As you've already read umpteen times over by now, MGM Mirage sold Treasure Island over the weekend to Phil Ruffin. The latter's sitting on a massive chunk of change ever since playing El Ad Group to the tune of $1.24 billion — or $36 million/acre) for what used to be the New Frontier.
(Slightly less than three acres of undeveloped land, previously destined for Tower II of Trump International — which now appears to be on permanent hold — remain in the hands of one Phillip G. Ruffin of Wichita, Kansas. The land directly titled to El Ad — 18.4 acres would work out to a staggering $67.3 million/acre, so the exact breakdown of Ruffin's bonanza can be difficult to ascertain.)
At $775 million (7-8X projected cash for flow 2008-09), it's an entirely reasonable price — and at 6X EBITDA for 2007, it borders on a steal. "I would not be able to get a property like [Treasure Island] in normal times," the billionaire candidly told Forbes. Moreover, it leaves Ruffin still theoretically sitting atop a veritable throne of cash, with casinos aplenty to be had — not always worth having, but other top-tier properties may soon be on offer.
Already the 'Net is abuzz with speculation as to what MGM might part with next, in order to close the financing gap on CityCenter: MGM Grand (aka "the Green Monster"), New York-New York, Monte Carlo, Circus Circus, maybe even The Mirage itself … not to mention various and sundry pieces of raw land, although the greater appeal of an up-and-running, brand-name casino is obvious. As for Ruffin, with greyhound racinos in his native Kansas having a snowball's chance in Hell of happening, it's no wonder that he decided to re-enter the fray on the Strip, especially at such a favorable price.
Not only that, he'll help make the deal pencil out by keeping Treasure Island affiliated with MGM Mirage's loyalty-card program. As MGM explains, "We're working out a Technical Services Agreement to provide for that and a variety of services including hotel and accounting systems, parking, tram, etc." And if Ruffin's going to affiliate with MGM on one property, why not two?
Between the fact that A) nobody expects Ruffin to tear down Treasure Island, unlike the New Frontier, and B) it and The Mirage are listed jointly as one property for tax-assessment purposes, it's difficult to use this transaction as a benchmark of land value on the Strip. Thomas Weisel Partners analyst Jake Fuller approximates a $15 million/acre valuation for the deal. (Since that'd work out to an improbable 52.6 acres, Fuller is obviously building a valuation of the existing casino-hotel into his math.)
MGM's Alan Feldman responds that the purchase price was arrived upon strictly on an EBITDA-multiple-basis, "not per acre. That's because [Ruffin is] buying the operation rather than making a real estate development deal. We'll know the acreage once we go to subdivide as part of the close." Even if Ruffin winds up with considerably less than half of the 84 shared Mirage-Treasure Island acres (plus 14 acres' worth of parking lot out back), we're looking a substantial downward correction in the value of being on Strip, compared to the giddy heights reached in '06, especially in the El Ad and Columbia Sussex deals.
