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Arnold M. Knightly

Hard Rock Hotel's performance excites new owner

7 August 2007

LAS VEGAS, Nevada -- The Hard Rock Hotel is out-performing expectations of its new owners and industry analysts.

Morgans Hotel Group Co. Chief Executive Office Ed Scheetz said during a conference call Thursday to discuss the company's second-quarter earnings that the property is "ahead of target" in many key financial areas.

Second-quarter revenue per available room rates rose to $219.84, a 14.9 percent year-over-year increase. The average daily room rate increased 17.8 percent to $232.99 although room occupancy declined 2.4 percent to 94.5 percent.

The increases come under Morgans' first full quarter of operation.

An analyst agreed with Sheetz's enthusiastic assessment.

"The Hard Rock is performing above management's and our expectations," said Celeste Mellet Brown, a lodging analyst with Morgan Stanley, in a note to investors. "With (average daily room rate) exceeding its year-end target and management fees above expectations."

The New York-based boutique hotel operator bought the property for $770 million from founder Peter Morton.

Morgans took over operations of the hotel in early February and is a one-third equity partner. DLJ Merchant Bank hold the other two-thirds investment.

The company received a $2.6 million management fee for operating the hotel bringing the year-to-date fees to $4 million.

It also realized a cash flow, defined as earnings before interest, taxes, depreciation and amortization, of $4.9 million for the quarter and $6.8 million for the property since February for its equity holding.

Morgans does not receive any revenue from the casino and is now applying for a gaming license.

"As we continue to move ahead we believe further improvements are possible at the Hard Rock as our management and our systems and our infrastructure take hold," company Chief Financial Officer Rich Szymanski said.

The company also is beginning a $600 million renovation of the property that will add 950 guest rooms, casino space and other amenities. The expansion is expected to be completed in late 2009.

Morgans will also build and operate two branded properties, Delano and Mondrian, as part of Boyd Gaming Corp.'s $4.7 billion Echelon.

As a company, revenue per available room rates increased 10.9 percent for hotels open a year.

Second-quarter company cash flow, increased to $30.7 million from $23.5 million a year earlier.

William Marks of JMP Securities said both performances beat his estimates boosting his rating from "market outperform" to "strong buy."

Morgans shares rose 82 cents, or 4.37 percent, Friday to close at $19.60 on the Nasdaq National Market.

The Associated Press contributed to this report.