Caesars Entertainment Selling Harrah’s Las Vegas Real Estate to Generate Capital

Posted on: December 2, 2017, 02:00h. 

Last updated on: December 2, 2017, 10:00h.

Caesars Entertainment is fresh out of Chapter 11 bankruptcy, and the casino conglomerate is ready to get back into the game of purchasing new assets. To accomplish that goal, the company needs cash.

Caesars Entertainment Harrah's Las Vegas
Caesars Entertainment recently celebrated its emergence from bankruptcy by ringing in the opening bell at NASDAQ. (Image: Caesars Entertainment)

In a capital-generating move, Caesars has decided to sell its Harrah’s Las Vegas real estate to VICI Properties, its real estate investment trust (REIT) that was formed through bankruptcy. The transaction sends $1.14 billion in cash to Caesars Entertainment, which will then lease back the property at an initial annual rent of $87.4 million.

The over $1 billion in capital will be used to help finance Caesars’ acquisition of Centaur Holdings and its two Indiana horse racetrack racinos, Hoosier Park and Indiana Grand. Gaming operations at the two tracks collectively generated $480 million in gross revenue last year.

In addition to the racinos, Caesars is invested in Indiana by way of its two riverboats, the Horseshoe Hammond and Horseshoe Southern Indiana. Caesars CEO Mark Frissora said the Harrah’s deal allows the company to pursue new growth opportunities without assuming new debt.

Page From MGM Playbook

Caesars’ bankruptcy proceedings, called the “largest and most complex bankruptcy in a generation” by the company’s own lawyers, allowed the corporation to rid its books of $10 billion of its $18 billion debt. In exchange, the creditors owed the money gained ownership of the REIT.   

The trust owns 18 Caesars properties including Caesars Palace, and Atlantic City’s Caesars and Bally’s, and leases their operations back to the company. REITs come with special tax considerations, and are required to distribute 90 percent of their income to shareholders, which in this case is predominantly hedge funds and large investment firms.

Caesars isn’t the only casino operator with a REIT. Though MGM Resorts never went bankrupt, last year it created its own real estate trust, known as MGM Growth Properties, to take ownership of 10 properties including Mandalay Bay, Mirage, and Monte Carlo.

Convention Center Planned

The REIT’s willingness to spend over $1 billion to put Harrah’s Las Vegas in its portfolio shows that the stakeholders remain confident in Caesars’ long-term outlook, and approve of the plan to invest in the Indiana racinos. But reaction from investors in Caesars Entertainment was mixed.

When the Harrah’s sale was announced on Wednesday, Caesars stock fell 1.3 percent.

The initial reaction by investors might be concern that Caesars shouldn’t be looking to invest in racetrack casinos, an industry that is struggling in numerous states across the country. But the Indiana tracks aren’t the only investment Caesars is planning with the Harrah’s money.

Frissora also announced that the VICI terms allows Caesars to build a 300,000-square-foot convention center on 18 acres adjacent to Harrah’s. The acreage is currently a parking lot behind the High Roller Ferris wheel.

The planned convention center will feature the largest “column-free ballroom in the United States,” according to Caesars.