Published Wednesday, Nov. 3, 2010 | 2:51 p.m.
Updated Wednesday, Nov. 3, 2010 | 5:39 p.m.
Map of Hard Rock Hotel & Casino
4455 Paradise Road, Las Vegas
Problems with meeting debt obligations are mounting at the 1,500-room Hard Rock hotel-casino in Las Vegas, even as the property is beginning to see improvements in the Las Vegas market, its management company reported today.
After completing a $750 million expansion of the property early this year that included 865 new rooms and suites, the property appears to be having trouble filling all the new rooms at profitable rates.
That's no surprise given the recession that has limited visitation to Las Vegas, a problem compounded by continued increases in hotel room capacity in the city.
The Las Vegas Convention and Visitors Authority reports that through August, Las Vegas had 148,422 hotel rooms, up 5 percent from August 2009 thanks to the opening of CityCenter and other projects. The $3.9 billion Cosmopolitan opens next month, adding an initial 2,000 rooms this year and 995 more next year.
Morgans Hotel Group, manager of the Hard Rock and a minority investor in the property, today said in a regulatory filing: "Due to the continued difficulties in the Las Vegas market, Hard Rock's operating cash flows have not been sufficient to cover the aggregate debt service this year. There have been some months where the ownership joint venture was required to use funds from reserves to service the debt. Unless the market improves markedly, or the joint venture generates additional liquidity, there is a risk to Morgans equity position and management agreement, which may be terminated by the lenders in the event of foreclosure or under certain other circumstances."
Company officials, however, said that statement was not meant to suggest that the loan is in default or that the property will be foreclosed on. During a conference call, Morgans officials said they were reviewing options to identify the best possible resolution of the situation and declined further comment.
They also said they were beginning to see signs of improvement in Las Vegas visitation trends.
The Hard Rock itself has not yet reported third quarter earnings.
Morgans, which has an ownership stake of 12.8 percent in the property, today said its share of EBITDA -- earnings before interest, taxes, depreciation and amortization -- from the joint venture in the third quarter was $680,000. That was down from $1.1 million in the year-ago quarter, when the company held a larger stake.
Morgans EBITDA share would imply total EBITDA of about $5.3 million at the property in the third quarter.
Factoring in interest expenses alone on the property's $1.3 billion in debt, it's likely the Las Vegas property lost millions of dollars again in the third quarter. In the second quarter, the Hard Rock posted a loss on paper of $20.6 million after taking noncash charges.
Morgans separately said the Hard Rock's hotel occupancy in the third quarter was 81.3 percent, down from 89 percent in the year-ago quarter. The average daily room rate of $126 was down 5.5 percent while revenue per available room tumbled 13.6 percent to $102.45.
The expansion at the Paradise Road property east of the Las Vegas Strip included 490 rooms in the new Paradise Tower, 375 suites in the HRH Tower, 30,000 square feet of casino space, 74,000 square feet of meeting and convention space, new food and beverage outlets and new or expanded nightlife options.
CORRECTION: An earlier version of this story said Morgans reported the Hard Rock could potentially be foreclosed on. Morgans actually reported its management agreement could be terminated by lenders in the event of foreclosure or under certain other circumstances. | (November 3, 2010)