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Best of Liz Benston

Gaming Guru

Liz Benston

Imperial Palace Purchase Is Strategic Move For Harrah's

23 August 2005

Harrah's Entertainment Inc. has signed an agreement to purchase the Imperial Palace for $370 million, giving the company a larger foothold on the Strip and ownership of four adjacent casinos.

Harrah's said Imperial Palace management will continue to operate the 2,640-room property until the transaction closes, which is expected by the end of the year. The property employs more than 2,000 people.

The company said it has "no plans for substantial operational changes" at the property in the near term. But some Wall Street analysts said it would make the most financial sense to tear it down and build anew, as new Las Vegas resorts can generate higher profit than older properties that cost millions to maintain.

Harrah's has accumulated enough land between its O'Shea's, Flamingo, Imperial Palace and Harrah's casinos to eventually redevelop something new, analysts said.

Spokesman David Strow said the company hasn't decided whether it will implode the property.

"We have a number of options for this location and we will look at all those options," he said. "Whatever we decide we will proceed with a project that takes full advantage of its potential."

Rumors about the company's interest in the Imperial Palace have circulated for years and intensified with the purchase of Caesars Entertainment Inc. in June. Imperial Palace is located between Harrah's Las Vegas and the O'Shea's and Flamingo casinos, both of which Harrah's acquired from Caesars. Also this year, Harrah's acquired the Bourbon Street, a small hotel and casino on eight acres behind the Flamingo, as well as a few acres adjacent to the property.

Across Flamingo Road from its Flamingo resort, Harrah's expects to redevelop and rebrand its Bally's Las Vegas property.

"The Imperial Palace is located in the heart of the Las Vegas Strip and between two casinos we own. This was a property we absolutely wanted to have and have wanted for some time," Strow said.

Harrah's has been jockeying for a larger presence in Las Vegas, where the company had previously owned only two resorts. The company continues to eye expansion opportunities in Las Vegas because business remains strong and is avoiding expansion in other states where casino taxes are high and regulations are more burdensome, executives have said.

In a research note to investors Monday, Bear, Stearns & Co. stock analyst Joe Greff speculated that the Imperial Palace site could be part of a "major redevelopment" of the Harrah's Las Vegas and Flamingo properties.

Greff said the purchase price represents "fair market value" of the land and said the Imperial Palace was likely generating from $5 million to $10 million in operating cash flow per year.

Another Wall Street analyst, who declined to be named, said the property may not have been generating much profit given that typical casino maintenance and capital expenditures can cost in the millions of dollars each year.

"It might be slightly more cost effective to quickly implode this thing," the analyst said.

The transaction included no debt. Analysts said the transaction valued the 18.5-acre site at $20 million per acre -- a going rate on the Strip.

The Asian-themed property, which is privately-owned, recently renovated its casino floor and had begun remodeling hotel rooms as part of a multi-million-dollar upgrade. Prior to Monday's announcement, the Imperial also was in the process of updating its signage, promotional materials and logo.

Calls to Imperial Palace management were referred to Harrah's. Owen Nitz, an attorney and Imperial Palace trustee, did not return calls by press time.

The Imperial Palace opened in 1979 and is known for its classic car collection, luau parties and "Dealertainers" -- card dealers who look and dress like celebrities. The often-overlooked property does little in the way of major marketing campaigns but has historically had high occupancy rates because of its location and relatively cheap rooms.

Imperial Palace owner Ralph Engelstad passed away in 2002, leaving the property to his widow, Betty, and a group of trustees.

The sale did not include the Imperial Palace casino in Biloxi, Miss.

Imperial Palace Purchase Is Strategic Move For Harrah's is republished from