Real estate on the Las Vegas Strip has become incredibly valuable. Strips of land sell for tens of millions of dollars and any parcel big enough to host a casino goes for much more than that.
Current casinos sell for billions of dollars. MGM Resorts International MGM sold Mirage to Hard Rock International for $1 billion and paid $1.625 billion to buy Cosmopolitan. Tropicana, a much older property, only sold for $148 million but that property likely needs to be imploded and rebuilt (which will cost billions).
In addition, Resorts World, a massive new resort/casino on the north Strip, cost $4.3 billion to build. Essentially, $1 billion has become the bare minimum to buy/build a modern Las Vegas Strip resort/casino and that makes any property on the Strip incredibly valuable.
This makes it a bit curious that Caesars Entertainment (CZR) has been working on selling a Strip asset. Essentially, the company wanted to cut how many hotel rooms it had on the Strip in order to make its remaining rooms more valuable.
“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, in response to a question about selling a Strip property.
That sale, which was expected to be Flamingo, might have raised room prices, but it also would have broken up Caesars’ continuity on the Las Vegas Strip where Flamingo has a direct entrance to The Linq Promenade.
Caesars Drops Plans for a Strip Asset Sale
Caesars CEO Tom Reeg has made it clear during multiple earnings calls that the company only wanted to complete a sale under the right circumstances.
“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 during his company’s second-quarter earnings call.
Now, after a deadline passed related to Vici Properties (VICI) right of first refusal on the sale, Reeg has said that Caesars has made a key decision.
“I’d also like to touch on the strip asset sale and say that we intend to keep all of our strip assets as we move forward,” he shared.
Here’s Why Caesars Opted Not to Sell
While Caesars would like to be able to pay off $1 billion of its $15 billion in debt, that’s not a pressing issue given that the company has been able to handle its debt payments. That means that while it may have wanted to make a sale, it never actually had to go forward with one.
“We ran into a market where the cash flow of the asset continued to [impact] the ability of buyers to raise financing,” he said. “[That] made it a very easy decision for us to keep [it].”
Reeg also pointed out that he has been very clear on the process for multiple quarters.
“I know that despite us talking about how this is and was a discretionary process for us, it created an unnecessary overhang in the stock. And I apologize to all of our shareholders for that. That was a self-inflicted error and that was me So, we will be keeping our Vegas Strip assets as we move forward,” he added.
The company was believed to have been shopping Flamingo although it may also have entertained offers on Planet Hollywood.