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A Buyer's Market On The Las Vegas Strip

rio_vegas_nima.jpg

Wikimedia Commons/Zereshk own work

If there’s one thing you can say about the tourism sector of Las Vegas, it’s clearly in a state of transition.

On Tuesday, Caesars Entertainment announced it had reached an agreement to sell its off-Strip property, the Rio, to a New York real estate company. This is happening as Reno-based El Dorado Resorts is in the middle of acquiring Caesars. 

Howard Stutz, the executive director of CDC Gaming Reports, said under the agreement Imperial Companies will buy the property but lease it back to Caesars Entertainment to operate it.

Stutz explained why the deal was worked out that way:

"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. Now, they'll lease it for $45 million a year. They'll pay that out of cash flow ... 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 reimage 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," 

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What that something is, Stutz is not sure, but he brushed off the idea that it will be torn down to become a baseball stadium or become the hub for a proposed high-speed train to Southern California.

Stutz said Caesars Entertainment has invested in and upgraded its other properties along the Strip, but the Rio really hasn't been renovated much. That being said, the World Series of Poker will be staying at the property for another year.

Stutz also said that this buyout is the latest in a string of smaller gaming conglomerates cropping up and getting involved in Las Vegas -- and that it's good to have more competition.

"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," he said, "You're going to get fresh eyes on all these properties." New companies, he added, will be valuable for Las Vegas and valuable for the gaming market.

MGM Resorts International, still in the middle of its headline-making cost-saving campaign, is reportedly looking to sell three of its most iconic properties: The Bellagio, MGM Grand and Circus-Circus.

There is speculation that investment company Blackstone could buy the first two resorts, and then lease them back to MGM. And then there's the association to a non-MGM property. 

"What is interesting about Blackstone is they bought the Cosmopolitan, finished it off. They bought it for $1.4 billion and spent about another $500 million to finish it, but in April, they announced the Cosmopolitan was up for sale," Stutz said, "So, now they're talking with MGM about Bellagio and the MGM Grand. I'm still trying to figure out where the Cosmopolitan fits into all this."

Stutz said the advantage for MGM Resorts -- and the hope for a lot of analysts and investors -- would be its reduced dependency on MGM Growth Partners, the company's real estate investment trust. 

The sale could also help MGM Resorts with the monumental price tag for a resort in Japan if they're granted a license.

Also this week, Bloomberg reported that Phil Ruffin, the owner of the TI, was in talks with MGM Resorts to by Circus Circus. When Ruffin bought the TI, he famously took out the iconic pirate ship battle that took place nightly on the Strip.

Stutz is not sure if he would do the same thing to the circus shows and midway that have been part of the property for a long time. But he did point out that with Circus Circus, the attached RV park and the nearby festival grounds that would be included in the deal, Ruffin stands to gain nearly 100 acres of prime Strip land.

"I'm curious what his endgame is with this," he said. "Circus Circus is going to see better days now because of the Resorts World project. The SLS is going to become the Sahara. The convention center is going to open in 2021 across the street. There is a lot of interest in that north end, but you have re-imagine what you're going to do with Circus Circus and move forward with it."

Stutz said despite Circus Circus' reputation for being worn out and tired, the family-oriented property makes money for MGM. 

Guests

Howard Stutz, executive editor, CDC Gaming Reports

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