It’s difficult to say when economic prospects will improve enough to persuade mathematically-challenged gamblers to return in droves to the casinos. What is more certain is the several properties in Las Vegas that have fallen on hard times and could greatly improve the underlying owners’ prospects once industry conditions begin to rebound.
MGM Mirage (NYSE:MGM) spent $8.5 billion to develop the CityCenter, one of the largest private construction projects in U.S. history, initially intended to comprise 4,000 hotel rooms with casino, 1,200 additional separate hotel rooms, 1,650 condominiums and 500,000 square feet of shopping. The project almost went bankrupt but was saved when Dubai World, the investment arm of the Dubai government, bought a 50% interest. The current struggles of Dubai are not projected to affect CityCenter, which currently is opening in stages and should see the casino open in mid-December.
The Fontainebleau resort at the north end of the Las Vegas Strip once was valued as high as $2.9 billion, but went bankrupt before it was completed. Penn National Gaming (Nasdaq:PENN), interested in finishing the job, recently estimated that it would take another $1.5 billion – on top of the $2 billion already spent – to do so. But a competing $156 million bid by Carl Icahn to take over the property is currently the favorite to seal the deal. It is estimated that Icahn can complete construction of the project for under $1 billion. More developments are expected in late January when all bids are considered. (Learn more about Carl Icahn in Can You Invest Like Carl Icahn? and The 5 Most Feared Figures In Finance.)
Planet Hollywood Resort and Casino
Harrah’s Entertainment, which went private in a private equity deal in January 2008 and is weighed down by its own significant debt as a result of the deal, is angling to acquire Planet Hollywood Resort and Casino. Planet Hollywood is currently in default on its casino and 2,518 room resort but is still in the process of opening a new tower with 1,200 condominiums. Harrah’s recently snapped up $140 million in the resort’s approximately $870 million in total debt in hopes of winning control of the entire property. No other bidders have yet to surface.
Boyd Gaming (NYSE:BYD) had planned its own $4.8 billion mega-resort on the Strip but halted construction very early in the process, in August 2008, when industry conditions started to decline and it realized it wouldn’t have the cash flow or ability to tap debt markets for additional funds. Echelon originally was targeted for completion in 2010 but remains stalled.
The Las Vegas Strip just logged its 22nd consecutive monthly decline in gambling winnings, with a 10.2% decline in October. Thus, trends have yet to reverse course. But when they do, existing firms, which also include Wynn Resorts (Nasdaq:WYNN) and Las Vegas Sands (NYSE:LVS), will see current operating results improve markedly. But firms such as Penn National Gaming, Boyd, Harrah’s and those controlled by Carl Icahn should see a significant boost to their fortunes by picking up sizable gambling properties on the cheap, provided they can survive their own past miscalculations on capital allocation in the industry.
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