Sometimes less is more.
Last week, Park Place Entertainment (NYSE:PPE) announced the sale of the Las Vegas Hilton for approximately $280 million to Colony Capital, the Los Angeles-based private investment firm that also owns Resorts International in Atlantic City. The move is a big step in Park Place's transformation from an unattractive, messy collection of mediocre gaming properties into a focused casino operator with high-quality assets.
Over the past four quarters ending Sept. 30, the 34-year-old Las Vegas Hilton generated a mere $12 million in EBITDA, while showing an operating loss of $6 million. Colony's attraction is thought to be the 56 acres of prime real estate the hotel sits on, just off the Las Vegas Strip.
For Park Place, however, the divestiture is just one of several around the country expected to come, as the company increases its focus on its core Strip properties -- namely Caesar's Palace, Bally's, Paris, and Flamingo -- all of which sit at the intersection of Flamingo Road and the Strip. Bally's and Flamingo in particular are prime candidates for a facelift, as they attempt to compete with newer mid-range casino/hotels owned by MGM Mirage (NYSE:MGG) and Mandalay Resort Group (NYSE:MBG), such as New York, New York and Monte Carlo.
With the $265 million in expected net proceeds, Park Place intends to pay down its revolving credit facility. It will also report a gain of $85 million, or $0.28 per share, once the transaction closes, which is expected by the end of the second quarter of 2004.
Earlier this year, the company announced that it would change its name to Caesar's Entertainment in an attempt to create a stronger image by capturing the benefits of its more highly identifiable brand. Now, ridding itself of its many less-competitive, non-core assets will help Park Place strengthen its balance sheet and improve its core assets.
I still find Park Place to be the least attractive of the big companies in the gaming space. However, the sale of the Las Vegas Hilton is a big step in making it the premium company that it should be.
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Jeff Hwang can be reached at [email protected].
