NEW YORK, Sept. 14, 2015– Today, Rambleside Holdings, an investment firm specializing in real estate assets and securities, released a letter sent to the Board of Directors of Morgans Hotel Group Co., expressing serious concern with the “strategic process” and its own plan to maximize value for all shareholders. The full text of the letter can be found below:

September 14, 2015

Members of the Board of Directors

Morgans Hotel Group Co.

237 Madison Avenue

New York, NY 10016

Attn: Mr. Howard M. Lorber, Chairman of the Board

Dear Members of the Board:

Rambleside Holdings, and its affiliated entities (“Rambleside”), are currently among the largest shareholders of Morgans Hotel Group Co. (the “Company”) holding approximately 4% of the common shares. Rambleside is a family-controlled investment firm with real estate holdings across multiple asset classes. Our team has broad experience acquiring and managing major real estate assets.

It has been over one month since Rambleside attempted to engage with the Company to discuss a potential transaction that would benefit all shareholders. After radio silence from the Company, Rambleside again proactively attempted to engage with Mr. Lorber last week to discuss our concerns regarding the seemingly never-ending strategic process as well as our views on value maximization. Mr. Lorber, in his typical dismissive and aggressive manner, half-heartedly offered to meet with Rambleside immediately to discuss our concerns but never followed up with a time or place.

Over the last month, Rambleside has spoken to major shareholders representing over 60% of the shareholder base. In all of our conversations, fellow shareholders have shared a common theme: dismay, confusion, and anger with the callousness and arrogance of the Board and the skeleton of a management team that is left at the Company. We would like to remind the Board that they represent the shareholders, and only the shareholders, of the Company and they have fiduciary duties to act in the best interests of those shareholders. Those duties include a duty to inform yourself about opportunities available to the Company. We are therefore surprised by your failure to fully inform yourself about our proposal – or to contact us about it.

The extent of the Company’s mismanagement of the so-called “strategic process” over the last 18 months is simply shocking. After reportedly rejecting offers to take the Company private at substantial premiums over the last 7 years – at prices as high as $22 per share in 2008, offered by Zabeel Investments, and as high as $7.50 in 2013, offered by Hyatt Hotels – in early 2014 the Company formed a special transaction committee to spearhead the strategic process. In May 2014, it announced that it had retained Morgan Stanley to help evaluate a full range of strategic alternatives and in September of that year it directed Morgan Stanley “to reach out to possible counterparties regarding their interest in potential transactions that could provide Morgans an opportunity to maximize value for its stockholders” – namely, opportunities for “capital raising, asset sales, strategic partnerships, a sale of the entire Company, a sale of component parts of the Company, acquisitions and other alternatives.”1 Since that time, the Company’s shares have plummeted nearly 50%, no deal has been consummated, and Rambleside’s offer has been ignored. 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.

Far more reprehensible is the blatant disregard by the Board and management for timely action, despite lavish promises to shareholders in public forums over the last year. As recently as this May, the former CEO, Jason Kalisman, indicated that the process would be coming to a conclusion in very short order. Moreover, in order to emphasize how timely and laser-focused the Company is on the process, the Company designated Jonathan Langer to work exclusively on the strategic process and to compensate Mr. Langer with an egregious one-time fee of $500,000, quarterly payments of $375,000, and additional “special payments.” Now nearly four months later, Mr. Kalisman has resigned for personal reasons, Mr. Langer has left the Company with over $1 million of shareholder’s money in his pocket and Mr. Lorber has taken over as Chairman of the Board despite having absolutely no hospitality experience.

Since Rambleside’s first letter to the Board of Directors, the stock price of the Company is 20% lower and the transaction that Mr. Lorber had indicated to us that the Board was so diligently focused on has yet to be announced. It is our understanding that almost all of the major shareholders have communicated to the Board, verbally and in writing, the lack of enthusiasm and disapproval of the reported potential transaction with SBE. The shareholders and the market have already “voted” on this so-called transformational transaction by driving the Company’s stock price down over 30% since media reports of the proposed SBE deal. While shareholders are beyond the point of fatigue and frustration in this year-and-half-long “strategic process,” this does give not the Board the right to enter into a deleterious agreement that will materially undervalue OUR Company and key real estate assets, while handing control over to a sub-scale, reputationally-challenged hospitality operator.

As we indicated in our initial letter to the Board, we believe the path to maximize value for all shareholders involves selling the Company or liquidating the key assets, separately or as a package, in a widely marketed sale process and/or merging the management company with a world class hotel and brand manager that can leverage its platform to maximize value of the Company’s coveted brands. Given that the Company has refused to engage with us and given our ever growing concern of a potentially value destructive deal, we have no choice but to make our proposed value maximization strategy and proposed bid for key assets public. Rambleside believes the best way to achieve the highest value for all shareholders is a relatively simple two-step process that is a tax-efficient liquidation of the Company.

Step 1: Immediately engage a world-class brokerage firm to sell the Hudson and Delano unencumbered of management contracts

  • Either individually or as a package
  • Unencumbered of management contracts with the Company
  • The Company should use 100% of the after-debt proceeds to extinguish the Yucaipa preferred stock, which is serving to impede strategic buyers from appropriately underwriting the Company’s assets

Step 2: Sell the management company

  • Install Ken Cruse as Interim CEO given he is the only Board member with true CEO experience at a publicly traded hotel company
  • At $20 million in run-rate revenue, the management company is worth in excess of $200 million
  • The brands and contracts could be potentially sold separately to maximize value, by working with hotel owners to modify the management contracts in exchange for the re-flagging of certain properties
  • Distribute proceeds to shareholders upon liquidation

In order to help facilitate our proposed value maximization strategy, Rambleside is prepared to bid for the Hudson and Delano South Beach, unencumbered of all management agreements, at the following valuations:

Hudson Hotel: $313,000,000 ($335,000 per key, 17x TTM EBITDA)

Delano SB Hotel: $194,000,000 ($1,000,000 per key, 10x TTM EBITDA)

Assuming the hotel management business can be sold for $200 million (a conservative valuation), and our above-outlined offers for the hotels are consummated, the Company’s shareholders would realize approximately $5.75 per share in net proceeds, or 40% higher than Friday’s closing stock price of $4.03. The currently depressed stock price of the Company implies the Hudson and Delano are worth $271 million or $290,000 per key, and $165 million or $850,000 per key, respectively. While our offer represents approximately 16% and 18% premiums to the current implied valuations for the Hudson and Delano, respectively, we are confident that a transparent auction process of the assets would yield materially higher values for the hotels.

Rambleside’s offer for the Hudson and Delano South Beach has no financing contingencies but is subject to customary due diligence. We have hired legal advisors and we are prepared to move expeditiously.

Rambleside believes the market is ripe for the sale of both the hotel and management/brand assets. 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 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.

Rambleside is fully committed to the proposed transaction as outlined above, which would result in a substantial premium to where the market is pricing the hotel assets at the Company’s current stock price. If the Company is able to find a higher offer for the hotels, unencumbered of management agreements, during its fully marketed process, we will encourage the Company to pursue the best deal possible with the highest net proceeds. We think a strategic process of the type we have outlined is one that can be executed relatively easily and quickly. If you feel that executing this strategy is beyond your capability or you are too distracted with your obligations to other large business ventures, 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. The current situation – with no management, no cash flow, and no direction – is not tenable, and something must be done NOW!

Sincerely,

Gregory Cohen

Chief Executive Officer

1 Morgans Hotel Press Release, Sept. 3, 2014, “Morgans Hotel Group Comments on Strategic Alternatives Process.”