M Resort operator Penn National Gaming is buying the Tropicana, a classic but money-losing resort, according to an internal letter obtained by VEGAS INC.
Tropicana CEO Alex Yemenidjian told employees in a letter today that Penn would announce its acquisition of the property Wednesday. He didn’t divulge many details, including a sales price.
The sale gives Penn its first resort in Las Vegas’ main casino corridor.
Yemenidjian told the employees that their “commitment to our core values has elevated this property to new heights, and I feel very positive about Penn continuing the momentum that we started and creating tremendous growth opportunities for each of you.”
Based near Reading, Pa., Penn operates 26 casinos and other properties in 16 states and the Canadian province of Ontario. Though it has long eyed the Las Vegas Strip, the M is as close as the company has come to tapping into that lucrative market — until now.
Penn did not immediately respond to a request for comment Tuesday evening.
“Penn’s been looking for that asset for ages, so they finally got their Strip exposure,” said Union Gaming Group analyst Chris Jones in response to news of the sale. “That’s an absolutely massive deal for Penn National.”
As Penn was acquiring the M in 2010, president Tim Wilmott said the company probably wouldn’t buy anything on the Strip soon because it didn’t want to “rush out and pay a ridiculous price for a Strip asset” at the time.
Jones said the Tropicana acquisition may have been the most economical way for Penn to enter the Strip market — cheaper than, say, buying and completing the mothballed Fontainebleau project. And the Tropicana could benefit from Penn’s ownership, he said, because the company would be able to invest in property improvements and marshal an already sizeable customer base.
“(The Tropicana) needs a way to drive visitation, and certainly Penn has that capacity,” he said.
Most tourists who come to Las Vegas want to stay on the Strip, but until now, if Penn’s customers wanted to stay at a company property here, they ended up 10 miles south of the Strip in the Henderson desert.
The M is a “great property,” CBRE Group broker Michael Parks said, but it’s “not the Vegas experience a lot of out-of-town people are looking for.”
The Tropicana, with 1,467 rooms, sits on roughly 35 acres at the southeast corner of Tropicana Avenue and Las Vegas Boulevard. It had about 1,490 employees as of Jan. 1, according to a regulatory filing.
The resort opened in April 1957 with 300 rooms, bringing “lush, tropical beauty to its desert site about one mile north of the airport on the Los Angeles highway,” the Las Vegas Sun reported at the time.
“From the colorful, mosaic-tiled entrance through spacious guest rooms, this fantastically beautiful resort hotel combines lush luxury, extremely good taste, warmth, intimacy and functional efficiency,” the Sun wrote.
Its famed “Les Folies Bergere” topless revue opened Christmas Eve 1959, and in the 1971 film “Diamonds are Forever,” James Bond said he heard the hotel is “quite comfortable.”
The resort expanded over the years as the Strip became packed with competitors. But in May 2008, when led by Kentucky hotel and casino mogul William Yung III, it went bankrupt, along with other properties his company owned.
“I really view this as a positive step,” a company executive said at the time.
About a year later, Yemenidjian, a former board member of the casino giant now known as MGM Resorts International, teamed with Toronto-based private equity firm Onex Corp. to acquire the Tropicana out of bankruptcy. The deal closed in the depths of the U.S. financial crisis.
Clark County property records say the hotel sold for $250 million.
The hotel had changed little since the 1980s, and Yemenidjian launched a $180 million overhaul in 2011. Financially, losses have narrowed and revenues have climbed the past several years, but the resort has been stuck in the red.
Last year, the Tropicana had almost $110 million in revenue but lost $19 million. In 2010, it brought in $54 million in revenue and lost almost $44 million, according to management.
In 2013, Penn spun off most of its properties, including the M, into a real estate investment trust. Under the new arrangement, a company called Gaming and Leisure Properties owns the properties, and Penn National pays rent to manage them.
Yemenidjian’s letter made no mention of how the real estate investment trust would factor into the Tropicana acquisition.
He said he expected the sale to be finalized by the end of the year.