Morgans Hotel Group has announced it has entered into a definitive agreement to sell the Royalton and Morgans hotels for $140 million to an affiliate of FelCor Lodging Trust.

MHG will continue to operate the hotels under a 15-year management agreement with one 10-year extension option. The transaction is expected to close in the second quarter and is subject to satisfaction of customary closing conditions.

The sales price for the two hotels represents a value of approximately $500,000 per room.

The hotels generated 3.8 million of EBITDA in 2010 before internal management fees.

The transaction will generate approximately $100 million in net proceeds after the company retires the $37.7 million outstanding under its revolving credit facility.

MHG intends to use the net proceeds to further reduce debt and provide capital for growth.

The hotels, along with the Delano hotel, are collateral for the revolving credit facility, which terminates upon the sale of any of the properties securing the facility. Upon termination of the facility the Delano hotel will be unencumbered.

Michael Gross, chief executive officer of Morgans said: “This is a terrific outcome and an important continuation in our shift toward an ‘asset light’ business model, allowing us to focus on higher margin management and branding opportunities.

“This transaction highlights the unique locations and appeal of our brands and the value of our real estate assets. With a stronger balance sheet and a talented new management team, we are excited about the prospects to grow the company and increase shareholder value. We are pleased to continue to manage these hotels and look forward to a long-term relationship with FelCor.”

The Company has received a $7 million security deposit, which is non-refundable except in the event of a default by the Company.