Fortunes get made and lost in Las Vegas and that'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 a piece of the action on what has become the most lucrative (and competitive) 4.2-mile stretch of road in the world.
Like Hard Rock International, which bought the Mirage from MGM, a number of players including Houston Rockets and Golden Nugget owner Tillman Fertitta want in on the Las Vegas Strip action. The billionaire, who has been a regular television personality, bought a piece of land on Las Vegas Boulevard and plans to build an upscale resort 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. Pieces never stop moving on the Strip and no deal seems completed until the doors actually open.
Now, a major casino sale has fallen through and that creates some interesting ramifications for the remaining players.
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Caesars Has Too Many Hotel Rooms on the Strip
Caesars and MGM dominate the Las Vegas Strip with Caesars alone owning Caesars Palace, Paris Las Vegas, Harrah's, The Linq, Ballys (soon to be rebranded as Horseshoe), The Cromwell, Planet Hollywood, Flamingo, and the off-Strip Rio. That may be too much of a good thing.
Caesars' (CZR) CEO Thomas Reeg commented on potentially cutting its Las Vegas Strip portfolio earlier this year.
"Well, we're 23,000 rooms today. You're taking out the Rio rooms, and then you take out a property, depending on which property it is, let's say 3,000 to 4,000 rooms," Reeg said during his company's fourth-quarter 2021 earnings call, in response to a question about selling a Strip property.
Having fewer rooms would actually drive prices higher (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 appeared close to selling Flamingo, its most-dated property, this summer, but deadlines passed and that deal fell through. Now, market conditions make it unlikely the sale will happen any time soon.
Caesars Flamingo Sale Appears Doomed
Higher interest rates have made buying Flamingo, which might be a complete teardown for a new operator, less likely. Stifel analyst Steven Weieczynski spoke with Caesars executives after the recent Global Gaming Expo and came away from the talks believing that a sale would not happen, Casino.org reported.
"Based on where shares are trading today, we believe the LV asset sale premium has been totally removed,” added Wieczynski. “While disappointing that an asset probably won’t get transacted in the near-term, which would have been a huge deleveraging catalyst, we believe CZR is making the correct call here and is willing to hold their Strip assets until capital markets cool down and prospective buyers can obtain financing at more appropriate rates."
Reeg has always made it clear that Caesars was only willing to sell a Strip property under the right conditions.
"This is a discretionary trade for us," he said during the company's second quarter earnings call.
"This has been discretionary from us, for us from day 1, and it remains so. So regardless of what level of fear is coursing through the investment community, we put our heads down and we do the work. And if we have a trade that makes sense for us, we'll do it. If we don't, we're fine with it," he added.
