A buyer’s market: the casinos of the Vegas Strip, a prized commodity
High-end resorts on the Las Vegas Strip don’t go on sale every day.
Last week, however, Caesars Entertainment and MGM Resorts International, the two largest operators on the Strip with 17 properties combined, each said they wanted to part ways with a casino hotel.
In a year that saw more than $ 30 billion in M&A announcements along the Strip corridor in just 10 months, Brendan Bussmann, partner of Global Market Advisors, suggested that the latest activity acquisition of the Strip would attract the interest of many potential buyers.
“Assets are not always available,” Bussmann said. “There has always been an ebb and flow to the Strip. I think we’re just at the peak of one of these cycles. It’s hard to justify the cost of building a new complex with few good plots remaining, so it’s a matter of swapping assets with various market entrants.
Truist Securities gaming analyst Barry Jonas noted that interest rates are low and capital markets have been accommodating to gaming industry transactions in Las Vegas and the region.
Many companies, Jonas said, want to use the proceeds from the sale of casinos to pay off long-term debt, part of which was incurred in 2020 to help fund operations and improve balance sheets during COVID-19 shutdowns. of the gaming industry and subsequent operating restrictions.
As of September 30, MGM Resorts had long-term debt of $ 12.7 billion and Caesars had $ 15.2 billion in debt.
Additionally, four of this year’s five deals spanning the Corridor Strip properties involve real estate investment trusts and sale and leaseback agreements.
The pending $ 17.2 billion acquisition of VICI Properties from rival REIT MGM Growth Properties includes eight regional casinos run by MGM Resorts in seven states as well as eight Strip developments – which includes The Mirage.
“Gaming REITs have allowed unprecedented valuations on the Strip, which has prompted sellers of entire properties and even operations to sell now,” Jonas said. The Nevada Independent.
“The industry has continued to move towards consolidation, and many operators, with a few notable exceptions, consider a property on the Las Vegas Strip to be as important to them as a mere local or regional player,” said Jonas said.
The right time to sell
The announcement that Caesars would be looking to sell one of its casino hotels on the Strip was the least surprising news from the company’s third quarter earnings conference call last week.
CEO Tom Reeg said this going back to June 2019, when Eldorado Resorts and Caesars first disclosed their $ 17.3 billion merger. At the time, he said nine resorts on or near the Strip were too exposed for the combined company.
“We believe this is the right time to execute our strip asset sales strategy,” Reeg said Tuesday. “So you should expect us to get that in motion early in 2022.”
A day later, MGM Resorts International CEO Bill Hornbuckle brought the operations of The Mirage to market, telling game analysts and investors that a transaction would allow the company to “maintain our existing exposure to Las Vegas “.
This news was unexpected. MGM Resorts is at the heart of two of the major transactions awaiting regulatory approval, including the addition of The Cosmopolitan of Las Vegas operations to its Strip portfolio in a $ 5.68 billion sale and lease agreement. of dollars involving gambling REIT controlled by The Blackstone Group.
Hornbuckle, who was part of the team that opened The Mirage in 1989 for Steve Wynn’s Mirage Resorts, said he was “excited for someone to come and make it his hallmark property.”
MGM is concentrating its efforts on the Strip south of Flamingo Road. With the addition of The Cosmopolitan, Hornbuckle said The Mirage has become the only property he operates north of Flamingo.
“We’ve had enough of Las Vegas,” Hornbuckle said, agreeing with Reeg on market conditions for a sale. “We believe it’s time to sell an asset in Las Vegas. (Le Mirage) has become obvious to us when we think of our wallet.
Bussmann said many regional casino operators consulted by his company viewed Las Vegas as a desired location.
“It’s an asset that customers want as an option, not only from locations in the United States but also from other locations around the world,” Bussmann said.
What will Caesars sell?
Caesars has not identified which Strip property will be sold.
Wells Fargo games analyst Daniel Politzer has suggested Caesars could raise up to $ 3 billion depending on the property sold. Macquarie Securities gaming analyst Chad Beynon said Caesars would benefit from “the scarcity value and low cost of borrowing will allow for a high asset selling price.”
Caesars sold the Rio Resort off the Strip in 2019 to a New York-based real estate group, and Caesars still operates the hotel-casino under a lease. VICI owns Harrah’s Las Vegas and Caesars Palace, which are leased to Caesars Entertainment.
This leaves the Linq, Cromell, Flamingo, Bally’s Las Vegas, Paris Las Vegas and Planet Hollywood on the potential auction block.
“As a public company, every asset is for sale every day,” Reeg said in response to an analyst question last week. “We expect to sell a single property and complete, but we will assess where we are in the market, what our bottom line looks like afterwards, and what we think about our prospects for the future.”
Own a piece of the Strip
Analysts expect potential buyers of the Mirage and one of the Caesars properties to include a mix of current Las Vegas operators, regional gaming companies and even tribal casino operations.
The challenge with The Mirage is that a buyer will have to negotiate a lease with VICI Properties once the REIT’s buyout of MGM Growth is finalized next year. The Mirage spans 77 acres which includes Siegfried & Roy’s Secret Garden & Dolphin Habitat and the Strip-front man-made volcano.
Penn National Gaming CEO Jay Snowden was asked about the Strip’s acquisition opportunities on Thursday during his company’s third-quarter earnings conference call. Penn, who sells Tropicana Las Vegas operations to Bally’s Corp. in a $ 360 million transaction with Gaming Leisure Properties, still owns M Resort in Henderson.
Snowden said Penn made an offer for The Cosmopolitan, calling the property a “once in a lifetime opportunity.” He said Penn, who owns 41 gaming properties in 20 states, “would kick the tires out if there was something out there.”
However, he said it was not essential for Penn to operate a casino on the Strip.
“I think having representation in every state in the United States is absolutely a strategic imperative for us, and we’ve largely achieved that goal,” Snowden said. “If we had to find the right asset in the right place and at the right price, of course we would be interested. “
Florida-based Seminole Gaming, which is controlled by the Seminole Indian tribe, is seeking a location in Las Vegas for its Hard Rock brand. The tribe owns Hard Rock Entertainment and the intellectual property rights to the Hard Rock Hotel Casino Las Vegas.
Seminole Gaming CEO Jim Allen told a press conference at the Global Gaming Expo in Las Vegas last month that the tribe was not interested in Planet Hollywood. Allen wouldn’t say if he had met someone from Caesars.
“We recognize that Las Vegas is the capital of entertainment,” Allen said during a CEO panel at the gaming industry show and conference. “If the opportunity arises, yes, we would be interested. .
A spokesperson for Seminole Gaming said last week that Allen was not available for comment.
With interest from Hard Rock in Las Vegas and the San Manuel Indian tribe of Southern California buying the off-Strip Palms Casino complex at Station Casinos for $ 650 million, Bussmann believes other tribal gaming operations, mostly from California South, may have an interest in Strip ownership.
“It all depends on the asset and what stakeholders are looking for to improve their current portfolio, but at the right price,” Bussmann said.
Ruffin showed interest
Billionaire Phil Ruffin has attempted to buy the Mirage three times.
The first happened in 2009, when he bought Treasure Island from MGM Resorts for $ 775 million. A year later he told his hometown Wichita (Kansas) Eagle newspaper he tried to buy The Mirage again because it “hangs out at my casino here.” They go together a bit.
In 2015, Ruffin said he offered MGM Resorts $ 1.3 billion for The Mirage, but the offer was rejected.
The Mirage was never discussed when Ruffin bought Circus Circus Las Vegas from MGM Resorts in November 2019 for $ 825 million as part of a “handshake deal” with former MGM Resorts CEO Jim Murren.
Ruffin, 86, who has a net worth of $ 2.2 billion according to Forbes, could not be reached for comment on renewed interest in owning The Mirage.
“Never count on Phil Ruffin, especially with Mirage now on the market,” Bussmann said. “But I’m sure he would want the land too.”
Ruffin may have answered this question in 2015, when he said MGM Resorts turned down their offer because The Mirage was in the process of being placed in a REIT.
“We have no interest in The Mirage now because we don’t pay rent,” Ruffin said.