An affiliate of Morgans Hotel Group
(MHG), formerly known as Ian Schrager Hotels, has entered into a
sale/leaseback transaction on its San Francisco Clift Hotel with
affiliates of Divco West Properties, a pension fund advisor, under which
Divco will pay MHG $71 million and MHG will retain a 99 year leasehold,
providing MHG any profit that might ensue from operations or a capital
transaction. Clift’s plan of reorganization incorporating the sale/leaseback
transaction was filed with the United States Bankruptcy Court on June 30,
2004. The plan and the transaction are subject to Bankruptcy Court
approval. Approval of the plan by the court is expected to occur in
September 2004. Clift’s plan of reorganization provides for the
satisfaction of all of the company’s creditors in full.

Ian Schrager, chief executive officer of the MHG, said that he was
extremely pleased with the Divco transaction.

“The way this deal is structured, it is basically a financing for the
Clift,” he said. “In addition to allowing us to emerge from Chapter 11,
satisfying our lender and trade creditors, it provides for very
inexpensive financing. It also provides us with the funds necessary to
make improvements to the property and preserves for us the upside we feel
there is in the Clift from both an operational and, should we choose to
pursue it, capital transaction.”

Mr. Schrager said that operationally, the Clift has continued to
outperform the market and is doing extremely well.

“With the issues we were facing now behind us, and, the funds to make
further improvements to the property, we are more optimistic than ever
about the future,” he said. “This is the first of what we expect to be a
series of positive announcements we intend to make over the next several
weeks.”
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