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: June 30, 2016

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 August 5, 2016 was 34,874,923.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGANS HOTEL GROUP CO. CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2016 (UNAUDITED) AND DECEMBER 31, 2015	5
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE PERIODS ENDED JUNE 30, 2016 and 2015	6
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED JUNE 30, 2016 and 2015	7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
ITEM 4. CONTROLS AND PROCEDURES	42
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	43
ITEM 1A. RISK FACTORS	44
ITEM 6. EXHIBITS	44

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:  

· risks related to the consummation of our pending acquisition by SBEEG Holdings, LLC (“SBE”);

· our future financial performance, including selling, general and administrative expenses, capital expenditures, income taxes and our expected available cash and use of available cash;

· our business operations, including our ability to enter into new management, franchise or licensing agreements and the enhanced the value of existing hotels and management agreements;

· the status and expectations with respect to the development and opening of new hotels;

· the effect of new lodging supply;

· the impact of the strong U.S. dollar and a weak global economy;

· the timing of receiving expected hotel management agreement termination fees; and

· the outcome of litigation to which the Company is a party, including litigation related to our pending acquisition by SBE.

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, 2015, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 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:

· risks related to the proposed acquisition of the Company by SBE and the related diversion of management’s attention from the operation of the business;

· risks related to our ability to successfully execute on an alternative transaction should we be unable to successfully consummate the sale of the Company to SBE;

· the risk that provisions in the definitive agreement governing the proposed acquisition by SBE could discourage a third-party from considering or proposing to acquire the Company;

· risks we may face from the impact or outcome of pending or future litigation related to our proposed acquisition by SBE;

· a downturn in economic and market conditions, both in the U.S. and internationally, including the impact of new supply in key markets in which we operate, particularly as it impacts demand for travel, hotels, dining and entertainment;

· our level of debt under our outstanding debt agreements, our obligations under our preferred equity instruments, our ability to restructure or refinance our current outstanding debt and preferred equity instruments, our ability to generate sufficient cash to repay or redeem outstanding debt and preferred equity instruments or make payments on guarantees as they may become due;

· the impact of any dividend payments or accruals on our Series A preferred equity instruments on our cash flow and the value of our common stock;

· the impact of restructuring charges on our liquidity;

· general volatility of our stock price, the capital markets and our ability to access the capital markets;

3

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

· our history of losses;

· our liquidity position;  

· 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 operate;

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

· risks related to natural disasters or outbreaks of contagious diseases, terrorist attacks, the threat of terrorist attacks and similar disasters, including a downturn in travel, hotels, dining and entertainment resulting therefrom;

· 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 owned properties of Morgans Hotel Group and associated brands;

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

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

· potential terminations of management agreements and timing of receipt of anticipated termination fees;

· 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 and travel industry that are beyond our control;

· our ability to maintain state of the art information technology systems and protect such systems from cyber-attacks;

· 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; and

· other risks discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in the Quarterly Report on Form 10-Q for the period ended March 31, 2016 in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Result of Operations.”

Other than as required by applicable law, 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 share data)

	June 30, 2016			December 31, 2015
	(unaudited)
ASSETS
Property and equipment, net	$	257,932		$	265,678
Goodwill		53,691			54,057
Investments in and advances to unconsolidated joint ventures		100			100
Cash and cash equivalents		11,187			45,925
Restricted cash		13,079			12,892
Accounts receivable, net		7,348			8,325
Prepaid expenses and other assets		8,303			8,897
Deferred tax asset, net		129,427			128,645
Other assets, net		31,194			33,516
Total assets	$	512,261		$	558,035
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations, net of deferred financing costs of $3.0 million and $3.7 million as of June 30, 2016 and December 31, 2015, respectively	$	575,501		$	602,630
Accounts payable and accrued liabilities		34,516			33,599
Deferred gain on asset sales		113,368			117,378
Other liabilities		13,866			13,866
Total liabilities		737,251			767,473
Commitments and contingencies
Preferred stock, $0.01 par value; liquidation preference $1,000 per share, 40,000,000    shares authorized; 75,000 shares issued at June 30, 2016 and December 31, 2015,    respectively		73,457			71,025
Common stock, $0.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued    at June 30, 2016 and December 31, 2015, respectively		363			363
Additional paid-in capital		234,624			236,730
Treasury stock, at cost, 1,402,572 and 1,541,381 shares of common stock at    June 30, 2016 and December 31, 2015, respectively		(14,873	)		(17,257	)
Accumulated other comprehensive loss		(2,220	)		(1,131	)
Accumulated deficit		(516,908	)		(499,765	)
Total Morgans Hotel Group Co. stockholders’ deficit		(225,557	)		(210,035	)
Noncontrolling interest		567			597
Total deficit		(224,990	)		(209,438	)
Total liabilities and stockholders’ deficit	$	512,261		$	558,035

See accompanying notes to these consolidated financial statements.

5

Morgans Hotel Group Co.

Consolidated Statements of Comprehensive Loss

(in thousands, except per share data)

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Revenues:	(unaudited)
Rooms	$	29,929		$	30,991		$	55,173		$	56,787
Food and beverage		17,544			19,674			37,976			41,245
Other hotel		2,415			2,037			4,613			3,968
Total hotel revenues		49,888			52,702			97,762			102,000
Management fee-related parties and other income		2,973			3,508			6,122			7,516
Total revenues		52,861			56,210			103,884			109,516
Operating Costs and Expenses:
Rooms		9,849			9,414			19,307			18,298
Food and beverage		12,583			13,883			26,427			28,560
Other departmental		1,119			1,068			2,263			2,064
Hotel selling, general and administrative		9,379			10,418			19,530			20,570
Property taxes, insurance and other		4,108			4,411			8,651			8,294
Total hotel operating expenses		37,038			39,194			76,178			77,786
Corporate expenses, including stock compensation of    $0.2 million,  $0.6 million, $0.3 million, and $0.9 million, respectively		4,785			4,919			9,048			10,947
Depreciation and amortization		5,578			5,563			11,229			11,200
Restructuring and development costs		2,595			1,050			3,294			3,147
Loss on receivables from unconsolidated joint venture		—			550			—			550
Total operating costs and expenses		49,996			51,276			99,749			103,630
Operating income		2,865			4,934			4,135			5,886
Interest expense, net		10,260			11,955			21,422			23,782
Impairment loss and equity in income of investment in    unconsolidated joint venture		(2	)		(2	)		(4	)		3,888
Impairment loss on intangible asset		—			—			366			—
Gain on asset sales		(2,005	)		(2,086	)		(4,010	)		(5,794	)
Other non-operating expenses		301			1,552			844			3,207
Loss before income tax expense		(5,689	)		(6,485	)		(14,483	)		(19,197	)
Income tax expense		133			169			261			295
Net loss		(5,822	)		(6,654	)		(14,744	)		(19,492	)
Net loss attributable to noncontrolling interest		12			13			30			27
Net loss attributable to Morgans Hotel Group Co.		(5,810	)		(6,641	)		(14,714	)		(19,465	)
Preferred stock dividends and accretion		(4,659	)		(4,075	)		(9,126	)		(7,985	)
Net loss attributable to common stockholders	$	(10,469	)	$	(10,716	)	$	(23,840	)	$	(27,450	)
Other comprehensive loss:
Unrealized (loss) gain on valuation of cap agreements, net    of tax		(127	)		29			(246	)		17
Foreign currency translation adjustment		(499	)		483			(843	)		(514	)
Comprehensive loss	$	(11,095	)	$	(10,204	)	$	(24,929	)	$	(27,947	)
Loss per share:
Basic and diluted attributable to common stockholders	$	(0.30	)	$	(0.31	)	$	(0.69	)	$	(0.80	)
Weighted average number of common shares outstanding:
Basic and diluted		34,813			34,492			34,776			34,440

See accompanying notes to these consolidated financial statements.

6

Morgans Hotel Group Co.

Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:	(unaudited)
Net loss	$	(14,744	)	$	(19,492	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		9,654			9,612
Amortization of other costs		1,575			1,588
Amortization and write off of deferred financing costs		788			3,274
Gain on asset sales		(4,010	)		(5,794	)
Stock-based compensation		308			922
Accretion of interest		1,067			1,042
Impairment loss and equity in income of investment in unconsolidated joint venture		(4	)		3,888
Impairment loss on intangible asset		366			-
Loss on receivables from unconsolidated joint venture		—			550
Gain on transfer and disposal of assets		(661	)		(6	)
Change in value of interest rate caps		482			77
Changes in assets and liabilities:
Accounts receivable, net		560			729
Restricted cash		302			1,638
Prepaid expenses and other assets		478			(2,079	)
Accounts payable and accrued liabilities		1,969			(3,151	)
Net cash used in operating activities		(1,870	)		(7,202	)
Cash flows from investing activities:
Additions to property and equipment		(1,970	)		(1,725	)
Deposits into capital improvement escrows, net		(489	)		(1,090	)
Distributions from unconsolidated joint ventures		4			4
Proceeds from asset sale, net		—			30,806
Development hotel funding		—			(250	)
Net cash (used in) provided by investing activities		(2,455	)		27,745
Cash flows from financing activities:
Payments on debt and capital lease obligations		(28,929	)		(732	)
Other debt costs		(1,456	)		—
Cash paid in connection with vesting of stock based awards		(28	)		(310	)
Net cash used in financing activities		(30,413	)		(1,042	)
Net (decrease) increase in cash and cash equivalents		(34,738	)		19,501
Cash and cash equivalents, beginning of year		45,925			13,493
Cash and cash equivalents, end of year	$	11,187		$	32,994
Supplemental disclosure of cash flow information:
Cash paid for interest	$	20,327		$	20,508
Cash paid for income taxes	$	477		$	1

See accompanying notes to these consolidated financial statements.

7

Morgans Hotel Group Co.

Notes to 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 develops boutique hotels, primarily in gateway cities and select resort markets in the United States, Europe and other international locations.  

In addition, the Company owns leasehold interests in certain food and beverage venues.  Prior to the TLG Equity Sale, discussed below, completed on January 23, 2015, the Company, through TLG Acquisition LLC (“TLG Acquisition” and, together with its subsidiaries, The Light Group, or “TLG”), operated nightclubs, restaurants, pool lounges, bars and other food and beverage venues primarily in hotels 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.  During the six months ended June 30, 2016 and 2015, the Company derived 5.6% and 6.3% 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 June 30, 2016 were as follows:

Hotel Name	Location	Number of Rooms		Interest
Hudson	New York,NY		878		(1	)
Morgans	New York, NY		117		(2	)
Royalton	New York, NY		168		(2	)
Delano South Beach	Miami Beach, FL		194		(3	)
Mondrian South Beach	Miami Beach, FL		219		(6	)
Shore Club	Miami Beach, FL		308		(4	)
Mondrian Los Angeles	Los Angeles, CA		236		(2	)
Clift	San Francisco, CA		372		(5	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Mondrian London at Sea Containers	London, England		359		(2	)
Delano Las Vegas	LasVegas, Nevada		1,117		(6	)
10 Karakoy	Istanbul, Turkey		71		(7	)

(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 June 30, 2016, Hudson had 878 guest rooms and 60 single room dwelling units (“SROs”).

(2) Operated under a management contract.

(3) Wholly-owned hotel.

(4) Operated under a management contract.  The Company currently expects to no longer manage Shore Club during the fourth quarter of2016.    

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

(6) A licensed hotel.  

(7) A franchised hotel.  

8

Food and Beverage Operations

As of June 30, 2016, the Company owns three food and beverage venues subject to leasehold agreements at Mandalay Bay in Las Vegas, which are managed by TLG.  These food and beverage venues are included in the Company’s consolidated financial statements.  

Effective June 1, 2016, the Company transferred all of its ownership interest in the food and beverage venues at Sanderson to the hotel owner.  The Company will continue to manage Sanderson’s food and beverage venues.  Prior to June 1, 2016, the Company leased and managed the Sanderson food and beverage venues, which were included in the Company’s consolidated financial statements.  As a result of this transfer, the Company impaired approximately $0.4 million of goodwill related to its ownership interest of the Sanderson food and beverage venues and recorded an approximately $0.7 million gainon the transfer during the six months ended June 30, 2016.  

The Light Group

Acquisition.On November 30, 2011, certain of the Company’s subsidiaries completed the acquisition of 90% of the equity interests in TLG Acquisition for a purchase price of $28.5 million in cash and up to $18.0 million in notes (the “TLG Promissory Notes”) (“The Light Group Transaction”).  

In December 2014, the Company used cash on hand to repay and retire $19.1 million of the outstanding TLG Promissory Notes, which included the original principal balance of $18.0 million plus deferred interest of $1.1 million, as discussed further in note 6.  

The primary assets of TLG consisted of its management and similar agreements primarily with various MGM affiliates.  During the time the Company owned 90% of TLG, it recognized management fees in accordance with the applicable management agreement which generally provided 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 Equity Sale.  On January 23, 2015, the Company sold its 90% equity interest in TLG to Hakkasan Holdings LLC (“Hakkasan”) (the “TLG Equity Sale”) for $32.8 million, net of closing costs.    

The Company has certain indemnification obligations, which generally survive for 18 months following the close of the TLG Equity Sale; however, no amounts are held in escrow for the satisfaction of such claims.  As of June 30, 2016, the Company has accrued approximately $0.3 million in liabilities related to these indemnification obligations.  

TEJ Management, LLC, an entity controlled by Andrew Sasson, and Galts Gulch Holding Company LLC, an entity controlled by Andy Masi (together, the “Minority Holders”) did not exercise their right to participate in the TLG Equity Sale.  The Minority Holders maintained the right to put their equity interests to TLG’s managing member for amounts determined pursuant to the Amended and Restated Limited Liability Company of TLG.  Hakkasan, as the current managing member, was obligated to pay $3.6 million of this amount upon delivery of the 10% equity interest in TLG held by the Minority Holders with the Company responsible for any amounts in excess of $3.6 million.

In addition, for the 18 months following the closing of the TLG Equity Sale, the Company had the right to purchase 49% of the equity of TLG from Hakkasan (the “Option Right”).   The Option Right expired on June 23, 2016 and did not trigger any accounting impact on the Company’s consolidated financial statements.

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 (“U.S. 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 U.S. 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 U.S. 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.

9

Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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, 2015.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 debt service or lease payments, insurance programs, and taxes, among others.  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.

The Hudson/Delano 2014 Mortgage Loan, defined and discussed below in note 6, provides that 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.  In the event the debt yield ratio falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  As of June 30, 2016, the Company’s debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach.  Such retained cash will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  

Assets Held for Sale

The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or a group of properties for sale and the sale is probable whereby a signed sales contract and significant non-refundable deposit or contract break-up fee exist.  Upon designation as an asset held for sale, the Company records the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and the Company stops recording depreciation expense.  Any gain realized in connection with the sale of the properties for which the Company has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement.

 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 Account Standard Codification (“ASC”) 810-10, Consolidation.  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 June 30, 2016, there were no liabilities required to be recorded related to these investments.

Other Assets

In October 2014, the Company funded an approximately $15.3 million key money obligation related to Mondrian London, which is included in Other Assets and is being amortized over the term of the hotel management agreement.

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 an existing hotel to Delano Las Vegas.  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 at $7.5 million, as discussed in note 6.  The three food and beverage venues are managed by TLG and are operated pursuant to 10-year

10

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 and restaurant leasehold interests, using the straight line method, over the 10-year life of the respective agreement.

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.

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 six months ended June 30, 2016 and 2015 were computed using the Company’s effective tax rate.

Credit-risk-related Contingent Features

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, subject to the terms of the Securities Purchase Agreement, 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, as discussed further in note 9.  The Yucaipa Warrants are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.  See note 13 for additional information about the Yucaipa Warrants.

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.

11

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.  As of June 30, 2016 and December 31, 2015, 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 June 30, 2016, the Company had three interest rate caps outstanding and the fair value of these interest rate caps was $0.5 million.

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 amount of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of June 30, 2016 and December 31, 2015 due to the short-term maturity of these items or variable market interest rates.

The Company had outstanding fixed rate debt principal of $54.4 million and $54.9 million as of June 30, 2016 and December 31, 2015, respectively, which included the Company’s trust preferred securities and Restaurant Lease Note, discussed above, and excludes capital leases.  This fixed rate debt had a fair market value at June 30, 2016 and December 31, 2015 of approximately $62.8 million and $60.6 million, respectively, using market rates.

Although the Company has determined that the majority of the inputs used to value its fixed rate debt fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its fixed rate debt utilize Level 3 inputs, such as estimates of current credit spreads.  As of June 30, 2016 and December 31, 2015, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its fixed rate debt and determined that the credit valuation adjustments are not significant to the overall valuation of its fixed rate debt.  Accordingly, all derivatives have been classified as Level 2 fair value measurements.

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 in Morgans Group, the Company’s operating company, owned by the Former Parent are presented as a noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $0.6 million and $0.6 million as of June 30, 2016 and December 31, 2015, 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 June 30, 2016, there were 75,446 membership units outstanding, each of which is exchangeable for a share of the Company’s common stock.

12

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance.  The new standard sets forth five prescribed steps to determine the timing and amount of revenue to be recognized to appropriately depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations”, which further clarifies the application of the standard depending on whether the entity is a principal or an agent. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which deferred the effectiveness of ASU No. 2014-09 to reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.  

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.

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 net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.  Vested LTIP Units (as defined in note 8) are considered participating securities and are included in the computation of basic earnings per common share pursuant to the two-class method.  Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period, plus other potentially 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.  In periods when the Company has net loss attributable to Morgans Hotel Group Co., the Yucaipa Warrants issued to the Yucaipa Investors, unvested restricted stock units, LTIP Units (as defined in note 8), and stock options are excluded from the diluted net loss per common share calculation, as there would be no effect on reported diluted net loss per common share, however in periods when the Company has net income attributable to Morgans Hotel Group Co., these same securities are included in the diluted net income per common share calculation to the extent they are considered dilutive.  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 June 30, 2016 and December 31, 2015, are not reflected in the computation of basic and diluted earnings per share, as the income allocable to such membership units is allocated and reflected as noncontrolling interests in the accompanying consolidated financial statements.

13

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.

	ThreeMonths Ended March 31, 2016			Three Months Ended March 31, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Numerator:
Net loss	$	(5,822	)	$	(6,654	)	$	(14,744	)	$	(19,492	)
Net loss attributable to noncontrolling    interest		12			13			30			27
Net loss attributable to Morgans Hotel    Group Co.		(5,810	)		(6,641	)		(14,714	)		(19,465	)
Less: preferred stock dividends and accretion		4,659			4,075			9,126			7,985
Net loss attributable to common stockholders	$	(10,469	)	$	(10,716	)	$	(23,840	)	$	(27,450	)
Denominator:
Weighted average basic common shares    outstanding		34,813			34,492			34,776			34,440
Basic and diluted loss attributable to common    stockholders per common share	$	(0.30	)	$	(0.31	)	$	(0.69	)	$	(0.80	)

4. Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures was $0.1 million and $0.1 million as of June 30, 2016 and December 31, 2015, respectively.  The Company’s income from unconsolidated joint ventures was immaterial for the three and six months ended June 30, 2016 and 2015.   The Company recorded a $3.9 million impairment charge related to its investment in Mondrian Istanbul during the six months ended June 30, 2015, discussed below.  

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 operated Mondrian South Beach under a long-term management contract until June 8, 2016, discussed further below.   The Company accounted for its investment in Mondrian South Beach using the equity method of accounting.

On June 8, 2016, the Mondrian South Beach joint venture entered into a purchase and sale agreement to sell its interest in Mondrian South Beach.  Pursuant to the terms and conditions of the purchase and sale agreement, the buyer paid the joint venture a cash purchase price sufficient for the joint venture to extinguish its outstanding mortgage and mezzanine loans, plus accrued interest, in full at a negotiated discount, and the buyer assumed certain liabilities of Mondrian South Beach.  As a result of the debt extinguishment, the Company was released from the condominium purchase guarantee of up to $14.0 million and the construction completion guarantee. 

As part of this transaction, on June 8, 2016, the Company and the Mondrian South Beach joint venture mutually terminated their existing management agreement for Mondrian South Beach and the Company entered into a license agreement with the buyer to allow the hotel to remain under the Mondrian brand.  The license agreement grants the buyer a limited, non-exclusive right to use the Mondrian brand and other specified intellectual property of the Company, subject to certain termination rights, in exchange for a license fee that varies with Mondrian South Beach’s monthly gross revenue for the term of the license agreementbut is subject to a minimum annual fee payable to the Company.  

As a result of the sale of Mondrian South Beach, effective June 8, 2016, the Company no longer held any ownership interest in the Mondrian South Beach real estate.   The joint venture has been funded with retained cash to fund known liabilities relating to the joint venture.  As of June 30, 2016, the Company is not aware of any events that would require the Company to recognize a liability related to the wind down of the Mondrian South Beach joint venture.      

14

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire property and develop a Mondrian hotel on that property in the SoHo neighborhood of New York City.  The Company had a 20% equity interest in the joint venture.  Under the terms of the hotel management agreement executed between the Company and the joint venture in June 2007, the Company had 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 Company accounted for its investment in Mondrian SoHo using the equity method of accounting.  

The joint venture obtained a loan to acquire the hotel property and develop the hotel, which matured in June 2010 and was extended several times.  In November 2012, the joint venture did not meet the necessary extension options and a foreclosure judgment was issued on November 25, 2014.  The foreclosure sale was held on January 7, 2015, at which German American Capital Corporation (“GACC”), the lender, was the sole and winning bidder.  GACC assigned its bid to 9 Crosby LLC, an affiliate of The Sapir Organization (“Sapir”), a New York-based real estate development and management organization.  The sale of the hotel property to Sapir closed on March 6, 2015.  As a result, effective March 6, 2015, the Company no longer held any equity interest in Mondrian SoHo.  Effective April 27, 2015, the Company no longer managed Mondrian SoHo.  

Mondrian Istanbul

In December 2011, the Company entered into a hotel management agreement for a 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 had a 20% ownership interest in the joint venture owning the hotel.

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 would have required the Company’s joint venture partner to buy back the Company’s equity interests in the Mondrian Istanbul joint venture.   In early 2015, as a result of settlement discussions, the Company determined that this investment was other-than-temporarily impaired and recorded a $3.9 million impairment charge for the three months ended March 31, 2015.   Subsequently, on June 26, 2015, the Company and its Mondrian Istanbul joint venture partner (and related parties) entered into a settlement agreement, which terminated all legal proceedings between the parties.  Pursuant to the settlement agreement, in September 2015, the Company received $6.5 million in exchange for the Company’s equity interest in the joint venture.  

5. Other Liabilities

As of June 30, 2016 and December 31, 2015, other liabilities included $13.9 million 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 and amortized over the five-year estimated life of the related design elements.

15

6. Debt and Capital Lease Obligations

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

Description	Principal as of June 30, 2016		Unamortized Debt Issuance Costs as of June 30, 2016			Net Debt as of June 30, 2016		Interest rate at June 30, 2016
Hudson/Delano Mortgage (a)	$	421,803	$	(34	)	$	421,769	5.94% (LIBOR cap+ 5.65%)
Clift debt (b)		96,223		(46	)		96,177	9.60%
Liability to subsidiary trust (c)		50,100		(2,931	)		47,169	8.68%
Restaurant Lease Note (d)		4,282		-			4,282	(d)
Capital lease obligations (e)		6,104		-			6,104	(e)
Debt and capital lease obligation	$	578,512	$	(3,011	)	$	575,501

Deferred financing costs are amortized, using the straight line method, which approximates the effective interest rate method, over the terms of the related debt agreements.

(a) Hudson/Delano 2014 Mortgage Loan

On February 6, 2014, subsidiaries of the Company entered into a 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 repay the outstanding mortgage debt under the prior mortgage loan secured by Hudson, repay outstanding indebtedness under the Company’s senior secured revolving credit facility secured by Delano South Beach (the “Delano Credit Facility”), and fund reserves required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital.  

The Hudson/Delano 2014 Mortgage Loan was scheduled to mature on February 9, 2016.  On that date, the Company paid $28.2millionto reduce the principal balance by the same amountand extend the maturity of this debt until February 9, 2017.  Following the extension, the Company has two additional 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 achievement by the Company of a trailing twelve month debt yield of no less than 7.75% for the first extension and no less than 8.00% for the second extension.  The Company may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield.  The second and third extensions would also require the payment of an extension fee equal to 0.25% of the then outstanding principal amount under the Hudson/Delano 2014 Mortgage Loan.  Based on the Company’s trailing 12 month cash flow through June 30, 2016, the Company estimates that it would be required to prepay approximately $58.4 million of outstanding debt under the Hudson/Delano 2014 Mortgage Loan by February 9, 2017 and pay an approximately $1.0 million extension fee in order to extend the maturity date of the debt outstanding under the Hudson/Delano 2014 Mortgage Loan to February 9, 2018.

The Hudson/Delano 2014 Mortgage Loan bears interest at a blended rate of 30-day LIBOR plus 565 basis points.  The Company maintained interest rate caps for the $450.0 million principal amount of the Hudson/Delano 2014 Mortgage Loan that capped the LIBOR rate on the debt under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the February 9, 2016.  In connection with the extension in February 2016, the Company purchased three interest rate caps with an aggregate notional value of $421.8 million that cap LIBOR at 0.29% through the next maturity date of the loan.  

The Hudson/Delano 2014 Mortgage Loan provides that 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.  In the event the debt yield ratio falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  As of June 30, 2016, the Company’s debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach.  Such retained cash will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  

The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part.  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.

16

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 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 prohibits the payment of dividends on or repurchase of the Company’s common stock.  As of June 30, 2016, the Company was in compliance with these covenants.

(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 provided for base annual rent of approximately $6.0 million per year until October 2014.  Base rent increases by a formula tied to increases in the Consumer Price Index, with 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 contractual rate 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 June 30, 2016, 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 Preferred Notes”) which mature on October 30, 2036.  The sole assets of the Trust consist of the Trust Preferred Notes.  The terms of the Trust Preferred Notes are substantially the same as preferred securities issued by the Trust.  The Trust Preferred 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 Preferred Notes are redeemable by the Trust, at the Company’s option, at par, and the Company has not redeemed any Trust Preferred Notes.  To the extent the Company redeems the Trust Preferred 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 Preferred Notes prior to their maturity or obtain the trustee’s consent in connection with such transfer.

(d) 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 June 30, 2016, the carrying amount of the Restaurant Lease Note was $4.3 million.

17

(e) 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 June 30, 2016 and December 31, 2015, respectively. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.  

7. Commitments and Contingencies

Hotel Development Related Commitments

In order to obtain management, franchise and license contracts, the Company may commit 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.  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.  As of June 30, 2016, the Company’s potential funding obligations under cash flow guarantees at hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum amount cannot be determined, was $5.0 million, which relates to Delano Cartagena where construction has not yet begun.   

The Company has signed management, license or franchise agreements for new hotels which are in various stages of development. As of June 30, 2016, these included the following:

	Expected Room Count	Anticipated Opening	Initial Term
Hotels Currently Under Construction or Renovation:
Mondrian Doha	270	2016	30 years
Delano Dubai	110	2017	20 years
Mondrian Dubai	235	2018	15 years
Other Signed Agreements:
Delano Aegean Sea	150		20 years
Delano Cartagena	211		20 years

There can be no assurance 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, in which case the Company may be unable to recover any previously funded key money, equity investments or debt financing.  

Owned Hotel Commitments

The Company may have long-term commitments that are expected to be incurred by the Company or its consolidated consisting of targeted renovations at the Company’s Owned Hotels and other non-recurring capital expenditures that need to be made periodically with respect to its properties, including a renovation of the façade of Hudson as required by Applicable Law, which must be completed by April 2018, costing an estimated $6.0 million, which the Company intends to fund through amounts in restricted cash and additional funds to be provided by the Company.

18

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.  Historically, the Company has funded the shortfall and as of June 30, 2016, approximately $0.4 million was accrued as a reduction to management fees related to these performance test provisions.  Until the end of 2016 and so long as the Company funds the shortfalls, the hotel owners do not have the right to terminate the Company as hotel manager.  The Company’s maximum potential amount of future fundings related to the Royalton and Morgans performance guarantee cannot be determined as of June 30, 2016, but under the hotel management agreements is limited to the Company’s base fees earned.  On January 28, 2016, the Company entered into amendments to each of the hotel management agreements relating to Royalton and Morgans, both owned by the same hotel owner.  In connection with owner’s potential sale of each of those hotels, the Company agreed to allow the owner to sell the hotels unencumbered by the current hotel management agreements.  Under each of the amendments, the owner has the right to terminate the hotel management agreements at any time upon at least 30 days’ prior written notice in exchange for paying us $3.5 million for each of the hotels upon a termination of each agreement.  The Company expects to continue to manage the hotels until they are sold.

Additionally, the Company is currently subject to performance tests under certain other of its hotel management agreements, which could result in early termination of the Company’s hotel management agreements.   As of June 30, 2016, the Company is in compliance with these termination performance tests and is not exercising any contractual cure rights.  Generally, the performance tests are two part tests based on achievement of budget or cash flow and revenue per available room indices.  In addition, once the performance test period begins, which is generally multiple years after a hotel opens, each of these performance tests must fail for two or more consecutive years and the Company has the right to cure any performance failures, subject to certain limitations.  

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 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 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.  On April 9, 2015, the Appellate Division, First Department, reversed the trial court’s decision, denying the motion to dismiss and remanding to the trial court for further proceedings.  The Company filed a motion for reconsideration at the appellate court, which was denied on July 7, 2015.  The Company filed its answer to the complaint with the trial court on May 11, 2015.  On August 27, 2015, Messrs.  Sasson and Masi filed a motion for partial summary judgment with the trial court and the Company filed its opposition to that motion on October 12, 2015.  In February 2016, the plaintiff’s partial summary judgment motion was granted and the judge signed the order in March 2016.  

On July 6, 2016, a judgment was entered in the Supreme Court of the State of New York.  At that time, the Company posted a bond in the amount of approximately $3.0 million, thereby staying enforcement of the judgment pending the Company’s appeal. Plaintiffs also have a claim for attorneys’ fees, which they have recently estimated to total approximately $1.0 million, which the Company intends to dispute and oppose. Although the TLG Promissory Notes were repaid and retired in December 2014, this lawsuit remains pending in connection with issues related primarily to the interest rates applicable to the TLG Promissory Notes.  

19

Litigation Regarding Pending Acquisition of Company by SBEEG Holdings LLC

Following the announcementof theexecution ofthe definitive agreement under which the Company would be acquired by SBE, as discussed further in footnote 13, four putative classaction lawsuits werefiled by purported stockholders of the Company challenging the merger and themerger agreement.

The first complaint was filed inthe Supreme Court of New York, NewYork County on May 27, 2016 (the “New York Action”).  On June 15, 2016, the plaintiff in the NewYork Action filed a noticeof voluntary discontinuance without prejudice,thereby voluntarily discontinuing theNew York Action.

Theother threecomplaintswere filed in the Court ofChancery oftheStateof Delaware.On June 29, 2016, the Court of Chancery of the State ofDelawareenteredanorder,among other things, consolidating the three actionsfiled in Delaware (the “Consolidated Action”) and appointing co-lead counsel and Delaware counsel intheConsolidatedAction.

On June 30, 2016, plaintiffs in the Consolidated Action filed a Verified Consolidated Amended Class Action Complaint (the “Complaint”).  The Complaint names as defendants the individual members of our Board of Directors, SBE,Merger Sub, Ronald W. Burkle, The Yucaipa Companies, LLC, Yucaipa AmericanAlliance Fund II, L.P., Yucaipa American Alliance (Parallel) Fund II, L.P., Yucaipa American Alliance Fund II, LLC, Yucaipa American Funds, LLC, and YucaipaAmerican Management, LLC.  The Complaint alleges, among other things, thatthe members of the Company’s Board of Directors breached their fiduciary duties to the Company’s stockholders by approving the merger and authorizing the Company to enter into the merger agreement, that Mr. Burkle and the Yucaipa entities are controlling stockholders of the Company and breached their purported fiduciary duties, and that SBE and MergerSub aided and abetted these alleged fiduciary breaches.  The Complaint further alleges that, among other things, Mr. Burkle and the Yucaipaentities pressured the Company into entering into the merger agreement and approving the mergerand frustrated the Company’s efforts to explore other potential strategic alternatives;that the merger consideration is financially inadequate; that the sales process leading up tothe merger and the merger agreement was flawed; and that the deal-protection provisions in themerger agreement are unduly preclusive and therefore prevent a potential topping bidder or topping bidders from making a superior proposal.  The Complaint seeks, among other things, certification of the proposed class, preliminary and permanent injunctive relief (including enjoining orrescinding themerger), unspecified damages, and an award of other unspecified attorneys’ and other fees and costs.

The Company believes that the claims asserted in the Complaint are without merit and intend to defend against them. However, a

negative outcomein these lawsuits,or any follow-on lawsuit,could havea significant impact on the Company ifthey result in preliminary orpermanentinjunctive relief ordamages.  The Companyisnot currentlyableto predict the outcome of the litigation or any follow-up lawsuit with any certainty.

Environmental

As a holder of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance by the Company with existing laws has not had an adverse effect on the Company and management does not believe that it will have a material adverse impact in the future. However, the Company cannot predict the impact of new or changed laws or regulations.

Other Litigation

The Company is involved in various lawsuits and administrative actions in the normal course of business, in addition to the other litigation noted above.  The Company has recorded the necessary accrual for contingent liabilities related to outstanding litigations.

8. Omnibus Stock Incentive Plan

On May 22, 2007, the Company adopted the Morgans Hotel Group Co. 2007 Omnibus Stock Incentive Plan.  Subsequently and on several occasions, the Company’s Board of Directors adopted, and stockholders approved, amendments to the 2007 Omnibus Stock Incentive Plan (the “Stock Plan”), to namely increase the number of shares reserved for issuance under the plan.  As of June 30, 2016, 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.  

20

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 May 17, 2016, the Company issued an aggregate of 330,183 RSUs to seven non-employee directors under the Stock Plan for their annual retainer for the 2016-2017 Board of Directors term. These grants become 100% vested on May 12, 2017, 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 June 30, 2016 is as follows (in units, or shares, as applicable):  

	Restricted Stock Units			LTIP Units		Stock Options
Outstanding as of January 1, 2016		220,799			913,423		248,315
Granted during 2016		330,183			—		—
Distributed/exercised during 2016		(152,283	)		—		—
Forfeited or cancelled during 2016		(62,757	)		—		(45,600	)
Outstanding as of June 30, 2016		335,942			913,423		202,715
Vested as of June 30, 2016		—			913,423		202,715

Total stock compensation expense, which is included in corporate expenses on the accompanying consolidated statements of comprehensive loss, was $0.2 million, $0.6 million, $0.3 million, and $0.9 million, for the three and six months ended June 30, 2016 and 2015, respectively.

As of June 30, 2016 and December 31, 2015, there were approximately $0.6 million and $0.7 million, respectively, of total unrecognized compensation costs related to unvested share awards. As of June 30, 2016, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately less than one year.

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 had an 8% dividend rate through October 15, 2014 and have a 10% dividend rate until October 15, 2016 and a 20% dividend rate thereafter.  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 June 30, 2016, the Company had undeclared and unpaid dividends of approximately $62.5 million.  The Company has the option to redeem any or all of the Series A preferred securities at par, plus cumulative unpaid dividends, 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.

For so long as the Yucaipa Investors own a majority of the outstanding Series A preferred securities under the terms of the certificate of designations governing the Series A preferred securities, they also have certain consent rights, subject to certain exceptions and limitations, over certain transactions involving the acquisition of the Company by any third party, other than as the result of the disposition of our real estate assets where we continue to engage in the business of managing hotel properties and other real estate, pursuant to which the Series A preferred securities are converted or otherwise reclassified into or exchanged for securities of another entity, and certain other transactions where a vote of the holders of the Series A preferred securities is required by law or the Company’s certificate of incorporation.  

21

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.

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.  A Yucaipa Investors’ nominee currently sits on the Company’s Board of Directors.  Accordingly, the current annual dividend rate on the Series A preferred securities until October 2016 is 10%.    

Under the terms of the Securities Purchase Agreement, the Yucaipa Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase, assuming cashless 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, other than as the result of the disposition of our real estate assets where the Company continues to engage in the business of managing hotel properties and other real property assets; 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.

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 June 30, 2016, the value of the preferred securities was $73.5 million, which includes cumulative accretion of $25.4 million.

See note 13 for additional information pertaining to the Series A preferred securities and the Yucaipa Warrants.

10. Related Party Transactions

The Company earned management fees, chain services reimbursements and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures.  These fees totaled approximately $0.3 million and $0.5 million for the three months ended June 30, 2016 and 2015, respectively, and $0.9 million and $1.3 million for the six months ended June 30, 2016 and 2015, respectively.

As of December 31, 2015, the Company had receivables from these affiliates of approximately $0.4 million, which is included in related party receivables on the accompanying consolidated balance sheet.  The Company’s receivables from affiliates as of June 30, 2016 were immaterial.  

11. Other Expenses

Restructuring and development costs

Restructuring 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, the Board of Directors’ strategic alterative review process costs, proxy contests, and gains and losses on asset disposals as part of major renovation projects.  Development 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

22

the development of new hotels, and the write-off of abandoned development projects previously capitalized. Restructuring and development costs consist of the following (in thousands):

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015		Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Restructuring costs	$	3,127		$	210	$	3,706		$	505
Severance costs		71			383		76			2,043
Development		63			457		173			605
Other		(666	)		-		(661	)		(6	)
	$	2,595		$	1,050	$	3,294		$	3,147

Other non-operating expenses

Other non-operating expenses primarily relate to costs associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, miscellaneous litigation and settlement costs and other expenses that relate to the financing and investing activities of the Company.  Other non-operating expenses consist of the following (in thousands):

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Litigation costs		269		1,437		703		2,719
Other		32		115		141		488
	$	301	$	1,552	$	844	$	3,207

12. Deferred Gain on Asset Sales

Deferred Gain

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 were $2.0 million and $2.0 million for the three months ended June 30, 2016 and 2015, respectively, and $4.0 million and $4.0 million for the six months ended June 30, 2016 and 2015, respectively.

Gain on Sale of TLG Equity Interest

On January 23, 2015, the Company completed the TLG Equity Sale, as discussed in note 1, and received proceeds of $32.8 million, net of closing costs.  In accordance with ASC 360-20, the Company recognized a gain of $1.8 million on the sale of its interest in TLG during the six months ended June 30, 2015.  The operating results of TLG’s operations from January 1, 2015 to January 22, 2015 was not significant.  

13. Pending Acquisition by SBEEG Holdings, LLC  

On May 9, 2016, the Company entered into a definitive agreement under which the Company will be acquired by SBEEG Holdings, LLC (“SBE”), a leading global lifestyle hospitality company.  Under the terms of the merger agreement, SBE will acquire all of the outstanding shares of the Company’s common stock for $2.25 per share in cash.  As part of the transaction, affiliates of the Yucaipa Investors will exchange their $75.0 million in Series A preferred securities, accrued preferred dividends, and warrants for $75.0 million in preferred shares and an interest in the common equity in the acquirer and, following the closing, the leasehold interests in three restaurants in Las Vegas currently held by the Company.  The transaction, which was approved by the Company’s

23

Board of Directors, is expected to close in the third or fourth quarter, and is subject to regulatory approvals, the assumption or refinancing of the Company’s mortgage loan agreements, and customary closing conditions, including approval of the transaction by the Company’s stockholders. The Company’s stockholders representing approximately 29% of the Company’s outstanding shares of common stock have signed voting agreements in support of this transaction, including OTK Associates, Pine River Capital Management and Vector Group Ltd.  An affiliate of the Yucaipa Investors has also signed a voting agreement in respect of its Series A preferred securities and consented to the transaction for purposes of certain provisions of the Securities Purchase Agreement between the Yucaipa Investors and the Company.  

24

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, 2015.

Recent Developments

On May 9, 2016, we entered into a definitive agreement under which the Company will be acquired by SBEEG Holdings, LLC (“SBE”), a leading global lifestyle hospitality company.  Under the terms of the agreement, SBE will acquire all of the outstanding shares of the Company’s common stock for $2.25 per share in cash.  As part of the transaction, an affiliate of The Yucaipa Companies (the “Yucaipa Investors”) will exchange its $75.0 million of Series A preferred securities, accrued preferred dividends, and warrants for $75.0 million in preferred shares and an interest in the common equity in the acquirer and, following the closing, the leasehold interests in three restaurants in Las Vegas currently held by us.  The transaction, which was approved by our Board of Directors, is expected to close in the third or fourth quarter, and is subject to regulatory approvals, the assumption or refinancing of our mortgage loan agreements, and customary closing conditions, including approval of the transaction by our stockholders.  The Company’s stockholders representing approximately 29% of its outstanding shares of common stock have signed voting agreements in support of this transaction, including OTK Associates, Pine River Capital Management and Vector Group Ltd.  An affiliate of the Yucaipa Investors has also signed a voting agreement in respect of its Series A preferred securities and consented to the transaction for purposes of certain provisions of the Securities Purchase Agreement between the Yucaipa Investors and the Company.  The foregoing description of the definitive acquisition agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety, by the full text of such agreement attached as an exhibit to the Current Report on Form 8-K filed with the SEC on May 10, 2016.  

SBE has obtained commitments to finance the transaction through a combination of proceeds from the sale of new preferred equity in the newly-formed company to a third-party investor, liquidity from the refinancing of its existing term loans and a new revolver.

Overview

Morgans Hotel Group Co. is a fully integrated lifestyle hospitality company that operates, owns, acquires, and develops boutique hotels, primarily in gateway cities and select resort markets in the United States, Europe and other international locations.  

The historical financial data presented as of June 30, 2016 herein is the historical financial data for:

· our three Owned Hotels, consisting, as of June 30, 2016, 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), comprising approximately 1,450 rooms, and the food and beverage operations located at these hotels;

· our Owned F&B Operations, consisting, as of June 30, 2016, of leasehold interests in the food and beverage operations located at Mandalay Bay in Las Vegas;

· our seven Managed Hotels, consisting, as of June 30, 2016, of Royalton and Morgans in New York, Shore Club in Miami Beach, Mondrian in Los Angeles, and Sanderson, St Martins Lane, and Mondrian London in London, comprising approximately 1,540 rooms; and

· our two licensed hotels, consisting, as of June 30, 2016, of Delano Las Vegas, comprising 1,117 rooms, and Mondrian South Beach, comprising 219 rooms, and our franchised hotel, 10 Karaköy, in Istanbul, comprising 71 rooms.

On June 8, 2016, the Mondrian South Beach joint venture, of which we owned a 50% interest, entered into a purchase and sale agreement to sell its interest in Mondrian South Beach.  Pursuant to the terms and conditions of the purchase and sale agreement, the buyer paid the joint venture a cash purchase price sufficient for the joint venture to extinguish its outstanding mortgage and mezzanine loans, plus accrued interest, in full at a negotiated discount, and the buyer assumed certain liabilities of Mondrian South Beach.  As a result of the debt extinguishment, the Company was released from the condominium purchase guarantee of up to $14.0 million and the construction completion guarantee.  As part of this transaction, on June 8, 2016, the Company and the Mondrian South Beach joint

25

venture mutually terminated the existing management agreement for Mondrian South Beach and we entered into a license agreement with the buyer to allow the hotel to remain under the Mondrian brand.  The license agreement grants the buyer a limited, non-exclusive right to use the Mondrian brand and other specified intellectual property of the Company, subject to certain termination rights, in exchange for a license fee that varies with Mondrian South Beach’s monthly gross revenue for the term of the license agreementbut is subject to a minimum annual fee payable to us.  

Effective June 1, 2016, we transferred all of our ownership interest in the food and beverage venues at Sanderson to the hotel owner.  We will continue to manage the transferred food and beverage venues.  Prior to June 1, 2016, we leased and managed the Sanderson food and beverage venues, which were included in our consolidated financial statements.  

Effective January 23, 2015, we sold our 90% equity interest in The Light Group (“TLG”) to Hakkasan Holdings LLC (“Hakkasan”) (the “TLG Equity Sale”) for $32.8 million, net of closing costs.  

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.  For example, on January 28, 2016, we entered into amendments to each of the hotel management agreements relating to Royalton and Morgans, with the owner of these hotels.  In connection with the hotel owners potential sale of those hotels, we agreed to allow the owner to sell the hotels unencumbered by the current hotel management agreements.  Under each of the amendments, the owner has the right to terminate the hotel management agreements at any time upon at least 30 days’ prior written notice in exchange for paying us $3.5 million for each of the hotels, or $7.0 million in total, upon a termination of each agreement.  We expect to continue to manage the hotels until they are sold.

Certain of our hotel management agreements and franchise or license agreements contain performance tests that stipulate certain minimum levels of operating performance, which could result in early termination of our hotel management, license or franchise agreements, once the performance test period begins, which is generally multiple years after a hotel opens.  As of June 30, 2016, we are in compliance with these termination performance tests and are not exercising any contractual cure rights.  We may disagree with hotel owners on how the performance criteria are calculated or 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.  

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.  

Operating Performance Indicators

We evaluate the operating performance of our business using a variety of operating and other information that includes financial information prepared in accordance with U.S. GAAP such as total revenues, operating income (loss), net income (loss), as well as non-GAAP financial information.  In addition, we use other information that may not be financial in nature, including statistical information and comparative data.  We use this information to measure the performance of individual hotels, groups of hotels, and/or our business as a whole.  Key operating performance indicators commonly used by us, and throughout the hospitality industry, to analyze changes in hotel revenues include:

· 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.

26

These revenue performance indicators are affected by numerous factors, which are discussed in more detail below in “Factors Affecting our Results of Operations.”  

If we are unable to compete effectively, we would lose market share, which could adversely affect our revenues.  As such, another key performance indicator we use to evaluate our hotels’ operating performance as compared to our competitors is by analyzing each hotel’s RevPAR index, which is a comparison of a hotel’s RevPAR as compared it each hotel’s respective competitive set.  We rely on industry publications and data, namely as provided by Smith Travel Research, to perform this RevPAR index analysis.  

In addition to the above metrics we use to evaluate our business, we evaluate our operating results using certain non-GAAP financial measures, namely EBITDA and Adjusted EBITDA.  

Factors Affecting Our Results of Operations

Revenues.  As mentioned above, changes in our hotel revenues are most easily explained by changes in occupancy, ADR, and RevPAR.  Specifically, our revenues are derived from the operation of hotels, as well as the operation of our food and beverage 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.  We record revenue related to the food and beverage venues at our Owned Hotels and our Owned F&B Operations.

· Other hotel revenue.  Other hotel revenue, which consists of ancillary revenue such as telephone, internet, parking, spa, resort fees, facilities fees, 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 and incentive fees, as well as reimbursement for allocated chain services.  We also earn hotel license fees under our hotel franchise and license agreements.  Additionally, prior to January 23, 2015, we owned a 90% controlling investment in TLG, which operates numerous venues primarily in Las Vegas pursuant to management agreements primarily with various MGM affiliates.  Each of TLG’s venues was managed by an affiliate of TLG, which received fees under a management agreement for the venue.  Through our prior ownership of TLG, we recognized management fees in accordance with the applicable management agreement, which generally provided 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.

Fluctuations in revenues, which tend to correlate with changes the gross domestic product (“GDP”), are driven largely by general economic and local economic 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.  Renovations at our hotels can have a significant impact on our revenues.

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 can affect revenues.  Competitive factors in the hospitality industry include name recognition, pricing, quality of service, convenience of location, quality of the property or venue, and range and quality of nightlife, food and beverage services and amenities offered.  We also compete with other operators, including major hospitality chains with well-established and recognized brands as well as private short-term room and accommodation rentals.  Our competitors generally also have more established and broader reaching guest loyalty programs which may enable them to attract more customers and more effectively retain such guests.  In addition, all of our hotels, restaurants, nightclubs and bars are located in areas where there are numerous competitors, many of whom have substantially greater financial and marketing 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, bars, and other food and beverage venues compete, thereby posing a greater competitive threat than at present.

27

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 management company, costs to operate TLG prior to the TLG Equity Sale, 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, bars and other food and beverage venues with our local customers, 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, internet, parking, spa, resort fees, facilities fees, entertainment 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, prior to the TLG Equity Sale on January 23, 2015, 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.

· 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 on our other assets, such as the three restaurant leases in Las Vegas that we purchased in August 2012.  Prior to the TLG Equity Sale, we recorded amortization expense related to the TLG management contracts.  

· Restructuring and development costs.  Restructuring costsinclude 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, the Board of Directors’ strategic alternative review process costs, including costs related to the proposed acquisition of the Company by SBE, proxy contest costs and gains or losses on asset disposals as part of major renovation projects or restructuring. Development costsinclude 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 hotels and the development of new hotels, and the write-off of abandoned development projects previously capitalized.

· Loss on receivables and other assets from unconsolidated joint ventures and managed hotels includes impairment costs incurred related to receivables deemed uncollectible from unconsolidated joint ventures and managed hotels and other assets related to unconsolidated joint ventures and managed hotels which have been deemed to have no value.

Other Items.  Other expenses we incur include:

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

· Impairment loss and equity in (income) loss of unconsolidated joint ventures.  Impairment loss and equity in (income) loss of unconsolidated joint ventures includes impairment losses recorded on our current and former investments in unconsolidated joint ventures, our share of the net profits and losses of former joint venture hotels and food and beverage operations, and our investments in former hotels under development in which we had an equity interest.  We review our investments in unconsolidated joint ventures for other-than-temporary impairment when triggering events occur.

· Impairment loss on intangible asset.  We recorded an impairment loss on goodwill during the first quarter of 2016 related to the then-pending transfer of our ownership interest in the food and beverage venues at Sanderson to the hotel owner effective June 1, 2016.  

28

· 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.  Additionally, we recorded a gain in 2015 related to the TLG Equity Sale which was recognized immediately through earnings, as discussed in note 12 of our consolidated financial statements. 

· Other non-operating expenses.  Other non-operating expenses include costs associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, miscellaneous litigation and settlement costs and income, 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 six months ended June 30, 2016 and 2015 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 was held by certain prior owners of TLG, which was eliminated upon completion of the TLG Equity Sale.  

· 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.

Notwithstanding our efforts to reduce variable costs, there are limits to how much we can reduce total costs 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.

Operating Results and Recent Trends

The performance of the lodging industry is highly cyclical and has traditionally been closely linked with the performance of the general economy and, specifically, growth in the U.S. GDP, employment, and investment and travel demand.  During 2015 and into 2016, the U.S. experienced modest GDP growth, however increased supply in our major markets, discussed below, impacted our hotels’ occupancy and constrained our rate growth during 2015 and the first half of 2016.  Further, the impact of the strong U.S. dollar and a weak global economy, specifically in Europe and China, has impacted, and may continue to impact, our hotels in New York City, Miami and London, where we are particularly dependent on international tourists.

The pace of new lodging supply, especially in New York City and Miami, has increased over the past several years and we expect that these trends will continue throughout 2016 as the new supply in these markets is absorbed.  In these markets, the new lodging supply impacted our hotels’ occupancy and constrained rate growth during the first half of 2016.  

Additionally, we believe the rising popularity of alternative lodging companies, such as privately-owned residential properties, including homes and condominiums that can be rented on a nightly, weekly or monthly, have had an impact on our business and operations, as travelers have opted to stay at these privately placed accommodations rather than at our hotels, especially in larger cities, such as New York City, where we have a high concentration of hotel rooms.  We believe that this trend will continue throughout 2016 and may have a more meaningful impact in other domestic and international markets in which we are located.

RevPAR at System-Wide Comparable Hotels, which includes all Morgans Hotel Group branded hotels operated by us, except for hotels added or under major renovation during the current period or the prior year period, development projects and hotels no longer managed by us, decreased by 1.5% in constant dollars (2.8% in actual dollars) in the second quarter of 2016 as compared to the

29

same period in 2015, due to a decrease of 2.4% in constant dollars (3.8% in actual dollars) in ADR offset by a 1.0% increase in occupancy.  

RevPAR from System-Wide Comparable Hotels in New York decreased 4.6% in the second quarter of June 30, 2016 as compared to the same period in 2015, due to a 5.0% decrease in ADR slightly offset by a 0.4% increase in occupancy.  RevPAR at Hudson decreased 4.9% during the second quarter of 2016 as compared to the same period in 2015, driven primarily by a 5.4% ADR decrease primarily due to new supply in New York City.      

Delano South Beach experienced a RevPAR decrease of 12.2% during the second quarter of 2016 as compared to the same period in 2015, due to a 13.8% decrease in ADR, which was primarily the result of new supply in South Beach.  

Clift’s RevPAR increased 5.8% in the second quarter of 2016 as compared to the second quarter of 2015, due to a 3.0% increase in occupancy and a 2.7% increase in ADR.    

RevPAR from System-Wide Comparable Hotels in London, which is comprised of Sanderson and Mondrian London, increased 2.7% in constant dollars during the second quarter of 2016 as compared to the same period in 2015, due to a 1.7% increase in ADR and a 1.0% increase in occupancy.  

30

Comparison of Three Months Ended June 30, 2016 to Three Months Ended June 30, 2015

The following table presents our operating results for the three months ended June 30, 2016 and 2015, including the amount and percentage change in these results between the two periods. The consolidated operating results are as follows:

	Three Months Ended
	June 30, 2016			June 30, 2015			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	29,929		$	30,991		$	(1,062	)		(3.4	)%
Food and beverage		17,544			19,674			(2,130	)		(10.8	)%
Other hotel		2,415			2,037			378			18.6	%
Total hotel revenues		49,888			52,702			(2,814	)		(5.3	)%
Management fee-related parties and other income		2,973			3,508			(535	)		(15.3	)%
Total revenues		52,861			56,210			(3,349	)		(6.0	)%
Operating Costs and Expenses:
Rooms		9,849			9,414			435			4.6	%
Food and beverage		12,583			13,883			(1,300	)		(9.4	)%
Other departmental		1,119			1,068			51			4.8	%
Hotel selling, general and administrative		9,379			10,418			(1,039	)		(10.0	)%
Property taxes, insurance and other		4,108			4,411			(303	)		(6.9	)%
Total hotel operating expenses		37,038			39,194			(2,156	)		(5.5	)%
Corporate expenses, including stock compensation		4,785			4,919			(134	)		(2.7	)%
Depreciation and amortization		5,578			5,563			15			0.3	%
Restructuring and development costs		2,595			1,050			1,545			147.1	%
Loss on receivable from unconsolidated joint venture		—			550			(550	)		(100.0	)%
Total operating costs and expenses		49,996			51,276			(1,280	)		(2.5	)%
Operating income		2,865			4,934			(2,069	)		(41.9	)%
Interest expense, net		10,260			11,955			(1,695	)		(14.2	)%
Impairment loss and equity in income of investment in    unconsolidated joint venture		(2	)		(2	)		—			(—	)%
Gain on asset sales		(2,005	)		(2,086	)		81			(3.9	)%
Other non-operating expense		301			1,552			(1,251	)		(80.6	)%
Loss before income tax expense		(5,689	)		(6,485	)		796			(12.3	)%
Income tax expense		133			169			(36	)		(21.3	)%
Net loss		(5,822	)		(6,654	)		832			(12.5	)%
Net loss attributable to non controlling interest		12			13			(1	)		(7.7	)%
Net loss attributable to Morgans Hotel Group Co.		(5,810	)		(6,641	)		831			(12.5	)%
Preferred stock dividends and accretion		(4,659	)		(4,075	)		(584	)		14.3	%
Net loss attributable to common stockholders	$	(10,469	)	$	(10,716	)	$	247			(2.3	)%

Total Hotel Revenues. Total hotel revenues decreased 5.3% to $49.9 million for the three months ended June 30, 2016 compared to $52.7 million for the three months ended June 30, 2015. This decrease was primarily due to decreased ADR at our Owned Hotels, discussed below.

Rooms revenue decreased 3.4% to $29.9 million for the three months ended June 30, 2016 compared to $31.0 million for the three months ended June 30, 2015. This decrease was primarily due to decreases in ADR at Hudson and Delano South Beach during the three months ended June 30, 2016 as compared to the same period in 2015, primarily due to increased competition from new supply in New York and Miami and the strong U.S. Dollar as compared to other currencies.

31

The components of RevPAR from our Owned Hotels, which consisted, as of June 30, 2016, of Hudson, Delano South Beach and Clift, for the three months ended June 30, 2016 and 2015 are summarized as follows:

	Three Months Ended
	June 30, 2016			June 30, 2015			Change ($)			Change (%)
Occupancy		91.9	%		90.8	%		—			1.2	%
ADR	$	248		$	260		$	(12	)		-4.7	%
RevPAR	$	228		$	236		$	(8	)		-3.5	%

Food and beverage revenue decreased 10.8% to $17.5 million for the three months ended June 30, 2016 compared to $19.7 million for the three months ended June 30, 2015. This decrease was primarily due to the transfer our ownership interest in the food and beverage venues at Sanderson to the hotel owner effective June 1, 2016 as discussed in footnote 1 of our consolidated financial statements.  Additionally, revenues at Delano South Beach and Hudson declined quarter over quarter due primarily to increased competition in Miami which negatively impacted the Delano South Beach’s nightclub, restaurants and bars, and at Hudson, the discontinuation of room service at Hudson effective July 2015 and the closure of a seasonal bar during the second quarter of 2016 which was opened during the same period in 2015.    

Other hotel revenue increased 18.6% to $2.4 million for the three months ended June 30, 2016 compared to $2.0 million for the three months ended June 30, 2015. This increase was primarily due to increased spa revenue at Delano South Beach as a result of Delano South Beach self-managing the hotel’s spa effective May 2015 as a result of the termination of an operating lease with a third-party.  Additionally, effective June 2016, the facility fee at Hudson was increased, which resulted in additional revenue recognized during the three months ended June 30, 2016 as compared to the same period in 2015.

Management Fee—Related Parties and Other Income. Management fee—related parties and other income decreased by 15.3% to $3.0 million for the three months ended June 30, 2016 compared to $3.5 million for the three months ended June 30, 2015. This decrease was primarily due to the termination of the Mondrian South Beach management agreement effective June 8, 2016 and the Mondrian SoHo management agreement effective April 27, 2015.  Excluding Mondrian South Beach and Mondrian SoHo, management fees decreased by $0.3 million, or 9.1%, due primarily to the declining operating results at Shore Club due to the effects of the shift in timing of the anticipated termination of our management agreement, which was initially scheduled to occur in the second quarter of 2016.  We currently continue to manage Shore Club and termination of our management agreement is currently anticipated to occur in the fourth quarter of 2016.    

Operating Costs and Expenses

Rooms expense increased 4.6% to $9.8 million for the three months ended June 30, 2016 compared to $9.4 million for the three months ended June 30, 2015.  This increase was due primarily to the 1.2% increase in occupancy at our Owned Hotels noted above, along with inflationary increases.

Food and beverage expense decreased 9.4% to $12.6 million for the three months ended June 30, 2016 compared to $13.9 million for the three months ended June 30, 2015. This decrease is primarily due to the transfer our ownership interest in the food and beverage venues at Sanderson to the hotel owner effective June 1, 2016, and a decrease in food and beverage expenses at Hudson, as a result of the elimination of room service, both discussed above.    

Other departmental expense was relatively flat at $1.1 million for each of the three month periods ended June 30, 2016 and 2015, respectively.    

Hotel selling, general and administrative expense decreased 10.0% to $9.4 million for the three months ended June 30, 2016 compared to $10.4 million for the three months ended June 30, 2015 primarily due to cost saving initiatives at our Owned Hotels.

Property taxes, insurance and other expense decreased 6.9% to $4.1 million for the three months ended June 30, 2016 compared to $4.4 million for the three months ended June 30, 2015.   This decrease was primarily due to the transfer of our ownership interest in the food and beverage venues at Sanderson to the hotel owner effective June 1, 2016, which reduced rent expense.

Corporate expenses, including stock compensation decreased 2.7% to $4.8 million for the three months ended June 30, 2016 compared to $4.9 million for the three months ended June 30, 2015. This decrease was primarily due vacant positions in the corporate office and a decline in stock compensation expense.  

32

Depreciation and amortization was relatively flat at $5.6 million for each of the three month periods ended June 30, 2016 and 2015, respectively.

Restructuring and development costs increased 147.1% to $2.6 million for the three months ended June 30, 2016 compared to $1.1 million for the three months ended June 30, 2015. This increase was primarily due to legal and advisory fees related to the potential acquisition of the Company by SBE.       

Interest expense, net decreased 14.2% to $10.3 million for the three months ended June 30, 2016 compared to $12.0 million for the three months ended June 30, 2015. This decrease was primarily due to the $28.2 million prepayment of outstanding debt under the Hudson/Delano 2014 Mortgage Loan in February 2016.    

Other non-operating expenses decreased 80.6% to $0.3 million for the three months ended June 30, 2016 as compared to $1.6 million for the three months ended June 30, 2015. This decrease was primarily due to legal costs incurred related to the Mondrian SoHo litigation, which settled in October 2015.  

Income tax expense was relatively flat at $0.1 million for the three months ended June 30, 2016 as compared to $0.2 million for the three months ended June 30, 2015.  

33

Comparison of Six Months Ended June 30, 2016 to Six Months Ended June 30, 2015

The following table presents our operating results for the six months ended June 30, 2016 and 2015, including the amount and percentage change in these results between the two periods. The consolidated operating results are as follows:

	Six Months Ended
	June 30, 2016			June 30, 2015			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	55,173		$	56,787		$	(1,614	)		(2.8	)%
Food and beverage		37,976			41,245			(3,269	)		(7.9	)%
Other hotel		4,613			3,968			645			16.3	%
Total hotel revenues		97,762			102,000			(4,238	)		(4.2	)%
Management fee-related parties and other    income		6,122			7,516			(1,394	)		(18.5	)%
Total revenues		103,884			109,516			(5,632	)		(5.1	)%
Operating Costs and Expenses:
Rooms		19,307			18,298			1,009			5.5	%
Food and beverage		26,427			28,560			(2,133	)		(7.5	)%
Other departmental		2,263			2,064			199			9.6	%
Hotel selling, general and administrative		19,530			20,570			(1,040	)		(5.1	)%
Property taxes, insurance and other		8,651			8,294			357			4.3	%
Total hotel operating expenses		76,178			77,786			(1,608	)		(2.1	)%
Corporate expenses, including stock compensation		9,048			10,947			(1,899	)		(17.3	)%
Depreciation and amortization		11,229			11,200			29			0.3	%
Restructuring and development costs		3,294			3,147			147			4.7	%
Loss on receivables from unconsolidated joint venture		-			550			(550	)	(1)
Total operating costs and expenses		99,749			103,630			(3,881	)		(3.7	)%
Operating income		4,135			5,886			(1,751	)		(29.7	)%
Interest expense, net		21,422			23,782			(2,360	)		(9.9	)%
Impairment loss and equity in income of investment in    unconsolidated joint venture		(4	)		3,888			(3,892	)	(1)
Impairment loss on intangible asset		366			-			366		(1)
Gain on asset sales		(4,010	)		(5,794	)		1,784			(30.8	)%
Other non-operating expenses		844			3,207			(2,363	)		(73.7	)%
Loss before income tax expense		(14,483	)		(19,197	)		4,714			(24.6	)%
Income tax expense		261			295			(34	)		(11.5	)%
Net loss		(14,744	)		(19,492	)		4,748			(24.4	)%
Net loss attributable to non controlling interest		30			27			3			11.1	%
Net loss attributable to Morgans Hotel Group Co.		(14,714	)		(19,465	)		4,751			(24.4	)%
Preferred stock dividends and accretion		(9,126	)		(7,985	)		(1,141	)		14.3	%
Net loss attributable to common stockholders	$	(23,840	)	$	(27,450	)	$	3,610			(13.2	)%

(1) Change not meaningful.  

Total Hotel Revenues. Total hotel revenues decreased 4.2%to $97.8 million for the six months ended June 30, 2016 compared to $102.0 million for the six months ended June 30, 2015. This decrease was primarily due to decreased ADR slightly offset by an increase in occupancy at our Owned Hotels, discussed below.

Rooms revenue decreased 2.8% to $55.2 million for the six months ended June 30, 2016 compared to $56.8 million for the six months ended June 30, 2015. This decrease was primarily due to decreases in ADR at Delano South Beach and Hudson during the six months ended June 30, 2016 as compared to the same period in 2015 primarily due to new supply in New York and Miami and the strong U.S. Dollar as compared to other currencies.

34

The components of RevPAR from our Owned Hotels, which consisted, as of June 30, 2016, of Hudson, Delano South Beach and Clift, for the six months ended June 30, 2016 and 2015 are summarized as follows:

	Six Months Ended
	June 30, 2016			June 30, 2015			Change ($)			Change (%)
Occupancy		86.8	%		85.3	%		—			1.8	%
ADR	$	242		$	255		$	(13	)		-5.1	%
RevPAR	$	210		$	217		$	(7	)		-3.4	%

Food and beverage revenuedecreased 7.9% to $38.0 million for the six months ended June 30, 2016 compared to $41.2 million for the six months ended June 30, 2015.  This decrease was primarily due to the transfer our ownership interest in the food and beverage venues at Sanderson to the hotel owner effective June 1, 2016 as discussed in footnote 1 of our consolidated financial statements.  Additionally, revenues at Delano South Beach and Hudson declined between the periods presented due primarily to increased competition in Miami, which negatively impacted the Delano South Beach’s nightclub, restaurants and bars, and the discontinuation of room service at Hudson effective July 2015.  

Other hotel revenue increased 16.3% to $4.6 million for the six months ended June 30, 2016 compared to $4.0 million for the six months ended June 30, 2015. This increase was primarily due to increased spa revenue at Delano South Beach as a result of Delano South Beach self-managing the hotel’s spa effective May 2015 as a result of the termination of an operating lease with a third-party.

Management Fee—Related Parties and Other Income. Management fee—related parties and other income decreased by 18.5% to $6.1 million for the six months ended June 30, 2016 compared to $7.5 million for the six months ended June 30, 2015. This decrease was primarily due to the termination of the Mondrian South Beach management agreement effective June 8, 2016 and the Mondrian SoHo management agreement effective April 27, 2015, along with the sale of our interest in TLG in January 2015.  Excluding Mondrian South Beach, Mondrian SoHo and TLG, management fees decreased by $0.4 million, or 6.5%, due primarily to the declining operating results at Shore Club due to the effects of the shift in timing of the anticipated termination of our management agreement, which was initially scheduled to occur in the second quarter of 2016.  We currently continue to manage Shore Club and termination of our management agreement is currently anticipated to occur in the fourth quarter of 2016.    

Operating Costs and Expenses

Rooms expense increased 5.5% to $19.3 million for the six months ended June 30, 2016 compared to $18.3 million for the six months ended June 30, 2015.  This increase was due primarily to the 1.8% increase in occupancy at our Owned Hotels noted above, along with inflationary increases.

Food and beverage expense decreased 7.5% to $26.4 million for the six months ended June 30, 2016 compared to $28.6 million for the six months ended June 30, 2015. This decrease is primarily due to the transfer our ownership interest in the food and beverage venues at Sanderson to the hotel owner effective June 1, 2016, and a decrease in food and beverage expenses at Hudson, as a result of the elimination of room service, both discussed above.    

Other departmental expense increased 9.6%to $2.3 million for the six months ended June 30, 2016 compared to $2.1 million for the six months ended June 30, 2015. This increase was primarily due to increased expenses at Delano South Beach related to the hotels’ management of the spa effective in May 2015, discussed above.    

Hotel selling, general and administrative expense decreased 5.1% to $19.5 million for the six months ended June 30, 2016 compared to $20.6 million for the six months ended June 30, 2015 primarily due to cost saving initiatives at our Owned Hotels.

Property taxes, insurance and other expense increased 4.3% to $8.7 million for the six months ended June 30, 2016 compared to $8.3 million for the six months ended June 30, 2015. This increase was primarily due to an increase in Hudson’s real estate tax assessment effective July 2015.  

Corporate expenses, including stock compensation decreased 17.3% to $9.0 million for the six months ended June 30, 2016 compared to $10.9 million for the six months ended June 30, 2015. This decrease was primarily due vacant positions in the corporate office, a decline in stock compensation expense, and the TLG Equity Sale completed in January 2015.  

Depreciation and amortization was relatively flat at $11.2 million for each of the six month periods ended June 30, 2016 and 2015, respectively.  

35

Restructuring and development costs increased 4.7% to $3.3 million for the six months ended June 30, 2016 compared to $3.1 million for the six months ended June 30, 2015.

Loss on receivables from unconsolidated joint venture was $0.6 million for the six months ended June 30, 2015 due to the assessment of collectability of certain outstanding receivables due from a joint venture.

 Interest expense, netdecreased 9.9% to $21.4 million for the six months ended June 30, 2016 compared to $23.8 million for the six months ended June 30, 2015. This decrease was primarily due to the $28.2 million prepayment of outstanding debt under the Hudson/Delano 2014 Mortgage Loan in February 2016.    

Impairment loss and equity in income of unconsolidated joint ventures decreased $3.9 million during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 as the result of a $3.9 million impairment loss of our investment in Mondrian Istanbul which we recorded in the first half of 2015.  

Impairment loss on intangible asset increased $0.4 million due to the impairment of goodwill associated with our ownership interest in the food and beverage venues at Sanderson, which we transferred to the hotel owner effective June 1, 2016, as discussed above.  

Gain on asset sales decreased 30.8% between the periods presented, resulting in income of $4.0 million for the six months ended June 30, 2016 and income of $5.8 million for the six months ended June 30, 2015. This decrease was due primarily to the gain recognized on the completion of the TLG Equity Sale in January 2015.  

Other non-operating expenses decreased 73.7% to $0.8 million for the six months ended June 30, 2016 as compared to $3.2 million for the six months ended June 30, 2015. This decrease was primarily due to legal costs incurred related to Mondrian SoHo litigation.  

Income tax expense was relatively flat at $0.3 million for the six months ended June 30, 2016 and 2015, respectively.  

36

Liquidity and Capital Resources

Short-Term Liquidity.  As of June 30, 2016, we had approximately $11.2 million in cash and cash equivalents.  In early July 2016, we posted an approximately $3.0 million bond to stay enforcement of a judgment pending appeal in connection with a matter subject to litigation, as discussed below in “Other Liquidity Matters - TLG Promissory Notes Litigation.”  Additionally, as of June 30, 2016, we had $13.1 million of restricted cash, which consisted primarily of cash held in escrow accounts for debt service or lease payments, capital expenditures, insurance programs, and taxes.  

As discussed above in “Recent Developments,” on May 9, 2016 we entered into a definitive agreement under which we will be acquired by SBE.  Under the terms of the agreement, SBE will acquire all of the outstanding shares of the Company’s common stock for $2.25 per share in cash.  The transaction is expected to close in the third or fourth quarter of 2016, and is subject to regulatory approvals, the assumption or refinancing of our mortgage loan agreements, and customary closing conditions, including approval of the transaction by our stockholders.  The Company’s stockholders representing approximately 29% of its outstanding shares of common stock have signed voting agreements in support of this transaction, including OTK Associates, Pine River Capital Management and Vector Group Ltd.  An affiliate of the Yucaipa Investors has also signed a voting agreement in respect of its Series A preferred securities and consented to the transaction for purposes of certain provisions of the Securities Purchase Agreement between the Yucaipa Investors and the Company.

If the SBE merger, or an alternative thereto, is not completed, we believe that we will need to explore other alternatives, including re-engaging our process for the sale of Hudson and Delano South Beach. Under that scenario, if we sell Hudson and Delano South Beach, we would intend to use the proceeds from those asset sales to retire the Hudson/Delano 2014 Mortgage Loan, pay transaction costs in connection with the proposed sale of the Company and provide for working capital needs.  We would use the remaining proceeds, if any, to redeem the outstanding Series A preferred securities and accrued dividends.  If the Trust Preferred Notes are accelerated, as discussed below, it would reduce the amount of Series A preferred securities and accrued dividends that we would be able to redeem.  As disclosed in note 9 of our consolidated financial statements, the Yucaipa Investors have certain consent rights over certain transactions for so long as they collectively own or have the right to purchase, assuming cashless exercise of the Yucaipa Warrants, 6,250,000 shares of the Company’s common stock (subject to certain exceptions and limitations).  We cannot assure you that should the SBE transaction not be consummated that the Yucaipa Investors would not assert a right to approve any sale of the Hudson or Delano South Beach assets, which if such approval is withheld, could materially impact our ability to consummate the asset sales.

Our ability to pay interest and dividends on, and the outstanding balances of, our debt and our Series A preferred securities, fund our operations, and make anticipated capital expenditures depends upon our future operating performance and our ability to complete the sale of the Company or, to the extent the sale is not consummated, to monetize the Hudson and Delano South Beach hotels.   Prevailing economic conditions, our ability to consummate the sale of the Company, or our ability to monetize our owned real estate assets, if at all, and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments and fund operations.  

As a result of posting the $3.0 million bond in July 2016 for the purpose of staying enforcement of a judgment pending our appeal in connection with the TLG Notes litigation as discussed above and below in “Other Liquidity Matters – TLG Promissory Notes litigation”, and other near term funding obligations, including operating expenses and debt service payments, we may not have sufficient liquidity to address unforeseen expenses or any further downturn in operating results.  All transaction costs incurred to date related to the SBE acquisition have been accrued but not paid.  If the sale of the Company to SBE is consummated, these transaction costs will be paid by the purchaser.  Further, we may need to reduce operating expenses or delay certain capital expenditures in the event that operating results are below expectations and further additional restructuring and non-operating costs are incurred.  

Additionally, the decline in operating results at Hudson and Delano South Beach will impact our ability to access future cash flows at these hotels as a result of provisions of the Hudson/Delano 2014 Mortgage Loan, which require that 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.  In the event the debt yield ratio under the Hudson/Delano 2014 Mortgage Loan falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  As of June 30, 2016, our debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach.  Such excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  

The $421.8 million of outstanding debt under the Hudson/Delano 2014 Mortgage Loan matures on February 9, 2017.  We have two remaining one-year extension options that will permit us to extend the maturity date to February 9, 2019, if certain conditions are satisfied at the respective extension dates, including the achievement of a debt yield (determined by a ratio conveyed as a percentage in which (i) the numerator is our trailing 12 month cash flow and (ii) the denominator is the then outstanding principal amount of debt

37

under the Hudson/Delano 2014 Mortgage Loan) of no less than 7.75% for the first extension and no less than 8.00% for the second extension.  If the sale of the Company is not consummated, to the extent we decide to further extend the maturity date of the debt outstanding under the Hudson/Delano 2014 Mortgage Loan, we may need to prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the applicable debt yield.  Additionally, each of the remaining extension options also requires 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.  Based on our trailing 12 month cash flow through June 30, 2016, we estimate that we would be required to prepay approximately $58.4 million of outstanding debt under the Hudson/Delano 2014 Mortgage Loan by February 9, 2017 and pay an approximately $1.0 million extension fee in order to extend the maturity date of the debt outstanding under the Hudson/Delano 2014 Mortgage Loan to February 9, 2018.  

Our Series A preferred securities currently have a 10% per annum dividend rate which will increase to a 20% per annum dividend rate effective October 16, 2016.  We have the option to accrue any and all dividend payments, and as of June 30, 2016, we 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 June 30, 2016, we had $75.0 million of outstanding Series A preferred securities and $62.5 million of accrued and unpaid dividends.  We have the option to redeem any or all of the Series A preferred securities at any time at a redemption price equal to the sum of (i) $1,000 per security and (ii) the accumulated and unpaid dividends to the redemption date.  See footnote 11 in our consolidated financial statements for more information about our Series A preferred securities.

Additionally, our Trust Preferred Notes 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%.  The Trust Preferred Notes may be redeemed at par.  In the event we undertake a transaction that is deemed to constitute a transfer or sale of our assets substantially as an entirety within the meaning of the indenture governing the Trust Preferred Notes, and the holders of the Trust Preferred Notes exercise their right to accelerate payment of the Trust Preferred Notes, we would be required to repay the $50.1 million outstanding Trust Preferred Notes prior to their maturity.  Alternatively, we would need to obtain the necessary consents of holders of a majority in aggregate principal amount of the Trust Preferred Notes, which may require a restructuring of these notes.   Based on preliminary conversations with the manager of our outstanding Trust Preferred Notes, a sale of Hudson and Delano Beach may be deemed to constitute a sale of the Company’s assets substantially as an entirety within the meaning of the indenture.  See “—Debt” for more information about our trust notes.  

There can be no assurances that the acquisition of the Company by SBE will occur.  If the acquisition of the Company, or an alternative thereto, is not consummated, there can be no assurances that a sale of our hotel assets will occur.  Further, assuming we sell Hudson and Delano South Beach, there is no assurance that a sale will occur at prices sufficient to retire all of our debt and preferred equity instruments as planned.  Under this scenario, in the event that the net proceeds from contemplated asset sales, along with other cash sources, are not sufficient, we may explore various financing options, to the extent available to us, to retire any remaining debt outstanding under the Hudson/Delano 2014 Mortgage Loan and redeem any remaining Series A preferred securities and accrued dividends.  We may have to undertake alternative financing plans, such as refinancing or restructuring these obligations, reducing or delaying capital investments or seeking to raise additional capital through issuance of common or preferred equity or convertible securities, although there can be no assurance that we can access any of these sources of liquidity on terms acceptable to us, or at all, in the future.  

In addition to the excess cash reserves related to the Hudson/Delano 2014 Mortgage Loan discussed above, we are obligated to maintain certain reserve funds at our Owned Hotels as determined pursuant to our debt or lease agreements related to such hotels which require us to deposit cash into escrow accounts which are restricted to their usage.  These reserve funds include reserves related to debt service, reserve funds for capital expenditures, which relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment at amounts generally equal to 4% of the hotel’s revenues, insurance programs, and taxes, among other things.

In connection with the third party owner’s plans to convert the Shore Club hotel to condominiums and in accordance with the owner’s preexisting termination right, we and the hotel owner agreed to terminate our management of the hotel prior to the expiration of the management agreement.  Currently, we believe that our management of Shore Club will terminate effective in the fourth quarter of 2016.  We will continue to manage Shore Club in accordance with the terms of the management agreement until the termination date becomes effective.  Upon termination, we expect to receive a termination fee of approximately $3.0 million.  

Further, as discussed in “—Overview—Management, Franchise, and License Agreements,” if the hotel owner terminates the Royalton and/or Morgans hotel management agreements at any time upon at least 30 days’ prior written notice, that owner is obligated to pay us a $3.5 million termination fee for each hotel, or $7.0 million in total, upon a termination of each agreement.  We understand that the owner is actively marketing the hotels for sale; however, we expect to continue to manage the hotels until they are sold.  

As of June 30, 2016, we had approximately $460.0 million of remaining Federal tax net operating loss carryforwards to offset future income.  If the sale of the Company is not consummated and we pursue hotel asset sales, we believe we have significant value available to us in Hudson and Delano South Beach, and that the tax basis of these assets is significantly less than their fair values.  As

38

of June 30, 2016, we estimate that the tax basis of Hudson is approximately $138.1 million and tax basis of Delano South Beach is approximately $65.2 million.  

Long-Term Liquidity.  Our long-term liquidity requirements include our obligations to pay scheduled debt maturities, which primarily consist of  our outstanding Trust Preferred Notes, which mature in October 2036, and the Clift lease, each as described under “—Debt.”  Additionally, we may have long-term liquidity requirements that are expected to be incurred by us or our consolidated subsidiaries beyond the next 12 months consisting of targeted renovations at our Owned Hotels and other non-recurring capital expenditures that need to be made periodically with respect to our properties, including a renovation of the façade of Hudson as required by Applicable Law, which must be completed by April 2018, costing an estimated $6.0 million, which we intend to fund through amounts in restricted cash and additional funds to be provided by the Company, the costs associated with acquisitions and development of properties under contract, and new acquisitions and development projects that we may pursue.

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 litigation and potential litigation, as discussed below.

TLG Promissory Notes Litigation. As discussed further in “Part II.  Item 1.  Legal Proceedings,” in February 2016, the plaintiff’s partial summary judgment motion in the litigation relating to the TLG Promissory Notes was granted and the judge signed an order.  On July 6, 2016, a judgment was entered in connection with litigation filed by Messrs. Sasson and Masi against the Company in the Supreme Court of the State of New York.  At that time, we posted a bond in the amount of approximately $3.0 million, thereby staying enforcement of the judgment pending our appeal. Plaintiffs also have a claim for attorneys’ fees, which they have recently estimated to total approximately $1.0 million, which we intend to dispute and oppose.

Litigation Regarding Pending Acquisition of Company by SBEEG Holdings LLC.   As discussed further in “Part II.  Item 1.  Legal Proceedings,” following the announcementof theexecution ofthe definitive agreement under which we would be acquired by SBE, four putative classaction lawsuits werefiled by purported stockholders of the Company challenging the merger and themerger agreement.  TheCompanybelieves that the claimsasserted are without merit and intend to defend against them. However, a negative outcomein these lawsuits,or any follow-on lawsuit,could havea significant impact on the Company ifthey result in preliminary orpermanentinjunctive relief ordamages.  We are not currentlyableto predict the outcome of the litigation or any follow-up lawsuit with any certainty.

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 June 30, 2016, as discussed in note 5 of our consolidated financial statements.  

Other Possible Uses of Capital.  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 Six Months Ended June 30, 2016 to the Six Months Ended June 30, 2015  

Operating Activities. Net cash used in operating activities was $1.9 million for the six months ended June 30, 2016 as compared to net cash used in operating activities of $7.2 million for the six months ended June 30, 2015.  The decline in net cash used is primarily due to lower interest expense and non-operating expenses during 2016 as compared to the same period in 2015, along with the deferral of the payment of restructuring costs, discussed above in “– Liquidity and Capital Resources – Short Term Liquidity.”

Investing Activities. Net cash used in investing activities was $2.5 million for the six months ended June 30, 2016 as compared to net cash provided by investing activities of $27.7 million for the six months ended June 30, 2015.  Net cash provided by investing activities in 2015 was primarily due to the TLG Equity Sale, which closed in January 2015.  

Financing Activities. Net cash used in financing activities was $30.4 million for the six months ended June 30, 2016 as compared to net cash used in financing activities of $1.0 million for the six months ended June 30, 2015. This change was primarily due to the principal paydown and maturity date extension of the Hudson/Delano 2014 Mortgage Loan in February 2016, discussed below in “—Debt.”  

39

Debt

Hudson/Delano 2014 Mortgage Loan.  On February 6, 2014, certain of our subsidiaries entered into a financing arrangement 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 repay outstanding mortgage debt under the prior mortgage loan secured by Hudson, repay indebtedness under our senior secured revolving credit facility secured by Delano South Beach, and fund reserves required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital.

The Hudson/Delano 2014 Mortgage Loan was scheduled to mature on February 9, 2016.  On that date, we paid $28.2 million to reduce the principal debt balance by the same amountand extend the maturity of this debt until February 9, 2017.  We have two remaining one-year extension options that will permit us to extend the maturity date to February 9, 2019, if certain conditions are satisfied at the respective extension dates, including the achievement of a debt yield of no less than 7.75% for the first extension and no less than 8.00% for the second extension.  We may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield, such as we did in February 2016.  The second and third extensions would also require the payment of an extension fee equal to 0.25% of the then outstanding principal amount.   Based on our trailing 12 month cash flow through June 30, 2016, we estimate that we would be required to prepay approximately $58.4 million of outstanding debt under the Hudson/Delano 2014 Mortgage Loan by February 9, 2017 and pay an approximately $1.0 million extension fee in order to extend the maturity date of the debt outstanding under the Hudson/Delano 2014 Mortgage Loan to February 9, 2018.  

The Hudson/Delano 2014 Mortgage Loan bears interest at a blended rate of 30-day LIBOR plus 565 basis points.  Prior to the loan extension in February 2016, we maintained interest rate caps for the $450.0 million principal amount of the Hudson/Delano 2014 Mortgage Loan that capped the LIBOR rate on the debt at 1.75%.  In February 2016, we purchased three interest rate caps with an aggregate notional value of $421.8 million that cap LIBOR at 0.29% through the next maturity date of the loan.

The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part.  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.

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 Notes in a private placement.  The sole assets of the Trust consist of the Trust Preferred Notes due October 30, 2036 issued by Morgans Group and guaranteed by Morgans Hotel Group Co.  The Trust Preferred 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 Preferred 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 capital lease with a liability balance of $96.2 million at June 30, 2016.

The Clift lease agreement provided for base annual rent of approximately $6.0 million per year until October 2014.  Base rent increases by a formula tied to increases in the Consumer Price Index, with a maximum increase of 20% and a minimum increase of 10% at each five-year rent increase date.  As a result of the first contractual 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 $6.0 million suffered by the lessors in the event of certain “bad boy” type acts.  As of June 30, 2016, there has been no triggering event that would require us to accrue any potential liability related to this guarantee.

Hudson Capital Leases.  We lease two condominium units at Hudson which are reflected as capital leases with an aggregate balance of $6.1 million at June 30, 2016.  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 an existing hotel to Delano Las Vegas, which is 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.

40

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 June 30, 2016, the carrying amount of the Restaurant Lease Note is $4.3 million.

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

Due to increased room supply in New York City and Miami and the global economic downturn, the impact of seasonality was not as significant as in prior periods and may continue to be less pronounced in 2016.

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 June 30, 2016, we had approximately $3.8 million in restricted cash reserves for future capital expenditures under these obligations related to our Owned Hotels.  Additionally, we are required by Applicable Law to renovate the façade of Hudson by April 2018.  We believe this renovation will cost an estimated $6.0 million in the aggregate, which we intend to fund through amounts in restricted cash and additional funds.  

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 debt service, including provisions that require excess cash flows be deposited into reserve accounts when defined debt yield ratios fall below stipulated amounts which is currently the case with the Hudson/Delano 2014 Mortgage Loan as discussed under “-Liquidity and Capital Resources”, or lease payments, insurance, and taxes, among other things.  As of June 30, 2016, approximately $8.1 million was included in restricted cash reserves for these obligations related to our Owned Hotels.  

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.

We anticipate Clift, a leased hotel, will need to be renovated in the next few years.

 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.

In connection with the extension of the Hudson/Delano 2014 Mortgage Loan, in February 2016, we purchased three interest rate caps with an aggregate notional value of $421.8 million that cap LIBOR at 0.29% through the next maturity date of the loan.   As of June 30, 2016, the fair value of these interest rate caps was $0.5 million.  

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)  75,000 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.

41

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 June 30, 2016, the principal balance of our total outstanding consolidated debt, including capital lease obligations, was approximately $578.5 million, of which approximately $421.8 million, or 72.9%, was variable rate debt. As of June 30, 2016, the one month LIBOR rate was 0.45%.

As of June 30, 2016, the $421.8 million of variable rate debt consisted of the outstanding balance of the Hudson/Delano 2014 Mortgage Loan.  In connection with the extension of the Hudson/Delano 2014 Mortgage Loan in February 2016, we purchased interest rate caps with an aggregate notional value of $421.8 million that cap LIBOR at 0.29% through the next maturity date of the loan.  If interest rates on this $421.8 million variable rate debt increase by 1.0%, or 100 basis points, this increase would have no impact on interest expense, as our LIBOR cap was lower than the one month LIBOR as of June 30, 2016.  The maximum annual amount the interest expense could decrease on the $421.8 million of variable rate debt outstanding as of June 30, 2016 was $0.7 million, which would increase future pre-tax earnings and cash flows by the same amount annually.  

As of June 30, 2016, our fixed rate debt, excluding our Hudson capital lease obligation, of $150.6 million consisted of the trust notes underlying our trust preferred securities, the Clift lease 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 100 basis points, the fair value of our fixed rate debt at June 30, 2016 would decrease by approximately $17.3 million. If market rates of interest decrease by 1.0%, the fair value of our fixed rate debt at June 30, 2016 would increase by $21.8 million.

Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments and future cash flows. These analyses do not consider the effect of a reduced level of overall economic activity. If overall economic activity is significantly reduced, we may take actions to further mitigate our exposure. However, because we cannot determine the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

Currency Exchange Risk

We have international operations at hotels that we manage in London and through a franchise agreement for a hotel in Istanbul, Turkey.  As we have international operations, currency exchange risks between the U.S. dollar and the British Pound and the Turkish Lira arise as a normal part of our business.  We reduce these risks by transacting these businesses primarily in their local currency.

Generally, we do not enter into forward or option contracts to manage our exposure applicable to day-to-day net operating cash flows.  We do not foresee any significant changes in either our exposure to fluctuations in foreign exchange rates or how such exposure is managed in the future.

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 financial officer, who also serves as the principal executive 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 (the “Exchange Act”).  Based on this evaluation, our chief financial officer, who also serves as the principal executive 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 June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

42

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.  

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

Litigation Regarding TLG Promissory Notes

On August 5, 2013, 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 in notes convertible into shares of our common stock at $9.50 per share subject to the achievement of certain EBITDA (earnings before interest, tax, depreciation and amortization) targets for the acquired TLG business (the “TLG Promissory Notes”), which were issued in connection with our November 2011 acquisition of 90% of the equity interests in a group of companies known as The Light Group (the “Light Group Transaction”).  See note 7 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 the 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, did not and has not occurred and that no prepayments were or 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.  On April 9, 2015, the Appellate Division, First Department, reversed the trial court’s decision, denying the motion to dismiss and remanding to the trial court for further proceedings.  We filed a motion for reconsideration at the appellate court, which was denied on July 7, 2015.  We also filed our answer to the complaint with the trial court on May 11, 2015.  On August 27, 2015, Messrs. Sasson and Masi filed a motion for partial summary judgment with the trial court and we filed our opposition to that motion on October 12, 2015.  In February 2016, the plaintiff’s partial summary judgment motion was granted and the judge signed the order in March 2016.  On July 6, 2016, a judgment was entered in the Supreme Court of the State of New York.  At that time, we posted a bond in the amount of approximately $3.0 million, thereby staying enforcement of the judgment pending our appeal. Plaintiffs also have a claim for attorneys’ fees, which they have recently estimated to total approximately $1.0 million, which we intend to dispute and oppose.  Although the TLG Promissory Notes were repaid and retired in December 2014, this lawsuit remains pending in connection with issues related primarily to the interest rates applicable to the TLG Promissory Notes.

Litigation Regarding Pending Acquisition of Company by SBEEG Holdings, LLC

Following the announcementof theexecution ofthe definitive agreement under which we would be acquired by SBE, four putative classaction lawsuits werefiled by purported stockholders of the Company challenging the merger and themerger agreement.

The first complaint was filed inthe Supreme Court of New York, NewYork County and was captioned Sinclairv.Morgans Hotel Group Co., et al., No. 652858/2016 (N.Y. Sup. Ct. filed on May 27, 2016) (the “New York Action”).  On June 15, 2016, the plaintiff in the NewYork Action filed a noticeof voluntary discontinuance without prejudice,thereby voluntarily discontinuing theNew York Action.

Theother threecomplaintswere filed in the Court ofChancery oftheStateof Delaware andarecaptioned Baumwohl v. Lorber, et al., No. 12433-VCL (Del.Ch. filed on June 8,2016), Centonze v. Burkle,et al., No. 12452-VCL (Del.Ch. filed on June 13, 2016),and Hua v. SBEEG Holdings, LLC, et al., No.12479-VCL(Del. Ch.filed on June 17, 2016).On June 29, 2016, the Court of Chancery of the State ofDelawareenteredanorder,among other things, consolidating the three actionsfiled in Delaware under thecaptionIn re Morgans Hotel Group Co. Stockholder Litigation, Consol. C.A. No. 12433-VCL(the “Consolidated Action”) and appointing co-lead counsel and Delaware counsel intheConsolidatedAction.

On June 30, 2016, plaintiffs in the Consolidated Action filed a Verified Consolidated Amended Class Action Complaint (the “Complaint”). The Complaint names as defendants the individual members of our Board of Directors, SBE,Merger Sub, Ronald W. Burkle, The Yucaipa Companies, LLC, Yucaipa AmericanAlliance Fund II, L.P., Yucaipa American Alliance (Parallel) Fund II, L.P., Yucaipa American Alliance Fund II, LLC, Yucaipa American Funds, LLC, and YucaipaAmerican Management, LLC.  The Complaint alleges, among other things, thatthe members of the Company’s Board of Directors breached their fiduciary duties to the Company’s stockholders by approving the merger and authorizing the Company to enter into the merger agreement, that Mr. Burkle and the Yucaipa entities are controlling stockholders of the Company and breached their purported fiduciary duties, and that SBE and MergerSub aided and abetted these alleged fiduciary breaches.  The Complaint further alleges that, among other things, Mr. Burkle and the Yucaipaentities pressured the Company into entering into the merger agreement and approving the mergerand

43

frustratedthe Company’s effortsto explore other potentialstrategic alternatives;that the mergerconsideration is financially inadequate; thatthe salesprocess leading uptothe merger and themerger agreement wasflawed; andthat the deal-protection provisions in themerger agreement are unduly preclusive and therefore prevent a potential topping bidderor topping bidders frommaking a superior proposal.  The Complaint seeks, among other things,certification of the proposed class, preliminary and permanent injunctive relief (including enjoining orrescinding themerger), unspecified damages, and an award of other unspecified attorneys’ andotherfeesand costs.

The Company believes that the claims asserted in the Complaint are without merit and intend to defend against them. However, a

negative outcomein these lawsuits,or any follow-on lawsuit,could havea significant impact on the Company ifthey result in preliminary orpermanentinjunctive relief ordamages.  The Companyisnot currentlyableto predict the outcome of the litigation or

any follow-up lawsuit with any certainty.

ITEM 1A. RISK FACTORS.  

In addition to the risk factor below and 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, 2015 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects. There have been no material changes to the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and to the risk factors discussed in Part II, “Item 1A.  Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.  

Litigation against SBE and us, or the members of our Board of Directors, could prevent or delay the completion of the proposed acquisition or result in the payment of damages following completion of the proposed acquisition.

While we believe that any pending or future claims that have been or may be asserted by purported stockholder plaintiffs related to the proposed acquisition are or would be without merit, the results of any such pending or future legal proceedings are difficult to predict, and could delay or prevent the proposed acquisition from becoming effective in a timely manner. Any pending or future litigation related to the proposed acquisition could affect the likelihood of obtaining the required approval from our stockholders. Moreover, any litigation could be time consuming and expensive, could divert our management’s attention away from their regular business and, if any lawsuit is adversely resolved against us or members of our Board (each of whom we are required to indemnify pursuant to indemnification agreements), could have a material adverse effect on our financial condition. One of the conditions to the closing of the proposed acquisition is that no governmental entity having jurisdiction over SBE or us shall have issued an order, decree or ruling or taken any other action enjoining or otherwise prohibiting the completion of the proposed acquisition substantially on the terms contemplated by the merger agreement. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting SBE’s and/or our ability to complete the proposed acquisition on the terms contemplated by the merger agreement, then such injunctive or other relief may prevent the proposed acquisition from becoming effective in a timely manner or at all.  See “Part II. Item 1. Legal Proceedings” for further discussion of pending litigation regarding the proposed acquisition.

ITEM 6. EXHIBITS.

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

44

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/ RICHARD SZYMANSKI

Richard Szymanski

Chief Financial Officer (principal executive officer and principal financial officer)

August 8, 2016

Exhibit Index  

Exhibit Number		Description
2.1	Agreement and Plan of Merger, dated as of May 9, 2016, by and among Morgans Hotel Group Co., SBEEG Holdings, LLC and Trousdale Acquisition Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 of Morgans Hotel Group Co.’s Current Report on Form 8-K filed with the SEC on May 9, 2016.
10.1*†		Amended and Restated Offer Letter between Chadi Farhat and Morgans Hotel Group Management LLC, dated May 18, 2016.
31.1*		Certification by the Principal 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  Principal 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-10.1

Exhibit 10.1

MORGANS HOTEL GROUP

May 18, 2016

Dear Chadi:

This letter agreement hereby amends and restates in full all of your prior employment offer letters, consisting of the employment offer letters dated January 14, 2016, September 25, 2015, and October  11, 2011 as amended (collectively, the “Prior Agreements”).

The terms of your continued employment are as follows:

Title:SVP, Chief Revenue Officer and Interim Chief Operating Officer

Effective Date: February 29, 2016

Base Salary: Your annual base salary effective April 1, 2016 will be $325,000.00, ($6,250.00 per week) less applicable withholdings and deductions, and will be reviewed in accordance with the Company’s standard practices.

Annual Discretionary Bonus: For 2016, you will be eligible for an annual discretionary bonus based on individual and company performance with a target bonus of 50% of your base salary, but with the actual amount of the bonus, if any, to be determined by the Company in its sole discretion.  You must be actively employed by the Company on the date bonuses are paid to Company employees to be eligible to receive any bonus.  Future year eligibility will be determined by the CEO and/or the Compensation Committee of the Board of Directors.

Paid Time-Off: You will continue to be eligible to accrue five (5) weeks vacation per year.  Vacation time is accrued on a calendar year basis.  

You will continue to accrue six (6) paid sick days and three (3)  paid personal days per calendar year.

If you do not use the granted paid time-off in a given year, you will forfeit all accrued and unused vacation, sick and personal days and no balance will roll over to the next year. Any vacation, sick or personal days already taken this year under the Prior Agreements will be deducted from the annual allotments set forth here in for the balance of 2016.

Termination of Employment:  The Company may terminate your employment at any time, with or without Cause.  In the event that your employment is terminated by the Company without Cause (and not as a result of your Disability)

____ Initial

you shall be eligible to receive (i) accrued but unpaid base salary through the date of termination of employment, to be paid in accordance with the Company’s normal payroll practice; (ii) up to four (4) weeks of accrued unused vacation time, to be paid in accordance with the Company’s normal payroll practice; (iii) any unreimbursed business expenses incurred prior to the date of termination, to be paid in accordance with the Company’s normal expense reimbursement polices;  (iv) all compensation and benefits payable to you under the terms of the employee benefit plans in which you participated prior to the date of termination of employment, in accordance with the terms of such employee benefit plans; (v) twelve (12) months of salary continuance at the same rate as the base salary at the time of termination, less applicable withholdings and deductions;  (vi) a one-time lump sum payment in an amount equivalent to twelve (12) times the amount that the Company contributes to the health insurance premiums for you per month at the time of your termination, less applicable withholdings and deductions; (vii) accelerated vesting of a pro rata portion of any outstanding equity awards that are subject to solely time-based vesting conditions and are held by you at the time of termination, determined by multiplying the number of shares of Company common stock subject to each such equity award by a fraction, the numerator of which is the number of days elapsed since the beginning of the vesting period through the date  of termination and the denominator of which is the number of total days in the vesting period;  (viii) an amount equal to a pro rata share of  your annual bonus for the year of termination determined by multiplying the annual bonus by a fraction, the numerator of which is the number of days elapsed in the year through the effective date of termination and the denominator of which is 365, and based upon application of the performance metrics determined by the Company in its sole discretion with respect to such bonus, and otherwise payable at the same time that annual bonuses in respect of the applicable calendar year are otherwise paid to employees of the Company; and (ix) in the event that the effective date of  termination occurs after the end of a calendar year worked and prior to payment of bonuses for that calendar year, the Company will pay you your bonus for such calendar year (if any) calculated based upon application of the performance metrics determined by the Company in its sole discretion with respect to such bonus. (collectively, the “Severance Benefit”).

2

____ Initial

Any obligation of the Company to provide you the Severance Benefit is conditioned, however, on you executing (without revoking) and returning in a timely manner the separation and release agreement that will be provided to you by the Company at or about (and in all events no later than 30 days following) the time your employment ends (which agreement may include, without limitation, a general release of claims; and restrictions on post-employment competition and on solicitation of customers, business partners and employees and requirements of post-employment confidentiality, cooperation and non-disparagement, provided such restrictions and requirements shall be no more restrictive than the corresponding covenants and agreements agreed to herein) (the “Separation Agreement”) and on your continued compliance with the terms and conditions of such Separation Agreement. The Separation Agreement must become effective, if at all, by the deadline specified therein (and in all events by the 60th day following the date your employment is terminated).  Any base salary to which you are entitled will be provided in the form of salary continuation, payable in accordance with the normal payroll practices of the Company.  The first payment will be made on the Company’s next regular payday following the expiration of 7 days from the effective date of the Separation Agreement; but that first payment shall be retroactive to the date of termination.  Notwithstanding the foregoing, if the time period to consider and revoke the Separation Agreement covers two of your taxable years, any portion of the Severance Benefit that constitutes deferred compensation subject to the requirements of Section 409A of the Internal Revenue Code, as amended (“Section 409A”) that is payable during the period to consider and revoke the Separation Agreement shall be paid in the later taxable year.

As used herein:

“Cause” shall mean: (i)  any act or omission constituting a material breach by you of any provision of this letter agreement; (ii) willful failure by you to perform your duties hereunder (other than any such failure resulting from the your Disability), after demand for performance is delivered by the Company that identifies in reasonable detail the manner in which the Company believes you have not performed your duties, if, within 20 days of such demand, you fail to cure any such failure that is capable of being cured; (iii) any misconduct by you that is materially injurious to any member of the Company or any of its subsidiaries or affiliates or properties, financial or otherwise, or any act of misappropriation, fraud (including with respect to any member of the Company or any of its subsidiaries’, affiliate’s or properties’ accounting and financial statements), embezzlement or conversion by you of the property of

3

____ Initial

any of the Company or its subsidiaries or affiliates; (iv) the commission (or plea of no contest) of you for any felony or misdemeanor involving moral turpitude; (v) your gross negligence, gross neglect of duties or gross insubordination; (vi) your commission of any violation of any antifraud provision of federal or state securities laws; (vii) your  alcohol or prescription or other drug abuse substantially affecting work performance; (viii) your violation of the Company’s policies regarding harassment or discrimination; or  (ix) your material violation of company policies or this letter agreement.

“Disability” shall mean: (i) your incapacity due to physical or mental illness that results in your failure to substantially perform the essential functions of your position, with reasonable accommodation, on a full-time basis for 90 consecutive days; or (ii) you become eligible to receive benefits under the Company’s applicable long-term disability plan.  If you do not agree with the Company’s determination of your Disability, such question will be subject to the certification of a qualified medical doctor selected by the Company to which you have no reasonable objection.  The costs of such qualified medical doctor will be paid by the Company.

Change of Control: If the Company terminates your employment without cause within twelve (12) months following a Change of Control (as defined below), then the Company will, subject to your continuing full and faithful compliance with the Executive Covenants set forth below and as full liquidated damages, pay you the Severance Benefit and the Company thereafter shall have no further obligations to you hereunder. Notwithstanding the foregoing or anything else contained in this letter to the contrary, prior to the payment by the Company of the termination payments and benefits provided for above, and as a condition to such payments, you shall, comply with the provisions relating to the execution and delivery of the Separation Agreement as set forth under “Termination of Employment”  above.

As used herein, “Change of Control” shall mean the occurrence of a “change in control event” (within the meaning of Section 409A and the Regulations thereunder) with respect to Morgans Hotel Group Co.

Notwithstanding anything to the contrary in this letter agreement, if at the time your employment terminates, you are a “specified employee,” as defined below, any and all amounts payable under this letter agreement on account of such separation from service that would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next

4

____ Initial

business day following the expiration of such six (6) month period or, if earlier, upon your death; except (A) to the extent of amounts that do not constitute a deferral of compensation within the meaning of Treasury regulation Section 1.409A-1(b) (including without limitation by reason of the safe harbor set forth in Section 1.409A-1(b)(9)(iii), as determined by the Company in its reasonable good faith discretion); (B) benefits which qualify as excepted welfare benefits pursuant to Treasury regulation Section 1.409A-1(a)(5); or (C) other amounts or benefits that are not subject to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.  For purposes of this letter agreement, all references to “termination of employment” and correlative phrases shall be construed to require a “separation from service” (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein), and the term “specified employee” means an individual determined by the Company to be a specified employee under Treasury regulation Section 1.409A-1(i).  Each payment made under this letter agreement shall be treated as a separate payment and the right to a series of installment payments under this letter agreement is to be treated as a right to a series of separate payments.  In no event shall the Company have any liability relating to the failure or alleged failure of any payment or benefit under this letter agreement to comply with, or be exempt from, the requirements of Section 409A.

As a Company employee, you will acquire Confidential Information in the course of your employment.  You agree that in consideration of your employment with the Company, you will treat such Confidential Information as strictly confidential.  You will not, directly or indirectly, at any time during your employment with the Company or any time thereafter, and without regard to when and for what reason, if any, your employment shall terminate, disclose, use, or cause to be used any such Confidential Information, except as it is absolutely necessary in the normal course of performing your designated duties for the Company, if authorized in writing by the Company or as may be required by a court or other governmental body, provided that in the event of disclosure required by a court or other governmental body you shall provide the Company as much advance notice as possible (consistent with applicable law) prior to making such disclosure.  “Confidential Information” includes any information of the Company or its subsidiaries or affiliates not generally known to the public, including but not limited to trade secrets, mailing lists, financial information, business plans and/or policies methods of operations, customer lists and information, information concerning or received from business partners, sales and marketing plans, research and development plans, strategic plans, and any other information acquired by you in the course if your employment with the Company that is not readily available to the public (other than through a breach of this letter agreement).  

During the period that you are employed by the Company, and for a period of six months thereafter (the “Non-Compete Period”), in the event you are terminated by the Company with or without Cause in accordance with the terms hereof, you will not, whether alone or jointly, or as an employee, officer, agent, partner, member, stockholder (except of not more than 2% of the outstanding stock of any listed company), investor, consultant, advisor, or independent contractor, directly, indirectly or beneficially, irrespective of whether compensation or other remuneration is provided, for your own account or for the benefit of any other period or entity, engage in any business or entity that is engaged in the ownership, management or operation of a hotel or chain of hotels, or is engaged in any food, beverage or other night-life related business, in any instance, anywhere in the world. In the event the Company agrees in its sole discretion to waive all or any portion of the Non-Compete Period upon your request, the Company will have no obligation to

5

____ Initial

provide you with the any Severance Benefit to which you would otherwise be entitled for the portion of the Non-Compete Period so waived.

During the period that you are employed by the Company, and for a period of one year thereafter (the “Non-Solicit Period”), regardless of the reason your employment with the Company terminates, you will not, directly or indirectly, either individually or through any entity or other person with which you may become associated, (1) hire or solicit for hiring or engagement any employee of the Company or any of its subsidiaries or affiliates, or encourage or otherwise induce any such employee to terminate his or her employment or other contractual relationship with the Company or any of its subsidiaries or affiliates, (2) induce or attempt to induce any person or entity that is a supplier, distributor, guest, travel agent, vendor, customer or otherwise a contracting party of the Company or any of its subsidiaries or affiliates at any time during the applicable Non-Solicit Period (a “Covered Person”) to terminate or modify any written or oral agreement or understanding with the Company or any of its subsidiaries or affiliates, or (c) induce or attempt to induce a Covered Person (other than a consultant or independent contractor) to engage in a business relationship with a third party that it could instead engage in with the Company or any of its subsidiaries or affiliates.  During the period that you are employed by the Company, and for a period of six months thereafter, regardless of the reason your employment with the Company terminates, you will not, directly or indirectly, either individually or through any entity or other person with which you may become associated, hire or solicit for hiring or engagement any consultant or independent contractor of the Company or any of its subsidiaries or affiliates, or encourage or otherwise induce any such consultant or independent contractor to terminate his or her contractual relationship with the Company or any of its subsidiaries or affiliates.   For purpose of this letter agreement, an employee, consultant or independent contractor is any person who was such at any time within the preceding 6 months.

At no time during or after your employment will you utter, issue or circulate publicly any false or disparaging or otherwise critical statements, remarks or rumors about the Company or its subsidiaries or affiliates and/or any of their respective businesses, or any of their respective officers, employees, directors, agents or representatives.  

You shall promptly and fully disclose all Intellectual Property to the Company.  You hereby assign and agree to assign to the Company (or as otherwise directed by the Company) your full right, title and interest in and to all Intellectual Property.  You agree to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company (or as otherwise directed by the Company) and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property.  You will not charge the Company for time spent in complying with these obligations.  All copyrightable works that constitute Intellectual Property that you create during your employment shall be considered “work made for hire” and shall, upon creation, be owned exclusively by the Company.  For purposes of this letter agreement, “Intellectual Property” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by you (whether alone or with others, whether or not during normal business hours or on or off the Company’s premises) during your employment, including both any period of employment

6

____ Initial

predating this letter agreement as well as any period of employment from and after the date of this letter agreement, and during the period of thirty days immediately following termination of your employment that relate either to the business of the Company or any of its subsidiaries or affiliates or to any prospective activity of the Company or any of its subsidiaries or affiliates or that result from any work performed by you for the Company or any of its subsidiaries or affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its subsidiaries or affiliates.  

You agree without reservation that the restraints imposed on you pursuant to this letter agreement are necessary for the reasonable and proper protection of the Company and its subsidiaries and affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area.  You further agree that, were you to breach any of the covenants contained in this letter agreement, the damage to the Company and its subsidiaries and affiliates would be irreparable.  You therefore agree that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by you of any of those covenants, without having to post bond, together with an award of its reasonable attorney’s fees incurred in enforcing its rights hereunder.  You and the Company further agree that, in the event that any provision of this letter agreement is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.  Finally, no claimed breach of this letter agreement or other violation of law attributed to the Company, or any change in the circumstances or nature of your employment relationship with the Company, shall operate to excuse you from the performance of your obligations under this letter agreement with respect to confidentiality, non-competition, non-solicitation and/or assignment of intellectual property.

All information contained in this letter agreement is confidential.  This letter agreement describes, in full, the offer that has been extended to you and supersedes any previous verbal offer that may have been made and also supersedes the Prior Agreements, each and all of which shall be of no further effect and under which it is agreed you have no further rights and the Company has no further obligations. This letter agreement is subject to change at any time by mutual agreement, which agreement to be binding must have been signed by you and by the Company’s Chief Executive Officer. This is a New York contract and shall be governed and construed in accordance with the laws of the State of New York, without regard to any conflict of laws principles that would result in the application of the laws of any other jurisdiction.  

Please indicate your acceptance of this offer by signing below and returning this letter agreement to me within seven (7) business days after date of issue.

Very truly yours,

/s/ Richard Szymanski

Rich Szymanski

Chief Financial Officer

7

____ Initial

AGREED AND ACCEPTED BY:

/s/ Chadi Farhat

DATE:

May 18, 2016

8

____ Initial

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE PRINCIPAL 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, Richard Szymanski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Morgans Hotel Group Co. for the period ended June 30, 2016;

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(s) 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(s) 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 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

Principal Executive Officer

Date: August 8, 2016

EX-31.2

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 period ended June 30, 2016;

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(s) 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(s) 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 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: August 8, 2016

EX-32.1

Exhibit 32.1

CERTIFICATION BY THE PRINCIPAL 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 period ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard Szymanski, as principal 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/ RICHARD SZYMANSKI

Richard Szymanski

Principal Executive Officer

Date: August 8, 2016

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-32.2

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 period ended June 30, 2016 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 respects, the financial condition and results of operations of the Company.

/s/ RICHARD SZYMANSKI

Richard Szymanski

Chief Financial Officer

Date: August 8, 2016

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

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 05, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
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		34,874,923

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
ASSETS
Property and equipment, net	$ 257,932	$ 265,678
Goodwill	53,691	54,057
Investments in and advances to unconsolidated joint ventures	100	100
Cash and cash equivalents	11,187	45,925
Restricted cash	13,079	12,892
Accounts receivable, net	7,348	8,325
Prepaid expenses and other assets	8,303	8,897
Deferred tax asset, net	129,427	128,645
Other assets, net	31,194	33,516
Total assets	512,261	558,035
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations, net of deferred financing costs of $3.0 million and $3.7 million as of June 30, 2016 and December 31, 2015, respectively	575,501	602,630
Accounts payable and accrued liabilities	34,516	33,599
Deferred gain on asset sales	113,368	117,378
Other liabilities	13,866	13,866
Total liabilities	737,251	767,473
Commitments and contingencies
Preferred stock, $0.01 par value; liquidation preference $1,000 per share, 40,000,000 shares authorized; 75,000 shares issued at June 30, 2016 and December 31, 2015, respectively	73,457	71,025
Common stock, $0.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at June 30, 2016 and December 31, 2015, respectively	363	363
Additional paid-in capital	234,624	236,730
Treasury stock, at cost, 1,402,572 and 1,541,381 shares of common stock at June 30, 2016 and December 31, 2015, respectively	(14,873)	(17,257)
Accumulated other comprehensive loss	(2,220)	(1,131)
Accumulated deficit	(516,908)	(499,765)
Total Morgans Hotel Group Co. stockholders’ deficit	(225,557)	(210,035)
Noncontrolling interest	567	597
Total deficit	(224,990)	(209,438)
Total liabilities and stockholders’ deficit	$ 512,261	$ 558,035

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Deferred financing costs, net	$ 3.0	$ 3.7
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, liquidation preference per share	$ 1,000	$ 1,000
Preferred stock, share authorized	40,000,000	40,000,000
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	1,402,572	1,541,381

XML

Consolidated Statements of Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues:
Rooms	$ 29,929	$ 30,991	$ 55,173	$ 56,787
Food and beverage	17,544	19,674	37,976	41,245
Other hotel	2,415	2,037	4,613	3,968
Total hotel revenues	49,888	52,702	97,762	102,000
Management fee-related parties and other income	2,973	3,508	6,122	7,516
Total revenues	52,861	56,210	103,884	109,516
Operating Costs and Expenses:
Rooms	9,849	9,414	19,307	18,298
Food and beverage	12,583	13,883	26,427	28,560
Other departmental	1,119	1,068	2,263	2,064
Hotel selling, general and administrative	9,379	10,418	19,530	20,570
Property taxes, insurance and other	4,108	4,411	8,651	8,294
Total hotel operating expenses	37,038	39,194	76,178	77,786
Corporate expenses, including stock compensation of $0.2 million, $0.6 million, $0.3 million, and $0.9 million, respectively	4,785	4,919	9,048	10,947
Depreciation and amortization	5,578	5,563	11,229	11,200
Restructuring and development costs	2,595	1,050	3,294	3,147
Loss on receivables from unconsolidated joint venture		550		550
Total operating costs and expenses	49,996	51,276	99,749	103,630
Operating income	2,865	4,934	4,135	5,886
Interest expense, net	10,260	11,955	21,422	23,782
Impairment loss and equity in income of investment in unconsolidated joint venture	(2)	(2)	(4)	3,888
Impairment loss on intangible asset			366
Gain on asset sales	(2,005)	(2,086)	(4,010)	(5,794)
Other non-operating expenses	301	1,552	844	3,207
Loss before income tax expense	(5,689)	(6,485)	(14,483)	(19,197)
Income tax expense	133	169	261	295
Net loss	(5,822)	(6,654)	(14,744)	(19,492)
Net loss attributable to noncontrolling interest	12	13	30	27
Net loss attributable to Morgans Hotel Group Co.	(5,810)	(6,641)	(14,714)	(19,465)
Preferred stock dividends and accretion	(4,659)	(4,075)	(9,126)	(7,985)
Net loss attributable to common stockholders	(10,469)	(10,716)	(23,840)	(27,450)
Other comprehensive loss:
Unrealized (loss) gain on valuation of cap agreements, net of tax	(127)	29	(246)	17
Foreign currency translation adjustment	(499)	483	(843)	(514)
Comprehensive loss	$ (11,095)	$ (10,204)	$ (24,929)	$ (27,947)
Loss per share:
Basic and diluted attributable to common stockholders	$ (0.30)	$ (0.31)	$ (0.69)	$ (0.80)
Weighted average number of common shares outstanding:
Basic and diluted	34,813	34,492	34,776	34,440

XML

Consolidated Statements of Comprehensive Loss (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Statement [Abstract]
Stock-based compensation	$ 200	$ 600	$ 308	$ 922

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net loss	$ (14,744)	$ (19,492)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	9,654	9,612
Amortization of other costs	1,575	1,588
Amortization and write off of deferred financing costs	788	3,274
Gain on asset sales	(4,010)	(5,794)
Stock-based compensation	308	922
Accretion of interest	1,067	1,042
Impairment loss and equity in income of investment in unconsolidated joint venture	(4)	3,888
Impairment loss on intangible asset	366
Loss on receivables from unconsolidated joint venture		550
Gain on transfer and disposal of assets	(661)	(6)
Change in value of interest rate caps	482	77
Changes in assets and liabilities:
Accounts receivable, net	560	729
Restricted cash	302	1,638
Prepaid expenses and other assets	478	(2,079)
Accounts payable and accrued liabilities	1,969	(3,151)
Net cash used in operating activities	(1,870)	(7,202)
Cash flows from investing activities:
Additions to property and equipment	(1,970)	(1,725)
Deposits into capital improvement escrows, net	(489)	(1,090)
Distributions from unconsolidated joint ventures	4	4
Proceeds from asset sale, net		30,806
Development hotel funding		(250)
Net cash (used in) provided by investing activities	(2,455)	27,745
Cash flows from financing activities:
Payments on debt and capital lease obligations	(28,929)	(732)
Other debt costs	(1,456)
Cash paid in connection with vesting of stock based awards	(28)	(310)
Net cash used in financing activities	(30,413)	(1,042)
Net (decrease) increase in cash and cash equivalents	(34,738)	19,501
Cash and cash equivalents, beginning of year	45,925	13,493
Cash and cash equivalents, end of year	11,187	32,994
Supplemental disclosure of cash flow information:
Cash paid for interest	20,327	20,508
Cash paid for income taxes	$ 477	$ 1

XML

Organization and Formation Transaction

6 Months Ended

Jun. 30, 2016

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 develops boutique hotels, primarily in gateway cities and select resort markets in the United States, Europe and other international locations.  

In addition, the Company owns leasehold interests in certain food and beverage venues.  Prior to the TLG Equity Sale, discussed below, completed on January 23, 2015, the Company, through TLG Acquisition LLC (“TLG Acquisition” and, together with its subsidiaries, The Light Group, or “TLG”), operated nightclubs, restaurants, pool lounges, bars and other food and beverage venues primarily in hotels 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.  During the six months ended June 30, 2016 and 2015, the Company derived 5.6% and 6.3% 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 June 30, 2016 were as follows:

Hotel Name	Location	Number of Rooms		Interest
Hudson	New York,NY		878		(1	)
Morgans	New York, NY		117		(2	)
Royalton	New York, NY		168		(2	)
Delano South Beach	Miami Beach, FL		194		(3	)
Mondrian South Beach	Miami Beach, FL		219		(6	)
Shore Club	Miami Beach, FL		308		(4	)
Mondrian Los Angeles	Los Angeles, CA		236		(2	)
Clift	San Francisco, CA		372		(5	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Mondrian London at Sea Containers	London, England		359		(2	)
Delano Las Vegas	LasVegas, Nevada		1,117		(6	)
10 Karakoy	Istanbul, Turkey		71		(7	)

(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 June 30, 2016, Hudson had 878 guest rooms and 60 single room dwelling units (“SROs”).

(2) Operated under a management contract.

(3) Wholly-owned hotel.

(4) Operated under a management contract.  The Company currently expects to no longer manage Shore Club during the fourth quarter of2016.    

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

(6) A licensed hotel.  

(7) A franchised hotel.  

 Food and Beverage Operations

As of June 30, 2016, the Company owns three food and beverage venues subject to leasehold agreements at Mandalay Bay in Las Vegas, which are managed by TLG.  These food and beverage venues are included in the Company’s consolidated financial statements.  

Effective June 1, 2016, the Company transferred all of its ownership interest in the food and beverage venues at Sanderson to the hotel owner.  The Company will continue to manage Sanderson’s food and beverage venues.  Prior to June 1, 2016, the Company leased and managed the Sanderson food and beverage venues, which were included in the Company’s consolidated financial statements.  As a result of this transfer, the Company impaired approximately $0.4 million of goodwill related to its ownership interest of the Sanderson food and beverage venues and recorded an approximately $0.7 million gainon the transfer during the six months ended June 30, 2016.  

The Light Group

Acquisition.On November 30, 2011, certain of the Company’s subsidiaries completed the acquisition of 90% of the equity interests in TLG Acquisition for a purchase price of $28.5 million in cash and up to $18.0 million in notes (the “TLG Promissory Notes”) (“The Light Group Transaction”).  

In December 2014, the Company used cash on hand to repay and retire $19.1 million of the outstanding TLG Promissory Notes, which included the original principal balance of $18.0 million plus deferred interest of $1.1 million, as discussed further in note 6.  

The primary assets of TLG consisted of its management and similar agreements primarily with various MGM affiliates.  During the time the Company owned 90% of TLG, it recognized management fees in accordance with the applicable management agreement which generally provided 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 Equity Sale.  On January 23, 2015, the Company sold its 90% equity interest in TLG to Hakkasan Holdings LLC (“Hakkasan”) (the “TLG Equity Sale”) for $32.8 million, net of closing costs.    

The Company has certain indemnification obligations, which generally survive for 18 months following the close of the TLG Equity Sale; however, no amounts are held in escrow for the satisfaction of such claims.  As of June 30, 2016, the Company has accrued approximately $0.3 million in liabilities related to these indemnification obligations.  

TEJ Management, LLC, an entity controlled by Andrew Sasson, and Galts Gulch Holding Company LLC, an entity controlled by Andy Masi (together, the “Minority Holders”) did not exercise their right to participate in the TLG Equity Sale.  The Minority Holders maintained the right to put their equity interests to TLG’s managing member for amounts determined pursuant to the Amended and Restated Limited Liability Company of TLG.  Hakkasan, as the current managing member, was obligated to pay $3.6 million of this amount upon delivery of the 10% equity interest in TLG held by the Minority Holders with the Company responsible for any amounts in excess of $3.6 million.

In addition, for the 18 months following the closing of the TLG Equity Sale, the Company had the right to purchase 49% of the equity of TLG from Hakkasan (the “Option Right”).   The Option Right expired on June 23, 2016 and did not trigger any accounting impact on the Company’s consolidated financial statements.

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

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 (“U.S. 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 U.S. 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 U.S. 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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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, 2015.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 debt service or lease payments, insurance programs, and taxes, among others.  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.

The Hudson/Delano 2014 Mortgage Loan, defined and discussed below in note 6, provides that 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.  In the event the debt yield ratio falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  As of June 30, 2016, the Company’s debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach.  Such retained cash will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  

Assets Held for Sale

The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or a group of properties for sale and the sale is probable whereby a signed sales contract and significant non-refundable deposit or contract break-up fee exist.  Upon designation as an asset held for sale, the Company records the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and the Company stops recording depreciation expense.  Any gain realized in connection with the sale of the properties for which the Company has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement.

 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 Account Standard Codification (“ASC”) 810-10, Consolidation.  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 June 30, 2016, there were no liabilities required to be recorded related to these investments.

Other Assets

In October 2014, the Company funded an approximately $15.3 million key money obligation related to Mondrian London, which is included in Other Assets and is being amortized over the term of the hotel management agreement.

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 an existing hotel to Delano Las Vegas.  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 at $7.5 million, as discussed in note 6.  The three food and beverage venues are managed by TLG and are 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 and restaurant leasehold interests, using the straight line method, over the 10-year life of the respective agreement.

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.

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 six months ended June 30, 2016 and 2015 were computed using the Company’s effective tax rate.

Credit-risk-related Contingent Features

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, subject to the terms of the Securities Purchase Agreement, 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, as discussed further in note 9.  The Yucaipa Warrants are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.  See note 13 for additional information about the Yucaipa Warrants.

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.  As of June 30, 2016 and December 31, 2015, 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 June 30, 2016, the Company had three interest rate caps outstanding and the fair value of these interest rate caps was $0.5 million.

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 amount of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of June 30, 2016 and December 31, 2015 due to the short-term maturity of these items or variable market interest rates.

The Company had outstanding fixed rate debt principal of $54.4 million and $54.9 million as of June 30, 2016 and December 31, 2015, respectively, which included the Company’s trust preferred securities and Restaurant Lease Note, discussed above, and excludes capital leases.  This fixed rate debt had a fair market value at June 30, 2016 and December 31, 2015 of approximately $62.8 million and $60.6 million, respectively, using market rates.

Although the Company has determined that the majority of the inputs used to value its fixed rate debt fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its fixed rate debt utilize Level 3 inputs, such as estimates of current credit spreads.  As of June 30, 2016 and December 31, 2015, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its fixed rate debt and determined that the credit valuation adjustments are not significant to the overall valuation of its fixed rate debt.  Accordingly, all derivatives have been classified as Level 2 fair value measurements.

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 in Morgans Group, the Company’s operating company, owned by the Former Parent are presented as a noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $0.6 million and $0.6 million as of June 30, 2016 and December 31, 2015, 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 June 30, 2016, there were 75,446 membership units outstanding, each of which is exchangeable for a share of the Company’s common stock.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance.  The new standard sets forth five prescribed steps to determine the timing and amount of revenue to be recognized to appropriately depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations”, which further clarifies the application of the standard depending on whether the entity is a principal or an agent. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which deferred the effectiveness of ASU No. 2014-09 to reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.  

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.

Reclassifications

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

XML

Income (Loss) Per Share

6 Months Ended

Jun. 30, 2016

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 net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.  Vested LTIP Units (as defined in note 8) are considered participating securities and are included in the computation of basic earnings per common share pursuant to the two-class method.  Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period, plus other potentially 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.  In periods when the Company has net loss attributable to Morgans Hotel Group Co., the Yucaipa Warrants issued to the Yucaipa Investors, unvested restricted stock units, LTIP Units (as defined in note 8), and stock options are excluded from the diluted net loss per common share calculation, as there would be no effect on reported diluted net loss per common share, however in periods when the Company has net income attributable to Morgans Hotel Group Co., these same securities are included in the diluted net income per common share calculation to the extent they are considered dilutive.  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 June 30, 2016 and December 31, 2015, are not reflected in the computation of basic and diluted earnings per share, as the income allocable to such membership units is allocated and reflected as noncontrolling interests in the accompanying consolidated financial statements.

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.

	ThreeMonths Ended March 31, 2016			Three Months Ended March 31, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Numerator:
Net loss	$	(5,822	)	$	(6,654	)	$	(14,744	)	$	(19,492	)
Net loss attributable to noncontrolling    interest		12			13			30			27
Net loss attributable to Morgans Hotel    Group Co.		(5,810	)		(6,641	)		(14,714	)		(19,465	)
Less: preferred stock dividends and accretion		4,659			4,075			9,126			7,985
Net loss attributable to common stockholders	$	(10,469	)	$	(10,716	)	$	(23,840	)	$	(27,450	)
Denominator:
Weighted average basic common shares    outstanding		34,813			34,492			34,776			34,440
Basic and diluted loss attributable to common    stockholders per common share	$	(0.30	)	$	(0.31	)	$	(0.69	)	$	(0.80	)

XML

Investments in and Advances to Unconsolidated Joint Ventures

6 Months Ended

Jun. 30, 2016

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 was $0.1 million and $0.1 million as of June 30, 2016 and December 31, 2015, respectively.  The Company’s income from unconsolidated joint ventures was immaterial for the three and six months ended June 30, 2016 and 2015.   The Company recorded a $3.9 million impairment charge related to its investment in Mondrian Istanbul during the six months ended June 30, 2015, discussed below.  

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 operated Mondrian South Beach under a long-term management contract until June 8, 2016, discussed further below.   The Company accounted for its investment in Mondrian South Beach using the equity method of accounting.

On June 8, 2016, the Mondrian South Beach joint venture entered into a purchase and sale agreement to sell its interest in Mondrian South Beach.  Pursuant to the terms and conditions of the purchase and sale agreement, the buyer paid the joint venture a cash purchase price sufficient for the joint venture to extinguish its outstanding mortgage and mezzanine loans, plus accrued interest, in full at a negotiated discount, and the buyer assumed certain liabilities of Mondrian South Beach.  As a result of the debt extinguishment, the Company was released from the condominium purchase guarantee of up to $14.0 million and the construction completion guarantee. 

As part of this transaction, on June 8, 2016, the Company and the Mondrian South Beach joint venture mutually terminated their existing management agreement for Mondrian South Beach and the Company entered into a license agreement with the buyer to allow the hotel to remain under the Mondrian brand.  The license agreement grants the buyer a limited, non-exclusive right to use the Mondrian brand and other specified intellectual property of the Company, subject to certain termination rights, in exchange for a license fee that varies with Mondrian South Beach’s monthly gross revenue for the term of the license agreementbut is subject to a minimum annual fee payable to the Company.  

As a result of the sale of Mondrian South Beach, effective June 8, 2016, the Company no longer held any ownership interest in the Mondrian South Beach real estate.   The joint venture has been funded with retained cash to fund known liabilities relating to the joint venture.  As of June 30, 2016, the Company is not aware of any events that would require the Company to recognize a liability related to the wind down of the Mondrian South Beach joint venture.      

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire property and develop a Mondrian hotel on that property in the SoHo neighborhood of New York City.  The Company had a 20% equity interest in the joint venture.  Under the terms of the hotel management agreement executed between the Company and the joint venture in June 2007, the Company had 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 Company accounted for its investment in Mondrian SoHo using the equity method of accounting.  

The joint venture obtained a loan to acquire the hotel property and develop the hotel, which matured in June 2010 and was extended several times.  In November 2012, the joint venture did not meet the necessary extension options and a foreclosure judgment was issued on November 25, 2014.  The foreclosure sale was held on January 7, 2015, at which German American Capital Corporation (“GACC”), the lender, was the sole and winning bidder.  GACC assigned its bid to 9 Crosby LLC, an affiliate of The Sapir Organization (“Sapir”), a New York-based real estate development and management organization.  The sale of the hotel property to Sapir closed on March 6, 2015.  As a result, effective March 6, 2015, the Company no longer held any equity interest in Mondrian SoHo.  Effective April 27, 2015, the Company no longer managed Mondrian SoHo.  

Mondrian Istanbul

In December 2011, the Company entered into a hotel management agreement for a 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 had a 20% ownership interest in the joint venture owning the hotel.

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 would have required the Company’s joint venture partner to buy back the Company’s equity interests in the Mondrian Istanbul joint venture.   In early 2015, as a result of settlement discussions, the Company determined that this investment was other-than-temporarily impaired and recorded a $3.9 million impairment charge for the three months ended March 31, 2015.   Subsequently, on June 26, 2015, the Company and its Mondrian Istanbul joint venture partner (and related parties) entered into a settlement agreement, which terminated all legal proceedings between the parties.  Pursuant to the settlement agreement, in September 2015, the Company received $6.5 million in exchange for the Company’s equity interest in the joint venture.  

XML

Other Liabilities

6 Months Ended

Jun. 30, 2016

Other Liabilities Disclosure [Abstract]

Other Liabilities

5. Other Liabilities

As of June 30, 2016 and December 31, 2015, other liabilities included $13.9 million 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 and amortized over the five-year estimated life of the related design elements.

XML

Debt and Capital Lease Obligations

6 Months Ended

Jun. 30, 2016

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	Principal as of June 30, 2016		Unamortized Debt Issuance Costs as of June 30, 2016			Net Debt as of June 30, 2016		Interest rate at June 30, 2016
Hudson/Delano Mortgage (a)	$	421,803	$	(34	)	$	421,769	5.94% (LIBOR cap+ 5.65%)
Clift debt (b)		96,223		(46	)		96,177	9.60%
Liability to subsidiary trust (c)		50,100		(2,931	)		47,169	8.68%
Restaurant Lease Note (d)		4,282		-			4,282	(d)
Capital lease obligations (e)		6,104		-			6,104	(e)
Debt and capital lease obligation	$	578,512	$	(3,011	)	$	575,501

Deferred financing costs are amortized, using the straight line method, which approximates the effective interest rate method, over the terms of the related debt agreements.

(a) Hudson/Delano 2014 Mortgage Loan

On February 6, 2014, subsidiaries of the Company entered into a 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 repay the outstanding mortgage debt under the prior mortgage loan secured by Hudson, repay outstanding indebtedness under the Company’s senior secured revolving credit facility secured by Delano South Beach (the “Delano Credit Facility”), and fund reserves required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital.  

The Hudson/Delano 2014 Mortgage Loan was scheduled to mature on February 9, 2016.  On that date, the Company paid $28.2millionto reduce the principal balance by the same amountand extend the maturity of this debt until February 9, 2017.  Following the extension, the Company has two additional 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 achievement by the Company of a trailing twelve month debt yield of no less than 7.75% for the first extension and no less than 8.00% for the second extension.  The Company may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield.  The second and third extensions would also require the payment of an extension fee equal to 0.25% of the then outstanding principal amount under the Hudson/Delano 2014 Mortgage Loan.  Based on the Company’s trailing 12 month cash flow through June 30, 2016, the Company estimates that it would be required to prepay approximately $58.4 million of outstanding debt under the Hudson/Delano 2014 Mortgage Loan by February 9, 2017 and pay an approximately $1.0 million extension fee in order to extend the maturity date of the debt outstanding under the Hudson/Delano 2014 Mortgage Loan to February 9, 2018.

The Hudson/Delano 2014 Mortgage Loan bears interest at a blended rate of 30-day LIBOR plus 565 basis points.  The Company maintained interest rate caps for the $450.0 million principal amount of the Hudson/Delano 2014 Mortgage Loan that capped the LIBOR rate on the debt under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the February 9, 2016.  In connection with the extension in February 2016, the Company purchased three interest rate caps with an aggregate notional value of $421.8 million that cap LIBOR at 0.29% through the next maturity date of the loan.  

The Hudson/Delano 2014 Mortgage Loan provides that 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.  In the event the debt yield ratio falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  As of June 30, 2016, the Company’s debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach.  Such retained cash will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  

The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part.  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 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 prohibits the payment of dividends on or repurchase of the Company’s common stock.  As of June 30, 2016, the Company was in compliance with these covenants.

(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 provided for base annual rent of approximately $6.0 million per year until October 2014.  Base rent increases by a formula tied to increases in the Consumer Price Index, with 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 contractual rate 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 June 30, 2016, 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 Preferred Notes”) which mature on October 30, 2036.  The sole assets of the Trust consist of the Trust Preferred Notes.  The terms of the Trust Preferred Notes are substantially the same as preferred securities issued by the Trust.  The Trust Preferred 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 Preferred Notes are redeemable by the Trust, at the Company’s option, at par, and the Company has not redeemed any Trust Preferred Notes.  To the extent the Company redeems the Trust Preferred 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 Preferred Notes prior to their maturity or obtain the trustee’s consent in connection with such transfer.

(d) 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 June 30, 2016, the carrying amount of the Restaurant Lease Note was $4.3 million.

(e) 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 June 30, 2016 and December 31, 2015, respectively. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.  

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

7. Commitments and Contingencies

Hotel Development Related Commitments

In order to obtain management, franchise and license contracts, the Company may commit 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.  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.  As of June 30, 2016, the Company’s potential funding obligations under cash flow guarantees at hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum amount cannot be determined, was $5.0 million, which relates to Delano Cartagena where construction has not yet begun.   

The Company has signed management, license or franchise agreements for new hotels which are in various stages of development. As of June 30, 2016, these included the following:

	Expected Room Count	Anticipated Opening	Initial Term
Hotels Currently Under Construction or Renovation:
Mondrian Doha	270	2016	30 years
Delano Dubai	110	2017	20 years
Mondrian Dubai	235	2018	15 years
Other Signed Agreements:
Delano Aegean Sea	150		20 years
Delano Cartagena	211		20 years

There can be no assurance 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, in which case the Company may be unable to recover any previously funded key money, equity investments or debt financing.  

Owned Hotel Commitments

The Company may have long-term commitments that are expected to be incurred by the Company or its consolidated consisting of targeted renovations at the Company’s Owned Hotels and other non-recurring capital expenditures that need to be made periodically with respect to its properties, including a renovation of the façade of Hudson as required by Applicable Law, which must be completed by April 2018, costing an estimated $6.0 million, which the Company intends to fund through amounts in restricted cash and additional funds to be provided by the Company.

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.  Historically, the Company has funded the shortfall and as of June 30, 2016, approximately $0.4 million was accrued as a reduction to management fees related to these performance test provisions.  Until the end of 2016 and so long as the Company funds the shortfalls, the hotel owners do not have the right to terminate the Company as hotel manager.  The Company’s maximum potential amount of future fundings related to the Royalton and Morgans performance guarantee cannot be determined as of June 30, 2016, but under the hotel management agreements is limited to the Company’s base fees earned.  On January 28, 2016, the Company entered into amendments to each of the hotel management agreements relating to Royalton and Morgans, both owned by the same hotel owner.  In connection with owner’s potential sale of each of those hotels, the Company agreed to allow the owner to sell the hotels unencumbered by the current hotel management agreements.  Under each of the amendments, the owner has the right to terminate the hotel management agreements at any time upon at least 30 days’ prior written notice in exchange for paying us $3.5 million for each of the hotels upon a termination of each agreement.  The Company expects to continue to manage the hotels until they are sold.

Additionally, the Company is currently subject to performance tests under certain other of its hotel management agreements, which could result in early termination of the Company’s hotel management agreements.   As of June 30, 2016, the Company is in compliance with these termination performance tests and is not exercising any contractual cure rights.  Generally, the performance tests are two part tests based on achievement of budget or cash flow and revenue per available room indices.  In addition, once the performance test period begins, which is generally multiple years after a hotel opens, each of these performance tests must fail for two or more consecutive years and the Company has the right to cure any performance failures, subject to certain limitations.  

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 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 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.  On April 9, 2015, the Appellate Division, First Department, reversed the trial court’s decision, denying the motion to dismiss and remanding to the trial court for further proceedings.  The Company filed a motion for reconsideration at the appellate court, which was denied on July 7, 2015.  The Company filed its answer to the complaint with the trial court on May 11, 2015.  On August 27, 2015, Messrs.  Sasson and Masi filed a motion for partial summary judgment with the trial court and the Company filed its opposition to that motion on October 12, 2015.  In February 2016, the plaintiff’s partial summary judgment motion was granted and the judge signed the order in March 2016.  

On July 6, 2016, a judgment was entered in the Supreme Court of the State of New York.  At that time, the Company posted a bond in the amount of approximately $3.0 million, thereby staying enforcement of the judgment pending the Company’s appeal. Plaintiffs also have a claim for attorneys’ fees, which they have recently estimated to total approximately $1.0 million, which the Company intends to dispute and oppose.  Although the TLG Promissory Notes were repaid and retired in December 2014, this lawsuit remains pending in connection with issues related primarily to the interest rates applicable to the TLG Promissory Notes.  

Litigation Regarding Pending Acquisition of Company by SBEEG Holdings LLC

Following the announcementof theexecution ofthe definitive agreement under which the Company would be acquired by SBE, as discussed further in footnote 13, four putative classaction lawsuits werefiled by purported stockholders of the Company challenging the merger and themerger agreement.

The first complaint was filed inthe Supreme Court of New York, NewYork County on May 27, 2016 (the “New York Action”).  On June 15, 2016, the plaintiff in the NewYork Action filed a noticeof voluntary discontinuance without prejudice,thereby voluntarily discontinuing theNew York Action.

Theother threecomplaintswere filed in the Court ofChancery oftheStateof Delaware.On June 29, 2016, the Court of Chancery of the State ofDelawareenteredanorder,among other things, consolidating the three actionsfiled in Delaware (the “Consolidated Action”) and appointing co-lead counsel and Delaware counsel intheConsolidatedAction.

On June 30, 2016, plaintiffs in the Consolidated Action filed a Verified Consolidated Amended Class Action Complaint (the “Complaint”).  The Complaint names as defendants the individual members of our Board of Directors, SBE,Merger Sub, Ronald W. Burkle, The Yucaipa Companies, LLC, Yucaipa AmericanAlliance Fund II, L.P., Yucaipa American Alliance (Parallel) Fund II, L.P., Yucaipa American Alliance Fund II, LLC, Yucaipa American Funds, LLC, and YucaipaAmerican Management, LLC.  The Complaint alleges, among other things, thatthe members of the Company’s Board of Directors breached their fiduciary duties to the Company’s stockholders by approving the merger and authorizing the Company to enter into the merger agreement, that Mr. Burkle and the Yucaipa entities are controlling stockholders of the Company and breached their purported fiduciary duties, and that SBE and MergerSub aided and abetted these alleged fiduciary breaches.  The Complaint further alleges that, among other things, Mr. Burkle and the Yucaipaentities pressured the Company into entering into the merger agreement and approving the mergerand frustrated the Company’s efforts to explore other potential strategic alternatives;that the merger consideration is financially inadequate; that the sales process leading up tothe merger and the merger agreement was flawed; and that the deal-protection provisions in themerger agreement are unduly preclusive and therefore prevent a potential topping bidder or topping bidders from making a superior proposal.  The Complaint seeks, among other things, certification of the proposed class, preliminary and permanent injunctive relief (including enjoining orrescinding themerger), unspecified damages, and an award of other unspecified attorneys’ and other fees and costs.

The Company believes that the claims asserted in the Complaint are without merit and intend to defend against them. However, a

negative outcomein these lawsuits,or any follow-on lawsuit,could havea significant impact on the Company ifthey result in preliminary orpermanentinjunctive relief ordamages.  The Companyisnot currentlyableto predict the outcome of the litigation or any follow-up lawsuit with any certainty.

Environmental

As a holder of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance by the Company with existing laws has not had an adverse effect on the Company and management does not believe that it will have a material adverse impact in the future. However, the Company cannot predict the impact of new or changed laws or regulations.

Other Litigation

The Company is involved in various lawsuits and administrative actions in the normal course of business, in addition to the other litigation noted above.  The Company has recorded the necessary accrual for contingent liabilities related to outstanding litigations.

XML

Omnibus Stock Incentive Plan

6 Months Ended

Jun. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Omnibus Stock Incentive Plan

8. Omnibus Stock Incentive Plan

On May 22, 2007, the Company adopted the Morgans Hotel Group Co. 2007 Omnibus Stock Incentive Plan.  Subsequently and on several occasions, the Company’s Board of Directors adopted, and stockholders approved, amendments to the 2007 Omnibus Stock Incentive Plan (the “Stock Plan”), to namely increase the number of shares reserved for issuance under the plan.  As of June 30, 2016, 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 May 17, 2016, the Company issued an aggregate of 330,183 RSUs to seven non-employee directors under the Stock Plan for their annual retainer for the 2016-2017 Board of Directors term. These grants become 100% vested on May 12, 2017, 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 June 30, 2016 is as follows (in units, or shares, as applicable):  

	Restricted Stock Units			LTIP Units		Stock Options
Outstanding as of January 1, 2016		220,799			913,423		248,315
Granted during 2016		330,183			—		—
Distributed/exercised during 2016		(152,283	)		—		—
Forfeited or cancelled during 2016		(62,757	)		—		(45,600	)
Outstanding as of June 30, 2016		335,942			913,423		202,715
Vested as of June 30, 2016		—			913,423		202,715

Total stock compensation expense, which is included in corporate expenses on the accompanying consolidated statements of comprehensive loss, was $0.2 million, $0.6 million, $0.3 million, and $0.9 million, for the three and six months ended June 30, 2016 and 2015, respectively.

As of June 30, 2016 and December 31, 2015, there were approximately $0.6 million and $0.7 million, respectively, of total unrecognized compensation costs related to unvested share awards. As of June 30, 2016, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately less than one year.

XML

Preferred Securities and Warrants

6 Months Ended

Jun. 30, 2016

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 had an 8% dividend rate through October 15, 2014 and have a 10% dividend rate until October 15, 2016 and a 20% dividend rate thereafter.  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 June 30, 2016, the Company had undeclared and unpaid dividends of approximately $62.5 million.  The Company has the option to redeem any or all of the Series A preferred securities at par, plus cumulative unpaid dividends, 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.

For so long as the Yucaipa Investors own a majority of the outstanding Series A preferred securities under the terms of the certificate of designations governing the Series A preferred securities, they also have certain consent rights, subject to certain exceptions and limitations, over certain transactions involving the acquisition of the Company by any third party, other than as the result of the disposition of our real estate assets where we continue to engage in the business of managing hotel properties and other real estate, pursuant to which the Series A preferred securities are converted or otherwise reclassified into or exchanged for securities of another entity, and certain other transactions where a vote of the holders of the Series A preferred securities is required by law or the Company’s certificate of incorporation.  

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.

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.  A Yucaipa Investors’ nominee currently sits on the Company’s Board of Directors.  Accordingly, the current annual dividend rate on the Series A preferred securities until October 2016 is 10%.    

Under the terms of the Securities Purchase Agreement, the Yucaipa Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase, assuming cashless 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, other than as the result of the disposition of our real estate assets where the Company continues to engage in the business of managing hotel properties and other real property assets; 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.

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 June 30, 2016, the value of the preferred securities was $73.5 million, which includes cumulative accretion of $25.4 million.

See note 13 for additional information pertaining to the Series A preferred securities and the Yucaipa Warrants.

XML

Related Party Transactions

6 Months Ended

Jun. 30, 2016

Related Party Transactions [Abstract]

Related Party Transactions

10. Related Party Transactions

The Company earned management fees, chain services reimbursements and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures.  These fees totaled approximately $0.3 million and $0.5 million for the three months ended June 30, 2016 and 2015, respectively, and $0.9 million and $1.3 million for the six months ended June 30, 2016 and 2015, respectively.

As of December 31, 2015, the Company had receivables from these affiliates of approximately $0.4 million, which is included in related party receivables on the accompanying consolidated balance sheet.  The Company’s receivables from affiliates as of June 30, 2016 were immaterial.  

XML

Other Expenses

6 Months Ended

Jun. 30, 2016

Other Income And Expenses [Abstract]

Other Expenses

11. Other Expenses

Restructuring and development costs

Restructuring 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, the Board of Directors’ strategic alterative review process costs, proxy contests, and gains and losses on asset disposals as part of major renovation projects.  Development 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. Restructuring and development costs consist of the following (in thousands):

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015		Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Restructuring costs	$	3,127		$	210	$	3,706		$	505
Severance costs		71			383		76			2,043
Development		63			457		173			605
Other		(666	)		-		(661	)		(6	)
	$	2,595		$	1,050	$	3,294		$	3,147

Other non-operating expenses

Other non-operating expenses primarily relate to costs associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, miscellaneous litigation and settlement costs and other expenses that relate to the financing and investing activities of the Company.  Other non-operating expenses consist of the following (in thousands):

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Litigation costs		269		1,437		703		2,719
Other		32		115		141		488
	$	301	$	1,552	$	844	$	3,207

XML

Deferred Gain on Asset Sales

6 Months Ended

Jun. 30, 2016

Revenue Recognition [Abstract]

Deferred Gain on Asset Sales

12. Deferred Gain on Asset Sales

Deferred Gain

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 were $2.0 million and $2.0 million for the three months ended June 30, 2016 and 2015, respectively, and $4.0 million and $4.0 million for the six months ended June 30, 2016 and 2015, respectively.

Gain on Sale of TLG Equity Interest

On January 23, 2015, the Company completed the TLG Equity Sale, as discussed in note 1, and received proceeds of $32.8 million, net of closing costs.  In accordance with ASC 360-20, the Company recognized a gain of $1.8 million on the sale of its interest in TLG during the six months ended June 30, 2015.  The operating results of TLG’s operations from January 1, 2015 to January 22, 2015 was not significant.  

XML

Pending Acquisition by SBEEG Holdings LLC

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Pending Acquisition by SBEEG Holdings LLC

13. Pending Acquisition by SBEEG Holdings, LLC  

On May 9, 2016, the Company entered into a definitive agreement under which the Company will be acquired by SBEEG Holdings, LLC (“SBE”), a leading global lifestyle hospitality company.  Under the terms of the merger agreement, SBE will acquire all of the outstanding shares of the Company’s common stock for $2.25 per share in cash.  As part of the transaction, affiliates of the Yucaipa Investors will exchange their $75.0 million in Series A preferred securities, accrued preferred dividends, and warrants for $75.0 million in preferred shares and an interest in the common equity in the acquirer and, following the closing, the leasehold interests in three restaurants in Las Vegas currently held by the Company.  The transaction, which was approved by the Company’s Board of Directors, is expected to close in the third or fourth quarter, and is subject to regulatory approvals, the assumption or refinancing of the Company’s mortgage loan agreements, and customary closing conditions, including approval of the transaction by the Company’s stockholders. The Company’s stockholders representing approximately 29% of the Company’s outstanding shares of common stock have signed voting agreements in support of this transaction, including OTK Associates, Pine River Capital Management and Vector Group Ltd.  An affiliate of the Yucaipa Investors has also signed a voting agreement in respect of its Series A preferred securities and consented to the transaction for purposes of certain provisions of the Securities Purchase Agreement between the Yucaipa Investors and the Company.  

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

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 (“U.S. 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 U.S. 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 U.S. 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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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, 2015.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 debt service or lease payments, insurance programs, and taxes, among others.  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.

The Hudson/Delano 2014 Mortgage Loan, defined and discussed below in note 6, provides that 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.  In the event the debt yield ratio falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  As of June 30, 2016, the Company’s debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach.  Such retained cash will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.  

Assets Held for Sale

Assets Held for Sale

The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or a group of properties for sale and the sale is probable whereby a signed sales contract and significant non-refundable deposit or contract break-up fee exist.  Upon designation as an asset held for sale, the Company records the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and the Company stops recording depreciation expense.  Any gain realized in connection with the sale of the properties for which the Company has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement.

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 Account Standard Codification (“ASC”) 810-10, Consolidation.  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 June 30, 2016, there were no liabilities required to be recorded related to these investments.

Other Assets

Other Assets

In October 2014, the Company funded an approximately $15.3 million key money obligation related to Mondrian London, which is included in Other Assets and is being amortized over the term of the hotel management agreement.

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 an existing hotel to Delano Las Vegas.  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 at $7.5 million, as discussed in note 6.  The three food and beverage venues are managed by TLG and are 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 and restaurant leasehold interests, using the straight line method, over the 10-year life of the respective agreement.

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.

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 six months ended June 30, 2016 and 2015 were computed using the Company’s effective tax rate.

Credit-risk-related Contingent Features

Credit-risk-related Contingent Features

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, subject to the terms of the Securities Purchase Agreement, 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, as discussed further in note 9.  The Yucaipa Warrants are exercisable utilizing a cashless exercise method only, resulting in a net share issuance.  See note 13 for additional information about the Yucaipa Warrants.

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.  As of June 30, 2016 and December 31, 2015, 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 June 30, 2016, the Company had three interest rate caps outstanding and the fair value of these interest rate caps was $0.5 million.

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 amount of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of June 30, 2016 and December 31, 2015 due to the short-term maturity of these items or variable market interest rates.

The Company had outstanding fixed rate debt principal of $54.4 million and $54.9 million as of June 30, 2016 and December 31, 2015, respectively, which included the Company’s trust preferred securities and Restaurant Lease Note, discussed above, and excludes capital leases.  This fixed rate debt had a fair market value at June 30, 2016 and December 31, 2015 of approximately $62.8 million and $60.6 million, respectively, using market rates.

Although the Company has determined that the majority of the inputs used to value its fixed rate debt fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its fixed rate debt utilize Level 3 inputs, such as estimates of current credit spreads.  As of June 30, 2016 and December 31, 2015, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its fixed rate debt and determined that the credit valuation adjustments are not significant to the overall valuation of its fixed rate debt.  Accordingly, all derivatives have been classified as Level 2 fair value measurements.

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 in Morgans Group, the Company’s operating company, owned by the Former Parent are presented as a noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $0.6 million and $0.6 million as of June 30, 2016 and December 31, 2015, 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 June 30, 2016, there were 75,446 membership units outstanding, each of which is exchangeable for a share of the Company’s common stock.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance.  The new standard sets forth five prescribed steps to determine the timing and amount of revenue to be recognized to appropriately depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations”, which further clarifies the application of the standard depending on whether the entity is a principal or an agent. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which deferred the effectiveness of ASU No. 2014-09 to reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.  

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.

Reclassifications

Reclassifications

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

XML

Organization and Formation Transaction (Tables)

6 Months Ended

Jun. 30, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Hotels

The Company’s hotels as of June 30, 2016 were as follows:

Hotel Name	Location	Number of Rooms		Interest
Hudson	New York,NY		878		(1	)
Morgans	New York, NY		117		(2	)
Royalton	New York, NY		168		(2	)
Delano South Beach	Miami Beach, FL		194		(3	)
Mondrian South Beach	Miami Beach, FL		219		(6	)
Shore Club	Miami Beach, FL		308		(4	)
Mondrian Los Angeles	Los Angeles, CA		236		(2	)
Clift	San Francisco, CA		372		(5	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Mondrian London at Sea Containers	London, England		359		(2	)
Delano Las Vegas	LasVegas, Nevada		1,117		(6	)
10 Karakoy	Istanbul, Turkey		71		(7	)

(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 June 30, 2016, Hudson had 878 guest rooms and 60 single room dwelling units (“SROs”).

(2) Operated under a management contract.

(3) Wholly-owned hotel.

(4) Operated under a management contract.  The Company currently expects to no longer manage Shore Club during the fourth quarter of2016.    

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

(6) A licensed hotel.  

(7) A franchised hotel.  

XML

Income (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2016

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.

	ThreeMonths Ended March 31, 2016			Three Months Ended March 31, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Numerator:
Net loss	$	(5,822	)	$	(6,654	)	$	(14,744	)	$	(19,492	)
Net loss attributable to noncontrolling    interest		12			13			30			27
Net loss attributable to Morgans Hotel    Group Co.		(5,810	)		(6,641	)		(14,714	)		(19,465	)
Less: preferred stock dividends and accretion		4,659			4,075			9,126			7,985
Net loss attributable to common stockholders	$	(10,469	)	$	(10,716	)	$	(23,840	)	$	(27,450	)
Denominator:
Weighted average basic common shares    outstanding		34,813			34,492			34,776			34,440
Basic and diluted loss attributable to common    stockholders per common share	$	(0.30	)	$	(0.31	)	$	(0.69	)	$	(0.80	)

XML

Debt and Capital Lease Obligations (Tables)

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Debt and Capital Lease Obligations

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

Description	Principal as of June 30, 2016		Unamortized Debt Issuance Costs as of June 30, 2016			Net Debt as of June 30, 2016		Interest rate at June 30, 2016
Hudson/Delano Mortgage (a)	$	421,803	$	(34	)	$	421,769	5.94% (LIBOR cap+ 5.65%)
Clift debt (b)		96,223		(46	)		96,177	9.60%
Liability to subsidiary trust (c)		50,100		(2,931	)		47,169	8.68%
Restaurant Lease Note (d)		4,282		-			4,282	(d)
Capital lease obligations (e)		6,104		-			6,104	(e)
Debt and capital lease obligation	$	578,512	$	(3,011	)	$	575,501

XML

Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

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 various stages of development. As of June 30, 2016, these included the following:

	Expected Room Count	Anticipated Opening	Initial Term
Hotels Currently Under Construction or Renovation:
Mondrian Doha	270	2016	30 years
Delano Dubai	110	2017	20 years
Mondrian Dubai	235	2018	15 years
Other Signed Agreements:
Delano Aegean Sea	150		20 years
Delano Cartagena	211		20 years

XML

Omnibus Stock Incentive Plan (Tables)

6 Months Ended

Jun. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock-based Incentive Awards

A summary of stock-based incentive awards as of June 30, 2016 is as follows (in units, or shares, as applicable):

	Restricted Stock Units			LTIP Units		Stock Options
Outstanding as of January 1, 2016		220,799			913,423		248,315
Granted during 2016		330,183			—		—
Distributed/exercised during 2016		(152,283	)		—		—
Forfeited or cancelled during 2016		(62,757	)		—		(45,600	)
Outstanding as of June 30, 2016		335,942			913,423		202,715
Vested as of June 30, 2016		—			913,423		202,715

XML

Other Expenses (Tables)

6 Months Ended

Jun. 30, 2016

Other Income And Expenses [Abstract]

Restructuring and Development Costs

Restructuring and development costs consist of the following (in thousands):

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015		Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Restructuring costs	$	3,127		$	210	$	3,706		$	505
Severance costs		71			383		76			2,043
Development		63			457		173			605
Other		(666	)		-		(661	)		(6	)
	$	2,595		$	1,050	$	3,294		$	3,147

Other Non-Operating Expenses

Other non-operating expenses consist of the following (in thousands):

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Litigation costs		269		1,437		703		2,719
Other		32		115		141		488
	$	301	$	1,552	$	844	$	3,207

XML

Organization and Formation Transaction - Additional Information (Detail) $ in Thousands			1 Months Ended	6 Months Ended
	Jan. 23, 2015 USD ($)	Nov. 30, 2011 USD ($)	Dec. 31, 2014 USD ($)	Jun. 30, 2016 USD ($) Segment	Jun. 30, 2015 USD ($)	Feb. 01, 2006 shares
Organization and Formation Transaction [Line Items]
Date of incorporation				Oct. 19, 2005
Incorporated state				Delaware
Membership units exchangeable for common stock | shares						1,000,000
Number of reportable operating segments | Segment				1
Impairment of goodwill				$ 400
Gain on sale and disposal of assets				661	$ 6
Hakkasan Holdings LLC
Organization and Formation Transaction [Line Items]
Cash paid on exercise of minority holder put rights	$ 3,600
Repurchase option, expiration date	Jun. 23, 2016
Hakkasan Holdings LLC | Maximum
Organization and Formation Transaction [Line Items]
Future ownership interest option	49.00%
The Light Group | Hakkasan Holdings LLC
Organization and Formation Transaction [Line Items]
Equity interest sold	90.00%
Proceeds from Equity Sale	$ 32,800
The Light Group | Hakkasan Holdings LLC | Indemnification Guarantee
Organization and Formation Transaction [Line Items]
Liability related to indemnification obligations				$ 300
The Light Group Purchase
Organization and Formation Transaction [Line Items]
Ownership interest owned		90.00%
Cash paid for acquisition		$ 28,500
The Light Group Purchase | T L G Promissory Note
Organization and Formation Transaction [Line Items]
Promissory notes issued to acquire business		$ 18,000
Repayments of outstanding promissory notes			$ 19,100
Debt instrument, face value			18,000
Deferred interest			$ 1,100
Sasson-Masi Put Options
Organization and Formation Transaction [Line Items]
Minority equity interest percentage	10.00%
International Locations | Geographic Concentration Risk | Total Revenues
Organization and Formation Transaction [Line Items]
Percentage of revenues				5.60%	6.30%

XML

Hotels (Detail)	Jun. 30, 2016 Room
Hudson
Entity Hotels Disclosure [Line Items]
Number of Rooms	878
Hudson | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	878	[1]
Morgans | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	117	[2]
Royalton | New York, NY
Entity Hotels Disclosure [Line Items]
Number of Rooms	168	[2]
Delano South Beach | Miami Beach, FL
Entity Hotels Disclosure [Line Items]
Number of Rooms	194	[3]
Mondrian South Beach | Miami Beach, FL
Entity Hotels Disclosure [Line Items]
Number of Rooms	219	[4]
Shore Club | Miami Beach, FL
Entity Hotels Disclosure [Line Items]
Number of Rooms	308	[5]
Mondrian Los Angeles | Los Angeles, CA
Entity Hotels Disclosure [Line Items]
Number of Rooms	236	[2]
Clift | San Francisco, CA
Entity Hotels Disclosure [Line Items]
Number of Rooms	372	[6]
Sanderson | London, England
Entity Hotels Disclosure [Line Items]
Number of Rooms	150	[2]
St Martins Lane | London, England
Entity Hotels Disclosure [Line Items]
Number of Rooms	204	[2]
Mondrian London at Sea Containers | London, England
Entity Hotels Disclosure [Line Items]
Number of Rooms	359	[2]
Delano Las Vegas | Las Vegas, Nevada
Entity Hotels Disclosure [Line Items]
Number of Rooms	1,117	[4]
10 Karakoy | Istanbul, Turkey
Entity Hotels Disclosure [Line Items]
Number of Rooms	71	[7]

[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 June 30, 2016, Hudson had 878 guest rooms and 60 single room dwelling units (“SROs”).

[2] Operated under a management contract.

[3] Wholly-owned hotel.

[4] A licensed hotel.

[5] Operated under a management contract. The Company currently expects to no longer manage Shore Club during the fourth quarter of 2016.

[6] The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.

[7] A franchised hotel.

XML

Hotels (Parenthetical) (Detail) - Hudson	Jun. 30, 2016 Room
Entity Hotels Disclosure [Line Items]
Ownership interest owned	100.00%
Percentage of square footage of building owned	96.00%
Number of Rooms	878
Number of SROs	60

XML

Summary of Significant Accounting Policies - Additional Information (Detail)		1 Months Ended	6 Months Ended
	Oct. 15, 2009 $ / shares shares	Aug. 31, 2012 USD ($) Agreement Restaurant	Jun. 30, 2016 USD ($) Derivative $ / shares shares	Dec. 31, 2015 USD ($) shares	Oct. 31, 2014 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Percentage of hotels' revenues in restricted escrow accounts			4.00%
Investments in unconsolidated joint ventures, liabilities			$ 0
Term of license agreement		10 years
Operating lease expiration period		10 years
Outstanding fixed rate debt principal			54,400,000	$ 54,900,000
Fair market value of fixed rate debt			62,800,000	60,600,000
Membership units in noncontrolling interest			$ 567,000	$ 597,000
Membership units in Morgans Group outstanding | shares			75,446	75,446
Yucaipa Warrants
Summary Of Significant Accounting Policies [Line Items]
Right to purchase common stock through the exercise of warrants | shares	12,500,000		12,500,000
Exercise price of warrants or rights | $ / shares	$ 6.00		$ 6.00
Investors consent rights warrants | shares	6,250,000		6,250,000
Convert Existing Hotel To Delano Las Vegas | Restaurant Lease Note
Summary Of Significant Accounting Policies [Line Items]
Deferred promissory note payable		$ 10,600,000
Restaurant lease note term		7 years
Fair value of restaurant lease note		$ 7,500,000
Mondrian London | Other assets, net
Summary Of Significant Accounting Policies [Line Items]
Key money					$ 15,300,000
Delano Las Vegas
Summary Of Significant Accounting Policies [Line Items]
Extension of license agreement		5 years
Number of times license agreement period to be extended | Agreement		2
Company acquired the leasehold interest in number of food and beverage venues | Restaurant		3
Cash payment to acquire leasehold interests		$ 15,000,000
Finite lived intangible assets useful life		10 years
Delano Las Vegas | Restaurant Lease Note
Summary Of Significant Accounting Policies [Line Items]
Deferred promissory note payable		$ 10,600,000
Restaurant lease note term		7 years
Fair value of restaurant lease note		$ 7,500,000
Hudson/Delano 2014 Mortgage Loan
Summary Of Significant Accounting Policies [Line Items]
Debt yield ratio, minimum threshold			6.75%
Debt yield ratio that must be achieved after falling below minimum debt yield threshold			7.00%
Debt yield ratio			6.68%
Interest Rate Caps
Summary Of Significant Accounting Policies [Line Items]
Number of interest rate caps outstanding | Derivative			3
Fair value of interest rate caps			$ 500,000

XML

Income (Loss) Per Share - Additional Information (Detail) - shares	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Earnings Per Share [Abstract]
Assumption of net income distributed as dividends for calculation of net income per share	100.00%
Antidilutive securities excluded from computation of earnings per share, amount	75,446	75,446

XML

Income (Loss) Per Share - Components of Basic and Diluted Loss Per Share Calculations (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2016	Mar. 31, 2016	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2016	Jun. 30, 2015
Numerator:
Net loss	$ (5,822)	$ (5,822)	$ (6,654)	$ (6,654)	$ (14,744)	$ (19,492)
Net loss attributable to noncontrolling interest	12	12	13	13	30	27
Net loss attributable to Morgans Hotel Group Co.	(5,810)	(5,810)	(6,641)	(6,641)	(14,714)	(19,465)
Less: preferred stock dividends and accretion	4,659	4,659	4,075	4,075	9,126	7,985
Net loss attributable to common stockholders	$ (10,469)	$ (10,469)	$ (10,716)	$ (10,716)	$ (23,840)	$ (27,450)
Denominator:
Weighted average basic common shares outstanding		34,813		34,492	34,776	34,440
Basic and diluted loss attributable to common stockholders per common share	$ (0.30)	$ (0.30)	$ (0.31)	$ (0.31)	$ (0.69)	$ (0.80)

XML

Investments in and Advances to Unconsolidated Joint Ventures - Additional Information (Detail)		1 Months Ended	2 Months Ended	3 Months Ended	6 Months Ended
	Sep. 30, 2015 USD ($)	Feb. 28, 2011 OptionPlan	Jan. 31, 2012 USD ($)	Mar. 31, 2015 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($)	Jun. 08, 2016 USD ($)	Dec. 31, 2015 USD ($)	Mar. 06, 2015 USD ($)	Jun. 30, 2007	Aug. 08, 2006
Schedule of Equity Method Investments [Line Items]
Investments in and advances to unconsolidated joint ventures						$ 100,000		$ 100,000
Maximum | Condominium
Schedule of Equity Method Investments [Line Items]
Purchase guarantee							$ 14,000,000
Mondrian Istanbul
Schedule of Equity Method Investments [Line Items]
Impairment charge				$ 3,900,000	$ 3,900,000
Equity ownership			20.00%
Equity investment requirements and funds			$ 10,300,000
Payment received from joint venture for sale of equity	$ 6,500,000
Mondrian South Beach | Joint Venture
Schedule of Equity Method Investments [Line Items]
Investments in and advances to unconsolidated joint ventures							$ 0
Equity ownership						50.00%					50.00%
Mondrian SoHo
Schedule of Equity Method Investments [Line Items]
Investments in and advances to unconsolidated joint ventures									$ 0
Equity ownership										20.00%
Initial Management Contract Period		10 years
Number of extension option | OptionPlan		2

XML

Other Liabilities - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Other Liabilities [Line Items]
Other liabilities	$ 13,866	$ 13,866
Base fee due designer	1.00%
Base fee payable for period from hotel opening	10 years
Designer Fee Claim
Other Liabilities [Line Items]
Other liabilities	$ 13,900	$ 13,900
Design Elements
Other Liabilities [Line Items]
Amortization expense over estimated life	5 years

XML

Debt and Capital Lease Obligations (Detail) - USD ($) $ in Thousands			6 Months Ended
		Feb. 09, 2016	Jun. 30, 2016	Dec. 31, 2015
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligations, Gross			$ 578,512
Unamortized debt issuance costs			(3,011)
Debt and capital lease obligation, Net			575,501	$ 602,630
Hudson/Delano 2014 Mortgage Loan
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligations, Gross	[1]		421,803
Unamortized debt issuance costs			(34)
Debt and capital lease obligation, Net			$ 421,769
Interest rate			5.94%
Hudson/Delano 2014 Mortgage Loan | Libor Rate
Debt And Capital Lease Obligations [Line Items]
Basis spread on variable rate		5.65%	5.65%
Clift Debt
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligations, Gross	[2]		$ 96,223
Unamortized debt issuance costs			(46)
Debt and capital lease obligation, Net			$ 96,177
Interest rate			9.60%
Liability to Subsidiary Trust Issuing Preferred Securities
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligations, Gross	[3]		$ 50,100
Unamortized debt issuance costs			(2,931)
Debt and capital lease obligation, Net			$ 47,169
Interest rate			8.68%
Restaurant Lease Note
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligations, Gross	[4]		$ 4,282
Debt and capital lease obligation, Net			4,282
Capital Lease Obligations
Debt And Capital Lease Obligations [Line Items]
Debt and capital lease obligations, Gross	[5]		6,104
Debt and capital lease obligation, Net			$ 6,104

[1] (a) Hudson/Delano 2014 Mortgage Loan On February 6, 2014, subsidiaries of the Company entered into a 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 repay the outstanding mortgage debt under the prior mortgage loan secured by Hudson, repay outstanding indebtedness under the Company’s senior secured revolving credit facility secured by Delano South Beach (the “Delano Credit Facility”), and fund reserves required under the Hudson/Delano 2014 Mortgage Loan, with the remainder available for general corporate purposes and working capital. The Hudson/Delano 2014 Mortgage Loan was scheduled to mature on February 9, 2016. On that date, the Company paid $28.2 million to reduce the principal balance by the same amount and extend the maturity of this debt until February 9, 2017. Following the extension, the Company has two additional 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 achievement by the Company of a trailing twelve month debt yield of no less than 7.75% for the first extension and no less than 8.00% for the second extension. The Company may prepay the Hudson/Delano 2014 Mortgage Loan in an amount necessary to achieve the specified debt yield. The second and third extensions would also require the payment of an extension fee equal to 0.25% of the then outstanding principal amount under the Hudson/Delano 2014 Mortgage Loan. Based on the Company’s trailing 12 month cash flow through June 30, 2016, the Company estimates that it would be required to prepay approximately $58.4 million of outstanding debt under the Hudson/Delano 2014 Mortgage Loan by February 9, 2017 and pay an approximately $1.0 million extension fee in order to extend the maturity date of the debt outstanding under the Hudson/Delano 2014 Mortgage Loan to February 9, 2018. The Hudson/Delano 2014 Mortgage Loan bears interest at a blended rate of 30-day LIBOR plus 565 basis points. The Company maintained interest rate caps for the $450.0 million principal amount of the Hudson/Delano 2014 Mortgage Loan that capped the LIBOR rate on the debt under the Hudson/Delano 2014 Mortgage Loan at approximately 1.75% through the February 9, 2016. In connection with the extension in February 2016, the Company purchased three interest rate caps with an aggregate notional value of $421.8 million that cap LIBOR at 0.29% through the next maturity date of the loan. The Hudson/Delano 2014 Mortgage Loan provides that 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. In the event the debt yield ratio falls below 6.75%, any excess amounts will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters. As of June 30, 2016, the Company’s debt yield ratio was 6.68% and the lenders are currently retaining the excess cash flow of Hudson and Delano South Beach. Such retained cash will be retained by the lenders until the debt yield ratio exceeds 7.00% for two consecutive calendar quarters.   The Hudson/Delano 2014 Mortgage Loan may be prepaid at any time, in whole or in part. 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 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 prohibits the payment of dividends on or repurchase of the Company’s common stock. As of June 30, 2016, the Company was in compliance with these covenants.

[2] (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 provided for base annual rent of approximately $6.0 million per year until October 2014. Base rent increases by a formula tied to increases in the Consumer Price Index, with 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 contractual rate increase, effective October 14, 2014, the annual rent increased to $7.6 million. The lease is nonrecourse to the Company.

[3] (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 Preferred Notes”) which mature on October 30, 2036. The sole assets of the Trust consist of the Trust Preferred Notes. The terms of the Trust Preferred Notes are substantially the same as preferred securities issued by the Trust. The Trust Preferred 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 Preferred Notes are redeemable by the Trust, at the Company’s option, at par, and the Company has not redeemed any Trust Preferred Notes. To the extent the Company redeems the Trust Preferred 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 Preferred Notes prior to their maturity or obtain the trustee’s consent in connection with such transfer.

[4] (d) Restaurant Lease Note

[5] (e) 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.

XML

Debt and Capital Lease Obligations (Parenthetical) (Detail)					1 Months Ended		6 Months Ended
	Feb. 09, 2016 USD ($)	Oct. 14, 2014 USD ($)	Feb. 06, 2014 USD ($) Extension	Aug. 04, 2006 USD ($)	Aug. 31, 2012 USD ($) Restaurant	Oct. 31, 2004 USD ($)	Jun. 30, 2016 USD ($) Condominium	Feb. 29, 2016 USD ($) Derivative	Dec. 31, 2015 USD ($)
Hudson Lease 1 and Lease 2
Debt And Capital Lease Obligations [Line Items]
Number of Condominium Unit Leased | Condominium							2
Capital lease obligation							$ 6,100,000		$ 6,100,000
Hudson Lease 1
Debt And Capital Lease Obligations [Line Items]
Annual minimum lease payments							$ 649,728
Lease expiration date							2096-11
Date after which company could purchase leased asset at fair market value							2015-11
Interest rate							8.00%
Hudson Lease Lease 2
Debt And Capital Lease Obligations [Line Items]
Annual minimum lease payments							$ 365,490
Lease expiration date							2098-12
Interest rate							8.00%
Delano Las Vegas
Debt And Capital Lease Obligations [Line Items]
Company acquired the leasehold interest in number of food and beverage venues | Restaurant					3
Cash payment to acquire leasehold interests					$ 15,000,000
Hudson/Delano 2014 Mortgage Loan
Debt And Capital Lease Obligations [Line Items]
Debt yield ratio, minimum threshold							6.75%
Debt yield ratio that must be achieved after falling below minimum debt yield threshold							7.00%
Debt yield ratio							6.68%
Mezzanine Loan Hudson/Delano 2014 Mortgage Loan
Debt And Capital Lease Obligations [Line Items]
Debt instrument, face value			$ 150,000,000
Hudson/Delano 2014 Mortgage Loan
Debt And Capital Lease Obligations [Line Items]
Debt instrument, face value			$ 450,000,000
Hudson/Delano 2014 Mortgage Loan matures			Feb. 09, 2016
Repayment of mortgage loan	$ 28,200,000
Due date of debt			Feb. 09, 2017
Number of extension options | Extension			2
Maturity period extension			1 year
Extended Hudson/Delano 2014 Mortgage Loan maturity date			Feb. 09, 2019
Requirement for Second and Third Extension in Maturity Date			0.25%
Estimated prepayment of outstanding debt by February 9, 2017							$ 58,400,000
Estimated payment of extension fee to extend the maturity date of debt outstanding to February 9, 2018							$ 1,000,000
Interest rate							5.94%
Hudson/Delano 2014 Mortgage Loan | Libor Rate
Debt And Capital Lease Obligations [Line Items]
Variable rate basis							30-day LIBOR
Basis spread on variable rate	5.65%						5.65%
Debt principle amount	$ 450,000,000							$ 421,800,000
LIBOR cap rate	1.75%							0.29%
Number of interest rate caps purchased | Derivative								3
Hudson/Delano 2014 Mortgage Loan | Extension Until February 9, 2018 | Minimum
Debt And Capital Lease Obligations [Line Items]
Debt yield for first extension			7.75%
Hudson/Delano 2014 Mortgage Loan | Extension Until February 9, 2019 | Minimum
Debt And Capital Lease Obligations [Line Items]
Debt yield for second extension			8.00%
Nonrecourse Mortgage Notes Hudson/Delano 2014 Mortgage Loan
Debt And Capital Lease Obligations [Line Items]
Debt instrument, face value			$ 300,000,000
Clift Debt
Debt And Capital Lease Obligations [Line Items]
Sale of subsidiary company						$ 71,000,000
Capital lease annual base rent							99-year lease term
Capital leased payment require		$ 6,000,000					$ 7,600,000
Increase in rent in future period						5 years
Morgans Group agreed to guarantee losses							$ 6,000,000
Interest rate							9.60%
Clift Debt | Minimum
Debt And Capital Lease Obligations [Line Items]
Increase in base rent, percentage at each five-year rent increase date						10.00%
Clift Debt | Maximum
Debt And Capital Lease Obligations [Line Items]
Increase in base rent, percentage at each five-year rent increase date						20.00%
Liability to Subsidiary Trust Issuing Preferred Securities
Debt And Capital Lease Obligations [Line Items]
Due date of debt							Oct. 30, 2036
Preferred securities issued				$ 50,000,000
Amount of common stock owned by the company through trust							$ 100,000
Interest rate							8.68%
Liability to Subsidiary Trust Issuing Preferred Securities | Trust Preferred Notes
Debt And Capital Lease Obligations [Line Items]
Proceeds used to purchase of junior subordinated notes issued				$ 50,100,000
Liability to Subsidiary Trust Issuing Preferred Securities | Trust Preferred Notes and Trust Preferred Securities
Debt And Capital Lease Obligations [Line Items]
Interest rate							8.68%
Expiration date of fixed rate interest							2016-10
Liability to Subsidiary Trust Issuing Preferred Securities | Libor Rate | After October 2016 | Trust Preferred Notes and Trust Preferred Securities
Debt And Capital Lease Obligations [Line Items]
Variable rate basis							three-month LIBOR rate
Basis spread on variable rate							3.25%
Restaurant Lease Note | Delano Las Vegas
Debt And Capital Lease Obligations [Line Items]
Debt instrument, face value					$ 10,600,000
Restaurant lease note term					7 years
Fair value of restaurant lease note					$ 7,500,000
Debt Instrument Carrying Amount							$ 4,300,000

XML

Commitments and Contingencies - Additional Information (Detail)				6 Months Ended
	Jul. 06, 2016 USD ($)	Jan. 28, 2016 USD ($)	Aug. 05, 2013 USD ($)	Jun. 30, 2016 USD ($) lawsuit
Commitments and Contingencies [Line Items]
Estimated long-term commitments				$ 6,000,000
T L G Promissory Note
Commitments and Contingencies [Line Items]
Claim of defaulted loans			$ 18,000,000
Mr. Sasson | T L G Promissory Note
Commitments and Contingencies [Line Items]
Claim of defaulted loans			16,000,000
Mr. Masi | T L G Promissory Note
Commitments and Contingencies [Line Items]
Claim of defaulted loans			$ 2,000,000
Messrs. Sasson and Masi | T L G Promissory Note | Subsequent Event
Commitments and Contingencies [Line Items]
Bond amount for staying enforcement	$ 3,000,000
Estimated attorneys fees	$ 1,000,000
Royalton and Morgans
Commitments and Contingencies [Line Items]
Accrued expenses and reduction to management fees				$ 400,000
Management agreement termination period		30 days
Agreement termination fee		$ 3,500,000
SBEEG Holdings LLC
Commitments and Contingencies [Line Items]
Number of putative class action lawsuits | lawsuit				4
Delano Marrakech
Commitments and Contingencies [Line Items]
Funding obligations under cash flow guarantees				$ 5,000,000

XML

License or Franchise Agreements for New Hotels Which are in Development Stage (Detail)	6 Months Ended
	Jun. 30, 2016 Room
Mondrian Doha
Development Hotel Agreements [Line Items]
Expected Room Count	270
Anticipated Opening	2016
Initial Term	30 years
Delano Dubai
Development Hotel Agreements [Line Items]
Expected Room Count	110
Anticipated Opening	2017
Initial Term	20 years
Mondrian Dubai
Development Hotel Agreements [Line Items]
Expected Room Count	235
Anticipated Opening	2018
Initial Term	15 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

XML

Omnibus Stock Incentive Plan - Additional Information (Detail) $ in Thousands		3 Months Ended		6 Months Ended
	May 17, 2016 Director shares	Jun. 30, 2016 USD ($) shares	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) shares	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense | $		$ 200	$ 600	$ 308	$ 922
Unrecognized compensation costs | $		$ 600		$ 600		$ 700
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average period over unrecognized compensation expense				1 year
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units issued | shares	330,183			330,183
Number of non employee directors | Director	7
Vesting percentage on vesting date	100.00%
Vesting date	May 12, 2017
Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved and authorized | shares		14,610,000		14,610,000
Reduction in shares available for grant due to each award other than options and stock appreciation rights				170.00%

XML

Summary of Stock-based Incentive Awards (Detail) - shares		6 Months Ended
	May 17, 2016	Jun. 30, 2016
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning Balance		220,799
Granted	330,183	330,183
Distributed/exercised		(152,283)
Forfeited or cancelled		(62,757)
Outstanding, Ending Balance		335,942
LTIP Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning Balance		913,423
Outstanding, Ending Balance		913,423
Vested		913,423
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning Balance		248,315
Forfeited or cancelled		(45,600)
Outstanding, Ending Balance		202,715
Vested		202,715

XML

Preferred Securities and Warrants - Additional Information (Detail) $ / shares in Units, $ in Millions		3 Months Ended	6 Months Ended
	Oct. 15, 2009 USD ($) Person $ / shares shares	Mar. 31, 2016 USD ($)	Jun. 30, 2016 USD ($) $ / shares shares	Dec. 31, 2015 $ / shares
Preferred Securities And Warrants [Line Items]
Preferred stock, liquidation preference per share | $ / shares			$ 1,000	$ 1,000
Series A Preferred Stock
Preferred Securities And Warrants [Line Items]
Preferred stock issued, share | shares	75,000
Preferred stock issued, value	$ 75.0
Preferred stock, liquidation preference per share | $ / shares	$ 1,000
Preferred stock Series A dividend rate through October 15, 2014	8.00%
Preferred stock Series A dividend rate until October 15, 2016	10.00%
Preferred stock Series A dividend rate after October 15, 2016	20.00%
Undeclared and unpaid dividends		$ 62.5
Investors dividend rate on the Series A Preferred Securities increases	4.00%
Cumulative accretion			$ 25.4
Value of preferred securities			$ 73.5
Yucaipa Warrants
Preferred Securities And Warrants [Line Items]
Number of warrants issued | shares	12,500,000		12,500,000
Exercise price of warrants or rights | $ / shares	$ 6.00		$ 6.00
Term of warrants	7 years 6 months
Warrant, expiration date	2017-04
Investors collectively own or right to purchase through exercise of shares | shares			875,000
Investors consent rights warrants | shares	6,250,000		6,250,000
Equity investment acquisition	$ 100.0
Change in size of board of directors, lower range | Person	7
Change in size of board of directors, upper range | Person	9
Beneficial ownership interest in which investors are subject to certain standstill arrangements	15.00%
Yucaipa Warrants | Series A Preferred Stock
Preferred Securities And Warrants [Line Items]
Investors dividend rate			10.00%

XML

Related Party Transactions - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Related Party Transactions [Abstract]
Management fees	$ 0.3	$ 0.5	$ 0.9	$ 1.3
Related party receivables					$ 0.4

XML

Other Expenses - Restructuring and Development Costs (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Other Income And Expenses [Abstract]
Restructuring costs	$ 3,127	$ 210	$ 3,706	$ 505
Severance costs	71	383	76	2,043
Development	63	457	173	605
Other	(666)		(661)	(6)
Total	$ 2,595	$ 1,050	$ 3,294	$ 3,147

XML

Other Expenses - Other Non-Operating Expenses (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Other Income And Expenses [Abstract]
Litigation costs	$ 269	$ 1,437	$ 703	$ 2,719
Other	32	115	141	488
Other non-operating expenses	$ 301	$ 1,552	$ 844	$ 3,207

XML

Deferred Gain on Asset Sales - Additional Information (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Jan. 23, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2011
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Deferred gain on asset sales		$ 113,368		$ 113,368		$ 117,378
Amortization of deferred gain on asset sales		$ 2,000	$ 2,000	$ 4,000	$ 4,000
The Light Group | Hakkasan Holdings LLC
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Proceeds from Equity Sale	$ 32,800
Gain on sale of equity investments					$ 1,800
Joint Venture Equity Interests in Sanderson and St. Martin's Lane.
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Equity ownership							50.00%
Royalton, Morgans, Mondrian Los Angeles, and Equity Interests in Sanderson and St Martins Lane
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Deferred gain on asset sales							$ 152,400

XML

Pending Acquisition by SBEEG Holdings LLC - Additional Information (Detail) - SBEEG Holdings LLC $ / shares in Units, $ in Millions	May 09, 2016 USD ($) $ / shares
Business Acquisition [Line Items]
Percentage of voting shares represented in signed agreements	29.00%
Series A Preferred Stock
Business Acquisition [Line Items]
Business acquisition, equity interest issued or issuable, value assigned	$ 75.0
Common Stock
Business Acquisition [Line Items]
Common stock, price per share | $ / shares	$ 2.25
Warrants
Business Acquisition [Line Items]
Business acquisition, equity interest issued or issuable, value assigned	$ 75.0