The Las Vegas Strip will get a little less congested—at least in terms of ownership of the resorts there—now that the two companies that control the majority of the properties have committed to selling one each.
The announcement by MGM President and CEO Bill Hornbuckle was a surprise. Although the Mirage was “sold” to the MGM REIT spinoff MGM Growth Properties (MGP) several years ago, there was no warning that the company was considering a sale of the original property of Mirage Resorts. Any sale would only include the operations as MGP, which is being sold to rival VICI Properties (a Caesars spinoff), will surely retain the property. The sale comes just a week after MGM announced the purchase of the Cosmopolitan of Las Vegas from Blackstone, the company that owns the property. That purchase seems to have triggered a sale of the Mirage.
“Doing so will allow us to maintain our existing Las Vegas exposure while focusing on the complementary and diverse nature of our offerings in our hometown,” Hornbuckle said. “It’s a storied property with great brand recognition and a strong customer base and loyal following. Mirage has served us well over the years, and we’re certain it will remain a success with a new operator in the future.”
Hornbuckle said the central location of the Mirage and its 77 acres makes it more valuable than any other MGM Strip property.
“But as we looked at capital allocation, and we looked at the notion of diversification, we have enough of Las Vegas,” Hornbuckle said. “And we’re looking at the marketplace right now. Obviously, we’re buying and selling at the same time, so we understand the marketplace. We think there is an opportune time, and we think this might be it to sell an asset in Las Vegas. So the Mirage, for us, became the obvious one.”
“It’s an amazing property,” he continued. “I’m excited for somebody to come in and make it their marquee property.”
Meanwhile, Caesars Entertainment will sell off one of its Las Vegas Strip resorts early next year, according to company CEO Tom Reeg.
“You should expect us to put that into motion in the early part of (2022),” Reeg said last Tuesday during a call with investors.
The plan was first announced in 2019, when Eldorado Resorts prepared to acquire Caesars. At that time, Reeg said the company would “be a seller of a Strip asset.” Like so many other best-laid plans, this one was interrupted by the Covid-19 pandemic.
A report in the Las Vegas Review-Journal suggested that the delay may not have affected the potential value of the sale. As proof, it noted that in September, the Blackstone Group announced it was selling the Cosmopolitan of Las Vegas for $5.65 billion, nearly $4 billion more than its 2014 purchase price. And in July, MGM Resorts International announced that it was buying out its partner in CityCenter for $2.1 billion, in a move that gives it full ownership of the Aria and Vdara resorts. MGM then sold the two hotels to Blackstone for $3.9 billion in a leaseback deal.
“The playing field has been cleared with the Cosmo and Aria trades,” Reeg said. “We should encounter pretty robust demand for a center-Strip asset that frankly may be one of the last to trade for quite some time.”
Caesars operates Caesars Palace, Harrah’s Las Vegas, Flamingo, Bally’s, the Linq Hotel, the Cromwell, Paris Las Vegas, Planet Hollywood and Rio. Analysts have speculated that selling Planet Hollywood could make the most sense for the company.
Reeg said 2022 will be a “massive cash generation and deployment year for the company.” The company expects its sale of its William Hill non-U.S. assets to close during the first quarter of 2022, a deal that would bring in about $1.2 billion in net proceeds for Caesars.
Overall, Reeg said the company expects to have “in excess of $5 billion in cash” to deploy in 2022. Some of that will be spent on their digital business and capital projects, “but the vast majority of that is going to go to pay down debt,” Reeg said. The goal is to pay off half of the company’s conventional debt, Reeg said, thereby reducing its cash interest payments by up to $400 million a year.
According to MSN Market Watch, Caesars posted a surprising loss Tuesday, sending shares lower in after-hours trading, but the stock rebounded after the sale plan was announced. An October 22 assessment by Truist analysts said, “While we think many of Caesars’ markets were strong in September, non-recurring events (e.g. wildfires in Tahoe and flooding in New Orleans) along with increasing interactive investment likely had a meaningful impact on the quarter’s trajectory.”
Reeg agreed. “On the brick-and-mortar side, if (Hurricane) Ida didn’t hit New Orleans and we didn’t have the fire in Tahoe, we would have done $1.1 billion of brick-and-mortar EBITDA in the quarter. We had an extremely strong quarter, demand remains particularly robust, and in regards to New Orleans and Tahoe, Tahoe has pretty quickly recovered back to above 2019 levels, not quite as strong as it was pre-fire, but continuing to build.”
President and COO Anthony Carano said room occupancy at its Las Vegas properties reached 89 percent for the third quarter, with weekends running at 97 percent. “As we look to 2022, we see several tailwinds in our business,” Carano said. “We remain optimistic about further visitation gains as consumers return to our properties once COVID fears have fully subsided and the eventual return of convention customers to Las Vegas and our destination markets.”
