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Penn National Finds Its Strip Casino For $360M

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Tropicana Hotel-Casino
Mattaus Wander

A gaming company from Pennsylvania has announced it is buying the Tropicana Hotel-Casino

Penn National Gaming, owner of the M Resort in Henderson, is finally taking its place on the Strip. Based near Redding, Penn., Penn National is buying the Tropicana Las Vegas for $360 million, the company said Wednesday.

The acquisition gives Penn National its first resort on the famed Strip.

“The planned acquisition of Tropicana Las Vegas establishes a strong presence on the Las Vegas Strip for Penn National Gaming, fulfilling an important long-term strategic objective for the company,” Timothy Wilmott, CEO of Penn National, said in a statement Wednesday.

Wilmott said he believed the $360 million price tag allowed the gaming company to structure “a prudent transaction to own and operate a premier Strip asset at an attractive price.” Over the next three to five years, Penn National will spend millions of dollars upgrading the property.

In the first phase, Penn National will spend money on improvements, including integrating the Tropicana Las Vegas into the company’s nationwide player’s club program. Wilmott said the second phase will include possible additions of retail space, restaurants and casino improvements.

Wilmott didn’t release any detail about the possible upgrades, but he did say property improvements could include additional hotel rooms. The total cost is expected to be about $20 million, according to the gaming company.

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The Tropicana Las Vegas, which opened in April 1957, is located on 35-acres at the corner of Tropicana Boulevard and the Strip. The property includes 1,500 guest rooms, a 50,000-square-foot casino, race and sports book, 1,200-seat theater, and 100,000 square feet of convention space.

But will Penn National’s purchase move to the Strip be successful, and why spend almost $400 million for a 58-year-old property? Christopher Jones, an analyst with Union Gaming Research, said the deal is partially about enticing three million people in Penn National’s data base to visit Las Vegas.

“This represented a very good opportunity and certainly the lowest cost alternative to getting on the Strip,” Jones told KNPR’s State of Nevada. “What (the Tropicana) has been missing is a constant source of customers to fill up these rooms.”

The sale of the Tropicana Las Vegas comes about a month after Deutsche Bank sold the Cosmopolitan of Las Vegas for $1.73 billion in cash to the Blackstone Group. In February, the Riviera hotel-casino was sold to the Las Vegas Convention and Visitors Authority for $191 million.

“The $360 million transaction for the 35-acre property … follows a number of recent deals for Strip-front property, lending further credence to our thesis for recovery and momentum in Las Vegas,” Jones wrote in a seven page report released Wednesday.

“We would site the Genting purchase of the 87-acre Echelon site for $350 million in 2013, in particular, and factor-in Carl Icahn’s purchase of the 24-acre Fontainebleau site for $150 million in 2010,” Jones wrote. “Most recently, LVCVA purchased the Riviera … for $191 million. Notably, we generally view Crow Resort’s ($280 million) deal premium for the New Frontier site last year as an outlier for valuation purposes.”

Alex Yemenidjian teamed with private equity firm Onex Corp. in 2009 to purchase the Tropicana Las Vegas out of bankruptcy for $250 million. And in 2011, Yemenidjian oversaw a $180 million overhaul of the property, but as revenues have risen over the last few years, the property dealt with ongoing losses.

Jones said the Tropicana Las Vegas should benefit over the next 18 months with the opening of an expanded convention center at Mandalay Bay and the opening of AEG arena next year.

The deal is expected to close by the end of the year, but if the deal falls apart Tropicana Las Vegas would receive a $25 million break up payment, according to a filing with the Securities Exchange Commission.

Guests

Christopher Jones, analyst, Union Gaming Research

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