Fortunes are made and lost in Las Vegas and it’s not just something that impacts gamblers.
Companies including Caesars Entertainment (CZR) MGM Resorts International (MGM) Wynn Resorts (WYNN) and newcomers including Hard Rock International want in on the action on what has become the world’s most lucrative (and competitive) 4.2-mile stretch of road.
Like Hard Rock International, which bought the Mirage from MGM, a number of players, including the Houston Rockets and Golden Nugget owner Tillman Fertitta, want in on the action on the Las Vegas Strip. The billionaire, who has been a regular television personality, has purchased land on Las Vegas Boulevard and plans to build a high-end casino there.
It’s an ever-changing environment where icons like the Mirage Volcano will be demolished to make way for Hard Rock’s signature guitar hotel. The pieces keep moving on the Strip and no deal seems to be done until the doors actually open.
Now a major casino sale has failed and it has some interesting ramifications for the remaining players.
Caesars has too many hotel rooms on the Strip
Caesars and MGM dominate the Las Vegas Strip, with Caesars being the sole owner of Caesars Palace, Paris Las Vegas, Harrah’s, The Linq, Ballys (soon to be renamed Horseshoe), The Cromwell, Planet Hollywood, Flamingo and the off-Strip Rio. Maybe that’s too much of a good thing.
Caesars (CZR) CEO Thomas Reeg commented on the possibility of shrinking his Las Vegas Strip portfolio earlier this year.
“Well, we’re at 23,000 rooms today. You remove rooms from Rio and then you remove a property, depending on the property, say 3,000 to 4,000 rooms,” Reeg said during his company’s fourth quarter. . Call for 2021 results, in response to a question about the sale of a Strip property.
Having fewer rooms would actually lead to higher prices (in theory) for the company’s remaining assets.
“So you’re going to be down to, call it, 16,000, 17,000 rooms in the market. That’s about 1/4 of our existing capacity,” he added.
Caesars looked set to sell Flamingo, its oldest property, this summer, but deadlines passed and that deal fell through. Now, market conditions make the selloff unlikely to happen any time soon.
Caesars Flamingo sale looks doomed
Higher interest rates have made buying Flamingo, which could be a complete teardown for a new operator, less likely. Stifel analyst Steven Weieczynski spoke to Caesars executives after the recent Global Gaming Expo and walked out of the talks believing a sale wouldn’t happen, Casino.org reported.
“Based on where the shares are trading today, we believe the LV asset sell premium has been completely removed,” Wieczynski added. catalyst, we believe CZR is making the right decision here and is willing to hold on to its Strip assets until capital markets cool down and potential buyers can secure financing at more appropriate rates.”
Reeg has always made it clear that Caesars is only willing to sell Strip property under the right conditions.
“This is a discretionary transaction for us,” he said on the company’s second-quarter earnings call.
“It’s been discretionary for us, for us since day one, and it remains so. So whatever level of fear is going through the investment community, we put our heads down and we get the job done. And if we have a trade that makes sense to us, we’ll do it. If we don’t, that’s fine with us,” he added.