Icahn ponders gaming growth

By Liz Benston (contact)

Friday, Nov. 28, 2003 | 10:56 a.m.

In addition to the possible purchase of a major Las Vegas resort, a real estate limited partnership controlled by investor Carl Icahn is making other moves in an apparent attempt to consolidate and grow its gaming investments, experts say.

In a document filed with the Securities and Exchange Commission this month, American Real Estate Partners LP said it is in talks with an unidentified company regarding the possible acquisition of a Las Vegas hotel-casino with about 3,000 rooms. American Real Estate aims to "further explore investments in the casino and entertainment sectors" as well as the energy industry and other real estate opportunities, the SEC filing said.

Icahn owns more than 80 percent of the company's stock.

Analysts believe the Las Vegas Hilton, which has more than 2,900 rooms, might be the most likely target for the Mount Kisco, N.Y.-based partnership.

The filing also said American Real Estate is discussing acquiring two Las Vegas properties from Icahn, the general partner in the company. Besides the Stratosphere resort in Las Vegas, which is already owned by American Real Estate, the only two gaming properties Icahn owns in town are the dual Arizona Charlie's Decatur and Arizona Charlie's Boulder casinos.

The acquisition would likely involve a simple transfer of interest at book value and indicates that Icahn is aiming to consolidate his gaming properties, said Christopher Mittleman, a portfolio manager at investment firm Spencer Clarke.

Similarly, the partnership -- which initially had a 50 percent stake in the Stratosphere -- eventually acquired the rest of the property from Icahn, he said.

The filing further states that American Real Estate has retained a real estate broker to help the company sell other real estate properties to raise cash and "diversify its operations." The company said it will market for sale properties with a book value of about $340 million.

The acquisition of a major Las Vegas resort "would transform ACP from an obscure investment vehicle into a major gaming entity likely to attract the attention of the investment community," said Mittleman, who personally owns shares of American Real Estate stock and manages shares for clients.

Merrill Lynch analyst John Maxwell said the Las Vegas Hilton might be a possibility given that Park Place tried to sell the property in the past.

"We wouldn't be surprised if someone came in and offered a decent price for the property," he said.

Los Angeles developer Ed Roski Jr. filed suit against Park Place in 2001 over a failed $345 million bid for the Las Vegas Hilton, claiming the property lost value after news of the sale. Park Place and Roski later settled that suit.

"The property's got a lot of potential for somebody to turn it around," added Andrew Susser, a bond analyst with Bank of America Securities. Improving the property's cash flow would require property upgrades to attractions such as restaurants and bars, Susser said.

The Las Vegas Hilton, if sold, would probably go for a high cash flow multiple given its size and the site's potential, he said.

The Las Vegas Hilton has reported an annual cash flow of less than $20 million per year for the last couple of years, down from around a high of $60 million, analysts say.

Park Place Entertainment Corp. declined comment on whether the company is discussing the sale of the Las Vegas Hilton with Icahn. In the company's third quarter earnings announcement, Park Place said it had adopted a procedure to evaluate offers it had received on certain properties. Park Place didn't say which properties it might sell.

Park Place hasn't disclosed that the Las Vegas Hilton is for sale, though analysts said a disclosure probably isn't required if the company isn't marketing the property and is instead accepting private offers.

"We're not going to get into a discussion of play-by-plays unless there's something specific and concrete to announce," Park Place spokesman Robert Stewart said Wednesday.

Icahn representatives could not be reached for comment. In an interview a few months ago with In Business Las Vegas, a sister publication of the Las Vegas Sun, Stratosphere Chief Executive Richard Brown said Icahn is constantly considering offers that are brought to him and hasn't ruled out any deals in Las Vegas.

A select few resorts in Las Vegas have 3,000 rooms or more but are considered flagship properties for their owners. Reports of sales have also swirled around Imperial Palace and the Aladdin -- which have about 2,700 rooms and 2,500 rooms, respectively. Newly appointed trustees at the Imperial Palace have said they have taken the property off the market since the death of owner Ralph Engelstad and are instead spending money on upgrades. The Aladdin, meanwhile, recently was sold out of bankruptcy to a group of investors including Starwood Hotels and Resorts Worldwide Inc. and the chief executive of the Planet Hollywood International Inc. restaurant chain.