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Casinos ripe for sale?

May 21, 2002 9:37 AM

Heightened competition along the Las Vegas Strip may produce at least two "For Sale" signs in the coming months.

Sources tell GamingToday that the Riviera and Imperial Palace could be on the block.

"There’s high risk in single properties in a competitive market,’’ said one insider. "This is particularly true for privately owned casinos.’’

Another source, also requesting anonymity, echoed that concern, noting that the Strip’s Big Four (MGM Mirage, Park Place, Mandalay Bay and Harrah’s) all have aggressive five-year expansion plans. Mandalay seems especially well positioned as work continues on its sprawling 1.8 million-square-foot convention center.

"The big guys aren’t slowing down one bit,’’ he said.

IMPERIAL PALACE ”” Mid-Strip resort mentioned as a possible sale.

The gap between the haves and the have-nots threatens to sink earnings at smaller, older resorts such as the Riviera and Imperial Palace.

The IP, owned by Ralph Engelstad, has just 34,000 square feet of meeting space and a modest 75,000-square-foot gaming floor that is smaller than some neighborhood casinos. Its 2,700 rooms are unexceptional.

The 47-year-old Riv, though publicly traded, has suffered a string of losses in revenue and cash flow ”” a trend that began before 9-11. The property’s average daily rate remains down at its 2,100 rooms, despite recent refurbishing.

But while slumping in Vegas, Riviera Holdings’ stock price has been bolstered by the company’s performance at Black Hawk, Colo. Riviera posted solid gains there ”” even in the face of stiff competition from Hyatt.

Carlton Geer, director of CB Richard Ellis’ gaming division, says that chain operators need a "disposition strategy" to sort out the winners and losers in their portfolio. Failure to do so, drags down the bottom line and scares off potential buyers, he says.

While not commenting directly on the Riviera and IP situation, Geer notes that Isle of Capri finally decided to sell its Lady Luck hotel-casino downtown because it was not contributing to an otherwise-healthy earnings sheet. Likewise, Park Place dumped the Flamingo Hilton in Reno ”” taking nearly $25 million less than it paid for it. Ditto for Harrah’s and the Showboat (now Castaways) on Boulder Highway.

"The key is to make the best deal at the right time, not just let things slide into bankruptcy,’’ added one real estate expert. "That’s true whether you’re talking about a multiple venue corporation or an independent operator.’’

Executives from the Riviera and Imperial Palace declined to be interviewed for this story, but Riv President Bob Vannucci acknowledged last month, "Our margins in Las Vegas continue to be pressured by the economy and competitor actions.’’

Gaming analysts say that both the Riv and IP have a few strong selling points. For starters, their north Strip location puts them in the midst of a future boom that includes Steve Wynn’s Le Reve and an expanding Fashion Show mall. The Riviera also has dozens of acres of unoccupied land a stone’s throw from the ritzy Turnberry Place towers. Each property also sits along the upcoming monorail route.

"We’re going to see more innovators come in to this market,’’ Geer predicts. The question is: Will they be interested in kicking the tires at places like the Riv and the IP?