Exclusive: Morgans selling two New York hotels

By Helen Chernikoff and Abhishek Takle

NEW YORK/BANGALORE (Reuters) – Boutique hotel owner and operator Morgans Hotel Group Co (MHGC.O: Quote, Profile, Research) has reached a deal to sell its Morgans and Royalton hotels in New York to Felcor Lodging Trust Inc (FCH.N: Quote, Profile, Research), said a source with direct knowledge of the deal.

Earlier this week, Felcor said it will offer 24 million shares to fund a pending acquisition. In a U.S. Securities and Exchange filing, the company said it reached an agreement to buy about 300 high-end hotel rooms in midtown Manhattan for about $140 million.

The Royalton and Morgans combined had 282 rooms as of December 31.

Due diligence was ongoing and Felcor, a lodging real estate investment trust, said in the filing that it expects to close the acquisition in the second quarter.

Felcor and Morgans did not return calls seeking comment.

Morgans, one of the original boutique hotel companies, is dealing with a heavy debt load, and plans to sell some real estate while continuing to manage the hotels.

This is similar to a business model common among larger rivals such as Marriott International Inc (MAR.N: Quote, Profile, Research) and Starwood Hotels & Resorts (HOT.N: Quote, Profile, Research).

Reuters has reported that the company, which recently overhauled its management team, was shopping at least three hotels.

As of December 31, the company, which has a market capitalization of $298.3 million, had liabilities of $716.6 million.

Morgans shares were nearly flat at $9.85 Thursday afternoon on Nasdaq. Felcor shares were up 1 percent at $6.12 on the New York Stock Exchange.

(Reporting by Helen Chernikoff in New York and Abhishek Takle in Bangalore. Editing by Gunna Dickson and Robert MacMillan)

Exclusive: Morgans selling two New York hotels