Morgans Hotel Group has agreed to sell two Midtown Manhattan hotels in New York, US, to an affiliate of FelCor Lodging Trust for $140m.

The transaction for the Royalton and Morgans properties is expected to close in the second quarter of 2011.

FelCor is to enhance the hotels’ value by adding guestrooms, making improvements to guest facilities and boosting food and beverage offerings.

FelCor has received a $7m security deposit for the hotels, which is non-refundable except in the event of a default by the company.

Following the transaction, the group will continue to operate the hotels as part of a 15-year management agreement with a ten-year extension option.

Morgans said it will use the proceeds of the transaction to pay off $37.7m in outstanding debt, as well as to retire future debt and fund future growth.