The Las Vegas Strip has become some of the hottest real estate on Earth. The 4.2-mile stretch of road has become a battleground where interlopers like Resorts World Las Vegas try to unseat the established market leaders Caesars Entertainment (CZR), MGM Resorts International (MGM), and Wynn Reports (WYNN).
The Strip has become the land of big names with celebrity chefs bringing their signature restaurants to the famed street ad the biggest entertainers have taken up residency at world-class venues. Gone are the days when Vegas headliners were mostly kitschy has-beens (although some of those still exist). Now, huge stars like Adele, Lady Gaga, Katy Perry, Aerosmith, and pretty much every major DJ play the Las Vegas Strip regularly, often as part of long residencies.
Caesars and MGM dominate the south and central Strip and neither of those companies has been the least bit complacent. Both companies have been making big changes including Caesars rebranding its Bally's Casino under its gambler-friendly Horseshoe brand while it's also trying to sell its Flamingo resort casino.
MGM has not been sitting still as it sold off the Mirage and purchased the Cosmpolitan. That's an interesting trade and CEO Bill Hornbuckle shared some of his company's plans for its newest top-tier Las Vegas Strip property.
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Cosmopolitan Becoming Part of the MGM Family
Hornbuckle addressed MGM selling off its real estate to Vici Properties (VICI)(which also owns many of Caesars Strip properties) as a way to free up cash during the company's second-quarter earnings call.
"We took another meaningful step in April to simplify our corporate structure and complete the monetization of our real estate assets with the closing of our strategic transactions between MGM Growth Properties and Vici," he said. "This transaction brought us $4.4 billion in cash, which we intend to use to invest in our core businesses while continuing to pursue meaningful growth opportunities. One such opportunity was the acquisition of The Cosmopolitan of Las Vegas that officially closed in May."
The CEO noted that he has spent some time at the new acquisition, which has not been fully integrated into MGM's loyalty program and booking platforms.
"Our focus now is on integrating the operations of the property into MGM Resort's portfolio and working together to maximize the future success of this world-class resort," he added.
How Is Cosmpolitan Being Added to MGM?
Adding Cosmopolitan fully into MGM's portfolio will take time, but the transaction has already paid off in some small ways, according to CFO Jonathan Halkyard.
"Well, there are certainly synergies in this transaction. They relate to the things you might expect, the combination of some facilities that the Cosmopolitan needed to maintain and pay for associated with their relatively small footprint, things like warehouse space, corporate offices, and the rest.," he explained "I'm proud to say that on the day after we closed the transaction, we had their employees -- the CoStar -- be able to park in the Bellagio garage and therefore, not have to take a bus transportation from a remote spot."
Convenient employee parking may sound like a small thing but it makes the company more efficient and keeps workers happy in a very competitive hiring market.
The purchase has also been a financial positive in its early days.
"In the six weeks that we owned the Cosmopolitan of Las Vegas during the second quarter, it generated kind of just a little bit under $60 million of EBITDAR [earnings before interest, taxes, depreciation, amortization, and rent]. So this business is rocking and rolling right now," he added.
Hornbuckle also noted that even in a down economy, high-end properties are performing well.
"Look, anything tied to luxury and high-end retail, and you can obviously put it into that case, Bellagio, Aria, now the Cosmopolitan parts of MGM and parts of Mandalay, are doing amazingly well, he said.
