NEW YORK CITY The property from which Morgans Hotel Group Co. derives its name is no longer owned by the company, although it will continue to manage the hotel. FelCor Lodging Trust Inc. has acquired Morgans Hotel and Royalton New York for a combined US$140 million, or about US$496,000 per key.
Morgans will continue to manage both properties, which have a combined 282 guestrooms, on behalf of FelCor under a long-term management agreement. FelCor expects to complete the all-cash transaction in the second quarter. The purchase price is approximately 60% of replacement cost and represents EBITDA of approximately 10-times peak, according to FelCor.
Irving, Texas-based FelCor plans to add guestrooms and upgrade food and beverage offerings at Morgans. FelCor has also identified revenue and customer-mix management opportunities to increase market share and ADR, and is reviewing opportunities to complex various operational functions at the two hotels to reduce expenses.
The transaction will generate approximately US$100 million in net proceeds for Morgans Hotel Group after it retires US$37.7 million worth of outstanding debt under its revolving credit facility. The company will use the remaining proceeds to pay down additional debt.
“This is a terrific outcome and an important continuation in our shift toward an asset-light business model, allowing us to focus on higher margin management and branding opportunities,” says Morgans Hotel Group CEO Michael Gross. “This transaction highlights the unique locations and appeal of our brands and the value of our real estate assets. With a stronger balance sheet and a talented new management team, we are excited about the prospects to grow the company and increase shareholder value. We are pleased to continue to manage these hotels and look forward to a long-term relationship with FelCor.”
Morgans and Royalton are FelCor’s first properties in New York City. “We are very excited about this opportunity to gain entry in superb locations in Manhattan at a very favorable price per key and substantial discount to replacement cost,” says FelCor President and CEO Richard A. Smith. “These two high-quality properties are in terrific condition and will require limited capital in the near-term. This submarket within Manhattan consistently performs at a high level compared to the industry and is expected to experience above-average RevPAR and EBITDA growth over the next few years and beyond. We feel confident in the abilities and vision of the new management team at Morgans and look forward to a rewarding long-term relationship.”