year term, ending October 30, 2036, and bear interest at a fixed rate of 8.68% until October 2016, and thereafter will bear interest at a floating rate based on the three-month LIBOR plus 3.25%. These securities are redeemable by the Trust at par. In the event we were to undertake a transaction that was deemed to constitute a transfer of our properties and assets substantially as an entirety within the meaning of the indenture, we may be required to repay the trust notes prior to their maturity or obtain the trustee’s consent in connection with such transfer.

Clift. We lease Clift under a 99-year nonrecourse lease agreement expiring in 2103. The lease is accounted for as a financing with a liability balance of $93.4 million at September 30, 2014.

The lease agreement provides for base annual rent of approximately $6.0 million per year until October 2014. Thereafter, the base rent increases at five-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum increase of 20% at October 2014, and a maximum increase of 20% and a minimum increase of 10% at each five-year rent increase date thereafter. As a result of the first such increase, effective October 14, 2014, the annual rent increased to $7.6 million.  The lease is nonrecourse to us. Morgans Group also entered into a limited guaranty, whereby Morgans Group agreed to guarantee losses of up to $6 million suffered by the lessors in the event of certain “bad boy” type acts.

Convertible Notes. On October 17, 2007, we completed an offering of $172.5 million aggregate principal amount of our 2.375% Convertible Notes in a private offering.  

On October 15, 2014, the Convertible Notes matured and we repaid the outstanding principal amount of $49.1 million with cash on hand.  

From April 21, 2010 to July 21, 2010, the Yucaipa Investors purchased $88.0 million of the Convertible Notes from third parties. On February 28, 2014, we entered into a Note Repurchase Agreement with the Yucaipa Investors, pursuant to which we

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repurchased the $88.0 million of Convertible Notes owned by them for an amount equal to their principal balance plus accrued interest. We used cash on hand, including proceeds of the Hudson/Delano 2014 Mortgage Loan, for this repurchase.

During the third quarter of 2014, we used cash on hand to repurchase an aggregate of $35.4 million of outstanding Convertible Notes at a discount of approximately $0.1 million plus accrued interest. All Convertible Notes were retired upon repurchase. As a result of the repurchases, as of September 30, 2014, the principal amount of the outstanding Convertible Notes was $49.1 million, which were repaid upon maturity on October 15, 2014.  

TLG Promissory Notes. On November 30, 2011 pursuant to purchase agreements entered into on November 17, 2011, certain of our subsidiaries completed the acquisition of 90% of the equity interests in TLG for a purchase price of $28.5 million in cash and up to $18 million in TLG Promissory Notes convertible into shares of our common stock at $9.50 per share subject to the achievement of certain EBITDA targets for the acquired business. The TLG Promissory Notes were allocated $16.0 million to Mr. Sasson and $2.0 million to Mr. Masi.

The payment of $18.0 million was based on TLG achieving EBITDA of at least $18.0 million from Non-Morgans EBITDA during the period starting on January 1, 2012 and ending on March 31, 2014, with ratable reduction of the payment if less than $18.0 million of EBITDA is earned. The fair value of the TLG Promissory Notes was estimated each quarter utilizing a Monte Carlo simulation to estimate the probability of the performance conditions being satisfied. The EBITDA targets have been achieved at September 30, 2014 and the fair value of the TLG Promissory Notes of $18.0 million plus accrued interest of $1.1 million is reflected in the Company’s September 30, 2014 consolidated balance sheet.

The TLG Promissory Notes mature and may be voluntarily prepaid, in full or in part, at any time. At either Messrs. Sasson’s or Masi’s options, the TLG Promissory Notes are payable in cash or in our common stock valued at $9.50 per share. Each of the TLG Promissory Notes earns interest at an annual rate of 8%, provided that if the notes are not paid or converted on or before November 30, 2014, the interest rate increases to 18%. The TLG Promissory Notes provide that 75% of the accrued interest is payable quarterly in cash and the remaining 25% accrues and is included in the principal balance which is payable at maturity. Morgans Group has guaranteed payment of the TLG Promissory Notes and interest.

As discussed further in Part II, “Item 1. Legal Proceedings,” on August 5, 2013, Messrs. Sasson and Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition and Morgans Group alleging, among other things, breach of contract and an event of default under the TLG Promissory Notes as a result of the Company’s failure to repay the TLG Promissory Notes following an alleged “Change of Control” of the Company in connection with the election of directors at the Company’s 2013 Annual Meeting. On September 26, 2013, the Company filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted the Company’s motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and our opposition brief was due August 29, 2014. The oral argument on the motion occurred on October 29, 2014 and we are awaiting the court’s ruling.  

Hudson Capital Leases. We lease two condominium units at Hudson which are reflected as capital leases with balances of $6.1 million at September 30, 2014. Currently annual lease payments total approximately $1.0 million and are subject to increases in line with inflation. The leases expire in 2096 and 2098.

Restaurant Lease Note. In August 2012, we entered into a 10-year licensing agreement with MGM, with two five-year extensions at our option subject to performance thresholds, with MGM to convert THEhotel to Delano Las Vegas, which will be managed by MGM, with two five-year extensions at our option, subject to performance thresholds. In addition, we acquired the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas from an existing tenant for $15.0 million in cash at closing and a principal-only $10.6 million note (the “Restaurant Lease Note”) to be paid over seven years.

The Restaurant Lease Note does not bear interest except in the event of default, as defined in the agreement. In accordance with ASC 470, Debt, we imputed interest on the Restaurant Lease Note, which was recorded at its fair value of $7.5 million as of the date of issuance. At September 30, 2014, the recorded balance outstanding on the Restaurant Lease Note is $5.9 million.

Joint Venture Debt. See “— Other Liquidity Matters” and “— Off-Balance Sheet Arrangements” for descriptions of joint venture debt.

Seasonality

The hospitality business is seasonal in nature. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter. Quarterly revenues also may be adversely affected by events beyond

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our control, such as the recent global recession, extreme weather conditions, terrorist attacks or alerts, natural disasters, airline strikes, and other considerations affecting travel.

To the extent that cash flows from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may have to enter into additional short-term borrowings to meet cash requirements.

Capital Expenditures and Reserve Funds

We are obligated to maintain reserve funds for capital expenditures at our Owned Hotels as determined pursuant to our debt or lease agreements related to such hotels. As of September 30, 2014, approximately $2.1 million was available in restricted cash reserves for future capital expenditures under these obligations related to our Owned Hotels.

Our Joint Venture Hotels and our Managed Hotels generally are subject to similar obligations under our management agreements or under debt agreements related to such hotels. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Such agreements typically require the hotel owner to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash.

In addition to reserve funds for capital expenditures, our Owned Hotels debt and lease agreements also require us to deposit cash into escrow accounts for taxes, insurance and debt service or lease payments, among other things.

During the third quarter of 2014, we converted eight additional SROs, together with other space, into 10 new guest rooms and anticipate completion of two additional rooms in the fourth quarter of 2014.  The total cost of these 12 new guest rooms was approximately $2.3 million. After this conversion is complete, we will have 60 SROs remaining at Hudson, which we intend to convert into guest rooms in the future.

We anticipate Clift will need to be renovated in the next few years, which may require significant capital.

Derivative Financial Instruments

We use derivative financial instruments to manage our exposure to the interest rate risks related to our variable rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. We determine the fair value of our derivative financial instruments using models which incorporate standard market conventions and techniques such as discounted cash flow and option pricing models to determine fair value. We believe these methods of estimating fair value result in general approximation of value, and such value may or may not be realized.

As of September 30, 2014, we had three interest rate caps outstanding related to the Hudson/Delano 2014 Mortgage Loan and the fair value of these interest rate caps was $0.2 million.

In connection with the sale of the Convertible Notes, we entered into call options which are exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which we will receive shares of our common stock from counterparties equal to the number of shares of our common stock, or other property, deliverable by us to the holders of the Convertible Notes upon conversion of the Convertible Notes, in excess of an amount of shares or other property with a value, at then current prices, equal to the principal amount of the converted Convertible Notes. Simultaneously, we also entered into warrant transactions, whereby we sold warrants to purchase in the aggregate 6,415,327 shares of our common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. These Convertible Notes Call Options and Convertible Notes Warrants expired when the Convertible Notes were repaid in October 2014.

On October 15, 2009, we entered into a securities purchase agreement with the Yucaipa Investors. Under the securities purchase agreement, we issued and sold to the Yucaipa Investors (i) $75.0 million of preferred stock comprised of 75,000 shares of the our Series A preferred securities, $1,000 liquidation preference per share, and (ii) the Yucaipa Warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share. The Yucaipa Warrants have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. The exercise price and number of shares subject to the warrant are both subject to certain anti-dilution adjustments.

Off-Balance Sheet Arrangements

As of September 30, 2014, we had unconsolidated joint ventures that we account for using the equity method of accounting, most of which have mortgage or related debt, as described in “—Other Liquidity Matters” above. In some cases, we provide

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nonrecourse carve-out guaranties of joint venture debt, which guaranties are only triggered in the event of certain “bad boy” acts, and other limited liquidity or credit support, as described in “—Other Liquidity Matters” above.

For further information regarding our off balance sheet arrangements, see note 4 to our consolidated financial statements.

Mondrian South Beach. We own a 50% interest in Mondrian South Beach, an apartment building which was converted into a condominium and hotel. Mondrian South Beach opened in December 2008, at which time we began operating the property under a 20-year management contract. We also own a 50% interest in a mezzanine financing joint venture with an affiliate of our Mondrian South Beach joint venture partner through which a total of $28.0 million in mezzanine financing was provided to the Mondrian South Beach joint venture. As of September 30, 2014, the Mondrian South Beach joint venture’s outstanding nonrecourse mortgage debt secured by the hotel was $24.8 million and mezzanine debt secured by related equity interests was $28.0 million. In addition, as of September 30, 2013 the outstanding mezzanine debt owed to the affiliates of joint venture partners was $28.0 million. In March 2014, the Mondrian South Beach joint venture exercised its option to extend the outstanding mortgage and mezzanine debt for another year until April 2015.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. We determined that we are not the primary beneficiary of this variable interest entity as we do not have a controlling financial interest in the entity. Because we have written our investment value in the joint venture to zero, for financial reporting purposes, we believe our maximum exposure to losses as a result of our involvement in the Mondrian South Beach variable interest entity is limited to our outstanding management fees and related receivables and advances in the form of mezzanine financing, excluding guarantees and other contractual commitments. We have not committed to providing financial support to this variable interest entity, other than as contractually required, and all future funding is expected to be provided by the joint venture partners in accordance with their respective ownership interests in the form of capital contributions or loans, or by third parties.

We accounted for this investment under the equity method of accounting through December 31, 2012, until our recording of losses was suspended due to our investment balance reaching zero. At September 30, 2014, our investment in Mondrian South Beach was zero.

Mondrian SoHo. In June 2007, we contributed approximately $5.0 million for a 20% equity interest in a joint venture with Cape Advisors Inc. to develop a Mondrian hotel in the SoHo neighborhood of New York. The joint venture obtained a loan of $195.2 million to acquire and develop the hotel, which matured in June 2010. On July 31, 2010, the mortgage loan secured by the hotel was amended to, among other things, provide for extensions of the maturity date to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, based on ratios of net operating income to debt service for specified periods ended September 30 th of each year. The joint venture did not satisfy the extension conditions in 2012 and the loan matured on November 15, 2012. In January 2013, the lender initiated foreclosure proceedings and litigation is ongoing, as discussed further in note 4 to our consolidated financial statements and “—Other Liquidity Matters, Mondrian SoHo.”

In December 2011, the Mondrian SoHo joint venture was determined to be a variable interest entity as a result of the November 2012 debt maturity and cash shortfalls, and because its equity was considered insufficient to permit the entity to finance its own activities. However, we determined that we are not its primary beneficiary and, therefore, consolidation of this joint venture is not required. We continue to account for our investment in Mondrian SoHo using the equity method of accounting. Because we have written our investment value in the joint venture to zero, for financial reporting purposes, we believe our maximum exposure to losses as a result of our involvement in the Mondrian SoHo variable interest entity is limited to our outstanding management fees and related receivables and advances in the form of equity or loans, excluding guarantees and other contractual commitments.

Based on the decline in market conditions following the inception of the joint venture and the need for additional funding to complete the hotel, we wrote down our investment in Mondrian SoHo to zero in June 2010. We have recorded all additional fundings as impairment charges through equity in loss of unconsolidated joint ventures during the periods the funds were contributed. As of September 30, 2014, our financial statements reflect no value for our investment in the Mondrian SoHo joint venture.

As of September 30, 2014, the Mondrian SoHo joint venture’s outstanding mortgage debt secured by the hotel was $196.0 million.  In addition, as of August 18, 2014, the court appointed referee calculated deferred interest through the date of default of $20.8 million and default interest of $33.4 million.

Shore Club. On December 30, 2013, Shore Club was sold to HFZ Capital Group. Phillips International, an affiliate of Shore Club’s former owner, retains an ownership stake. The new owner has publicly stated that it may convert a substantial part of the hotel to condos, and we could be replaced as hotel manager. To date, we have received no notice of termination of our management agreement, and intend to continue to operate the hotel pursuant to that agreement. However, no assurance can be provided that we will

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continue to do so in the future. As of September 30, 2014, we had only an immaterial contingent profit participation equity interest in Shore Club.

Mondrian Istanbul. In December 2011, we entered into a new 20-year hotel management agreement, with a 10-year extension option, for an approximately 122-room Mondrian-branded hotel to be located in the Old City area of Istanbul, Turkey. As of September 30, 2014, we have contributed a total of $10.4 million in the form of equity and key money and have a 20% ownership interest in the venture owning the hotel.

Due to our joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, we exercised our put option under the joint venture agreement that requires our joint venture partner to buy back our equity interests in the Mondrian Istanbul joint venture. Our rights under that joint venture agreement are secured by, among other things, a mortgage on the property. In February 2014, we issued a notice of default to our joint venture partner, as they failed to buy back our equity interests by the contractual deadline, and further notified our joint venture partner that we plan to begin foreclosure proceedings as a result of the event of default. We initiated foreclosure proceedings on March 11, 2014. Our joint venture partner, and through such joint venture partner, the joint venture itself, have objected to the foreclosure proceeding, as a result of which, the foreclosure proceeding is currently stayed. Additionally, in June 2014, the joint venture purported to notify us that it had terminated the hotel management agreement. We have objected to such purported notices and intend to vigorously defend against any lawsuit that may result. In addition, we have initiated proceedings in an English court seeking payment of the put option amount against the individual shareholders behind the joint venture partner.  The parties are also seeking various other judicial remedies in Turkey.

Food and Beverage Venture at Mondrian South Beach. In June 2011, we acquired the ownership interest in the food and beverage venture at Mondrian South Beach from our former joint venture partner. Our ownership interest in the food and beverage venture at Mondrian South Beach is less than 100%, and was re-evaluated in accordance with ASC 810-10. We concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in the joint venture is accounted for using the equity method, as we do not believe we exercise control over significant asset decisions such as buying, selling or financing.

We accounted for this investment under the equity method of accounting through December 31, 2013, until our recording of losses were suspended due to the investment in this food and beverage venture being reduced to zero. At September 30, 2014, our investment in food and beverage venture at Mondrian South Beach was zero. Our equity in loss of the food and beverage venture was $0.3 million and $0.6 million for the three and nine months ended September 30, 2013, respectively.

Other Development Stage Hotels. We have a number of additional development projects signed or under consideration, some of which may require equity or debt investments, key money or credit support from us. In addition, through certain cash flow guarantees, we may have potential future funding obligations for hotels under development.

As of September 30, 2014, our key money commitments, which are discussed further in note 7 to our consolidated financial statements, were approximately $15.5 million, of which approximately $15.2 million (based on the exchange rate at the date of payment) was paid in October 2014 as it related to Mondrian London which opened on September 30, 2014, and our potential funding obligations under cash flow guarantees at operating hotels and hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum cannot be determined, were $13.0 million, which includes an $8.0 million performance cash flow guarantee related to Delano Marrakech, which we believe we are not obligated to fund.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We evaluate our estimates on an ongoing basis. We base our estimates on historical experience, information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. No material changes to our critical accounting policies have occurred since December 31, 2013.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Some of our outstanding debt has a variable interest rate. As described in “Management’s Discussion and Analysis of Financial Results of Operations — Derivative Financial Instruments” above, we use derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors.

As of September 30, 2014, our total outstanding consolidated debt, including capital lease obligations, was approximately $673.6 million, of which approximately $450.0 million, or 66.8%, was variable rate debt. At September 30, 2014, the one month LIBOR rate was 0.15%.

As of September 30, 2014, the $450.0 million of variable rate debt consisted of the outstanding balance of Hudson/Delano 2014 Mortgage Loan. In connection with the Hudson/Delano 2014 Mortgage Loan, we maintain an interest rate cap that will cap the LIBOR rate on the debt outstanding under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the initial maturity date. This interest rate cap matures in February 2016. If interest rates on this $450.0 million variable rate debt increase by 1.0%, or 100 basis points, the increase in interest expense would reduce future pre-tax earnings and cash flows by approximately $4.5 million annually. The maximum annual amount the interest expense would increase on the $450.0 million of variable rate debt outstanding as of September 30, 2014 under the Hudson/Delano 2014 Mortgage Loan is $7.2 million due to our interest rate cap agreement, which would reduce future pre-tax earnings and cash flows by the same amount annually. If interest rates on this $450.0 million variable rate debt decrease by 1.0%, the decrease in interest expense would increase pre-tax earnings and cash flow by approximately $4.5 million annually.

As of September 30, 2014, our fixed rate debt, excluding our Hudson capital lease obligation, of $216.4 million consisted of the trust notes underlying our trust preferred securities, the then remaining $49.0 million of outstanding Convertible Notes, the Clift lease, the TLG Promissory Notes, excluding accrued interest, and the Restaurant Lease Note. The fair value of some of these debts is greater than the book value. As such, if interest rates increase by 1.0%, or approximately 100 basis points, the fair value of our fixed rate debt at September 30, 2014, would decrease by approximately $20.8 million. If market rates of interest decrease by 1.0%, the fair value of our fixed rate debt at September 30, 2014 would increase by $25.6 million.

ITEM  4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and the chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are involved in various lawsuits and administrative actions in the normal course of business, as well as other litigations as noted below.

Litigations Regarding Mondrian SoHo

On January 16, 2013, German American Capital Corporation (“GACC” or the “lender”), the lender for the mortgage loans on Mondrian SoHo, filed a complaint in the Supreme Court of the State of New York, County of New York against Sochin Downtown Realty, LLC, the joint venture that owns Mondrian SoHo (“Sochin JV”), Morgans Management, Morgans Group, Happy Bar LLC and MGMT LLC, seeking foreclosure including, among other things, the sale of the mortgaged property free and clear of the management agreement, entered into between Sochin JV and Morgans Management on June 27, 2007, as amended on July 30, 2010. According to the complaint, Sochin JV defaulted by failing to repay the approximately $217 million outstanding on the loans when they became due on November 15, 2012. Cape Advisors Inc. indirectly owns 80% of the equity interest in Sochin JV and Morgans Group indirectly owns the remaining 20% equity interest.

On March 11, 2013 we moved to dismiss the lender’s complaint on the grounds that, among other things, our management agreement is not subject to foreclosure. On April 2, 2013, the lender opposed our motion to dismiss and cross-moved for summary judgment. On August 12, 2013, the court heard oral argument on both motions, as well as a third motion brought by the Company to strike an affirmation submitted by lender’s attorney. On January 27, 2014, the court granted Morgans Management’s motion to dismiss on the ground that Morgans Management was not a proper party to the foreclosure action and that a management contract does not constitute an interest in real property subject to foreclosure, and denied lender’s motion for summary judgment as moot. On March 20, 2014 the lender moved for summary judgment against the remaining defendants, seeking foreclosure on four mortgages secured by Mondrian SoHo. By order dated May 27, 2014, the trial court granted the motion for summary judgment to a limited extent, ordering the appointment of a referee to compute the amount but stating that a motion for summary judgment of foreclosure and sale is premature. By decision entered on July 28, 2014, the court referred the matter to a Referee to ascertain and compute the amount due to the lender for principal, interest, and other disbursements and to determine whether the property should be sold in one parcel.  On August 6, 2014, the Referee set a hearing on the issues for August 18, 2014, and subsequently issued her report setting the amount due on the loan ($250.5 million, plus interest accruing at a daily rate of approximately $84,000, as of August 18, 2014) and determining the property should be sold as one parcel. On September 15, 2014, the lender filed a motion to confirm the Referee’s report and for judgment of foreclosure and sale, along with the Referee’s Report of Amount Due attached as an exhibit, and a proposed judgment of foreclosure and sale.  That motion is fully briefed and pending, but the court has not yet entered a judgment of foreclosure and sale.

On October 24, 2014, we filed suit in the Supreme Court of the State of New York seeking a declaration that the mortgage lenders to the Mondrian SoHo debt cannot remove us as hotel manager following the conclusion of the foreclosure proceedings.  The action seeks to protect and enforce our long-term hotel management contract for Mondrian SoHo, regardless of the outcome of the current foreclosure proceedings.  We also seek damages against the lenders and purported buyer of the property should we be terminated.  The lawsuit does not affect the foreclosure proceedings, and we do not oppose the lenders’ efforts to foreclose on the Mondrian SoHo property.

On February 25, 2013, the Sochin JV filed a complaint in the Delaware Court of Chancery against Morgans Management and Morgans Group, seeking, among other things, a declaration that Sochin JV had terminated the management agreement for the hotel. In addition, we, through our equity affiliate, filed a separate action against Sochin JV and its parent in the Delaware Court of Chancery for, among other things, breaching fiduciary duties and their joint venture agreement for failing to obtain consent prior to the termination. That action was subsequently consolidated with the joint venture’s termination action.  On April 30, 2013, Morgans Management filed a lawsuit against Sochin JV and the majority member of Sochin JV’s parent and its affiliate in New York Supreme Court for damages based on the wrongful attempted termination of the management agreement, defamation, and breach of fiduciary and other obligations under the parties’ joint venture agreement.  On September 20, 2013, the Delaware Court of Chancery ruled that Sochin JV properly terminated the hotel management agreement on agency principles, that Morgans Management must vacate the hotel forthwith or on whatever other timetable the hotel owner chooses, and that certain claims by our equity affiliate are dismissed but not its breach of fiduciary duty claim. 

On May 9, 2014, both of the above-referenced actions in Delaware and the above-reference action in New York were dismissed with prejudice by agreement among the parties.  Under the terms of the settlement, if the joint venture does not seek to remove us as manager of Mondrian SoHo prior to December 31, 2020, then we will be deemed to have released all claims against the joint venture under the Management Agreement.  Under the terms of the settlement, the joint venture may demand that Morgans vacate Mondrian

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SoHo on 90 days’ prior notice; in the event the joint venture provides notice of its intention to remove us as manager of Mondrian SoHo, all of our claims against the joint venture (including for breach of the hotel management agreement) would be revived. The joint venture’s rights under the settlement are not assignable without our written consent.

Litigations Regarding Delano Marrakech

In June 2013, we served the owner of Delano Marrakech with a notice of default for, among other things, failure to pay fees and reimbursable expenses and to operate the hotel in accordance with the standards under the management agreement. In September 2013, we served notice of termination of our management agreement for Delano Marrakech following the failure by the owner of Delano Marrakech to remedy numerous breaches of the agreement. As a result, we discontinued all affiliation with the hotel, including removal of the Delano name, and terminated management of the property, effective November 12, 2013. Pursuant to the management agreement, in the event of an owner default, we have no further obligations under the performance-based cash flow guarantee. In addition, as a result of the breaches by the hotel owner, we have asserted a claim for losses and damages against the owner that is currently estimated at in excess of $30.0 million, including interest. The owner of the hotel is disputing the circumstances surrounding termination and therefore its liability for this amount. The owner is also counterclaiming against us under both the performance-based cash flow guarantee and for loss of profits. The total counterclaim made by the owner is in excess of $119.0 million, excluding interest. We consider the counterclaim made by the owner to be entirely without merit and intend to vigorously defend ourselves while pursuing what we consider to be a strong claim against the owner. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014.  

Litigation Regarding TLG Promissory Notes

On August 5, 2013, Messrs. Andrew Sasson and Andy Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition LLC and Morgans Group LLC relating to the $18.0 million TLG Promissory Notes. See note 1 and note 6 of our consolidated financial statements regarding the background of the TLG Promissory Notes. The complaint alleged, among other things, a breach of contract and an event of default under the TLG Promissory Notes as a result of our failure to repay the TLG Promissory Notes following an alleged “Change of Control” that purportedly occurred upon the election of our current Board of Directors on June 14, 2013. The complaint sought payment of Mr. Sasson’s $16 million TLG Promissory Note and Mr. Masi’s $2 million TLG Promissory Note, plus interest compounded to principal, as well as default interest, and reasonable costs and expenses incurred in the lawsuit. We believe that a Change of Control, within the meaning of the TLG Promissory Notes, has not occurred and that no prepayments are required under the TLG Promissory Notes. On September 26, 2013, we filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted our motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and our opposition brief was due August 29, 2014.  The oral argument on the motion occurred on October 29, 2014 and we are awaiting the court’s ruling.  

Litigation Regarding 2013 Deleveraging Transaction, Proxy Litigation Between Mr. Burkle and OTK and Certain of Our Current Directors, and Litigation Regarding Yucaipa Board Observer Rights

On May 5, 2014, we and affiliates of Yucaipa, among other litigants, executed and submitted to the Delaware Court of Chancery the Stipulation of Settlement, which contemplated the partial settlement and dismissal of the Delaware Shareholder Derivative Action and the complete settlement and dismissal of the New York Securities Action, the Proxy Action and the Board Observer Action, all defined below. On July 23, 2014, the Delaware Court of Chancery approved the Settlement Stipulation, which pursuant to its terms, became effective on August 25, 2014 (the “Effective Date”).

The Settlement Stipulation provided for the partial settlement and dismissal with prejudice of the action entitled OTK Associates, LLC v. Friedman, et al., C.A. No. 8447-VCL (Del. Ch.) (the “Delaware Shareholder Derivative Action”) and the complete settlement and dismissal with prejudice of the actions entitled Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., et al., Index No. 652294/2013 (NY Sup.) (the “New York Securities Action”); Burkle v. OTK Associates, LLC, et al., Case No. 13-CIV-4557 (S.D.N.Y.) (the “Proxy Action”); and Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., Index No. 653455/2013 (NY Sup.) (the “Board Observer Action”) (the foregoing four actions are collectively referred to as the “Actions”).

The Settlement Stipulation provided, among other things, for the following:

— We paid the Yucaipa parties in the New York Securities Action an amount equal to $3.0 million (which was previously escrowed) for attorneys’ fees and expenses incurred by Mr. Burkle in his defense of the Delaware Shareholder Derivative Action (the “Securities Action Payment”).

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— We paid the reasonable and necessary attorneys’ fees and expenses incurred by Messrs. Friedman, Gault and Sasson (collectively, the “Settling Former Directors”) in defending the Delaware Shareholder Derivative Action.  The Settling Former Directors’ assigned to us any claims they have against our insurers relating to any such unpaid amounts. Our insurers covered these attorneys’ fees and expenses.

— OTK and current director Jason T. Kalisman applied to the Delaware Court of Chancery for an award of payment from us of the reasonable and necessary fees and expenses incurred by their counsel in connection with the Delaware Shareholder Derivative Action, excluding those fees and expenses encompassed in the court’s October 31, 2013 order in the Delaware Shareholder Derivative Action. In its July 23, 2014 order approving the Settlement Stipulation, the Delaware Court of Chancery awarded an aggregate amount of approximately $6.5 million (to be reduced by the prior interim award of approximately $2.7 million) to OTK and current director Jason T. Kalisman for their counsel fees and expenses incurred in connection with the Delaware Shareholder Derivative Action which was paid by us with insurance proceeds.

— Plaintiffs and defendants in each of the Actions, apart from the former directors who chose not to participate in Settlement Stipulation and against whom the Delaware Shareholder Derivative Action continues, exchanged customary releases which release the parties and certain of their affiliates from claims arising from the subject matters of each of the Actions.

— Each of the Actions was dismissed with prejudice and on the merits with each party bearing its own costs, except as to the former directors who have not settled, against whom the Delaware Shareholder Derivative Action continues or as specified in the Settlement Stipulation.

On October 3, 2014, we entered into a Memorandum of Understanding with OTK and Thomas L. Harrison (the “Harrison Settlement”) to settle the claims against Mr. Harrison in the Delaware Shareholder Derivative Action and also to settle claims Mr. Harrison has asserted against us in Harrison v. Morgans Hotel Group Co., C. A. No. 10100-VCL (Del. Ch.) (the “Harrison Advancement Action”), in which Mr. Harrison seeks an order requiring us to advance his expenses (including attorneys’ fees) incurred in connection with the Delaware Shareholder Derivative Action and further seeks indemnification of the expenses (including attorneys’ fees) Harrison incurred in connection with his efforts to enforce his claims to advancement.  The Harrison Settlement is subject to approval by the Delaware Court of Chancery.  Pursuant to the Harrison Settlement, in October 2014, we advanced to Mr. Harrison a portion of the fees and expenses for which he has sought advancement and paid a portion of the amounts for which Mr. Harrison seeks indemnification related to the Harrison Advancement Action.  As part of the consideration for the release of the claims against Mr. Harrison in the Delaware Shareholder Derivative Action, if the Harrison Settlement is approved by the Court of Chancery, Mr. Harrison would waive his claims to recover the remaining amounts for which he has sought advancement and indemnification in the Harrison Advancement Action.  If the Delaware Court of Chancery approves the Harrison Settlement, both the Harrison Advancement Action and the claims against Mr. Harrison in the Delaware Shareholder Derivative Action will be dismissed with prejudice, the parties to the settlement will exchange customary releases, and the only remaining defendant in the Delaware Shareholder Derivative Action will be Michael D. Malone, a former director of the Company.

Our insurers have paid a majority of the costs that we were obligated to pay under the Settlement Stipulation.  We do not expect that the net amount of any remaining payments we will make under the terms of the Settlement Stipulation, the Harrison Settlement, or any other settlement with the former directors who have not settled will be material to our financial position.

ITEM 1A. RISK FACTORS.

In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects.

ITEM 6. EXHIBITS.

The exhibits listed in the accompanying Exhibit Index are filed as part of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MORGANS HOTEL GROUP CO.

/s/ JASON T. KALISMAN

Jason T. Kalisman

Interim Chief Executive Officer

/s/ RICHARD SZYMANSKI

Richard Szymanski

Chief Financial Officer and Secretary

November 7, 2014

EXHIBIT INDEX

Exhibit Number	Description
3.1*	Amended and Restated By-Laws of Morgans Hotel Group Co.
31.1*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document
101.CAL†	XBRL Taxonomy Calculation Linkbase Document
101.LAB†	XBRL Taxonomy Label Linkbase Document
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

† Denotes a management contract or compensatory plan, contract or arrangement.

EX-3.1

Exhibit 3.1

AUGUST 14, 2014

AMENDED AND RESTATED

BY-LAWS

OF

MORGANS HOTEL GROUP CO.

ARTICLE I

Stockholders

Section 1.1.    Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other business properly brought before the meeting may be transacted at the annual meeting.

Section 1.2.    Special Meetings. Special meetings of stockholders may be called at any time by, and only by, the Chairman of the Board, if any, a Vice Chairman of the Board, if any, the Chief Executive Officer or the Board of Directors, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting.

Section 1.3.     Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation.

Section 1.4.    Adjournments. Any meeting of stockholders, annual or special, may be adjourned from time to time, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.5.    Quorum. At each meeting of stockholders, except where otherwise required by law, the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, the holders of such class so present or represented may, by majority vote, adjourn the meeting of such class from time to time in the manner provided by Sections 1.4 and 1.6 of these by-laws until a quorum of such class shall be so present or represented. Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 1.6.    Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by a Vice Chairman of the Board, if any, or in the absence of a Vice Chairman of the Board by the Chief Executive Officer, or in the absence of the Chief Executive Officer by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting.  The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to adjourn a meeting of stockholders without a vote of stockholders and to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting and are not inconsistent with any rules or regulations adopted by the Board of Directors, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the

affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls for each item upon which a vote is to be taken.

Section 1.7.     Inspectors. Prior to any meeting of stockholders, the Board of Directors, the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, a Vice President or any other officer designated by the Board shall appoint one or more inspectors to act at such meeting and make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, ballots and the regular books and records of the Corporation, and they may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable.

Section 1.8.    Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.  A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary.  Voting at meetings of stockholders need not be by written ballot unless so directed by the chairman of the meeting or the Board of Directors. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise required by law, the certificate of incorporation or these by-laws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority (or in the case of an election of directors, a plurality) of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes, except as otherwise required by law, the certificate of incorporation or these by-laws.

Section 1.9.    Fixing Date for Determination of  Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.  In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to the action for which a record date is being established. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

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Section 1.10.  List of Stockholders Entitled to  Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.

Section 1.11.  Advance Notice of Stockholder  Proposals. At any annual or special meeting of stockholders, proposals by stockholders and persons nominated for election as directors by stockholders shall be considered only if advance notice thereof has been timely given as provided herein and such proposals or nominations are otherwise proper for consideration under applicable law and the certificate of incorporation and by-laws of the Corporation. Notice of any proposal to be presented by any stockholder or of the name of any person to be nominated by any stockholder for election as a director of the Corporation at any meeting of stockholders shall be delivered to the Secretary at its principal executive office not less than 60 nor more than 90 days prior to the date of the meeting; provided, however, that if the date of the meeting is first publicly announced or disclosed (in a public filing or otherwise) less than 70 days prior to the date of the meeting, such advance notice shall be given not more than ten days after such date is first so announced or disclosed. Public notice shall be deemed to have been given more than 70 days in advance of the annual meeting if the Corporation shall have previously disclosed, in these by-laws or otherwise, that the annual meeting in each year is to be held on a determinable date, unless and until the Board determines to hold the meeting on a different date. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). Any stockholder desiring to nominate any person for election as a director of the Corporation shall deliver with such notice a statement in writing setting forth the name of the person to be nominated, the number and class of all shares of each class of stock of the Corporation beneficially owned by such person, the information regarding such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation subsequently adopted by the Securities and Exchange Commission applicable to the Corporation), such person's signed consent to serve as a director of the Corporation if elected, such stockholder's name and address and the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder. As used herein, shares "beneficially owned" shall mean all shares as to which such person, together with such person's affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person's affiliates and associates, has the right to become the beneficial owner pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and shall direct that proposals and nominees not be considered if such notice has not been given.

ARTICLE II

Board of Directors

Section 2.1.    Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise required by law or provided in the certificate of incorporation. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by the Board. Directors need not be stockholders.

Section 2.2.    Election; Term of Office;  Resignation; Removal; Vacancies. Each director shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer or the Secretary. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Unless otherwise provided in the certificate of incorporation or these by-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause shall be filled by, and only by, a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled by the certificate of incorporation to elect one or more directors, vacancies and newly created directorships of such class or classes or series may be filled by, and only by, a majority of the

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directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy or a newly created directorship shall hold office until the next annual meeting of the stockholders and his or her successor is elected and qualified or until his or her earlier resignation or removal.

Section 2.3.    Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given.

Section 2.4.    Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, if any, by a Vice Chairman of the Board, if any, by the Chief Executive Officer, if any, or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting.

Section 2.5.    Participation in Meetings by  Conference Telephone Permitted. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.

Section 2.6.    Quorum; Vote Required for Action. At each meeting of the Board of Directors a majority of the entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the certificate of incorporation or these by-laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members or a majority of the members of the Board present may adjourn the meeting from time to time until a quorum shall be present.

Section 2.7.    Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by a Vice Chairman of the Board, if any, or in the absence of a Vice Chairman of the Board by the Chief Executive Officer, or in the absence of the Chief Executive Officer, by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8.    Action by Directors Without a  Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, then in office consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

Section 2.9.    Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, the Board of Directors shall have the authority to fix the compensation of directors.

ARTICLE III

Committees

Section 3.1.    Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by law to be submitted to stockholders for approval, (ii) adopting, amending or repealing these By-Laws or (iii) removing or indemnifying directors.

Section 3.2.    Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a

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quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws.

ARTICLE IV

Officers

Section 4.1.    Officers; Election or Appointment. The Board of Directors shall take such action as may be necessary from time to time to ensure that the Corporation has such officers as are necessary, under Section 5.1 of these by-laws and the Delaware General Corporation Law as currently in effect or as the same may hereafter be amended, to enable it to sign stock certificates. In addition, the Board of Directors at any time and from time to time may elect (i) a Chairman of the Board and/or one or more Vice Chairmen of the Board from among its members, (ii) a Chief Executive Officer, a Chief Investment Officer and a Chief Financial Officer, (iii) a Treasurer, a Secretary and one or more Vice Presidents and/or (iv) one or more other officers, in the case of each of (i), (ii),(iii) and (iv) if and to the extent the Board deems desirable. The Board of Directors may give any officer such further designations or alternate titles as it considers desirable. In addition, the Board of Directors at any time and from time to time may authorize any officer of the Corporation to appoint one or more officers of the kind described in clauses (iii) and (iv) above. Any number of offices may be held by the same person and directors may hold any office unless the certificate of incorporation or these by-laws otherwise provide.

Section 4.2.    Term of Office; Resignation;  Removal; Vacancies. Unless otherwise provided in the resolution of the Board of Directors electing or authorizing the appointment of any officer, each officer shall hold office until his or her successor is elected or appointed and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to such person or persons as the Board may designate. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any officer authorized by the Board to appoint a person to hold an office of the Corporation may also remove such person from such office with or without cause at any time, unless otherwise provided in the resolution of the Board providing such authorization. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election or appointment of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting or by an officer authorized by the Board to appoint a person to hold such office.

Section 4.3.    Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Secretary or such other officer appointed to do so by the Board shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties.

ARTICLE V

Stock

Section 5.1.    Stock Certificates and  Uncertificated Shares. The shares of stock in the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate theretofore issued until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution or resolutions by the Board of Directors, every holder of stock represented by certificates, and upon request every holder of uncertificated shares, shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or a Vice Chairman of the Board, if any, or the Chief Executive Officer or a Vice President, and by the Chief Financial Officer, Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares of stock registered in certificated form owned by such holder. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Certificates representing shares of stock of the Corporation may bear such legends regarding restrictions on transfer or other matters as any officer or officers of the Corporation may determine to be appropriate and lawful.

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If the Corporation is authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise required by law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written notice containing the information required by law to be set forth or stated on certificates or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

Section 5.2.    Lost, Stolen or Destroyed Stock  Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

ARTICLE VI

Miscellaneous

Section 6.1.    Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.

Section 6.2.    Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

Section 6.3.    Waiver of Notice of Meetings of  Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws.

Section 6.4.    Indemnification of Directors, Officers and Employees. The Corporation shall indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director, officer or employee of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer or employee. Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon demand by such person and, if any such demand is made in advance of the final disposition of any such action, suit or proceeding, promptly upon receipt by the Corporation of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. Notwithstanding anything contained in this Section 6.4, except for proceedings to enforce rights provided in this Section 6.4, the Corporation shall not be obligated under this Section 6.4 to provide any indemnification or any payment or reimbursement of expenses to any director, officer or other person in connection with a proceeding (or part thereof) initiated by such person (which shall not include counterclaims or cross claims initiated by others) unless the Board of Directors has authorized or consented to such proceeding (or part thereof) in a resolution adopted by the Board. For purposes of this by-law, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a

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consolidation or merger; the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. Nothing in this Section 6.4 shall limit the power of the Corporation or the Board of Directors to provide rights of indemnification and to make payment and reimbursement of expenses, including attorneys' fees, to directors, officers, employees, agents and other persons otherwise than pursuant to this Section 6.4.

Section 6.5.    Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, limited liability company, joint venture, trust, association or other unincorporated organization or other entity in which one or more of its directors or officers serve as directors, officers, trustees or in a similar capacity or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

Section 6.6.    Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.

Section 6.7.    Amendment of By-Laws. These by-laws may be amended, modified or repealed, and new by-laws may be adopted at any time, by the Board of Directors.  Stockholders of the Corporation may adopt additional by-laws and amend, modify or repeal any by-law whether or not adopted by them, but only in accordance with Article FIFTH of the certificate of incorporation.

Section 6.8.    Forum for Adjudication of Disputes.  Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the certificate of incorporation or these by-laws, (iv) any action to interpret, apply, enforce or determine the validity of the certificate of incorporation or these by-laws or (v) any action asserting a claim governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware, or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the Superior Court of the State of Delaware, or, if the Superior Court of the State of Delaware does not have jurisdiction, the United States District Court for the District of Delaware.  Any person purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be (i) deemed to have notice of and consented to the provisions of this Section 6.8, and (ii) deemed to have waived any argument relating to the inconvenience of the forums referenced above in connection with any action or proceeding described in this Section 6.8.  

If any action the subject matter of which is within the scope of the first paragraph of this Section 6.8 is filed in a court other than the Court of Chancery of the State of Delaware, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the Court of Chancery of the State of Delaware, the Superior Court of the State of Delaware and the United States District Court for the District of Delaware in connection with any action brought in any such courts to enforce the first paragraph of this Section 6.8 (an “Enforcement Action”) and (ii) having service of process made upon such stockholder in any such Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.

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If any provision or provisions of this Section 6.8 shall be held to be invalid, illegal or unenforceable as applied to any person or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provision(s) in any other circumstance and of the remaining provisions of this Section 6.8 (including, without limitation, each portion of any sentence of this Section 6.8 containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons and circumstances shall not in any way be affected or impaired thereby.

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EX-31

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

17 CFR 240.13a-14(a)/15(d)-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jason T. Kalisman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Morgans Hotel Group Co. for the fiscal quarter ended September 30, 2014;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ JASON T. KALISMAN 

Jason T. Kalisman

Interim Chief Executive Officer

Date: November 7, 2014

EX-31

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

17 CFR 240.13a-14(a)/15(d)-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard Szymanski, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Morgans Hotel Group Co. for the fiscal quarter ended September 30, 2014;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ RICHARD SZYMANSKI 

Richard Szymanski

Chief Financial Officer

Date: November 7, 2014

EX-32

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934

AND 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Morgans Hotel Group Co. (the “Company”) for the fiscal quarter ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jason T. Kalisman, as Interim Chief Executive Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JASON T. KALISMAN 

Jason T. Kalisman

Interim Chief Executive Officer

Date: November 7, 2014

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934

AND 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Morgans Hotel Group Co. (the “Company”) for the fiscal quarter ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard Szymanski, as Chief Financial Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/ RICHARD SZYMANSKI 

Richard Szymanski

Chief Financial Officer

Date: November 7, 2014

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Other Liabilities - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2014
Other Liabilities Disclosure [Abstract]
Base fee due designer	1.00%
Base fee payable for period from hotel opening	10 years
Amortization expense over estimated life	5 years

XML

Related Party Transactions - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Related Party Transaction [Line Items]
Management fees	$ 1,000,000	$ 2,400,000	$ 3,400,000	$ 7,200,000
Related party receivables	3,811,000		3,811,000		3,694,000
Interest expense related to TLG Promissory Notes	300,000	400,000	1,100,000	1,100,000
TLG Promissory Notes
Related Party Transaction [Line Items]
TLG Promissory Notes to Messrs. Sasson and Masi	$ 19,100,000		$ 19,100,000		$ 18,800,000

XML

Summary of Stock-based Incentive Awards (Detail)	9 Months Ended
	Sep. 30, 2014
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding as of January 1, 2014	888,461
Restricted stock units issued	271,701
Distributed/exercised during 2014	(710,939)
Forfeited during 2014	(101,756)
Outstanding as of September 30, 2014	347,467
LTIP Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding as of January 1, 2014	1,134,610
Distributed/exercised during 2014	(193,453)
Outstanding as of September 30, 2014	941,157
Vested as of September 30, 2014	941,157
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding as of January 1, 2014	1,424,740
Forfeited during 2014	(300,000)
Outstanding as of September 30, 2014	1,124,740
Vested as of September 30, 2014	1,124,740

XML

Income (Loss) Per Share - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2014
Earnings Per Share [Abstract]
Assumption of net income distributed as dividends for calculation of net income per share	100.00%
Securities excluded from diluted net income (loss) per common share calculation	75,446

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Hotel Commitments and Guarantees

The following table details, as of September 30, 2014 and December 31, 2013, the Company’s key money, equity investment and debt financing commitments for hotels under development as well as potential funding obligations under cash flow guarantees at operating hotels and hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum amount cannot be determined (in thousands):

	As of September 30, 2014 (1)		As of December 31, 2013 (1)
Key money, equity investment and debt financing commitments (2)	$	15,514	$	22,499
Key money commitments related to terminated project (3)		—		10,000
Cash flow guarantees		5,000		13,000
Cash flow guarantees in dispute (4)		8,000		8,000
Total maximum future funding commitments	$	28,514	$	53,499
Amounts due within one year (5)	$	15,514	$	25,499

(1) The currency translation is based on an exchange rate of the applicable local currency to U.S. dollar using the exchange rate as of the end of the applicable reporting period.

(2) As of September 30, 2014 and December 31, 2013, these commitments consist of key money commitments. The Company had no equity or debt financing commitments at September 30, 2014 and December 31, 2013.

(3) As of December 31, 2013, amount reflects the funding of $10.0 million in key money for Mondrian at Baha Mar, which the Company is not obligated to fund due to the termination of the related management agreement in June 2014, discussed further below.

(4) Reflects an $8.0 million performance cash flow guarantee related to Delano Marrakech, which the Company believes it is not obligated to fund due to the owner’s defaults under the management agreement terms. The Company has terminated its management agreement effective November 12, 2013, discussed further below.

(5) As of September 30, 2014, amount primarily consists of £9.4 million (or approximately $15.3 million at the exchange rate as of September 30, 2014) in key money for Mondrian London. As of December 31, 2013, amount represents key money for Mondrian London and Mondrian at Baha Mar. The Company is not obligated to fund the key money for Mondrian Baha Mar due to the termination of the related management agreement in June 2014, discussed further below.

License or Franchise Agreements for New Hotels Which are in Development Stage

The Company has signed management, license or franchise agreements for new hotels which are in the development stage. As of September 30, 2014, these included the following:

	Expected Room Count		Anticipated Opening		Initial Term
Hotels Currently Under Construction or Renovation:
10 Karakoy, a Morgans Original, Istanbul (1)		71		2014	15 years
Mondrian Doha		270		2015	30 years
Other Signed Agreements:
Mondrian Istanbul		122			20 years
Delano Aegean Sea		150			20 years
Delano Cartagena		211			20 years

(1) Hotel is subject to a license or franchise agreement.

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Other Expenses - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Mar. 31, 2014 One-time Termination Benefits	Mar. 31, 2014 One Time Termination Benefits To Executive Officers
Restructuring Cost and Reserve [Line Items]
Severance and related costs	$ 29	$ 827	$ 8,395	$ 1,620	$ 7,100	$ 1,800

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Hotel Commitments and Guarantees (Parenthetical) (Detail)	Sep. 30, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2013 Mondrian Baha Mar USD ($)	Sep. 30, 2014 Delano Marrakech Performance Guarantee USD ($)	Dec. 31, 2013 Delano Marrakech Performance Guarantee USD ($)	Sep. 30, 2014 Mondrian London USD ($)	Sep. 30, 2014 Mondrian London GBP (£)
Commitments and Contingencies [Line Items]
Equity or debt financing commitments	$ 0	$ 0
Key money			10,000,000			15,300,000	9,400,000
Cash flow guarantees	$ 5,000,000	$ 13,000,000		$ 8,000,000	$ 8,000,000

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Investments in and Advances to Unconsolidated Joint Ventures - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended					3 Months Ended	1 Months Ended		9 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended	1 Months Ended		1 Months Ended			0 Months Ended	1 Months Ended		3 Months Ended		9 Months Ended	12 Months Ended		0 Months Ended	9 Months Ended	1 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Former Food And Beverage Joint Venture Entities	Jun. 20, 2011 Former Food And Beverage Joint Venture Entities	Mar. 31, 2014 Mondrian South Beach	Apr. 30, 2010 Mondrian South Beach Joint Venture	Aug. 31, 2008 Mondrian South Beach Joint Venture	Sep. 30, 2014 Mondrian South Beach Joint Venture Hotel	Aug. 31, 2006 Mondrian South Beach Joint Venture	Sep. 30, 2014 Mondrian South Beach Joint Venture Mezzanine Loan	Aug. 31, 2008 Mondrian South Beach Joint Venture Libor Rate	Aug. 31, 2006 Mondrian South Beach Joint Venture Libor Rate	Apr. 30, 2010 Mondrian South Beach Joint Venture Partners	Sep. 30, 2014 Mondrian South Beach Joint Venture Partners	Apr. 30, 2010 Mondrian South Beach Joint Venture Partners Mezzanine Loan	Feb. 28, 2011 Mondrian SoHo OptionPlan Room	Jun. 30, 2007 Mondrian SoHo	Aug. 18, 2014 Mondrian SoHo Joint Venture	Jun. 30, 2007 Mondrian SoHo Joint Venture	Sep. 30, 2014 Mondrian SoHo Joint Venture	Sep. 30, 2013 Ames	Jun. 30, 2013 Ames	Sep. 30, 2014 Ames	Dec. 31, 2013 Ames	Jun. 17, 2008 Ames	Jun. 17, 2008 Ames Joint Venture	Sep. 30, 2014 Ames Joint Venture	Jan. 31, 2012 Mondrian Istanbul	Dec. 31, 2011 Mondrian Istanbul Room	Sep. 30, 2014 Mondrian Istanbul	Dec. 31, 2013 Mondrian Istanbul
Schedule of Equity Method Investments [Line Items]
Equity ownership							75.00%					50.00%								20.00%								31.00%					20.00%
Gross purchase price acquired building and land in joint venture												$ 110,000,000
Equity investment requirements and funds									15,000,000																						10,300,000	10,300,000
Additional contribution to equity from joint venture partners									8,000,000							2,750,000
Proceeds of financing from lender and affiliates										22,500,000
Basis Spread on Variable Rate														6.00%	3.00%
Debt										28,000,000		124,000,000
Seller financing to qualified condominium buyers, maximum condominium purchase price, percentage																80.00%
Mezzanine financing provided to joint venture																28,000,000
Non recourse financing extension period																7 years
Extended maturity date of nonrecourse financing date																2017
Extended maturity date of nonrecourse financing options																1 year
Waterfall proceeds to joint venture mezzanine lender after repayment of mortgage debt																		5,500,000
Option to extend the outstanding mortgage and mezzanine debt								2015-04
Outstanding nonrecourse mortgage loan and mezzanine loan											24,100,000		28,000,000
Outstanding mezzanine debt owed to affiliates																	28,000,000
Number of hotel residences sold											261
Number of rented hotel residence											140
Number of hotel residences remain to be sold											74
Investments in and advances to unconsolidated joint ventures	10,492,000		10,492,000		10,492,000	0											0																10,392,000	10,392,000
Advances to joint venture																	14,000,000
Contribution in the joint venture																				5,000,000								12,100,000
Number of guest rooms																			263													122
Initial Management Contract Period																			10 years
Number of extension option																			2
Proceed from loan borrowings																						195,200,000							46,500,000
Outstanding mortgage debt secured by hotel																							196,000,000
Deferred interest			1,100,000																		20,800,000
Court determined property value																					250,500,000
Daily interest accrual																					84,000
Interest In Default																					33,400,000
Equity method investment maturity date of secured mortgage debt																														Oct. 09, 2012
Agreement termination date																										Jul. 17, 2013
Management fee-related parties and other income	$ 5,259,000	$ 6,956,000	$ 16,509,000	$ 21,220,000																				$ 900,000	$ 900,000		$ 1,800,000

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Deferred Gain on Asset Sales - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Dec. 31, 2011 Morgans Hotel Group Europe Ltd	Dec. 31, 2011 London, Morgans, Royalton
Deferred Revenue Arrangement [Line Items]
Equity ownership						50.00%
Deferred gain on asset sales	$ 127,403		$ 127,403		$ 133,419		$ 152,400
Gain on asset sales	$ 2,005	$ 2,005	$ 6,015	$ 6,015

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Preferred Securities and Warrants - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified				0 Months Ended	9 Months Ended	10 Months Ended	12 Months Ended	0 Months Ended	9 Months Ended		0 Months Ended	3 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Jul. 21, 2010	Oct. 15, 2009 Series A Preferred Stock	Sep. 30, 2014 Series A Preferred Stock	May 14, 2014 Series A Preferred Stock	Dec. 31, 2009 Series A Preferred Stock	Oct. 15, 2009 Yucaipal Person	Sep. 30, 2014 Yucaipal	Feb. 28, 2014 Yucaipal	May 14, 2014 Yucaipal Series A Preferred Stock	Sep. 30, 2014 Yucaipal Series A Preferred Stock
Preferred Securities And Warrants [Line Items]
Preferred Securities issued (in shares)				75,000
Preferred Securities issued, value				$ 75.0
Preferred Securities issued, liquidation preference	$ 1,000	$ 1,000		$ 1,000
Number of warrants issued								12,500,000
Exercise price of warrants or rights								$ 6.00
Preferred stock Series A dividend rate through October 15, 2014				8.00%
Preferred stock Series A dividend rate from October 15, 2014 to October 15, 2016				10.00%
Preferred stock Series A dividend rate After October 15, 2016				20.00%
Investors dividend rate on the Series A Preferred Securities increases				4.00%
Investors dividend rate						12.00%					8.00%	10.00%
Investors collectively own or right to purchase through exercise of shares									875,000
Undeclared and unpaid dividends					40.4
Investors consent rights warrants								6,250,000
Equity investment acquisition								100.0
Change in size of board of directors, lower range								7
Change in size of board of directors, upper range								9
Beneficial ownership interest in which investors are subject to certain standstill arrangements								15.00%
Term of warrants								7 years 6 months
Warrant, expiration date								2017-04
Expected dividend payments period used to compute fair value of preferred securities							7 years
Discounted dividend payments expected							17.30%
Cumulative accretion					17.6
Value of preferred securities					65.7
Convertible Notes allowed to be purchased by investors			88.0
Issuance of Convertible Notes			88.0
Convertible notes repurchased										$ 88.0

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Income (Loss) Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Income (Loss) Per Share

3. Income (Loss) Per Share

The Company applies the two-class method as required by ASC 260-10, Earnings per Share (“ASC 260-10”). ASC 260-10 requires the net income per share for each class of stock (common stock and preferred stock) to be calculated assuming 100% of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. To the extent the Company has undistributed earnings in any calendar quarter, the Company will follow the two-class method of computing earnings per share.

Basic earnings (loss) per share is calculated based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share include the effect of potential shares outstanding, including dilutive securities. Potential dilutive securities may include shares and options granted under the Company’s stock incentive plan and membership units in Morgans Group, which may be exchanged for shares of the Company’s common stock under certain circumstances. The 75,446 Morgans Group membership units (which may be converted to cash, or at the Company’s option, common stock) held by third parties at September 30, 2014, Yucaipa Warrants (as defined in note 9) issued to the Yucaipa Investors, unvested restricted stock units, LTIP Units (as defined in note 8), stock options, OPP LTIP Units (as defined in note 8) and shares issuable upon conversion of outstanding Convertible Notes have been excluded from the diluted net income (loss) per common share calculation, as there would be no effect on reported diluted net income (loss) per common share.

The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data). The Company has not had any undistributed earnings in any calendar quarter presented. Therefore, the Company does not present earnings per share following the two-class method.

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013
Numerator:
Net loss	$	(10,095	)	$	(10,328	)
Net (income) loss attributable to noncontrolling interest		(48	)		-
Net loss attributable to Morgans Hotel Group Co.		(10,143	)		(10,328	)
Less: preferred stock dividends and accretion		3,594			4,037
Net loss attributable to common stockholders	$	(13,737	)	$	(14,365	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		34,267			32,693
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		34,267			32,693
Basic and diluted loss available to common stockholders per common share	$	(0.40	)	$	(0.44	)

	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Numerator:
Net loss	$	(43,493	)	$	(38,051	)
Net (income) loss attributable to noncontrolling interest		(504	)		298
Net loss attributable to Morgans Hotel Group Co.		(43,997	)		(37,753	)
Less: preferred stock dividends and accretion		11,948			9,976
Net loss attributable to common stockholders	$	(55,945	)	$	(47,729	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		34,047			32,590
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		34,047			32,590
Basic and diluted loss available to common stockholders per common share	$	(1.64	)	$	(1.46	)

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Commitments and Contingencies - Additional Information (Detail)	0 Months Ended	9 Months Ended		0 Months Ended			9 Months Ended		0 Months Ended			0 Months Ended	9 Months Ended			9 Months Ended					0 Months Ended	9 Months Ended					0 Months Ended	9 Months Ended
	Mar. 20, 2014 Defendant	Sep. 30, 2014 USD ($)	Dec. 31, 2013 USD ($)	Jul. 23, 2014 OTK Associates [Member] USD ($)	Sep. 30, 2014 Yucaipal USD ($)	Aug. 05, 2013 Debt of TLG Promissory Notes USD ($)	Sep. 30, 2014 Mr. Sasson USD ($)	Sep. 30, 2014 Mr. Masi USD ($)	Jan. 16, 2013 Litigation Sochin Downtown Realty, LLC USD ($)	Jan. 16, 2013 Litigation Cape Advisors Inc.	Jan. 16, 2013 Litigation Morgans Group LLC	Apr. 26, 2013 Ames Joint Venture USD ($)	Sep. 30, 2014 Ames	Jun. 17, 2008 Ames	Sep. 30, 2014 Royalton and Morgans USD ($)	Sep. 30, 2014 Joint Venture Ames	Sep. 30, 2014 Mondrian London USD ($)	Sep. 30, 2014 Mondrian London GBP (£)	Oct. 10, 2014 Mondrian London Subsequent Event USD ($)	Sep. 30, 2014 Delano Moscow USD ($)	Sep. 30, 2012 Delano Marrakech Room	Sep. 30, 2014 Delano Marrakech USD ($)	Sep. 30, 2014 10 Karakoy, a Morgans Original, Istanbul USD ($) Room	Sep. 30, 2014 Mondrian South Beach USD ($)	Sep. 30, 2014 Mondrian South Beach Construction Contracts USD ($)	Sep. 30, 2014 Mondrian SoHo Hotel	Aug. 18, 2014 Mondrian SoHo Hotel Joint Venture USD ($)	Sep. 30, 2014 Ames Hotel Owned, Joint Venture and Managed Hotels USD ($)
Commitment And Contingencies [Line Items]
Key money																	$ 15,300,000	£ 9,400,000	$ 15,200,000	$ 3,000,000			$ 300,000
Value added tax paid, expects to recover from the taxing authority																	3,000,000
Key money obligation, relieved																				10,000,000
Relieved amount of cash flow guarantee		5,000,000	13,000,000																	8,000,000
Rooms in Delano Marrakech hotel																					71
Expected Room Count																							71
Anticipated Opening																							2014
Accrued expenses and reduction to management fees															700,000
Payables outstanding to vendors																									300,000
Purchase of condominium units by the Company and its Affiliates																								14,000,000
Condominium units sales price description																								The joint venture partners are each obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the lender’s mezzanine loan, or the then outstanding principal balance of the lender’s mezzanine loan.
Commitments guarantee obligations percentage																										20.00%
Management agreement termination period												60 days
Agreement termination fee												1,800,000
Tax credit guaranties capped		3,000,000
Proceeds from sale of tax credits																												16,900,000
Management agreement termination date													Jul. 17, 2013
Defaulted outstanding on loans						18,000,000			217,000,000
Date of due debt									Nov. 15, 2012							Oct. 09, 2012
Ownership interest acquired										80.00%	20.00%			31.00%
Number of defendants	4
Court determined property value																											250,500,000
Daily interest accrual																											84,000
Claim for losses and damages																						30,000,000
Counterclaim by the owner																						119,000,000
Complaint seeks damages, amount							16,000,000	2,000,000
Cost paid were not covered by insurance proceed		400,000
Securities action amount					3,000,000
Aggregate amount awarded				6,500,000
Prior interim award amount paid by Company's insurers				$ 2,700,000

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Organization and Formation Transaction - Additional Information (Detail) (USD $)	9 Months Ended				0 Months Ended	9 Months Ended											9 Months Ended
	Sep. 30, 2014 Segment	Sep. 30, 2013	Nov. 30, 2011	Sep. 30, 2014 December 1, 2014	Nov. 30, 2011 The Light Group LLC	Sep. 30, 2014 The Light Group LLC	Sep. 30, 2014 International Locations Sales	Sep. 30, 2013 International Locations Sales	Sep. 30, 2014 Las Vegas The Light Group LLC Location	Sep. 30, 2014 Mgm Resorts International The Light Group LLC Location	Sep. 30, 2014 Yucaipal The Light Group LLC Location	Sep. 30, 2014 Subsidiaries The Light Group LLC Location	Sep. 30, 2014 Morgans Group	Sep. 30, 2014 Mr. Sasson	Nov. 30, 2011 Mr. Sasson	Sep. 30, 2014 Mr. Sasson The Light Group LLC	Sep. 30, 2014 Mr. Masi	Nov. 30, 2011 Mr. Masi
Organization and Formation Transaction [Line Items]
Membership units exchangeable for common stock	75,446												1,000,000
Number of reportable operating segments	1
Percentage of revenues							5.50%	10.50%
Gain on transfer of food and beverage venue	$ 280,000	$ 0
Ownership interest acquired					90.00%
Aggregate purchase price					28,500,000
Promissory notes issued to acquire business					18,000,000										16,000,000			2,000,000
Notes convertible into shares of common stock					$ 9.50
Beneficially own					10.00%											5.00%
Long term debt extended percentage bearing fixed interest percentage rate			8.00%
Increasing interest percentage rate				18.00%
Number of venues									18	13	2	3
Employment contract expiration date																	Dec. 31, 2014
Termination of restaurant management agreement						Apr. 01, 2014
Acquisition agreed to purchase of equity interest					90.00%
Percentage of equity issue to noncontrolling interest														5.00%			5.00%
Obligation related to Sasson-Masi Put Option	$ 4,600,000

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Debt and Capital Lease Obligations (Parenthetical) (Detail) (USD $)	9 Months Ended					9 Months Ended			1 Months Ended	9 Months Ended		0 Months Ended					0 Months Ended	9 Months Ended	1 Months Ended	0 Months Ended		9 Months Ended	0 Months Ended			1 Months Ended	9 Months Ended			0 Months Ended			0 Months Ended	9 Months Ended		9 Months Ended	0 Months Ended	9 Months Ended	0 Months Ended			9 Months Ended		0 Months Ended	9 Months Ended					1 Months Ended			1 Months Ended			0 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Jul. 21, 2010	Sep. 30, 2014 Hudson Lease	Dec. 31, 2013 Hudson Lease	Sep. 30, 2014 Hudson Lease 1 and Lease 2 Hudson Lease Hotel	Sep. 30, 2014 Hudson Lease 1 Hudson Lease	Sep. 30, 2014 Hudson Lease Lease 2 Hudson Lease	Aug. 31, 2012 Convert The Hotel To Delano Las Vegas Restaurant	Sep. 30, 2014 TLG Promissory Notes	Nov. 30, 2011 TLG Promissory Notes	Nov. 30, 2011 The Light Group LLC	Sep. 30, 2014 The Light Group LLC	Nov. 30, 2011 The Light Group LLC TLG Promissory Notes	Nov. 30, 2011 Mr. Sasson TLG Promissory Notes	Nov. 30, 2011 Mr. Masi TLG Promissory Notes	Aug. 04, 2006 Liability to Subsidiary Trust Issuing Preferred Securities	Sep. 30, 2014 Liability to Subsidiary Trust Issuing Preferred Securities	Oct. 31, 2007 Convertible Notes Call Options Long	Feb. 06, 2014 Delano Credit Facility	Jul. 28, 2011 Delano Credit Facility	Sep. 30, 2014 Delano Credit Facility	Jul. 28, 2011 Delano Credit Facility Libor Rate	Jul. 28, 2011 Delano Credit Facility Libor Rate Base Rate	Jul. 28, 2011 Delano Credit Sub-Facility	Oct. 31, 2007 Convertible Notes	Sep. 30, 2014 Convertible Notes	Dec. 31, 2013 Convertible Notes	Oct. 17, 2007 Convertible Notes	Oct. 15, 2014 Convertible Notes Subsequent Event	Feb. 06, 2014 Nonrecourse Mortgage Notes Hudson/Delano 2014 Mortgage Loan	Feb. 06, 2014 Mezzanine Loan Hudson/Delano 2014 Mortgage Loan	Feb. 06, 2014 Hudson/Delano 2014 Mortgage Loan	Sep. 30, 2014 Hudson/Delano 2014 Mortgage Loan Extension	Apr. 08, 2014 Hudson/Delano 2014 Mortgage Loan	Sep. 30, 2014 Hudson/Delano 2014 Mortgage Loan Libor Rate	Nov. 14, 2012 Hudson 2012 Mortgage Loan	Sep. 30, 2014 Hudson 2012 Mortgage Loan	Nov. 14, 2012 Hudson 2012 Mortgage Loan Interest Rate Caps	Nov. 14, 2012 Hudson 2012 Mortgage Loan Libor Rate	Oct. 31, 2004 Clift Debt	Sep. 30, 2014 Clift Debt	Dec. 31, 2013 Clift Debt	Oct. 14, 2014 Clift Debt Subsequent Event	Sep. 30, 2014 Clift Debt Maximum	Sep. 30, 2014 Clift Debt Minimum	Sep. 30, 2014 Trust Preferred Securities Subject to Mandatory Redemption Liability to Subsidiary Trust Issuing Preferred Securities	Sep. 30, 2014 Trust Preferred Securities Subject to Mandatory Redemption Libor Rate Liability to Subsidiary Trust Issuing Preferred Securities	Jul. 21, 2010 Yucaipal	Oct. 31, 2007 Convertible Notes With Warrant Attached	Sep. 30, 2014 Restaurant Lease Note	Dec. 31, 2013 Restaurant Lease Note	Aug. 31, 2012 Restaurant Lease Note Convert The Hotel To Delano Las Vegas	Sep. 30, 2014 Restaurant Lease Note Convert The Hotel To Delano Las Vegas	Dec. 31, 2013 Revolving Credit Facility	Jul. 28, 2011 Revolving Credit Facility Libor Rate
Debt And Capital Lease Obligations [Line Items]
Date of first interest payment																											Apr. 15, 2008
Date of due debt										Nov. 30, 2015								Oct. 30, 2036									Oct. 15, 2014
Debt instrument, face value																									$ 15,000,000							$ 150,000,000	$ 450,000,000				$ 180,000,000																$ 10,600,000
Mortgage instrument, principal amount																															300,000,000				300,000,000
Debt repayment																				37,000,000																		180,000,000
Revolving credit facility, maximum amount of commitments																					100,000,000
Letter of credit outstanding																				10,000,000
Debt & capital lease obligations, interest rate description																																		30-day LIBOR plus 565 basis points						30-day LIBOR rate								three-month LIBOR rate
Debt & capital lease obligations minimum Interest																							1.00%	3.00%												5.65%				8.40%								3.25%								4.00%
LIBOR cap rate																																		1.75%					2.50%
Hudson/Delano 2014 Mortgage Loan matures																																		Feb. 09, 2016
Number of extension options																																		3
Maturity period extension																																		1 year
Extended Hudson/Delano 2014 Mortgage Loan maturity date																																		Feb. 09, 2019
Requirement for Extension in Maturity Date																																		0.25%
Prepayment premium after August 9, 2015																																	0
Start date to repay debt without prepayment premium																																		Aug. 09, 2015
LIBOR floor rate																																					0.50%
Sale of subsidiary company																																									71,000,000
Leased term																																									99-year lease term
Capital leased payment require																																										6,000,000		7,600,000
Increase in rent in future period																																										5 years
Increase in consumer price index																																													40.00%	20.00%
Increase in consumer price index																																													20.00%	10.00%
Morgans Group agreed to guarantee losses																																										6,000,000
Preferred securities issued																	50,000,000
Amount of common stock owned by the company through trust																		100,000
Proceeds used to purchase of junior subordinated notes issued																		50,100,000
Trust notes and preferred notes interest rate																		8.68%
Trust notes and preferred notes Interest rate Period																																															2016-10
Convertible debt, face amount																													172,500,000
Net proceeds from offering																										166,800,000
Interest rate										8.00%																	2.375%		2.375%					5.80%								9.60%
Convertible Notes allowed to be purchased by investors			88,000,000																																														88,000,000
Convertible notes repurchased																											35,400,000			49,100,000
Discount on convertible notes repurchased																											100,000
Equity component recorded as additional paid-in-capital																										9,000,000
Net of deferred taxes																										6,400,000
Convertible notes warrants, shares																																																		6,415,327
Exercise price of warrants or rights																										$ 40.00
Purchase of the call options, net of the related tax benefit																			20,300,000
Ownership interest in the light group												90.00%
Price per share of common stock to convert notes into shares														$ 9.50
Debt and capital lease obligations	673,638,000	560,751,000									18,000,000				16,000,000	2,000,000											49,015,000	170,698,000						450,000,000								93,396,000	91,486,000								5,926,000	6,551,000			37,000,000
Purchase price acquisition cash paid												28,500,000
Non-Morgans EBITDA													18,000,000
Fair value of TLG Promissory Notes	18,000,000
Accrued interest	1,100,000
Interest rate increases (max)										18.00%
Percentage of accrued interest payable quarterly in cash										75.00%
Percentage of accrued interest payable on maturity										25.00%
Initial conversion price of common stock												$ 9.50
Initial date a lawsuit was filed against the Company related to TLG Promissory Notes	August 5, 2013
Number of leasehold interests acquired in restaurants									3
Contractual obligation									15,000,000
Restaurant leasehold note term																																																					7 years
Fair value of restaurant lease notes																																																					7,500,000	5,900,000
Number of Condominium Unit Leased						2
Annual minimum lease payments							649,728	365,490
Lease expiration date							2096-11	2098-12
Date after which company could purchase leased asset at fair market value							2015-11
Imputed interest rate of leased							8.00%	8.00%
Capital lease obligation				$ 6,100,000	$ 6,100,000
Revolving credit facility, initiation date																						Jul. 28, 2011
Delano credit facility unused commitment fee																					0.50%

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License or Franchise Agreements for New Hotels Which are in Development Stage (Detail)	9 Months Ended
	Sep. 30, 2014 Room
10 Karakoy, a Morgans Original, Istanbul
Development Hotel Agreements [Line Items]
Expected Room Count	71
Anticipated Opening	2014
Initial Term	15 years
Mondrian Doha
Development Hotel Agreements [Line Items]
Expected Room Count	270
Anticipated Opening	2015
Initial Term	30 years
Mondrian Istanbul
Development Hotel Agreements [Line Items]
Expected Room Count	122
Initial Term	20 years
Delano Aegean Sea
Development Hotel Agreements [Line Items]
Expected Room Count	150
Initial Term	20 years
Delano Cartagena
Development Hotel Agreements [Line Items]
Expected Room Count	211
Initial Term	20 years

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Hotels (Detail)	Sep. 30, 2014 Room
Hudson | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	876
Morgans | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	117
Royalton | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	168
Mondrian SoHo | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	263
Delano South Beach | Miami Beach, FL
Entity Hotels Disclosure [Line Items]
Number of Rooms	194
Mondrian South Beach | Miami Beach, FL
Entity Hotels Disclosure [Line Items]
Number of Rooms	214
Shore Club | Miami Beach, FL
Entity Hotels Disclosure [Line Items]
Number of Rooms	308
Mondrian Los Angeles | Los Angeles, CA
Entity Hotels Disclosure [Line Items]
Number of Rooms	236
Clift | San Francisco, CA
Entity Hotels Disclosure [Line Items]
Number of Rooms	372
Sanderson | London, England
Entity Hotels Disclosure [Line Items]
Number of Rooms	150
St Martins Lane | London, England
Entity Hotels Disclosure [Line Items]
Number of Rooms	204
Mondrian London at Sea Containers | London, England
Entity Hotels Disclosure [Line Items]
Number of Rooms	359
Delano Las Vegas | Las Vegas, Nevada
Entity Hotels Disclosure [Line Items]
Number of Rooms	1,117

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Hotels (Parenthetical) (Detail)	9 Months Ended
	Sep. 30, 2014 Hotel
Entity Hotels Disclosure [Line Items]
Ownership interest owned	100.00%
Mondrian South Beach
Entity Hotels Disclosure [Line Items]
Number of hotel residences sold	261
Number of rented hotel residence	140
Number of hotel residences remain to be sold	74
Hudson
Entity Hotels Disclosure [Line Items]
Percentage of square footage of building owned	96.00%
Number of Rooms	876
Number of SROs	60
Mondrian SoHo
Entity Hotels Disclosure [Line Items]
Ownership interest owned	20.00%
Shore Club
Entity Hotels Disclosure [Line Items]
Ownership interest owned	7.00%

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates all wholly-owned subsidiaries and variable interest entities in which the Company is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Entities which the Company does not control through voting interest and entities which are variable interest entities of which the Company is not the primary beneficiary, are accounted for under the equity method.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.

Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Restricted Cash

As required by certain debt and lease agreements, restricted cash consists of cash held in escrow accounts for taxes, ground rent, insurance premiums, and debt service or lease payments.

The Hudson/Delano 2014 Mortgage Loan, defined and discussed below in note 6, provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash flows from Hudson and Delano South Beach are deposited into accounts controlled by the lenders from which debt service and operating expenses, including management fees, are paid and from which other reserve accounts may be funded. Any excess amounts will be retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. As of September 30, 2014, the debt yield ratio exceeded the required threshold.  

As further required by the debt and lease agreements related to hotels owned by the Company or one of its subsidiaries, the Company must set aside 4% of the hotels’ revenues in restricted escrow accounts for the future periodic replacement or refurbishment of furniture, fixtures and equipment. As replacements occur, the Company or its subsidiary is eligible for reimbursement from these escrow accounts.

As of September 30, 2014, restricted cash also consisted of cash held in escrow for insurance program escrows.

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant business decisions such as buying, selling or financing nor is it the primary beneficiary under ASC 810-10, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. Once the Company’s investment balance in an unconsolidated joint venture is zero, the Company suspends recording additional losses. For investments in which there is recourse or unfunded commitments to provide additional equity, distributions and losses in excess of the investment are recorded as a liability. As of September 30, 2014, there were no liabilities required to be recorded related to these investments.

Investment in TLG Management Contracts, net

Investment in TLG management contracts represents the value of the TLG management contracts. TLG operates numerous nightclubs, restaurants, pool lounges, and bar venues primarily in Las Vegas pursuant to management agreements with MGM. The management contract assets are being amortized, using the straight line method, over the life of each applicable management contract.

Other Assets

In August 2012, the Company entered into a 10-year licensing agreement with MGM, with two five-year extensions at the Company’s option subject to performance thresholds, to convert THEhotel to Delano Las Vegas, which is managed by MGM. Delano Las Vegas opened in September 2014.  In addition, the Company acquired the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas from an existing tenant for $15.0 million in cash at closing and a deferred, principal-only $10.6 million promissory note (“Restaurant Lease Note”) to be paid over seven years, which the Company recorded at fair value as of the date of issuance of $7.5 million, as discussed in note 6. The venues have been reconcepted and renovated and are managed by TLG. The three food and beverage venues are being operated pursuant to 10-year operating leases with an MGM affiliate, pursuant to which the Company pays minimum annual lease payments and a percentage rent based on cash flow. The Company allocated the total consideration paid, or to be paid, to the license agreement and the restaurant leasehold asset based on their respective fair values. The Company amortizes the fair value of the license agreement, using the straight line method, over the 10-year life of the license agreement, and the fair value of the restaurant leasehold interests, using the straight line method, over the 10-year life of the operating leases.

Further, as of September 30, 2014, other assets primarily consist of deferred financing costs which are being amortized, using the straight line method, which approximates the effective interest rate method, over the terms of the related debt agreements.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance. The Company has established a reserve on its deferred tax assets based on anticipated future taxable income and tax strategies which may include the sale of property or an interest therein.

All of the Company’s foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Income taxes for the three and nine months ended September 30, 2014 and 2013, were computed using the Company’s effective tax rate.

Credit-risk-related Contingent Features

The Company entered into agreements with each of its derivative counterparties in connection with the interest rate caps and hedging instruments related to the 2.375% Senior Subordinated Convertible Notes (the “Convertible Notes”), as discussed in note 6, which were outstanding as of September 30, 2014 and which matured and were repaid in full on October 15, 2014. The agreements provided that in the event the Company either defaulted or was capable of being declared in default on any of its indebtedness, the Company could also be declared in default on its derivative obligations. These Convertible Notes Call Options and Convertible Notes Warrants, as discussed and defined in note 6, expired when the Convertible Notes were repaid in October 2014.

The Company has entered into warrant agreements with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P., (collectively, the “Yucaipa Investors”), as discussed in note 9, to purchase a total of 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share (the “Yucaipa Warrants”). In addition, the Yucaipa Investors have certain consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the Yucaipa Warrants 6,250,000 shares of the Company’s common stock. The Yucaipa Warrants are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820-10, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2014 and December 31, 2013, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Accordingly, all derivatives have been classified as Level 2 fair value measurements. As of September 30, 2014, the Company had three interest rate caps outstanding and the fair value of these interest rate caps was $0.2 million.

In connection with The Light Group Transaction, the Company provided Messrs. Sasson and Masi with the Sasson-Masi Put Options. Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classified the noncontrolling interest in temporary equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The Company has determined that the majority of the inputs used to value the Sasson-Masi Put Options fall within Level 3 of the fair value hierarchy. Accordingly, the Sasson-Masi Put Options have been classified as Level 3 fair value measurements.

In connection with the three restaurant leases in Las Vegas, the Company issued the Restaurant Lease Note to be paid over seven years. The Restaurant Lease Note does not bear interest except in the event of default, as defined by the agreement. In accordance with ASC 470, Debt, the Company imputed interest on the Restaurant Lease Note, which is recorded at fair value on the accompanying consolidated balance sheets. On the date of grant, the Company determined the fair value of the Restaurant Lease Note to be $7.5 million imputing an interest rate of 10%. The Company has determined that the majority of the inputs used to value the Restaurant Lease Note fall within Level 2 of the fair value hierarchy, which accordingly has been classified as Level 2 fair value measurements.

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold, or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and fixed and variable rate debt. Management believes the carrying amounts of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of September 30, 2014 and December 31, 2013 due to the short-term maturity of these instruments or variable market interest rates on certain debt instruments.

The Company had fixed rate debt of $123.1 million and $247.1 million as of September 30, 2014 and December 31, 2013, respectively, which included the Company’s trust preferred securities, TLG Promissory Notes, excluding accrued interest, Restaurant Lease Note, discussed above, and the Convertible Notes at face value, as discussed in note 6.  This fixed rate debt had a fair market value at September 30, 2014 and December 31, 2013 of approximately $136.0 million and $217.7 million, respectively, using market rates.

Stock-based Compensation

The Company accounts for stock based employee compensation using the fair value method of accounting described in ASC 718-10. For share grants, total compensation expense is based on the price of the Company’s stock at the grant date. For option grants, the total compensation expense is based on the estimated fair value using the Black-Scholes option-pricing model. Compensation expense is recorded ratably over the vesting period.

Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less any dividends on unvested restricted common stock, by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less dividends on unvested restricted common stock, by the weighted-average number of shares of common stock outstanding during the period, plus other potentially dilutive securities, such as unvested shares of restricted common stock and warrants.

Redeemable Noncontrolling Interest

Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classifies the noncontrolling interest in temporary equity in accordance with the Securities and Exchange Commission’s guidance as codified in ASC 480-10, Distinguishing Liabilities from Equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The change in the redemption value does not impact the Company’s earnings or earnings per share.

Noncontrolling Interest

The Company follows ASC 810-10, when accounting and reporting for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a subsidiary. Under ASC 810-10, the Company reports noncontrolling interests in subsidiaries as a separate component of stockholders’ equity (deficit) in the consolidated financial statements and reflects net income (loss) attributable to the noncontrolling interests and net income (loss) attributable to the common stockholders on the face of the consolidated statements of comprehensive loss.

The membership units owned by the Former Parent in Morgans Group are presented as a noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $0.4 million and $0.5 million as of September 30, 2014 and December 31, 2013, respectively. The noncontrolling interest in Morgans Group is: (i) increased or decreased by the holders of membership interests’ pro rata share of Morgans Group’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by exchanges of membership units for the Company’s common stock; and (iv) adjusted to equal the net equity of Morgans Group multiplied by the holders of membership interests’ ownership percentage immediately after each issuance of units of Morgans Group and/or shares of the Company’s common stock and after each purchase of treasury stock through an adjustment to additional paid-in capital. Net income or net loss allocated to the noncontrolling interest in Morgans Group is based on the weighted-average percentage ownership throughout the period. As of September 30, 2014, there were 75,446 membership units outstanding, each of which is exchangeable for a share of the Company’s common stock.

Reclassifications

Certain prior period financial statement amounts have been reclassified to conform to the current period presentation.

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	1 Months Ended	9 Months Ended			9 Months Ended					1 Months Ended
	Aug. 31, 2012	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Interest Rate Caps Derivative	Sep. 30, 2014 Yucaipa Warrants	Sep. 30, 2014 Convertible Notes	Oct. 31, 2007 Convertible Notes	Oct. 17, 2007 Convertible Notes	Aug. 31, 2012 Convert The Hotel To Delano Las Vegas Restaurant Agreement	Aug. 31, 2012 Convert The Hotel To Delano Las Vegas Restaurant Lease Note	Sep. 30, 2014 Convert The Hotel To Delano Las Vegas Restaurant Lease Note	Sep. 30, 2014 Unconsolidated Joint Venture
Summary Of Significant Accounting Policies [Line Items]
Percentage of hotels' revenues in restricted escrow accounts		4.00%
Investment balance in unconsolidated joint venture		$ 10,492,000		$ 10,492,000									$ 0
Investments in unconsolidated joint ventures, liabilities		0
Term of license agreement	10 years
Extension of license agreement										5 years
Number of times license agreement period to be extended										2
Company acquired the leasehold interest in number of food and beverage venues										3
Contractual obligation										15,000,000
Deferred promissory note payable											10,600,000
Restaurant lease note term											7 years
Fair value of restaurant lease note											7,500,000	5,900,000
Operating lease expiration period	10 years
Finite lived intangible assets useful life										10 years
Interest rate							2.375%		2.375%
Right to purchase common stock through the exercise of warrants						12,500,000
Exercise price of warrants or rights						$ 6.00		$ 40.00
Investors consent rights warrants						6,250,000
Fair value of interest rate caps		0	(42,000)		200,000
Number of interest rate caps outstanding					3
Interest rate												10.00%
Fixed rate debt		123,100,000		247,100,000
Fair market value of fixed rate debt		136,000,000		217,700,000
Membership units in noncontrolling interest		$ 392,000		$ 490,000
Membership units in Morgans Group outstanding		75,446

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Debt and Capital Lease Obligations (Detail) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Hudson/Delano 2014 Mortgage Loan	Dec. 31, 2013 Notes Secured by Hudson	Sep. 30, 2014 Clift Debt	Dec. 31, 2013 Clift Debt	Sep. 30, 2014 Liability to Subsidiary Trust Issuing Preferred Securities	Dec. 31, 2013 Liability to Subsidiary Trust Issuing Preferred Securities	Sep. 30, 2014 Convertible Notes	Dec. 31, 2013 Convertible Notes	Oct. 17, 2007 Convertible Notes	Sep. 30, 2014 Debt of TLG Promissory Notes	Dec. 31, 2013 Debt of TLG Promissory Notes	Sep. 30, 2014 Restaurant Lease Note	Dec. 31, 2013 Restaurant Lease Note	Sep. 30, 2014 Capital Lease Obligations	Dec. 31, 2013 Capital Lease Obligations	Dec. 31, 2013 Revolving Credit Facility
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligation	$ 673,638	$ 560,751	$ 450,000	$ 180,000	$ 93,396	$ 91,486	$ 50,100	$ 50,100	$ 49,015	$ 170,698		$ 19,096	$ 18,807	$ 5,926	$ 6,551	$ 6,105	$ 6,109	$ 37,000
Interest rate, description			5.80% (LIBOR + 5.65%)
Interest rate			5.80%		9.60%		8.68%		2.375%		2.375%

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
ASSETS
Property and equipment, net	$ 281,316	$ 292,629
Goodwill	66,572	66,572
Investments in and advances to unconsolidated joint ventures	10,492	10,492
Cash and cash equivalents	96,284	10,025
Restricted cash	16,234	22,144
Accounts receivable, net	15,388	18,384
Related party receivables	3,811	3,694
Prepaid expenses and other assets	7,962	10,409
Deferred tax asset, net	78,896	78,758
Investment in TLG management contracts, net	19,376	23,702
Other assets, net	35,937	34,398
Total assets	632,268	571,207
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations	673,638	560,751
Accounts payable and accrued liabilities	38,642	41,627
Deferred gain on asset sales	127,403	133,419
Other liabilities	13,866	13,891
Total liabilities	853,549	749,688
Redeemable noncontrolling interest	4,606	4,953
Commitments and contingencies
Preferred stock, $0.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at September 30, 2014 and December 31, 2013, respectively	65,675	62,004
Common stock, $0.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at September 30, 2014 and December 31, 2013, respectively	363	363
Additional paid-in capital	241,346	252,810
Treasury stock, at cost, 1,899,707 and 2,703,181 shares of common stock at September 30, 2014 and December 31, 2013, respectively	(23,708)	(37,086)
Accumulated other comprehensive loss	(202)	(10)
Accumulated deficit	(509,753)	(462,005)
Total Morgans Hotel Group Co. stockholders’ deficit	(226,279)	(183,924)
Noncontrolling interest	392	490
Total deficit	(225,887)	(183,434)
Total liabilities, redeemable noncontrolling interest and stockholders’ deficit	$ 632,268	$ 571,207

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Omnibus Stock Incentive Plan - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended				12 Months Ended		9 Months Ended	0 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Mar. 18, 2011	Dec. 31, 2007 Stock Incentive Plan 2006	Sep. 30, 2014 Stock Incentive Plan 2006	Sep. 30, 2014 Restricted Stock Units	Aug. 14, 2014 Restricted Stock Units Non-Employee Directors	Mar. 20, 2011 OPP LTIP Units	Sep. 30, 2014 OPP LTIP Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved and authorized								14,610,000
Reduction in shares available for grant due to each award other than options and stock appreciation rights							1.7
Restricted stock units issued									271,701	77,922
Vesting, description										These grants become 100% vested on May 14, 2015, provided that upon a non-employee director’s resignation from the Board of Directors, other than as a consequence of the director’s bad acts, the vesting of any RSUs will be on a pro rated basis as of the resignation date.
Vesting Percentage on Vesting Date										100.00%
Vesting Date										May 14, 2015
Stock compensation expense	$ 0.3	$ 1.3	$ 3.1	$ 3.6
Unrecognized compensation costs	$ 1.8		$ 1.8		$ 3.4
Weighted-average period over unrecognized compensation expense			1 year 1 month 6 days
Cash or equity award period											3 years
Increase in company's total return to stockholders											30.00%
Compounded annual growth rate											9.00%
Increase in company's total return to stockholders over												Three-year period from March 20, 2011 to March 20, 2014
Closing price of Company's common shares												30 days
Fair value of LTIP unit at grant date						$ 8.87
Performance criteria												$ 11.53

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ (43,493)	$ (38,051)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	14,884	15,224
Amortization of other costs	7,009	5,311
Amortization and write off of deferred financing costs	5,714	4,563
Amortization of discount on convertible notes	1,030	1,707
Amortization of deferred gain on asset sales	(6,015)	(6,015)
Stock-based compensation	3,096	3,552
Accretion of interest	2,383	2,158
Equity in (income) losses from unconsolidated joint ventures	(7)	773
Impairment loss on receivables from managed hotel and unconsolidated joint venture	0	5,942
Impairment loss and loss on disposal of assets	0	273
Gain on transfer and disposal of assets	(280)	0
Change in fair value of TLG Promissory Notes	5	60
Change in fair value of interest rate caps, net	0	42
Changes in assets and liabilities:
Accounts receivable, net	2,642	(2,801)
Related party receivables	(117)	874
Restricted cash	7,189	(1,095)
Prepaid expenses and other assets	2,258	(640)
Accounts payable and accrued liabilities	(1,494)	4,476
Net cash used in operating activities	(5,196)	(3,647)
Cash flows from investing activities:
Additions to property and equipment	(3,949)	(9,056)
Additions to leasehold interests	0	(208)
Investment in hotel development	3,000	(375)
Investments in and settlement related to unconsolidated joint ventures	0	(151)
(Deposits) withdrawals from capital improvement escrows, net	(1,279)	1,700
Distributions from unconsolidated joint ventures	6	7
Net cash used in investing activities	(2,222)	(8,083)
Cash flows from financing activities:
Proceeds from debt	450,000	22,000
Payments on debt and capital lease obligations	(341,542)	(6,998)
Debt issuance costs	(13,271)	(265)
Cash paid in connection with vesting of stock based awards	(797)	(545)
Distributions to holders of noncontrolling interests in consolidated subsidiaries	(713)	(703)
Net cash provided by financing activities	93,677	13,489
Net increase in cash and cash equivalents	86,259	1,759
Cash and cash equivalents, beginning of year	10,025	5,847
Cash and cash equivalents, end of year	96,284	7,606
Supplemental disclosure of cash flow information:
Cash paid for interest	34,848	26,273
Cash paid for taxes	564	150
Non cash financing activities:
Write off of discount on convertible debt	$ 726	$ 0

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Investments in and Advances to Unconsolidated Joint Ventures and Equity Losses (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Schedule of Equity Method Investments [Line Items]
Total investments in and advances to unconsolidated joint ventures	$ 10,492	$ 10,492
Mondrian Istanbul
Schedule of Equity Method Investments [Line Items]
Total investments in and advances to unconsolidated joint ventures	10,392	10,392
Other
Schedule of Equity Method Investments [Line Items]
Total investments in and advances to unconsolidated joint ventures	$ 100	$ 100

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Investments in and Advances to Unconsolidated Joint Ventures (Tables)

9 Months Ended

Sep. 30, 2014

Equity Method Investments And Joint Ventures [Abstract]

Investments in and Advances to Unconsolidated Joint Ventures and Equity Losses

The Company’s investments in and advances to unconsolidated joint ventures and its equity in income (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

Entity	As of September 30, 2014		As of December 31, 2013
Mondrian Istanbul	$	10,392	$	10,392
Other		100		100
Total investments in and advances to unconsolidated joint    ventures	$	10,492	$	10,492

Equity in Income (Losses) from Unconsolidated Joint Ventures

Equity in income (losses) of unconsolidated joint ventures

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013			Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Mondrian South Beach food and    beverage—MC South Beach	$	—	$	(281	)	$	—	$	(629	)
Other		3		3			7		(144	)
Total	$	3	$	(278	)	$	7	$	(773	)

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Equity in Income (Losses) from Unconsolidated Joint Ventures (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Schedule of Equity Method Investments [Line Items]
Equity in income (losses) from unconsolidated joint ventures	$ 3	$ (278)	$ 7	$ (773)
Mondrian South Beach Food and Beverage-MC South Beach
Schedule of Equity Method Investments [Line Items]
Equity in income (losses) from unconsolidated joint ventures		(281)		(629)
Other
Schedule of Equity Method Investments [Line Items]
Equity in income (losses) from unconsolidated joint ventures	$ 3	$ 3	$ 7	$ (144)

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Debt and Capital Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Debt and Capital Lease Obligations

Debt and capital lease obligations consists of the following (in thousands):

Description	As of September 30, 2014		As of December 31, 2013		Interest rate at September 30, 2014
Hudson/Delano Mortgage (a)	$	450,000	$	—	5.80% (LIBOR + 5.65%)
Notes secured by Hudson (a)		—		180,000
Clift debt (b)		93,396		91,486	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes (d)		49,015		170,698	2.375%
TLG Promissory Notes (e)		19,096		18,807	(f)
Restaurant Lease Note (f)		5,926		6,551	(h)
Capital lease obligations (g)		6,105		6,109	(g)
Revolving credit facility (h)		—		37,000
Debt and capital lease obligation	$	673,638	$	560,751

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Organization and Formation Transaction

9 Months Ended

Sep. 30, 2014

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization and Formation Transaction

1. Organization and Formation Transaction

Morgans Hotel Group Co., a Delaware corporation (the “Company”), was incorporated on October 19, 2005. The Company operates, owns, acquires and redevelops boutique hotels primarily in gateway cities and select resort markets in the United States, Europe and other international locations, and nightclubs, restaurants, pool lounges, bars and other food and beverage venues in many of the hotels it operates, as well as in hotels and casinos operated by MGM Resorts International (“MGM”) in Las Vegas.

The Morgans Hotel Group Co. predecessor comprised the subsidiaries and ownership interests that were contributed as part of the formation and structuring transactions from Morgans Hotel Group LLC, now known as Residual Hotel Interest LLC (“Former Parent”), to Morgans Group LLC (“Morgans Group”), the Company’s operating company. The Former Parent also contributed all the membership interests in its hotel management business to Morgans Group in return for 1,000,000 membership units in Morgans Group exchangeable for shares of the Company’s common stock.

The Company has one reportable operating segment; it operates, owns, acquires, develops and redevelops boutique hotels, nightclubs, restaurants, pool lounges, bars and other food and beverage venues in many of the hotels it operates, as well as in hotels and casinos operated by MGM in Las Vegas. During the nine months ended September 30, 2014 and 2013, the Company derived 5.5% and 10.5% of its total revenues from international locations, respectively. The assets at these international locations were not significant during the periods presented.

Hotels

The Company’s hotels as of September 30, 2014 were as follows:

Hotel Name	Location	Number of Rooms		Ownership
Hudson	New York, NY		876		(1	)
Morgans	New York, NY		117		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		263		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		214		(5	)
Shore Club	Miami Beach, FL		308		(6	)
Mondrian Los Angeles	Los Angeles, CA		236		(2	)
Clift	San Francisco, CA		372		(7	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Mondrian London at Sea Containers	London, England		359		(2	)
Delano Las Vegas	Las Vegas, Nevada		1,117		(8	)

(1) The Company owns 100% of Hudson through its subsidiary, Henry Hudson Holdings LLC, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building. As of September 30, 2014, Hudson had 876 guest rooms and 60 single room dwelling units (“SROs”).

(2) Operated under a management contract.

(3) Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 20% at September 30, 2014. See note 4.

(4) Wholly-owned hotel.

(5) Operated as a condominium hotel under a management contract and owned through a 50/50 unconsolidated joint venture. As of September 30, 2014, 261 hotel residences had been sold, of which 140 are in the hotel rental pool and are included in the hotel room count, and 74 hotel residences remain to be sold. See note 4.

(6) Operated under a management contract. Until December 30, 2013, the Company held a minority ownership interest of approximately 7% and accounted for the hotel as an unconsolidated joint venture. As of September 30, 2014, the Company had an immaterial contingent profit participation equity interest in Shore Club. See note 4.

(7) The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.

(8) A licensed hotel managed by MGM.  

Food and Beverage Operations

The Company owns and operates certain food and beverage venues at its owned, leased and managed hotels.  As of September 30, 2014, the Company owned and managed the food and beverage venues at Hudson and Clift and owned the food and beverage venues at Delano South Beach, which are managed by TLG, defined and discussed further below.  Additionally, the Company leases and manages all but one of the Sanderson food and beverage venues.   As a result, these food and beverage venues are included in the Company’s consolidated financial statements.

Effective January 1, 2014, the Company transferred all of its ownership interest in the food and beverage venues at St Martins Lane to the hotel owner. The Company will continue to manage the transferred food and beverage venues. The Company recorded a gain of $0.3 million related to these transfers in its consolidated financial statements for the nine months ended September 30, 2014. Prior to January 1, 2014, the Company leased and managed all of the St Martins Lane food and beverage venues, which were included in the Company’s consolidated financial statements.

The Company also owns three food and beverage venues subject to leasehold agreements at Mandalay Bay in Las Vegas, which are included the Company’s consolidated financial statements as of September 30, 2014.

The Light Group Acquisition

On November 30, 2011, pursuant to purchase agreements entered into on November 17, 2011, certain of the Company’s subsidiaries completed the acquisition of 90% of the equity interests in TLG Acquisition LLC (“TLG Acquisition,” and together with its subsidiaries, “TLG”), for a purchase price of $28.5 million in cash and up to $18.0 million in notes (the “TLG Promissory Notes”) convertible into shares of the Company’s common stock at $9.50 per share subject to the achievement of certain earnings before interest, tax, depreciation and amortization (“EBITDA”) targets for the acquired business (“The Light Group Transaction”), as discussed in note 6. The TLG Promissory Notes were allocated $16.0 million to Andrew Sasson and $2.0 million to Andy Masi, the remaining 10% equity owners of TLG, and bear annual interest payments of 8% (increasing to 18% on December 1, 2014, as described in note 6).

TLG develops, redevelops and operates nightclubs, restaurants, pool lounges, bars, and other food and beverage venues. TLG is a leading lifestyle food and beverage management company, which operates numerous venues primarily in Las Vegas pursuant to management agreements with MGM. The primary assets of TLG consist of its management and similar agreements with various MGM affiliates. Additionally, TLG manages the food and beverage operations at Delano South Beach.

Each of TLG’s venues is managed by a subsidiary of TLG Acquisition. Through the Company’s ownership of TLG, it recognizes management fees in accordance with the applicable management agreement which generally provides for base management fees as a percentage of gross sales, and incentive management fees as a percentage of net profits, as calculated pursuant to the management agreements. TLG’s management agreements are typically structured as 10-year initial term contracts (effective the opening date of each respective venue) with renewal options. In addition to TLG’s management of the food and beverage operations at Delano South Beach, TLG currently manages 18 venues in Las Vegas, including 13 for MGM, 2 for affiliates of The Yucaipa Companies, LLC (“Yucaipa”) and Andrew Sasson, and 3 for a subsidiary of the Company located at Delano South Beach. Under TLG’s management agreements, all costs associated with the construction, build-out, furniture, fixtures and equipment, operating supplies, equipment and daily operational expenses are typically borne by the owner or lessor of the venue. TLG’s management agreements may be subject to early termination in specified circumstances. For example, the management agreements generally contain, among other covenants, a performance test that stipulates a minimum level of operating performance, and restrictions or requirements related to suitability, capacity, financial stability and compliance with laws and material terms. In 2013, TLG failed performance tests at certain venues, and as a result, the Company agreed with MGM to amend the calculation of base and incentive management fees at all MGM venues effective January 1, 2014, agreed to reductions in the minimum level of operating performance, and agreed to a termination effective April 1, 2014 of TLG’s management agreement for Brand Steakhouse. Additionally, many of the management agreements also require that Mr. Masi, whose employment contract expires December 31, 2014, remain employed by or under contract to TLG.

TLG owns the trade name, service mark or other intellectual property rights associated with the names of most of its nightclubs, restaurants, pool lounges, and bars.

Concurrent with the closing of The Light Group Transaction, the operating agreement of TLG Acquisition was amended and restated to provide that Morgans Group, which holds 90% of the membership interests in TLG Acquisition, would be the managing member and that Messrs. Sasson and Masi, each of whom holds a 5% membership interest in TLG Acquisition, would be non-managing members of TLG Acquisition. Messrs. Sasson and Masi, however, have approval rights over, among other things, certain fundamental transactions involving TLG Acquisition.

Each of Messrs. Sasson and Masi have the right to require Morgans Group to purchase his equity interest in TLG at any time after November 30, 2014 at a purchase price equal to his percentage equity ownership interest multiplied by the product of seven times the EBITDA from non-Morgans business (“Non-Morgans EBITDA”) for the preceding 12 months, subject to certain adjustments (the “Sasson-Masi Put Options”). In addition, Morgans Group has the right to require each of Messrs. Sasson and Masi to sell his 5% equity interest in TLG at any time after November 30, 2017 at a purchase price equal to his percentage equity ownership interest multiplied by the product of seven times the Non-Morgans EBITDA for the preceding 12 months, subject to certain adjustments. The Company initially accounted for the redeemable noncontrolling interest at fair value in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classified the noncontrolling interest in temporary equity in accordance with the Securities and Exchange Commission’s guidance as codified in ASC 480-10, Distinguishing Liabilities from Equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The change in the redemption value does not impact the Company’s earnings or earnings per share. The Company recorded an obligation of $4.6 million related to the Sasson-Masi Put Options, which is recorded as redeemable noncontrolling interest on the September 30, 2014 consolidated balance sheet.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, liquidation preference per share	$ 1,000	$ 1,000
Preferred stock, share authorized	75,000	75,000
Preferred stock, share issued	75,000	75,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, share authorized	200,000,000	200,000,000
Common stock, share issued	36,277,495	36,277,495
Treasury stock, shares	1,899,707	2,703,181

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Other Expenses

9 Months Ended

Sep. 30, 2014

Other Income And Expenses [Abstract]

Other Expenses

11. Other Expenses

Restructuring and disposal costs

These expenses primarily relate to costs incurred related to the Company’s corporate restructuring initiatives, such as professional fees, litigation and settlement costs, executive terminations and severance costs related to such restructuring initiatives, including the plan of termination implemented in March 2014 (the “Termination Plan”) that resulted in a workforce reduction of the Company’s corporate office employees, proxy contests, and gains and losses on asset disposals as part of major renovation projects. Restructuring and disposal costs consist of the following (in thousands):

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Restructuring costs	$	1,113	$	939	$	4,208		$	6,121
Severance and related costs		29		827		8,395			1,620
(Gain) loss on asset disposal and other costs		3		33		(234	)		210
Total	$	1,145	$	1,799	$	12,369		$	7,951

As a result of the Termination Plan, which constituted a plan of termination under ASC 420, Exit or Disposal Cost Obligations, the Company recorded a charge of approximately $7.1 million in the first quarter of 2014 related to the cost of one-time termination benefits which have been or are expected to be paid in cash, which were recorded as ‘Severance and Related Costs’ in the above table. The Company also recorded a charge of approximately $1.8 million of non-cash stock compensation expense relating to the severance of former executives, which is included in Corporate Expense on the Company’s consolidated statement of comprehensive loss.

Development costs

These expenses primarily relate to transaction costs related to the acquisition or termination of projects, internal development payroll and other costs and pre-opening expenses incurred related to new concepts at existing hotel and the development of new hotels, and the write-off of abandoned development projects previously capitalized. Certain prior year amounts have been reclassified to conform to the current year presentation. Development costs consist of the following (in thousands):

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Transaction costs	$	259	$	364	$	2,839	$	574
Internal development payroll and other		298		386		647		1,056
Pre-opening expenses		7		221		442		738
Total	$	564	$	971	$	3,928	$	2,368

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 06, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Trading Symbol	MHGC
Entity Registrant Name	Morgans Hotel Group Co.
Entity Central Index Key	0001342126
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		34,377,788

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Deferred Gain on Asset Sales

9 Months Ended

Sep. 30, 2014

Revenue Recognition [Abstract]

Deferred Gain on Asset Sales

12. Deferred Gain on Asset Sales

In 2011, the Company sold Mondrian Los Angeles, Royalton, Morgans, and its 50% equity interest in the joint venture that owned Sanderson and St Martins Lane. The Company continues to operate all of these hotels under long-term management agreements.

In accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales. the Company evaluated its accounting for the gain on sales of these assets, noting that the Company continues to have significant continuing involvement in the hotels as a result of long-term management agreements and shares in risks and rewards of ownership. Accordingly, the Company recorded deferred gains of approximately $152.4 million related to the sales of Royalton, Morgans, Mondrian Los Angeles, and the Company’s equity interests in Sanderson and St Martins Lane, which are deferred and recognized as a gain on asset sales over the initial term of the related management agreements. Gain on asset sales for the three and nine months ended September 30, 2014 and 2013 were $2.0 million, $2.0 million, $6.0 million, and $6.0 million, respectively.

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Consolidated Statements of Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues:
Rooms	$ 30,648	$ 29,950	$ 90,760	$ 87,303
Food and beverage	18,252	20,214	61,177	59,713
Other hotel	1,347	1,142	4,132	3,384
Total hotel revenues	50,247	51,306	156,069	150,400
Management fee-related parties and other income	5,259	6,956	16,509	21,220
Total revenues	55,506	58,262	172,578	171,620
Operating Costs and Expenses:
Rooms	9,357	9,253	27,896	27,298
Food and beverage	14,266	15,827	44,834	44,335
Other departmental	800	806	2,369	2,422
Hotel selling, general and administrative	9,702	11,046	31,404	32,688
Property taxes, insurance and other	3,908	4,080	12,154	12,641
Total hotel operating expenses	38,033	41,012	118,657	119,384
Corporate expenses, including stock compensation of $0.3 million, $1.3 million, $3.1 million, and $3.6 million, respectively	7,126	6,754	21,027	22,469
Depreciation and amortization	6,811	7,114	21,894	20,535
Restructuring and disposal costs	1,145	1,799	12,369	7,951
Development costs	564	971	3,928	2,368
Impairment loss on receivables and other assets from managed hotel and unconsolidated joint venture		167		5,942
Total operating costs and expenses	53,679	57,817	177,875	178,649
Operating income (loss)	1,827	445	(5,297)	(7,029)
Interest expense, net	12,984	11,585	41,917	34,434
Equity in (income) loss of unconsolidated joint ventures	(3)	278	(7)	773
Gain on asset sales	(2,005)	(2,005)	(6,015)	(6,015)
Other non-operating expenses	824	810	1,950	1,289
Loss before income tax expense	(9,973)	(10,223)	(43,142)	(37,510)
Income tax expense	122	105	351	541
Net loss	(10,095)	(10,328)	(43,493)	(38,051)
Net (income) loss attributable to noncontrolling interest	(48)		(504)	298
Net loss attributable to Morgans Hotel Group	(10,143)	(10,328)	(43,997)	(37,753)
Preferred stock dividends and accretion	3,594	4,037	11,948	9,976
Net loss attributable to common stockholders	(13,737)	(14,365)	(55,945)	(47,729)
Other comprehensive income (loss):
Unrealized gain (loss) on valuation of swap/cap agreements, net of tax	16	9	(191)	41
Comprehensive loss	$ (13,721)	$ (14,356)	$ (56,136)	$ (47,688)
Loss per share:
Basic and diluted attributable to common stockholders	$ (0.40)	$ (0.44)	$ (1.64)	$ (1.46)
Weighted average number of common shares outstanding:
Basic and diluted	34,267	32,693	34,047	32,590

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Debt and Capital Lease Obligations

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Debt and Capital Lease Obligations

6. Debt and Capital Lease Obligations

Debt and capital lease obligations consists of the following (in thousands):

Description	As of September 30, 2014		As of December 31, 2013		Interest rate at September 30, 2014
Hudson/Delano Mortgage (a)	$	450,000	$	—	5.80% (LIBOR + 5.65%)
Notes secured by Hudson (a)		—		180,000
Clift debt (b)		93,396		91,486	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes (d)		49,015		170,698	2.375%
TLG Promissory Notes (e)		19,096		18,807	(f)
Restaurant Lease Note (f)		5,926		6,551	(h)
Capital lease obligations (g)		6,105		6,109	(g)
Revolving credit facility (h)		—		37,000
Debt and capital lease obligation	$	673,638	$	560,751

(a) Mortgage Agreements

Hudson/Delano 2014 Mortgage Loan

On February 6, 2014, subsidiaries of the Company entered into a new mortgage financing with Citigroup Global Markets Realty Corp. and Bank of America, N.A., as lenders, consisting of $300.0 million nonrecourse mortgage notes and $150.0 million mezzanine loans resulting in an aggregate principal amount of $450.0 million, secured by mortgages encumbering Delano South Beach and Hudson and pledges of equity interests in certain subsidiaries of the Company (collectively, the “Hudson/Delano 2014 Mortgage Loan”).

The net proceeds from the Hudson/Delano 2014 Mortgage Loan were applied to (1) repay $180.0 million of outstanding mortgage debt under the prior mortgage loan secured by Hudson (the “Hudson 2012 Mortgage Loan”), (2) repay $37.0 million of indebtedness under the Company’s $100.0 million senior secured revolving credit facility secured by Delano South Beach (the “Delano Credit Facility”), (3) provide cash collateral for reimbursement obligations with respect to a $10.0 million letter of credit under the Delano Credit Facility which was returned to the Company in June 2014, as discussed in note 7, and (4) fund reserves required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital, and the repayment of other indebtedness, subject to certain minimum unencumbered asset requirements.

The Hudson/Delano 2014 Mortgage Loan bears interest at a reserve adjusted blended rate of 30-day LIBOR plus 565 basis points. The Company maintains interest rate caps for the principal amount of the Hudson/Delano 2014 Mortgage Loan that caps the LIBOR rate on the debt under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the initial maturity date.

The Hudson/Delano 2014 Mortgage Loan matures on February 9, 2016. The Company has three, one-year extension options that will permit the Company to extend the maturity date of the Hudson/Delano 2014 Mortgage Loan to February 9, 2019, if certain conditions are satisfied at the respective extension dates, including delivery by the borrowers of a business plan and budget for the extension term reasonably satisfactory to the lenders and achievement by the Company of a specified debt yield. The second and third extensions would also require the payment of an extension fee in an amount equal to 0.25% of the then outstanding principal amount under the Hudson/Delano 2014 Mortgage Loan. A minimum unencumbered assets requirement may also be required if certain other indebtedness (as same may be amended, supplemented, modified, refinanced or replaced) becomes due during the extension term. The Company may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield.

The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part, subject to payment of a prepayment premium for any prepayment prior to August 9, 2015. There is no prepayment premium after August 9, 2015.

The Hudson/Delano 2014 Mortgage Loan is assumable under certain conditions, and provides that either one of the encumbered hotels may be sold, subject to prepayment of the Hudson/Delano 2014 Mortgage Loan at a specified release price and satisfaction of certain other conditions.

The Hudson/Delano 2014 Mortgage Loan contains restrictions on the ability of the borrowers to incur additional debt or liens on their assets and on the transfer of direct or indirect interests in Hudson or Delano South Beach and the owners of Hudson and Delano South Beach and other affirmative and negative covenants and events of default customary for multiple asset commercial mortgage-backed securities loans. The Hudson/Delano 2014 Mortgage Loan is nonrecourse to the Company’s subsidiaries that are the borrowers under the loan, except pursuant to certain carveouts detailed therein. In addition, the Company has provided a customary environmental indemnity and nonrecourse carveout guaranty under which it would have liability with respect to the Hudson/Delano 2014 Mortgage Loan if certain events occur with respect to the borrowers, including voluntary bankruptcy filings, collusive involuntary bankruptcy filings, changes to the Hudson capital lease without prior written consent of the lender, violations of the restrictions on transfers, incurrence of additional debt, or encumbrances of the property of the borrowers. The nonrecourse carveout guaranty requires the Company to maintain minimum unencumbered assets (as defined in the nonrecourse carveout guaranty) until the Company’s outstanding Convertible Notes and TLG Promissory Notes are repaid, extended, refinanced or replaced beyond the term of the Hudson/Delano 2014 Mortgage Loan. The Convertible Notes were repaid upon maturity in October 2014.  Further, the nonrecourse carveout guaranty prohibits the payment of dividends on or repurchase of the Company’s common stock. As of September 30, 2014, the Company was in compliance with these covenants.

On April 8, 2014, the Hudson/Delano 2014 Mortgage Loan was amended to reallocate the principal amount and interest rate spread of the $300.0 million nonrecourse mortgage notes. This technical amendment had no impact on the total outstanding principal amount of the nonrecourse mortgage notes or the blended interest rate of the Hudson/Delano 2014 Mortgage Loan.

Hudson Mortgage and Mezzanine Loan

On November 14, 2012, certain of the Company’s subsidiaries entered into the Hudson 2012 Mortgage Loan, a mortgage financing with UBS Real Estate Securities Inc., as lender, consisting of a $180.0 million nonrecourse mortgage loan, secured by Hudson, which was fully-funded at closing.

The Hudson 2012 Mortgage Loan bore interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 0.50%) plus 840 basis points. The Company maintained an interest rate cap for the amount of the Hudson 2012 Mortgage Loan that capped the 30-day LIBOR rate on the debt under the Hudson 2012 Mortgage Loan at approximately 2.5% through the maturity date.

In connection with the Hudson/Delano 2014 Mortgage Loan, the Hudson 2012 Mortgage Loan was terminated after repayment of the outstanding debt thereunder in February 2014.

(b) Clift Debt

In October 2004, Clift Holdings LLC (“Clift Holdings”), a subsidiary of the Company, sold the Clift hotel to an unrelated party for $71.0 million and then leased it back for a 99-year lease term. Under this lease, Clift Holdings is required to fund operating shortfalls including the lease payments and to fund all capital expenditures. This transaction did not qualify as a sale due to the Company’s continued involvement and therefore is treated as a financing.

The lease agreement provides for base annual rent of approximately $6.0 million per year until October 2014. Thereafter, base rent increases at five-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum increase of 20% at October 2014, and a maximum increase of 20% and a minimum increase of 10% at each five-year rent increase date thereafter. As a result of the first such increase, effective October 14, 2014, the annual rent increased to $7.6 million.  The lease is nonrecourse to the Company.

Morgans Group also entered into an agreement, dated September 17, 2010, whereby Morgans Group agreed to guarantee losses of up to $6.0 million suffered by the lessors in the event of certain “bad boy” type acts. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to this guarantee.

(c) Liability to Subsidiary Trust Issuing Preferred Securities

On August 4, 2006, a newly established trust formed by the Company, MHG Capital Trust I (the “Trust”), issued $50.0 million in trust preferred securities in a private placement. The Company owns all of the $0.1 million of outstanding common stock of the Trust. The Trust used the proceeds of these transactions to purchase $50.1 million of junior subordinated notes issued by the Company’s operating company and guaranteed by the Company (the “Trust Notes”) which mature on October 30, 2036. The sole assets of the Trust consist of the Trust Notes. The terms of the Trust Notes are substantially the same as preferred securities issued by the Trust. The Trust Notes and the preferred securities have a fixed interest rate of 8.68% until October 2016, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum. The Trust Notes are redeemable by the Trust, at the Company’s option, at par, and the Company has not redeemed any Trust Notes. To the extent the Company redeems the Trust Notes, the Trust is required to redeem a corresponding amount of preferred securities.

The Company has identified that the Trust is a variable interest entity under ASC 810-10. Based on management’s analysis, the Company is not the primary beneficiary of the trust. Accordingly, the Trust is not consolidated into the Company’s financial statements. The Company accounts for the investment in the common stock of the Trust under the equity method of accounting.

In the event the Company were to undertake a transaction that was deemed to constitute a transfer of its properties and assets substantially as an entirety within the meaning of the indenture, the Company may be required to repay the Trust Notes prior to their maturity or obtain the trustee’s consent in connection with such transfer.

(d) Convertible Notes

On October 17, 2007, the Company issued $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes in a private offering. Net proceeds from the offering were approximately $166.8 million.

From April 21, 2010 to July 21, 2010, the Yucaipa Investors purchased $88.0 million of the Convertible Notes from third parties. On February 28, 2014, the Company entered into a Note Repurchase Agreement with the Yucaipa Investors, pursuant to which it repurchased the Convertible Notes owned by them for an amount equal to their principal balance plus accrued interest. The Company used cash on hand, including proceeds of the Hudson/Delano 2014 Mortgage Loan, for this repurchase. Additionally, during the third quarter of 2014, the Company used cash on hand to repurchase an aggregate of $35.4 million of outstanding Convertible Notes at an aggregate discount of approximately $0.1 million plus accrued interest. The repurchased Convertible Notes were retired upon repurchase.

On October 15, 2014, the Convertible Notes matured and the Company repaid the outstanding principal amount of $49.1 million with cash on hand.  The Convertible Notes were retired upon repayment.

The Company followed ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), which clarifies the accounting for convertible notes payable. ASC 470-20 requires the proceeds from the issuance of convertible notes to be allocated between a debt component and an equity component. The debt component is measured based on the fair value of similar debt without an equity conversion feature, and the equity component is determined as the residual of the fair value of the debt deducted from the original proceeds received. The resulting discount on the debt component is amortized over the period the debt is expected to be outstanding as additional interest expense. The equity component, recorded as additional paid-in capital, was determined to be $9.0 million, which represented the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million as of the date of issuance of the Convertible Notes.

In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions (the “Convertible Notes Call Options”) with respect to the Company’s common stock with Merrill Lynch Financial Markets, Inc. and Citibank, N.A. These call options were exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which the Company would receive shares of the Company’s common stock from Merrill Lynch Financial Markets, Inc. and Citibank, N.A equal to the number of shares issuable to the holders of the Convertible Notes upon conversion. Also in connection with the sale of the Convertible Notes, the Company also entered into separate warrant transactions with Merrill Lynch Financial Markets, Inc. and Citibank, N.A., whereby the Company issued warrants (the “Convertible Notes Warrants”) to purchase 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. These Convertible Notes Call Options and Convertible Notes Warrants expired when the Convertible Notes were repaid in October 2014. The Company recorded the purchase of the Convertible Note Call Options, net of the related tax benefit of approximately $20.3 million, as a reduction of additional paid-in capital and the proceeds from the Convertible Notes Warrants as an addition to additional paid-in capital in accordance with ASC 815-30, Derivatives and Hedging, Cash Flow Hedges.

(e) TLG Promissory Notes

On November 30, 2011, pursuant to purchase agreements entered into on November 17, 2011, certain of the Company’s subsidiaries completed the acquisition of 90% of the equity interests in TLG for a purchase price of $28.5 million in cash and up to $18.0 million of TLG Promissory Notes, which are convertible into shares of the Company’s common stock at $9.50 per share.  The TLG Promissory Notes were allocated $16.0 million to Mr. Sasson and $2.0 million to Mr. Masi.

The payment of $18.0 million was based on TLG achieving EBITDA of at least $18.0 million from Non-Morgans EBITDA during the period starting on January 1, 2012 and ending on March 31, 2014, with ratable reduction of the payment if less than $18.0 million of EBITDA was earned. The fair value of the TLG Promissory Notes was estimated each quarter utilizing a Monte Carlo simulation to estimate the probability of the performance conditions being satisfied. The EBITDA targets had been achieved at September 30, 2014 and the fair value of the TLG Promissory Notes of $18.0 million plus accrued interest of $1.1 million is reflected in the Company’s September 30, 2014 consolidated financial statements.

The TLG Promissory Notes mature on November 30, 2015 and may be voluntarily prepaid, in full or in part, at any time. At either Messrs. Sasson’s or Masi’s options, the TLG Promissory Notes are payable in cash or in common stock of the Company valued at $9.50 per share. Each of the TLG Promissory Notes earns interest at an annual rate of 8%, and if the notes are not paid or converted on or before November 30, 2014, the interest rate increases to 18%. The TLG Promissory Notes provide that 75% of the accrued interest is payable quarterly in cash and the remaining 25% accrues and is included in the principal balance which is payable at maturity. Morgans Group has guaranteed payment of the TLG Promissory Notes and interest.

As discussed further in note 7, on August 5, 2013, Messrs. Sasson and Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition and Morgans Group alleging, among other things, breach of contract and an event of default under the TLG Promissory Notes as a result of the Company’s failure to repay the TLG Promissory Notes following an alleged “Change of Control” of the Company in connection with the election of directors at the Company’s 2013 Annual Meeting. On September 26, 2013, the Company filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted the Company’s motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and the Company’s opposition brief was due August 29, 2014. The oral argument on the motion occurred on October 29, 2014 and the Company is awaiting the court’s ruling.  

(f) Restaurant Lease Note

As discussed in note 2, in August 2012, the Company acquired the leasehold interests in three food and beverage venues at Mandalay Bay from an existing tenant for $15.0 million in cash at closing and the issuance of a principal-only $10.6 million Restaurant Lease Note to be paid over seven years. The Restaurant Lease Note does not bear interest except in the event of default, as defined in the agreement. In accordance with ASC 470, Debt, the Company imputed interest on the Restaurant Lease Note, which was recorded at its fair value of $7.5 million as of the date of issuance. At September 30, 2014, the balance outstanding recorded on the Restaurant Lease Note was $5.9 million.

(g) Capital Lease Obligations

The Company has leased two condominium units at Hudson from unrelated third-parties, which are reflected as capital leases. One of the leases requires the Company to make annual payments, currently $649,728 (subject to increases due to increases in the Consumer Price Index), through November 2096. This lease also allows the Company to purchase, at its option, the unit at fair market value after November 2015. The second lease requires the Company to make annual payments, currently $365,490 (subject to increases due to increases in the Consumer Price Index), through December 2098.

The Company has allocated both lease payments between the land and building based on their estimated fair values. The portion of the payments allocated to the building has been capitalized at the present value of the future minimum lease payments. The portion of the payments allocable to the land is treated as operating lease payments. The imputed interest rate on both of these leases is 8%, which is based on the Company’s incremental borrowing rate at the time the lease agreement was executed. The capital lease obligations related to the units amounted to approximately $6.1 million as of September 30, 2014 and December 31, 2013, respectively. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.

(h) Delano Credit Facility

On July 28, 2011, the Company and certain of its subsidiaries (collectively, the “Borrowers”), entered into a secured credit agreement with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent, and the lenders party thereto.

The credit agreement provided commitments for the Delano Credit Facility, a $100.0 million revolving credit facility and included a $15.0 million letter of credit sub-facility. The interest rate applicable to loans outstanding on the Delano Credit Facility was a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate, as defined in the agreement, plus 3.00%. In addition, a commitment fee of 0.50% applied to the unused portion of the commitments under the Delano Credit Facility.

In connection with the closing of the Hudson/Delano 2014 Mortgage Loan, described more fully above, the Delano Credit Facility was terminated after repayment of the outstanding debt thereunder in February 2014.

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Other Liabilities

9 Months Ended

Sep. 30, 2014

Other Liabilities Disclosure [Abstract]

Other Liabilities

5. Other Liabilities

Other liabilities consist of the following (in thousands):

	As of September 30, 2014		As of December 31, 2013
Designer fee claim	$	13,866	$	13,866
OPP LTIP Units Liability (note 8)		—		25
	$	13,866	$	13,891

Designer Fee Claim

As of September 30, 2014 and December 31, 2013, other liabilities consisted of a liability related to a designer fee claim. The Former Parent had an exclusive service agreement with a hotel designer, pursuant to which the designer has made various claims related to the agreement. Although the Company is not a party to the agreement, it may have certain contractual obligations or liabilities to the Former Parent in connection with the agreement. According to the agreement, the designer was owed a base fee for each designed hotel, plus 1% of gross revenues, as defined in the agreement, for a 10-year period from the opening of each hotel. In addition, the agreement also called for the designer to design a minimum number of projects for which the designer would be paid a minimum fee. A liability amount has been estimated and recorded in these consolidated financial statements before considering any defenses and/or counter-claims that may be available to the Company or the Former Parent in connection with any claim brought by the designer. The estimated costs of the design services were capitalized as a component of the applicable hotel in prior years and were amortized over the five-year estimated life of the related design elements.

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Other Liabilities (Tables)

9 Months Ended

Sep. 30, 2014

Other Liabilities Disclosure [Abstract]

Other Liabilities

Other liabilities consist of the following (in thousands):

	As of September 30, 2014		As of December 31, 2013
Designer fee claim	$	13,866	$	13,866
OPP LTIP Units Liability (note 8)		—		25
	$	13,866	$	13,891

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Recent Accounting Updates

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Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates all wholly-owned subsidiaries and variable interest entities in which the Company is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Entities which the Company does not control through voting interest and entities which are variable interest entities of which the Company is not the primary beneficiary, are accounted for under the equity method.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.

Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Restricted Cash

Restricted Cash

As required by certain debt and lease agreements, restricted cash consists of cash held in escrow accounts for taxes, ground rent, insurance premiums, and debt service or lease payments.

The Hudson/Delano 2014 Mortgage Loan, defined and discussed below in note 6, provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash flows from Hudson and Delano South Beach are deposited into accounts controlled by the lenders from which debt service and operating expenses, including management fees, are paid and from which other reserve accounts may be funded. Any excess amounts will be retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. As of September 30, 2014, the debt yield ratio exceeded the required threshold.  

As further required by the debt and lease agreements related to hotels owned by the Company or one of its subsidiaries, the Company must set aside 4% of the hotels’ revenues in restricted escrow accounts for the future periodic replacement or refurbishment of furniture, fixtures and equipment. As replacements occur, the Company or its subsidiary is eligible for reimbursement from these escrow accounts.

As of September 30, 2014, restricted cash also consisted of cash held in escrow for insurance program escrows.

Investments in and Advances to Unconsolidated Joint Ventures

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant business decisions such as buying, selling or financing nor is it the primary beneficiary under ASC 810-10, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. Once the Company’s investment balance in an unconsolidated joint venture is zero, the Company suspends recording additional losses. For investments in which there is recourse or unfunded commitments to provide additional equity, distributions and losses in excess of the investment are recorded as a liability. As of September 30, 2014, there were no liabilities required to be recorded related to these investments.

Investment in TLG Management Contracts, net

Investment in TLG Management Contracts, net

Investment in TLG management contracts represents the value of the TLG management contracts. TLG operates numerous nightclubs, restaurants, pool lounges, and bar venues primarily in Las Vegas pursuant to management agreements with MGM. The management contract assets are being amortized, using the straight line method, over the life of each applicable management contract.

Other Assets

Other Assets

In August 2012, the Company entered into a 10-year licensing agreement with MGM, with two five-year extensions at the Company’s option subject to performance thresholds, to convert THEhotel to Delano Las Vegas, which is managed by MGM. Delano Las Vegas opened in September 2014.  In addition, the Company acquired the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas from an existing tenant for $15.0 million in cash at closing and a deferred, principal-only $10.6 million promissory note (“Restaurant Lease Note”) to be paid over seven years, which the Company recorded at fair value as of the date of issuance of $7.5 million, as discussed in note 6. The venues have been reconcepted and renovated and are managed by TLG. The three food and beverage venues are being operated pursuant to 10-year operating leases with an MGM affiliate, pursuant to which the Company pays minimum annual lease payments and a percentage rent based on cash flow. The Company allocated the total consideration paid, or to be paid, to the license agreement and the restaurant leasehold asset based on their respective fair values. The Company amortizes the fair value of the license agreement, using the straight line method, over the 10-year life of the license agreement, and the fair value of the restaurant leasehold interests, using the straight line method, over the 10-year life of the operating leases.

Further, as of September 30, 2014, other assets primarily consist of deferred financing costs which are being amortized, using the straight line method, which approximates the effective interest rate method, over the terms of the related debt agreements.

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance. The Company has established a reserve on its deferred tax assets based on anticipated future taxable income and tax strategies which may include the sale of property or an interest therein.

All of the Company’s foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Income taxes for the three and nine months ended September 30, 2014 and 2013, were computed using the Company’s effective tax rate.

Credit-risk-related Contingent Features

Credit-risk-related Contingent Features

The Company entered into agreements with each of its derivative counterparties in connection with the interest rate caps and hedging instruments related to the 2.375% Senior Subordinated Convertible Notes (the “Convertible Notes”), as discussed in note 6, which were outstanding as of September 30, 2014 and which matured and were repaid in full on October 15, 2014. The agreements provided that in the event the Company either defaulted or was capable of being declared in default on any of its indebtedness, the Company could also be declared in default on its derivative obligations. These Convertible Notes Call Options and Convertible Notes Warrants, as discussed and defined in note 6, expired when the Convertible Notes were repaid in October 2014.

The Company has entered into warrant agreements with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P., (collectively, the “Yucaipa Investors”), as discussed in note 9, to purchase a total of 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share (the “Yucaipa Warrants”). In addition, the Yucaipa Investors have certain consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the Yucaipa Warrants 6,250,000 shares of the Company’s common stock. The Yucaipa Warrants are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.

Fair Value Measurements

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820-10, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2014 and December 31, 2013, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Accordingly, all derivatives have been classified as Level 2 fair value measurements. As of September 30, 2014, the Company had three interest rate caps outstanding and the fair value of these interest rate caps was $0.2 million.

In connection with The Light Group Transaction, the Company provided Messrs. Sasson and Masi with the Sasson-Masi Put Options. Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classified the noncontrolling interest in temporary equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The Company has determined that the majority of the inputs used to value the Sasson-Masi Put Options fall within Level 3 of the fair value hierarchy. Accordingly, the Sasson-Masi Put Options have been classified as Level 3 fair value measurements.

In connection with the three restaurant leases in Las Vegas, the Company issued the Restaurant Lease Note to be paid over seven years. The Restaurant Lease Note does not bear interest except in the event of default, as defined by the agreement. In accordance with ASC 470, Debt, the Company imputed interest on the Restaurant Lease Note, which is recorded at fair value on the accompanying consolidated balance sheets. On the date of grant, the Company determined the fair value of the Restaurant Lease Note to be $7.5 million imputing an interest rate of 10%. The Company has determined that the majority of the inputs used to value the Restaurant Lease Note fall within Level 2 of the fair value hierarchy, which accordingly has been classified as Level 2 fair value measurements.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold, or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and fixed and variable rate debt. Management believes the carrying amounts of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of September 30, 2014 and December 31, 2013 due to the short-term maturity of these instruments or variable market interest rates on certain debt instruments.

The Company had fixed rate debt of $123.1 million and $247.1 million as of September 30, 2014 and December 31, 2013, respectively, which included the Company’s trust preferred securities, TLG Promissory Notes, excluding accrued interest, Restaurant Lease Note, discussed above, and the Convertible Notes at face value, as discussed in note 6.  This fixed rate debt had a fair market value at September 30, 2014 and December 31, 2013 of approximately $136.0 million and $217.7 million, respectively, using market rates.

Stock-based Compensation

Stock-based Compensation

The Company accounts for stock based employee compensation using the fair value method of accounting described in ASC 718-10. For share grants, total compensation expense is based on the price of the Company’s stock at the grant date. For option grants, the total compensation expense is based on the estimated fair value using the Black-Scholes option-pricing model. Compensation expense is recorded ratably over the vesting period.

Income (Loss) Per Share

Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less any dividends on unvested restricted common stock, by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less dividends on unvested restricted common stock, by the weighted-average number of shares of common stock outstanding during the period, plus other potentially dilutive securities, such as unvested shares of restricted common stock and warrants.

Redeemable Noncontrolling Interest

Redeemable Noncontrolling Interest

Due to the redemption feature associated with the Sasson-Masi Put Options, the Company classifies the noncontrolling interest in temporary equity in accordance with the Securities and Exchange Commission’s guidance as codified in ASC 480-10, Distinguishing Liabilities from Equity. Subsequently, the Company will accrete the redeemable noncontrolling interest to its current redemption value, which approximates fair value, each period. The change in the redemption value does not impact the Company’s earnings or earnings per share.

Noncontrolling Interest

Noncontrolling Interest

The Company follows ASC 810-10, when accounting and reporting for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a subsidiary. Under ASC 810-10, the Company reports noncontrolling interests in subsidiaries as a separate component of stockholders’ equity (deficit) in the consolidated financial statements and reflects net income (loss) attributable to the noncontrolling interests and net income (loss) attributable to the common stockholders on the face of the consolidated statements of comprehensive loss.

The membership units owned by the Former Parent in Morgans Group are presented as a noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $0.4 million and $0.5 million as of September 30, 2014 and December 31, 2013, respectively. The noncontrolling interest in Morgans Group is: (i) increased or decreased by the holders of membership interests’ pro rata share of Morgans Group’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by exchanges of membership units for the Company’s common stock; and (iv) adjusted to equal the net equity of Morgans Group multiplied by the holders of membership interests’ ownership percentage immediately after each issuance of units of Morgans Group and/or shares of the Company’s common stock and after each purchase of treasury stock through an adjustment to additional paid-in capital. Net income or net loss allocated to the noncontrolling interest in Morgans Group is based on the weighted-average percentage ownership throughout the period. As of September 30, 2014, there were 75,446 membership units outstanding, each of which is exchangeable for a share of the Company’s common stock.

Reclassifications

Reclassifications

Certain prior period financial statement amounts have been reclassified to conform to the current period presentation.

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Preferred Securities and Warrants

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Preferred Securities and Warrants

9. Preferred Securities and Warrants

Preferred Securities and Warrants Held by Yucaipa Investors

On October 15, 2009, the Company entered into a Securities Purchase Agreement with the Yucaipa Investors. Under the agreement, the Company issued and sold to the Yucaipa Investors (i) $75.0 million of preferred stock comprised of 75,000 shares of the Company’s Series A preferred securities, $1,000 liquidation preference per share, and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share, or the Yucaipa Warrants, which are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.

The Series A preferred securities have an 8% dividend rate through October 15, 2014, a 10% dividend rate from October 15, 2014 to October 15, 2016, and a 20% dividend rate thereafter. For so long as the Yucaipa Investors collectively own or have the right to purchase through exercise of the Yucaipa Warrants (assuming a cash rather than a cashless exercise) 875,000 shares of the Company’s common stock, the Company has agreed to use its reasonable best efforts to cause its Board of Directors to nominate and recommend to the Company’s stockholders the election of a person nominated by the Yucaipa Investors as a director of the Company and to use its reasonable best efforts to ensure that the Yucaipa Investors’ nominee is elected to the Company’s Board of Directors at each such meeting. If that nominee is not elected as a director at a meeting of stockholders, the Yucaipa Investors have certain Board of Director observer rights. Further, if the Company does not, within 30 days from the date of such meeting, create an additional seat on the Board of Directors and make available such seat to the nominee, the dividend rate on the Series A preferred securities increases by 4% during any time that a Yucaipa Investors’ nominee is not a member of the Company’s Board of Directors. From July 14, 2013 through May 14, 2014, the dividend rate was 12% as a result of the Yucaipa Investors’ nominee not being elected or appointed to the Company’s Board of Directors.

On May 14, 2014, at the Company’s annual shareholder meeting, a Board of Directors nominee representing the Yucaipa Investors was elected as a director of the Company and the dividend rate on the Series A preferred securities returned to the stated rate of 8%. Currently, the dividend rate on the Series A preferred securities is 10%.

The Company has the option to accrue any and all dividend payments. The cumulative unpaid dividends have a dividend rate equal to the dividend rate on the Series A preferred securities. As of September 30, 2014, the Company had undeclared and unpaid dividends of approximately $40.4 million.

The Company has the option to redeem any or all of the Series A preferred securities at par at any time. The Series A preferred securities have limited voting rights and only vote on the authorization to issue senior preferred securities, amendments to their certificate of designations and amendments to the Company’s charter that adversely affect the Series A preferred securities. In addition, the Yucaipa Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the Yucaipa Warrants 6,250,000 shares of the Company’s common stock, including (subject to certain exceptions and limitations):

— the sale of substantially all of the Company’s assets to a third party;

— the acquisition by the Company of a third party where the equity investment by the Company is $100.0 million or greater;

— the acquisition of the Company by a third party; or

— any change in the size of the Company’s Board of Directors to a number below 7 or above 9.

The Yucaipa Investors are subject to certain standstill arrangements as long as they beneficially own over 15% of the Company’s common stock.

As discussed in note 2, the Yucaipa Warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. In accordance with ASC 815-10-15, the Yucaipa Warrants are accounted for as equity instruments indexed to the Company’s stock. The Yucaipa Investors’ right to exercise the Yucaipa Warrants to purchase 12,500,000 shares of the Company’s common stock expires in April 2017.

The exercise price and number of shares subject to the Yucaipa Warrants are both subject to anti-dilution adjustments.

The Company calculated the fair value of the Series A preferred securities at its net present value by discounting dividend payments expected to be paid on the shares over a seven-year period using a 17.3% rate. The Company determined that the market discount rate of 17.3% was reasonable based on the Company’s best estimate of what similar securities would most likely yield when issued by entities comparable to the Company at that time.

The initial carrying value of the Series A preferred securities was recorded at its net present value less costs to issue on the date of issuance. The carrying value will be periodically adjusted for accretion of the discount. As of September 30, 2014, the value of the preferred securities was $65.7 million, which includes cumulative accretion of $17.6 million.

The Company calculated the estimated fair value of the Yucaipa Warrants using the Black-Scholes valuation model, as discussed in note 2.

Convertible Notes Held by Yucaipa Investors

On April 21, 2010, the Company entered into a Waiver Agreement with the Yucaipa Investors, pursuant to which the Yucaipa Investors were permitted to purchase up to $88.0 million in aggregate principal amount of the Convertible Notes within six months of April 21, 2010 and subject to the limitations and conditions set forth therein. From April 21, 2010 to July 21, 2010, the Yucaipa Investors purchased $88.0 million of the Convertible Notes from third parties. On February 28, 2014, the Company entered into a Note Repurchase Agreement with the Yucaipa Investors, pursuant to which the Company repurchased the $88.0 million of Convertible Notes owned by them. Following the closing under the Note Repurchase Agreement, these Convertible Notes were retired.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

7. Commitments and Contingencies

Hotel Development Related Commitments

In order to obtain long-term management, franchise and license contracts, the Company has committed to contribute capital in various forms on hotel development projects. These include equity investments, key money, and cash flow guarantees to hotel owners. The cash flow guarantees generally have a stated maximum amount of funding and a defined term. The terms of the cash flow guarantees to hotel owners generally require the Company to fund if the hotels do not attain specified levels of operating profit. Oftentimes, cash flow guarantees to hotel owners may be recoverable as loans repayable to the Company out of future hotel cash flows and/or proceeds from the sale of hotels.

The following table details, as of September 30, 2014 and December 31, 2013, the Company’s key money, equity investment and debt financing commitments for hotels under development as well as potential funding obligations under cash flow guarantees at operating hotels and hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum amount cannot be determined (in thousands):

	As of September 30, 2014 (1)		As of December 31, 2013 (1)
Key money, equity investment and debt financing commitments (2)	$	15,514	$	22,499
Key money commitments related to terminated project (3)		—		10,000
Cash flow guarantees		5,000		13,000
Cash flow guarantees in dispute (4)		8,000		8,000
Total maximum future funding commitments	$	28,514	$	53,499
Amounts due within one year (5)	$	15,514	$	25,499

(1) The currency translation is based on an exchange rate of the applicable local currency to U.S. dollar using the exchange rate as of the end of the applicable reporting period.

(2) As of September 30, 2014 and December 31, 2013, these commitments consist of key money commitments. The Company had no equity or debt financing commitments at September 30, 2014 and December 31, 2013.

(3) As of December 31, 2013, amount reflects the funding of $10.0 million in key money for Mondrian at Baha Mar, which the Company is not obligated to fund due to the termination of the related management agreement in June 2014, discussed further below.

(4) Reflects an $8.0 million performance cash flow guarantee related to Delano Marrakech, which the Company believes it is not obligated to fund due to the owner’s defaults under the management agreement terms. The Company has terminated its management agreement effective November 12, 2013, discussed further below.

(5) As of September 30, 2014, amount primarily consists of £9.4 million (or approximately $15.3 million at the exchange rate as of September 30, 2014) in key money for Mondrian London. As of December 31, 2013, amount represents key money for Mondrian London and Mondrian at Baha Mar. The Company is not obligated to fund the key money for Mondrian Baha Mar due to the termination of the related management agreement in June 2014, discussed further below.

On September 30, 2014, Mondrian London at Sea Containers opened.  As a result, the Company funded its £9.4 million key money obligation (or approximately $15.2 million at the exchange rate as of the payment date) in October 2014 with cash on hand.  The Company also paid approximately $3.0 million of value added tax which the Company expects to recover from the taxing authority.  

In September 2014, the Company and the hotel owners mutually agreed to terminate the Delano Moscow management agreement.  As a result, the Company was relieved of its $10.0 million key money obligation, of which $3.0 million had already been funded and was refunded back to the Company in September 2014.  The Company was also relieved of its $8.0 million potential cash flow guarantee.  All of these amounts are no longer included in the September 30, 2014 commitment table above.

In June 2014, the Mondrian at Baha Mar management agreement was terminated due to the failure of hotel owner to obtain a non-disturbance agreement from its lender as required by the management agreement, among other things.

In September 2012, the Company opened Delano Marrakech, a 71-room hotel in Marrakech, Morocco. The management agreement included certain cash flow guarantees by the Company which stipulate certain minimum levels of operating performance and could result in potential future funding obligations related to Delano Marrakech, which are in dispute and disclosed in the hotel commitments and guarantees table above. As discussed further below, the Company and the hotel owner are in litigation surrounding the termination of the hotel management agreement, performance-based cash flow guarantee and related matters. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014.  

In January 2014, the Company signed a franchise agreement for 10 Karakoy, a Morgans Original branded hotel in Istanbul, Turkey. The hotel, which is currently under development, is being converted from office and retail space, is expected to have 71 rooms and open in November 2014. The Company has a $0.3 million key money obligation, which is included in the table above and will be funded upon the hotel opening.

The Company has signed management, license or franchise agreements for new hotels which are in the development stage. As of September 30, 2014, these included the following:

	Expected Room Count		Anticipated Opening		Initial Term
Hotels Currently Under Construction or Renovation:
10 Karakoy, a Morgans Original, Istanbul (1)		71		2014	15 years
Mondrian Doha		270		2015	30 years
Other Signed Agreements:
Mondrian Istanbul		122			20 years
Delano Aegean Sea		150			20 years
Delano Cartagena		211			20 years

(1) Hotel is subject to a license or franchise agreement.

There can be no assurances that any or all of the Company’s projects listed above will be developed as planned. If adequate project financing is not obtained, these projects may need to be limited in scope, deferred or cancelled altogether, and to the extent the Company has previously funded key money, an equity investment or debt financing on a cancelled project, the Company may be unable to recover the amounts funded.

For example, due to the Company’s joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, the Company exercised its put option under the joint venture agreement and initiated foreclosure proceedings, as discussed further in note 4 and Part II, “Item 1. Legal Proceedings.”

Other Guarantees to Hotel Owners

As discussed above, the Company has provided certain cash flow guarantees to hotel owners in order to secure management contracts.

The Company’s hotel management agreements for Royalton and Morgans contain cash flow guarantee performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance limited to the Company’s earned base fees. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of September 30, 2014, approximately $0.7 million was accrued as a reduction to management fees related to these performance test provisions. The Company’s maximum potential amount of future fundings related to the Royalton and Morgans performance guarantee cannot be determined as of September 30, 2014, but under the hotel management agreements is limited to the Company’s base fees earned.

Operating Joint Venture Hotels Commitments and Guarantees

The following details obligations the Company has or may have related to its operating joint venture hotels as of September 30, 2014.

Mondrian South Beach Mortgage and Mezzanine Agreements. Morgans Group and affiliates of its joint venture partner have agreed to provide standard nonrecourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard nonrecourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of its joint venture partner also agreed to guarantee the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability in connection with certain third-party actions. Morgans Group and affiliates of its joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of its joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of its joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2014, there were remaining payables outstanding to vendors of approximately $0.3 million. Pursuant to a letter agreement with the lenders for the Mondrian South Beach loan, the joint venture agreed that these payables, many of which are currently contested or under dispute, will not be paid from operating funds but only from tax abatements and settlements of certain lawsuits. In the event funds from tax abatements and settlements of lawsuits are insufficient to repay these amounts in a timely manner, the Company and its joint venture partner are required to fund the shortfall amounts.

The Company and affiliates of its joint venture partner also have each agreed to purchase approximately $14.0 million of condominium units under certain conditions, including an event of default. In the event of a default under the lender’s mortgage or mezzanine loan, the joint venture partners are each obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the lender’s mezzanine loan, or the then outstanding principal balance of the lender’s mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to the construction completion or the condominium purchase guarantees.

Mondrian SoHo. Certain affiliates of the Company’s joint venture partner have agreed to provide a standard nonrecourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its own gross negligence or willful misconduct. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to this indemnity.

Ames. On April 26, 2013, the joint venture closed on a new loan agreement with the mortgage lenders that provided for a reduction of the mortgage debt and an extension of maturity in return for a cash paydown. The Company did not contribute to the cash paydown and instead entered into an agreement with its joint venture partner pursuant to which, among other things, (1) the Company assigned its equity interests in the joint venture to its joint venture partner, (2) the Company agreed to give its joint venture partner the right to terminate its management agreement upon 60 days’ prior notice in return for an aggregate payment of $1.8 million, and (3) a creditworthy affiliate of the Company’s joint venture partner has assumed all or a portion of the Company’s potential liability with respect to historic tax credit guaranties, with the Company’s liability for any tax credit guaranties capped, in any event, at $3.0 million in the aggregate. The potential liability for historic tax credit guaranties relates to approximately $16.9 million of federal and state historic rehabilitation tax credits that Ames qualified for at the time of its development. As of September 30, 2014, there had been no triggering event that would require the Company to accrue any potential liability related to the historic tax credit guarantee. In May 2013, the hotel owner exercised its right to terminate the Company’s management agreement and it was terminated on July 17, 2013. The termination fee totaling $1.8 million was recorded by the Company in the second and third quarters of 2013.

Guaranteed Loans and Commitments

The Company has made guarantees to lenders and lessors of its owned and leased hotels, namely related to the Hudson/Delano 2014 Mortgage Loan and Clift lease payments, as discussed further in note 6.

Litigations Regarding Mondrian SoHo

On January 16, 2013, German American Capital Corporation (“GACC” or the “lender”), the lender for the mortgage loans on Mondrian SoHo, filed a complaint in the Supreme Court of the State of New York, County of New York against Sochin Downtown Realty, LLC, the joint venture that owns Mondrian SoHo (“Sochin JV”), Morgans Management, the manager for the hotel, Morgans Group, Happy Bar LLC and MGMT LLC, seeking foreclosure including, among other things, the sale of the mortgaged property free and clear of the management agreement, entered into between Sochin JV and Morgans Management on June 27, 2007, as amended on July 30, 2010. According to the complaint, Sochin JV defaulted by failing to repay the approximately $217.0 million outstanding on the loans when they became due on November 15, 2012. Cape Advisors Inc. indirectly owns 80% of the equity interest in Sochin JV and Morgans Group indirectly owns the remaining 20% equity interest.

On March 11, 2013, the Company moved to dismiss the lender’s complaint on the grounds that, among other things, the Company’s management agreement is not subject to foreclosure. On April 2, 2013, the lender opposed the Company’s motion to dismiss and cross-moved for summary judgment. On August 12, 2013, the court heard oral argument on both motions, as well as a third motion brought by the Company to strike an affirmation submitted by lender’s attorney. On January 27, 2014, the court granted Morgans Management’s motion to dismiss on the ground that Morgans Management was not a proper party to the foreclosure action and that a management contract does not constitute an interest in real property subject to foreclosure, and denied lender’s motion for summary judgment as moot. On March 20, 2014, the lender moved for summary judgment against the remaining defendants, seeking foreclosure on four mortgages secured by Mondrian SoHo. By order dated May 27, 2014, the trial court granted the motion for summary judgment to a limited extent, ordering the appointment of a referee to compute the amount but stating that a motion for summary judgment of foreclosure and sale is premature. By decision entered on July 28, 2014, the court referred the matter to a Referee to ascertain and compute the amount due to the lender for principal, interest, and other disbursements and to determine whether the property should be sold in one parcel.  On August 6, 2014, the Referee set a hearing on the issues for August 18, 2014, and subsequently issued her report setting the amount due on the loan ($250.5 million, plus interest accruing at a daily rate of approximately $84,000, as of August 18, 2014) and determining the property should be sold as one parcel. On September 15, 2014, the lender filed a motion to confirm the Referee’s report and for judgment of foreclosure and sale, along with the Referee’s Report of Amount Due attached as an exhibit, and a proposed judgment of foreclosure and sale.  That motion is fully briefed and pending, but the court has not yet entered a judgment of foreclosure and sale.

On February 25, 2013, the Sochin JV filed a complaint in the Delaware Court of Chancery against Morgans Management and Morgans Group, seeking, among other things, a declaration that Sochin JV had terminated the management agreement for the hotel. In addition, the Company, through its equity affiliate, filed a separate action against Sochin JV and its parent in the Delaware Court of Chancery for, among other things, breaching fiduciary duties and their joint venture agreement for failing to obtain consent prior to the termination. That action was subsequently consolidated with the joint venture’s termination action.  On April 30, 2013, Morgans Management filed a lawsuit against Sochin JV and the majority member of Sochin JV’s parent and its affiliate in New York Supreme Court for damages based on the wrongful attempted termination of the management agreement, defamation, and breach of fiduciary and other obligations under the parties’ joint venture agreement.  On September 20, 2013, the Delaware Court of Chancery ruled that Sochin JV properly terminated the hotel management agreement on agency principles, that Morgans Management must vacate the hotel forthwith or on whatever other timetable the hotel owner chooses, and that certain claims by the Company’s equity affiliate are dismissed but not its breach of fiduciary duty claim. 

On May 9, 2014, both of the above-referenced actions in Delaware and the above-reference action in New York were dismissed with prejudice by agreement among the parties.  Under the terms of the settlement, if the joint venture does not seek to remove the Company as manager of Mondrian SoHo prior to December 31, 2020, then the Company will be deemed to have released all claims against the joint venture under the Management Agreement.  Under the terms of the settlement, the joint venture may demand that Morgans vacate Mondrian SoHo on 90 days’ prior notice; in the event the joint venture provides notice of its intention to remove the Company as manager of Mondrian SoHo, all of the Company’s claims against the joint venture (including for breach of the hotel management agreement) would be revived. The joint venture’s rights under the settlement are not assignable without the Company’s written consent.

On October 24, 2014, the Company filed suit in the Supreme Court of the State of New York seeking a declaration that the mortgage lenders to the Mondrian SoHo debt cannot remove Morgans Management as hotel manager following the conclusion of the foreclosure proceedings involving the building's ownership and its possible sale.  The action seeks to protect and enforce the Company's  long-term hotel management contract for Mondrian SoHo, regardless of the outcome of the current foreclosure proceedings.  The Company also seeks damages against the lenders and purported buyer of the property should Morgans Management be terminated as manager of the hotel.  The lawsuit does not affect the foreclosure proceedings, and Morgans does not oppose the lenders’ efforts to foreclose on Mondrian SoHo.

Litigation Regarding Delano Marrakech

In June 2013, the Company served the owner of Delano Marrakech with a notice of default for, among other things, failure to pay fees and reimbursable expenses and to operate the hotel in accordance with the standards under the management agreement. In September 2013, the Company served notice of termination of its management agreement for Delano Marrakech following the failure by the owner of Delano Marrakech to remedy numerous breaches of the agreement. As a result, the Company discontinued all affiliation with the hotel, including removal of the Delano name, and terminated management of the property, effective November 12, 2013. Pursuant to the management agreement, in the event of an owner default, the Company has no further obligations under the performance-based cash flow guarantee. In addition, as a result of the breaches by the hotel owner, the Company has asserted a claim for losses and damages against the owner that is currently estimated at in excess of $30.0 million, including interest. The owner of the hotel is disputing the circumstances surrounding termination and therefore its liability for this amount. On April 17, 2014, the owner submitted a counterclaim against the Company under both the performance-based cash flow guarantee and for loss of profits. The total counterclaim made by the owner is in excess of $119.0 million, excluding interest. The Company considers the counterclaim made by the owner to be entirely without merit and intends to vigorously defend itself. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014.  

Litigation Regarding TLG Promissory Notes

On August 5, 2013, Messrs. Andrew Sasson and Andy Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition LLC and Morgans Group LLC relating to the $18.0 million TLG Promissory Notes. See note 1 and note 6 regarding the background of the TLG Promissory Notes. The complaint alleges, among other things, a breach of contract and an event of default under the TLG Promissory Notes as a result of the Company’s failure to repay the TLG Promissory Notes following an alleged “Change of Control” that purportedly occurred upon the election of the Company’s current Board of Directors on June 14, 2013. The complaint sought payment of Mr. Sasson’s $16.0 million TLG Promissory Note and Mr. Masi’s $2.0 million TLG Promissory Note, plus interest compounded to principal, as well as default interest, and reasonable costs and expenses incurred in the lawsuit. On September 26, 2013, the Company filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted the Company’s motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and the Company’s opposition brief was due August 29, 2014. The oral argument on the motion occurred on October 29, 2014 and the Company is awaiting the court’s ruling.  

Litigation Regarding 2013 Deleveraging Transaction, Proxy Litigation Between Mr. Burkle and OTK and Certain of the Company’s Current Directors, and Litigation Regarding Yucaipa Board Observer Rights

On May 5, 2014, the Company and affiliates of Yucaipa, among other litigants, executed and submitted to the Delaware Court of Chancery a Stipulation of Settlement (the “Settlement Stipulation”) which contemplates the partial settlement and dismissal of the Delaware Shareholder Derivative Action and the complete settlement and dismissal of the New York Securities Action, the Proxy Action and the Board Observer Action, all defined below. On July 23, 2014, the Delaware Court of Chancery approved the Settlement Stipulation, which, pursuant to its terms, became effective on August 25, 2014 (the “Effective Date”).

The Settlement Stipulation provided for the partial settlement and dismissal with prejudice of the action entitled OTK Associates, LLC v. Friedman, et al., C.A. No. 8447-VCL (Del. Ch.) (the “Delaware Shareholder Derivative Action”) and the complete settlement and dismissal with prejudice of the actions entitled Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., et al., Index No. 652294/2013 (NY Sup.) (the “New York Securities Action”); Burkle v. OTK Associates, LLC, et al., Case No. 13-CIV-4557 (S.D.N.Y.) (the “Proxy Action”); and Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., Index No. 653455/2013 (NY Sup.) (the “Board Observer Action”) (the foregoing four actions are collectively referred to as the “Actions”).

The Settlement Stipulation provided, among other things, for the following:

— The Company paid the Yucaipa parties in the New York Securities Action an amount equal to $3.0 million (which was previously escrowed) for attorneys’ fees and expenses incurred by Mr. Burkle in his defense of the Delaware Shareholder Derivative Action (the “Securities Action Payment”).

— The Company paid the reasonable and necessary attorneys’ fees and expenses incurred by Messrs. Friedman, Gault and Sasson (collectively, the “Settling Former Directors”) in defending the Delaware Shareholder Derivative Action.  The Settling Former Directors’ assigned to the Company any claims they have against the Company’s insurers relating to any such unpaid amounts. The Company’s insurers covered these attorneys’ fees and expenses.

— OTK and current director Jason T. Kalisman applied to the Delaware Court of Chancery for an award of payment from the Company of the reasonable and necessary fees and expenses incurred by their counsel in connection with the Delaware Shareholder Derivative Action, excluding those fees and expenses encompassed in the court’s October 31, 2013 order in the Delaware Shareholder Derivative Action. In its July 23, 2014 order approving the Settlement Stipulation, the Delaware Court of Chancery awarded an aggregate amount of approximately $6.5 million (to be reduced by the prior interim award of approximately $2.7 million) to OTK and current director Jason T. Kalisman for their counsel fees and expenses incurred in connection with the Delaware Shareholder Derivative Action which was paid by the Company with insurance proceeds.

— Plaintiffs and defendants in each of the Actions, apart from the former directors who chose not to participate in Settlement Stipulation and against whom the Delaware Shareholder Derivative Action continues, exchanged customary releases which release the parties and certain of their affiliates from claims arising from the subject matters of each of the Actions.

— Each of the Actions was dismissed with prejudice and on the merits with each party bearing its own costs, except as to the former directors who have not settled, against whom the Delaware Shareholder Derivative Action continues or as specified in the Settlement Stipulation.

The Company’s insurers have paid a majority of the costs that the Company was obligated to pay under the Settlement Stipulation.  

On October 3, 2014, the Company entered into a Memorandum of Understanding with OTK and Thomas L. Harrison (the “Harrison Settlement”) to settle the claims against Mr. Harrison in the Delaware Shareholder Derivative Action and also to settle claims Mr. Harrison has asserted against the Company in Harrison v. Morgans Hotel Group Co., C. A. No. 10100-VCL (Del. Ch.) (the “Harrison Advancement Action”), in which Mr. Harrison seeks an order requiring the Company to advance his expenses (including attorneys’ fees) incurred in connection with the Delaware Shareholder Derivative Action and further seeks indemnification of the expenses (including attorneys’ fees) he has incurred in connection with his efforts to enforce his claims to advancement.  The Harrison Settlement is subject to approval by the Delaware Court of Chancery.  Pursuant to the Harrison Settlement, in October 2014, the Company advanced to Mr. Harrison a portion of the fees and expenses for which he has sought advancement and paid a portion of the amounts for which Mr. Harrison seeks indemnification related to the Harrison Advancement Action.  As part of the consideration for the release of the claims against Mr. Harrison in the Delaware Shareholder Derivative Action, if the Harrison Settlement is approved by the Court of Chancery, Mr. Harrison would waive his claims to recover the remaining amounts for which he has sought advancement and indemnification in the Harrison Advancement Action.  If the Delaware Court of Chancery approves the Harrison Settlement, both the Harrison Advancement Action and the claims against Mr. Harrison in the Delaware Shareholder Derivative Action will be dismissed with prejudice, the parties to the settlement will exchange customary releases, and the only remaining defendant in the Delaware Shareholder Derivative Action will be Michael D. Malone, a former director of the Company.

As of September 30, 2014, the Company has paid approximately $0.4 million of costs that were not covered by insurance proceeds.  The Company had established an accrual to cover certain contingencies related to its obligations under the Settlement Stipulation, which were adequate to cover these costs.  The Company does not expect that the net amount of any remaining payments the Company will make under the terms of the Settlement Stipulation, the Harrison Settlement, or any other settlement with the former directors who have not settled will be material to financial position of the Company, and as of September 30, 2014, the Company believes its accruals are adequate to cover its contingencies relating to these matters.

Other Litigation

From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. The Company is not currently a party to any legal or administrative proceedings, other than as noted above, the adverse outcome of which, individually or in the aggregate, the Company believes would have a material impact on the Company’s financial condition, results of operations or cash flow.

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Omnibus Stock Incentive Plan

9 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Omnibus Stock Incentive Plan

8. Omnibus Stock Incentive Plan

On February 9, 2006, the Board of Directors of the Company adopted the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan. Subsequently and on several occasions, the Company’s Board of Directors adopted, and stockholders approved, amendments to the Omnibus Stock Incentive Plan (the “Stock Plan”), to namely increase the number of shares reserved for issuance under the plan. As of September 30, 2014, the Stock Plan had 14,610,000 shares reserved for issuance.

The Stock Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, including restricted stock units (“RSUs”) and other equity-based awards, including membership units in Morgans Group which are structured as profits interests (“LTIP Units”), or any combination of the foregoing. The eligible participants in the Stock Plan include directors, officers and employees of the Company. Awards other than options and stock appreciation rights reduce the shares available for grant by 1.7 shares for each share subject to such an award.

On August 14, 2014, the Company issued an aggregate of 77,922 RSUs to the Company’s non-employee directors under the Stock Plan. These grants become 100% vested on May 14, 2015, provided that upon a non-employee director’s resignation from the Board of Directors, other than as a consequence of the director’s bad acts, the vesting of any RSUs will be on a pro rated basis as of the resignation date. The estimated fair value of each such RSU granted was based on the closing price of the Company’s common stock on the grant date.

In addition, the Company has granted, or may grant, RSUs to certain executives, employees or non-employee directors as part of future annual equity grants or to newly hired or promoted employees from time to time.

A summary of stock-based incentive awards as of September 30, 2014 is as follows (in units, or shares, as applicable):

	Restricted Stock Units			LTIP Units			Stock Options
Outstanding as of January 1, 2014		888,461			1,134,610			1,424,740
Granted during 2014		271,701			—			—
Distributed/exercised during 2014		(710,939	)		(193,453	)		—
Forfeited during 2014		(101,756	)		—			(300,000	)
Outstanding as of September 30, 2014		347,467			941,157			1,124,740
Vested as of September 30, 2014		—			941,157			1,124,740

Total stock compensation expense, which is included in corporate expenses on the accompanying consolidated statements of comprehensive loss, was $0.3 million, $1.3 million, $3.1 million, and $3.6 million for the three and nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014 and December 31, 2013, there were approximately $1.8 million and $3.4 million, respectively, of total unrecognized compensation costs related to unvested share awards, excluding outstanding OPP LTIP Units, as discussed below. As of September 30, 2014, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 1.1 years.

Outperformance Award Program

In March 2011, the Compensation Committee of the Board of Directors of the Company implemented an Outperformance Award Program, which was a long-term incentive plan intended to provide the Company’s senior management with the ability to earn cash or equity awards based on the Company’s level of return to stockholders over a three-year period, the Company issued a new series of outperformance long-term incentive units (the “OPP LTIP Units”).

Pursuant to the Outperformance Award Program, each of the senior managers then employed by the Company had the right to receive, an award (an “Award”), in each case reflecting the participant’s right to receive a participating percentage (the “Participating Percentage”) in an outperformance pool if the Company’s total return to stockholders (including stock price appreciation plus dividends) increased by more than 30% (representing a compounded annual growth rate of approximately 9% per annum) over a three-year period from March 20, 2011 to March 20, 2014, of a new series of outperformance long-term incentive units as described below, subject to vesting and the achievement of certain performance targets.

The total return to stockholders was calculated based on the average closing price of the Company’s common shares on the 30 trading days ending on the Final Valuation Date (as defined below). The baseline value of the Company’s common shares for purposes of determining the total return to stockholders was $8.87, the closing price of the Company’s common shares on March 18, 2011.

The Company determined, as of March 20, 2014, that the total outperformance pool had no value, as the valuation on that day did not exceed $11.53, therefore all existing Awards of OPP LTIP Units were forfeited.

As the Company had the ability to settle the vested OPP LTIP Units with cash, these Awards were not considered to be indexed to the Company’s stock price and were accounted for as liabilities at fair value prior to their forfeiture on March 20, 2014.

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Related Party Transactions

9 Months Ended

Sep. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions

10. Related Party Transactions

The Company earned management fees, chain services fees and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures. These fees totaled approximately $1.0 million, $2.4 million, $3.4 million, and $7.2 million for the three and nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014 and December 31, 2013, the Company had receivables from these affiliates of approximately $3.8 million and $3.7 million, respectively, which are included in related party receivables on the accompanying consolidated balance sheets.

As of September 30, 2014 and December 31, 2013, the TLG Promissory Notes and accrued interest due to Messrs. Sasson and Masi had aggregate fair values of approximately $19.1 million and $18.8 million, respectively, as discussed in note 6, which are included in debt and capital lease obligations on the accompanying consolidated balance sheets. During the three and nine months ended September 30, 2014 and 2013, the Company recorded $0.3 million, $0.4 million, $1.1 million, and $1.1 million, respectively, of interest expense related to the TLG Promissory Notes.

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Components of Basic and Diluted Loss Per Share Calculations (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Numerator:
Net loss	$ (10,095)	$ (10,328)	$ (43,493)	$ (38,051)
Net (income) loss attributable to noncontrolling interest	(48)		(504)	298
Net loss attributable to Morgans Hotel Group	(10,143)	(10,328)	(43,997)	(37,753)
Less: preferred stock dividends and accretion	3,594	4,037	11,948	9,976
Net loss attributable to common stockholders	$ (13,737)	$ (14,365)	$ (55,945)	$ (47,729)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding	34,267	32,693	34,047	32,590
Effect of dilutive securities	0	0	0	0
Weighted average diluted common shares outstanding	34,267	32,693	34,047	32,590
Basic and diluted loss available to common stockholders per common share	$ (0.40)	$ (0.44)	$ (1.64)	$ (1.46)

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Development Costs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Other Income And Expenses [Abstract]
Transaction costs	$ 259	$ 364	$ 2,839	$ 574
Internal development payroll and other	298	386	647	1,056
Pre-opening expenses	7	221	442	738
Total	$ 564	$ 971	$ 3,928	$ 2,368

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Income (Loss) Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Components of Basic and Diluted Loss Per Share Calculations

The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data). The Company has not had any undistributed earnings in any calendar quarter presented. Therefore, the Company does not present earnings per share following the two-class method.

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013
Numerator:
Net loss	$	(10,095	)	$	(10,328	)
Net (income) loss attributable to noncontrolling interest		(48	)		-
Net loss attributable to Morgans Hotel Group Co.		(10,143	)		(10,328	)
Less: preferred stock dividends and accretion		3,594			4,037
Net loss attributable to common stockholders	$	(13,737	)	$	(14,365	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		34,267			32,693
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		34,267			32,693
Basic and diluted loss available to common stockholders per common share	$	(0.40	)	$	(0.44	)

	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Numerator:
Net loss	$	(43,493	)	$	(38,051	)
Net (income) loss attributable to noncontrolling interest		(504	)		298
Net loss attributable to Morgans Hotel Group Co.		(43,997	)		(37,753	)
Less: preferred stock dividends and accretion		11,948			9,976
Net loss attributable to common stockholders	$	(55,945	)	$	(47,729	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		34,047			32,590
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		34,047			32,590
Basic and diluted loss available to common stockholders per common share	$	(1.64	)	$	(1.46	)

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Omnibus Stock Incentive Plan (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock-based Incentive Awards

A summary of stock-based incentive awards as of September 30, 2014 is as follows (in units, or shares, as applicable):

	Restricted Stock Units			LTIP Units			Stock Options
Outstanding as of January 1, 2014		888,461			1,134,610			1,424,740
Granted during 2014		271,701			—			—
Distributed/exercised during 2014		(710,939	)		(193,453	)		—
Forfeited during 2014		(101,756	)		—			(300,000	)
Outstanding as of September 30, 2014		347,467			941,157			1,124,740
Vested as of September 30, 2014		—			941,157			1,124,740

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Restructuring and Disposal Costs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Other Income And Expenses [Abstract]
Restructuring costs	$ 1,113	$ 939	$ 4,208	$ 6,121
Severance and related costs	29	827	8,395	1,620
(Gain) loss on asset disposal and other costs	3	33	(234)	210
Total	$ 1,145	$ 1,799	$ 12,369	$ 7,951

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Hotel Commitments and Guarantees (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Commitments and Contingencies [Line Items]
Key money, equity investment and debt financing commitments	$ 15,514	$ 22,499
Cash flow guarantees	5,000	13,000
Total maximum future funding commitments	28,514	53,499
Amounts due within one year	15,514	25,499
Mondrian Baha Mar
Commitments and Contingencies [Line Items]
Key money commitments related to terminated project		10,000
Delano Marrakech | Performance Guarantee
Commitments and Contingencies [Line Items]
Cash flow guarantees	$ 8,000	$ 8,000

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Consolidated Statements of Comprehensive Loss (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Statement [Abstract]
Stock compensation	$ 0.3	$ 1.3	$ 3.1	$ 3.6

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Investments in and Advances to Unconsolidated Joint Ventures

9 Months Ended

Sep. 30, 2014

Equity Method Investments And Joint Ventures [Abstract]

Investments in and Advances to Unconsolidated Joint Ventures

4. Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures and its equity in income (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

Entity	As of September 30, 2014		As of December 31, 2013
Mondrian Istanbul	$	10,392	$	10,392
Other		100		100
Total investments in and advances to unconsolidated joint    ventures	$	10,492	$	10,492

Equity in income (losses) of unconsolidated joint ventures

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013			Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Mondrian South Beach food and    beverage—MC South Beach	$	—	$	(281	)	$	—	$	(629	)
Other		3		3			7		(144	)
Total	$	3	$	(278	)	$	7	$	(773	)

Mondrian South Beach

On August 8, 2006, the Company entered into a 50/50 joint venture to renovate and convert an apartment building on Biscayne Bay in Miami Beach into a condominium hotel, Mondrian South Beach, which opened in December 2008. The Company operates Mondrian South Beach under a long-term management contract.

The Mondrian South Beach joint venture acquired the existing building and land for a gross purchase price of $110.0 million. An initial equity investment of $15.0 million from each of the 50/50 joint venture partners was funded at closing, and subsequently each member also contributed $8.0 million of additional equity. The Company and an affiliate of its joint venture partner provided additional mezzanine financing of approximately $22.5 million in total to the joint venture through a new 50/50 mezzanine financing joint venture to fund completion of the construction in 2008. Additionally, the Mondrian South Beach joint venture initially received nonrecourse mortgage loan financing of approximately $124.0 million at a rate of LIBOR plus 3.0%. A portion of this mortgage debt was paid down, prior to the amendments discussed below, with proceeds obtained from condominium sales. In April 2008, the Mondrian South Beach joint venture obtained a mezzanine loan from the mortgage lenders of $28.0 million bearing interest at LIBOR plus 6.0%.

In April 2010, the Mondrian South Beach ownership joint venture amended the nonrecourse mortgage financing and mezzanine loan agreements secured by Mondrian South Beach or related equity interests and extended the maturity date for up to seven years through one-year extension options until April 2017, subject to certain conditions. Among other things, the amendment allowed the joint venture to accrue all interest through April 2012, accrue a portion of the interest thereafter, extend the mezzanine loan to April 2027 if the mortgage loan is retired, and provide the ability to provide seller financing to qualified condominium buyers with up to 80% of the condominium purchase price. The Company and an affiliate of its joint venture partner each provided an additional $2.75 million to the joint venture through the mezzanine financing joint venture resulting in total mezzanine financing provided by the mezzanine financing joint venture of $28.0 million. The amendment also provides that this $28.0 million joint venture mezzanine financing invested in the property be, in effect, on par with the lender’s mezzanine debt after the repayment of the mortgage debt such that the mezzanine financing joint venture receives the first $5.5 million of net cash flow, the lender mezzanine financing receives the next $5.5 million, and the remaining proceeds are distributed equally between the joint venture mezzanine loan and the lender mezzanine loan.  

In March 2014, the joint venture exercised its option to extend the outstanding mortgage and mezzanine debt until April 2015. As of September 30, 2014, the joint venture’s outstanding nonrecourse mortgage loan was $24.1 million and the outstanding mezzanine loan was $28.0 million. In addition, the outstanding mezzanine debt owed to affiliates of the joint venture partners was $28.0 million.

The joint venture is in the process of selling units as condominiums, subject to market conditions, and unit buyers will have the opportunity to place their units into the hotel’s rental program. As of September 30, 2014, 261 hotel residences had been sold, of which 140 are in the hotel rental pool and are included in the hotel room count, and 74 hotel residences remain to be sold. In addition to hotel management fees, the Company could also realize fees from the sale of condominium units, although there can be no assurances of any sales in the future.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Management determined that the Company is not the primary beneficiary of this variable interest entity as the Company does not have a controlling financial interest in the entity.

Because the Company has written its investment value in the joint venture to zero, for financial reporting purposes, the Company believes its maximum exposure to losses as a result of its involvement in the Mondrian South Beach variable interest entity is limited to its outstanding management fees and related receivables and $14.0 million of advances in the form of mezzanine financing, excluding guarantees and other contractual commitments.

The Company is not committed to providing financial support to this variable interest entity, other than as contractually required, and all future funding is expected to be provided by the joint venture partners in accordance with their respective percentage interests in the form of capital contributions or loans, or by third parties.

Morgans Group and affiliates of its joint venture partner have provided certain guarantees and indemnifications to the Mondrian South Beach lenders. See note 7.

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. The Company initially contributed $5.0 million for a 20% equity interest in the joint venture. Mondrian SoHo opened in February 2011 and has 263 guest rooms, a restaurant, bar and other facilities. Under the terms of the hotel management agreement executed between the Company and the joint venture in June 2007, the Company has a contract to manage the hotel for a 10-year term beginning on the date the hotel opened for business, which was in February 2011, with two 10-year extension options.

The joint venture obtained a loan of $195.2 million to acquire and develop the hotel, which matured in June 2010. On July 31, 2010, the mortgage loan secured by the hotel was amended to, among other things, provide for extensions of the maturity date to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, based on ratios of net operating income to debt service for specified periods ended September 30th of each year. The joint venture satisfied the extension conditions in 2011, but did not satisfy the conditions in November 2012. In January 2013, the lender initiated foreclosure proceedings and litigation is ongoing, although a court appointed referee issued a report in August 2014 setting the amount due on the loan ($250.5 million as of August 18, 2014, plus interest accruing at a daily rate of approximately $84,000, as of August 18, 2014) and determining the property should be sold as one parcel.  On September 15, 2014, the lender filed a motion to confirm the referee’s report in the foreclosure action and for proposed judgment of foreclosure and sale.  That motion is fully briefed and pending, but the court has not yet entered a judgment of foreclosure and sale, as discussed further in note 7, “—Litigations Regarding Mondrian SoHo.” As of September 30, 2014, the Mondrian SoHo joint venture’s outstanding mortgage debt secured by the hotel was $196.0 million.  In addition, as of August 18, 2014, the court appointed referee calculated deferred interest through the date of default of $20.8 million and default interest of $33.4 million.

In December 2011, the Mondrian SoHo joint venture was determined to be a variable interest entity as a result of upcoming debt maturity and cash shortfalls, and because its equity was considered insufficient to permit the entity to finance its own activities. However, the Company determined that it was not the primary beneficiary and, therefore, consolidation of this joint venture is not required. The Company continues to account for its investment in Mondrian SoHo using the equity method of accounting. Because the Company has written its investment value in the joint venture to zero, for financial reporting purposes, the Company believes its maximum exposure to losses as a result of its involvement in the Mondrian SoHo variable interest entity is limited to its outstanding management fees and related receivables and advances in the form of priority loans, excluding guarantees and other contractual commitments.

Certain affiliates of the Company’s joint venture partner have provided certain guarantees and indemnifications to the Mondrian SoHo lenders for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates in certain circumstances. See note 7.

Food and Beverage Venture at Mondrian South Beach

In June 2011, the Company acquired its former joint venture partner’s ownership interest in the food and beverage venture at Mondrian South Beach.  As a result, the Company’s ownership interest in this food and beverage venture effectively increased to 75%, and the accounting for this investment was reevaluated in accordance with ASC 810-10. The Company concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in the joint venture is accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing.

The Company accounted for this investment under the equity method of accounting through December 31, 2013, until its recording of losses was suspended. As of September 30, 2014, the Company’s investment in this food and beverage venture was zero. Because the Company has written its investment value in the joint venture to zero, for financial reporting purposes, the Company believes its maximum exposure to losses as a result of its involvement in the food and beverage venture at Mondrian South Beach is limited to any outstanding receivables, which was immaterial as of September 30, 2014.

Ames

On June 17, 2008, the Company, Normandy Real Estate Partners, and Ames Hotel Partners entered into a joint venture agreement as part of the development of the Ames hotel in Boston. Ames opened on November 19, 2009.

The Company contributed a total of approximately $12.1 million in equity for an approximately 31% interest in the ownership joint venture. The joint venture obtained a loan for $46.5 million secured by the hotel, which matured on October 9, 2012 and the mortgage lender served the joint venture with a notice of event of default stating that the nonrecourse mortgage refinancing on the property was not repaid when it matured.

On April 26, 2013, the joint venture closed on a new loan agreement with the mortgage lenders that provided for a reduction of the mortgage debt and an extension of maturity in return for a cash paydown. The Company did not contribute to the cash paydown and instead entered into an agreement with its joint venture partner, as discussed further in note 7.

In May 2013, the hotel owner exercised its right to terminate the Company’s management agreement effective July 17, 2013, and on July 17, 2013 the management agreement terminated. The Company received cash of $1.8 million, of which $0.9 million was recorded in management fee-related parties and other income on the consolidated statements of comprehensive loss during each of the second and third quarters of the year ended December 31, 2013.

Prior to the Company assigning its equity interests in the joint venture to its joint venture partner, net income or loss and cash distributions or contributions were allocated to the partners in accordance with their respective ownership interests. The Company accounted for this investment under the equity method of accounting.

Shore Club

On December 30, 2013, Shore Club was sold to HFZ Capital Group. Phillips International, an affiliate of Shore Club’s former owner, retains an ownership stake. The new owner has publicly stated that it may convert a substantial part of the hotel to condos, and the Company could be replaced as hotel manager. To date, the Company has received no notice of termination of its management agreement, and intends to continue to operate the hotel pursuant to that agreement. However, no assurance can be provided that the Company will continue to do so in the future. As of September 30, 2014, the Company had only an immaterial contingent profit participation equity interest in Shore Club.

Mondrian Istanbul

In December 2011, the Company entered into a hotel management agreement for an approximately 122-room Mondrian-branded hotel to be located in the Old City area of Istanbul, Turkey. In December 2011 and January 2012, the Company contributed an aggregate of $10.3 million in the form of equity and key money and has a 20% ownership interest in the joint venture owning the hotel. The Company has no additional funding commitments in connection with this project.

Due to the Company’s joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, the Company exercised its put option under the joint venture agreement that requires the Company’s joint venture partner to buy back the Company’s equity interests in the Mondrian Istanbul joint venture. The Company’s rights under that joint venture agreement are secured by, among other things, a mortgage on the property. In February 2014, the Company issued a notice of default to its joint venture partner, as they failed to buy back the Company’s equity interests by the contractual deadline, and further notified its joint venture partner that the Company plans to begin foreclosure proceedings as a result of the event of default. The Company initiated foreclosure proceedings on March 11, 2014. The Company’s joint venture partner, and through such joint venture partner, the joint venture itself, have objected to the foreclosure proceeding, as a result of which, the foreclosure proceeding is currently stayed. Additionally, in June 2014, the joint venture purported to notify the Company that it had terminated the hotel management agreement. The Company has objected to such purported notices and intends to vigorously defend against any lawsuit that may result. In addition, the Company has initiated proceedings in an English court seeking payment of the put option amount against the individual shareholders behind the joint venture partner.  The parties are also seeking various other judicial remedies in Turkey.

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Other Expenses (Tables)

9 Months Ended

Sep. 30, 2014

Other Income And Expenses [Abstract]

Restructuring and Disposal Costs

Restructuring and disposal costs consist of the following (in thousands):

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Restructuring costs	$	1,113	$	939	$	4,208		$	6,121
Severance and related costs		29		827		8,395			1,620
(Gain) loss on asset disposal and other costs		3		33		(234	)		210
Total	$	1,145	$	1,799	$	12,369		$	7,951

Development Costs

Development costs consist of the following (in thousands):

	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Transaction costs	$	259	$	364	$	2,839	$	574
Internal development payroll and other		298		386		647		1,056
Pre-opening expenses		7		221		442		738
Total	$	564	$	971	$	3,928	$	2,368

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Other Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Other Liabilities Disclosure [Abstract]
Designer fee claim	$ 13,866	$ 13,866
OPP LTIP Units Liability (note 8)		25
Other Liabilities	$ 13,866	$ 13,891

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Organization and Formation Transaction (Tables)

9 Months Ended

Sep. 30, 2014

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Operating Hotels

The Company’s hotels as of September 30, 2014 were as follows:

Hotel Name	Location	Number of Rooms		Ownership
Hudson	New York, NY		876		(1	)
Morgans	New York, NY		117		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		263		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		214		(5	)
Shore Club	Miami Beach, FL		308		(6	)
Mondrian Los Angeles	Los Angeles, CA		236		(2	)
Clift	San Francisco, CA		372		(7	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Mondrian London at Sea Containers	London, England		359		(2	)
Delano Las Vegas	Las Vegas, Nevada		1,117		(8	)

(1) The Company owns 100% of Hudson through its subsidiary, Henry Hudson Holdings LLC, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building. As of September 30, 2014, Hudson had 876 guest rooms and 60 single room dwelling units (“SROs”).

(2) Operated under a management contract.

(3) Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 20% at September 30, 2014. See note 4.

(4) Wholly-owned hotel.

(5) Operated as a condominium hotel under a management contract and owned through a 50/50 unconsolidated joint venture. As of September 30, 2014, 261 hotel residences had been sold, of which 140 are in the hotel rental pool and are included in the hotel room count, and 74 hotel residences remain to be sold. See note 4.

(6) Operated under a management contract. Until December 30, 2013, the Company held a minority ownership interest of approximately 7% and accounted for the hotel as an unconsolidated joint venture. As of September 30, 2014, the Company had an immaterial contingent profit participation equity interest in Shore Club. See note 4.

(7) The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.

(8) A licensed hotel managed by MGM.