Hilton finds a buyer

Dec 30, 2003 7:31 AM

After months of speculation and failed purchase offers, the Las Vegas Hilton should have a new owner by the middle of next year (2004).

Last week, the hotel-casino’s owner, Park Place Entertainment, confirmed it had struck a deal to sell the sprawling resort adjacent to the Las Vegas Convention Center to an affiliate of Colony Capital LLC for $280 million.

Proceeds from the deal, which is expected to close by the end of the second quarter in 2004, will be used to reduce borrowings under credit facilities, Park Place said in a statement. The company expects to report an after-tax gain of $85 million.

The hotel will continue operating under the Hilton brand name.

"The Las Vegas Hilton has been a longstanding and distinguished member of the Park Place family, and it has a legendary place in the history of Las Vegas," said Park Place President and Chief Executive Officer Wallace R. Barr. "However, as we move forward, the company’s strategy is to focus on core assets."

In Las Vegas, those "core assets" include Caesars Palace, Bally’s, Paris and the Flamingo — all located at the key intersection of Flamingo Road and the Las Vegas Strip.

"Divesting the Las Vegas Hilton allows us to concentrate on and reinvest in those assets while continuing to reduce our overall level of indebtedness," Barr added.

For its part, Colony Capital said it is prepared to "reposition" the property to better serve the Las Vegas tourism market.

"The hotel-casino and the prime real estate on which it sits are truly irreplaceable assets," said Thomas J. Barrack, Jr., chairman and CEO of Colony Capital. "We look forward to this opportunity to further enhance and reposition the property."

Under the terms of the agreement, Colony will purchase all the assets of the Las Vegas Hilton hotel and casino, and will assume certain related liabilities. The purchase price may be adjusted for changes in net working capital.

Colony expects to enter into an agreement with Hilton Hotels Corporation pursuant to which the hotel will continue to use the Hilton brand. The firm intends to continue the operation of the property as a hotel-casino, and may construct additional facilities on land that is currently unused.

Colony, one of the few private investment firms licensed in gaming, owns Resorts International in Atlantic City and is a partner in Accor Casinos in Europe. Nicholas Ribis, vice chairman of Resorts, will be a partner in the Las Vegas Hilton acquisition.

Park Place intends to use the net proceeds from the sale — estimated at $265 million after taxes — to reduce borrowings under its revolving credit facilities.

"The sale of the Las Vegas Hilton will have a meaningful impact on our financial position and should add to our earnings going forward," said Park Place Executive Vice President and Chief Financial Officer Harry C. Hagerty. "Pro forma for the sale, our total debt at year-end 2003 would be approximately $4.3 billion, representing a decrease of nearly $1 billion over the last two years. From a cash flow perspective, the sale will be beneficial since capital expenditures at the Las Vegas Hilton have exceeded EBITDA for the last two years."

The sale culminates several months of speculation and failed purchase attempts. The aborted purchase by Ed Roski, who owns the Staples Center in Las Vegas, is yet to be settled in court.

Opened in July 1969 as The International, then the largest hotel in Las Vegas, the Las Vegas Hilton immediately took its place as the home of legendary entertainment. Barbra Streisand was the featured performer at the opening gala but Elvis Presley made his famous Las Vegas comeback at the hotel during its opening month.

Rising 30 stories above the desert skyline, the hotel adjoins the 3.2 million-square-foot Las Vegas Convention Center. The resort features three distinct casinos, nearly 3,000 guest rooms and suites, 13 restaurants, a pool, spa and fitness centers and more than 200,000 square feet of conference space.