If Cosmo prospers, will other Strip properties lose?
Penn National Gaming, owner of M Resort in Las Vegas, wants to expand its presence on the city’s famed Strip. While CEO Tim Wilmott said the company is “not actively engaged” in a potential purchase of the Cosmopolitan, he recently told investors the possible $2 billion price tag “sounded high.”
“We still have an interest to get the right asset on the Strip,” Wilmott said in an April 24 conference call. “Our database continues to grow and get stronger as each month passes. Eventually, we are going to get there. It’s just difficult to say where and at what price.”
According to the Las Vegas Review-Journal, in 2008-09 Penn National was linked to several possible deals on the Strip and officials commented openly about acquiring different properties. In 2010, Penn bought M Resort’s debt at a discount; a year later, it acquired the 390-room property outright.
J.P. Morgan gaming analyst Joe Greff says Penn officials including CFO Saul Reibstein and COO Jay Snowden have been talking about buying a Strip resort. In a research report, Greff said owning a Strip casino would enable the company to mine more value from its player database, which now has almost 5 million members. Penn “made the interesting point” that it views the database as an “undervalued asset,” said Greff. He also called a Strip casino the “missing piece” of Penn’s puzzle.
“While we will of course have to wait and see, our sense is that Penn is willing to look at any and all opportunities on the Las Vegas Strip and will be flexible with potential financing solutions, should an opportunity present itself,” Greff said.
Last November, Penn National spun the land where its regional casinos are located into a publicly traded real estate investment trust called Gaming and Leisure Properties, the Review-Journal reported. Penn leases back 19 of the properties from the REIT, which gives 90 percent of its taxable earnings to shareholders.
In the first quarter of 2014, Penn National’s net revenue dropped 19.7 percent to $641.1 million. Net income fell from $65.3 million to $4.5 million. Earnings per share fell from 63 cents to 5 cents per share. Wilmott blamed the unusually fierce winter weather, calling it “a significant drag on earnings” in the company’s regional markets.
Most recently, Penn made a bid to build one of New York State’s first four commercial casinos. It partnered with former rival Cordish Cos. for a potential casino license in Orange County, paying $1 million to apply.
“We actually like the attractiveness of the opportunity in New York and the returns that are associated with our proposed development,” Wilmott said.
Meanwhile, Vegasinc.com is saying “the right billionaire” could save Cosmopolitan, the struggling resort conceived before the recession and finished in the sluggish post-recession era. Cosmopolitan opened in December 2010, and which has lost $60 million during three years of operations.
James Packer’s company, Crown Resorts, reportedly could be first in line to make an offer on the megaresort. According to the Brisbane Times, the Australian billionaire can afford to gamble. He is worth $6.5 billion, thanks in part to the sale of his father’s company, Consolidated Media Holdings, to News Corp. Presently, Crown is concentrated on properties in Macau, Australia and Manila.
Some analysts say if Packer comes to town, it may not bode well for other Strip operators. “If you bring in an investor who understands the casino business, that should take some market share from other properties,” said Chad Beynon, an analyst with Maquarie Capital.
