Hilton: worse than it looks

In the cold light of day (i.e., Chris Sieroty‘s Review-Journal coverage), the situation at the Las Vegas Hilton appears still more dire … if such a thing is possible. Remember that roughly a third of the LVH is owned by a Goldman Sachs subsidiary? And guess who’s holding the note that Colony Capital restructured once and may do so again? Goldman Sachs Commercial Mortgage Capital, that’s who. No wonder that lender Goldman has shown such patience with owner Goldman’s lack of solvency. At least Colony’s Tom Barrack has managed to grab one major creditor by the short hairs. It’s quite a day when the thing keeping you out of Chapter 11 is your co-owner’s conflict of interest.

To belabor the obvious, what’s keeping the LVH’s lights on is the hotel’s convenience as a “dormitory” for conventioneers. Room nights accounted for 40% of net 2Q11 revenue, While F&B comprised another 30%. What’s missing from that picture? Casino dollars, that’s what. It was the casino’s third-place revenue generator, down $2 million and coming in just behind F&B. When the casino is bringing up the rear, especially at a property of that size, it doesn’t augur well for long-term viability.

Singlehandedly, the LVH lost over three times as much last quarter ($8.9 million vs. $2.7 million) as did all of Tropicana Entertainment. That’s pretty impressive, whichever way you slice it, considering that owner Carl Icahn‘s sizable casino portfolio consists of mostly second- and third-tier houses, some of them in pretty hard-hit markets. Icahn’s Lake Tahoe and Laughlin casinos got roughed up sufficiently to account for two-thirds of the loss — and that’s before taking Atlantic City in account! Bottom line: Icahn knows who to run casinos and Colony doesn’t.