The News: Cashing in on $775 Million Vegas Deal

Big hotel transactions have been few and far between in 2008, but leave it to Las Vegas to think big. On Dec. 15, MGM MIRAGE, through wholly owned subsidiary The Mirage Casino-Hotel, agreed to sell Treasure Island Hotel & Casino to Ruffin Acquisition L.L.C. for $775 million.The hotel, perhaps best known for its live pirate show in front of the property, was acquired for about seven times Treasure Island’s earnings before interest, taxes, depreciation and amortization, said Carlton Geer, executive vice president for CB Richard Ellis Inc.’s global gaming group. The deal has benefits for both sides. The Treasure Island sale, in which MGM MIRAGE will receive $500 million in cash, gives the company an immediate injection of liquidity, which will help it complete CityCenter Las Vegas, its massive mixed-use project on the Strip, Geer said. The cash infusion may be particularly important to MGM MIRAGE if Las Vegas’ economy continues to deteriorate and revenues are threatened at MGM’s properties. “It really makes their balance sheet stronger,” Geer said.The buyer, Phil Ruffin, who sold the New Frontier Hotel and Casino in Las Vegas for the top-of-market price of $1.2 billion to Elad Properties in May 2007, gains what Geer called a “well-performing asset” across the Strip from The Venetian.Part of Treasure Island’s value to MGM is its tie-in to other MGM properties on the Strip, giving the company the opportunity to leverage its reservation system and benefit from economies of scale, a positive that Ruffin will not realize, Geer said. On balance, though, he said, the deal was transacted at a “very fair price.”Las Vegas’ casino hotels are suffering because of the recession, with large casino-hotel operators like Harrah’s and Las Vegas Sands Corp. announcing sizable layoffs. In the long term, however, Geer is optimistic about the city’s future. No other city has the infrastructure, ranging from the number of hotel rooms to the number of taxis, to support tourism as Las Vegas is able to, he said. “It was after our downturn after Sept. 11, 2001, that we saw a huge wave of hotel development.”