Investor Steps Up Pressure on Morgans

NEW YORK CITY—Investment frm Rambleside Holdings on Monday stepped up the pressure on Morgans Hotel Group Co., calling for the hotelier to sell assets as well as its management company. The letter to Morgans chairman Howard Lorber, which was made public on Monday, comes after what Rambleside CEO Gregory Cohen calls “radio silence” over his offer last month to meet with the Morgans board.

Noting that Morgans formed a special transactions committee at the start of 2014 to review strategic alternatives, hiring Morgan Stanley as an advisor, Cohen wrote, “We are outraged at the snail's pace of the strategic process over the last 18 months in one of the hottest markets for hotel and hotel management company transactions and valuations. Rather than simply maximize value for shareholders through a sale or orderly liquidation, the company has torched shareholder money on advisors, legal fees, consultants and brokers with no tangible results.”

In his letter, Cohen offered to buy Morgan's Hudson New York Hotel and the Delano South Beach in Miami Beach for a combined $507 million, unencumbered of management contracts. He also called on Morgans to sell its management company, which currently manages nine high-end properties and which he estimated would be worth more than $200 million.

Rambleside, which owns about 4% of Morgans' stock, sees the current market as “ripe for the sale of both the hotel and management/brand assets,” Cohen wrote. “Cap rates for high quality hotels in gateway cities have never been lower. Furthermore, financial and strategic appetite for assets of similar quality to that of the company's is very strong, as indicated by the recently announced acquisition of Strategic Hotels Group by Blackstone at 15x EBITDA and the acquisition of the Kimpton management company by InterContinental Hotels Group at 14x stabilized EBITDA.”

Cohen added that if the Morgans board is not able to move forward on the plan he proposed, “we are prepared to step in and buy the whole company at a substantial premium to the current market price and execute the strategy ourselves.”

Earlier this month, Morgans reiterated that the special transactions committee was committed to exploring “all potential strategic alternatives, including capital raising, asset sales, strategic partnerships, a sale of the entire company, a sale of component parts of the company, acquisitions and other alternatives.” The committee will update shareholders once it either concludes the strategic review or approves a specific transaction.