There’s ample interest among potential buyers for the Tropicana Las Vegas. But whether those flirtations result in credible offers for the iconic venue remains to be seen.
As it stands today, Gaming and Leisure Properties (NASDAQ:GLPI) owns the property. Penn National Gaming (NASDAQ:PENN) operates the venue, including the casino and hotel. That scenario came about following a transaction earlier this year. Then, Penn, strapped for cash at the time, unloaded Tropicana’s real estate and the ground lease of an asset in Morgantown, Pa. to GLP for $337.5 million in lease credits.
Since then, GLP confirmed it’s open to selling Tropicana. But it’s taking a pragmatic approach to making a deal.
We had more than 18 non-disclosure agreements out,” said GLP CEO Peter Carlino on a conference call with analysts and investors earlier this week. “I mean, there’s a lot of tire kickers, not necessarily a lot of check writers. But we’ve been surprised by the activity.”
The leader of the gaming real estate investment trust (REIT) adds his company would like “to reach a transaction as early as we plausibly can,” but adds GLP is comfortable with the current state of affairs at the Strip venue.
Affording the Luxury of Patience
For multiple reasons, GLP doesn’t need to be hasty in unloading the Tropicana. First and foremost, Penn National’s financial position is improving, indicating there’s little near- to medium-term risk that the operator will be pinched by its obligations on the venue.
Second, the coronavirus pandemic is resulting in depressed pricing on gaming real estate. That means the price the REIT could fetch for Tropicana today would likely be far lower than what it can command after the virus is vanquished and Las Vegas recovers. Third, there’s the lack of legitimate offers.
“So, there’s been a lot of activity, but time will tell. We’ll see,” said Carlino. “As I say, there are a lot of wing and a prayer kind of offers that we have gotten. Those aren’t going to fly. We’re under no pressure.”
Rumors about the fate of Tropicana are about a year old, and in October 2019, some analysts speculated a sale of the venue could be worth up to $700 million. Obviously, that was before COVID-19, and the pandemic is altering the dynamics of large-scale real estate transactions.
Scaling Down in Las Vegas
Pennsylvania-based GLP owns the real estate of 45 casinos across the US and operates two itself. One is a pair of Hollywood venues, one in Louisiana, and the other in Maryland.
Of that roster, the REIT has just three venues in Southern Nevada, including Tropicana, and its preference is for regional markets, not the Silver State.
“And I think most of you know that we’ve made the case for years, that the real safety and stability is out in the hinterlands, not on the Strip,” said Carlino. “Love those assets. Terrific. But they’re much too volatile for our case.”