Regional casino giant Penn National Gaming acquired the Tropicana Las Vegas in 2015 as part of a long-desired effort to have a presence on the Las Vegas Strip.
Five years later, the company seems intent on leaving the nation’s largest casino destination.
Last week, Penn CEO Jay Snowden said the gaming operator is willing to part with the Rat Pack-era hotel-casino in an effort to reduce its $2.385 billion in long-term debt and invest in other gaming areas, such as the company’s online and retail sports betting partnership with media platform Barstool Sports.
Snowden said the 34-acre parcel on the Strip’s southern end that houses the 1,500-room Tropicana is attracting active “unsolicited” interest.
“We got another call two days ago, with interest (in) potentially acquiring some or all of the landholdings there,” Snowden said on Penn’s fourth quarter earnings conference call. “We know the land we have there is extremely valuable, and we’re going to continue to explore that. It’s a high priority.”
The company’s comments have left analysts speculating privately on what a transaction involving the Tropicana would resemble: an outright sale or a sale/leaseback with a real estate investment trust.
Recent Strip real estate deals at high multiples, notably MGM Resorts International’s sale/leasebacks of Bellagio, MGM Grand, and Mandalay Bay, and the outright sale of Circus Circus, have piqued the investment community’s interest.
“According to (Penn) management, free cash flow generated in 2020 would not be sufficient to reach their leverage target,” Stifel Financial gaming analyst Steven Wieczynski said. “So we still think the monetization of a Strip asset is likely this year.”
Acquiring the Tropicana in August 2015 cost Penn $360 million. The company invested another $200 million over the next few years to upgrade and renovate the resort.
“We have spent many years looking for the right presence on the Las Vegas Strip,” then-Penn National CEO Tim Wilmott told the Nevada Gaming Commission when the company was licensed for the purchase.
At the time, Penn wanted a Strip location as a way to offer its loyal customers a Las Vegas experience.
Penn acquired the 390-room M Resort in 2011, but that property is on the far southern end of the Las Vegas Valley in Henderson, roughly 10 miles from the heart of the Strip. One reason Penn wanted a Strip casino was to give its customers the option to be in the center of the action.
“We market both of those properties to our database,” Snowden said last week. “Some (customers) prefer to be on-Strip, some prefer to be off-Strip.”
If the Tropicana is sold, Penn would look to move customers to M Resort, a much smaller property.
“M Resort is on fire, has been for years,” Snowden said. “We could accelerate some of that movement and visitation to M from the Strip. That would be by design.”
Penn might also consider a marketing agreement with another Las Vegas casino operator to move customers. “We’ve talked about this internally,” he said.
Snowden said the company plans to roll the Barstool brand into its retail sportsbooks throughout the year. Penn currently operates 41 casinos in 19 states.
The Tropicana is on the backburner of the rollout because of the potential sale. Even if the property is sold outright, Snowden said the Strip might see a Barstool-branded sportsbook.
#exclusive – Sale of Tropicana Las Vegas ‘high priority’ for Penn National. –@howardstutz, CDC Gaming. https://t.co/8Qb0SCYWXw @TropLV @PNGamingInc #CDCgaming
— CDC Gaming (@CDCNewswire) February 10, 2020
“If we’re on the Strip, then we would use the Barstool Sports for a retail sports book,” he said. “If we weren’t on the Strip, I think there could be potentially opportunities to partner with others. Time will tell how that plays out, and that’s down the road, but I think we have a lot of optionality.”
Morgan Stanley gaming analyst Thomas Allen said Barstool is giving Penn access to a younger audience that is interested in sports betting.
“As has been proven by DraftKings and FanDuel, having access to strong databases is the key to sports betting market share, with the two controlling roughly 75% of the New Jersey market,” Allen told investors.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
