Morgans Hotel Group Reports 4Q '08 Results

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. February 28, 2009

FEBRUARY 27, 2009 - Morgans Hotel Group Co. (NASDAQ: MHGC) ("MHG") today reported financial results for the fourth quarter and year ended December 31, 2008.

Highlights

o Revenue per available room ("RevPAR") for Owned Comparable Hotels1 decreased by 17.7% in the fourth quarter from the comparable period in 2007.

o RevPAR for System-Wide Comparable Hotels2 decreased by 23.3% (19.1% in constant dollars) in the fourth quarter from the comparable period in 2007.

o Adjusted EBITDA for the fourth quarter was $22.2 million, a decrease of 35% from the comparable period in 2007.

o EBITDA margins at System-Wide Comparable Hotels during the fourth quarter decreased by 450 basis points over the comparable period in 2007. MHG achieved a 13% reduction in operating expenses at System-Wide Comparable Hotels due to the implementation of plans put into effect beginning the first quarter of 2008 in anticipation of an economic slowdown.

o EBITDA at System-Wide Comparable Hotels during the fourth quarter decreased by 32% from the comparable period in 2007, a rate of 1.4 times the related RevPAR percentage change.

o RevPAR for Owned Comparable Hotels decreased by 0.7% for the year ended December 31, 2008 from the comparable period in 2007.

o RevPAR for System-Wide Comparable Hotels decreased by 5.3% (3.7% in constant dollars) for the year ended December 31, 2008 from the comparable period in 2007.

o Adjusted EBITDA for the year ended December 31, 2008 was $92.7 million, a decrease of 16% from the comparable period in 2007.

o Adjusted EBITDA at System-Wide Comparable Hotels decreased by 2% for the year ended December 31, 2008 from the comparable period in 2007.

o EBITDA margins at System-Wide Comparable Hotels increased by 60 basis points for the year ended December 31, 2008 from the comparable period in 2007.

o A restructuring plan implemented in October 2008 is projected to result in approximately $10 million in annual cost savings, including an approximately $6 million reduction in corporate expenses. Additional restructurings projected to result in savings of approximately $5 million annually were implemented in January 2009.

o MHG extended the $10 million promissory note on the Gale property from February 2009 to February 2010.

o In December 2008, MHG received an $11.5 million cash distribution from its London joint venture.

o With the completion of the redesigned Mondrian Los Angeles and Morgans properties in September 2008, MHG has no significant deferred capital expenditure requirements at its owned hotels.

o Mondrian South Beach, which is 50% owned by MHG, opened in December 2008. Additionally, the joint venture amended its debt agreement to provide for a series of one year debt extensions through 2013, subject to certain conditions.

o Mondrian SoHo, Boston Ames and the expansion of Hard Rock are all currently on target to open in the fourth quarter of 2009 or early 2010.

Fred Kleisner, President and CEO of Morgans Hotel Group, said: "In a very difficult environment, we are taking decisive steps to increase efficiencies and unlock cash flow through highly targeted and sustainable cost savings initiatives. These initiatives allowed us to achieve a very favorable ratio of RevPAR to EBITDA decline while at the same time maintaining the quality of our guest experience, therefore demonstrating our ability to react quickly and effectively to the current environment. From a capital standpoint, we ended the year with approximately $50 million in cash, we have no significant near term consolidated maturities and 3 major hotels that are unleveraged. We are mindful of the continuing economic situation and are fully prepared to take additional steps to further increase efficiencies, preserve cash flow, strengthen liquidity and maximize shareholder value for the long-term."

Fourth Quarter 2008 Operating Results

RevPAR at Owned Comparable Hotels decreased by 17.7% in the fourth quarter of 2008 compared to the fourth quarter of 2007. RevPAR at System-Wide Comparable Hotels decreased by 23.3% (19.1% in constant dollars) in the fourth quarter of 2008 compared to the fourth quarter of 2007.

Special items in the fourth quarter of 2008 included a $13.4 million impairment charge on the Mondrian Scottsdale hotel, a $23.8 million impairment loss on the investment in the Hard Rock joint venture and $2.0 million of restructuring and severance charges.

MHG recorded a net loss of $34.5 million in the fourth quarter of 2008 compared to a net loss of $6.1 million in the fourth quarter of 2007 primarily due to these special items.

Operating Results for the Year Ended December 31, 2008

RevPAR at Owned Comparable Hotels decreased by 0.7% in 2008 compared to 2007. RevPAR at System-Wide Comparable Hotels decreased by 5.3% (3.7% in constant dollars) in 2008 compared to 2007.

MHG recorded a net loss of $51.2 million in 2008 compared to a net loss of $14.8 million in 2007 primarily due to the special items discussed above.

Balance Sheet and Liquidity

As of December 31, 2008, consolidated debt excluding the Clift lease obligation was $648.8 million and cash and cash equivalents were $49.2 million. As of December 31, 2008, there were no borrowings outstanding under MHG's revolving credit facility, which is secured by three owned hotels - Delano, Royalton and Morgans. In addition, MHG has no near-term consolidated maturities, except for the $40 million non-recourse debt at Mondrian Scottsdale which is due in June 2009. We do not intend to invest additional capital at Mondrian Scottsdale in 2009.

As of December 31, 2008, MHG estimates that its total future capital commitments for development projects consisted of approximately $22 million. These include approximately $11 million and $4 million to fund letters of credit posted for the Hard Rock expansion and Boston Ames, respectively. With the re-launch of Mondrian Los Angeles and Morgans in September 2008, all major renovation projects have been completed and there are no significant deferred capital expenditure requirements at our owned hotels.

Additionally, MHG expects to utilize its net operating losses of approximately $60 million to offset future income and gains on the sale of assets as part of its long-term strategy to reduce its ownership interests in hotels.

Development Activity

MHG's projects currently under construction are the Hard Rock expansion, the Boston Ames and the Mondrian SoHo, all of which are expected to be completed in the fourth quarter of 2009 or early 2010.

2009 Outlook

The global economic downturn has had a significant adverse impact on demand, particularly since the middle of September. Given the continuing uncertainty about the depth and duration of the economic crisis, we are not comfortable defining a specific RevPAR target or range for the year. However, to provide a framework, if we succeed in maintaining a ratio of EBITDA percentage decline to RevPAR percentage decline of between 1.5 and 2 to 1 and if RevPAR for the year were to decline on average 20-25%, we would expect 2009 Adjusted EBITDA to be between $45-60 million.

Conference Call

MHG will host a conference call to discuss the fourth quarter financial results today at 5:00 PM Eastern time. The call will be webcast live over the Internet at www.morganshotelgroup.com under the About Us, Investor Overview section. Participants should follow the instructions provided on the website for the download and installation of audio applications necessary to join the webcast.

The call can also be accessed live over the phone by dialing 888-802-8577 or 973-935-8754 for international callers; the password is 84083956. A replay of the call will be available two hours after the call and can be accessed by dialing 800-642-1687 or 706-645-9291 for international callers; the password is 84083956. The replay will be available from February 26, 2009 through March 5, 2009.