Morgans Hotel Group Comments on Lawsuit

"Morgans Hotel Group believes that it has abided by the terms of its management contract with The Shore Club and denies committing any improper acts. We will respond in detail to the lawsuit shortly in court.

"While we cannot predict the outcome of the litigation, we believe that this lawsuit is part of a strategy by Philips South Beach to renegotiate our management agreement with The Shore Club, which runs to 2022.

"When the contract went into effect in mid 2002, The Shore Club had an operating loss and its owner was in dispute with its investors and lenders. At that time, The Shore Club had an average daily room occupancy rate of about 35 percent. Through September of 2005, the occupancy rate of The Shore Club was about 67 percent year-to-date.

"In that same period of time, The Shore Club went from an operating loss plus depreciation of $3.7 million in 2002 to generating operating income plus depreciation of $11.5 million for the 12 months ended September 30, 2005, a turnaround we believe that was largely achieved by Morgans' repositioning and operation of the hotel."

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