After years of trying to find their way on to the Las Vegas Strip, it appears Penn National Gaming has finally made it happen. Last week, the company announced the purchase of the Tropicana Las Vegas for a reasonable 0 million, which will go to shareholders, including private equity firm Onex Corp.
After purchasing the Tropicana in 2009, Onex had thrown $200 million into renovations on the classic Las Vegas property. Penn has announced it will spend roughly $20 million into a further face-lift. Penn operates 26 hotels and casinos in the country, with the M Resort in Henderson as their other Nevada property.
It seemed every time Penn tried making their way onto the Strip, they were faced with sellers unwilling to budge on properties, or astronomical prices. Company spokesman Eric Schippers said, “We’ve been looking for a dozen years for the right resort in the right location.” He went on, “Tropicana checks all the boxes for us.”
Depending on input from customers, the property could change its mix of retail and restaurants dramatically, which could include a two-story retail and restaurant complex on the corner of the property. The 50,000 square-foot casino comes with three restaurants and nearly 1,500 guest rooms.
In 2014, the Tropicana hauled in $109 million in revenue, and $3 million in EBIDTA, but $19 million in net loss. However, 2010 saw only $54 million in revenue with $44 million in losses. Penn obviously hopes those numbers increase, and one thing it has going for the property is a database of 3 million customers it brings to the table.
The purchase of the Tropicana was a much easier way for the company to get onto the Strip than other routes, such as purchasing and completing the Fontainebleau, which sits unfinished just north of the soon to be demolished Riviera. The loss of the Riviera gives PENN the ability to appeal to that segment of the Strip market more aggressively.
When the resort opened in 1957, 300 rooms were available, a far cry from the 1,500 currently offered. It has been featured in film and TV as well, most notably for scenes in The Godfather and an episode of Charlie’s Angels, which featured Dean Martin. Since the 1980s, few changes have come to the property, and PENN is looking to change that. Revenue has slowly climbed over the past few years, but the resort was still in the red.
It is expected the property will benefit immensely from the Mandalay Bay convention space expansion and the opening of the highly anticipated AEG/MGM arena next year. Beyond brick & mortar casinos, PENN has also been looking to explore online and digital options as well. The Nevada online poker industry is far from what was expected initially, yet it still provides PENN with an opportunity to make a splash.
The sale is expected to be finalized by the end of the year.
Union Gaming says the deal makes sense.
“At that price, the deal is largely a land grab,” said the analysts in a note to investors, “with Penn National securing 34 acres across the street from the future AEG arena and the soon to be expanded Mandalay Bay convention center. Additionally, the site comes with city approvals to materially expand the retail offering. We estimate the property did $1 million to $2 million of EBITDA in 2014, so are confident that with minimal investment, PENN will be able to drive better performance from the property. This as we see the addition of its three million active member database as central in driving the much needed incremental visitation to the property. Further, we would speculate the operator will opt to exit the existing Hilton franchise agreement to drive property margins. As such, getting the property to $40 million in EBITDA doesn’t seem a herculean task.”
