The acquisition includes the rights to use the "Hard Rock Hotel" and "Hard Rock Casino" trademarks in connection with casinos and hotel/casinos in specified locations, as well as certain other intellectual property such as merchandising and retail rights. MHG says it may bring in one or more joint venture partners to share in the investment in the existing assets.

Shares of MHG, which went public in February, fell to a new low today on the news, dropping more than 9% to $16.30. Toward the end of the trading day CEO Edward Scheetz explained the company's rationale in a conference call. "The low-density construction cannot and will not be replicated given the dramatic run-up in land prices," he said. "Instead of completing a series of smaller transactions, each with difference challenges, we are acquiring a single large asset with expansion possibilities in a market we understand."The 11-story Hard Rock Hotel & Casino sits on 16.7 acres on the burgeoning Harmon Avenue corridor. The apartment complex sits on 23 acres adjacent to the hotel. MHG says the apartment parcel will be held for future development, with a portion of it possibly available for sale to another developer.

"The prior owner has in-place plans and entitlements for a $1.2-billion hotel expansion and condominium development and we are acquiring those plans as part of the transaction," said Scheetz. "There is significant expansion opportunity on the Hard Rock property as well as the neighboring parcel; we plan to maximize any expansion to maximize the amount of land available for sale or JV and extract every drop of value…."In further rationalizing the purchase price, Scheetz said the land was valued at $10 million per acre. Backing out the value of the land and intellectual property, MHG believes it paid $450 million for the hotel, which it says equates to nine times trailing EBIDTA."Since Las Vegas is the largest hotel market in the US, it is key for our growth strategy," says MHG chief executive W. Edward Scheetz. "This transaction provides us with an immediate and highly-visible entry into this market."

The transaction represents the third planned offering in the Las Vegas market by Morgans Hotel Group. MHG has formed a joint-venture partnership with Boyd Gaming for the development of Echelon Place, which will be anchored 1,600 hotel rooms flying the MHG hotel brands Delano and Mondrian. Completion is slated for 2010.

The Hard Rock Hotel is a popular music scene destination that was built in 1995 and expanded in 1999. Amenities include a 30,000 square foot casino; a beach club; the Body English nightclub; the Joint concert hall; five restaurants; three cocktail lounges; several retail stores; and an 8,000 sf spa, salon and fitness center.

MHG says the acquisition will be financed with cash on hand and MHG's corporate line of credit, as well as a $700 million credit facility from an affiliate of Credit Suisse. The transaction is expected to close no later than the first quarter of 2007.

Morgans Hotel Group owns and operates Morgans, Royalton and Hudson in New York; Delano and The Shore Club in Miami; Mondrian in Los Angeles and Scottsdale; Clift in San Francisco; and Sanderson and St Martins Lane in London.