Caesars Misses Deadline on Las Vegas Strip Casino Sale
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It looks like the sale won't be happening (at least for now) and that could mean big changes at the iconic resort casino
Selling an asset on the Las Vegas Strip, at a time when any property on that historic 4.2-mile road has become incredibly valuable, seems like a terrible idea. Yes, prices have hit historic highs, but the value of the asset still seems higher than any price you might get for it.
That makes it at least somewhat questionable as to why Caesars Entertainment (CZR) - Get Caesars Entertainment Inc. Report wants to sell a Strip property. The company has made it clear that it believes it owns too many rooms on the Las Vegas Strip and that shedding one property would actually help raise rates at its other resort casinos.
Flamingo, which appears to be the property Caesars will sell, also needs a lot of work. It's more of an old-school property than Caesars' other Strip assets and the company has notably not invested in it the way it has many of its other properties..
Paris Las Vegas, for example, recently added Vanderpump à Paris, an upscale bar/eatery, and will soon add a new restaurant from Martha Stewart. The company's Harrah's property has revamped its food hall adding a Bobby Flay Burger Bar while also adding Walk-Ons as a sports bar. The company has invested heavily in Ballys, which will soon be rebranded under the company's gambling-friendly Horseshoe brand.
Flamingo has conspicuously not received any major investment as the casino company gets close to a deadline to sell the property.
Caesars Has a Deadline to Sell Flamingo
Caesars has not said much about the sales process, but CEO Tom Reeg commented on it during his company's second-quarter earnings call.
"It's very clear the timeline that is laid out in the VICI documents that govern this. So we launched early this year, the deadline is by the end of the summer. And every deadline I've ever seen in deal land, the work goes into that deadline," he said.
Those comments were made on Aug. 2 and we're now nearing the end of September and the company has not sold the property. It's possible that the deadline has actually passed or that the company has modified its agreement with VICI Properties (VICI) - Get VICI Properties Inc. Report, which has a first refusal on the property.
Reeg has been clear that Caesars did not need to sell the property.
"For us -- and there's -- there are plenty of interested parties. Obviously, the financing environment is what it is. And if that's going to impact what someone will pay, there is a level where we're not going to chase it. I'm very happy to just clip the free cash flow and come back later," he said.
Caesars May Not Sell the Flamingo
Selling Flamingo would help Caesars pay off some of the $15.5 billion in debt it took on when it merged with Eldorado Resorts in 2020. That deal was made without the company knowing that a pandemic would devastate its business.
Demand, however, has bounced back and Caesars appears to be able to not only manage its debt but pay some of it down. That makes selling Flamingo a sort of luxury for the company, not a necessity.
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"As we have discussed, this is a discretionary trade for us," Reeg said, "We still think we can get it done within the parameters that we had set at the outset. But we are -- we certainly recognize we live in a market that moves day-to-day. And if financing conditions change, the outcome might change."
The CEO also noted that he finds the attention that has been put on the possible deal "kind of amusing.
"When I first started talking about we're to sell our Vegas Strip asset, the response from full sell-side and buy-side was why would you want to sell the Vegas Strip asset? Look at how great it is. And we said there are times in the market that you don't have to go back very far, that where -- we didn't -- we wouldn't want to have owned this many rooms," he said, "And now the conversations have turned to, oh my god, can you get this done? This is critical. This is a change in you, not in us."
