News for the Hospitality Executive
|By Rod Smith, Las Vegas Review-Journal
Knight Ridder/Tribune Business News
Dec. 25, 2003 - Park Place Entertainment Wednesday confirmed reaching a definitive agreement to sell the Las Vegas Hilton for $280 million to Colony Capital, a Los Angeles-based international private investment firm.
Park Place President Wally Barr said in a statement released Wednesday that his company's strategy is to focus on core assets, which in Las Vegas are Caesars Palace, Bally's, Paris and the Flamingo.
"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 said.
Park Place said it will use the proceeds to reduce debt. It also claimed that had it sold the Hilton a year earlier, earnings per share would have been approximately 10 percent higher in 2003.
"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 Chief Financial Officer Harry Hagerty.
Cash flow, or earnings before interest, taxes, depreciation and amortization, was $12 million over the 12 months ending Sept. 30, 2003. Without the Las Vegas Hilton, those earnings would have amounted to 39 cents a share rather than 36 cents a share, he said.
Depending on the final use of the proceeds, however, the sale could add even more to the Park Place bottom line, Hagerty said.
Colony Chairman Thomas Barrack said the Las Vegas Hilton and "the prime real estate on which it sits are truly irreplaceable assets," and that his company intends to enhance and reposition the property.
Colony intends to continue the operation of the property as a hotel-casino, and may construct additional facilities on land that is currently unused, he said.
Analysts generally applauded the agreement as a coup for Park Place and the Las Vegas Hilton, adding they expect Colony to add another tower at the site and consider converting a portion of the property to time share.
They said the sale at a multiple of 23-times cash flow is far above the industry transaction average of 7.5-times or 8-times cash flow.
"In addition to cutting overall debt, they won't have the drain for continual improvements to maintain the building. Plus, on the management side, they'll be able to concentrate on their performing core properties," said said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company.
University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the transaction "is a big deal for Las Vegas. The Hilton is a core property because of its massive size (with 3,174 rooms) and its proximity to the Las Vegas Convention Center, and it's important that someone tries to elevate to where it was before."
He added that it is important that the Las Vegas Hilton was sold to a company with deep pockets "because the place needs investment and I hope they're not just holding it to sell it."
Deutsche Bank Marc Falcone said this was a strength of Colony and its intent for the property.
"It's a great deal for Park Place, but there's a lot of unused land included in the price and that's the opportunity Colony sees in addition to improve the operations of the Las Vegas Hilton," he said.
"(Colony) did a great job with Harvey's (Resorts which they owned from 19988 to 2001) and the Atlantic City Property (Resorts Atlantic City)," Falcone said.
Shares of Park Place Entertainment were down 9 cents or 0.83 percent Wednesday to close at $10.77
Over the past 12 years, Colony Capital has invested more than $9 billion in some 5,000 assets through various corporate, portfolio, and complex property transactions. Colony has a staff of more than 100 and is headquartered in Los Angeles.
SG Cowen and CB Richard Ellis are advising Park Place. Goldman, Sachs & Co. is the exclusive financial adviser to Colony on the transaction.
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