Caesars is closing in on a huge move to the Las Vegas Strip
Entertainment Caesars (CZR) – Get the report from Caesars Entertainment Inc. and MGM Resorts (MGM) – Get the MGM Resorts International Report dominate the south and center of the Las Vegas Strip. Their properties serve all audience segments, from high-end experiences like MGM Grand and Caesars Palace to lower-end properties like Caesars Bally’s and Flamingo and MGM’s Luxor and Excalibur.
Low end is, of course, relative when it comes to Las Vegas. All of these properties are pretty awesome resort casinos.
Perhaps the most dated of these, however, is Caesars Flamingo, which has a Las Vegas vibe with its literal flamingo habitat and older room decor.
The need to update Flamingo explains why it appears to be the property Caesars intends to sell. Caesars CEO Tom Reeg has made it clear that his company intends to get rid of one of its Las Vegas Strip properties, and Flamingo appears to be the one with the ‘for sale’ sign. .
He provided an update on this complicated process during the company second quarter earnings call,
Flamingo seems to be for sale (it’s complicated)
Caesars wants to sell Flamingo, but Vici Properties (VICI) – Get the report from VICI Properties Inc. has the right of first refusal if another company makes an offer. This leads to a situation where Caesars could end up selling the property, but still operating it.
“As you know, we have an ongoing sale process for an asset on the Strip which is governed by the Vici agreements [with] about another month to run. So I’m not going to provide game-by-game over there, but know that we’re in very good shape in terms of record,” Reeg said.
Later in the call, the CEO was pressed on the issue.
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“So just to be clear, we’ve talked about it on other calls,” he said. “The timeline in the Vici documents that govern this is very clear. So we launched early this year; the deadline is late summer. And every deadline I’ve ever seen in agreements , the work continues in this timeframe. For us – and there are – there are a lot of interested parties.”
Reeg said market conditions could complicate a sale.
“Obviously the funding environment is what it is. And if that impacts what someone will pay, there’s a level where we’re not going to chase it. I’m very happy to just cut free cash flow and come back later,” he said.
The Caesars CEO said the deal would go through, but also clarified that the company was under no obligation to sell Flamingo (or any other property).
“But as we discussed, this is a discretionary trade for us,” he said. “We still believe we can do this within the parameters we set out initially. But…we certainly recognize that we live in a market that is changing day by day. And if funding conditions change, the outcome could to change .”
Why is Caesars selling Flamingo?
Caesars wants to sell Flamingo even though the property is in a strategic location for the company. The casino giant owns Linq, which sits next to Flamingo and essentially shares its outdoor restaurant/bar/retail space with its sister property.
Despite this, Reeg made it clear why he wanted to sell.
“But it became — for me, it’s kind of funny because when I started talking about selling our Vegas Strip asset, the answer from the sell side and the buy side was why would you want to sell the Vegas Strip asset? Look how awesome it is,” he said.
“And we said there are times in the market where you don’t have to go very far, where – we haven’t – we wouldn’t want to own that many rooms.”
Basically, Flamingo needs a lot of investment and Caesars doesn’t want to rearrange the ownership. Selling it would not only allow the company to pay off its considerable debt, but would also reduce the number of rooms the company has on the Strip, which should make its remaining inventory more valuable night after night.