Flamingo Sale Bell Tolls with No Answer

Posted on: September 26, 2022, 07:24h. 

Last updated on: September 27, 2022, 04:45h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

It’s widely known that Caesars Entertainment (NASDAQ: CZR) is looking to sell one of its Las Vegas Strip properties — a transaction many industry observers expected to be announced earlier this year.

Flamingo
A group of people stand outside the Flamingo Las Vegas. A deadline for Caesars to sell the venue is nearing. (Image: Bloomberg)

That news hasn’t hit the wires, and as TheStreet.com reports, the casino giant is bumping up against a deadline in a previously established agreement with VICI Properties (NYSE:VICI). That target date is sometime this summer, but with just four days remaining in the third quarter, the likelihood of Caesars exceeding that time limit appears elevated.

As you know, we have an ongoing sales process for a Strip asset that’s governed by the VICI agreements and ends about another month to run,” said Caesars CEO Tom Reeg on the company’s second-quarter earnings conference call on Aug. 2.

The Caesars/VICI accord was established in 2019 when Eldorado Resorts — the company that acquired “old Caesars” – struck an agreement with the casino landlord.

In addition to buying the land and real estate assets of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City, VICI earned some other benefits. Namely, the real estate company earned rights of first of refusal on the Flamingo Las Vegas, Bally’s Las Vegas, Paris Las Vegas and Planet Hollywood Resort & Casino. The second would include the remainders from that group and the LINQ Hotel & Casino.

Probably Flamingo on the Auction Block

Reports surfaced five months ago that the Strip asset Caesars is likely shopping is Flamingo and that the operator is seeking at least $1 billion.

The company hasn’t confirmed that Flamingo is the venue on the block, but through the process of deduction, it makes sense. Reportedly, Planet Hollywood was the property Caesars was looking to sell, but management realized there’s considerable, ongoing value in the resort’s concert venue. As TheStreet notes, Caesars is making investments in Bally’s — soon to be the Horseshoe — Harrah’s and Paris.

Interestingly, it’s common knowledge in the industry that Flamingo needs some sprucing up as well. As a triple-net real estate investment trust (REIT), VICI wouldn’t be on the hook for those expenses if it acquires the property. The operator of the venue would take on that responsibility.

There’s speculation that Flamingo’s need for enhancements could keep buyers at bay, but Reeg said there’s ample interest in the venue.

“For us — and there’s — there are plenty of interested parties,” he said on the August conference call.

Rising Interest Rates Could Be Factor in Flamingo Sale

Caesars hasn’t clarified that a Flamingo transaction will be a sale-leaseback whereby it sells the real estate to VICI and continues operating the venue or an outright sale to another suitor. However, the $1 billion rumored asking price and other recent Strip transactions imply the latter.

Rising interest rates could factor into the equation because some interested buyers may need to finance the purchase and pay more today than they would have at the start of 2022.

As a result of those tighter financing conditions, Caesars — assuming it’s still shopping Flamingo or another venue — could prefer a cash buyer. Still, the number of suitors fitting that bill may be dwindling and perhaps limited to private equity and some tribal casino operators.