Echelon no more: Boyd humiliated yet again; Caesars pulls another plug

If you’ll pardon my vulgarity, shit got real while I was tied up with other projects. Last week’s sale of excess baggage Dania Jai-Alai in Florida was just a tiny prelude to this morning’s blockbuster: Echelon is kaput. Instead, Boyd Gaming will liquidate it to Genting Berhad for $350 million. This closes the book on Boyd’s history as a Las Vegas Strip operator, brings a major new player to the Boulevard and raises hope for struggling north-Strip casinos, including Sam Nazarian‘s low-cost reinvention of the Sahara as SLS Las Vegas. It’s an S.O.S. for Boyd, which needs to pay down its Peninsula Gaming purchase.  The north half of the Echelon acreage, once occupied by the Stardust, was long since bought and paid for; the southern parcels were traded to then-Harrah’s Entertainment for the since-defunct Barbary Coast, at extravagant cost to Harrah’s. Near-term losers today were the new owners of the can’t-be-unloaded land where El-Ad Properties was going to build its Plaza metaresort and Carl Icahn, who’s still stuck with crumbling Fontainebleau. Mind you, before any victory laps are taken, note that Genting plans to spend as much as $7 billion on Resorts World Las Vegas. You might recoup that size of investment in Singapore but not here, and it’s becoming constantly more difficult. At least the financial performance of Resorts World Sentosa ($2.9 billion grossed last year) and that of smash-hit racino Resorts World New York ensures that Genting has the money to make good on its plans … although it did rein in an aggressive casino push into Florida when faced with legislative recalcitrance: $3.3 billion worth of planned spending in the Sunshine State has been scratched. Aggression is a Genting hallmark, sometimes to the company’s chagrin, but not often.

Genting has big plans for the acreage — $2 billion for the first phase alone — some of them tacky (a miniature Great Wall of China), some unrealistic (a panda habitat … that’s been attempted before and it was a no-go). The Imperial Palace-on-steroids design scheme makes it abundantly clear who the target market is, namely Asia. Gov. Brian Sandoval (R) had good reason to smile at the bombshell announcement, having landed the kind of major project that his Debbie Downer predecessor, Jim Gibbons, never could or seemingly wanted to, and it coincides with a buying spree in local commercial real estate. (Gibbons infamously deemed marketing Vegas to China “a waste of taxpayers’ money.”) Using the bones of the Echelon construction — validating Boyd’s decision to leave the steel in place — Genting expects to have Phase I open in roughly three years. Yes, it looks derivative — Paul Steelman is the designer of record, returning from exile — and Genting might want to invest in some moving walkways if it’s going to insist upon setting the casino a half-block back from the Strip. (One word: Aria.) Having inherited Echelon’s skeleton (above), Genting must live with some of its design quirks, too. And though the fly loft of the auditorium as mysteriously vanished from Genting’s renderings, the company says the big showroom remains part of the plan.

But the big loser here is Boyd, which is taking a $994 million writeoff on its ill-advised attempt to ape CityCenter. (It wasn’t as colossally dumb as Station Casinos‘ attempted, $11 million, off-Strip Viva, left, but few Vegas projects ever reached that nadir of boneheadedness.) There’s no sugar-coating what is an ignominious exit strategy and a feeble end to the company’s illustrious history on the Strip. Boyd is selling for $4 million an acre (minus parts and labor) land that was valued at $15 million/acre when Echelon was begun. At that steep of a markdown, the Echelon fire sale also rains on Icahn’s hopes for unloading F-blew, whose per-acre value just took a dive. Throw in hotel occupancy that’s well short of 90% and a sluggish return of consumer spending, and Resorts World is unlikely to set off a stampede of new development. However, an influx of construction workers will help revive a local economy whose reliance on home-buying and heavy discretionary spending has been its undoing. Retail vacancies (16%) are some of the highest in the country and many of the bigger, recent real estate purchases have been speculative.

Wall Street took a bland view of Boyd’s deal. J.P. Morgan analyst Joseph Greff pegged the net return on the Echelon sale at $157 million — making a bad deal look even worse, except by comparison to the $50 million value Greff had ascribed to the 87 acres. “We never thought re-development was a viable near-term option,” he added. Boyd missed Wall Street expectations Downtown, at Borgata, in Mississippi and in the Midwest. Tight-fisted players were blamed for much of that shortfall, $15 million in business lost to Superstorm Sandy accounted for the rest. A small cluster of bright spots: The five Peninsula Gaming casinos performed right in line with expectations, generating $57 million last quarter.

Carlo Santarelli was a dissenter from the Street’s usual gloom-and-doom outlook on Boyd, seeing “meaningfully pronounced” cash-flow improvement on the horizon. Other factors, such as Boyd’s debt load, cooled his jets, but neither were his EBITDA expectations for the quarter as lofty as Greff’s ($113 million vs. $125 million vs. Boyd’s actual $101 million). History will tell us whether Wichita was a better investment than Echelon but, looking at Boyd’s 4Q12 numbers, the answer is trending heavily toward ‘yes.’

Across the pond, only 99 jobs were lost when a “super casino” in Leeds when Caesars Entertainment subsidiary London Clubs International bailed on the project, citing the advice of ‘international sponsors’ (seen at left). LCI did not hesitate to put all the blame on local and national government. Casino development in Great Britain has been agonizingly slow, alienating operators. However, it’s pretty rich to try and blame 10 Downing Street when LCI itself is up for sale — and not finding any takers — and parent company Caesars is teetering near bankruptcy. Chalk it up as another defeat for Gary Loveman‘s incoherent international strategy, a long string of failures to date.