Saturday, November 14, 2015

Cosmopolitan Reports Third Quarter Profit

Cosmopolitan reported a $4.7 million profit in the third quarter of 2015 according to a filing with the SEC yesterday.

While third quarter net revenue was down year over year ($179.8 million in 2015 compared to $189 million in 2014) Cosmopolitan was able to acheive a profit by slashing expenses all the way down to $167 million down from $203.5 million the previous year.

Cosmopolitan's new parent company Blackstone seems to have the ship pointed in the right direction, as Cosmopolitan has now reported two consecutive quarterly profits.

It appears the new owners are shifting the focus away from food, beverage, entertainment and retail and putting more of an emphasis on the casino. It will be interesting to see if this strategy proves to pay off over the next few quarters.

Friday, November 13, 2015

SLS Losses Mount in Third Quarter

A filing today with the SEC revealed that SLS Las Vegas had a net loss of $38.7 million in third quarter 2015.

SLS managed only $33.55 million of net revenue in the third quarter, which was down from $36.9 million of net revenue in the second quarter.

I like to compare SLS with somewhat similarly located Circus Circus, which managed almost double the net revenues that SLS did in the third quarter - $62.6 million.

Casino revenue at SLS was up slightly from the second quarter to the third ($9.5 million to $9.9 million). Almost every other category of business was down sequentially though.

Hotel revenue dropped from $13.1 million to $12.3 million. Food and Beverage dropped from $16 million to $13.6 million. Retail and other dropped from $1.3 million to $900,000 (likely explained by the Fred Segal departure).

Year to date the property has racked up a net loss of $122.7 million.

Parent company Stockbridge has now contributed $59.3 million this year to keep the hotel operational. That means they poured in an additional $31 million in the third quarter.

Based on these poor financial results it would seem like SLS would be on the verge of closing. However, the announcement that W Hotel will be taking over one of the hotel towers seems to indicate that SLS (backed by Stockbridge) will be around for a while.

If I had to guess - I think Stockbridge will likely make a few more deals similar to the W Hotel deal, essentially outsourcing different parts of the property. I wonder if a casino management deal with one of the regional players looking to get into the Vegas market might be on the horizon.

Thursday, November 12, 2015

Future of Tipping in Las Vegas

It was a hot news item a few weeks ago when Danny Meyer's Union Square Hospitality Group announced they were eliminating tipping in their New York City restaurants.

Just this week Joe's Crab Shack became the first major chain to follow suit and roll out an experimental plan that would also eliminate tipping at their restaurants.

This got me thinking about tipping in Las Vegas and if it could be possible for a no-tipping policy to ever be adopted.

Tipping is ingrained in the Las Vegas culture. Almost every employee a tourist encounters is tipped, from the cab driver on the way from the airport, the bellhop, front desk clerk, housekeeping, bar tenders, wait staff, all the way to the usher at the showroom.

Las Vegas is also one of the remaining places where cash is the preferred currency, making tipping easy. My first thought is that a cash free, non-tipping movement would face resistance in Las Vegas.

Times are changing though. Younger generations are getting more and more used to not using cash at all. When we eventually go to a mostly cash-free society (if we aren't there already) tipping seems like more of a burden.

While the transition away from cash might be slower in Las Vegas because of gambling, it will happen eventually. With less cash changing hands tipping might become less common.

Services like Uber have made it common for the tip to be included. That line of thinking might work its way though the hospitality industry.

Wednesday, November 11, 2015

Fontainebleau For Sale - Who Will Buy?

The Wall Street Journal reported today that Carl Icahn is looking to sell the Fontainebleau. The property will be listed by CBRE for $650 million.

I immediately starting thinking about who might be a candidate to buy and finish the stalled Fontainebleau project. I'm going to spend the rest of this blog post speculating about which companies might be in the mix.

MGM Resorts International and Caesars Entertainment are the two largest Las Vegas hotel/casino companies but neither of them are really looking to expand in Vegas at the moment. Plus MGM will be completing a REIT conversion soon, and Caesars is going through a partial bankruptcy. I don't see either of these giants buying Fontainebleau.

Wynn Resorts boss Steve Wynn has long said he doesn't want to build in Las Vegas again. His frustration with the Macau government and endless headaches getting his Boston project off the ground might have him singing a different tune though. The rub: Wynn likes to build from scratch and the Fontainebleau structure might not be a blank enough slate for architect DeRuyter Butler and designer Roger Thomas to work their magic.

Like Wynn, Las Vegas Sands and Sheldon Adelson have shown a lack of interest in building anything new in Vegas. I actually think the Fontainebleau would be a great fit though. LVS has deep pockets so finishing the resort wouldn't be a problem, and the location near the planned convention center expansion would fit right in with their convention heavy business model. The best part: They could call the property Sands Hotel and Casino resurrecting an iconic Las Vegas brand.

Speaking of iconic properties: Boyd Gaming has been looking to get back on the Strip ever since they demolished The Stardust and failed to replace it with Echelon Place, later selling the property. While I would be in favor of Boyd buying Fontainebleau and renaming it The Stardust (or Borgata Las Vegas perhaps?) it seems unlikely they would undertake such a large project so shortly after abandoning Echelon.

Penn National was seriously considering purchasing Fontainebleau before ultimately losing out to Carl Icahn. Since then they have entered the Las Vegas market with purchases of M Resort and later Tropicana. If Penn was unwilling to spend $150 million to buy Fontainebleau in 2010 I'm guessing they don't want to spend $650 million in 2015.

Treasure Island owner Phil Ruffin was in the news earlier this week as it was reported he made a recent $1.3 billion failed bid to buy The Mirage. If Ruffin has that much cash to spend could he possibly want to buy the Fontainebleau? It seems like a real possibility to me.

Other regional operators like Eldorado Resorts, Golden Entertainment, Full House Resorts, and Pinnacle Entertainment are likely eager to get into the Las Vegas market but probably don't have the money to make a deal like Fontainebleau happen. Could one of these companies partner up with a rich benefactor like Ruffin to get it done?

Lastly and perhaps most likely to buy Fontainebleau are private equity real estate companies. Cosmopolitan parent company Blackstone might be a possibility if they are looking to expand their casino holdings. Once rumored Mirage buyer Starwood Capital might also be looking to buy.

Tuesday, November 10, 2015

Caesars Upgrading Las Vegas Room Product

For years Caesars Entertainment has had a reputation for not maintaining their properties. While most Strip properties had routine room updates, Caesars seemed to take the approach of deferring maintenance to save money.

This provided some great room rates for budget travelers, but from a company perspective Caesars was hurting themselves by not being able to charge more for nicer room offerings.

This might be changing though. On the latest Caesars Entertainment earnings conference call yesterday new CEO Mark Frissora talked about being able to achieve higher average daily room rates by improving their properties.

Indeed Caesars has already taken steps to upgrade Las Vegas hotel rooms with the upcoming Julius Tower at Caesars Palace, new suites at Paris, upgraded rooms in the Carnival Tower at Harrah's, and refreshed Hollywood Hip rooms and suites at Planet Hollywood.

This follows some other improvements at Caesars properties including the complete overhauls at The Cromwell and The Linq, along with new hotel rooms at the Bally's Jubilee Tower and the Rio Samba Suites.

If Caesars continues to aggressively improve their room products it would give Las Vegas travelers many more options for a nicer hotel room closer to the center of the Strip.

Monday, November 09, 2015

W Hotel coming to SLS

Starwood Hotels and Resorts announced on Monday their W Hotel brand will be taking over the Lux tower at SLS Las Vegas. In addition to the W Hotel, SLS will become part of Starwood's Tribute Portfolio.

SLS has been struggling financially since its opening. Something like this needed to happen to give the property some life after controversial leader Sam Nazarian sold off his stake.

While I think bringing the W Hotel into the fold is a good move, I have to wonder if it's the best fit for the property. I assume W guests expect only the best for the top dollar they pay, and I'm not exactly sure SLS is what I think of when I think of top notch Las Vegas luxury.

If anything this tells us that SLS is here to stay though. Parent company Stockbridge wouldn't be making this move if they were ready to bail on the property. It's good to know that they are committed to seeing this through and making the necessary changes to be successful.

Sunday, November 08, 2015

Fontainebleau Getting Building Wrap

The stalled Fontainebleau project at the north end of the Strip will be getting a building wrap in an attempt to make it look less like an eyesore.

County commissioners have been pressuring owner Carl Icahn to do something with the property for some time now. He now has 90 days to submit a plan and six months to complete it.

When I heard that Fontainebleau would be getting a building wrap, my first thought was "why"? The tower itself is topped out and is mostly glass so I didn't know how a wrap would help cosmetically.

It turns out the wrap will only cover the first three stories closest to the Strip. This part of the building does have exposed steel and is visible from the street, so I suppose a wrap will help hide that.

Both news3lv and KLAS TV produced pretty informative news stories about Fontainebleau. KLAS reported that Icahn is looking for $550 million to sell the property, which would be a nice profit from his $150 million purchase price.