It looks like the sale won’t happen (at least for now) and that could mean big changes to the resort’s iconic casino
Selling an asset on the Las Vegas Strip, at a time when any property on this historic 4.2-mile route has become incredibly valuable, seems like a terrible idea. Yes, prices have reached all-time highs, but the value of the asset still looks higher than any price you might get for it.
This makes it at least somewhat debatable why Caesars Entertainment (CZR) – Get the report from Caesars Entertainment Inc. wants to sell a strip property. The company has made it clear that it believes it owns too many rooms on the Las Vegas Strip and that removing one property would actually help raise rates at its other resort casinos.
Flamingo, which appears to be the property Caesars will sell, also needs a lot of work. It’s more of an old-school property than Caesars’ other assets on the Strip, and the company notably hasn’t invested in it like it has in many of its other properties.
Paris Las Vegas, for example, recently added Vanderpump to Paris, an upscale bar/restaurant, and will soon add a new Martha Stewart restaurant. The company’s Harrah’s property revamped its food hall adding a Bobby Flay Burger Bar while adding Walk-Ons as a sports bar. The company has invested heavily in Ballys, which will soon be rebranded to the gambling-friendly Horseshoe brand.
Flamingo clearly hasn’t received a major investment, as the casino company nears a deadline to sell the property.
Caesars has a deadline to sell Flamingo
Caesars hasn’t said much about the sale process, but CEO Tom Reeg did comment on it during his company’s second-quarter earnings call.
“The timeline outlined in the VICI documents that govern this is very clear. So we launched early this year, the deadline is late summer. And every deadline I’ve ever seen in agreements , the work continues within this timeframe,” he said.
These comments were made on August 2 and we are now approaching the end of September and the company has not sold the property. It is possible that the deadline has actually passed or that the company has changed its agreement with VICI Properties (VICI) – Get the VICI Properties Inc. report.who has a first refusal on the property.
Reeg was clear that Caesars did not need to sell the property.
“For us – and there are – there are a lot of interested parties. Obviously the funding environment is what it is. And if that’s going to have an impact on what someone will pay, there’s at a level where we’re not going to chase it. I’m very happy to just cut free cash flow and come back later,” he said.
Caesars can’t sell the Flamingo
Selling Flamingo would help Caesars pay off some of the $15.5 billion in debt it incurred when it merged with Eldorado Resorts in 2020. That deal was made without the company knowing a pandemic would devastate its business.
Demand, however, has rebounded and Caesars appears to be able to not only manage its debt, but also pay off some of it. This makes selling Flamingo a kind of luxury for the company, not a necessity.
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“As we discussed, this is a discretionary trade for us,” Reeg said, “We still think we can do it within the parameters that we set out initially. But we are – we certainly recognize that we live in a market that changes day by day, and if the financing conditions change, the result could change.
The CEO also noted that he finds the attention to the possible deal “rather amusing.”
“When I started talking about selling our Vegas Strip asset, the response from both the sell side and the buy side was why would you want to sell the Vegas Strip asset? Look how awesome that is. And we said he there are times in the market where you don’t have to go back very far, where — we don’t have — we wouldn’t want to own that many coins,” he said, “And now, the conversations turned to, oh my god, can you do this? It’s essential. It’s a change in you, not in us.