This week’s sale of the Rio All-Suite Hotel & Casino is unlikely to be the last major Las Vegas transaction in the near-term with up to four or five more iconic casino-resorts in line to change hands.
According to boutique investment bank Union Gaming, a hive of recent M&A activity – headlined by the impending US$17.8 billion merger between Caesars Entertainment Corp and Eldorado Resorts – is just the beginning for Las Vegas due to public markets undervaluing Las Vegas Strip assets, therefore “forcing public companies to unlock value via private markets.”
While there has already been a flurry of notable transactions since the start of 2018 – Hard Rock was sold to Virgin, the Mandarin Oriental was sold to private investors and modifications were made by VICI properties to land rent charges at Caesars Palace and Hooters – Union Gaming expects as many again over the coming year.
“Currently, MGM is rumored to be shopping its remaining Las Vegas assets, including the Bellagio and MGM Grand real estate, and Circus Circus,” said analyst John DeCree.
“Eldorado Resorts CEO Tom Reeg indicated on an investor call in June that the company would look to sell one or two Las Vegas Strip assets following its merger with Caesars Entertainment. Last but not least, the Cosmopolitan has reportedly been for sale by Blackstone, for the right price of course.
“In spite of the uptick in recent M&A activity over the past two years, there still could be up to four or five more potential Las Vegas asset sales within the next 12 months.
“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.”
Notably, DeCree prophesizes that there appears to be a sizeable pool of buyers lining up to acquire Las Vegas Strip assets – many more, in fact, than assets available.
The reason, he says, is that, “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 are hungry for growth.
“This is a formula for continued consolidation and ultimately valuation appreciation of Las Vegas casino resort assets over the next 12 months.”
DeCree described the US$516.3 million sale of the Rio by Caesars on Monday as positive for Eldorado Resorts ahead of its acquisition of Caesars, freeing up cash flow and avoiding future capex requirements that would be needed to upgrade the property.
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