Caesars Entertainment has sold the off-Strip Rio All-Suite Hotel & Casino to a non-gaming property company for $516.3 million.
The deal appears to be in line with Caesars’ new owner Eldorado Resorts’ intention to divest the company of some of its Las Vegas assets. The strategy could help counterbalance Eldorado’s debt-laden $17.3 billion purchase of the gaming giant, a deal that’s expected to close early next year.
It also follows quickly on reports that MGM Resorts International, another major operator looking to convert a sizable real estate portfolio into cash, is in advanced talks for sale-leasebacks of Bellagio and MGM Grand and an outright sale of Circus Circus, its last three wholly owned casinos in Las Vegas.
“As it stands today, the spread between public casino company trading multiples and the underlying value of Las Vegas Strip casino resort real estate is a favorable arbitrage opportunity, one that MGM and Eldorado/Caesars could hope to exploit in the coming months,” said John DeCree, an analyst with brokerage Union Gaming.
DeCree said he expects “four or five more potential Las Vegas asset sales within the next 12 months” as there appears to be many more prospective buyers than properties available. As he sees it, “Capital remains cheap, real estate on the Strip is scarce, construction costs are high, making development prohibitive, the Las Vegas business outlook for 2020 remains strong, private equity firms are loaded up with plenty of dry powder, and REITs (real estate investment trusts) are hungry for growth.”
It adds up to “a formula for continued consolidation and ultimately valuation appreciation,” he said.
The Caesars deal, which is expected to close in the fourth quarter, calls for a principal with Imperial Cos.𑁋a private New York City-based entity focused on high-end residential and mixed-use property investment, development and management𑁋to acquire the 2,520-room Rio and lease it back to Caesars to manage for two years at $45 million a year, with Imperial holding a $7 million option on a third year under similar terms.
The Rio will remain in the Caesars Rewards network, while Rio-specific guest data will be co-owned. Caesars also gets to keep the World Series of Poker, which will return to the property in 2020𑁋it’s been there since 2004 and this year drew a record 187,298 entrants𑁋but will likely move after that.
“This deal allows Caesars Entertainment to focus our resources on strengthening our attractive portfolio of recently renovated Strip properties and is expected to result in incremental EBITDA at those properties,” said CEO Tony Rodio. “The retention of the World Series of Poker and retention of Caesars Rewards customers are all factors that make this a valuable transaction for Caesars.”
Howard Stutz, executive director of CDC Gaming Reports, said, “It benefits Caesars in the sense they get the $516 million from the sale. They’re going to put that to whatever use they’re going to. And for Imperial, it gives them a couple of years to figure out exactly what they want to do. If they want to bring another company in to manage it as a casino. If they want to re-image it as a non-gaming hotel. It’s a big piece of land so it gives them a lot of time to do something with it.”
SunTrust gaming analyst Barry Jonas speculated along similar lines in a client note. “We would expect Imperial to re-image the property and its land bank potentially with a wider non-gaming focus and/or the use of third-party partners.”
For this reason he sees it as “unlikely” that Caesars will return to manage the property for a third year. “We believe this was structured to allow more time for the buyer to pursue strategic redevelopment options as opposed to more traditional sale-leaseback transactions.”
The Rio opened in 1990 under the control of casino design and construction magnate Anthony Marnell III as an outlier to the then-prevailing move toward a family friendly Las Vegas. It combined slightly risqué tropical theming with a boutique food and beverage offering and a party vibe that in many ways presaged where the Strip would head in the coming decade. It operated as a single-property public company until it was acquired by Caesars’ predecessor Harrah’s Entertainment in 1998 for $880 million in stock and assumed debt.
Stutz, meanwhile, believes Las Vegas could use some new blood. “It’s kind of nice to see a company like Imperial come in and take the Rio because now you’re going to get fresh eyes on it. You’re going to get fresh eyes on all these properties.”
In related news, Caesars Vice President of Corporate Communications Seth Palansky has assured poker fans that the World Series of Poker will return to its home at the Rio in 2020. Commenting on Twitter, Palansky said the odds are “100 percent” that the WSOP will be back next summer. The Rio has hosted the annual poker championship since 2005.
