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Gaming Guru

Arnold M. Knightly
 

Hard Rock holds steady

7 August 2008

LAS VEGAS, Nevada -- While one local project for boutique hotel operator Morgans Hotel Group has fallen through, another is on schedule.

The financing is in place and construction on the Hard Rock Hotel's $760 million expansion is proceeding, Morgans Chief Executive Officer Fred Kleisner told investors during Wednesday conference call on the company's earnings.

"With the expansion, and other improvements in the existing facility, we're further enhancing Hard Rock's status as the one true boutique hotel in Las Vegas," Kleisner said.

Second-quarter revenue per available room slipped to $204.95, a 5.6 percent year-over-year decrease. The average daily room rate dropped 5.5 percent to $217.34, although room occupancy was flat at 94.3 percent.

For the six months ended June 30, occupancy has increased 3.3 percent to 94.2 percent, revenue per available room dropped 6 percent to $189.29, while average daily room rates fell 8.9 percent to $200.94.

Morgans owns 20 percent of the niche property and operates the hotel. Private equity firm DLJ Merchant Banking Partners controls the remaining stake.

The property is scheduled to release its own financial report to the Securities and Exchange Commission later this week.

The good news about the Hard Rock expansion comes a week after Boyd Gaming Corp. announced that it was delaying construction of its $4.8 billion Echelon project on the Strip for as long as a year.

The announcement jeopardizes a joint venture agreement calling for the New York-based hotel company to develop Delano and Mondrian branded hotels for Echelon.

Morgans had already extended a June 30 deadline to obtain financing for its $1 billion portion of the joint venture.

But Kleisner reiterated the company's Friday statement that Morgans doesn't "intend to further extend the joint venture agreement in its current terms." However, the company will evaluate future proposals by Boyd.

Morgans expects to recover a $30 million deposit from the Echelon project and wants to be released from $45 million of future funding obligations tied to the delayed construction.

The company's shares rose 32 cents, or 2.31 percent, on the Nasdaq National Market on Wednesday to close at $14.19 per share.

Loss for the quarter ended June 30 totaled $730,000, or 2 cents per share, compared with earnings of $841,000, or 3 cents per share, in the prior year. Revenue dipped roughly 2 percent to $81.3 million, from $82.7 million in the second quarter of 2007.

Analysts surveyed by Thomson Financial forecast a quarterly loss of 5 cents per share on revenue of $85.9 million.