Morgans Hotel Group (MHG) announced on Monday that it and its equity partner, DLJ Merchant Banking Partners, have completed the acquisition of the Hard Rock Hotel & Casino and related assets.
"Today is an exciting day for Morgans Hotel Group," said Ed Scheetz, president and chief executive officer of MHG. "We now have a strong foothold in Las Vegas, one of the largest and fastest growing hotel markets in the U.S., which is consistent with our strategy of expanding our presence in key markets.
"We believe that the addition of the Hard Rock to our unique portfolio of properties will create value for all our shareholders and be a strong contributor to MHG’s long-term growth and profitability" Scheetz continued. "When we first announced the acquisition, we stated our intention to line up an equity partner to assist with financing; to identify a casino operator to run the casino; and to close the transaction in early 2007. We have achieved these goals and we look forward to taking the iconic Hard Rock property to a new level of sophistication."
The purchase price for the Hard Rock and related assets was approximately $770 million. MHG is funding one-third of the equity, which is approximately $57.5 million, and DLJ is funding two-thirds of the equity, which is approximately $115 million.
Under terms of the joint venture agreements, DLJ will fund 100% of the capital required to expand the Hard Rock property, up to a total of an additional $150 million.
MHG will operate the hotel, retail, food and beverage, entertainment and all other businesses related to the Hard Rock Hotel & Casino, excluding the casino.
The casino will be run by Las Vegas-based Golden Gaming under a lease arrangement. Under the lease, the base rent is $20.7 million per year payable monthly, plus reimbursements for certain expenses.
Golden Gaming is entitled to a management fee of $3.3 million, also payable monthly.
Casino EBITDA in excess of the rent and management fee amounts will be distributed 75% to Hard Rock for payment of principal and interest on the gaming asset note and any other loans to the lessee and 25% to Golden Gaming.
Nevada gaming regulators in January unanimously approved Golden Gaming’s application for its license to operate the casino at the Hard Rock.
"We are excited to serve as the casino operator for the Hard Rock, which is one of the premier gaming and entertainment resorts in Las Vegas," said Blake Sartini, president and chief executive officer of Golden Gaming. "We look forward to working with MHG to transform the Hard Rock into an even more successful operation in the fast-growing Las Vegas market."