Caesars Entertainment (CZR) spent much of last year talking about selling a Las Vegas Strip property so it could cut down its number of available rooms.
The company ultimately never made that move, as Caesars hung a for-sale sign (not literally) on The Flamingo. No deal was ever made.
The idea of selling a Strip asset, even one as dated as The Flamingo, was met with a lot of pushback. Caesars Chief Executive Tom Reeg commented on the feedback his company got during its second-quarter-earnings call.
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"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."
Now, Caesars has decided not to sell a Strip asset, but it's losing control of one of its Las Vegas properties: the Rio, which sits about a mile off the famous 4.2-mile stretch of road.
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Caesars Is Losing Control of Rio
Caesars, like its key rival MGM Resorts International (MGM), does not own the land on which most of its Las Vegas properties sit, Instead, it sold the land to Vici Properties (VICI) and leased it back under a long-term deal.
In late 2019, Caesars sold the land under the Rio, Las Vegas's first all-suites hotel, to Dreamscape but the casino giant continued to operate the property.
That will change in 2023 after the new owner undertakes a multiphase renovation of the property.
Dreamscape has raised $850 million to finance what it calls a "reimagining" of Rio's two-tower structure, "restoring it into a premiere resort and casino experience with modernized amenities and an array of offerings that speak to today's gaming and hospitality consumer," the company said in a news release.
Rio won't close during the renovation and Dreamscape will take over operations from Caesars at some point in 2023. On a practical level, that means Rio will no longer be part of Caesars's booking system or part of its casino-rewards program.
"As Dreamscape continues to evolve and expand, we knew the gaming and entertainment sector would be a natural fit and become a central part of our business," said CEO Eric Birnbaum.
"We are passionate about creating dynamic lifestyle experiences. I strongly believe that with our team's unique development capabilities, investment acumen, and deep operating expertise, we are poised to become a differentiated player within this space."
Caesars Gets Its Las Vegas Wish
Reeg made clear that he wanted Caesars to have fewer rooms on the Las Vegas Strip when the sale of a property was still in play.
"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-earnings call.
Flamingo, with 3,450 rooms, would have accomplished that.
"So you're going to be down to, call it, 16,000, 17,000 rooms in the market. That's about one-quarter of our existing capacity," the CEO added.
Losing Rio, which was likely something Reeg was aware was going to happen during that call, still gives Caesars fewer rooms to rent in the overall Las Vegas market.
That may turn out to be the right move as values on the Las Vegas Strip have skyrocketed and selling Flamingo to pay down debt and raise the value of the company's remaining rooms likely would have cost it money in the long run.
