Caesars sells Rio to New York real estate group for $516.3 million

September 23, 2019 11:58 AM
  • Howard Stutz, CDC Gaming Reports
September 23, 2019 11:58 AM
  • Howard Stutz, CDC Gaming Reports

The long-rumored sale of the Rio All-Suite Hotel & Casino in Las Vegas came to fruition Monday when Caesars Entertainment announced that it had sold the resort to a New York-based real estate group for $516.3 million and will continue to operate the off-Strip property under a lease agreement for at least two years.

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In a statement, Caesars, which is in the process of being merged with Eldorado Resorts in a $17.3 billion deal, the biggest in gaming history, said it will pay $45 million in annual rent to a company controlled by a principal of Imperial Companies.

A sale of the Rio has been expected. Eldorado CEO Thomas Reeg said in June that the Reno-based company expected to sell one of two of Caesars’ nine Las Vegas Strip-area resorts.

Jefferies gaming analyst David Katz told investors in a research note that the sale “is both a strategic and financial positive” for Caesars and Eldorado.

“It should reduce leverage and exposure to the Las Vegas market, both of which are stated goals of Eldorado,” Katz said.

Imperial Companies, led by founding partners Eric Birnbaum and Michael Fascitelli, is a real estate investment, development and management platform focused primarily on mixed-use, residential, and hospitality businesses throughout the U.S. According to its website, the firm launched in 2014 and has spent “approximately $1 billion of total capitalization across its various investments.”

Birnbaum is also behind The Pod Hotel, the 700-room mixed-use ground-up development in New York’s Times Square, and is currently developing hotels in Las Vegas and South Beach, Miami. Fascitelli is the former president and CEO of Vornado Realty Trust and former president of Alexander’s, Inc. He currently serves as a trustee of the Board of Vornado Realty Trust.

Caesars said the deal allows the Las Vegas-based casino giant to retain ownership of the World Series of Poker. The annual event is hosted in the Rio’s 60,000 square foot convention facility.

“This deal allows Caesars Entertainment to focus our resources on strengthening our attractive portfolio of recently renovated Strip properties and is expected to result in incremental (cash flow) at those properties,” Caesars CEO Tony Rodio said.

The property will also remain part of the Caesars Rewards customer loyalty and player tracking system.

The transaction is expected to close by the end of the year, prior to the merger closing, which is expected to take place next Spring. The Rio sale requires shareholder and Nevada regulatory approval.

“We view the transaction as a distinct positive for Eldorado-Caesars as it provides for healthy de-leverage, while the net transaction multiple, in our view, is very strong,” Deutsche Bank gaming analyst Carlo Santarelli said in a note to investors.

The Rio, which is located west of Caesars Palace on the opposite side of Interstate 15, opened in January 1990. Built by Las Vegas developer Tony Marnell, the Brazil-themed property was billed as an all-suite resort and struggled until it added a second hotel tower. The Rio now has 2,522 rooms. Caesars’ predecessor Harrah’s Entertainment acquired the Rio in 1998 for about $880 million in stock and assumed debt.

Since 2004, the Rio has been home to the World Series of Poker, which runs for seven weeks from late May to the middle of July. This year’s tournament drew a record 187,298 entries. The World Series of Poker is credited with boosting the Rio’s visitation.

“The retention of the World Series of Poker and retention of Caesars Rewards customers are all factors that make this a valuable transaction for Caesars,” Rodio said in statement.

The Rio had been reportedly on sales block for several years, both before and after Caesars’ 30-month bankruptcy reorganization was completed in October 2017.

Eldorado is acquiring nine Caesars properties on or near the Strip as part of its $17.3 billion cash, stock and debt merger with Caesars. Eldorado – which has resorts in Reno, Lake Tahoe and Laughlin – has long desired to operate a Strip address.

Reeg said at the time he wasn’t sure it the company needed nine hotel-casinos, encompassing more than 23,000 hotel rooms, within a two-and-a-half-mile stretch.

“As I sit here today … I think that there’s more Strip exposure than we would need to accomplish our goals with our regional database,” Reeg said. “So I would expect that we would be a seller of a Strip asset, but that decision has not been made.”

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at Follow @howardstutz on Twitter.