If Alex Meruelo’s acquisition history is any guidance, he probably picked up the SLS Las Vegas at a price far below the $800 million the previous owners spent on the buying and developing the property.
Meruelo, who used the profits from his pizza chain to help build a diverse business empire spanning construction, banking, media and gaming, has a reputation of snapping up struggling assets at depressed prices.
The 54-year-old investor and Reno casino owner announced last week he was purchasing the Strip resort from San Francisco-based real estate investment firm Stockbridge Capital Partners for an undisclosed price. It will become Meruelo’s first gaming asset in Las Vegas when the deal is finalized in the third quarter.
The 3-year-old SLS Las Vegas — which features 1,600 rooms, 600 slot machines and 75,000 square feet of flexible meeting space — was losing money in 2015, the last time it publicly announced results. It is at least the fourth large-scale sale of a casino in Clark County since 2015.
$300 million deals
Penn National in 2015 paid $360 million for the 60-year-old Tropicana Las Vegas, a resort on the heart of the Strip featuring 1,500 rooms, 700 slots and 100,000 square feet of convention and meeting space. Penn has had to invest tens of millions to upgrade the property.
Red Rock Resorts last year paid $313 million for the Palms, an off-Strip property with 1,200 rooms, 1,300 slot machines and 60,000 square feet of meeting space. Red Rock also plans to carry out significant upgrades to the Palms, which was initially completed in 2001.
Meruelo will have his work cut out for him in turning around the SLS Las Vegas because he doesn’t have the extensive gaming presence and loyalty programs the other operators have, Wall Street analysts say.
“The biggest challenge SLS faces is competing for local casino customers as a single-asset operator in the market,” said John Decree, an analyst at Union Gaming. “The market is very competitive with operators like Red Rock Resorts that have multiple assets and sizeable player databases.”
$123 million loss
The SLS Las Vegas, which replaced the iconic Sahara on the north end of the Strip, has struggled since it was opened in 2014. Stockbridge Capital Partners and Sam Nazarian, owner of SBE Entertainment, bought the Sahara for $400 million in 2007 and then spent $415 million to build a chic, 1,600-room resort on its spot.
The SLS was one of several projects on that end of the Strip in the boom years. But the financial crisis shut down funding, leaving the SLS standing like a lighthouse amid wasteland. The big crowds never came.
Over the first nine months of 2015, the last time the resort announced its results, the SLS Las Vegas posted a loss of $123 million. Excluding depreciation and other non-cash items that impact earnings, the resort burned through $73 million in cash.
SLS Las Vegas had $584 million of long-term debt outstanding as of Sept. 30, 2015. Interest payments for the first nine months of that year totaled $35 million, equivalent to a third of the resort’s net revenue.
Meruelo will spend the next few months studying the property and then make changes once he takes over in the third quarter, said Chris Abraham, vice president for marketing at Meruelo’s Reno-based Grand Sierra Resort.
“We will evaluate every inch of the property to see where investment is needed and what guests are saying about it,” said Abraham, adding no decision has been made about changing the resort’s name.
Meruelo, the son of Cuban immigrants fleeing Fidel Castro’s revolution, has been down this road before.
He snapped up the Grand Sierra Resort, his first gaming asset, for $42 million from JP Morgan in 2011. The previous owner paid $150 million for the Reno casino in 2005 before forfeiting it to the bank during the financial crisis.
Meruelo has pumped about $200 million into the Sierra Resort, unveiling a new nightclub and pool. Abraham said profits have been steadily increasing since the acquisition.
“This property was distressed — financially it was failing,” Abraham said. “There weren’t many people that thought it was a very smart purchase.”
The Grand Sierra Resort is one of 35 businesses that Meruelo owns, but it is likely one of his most profitable. Otherwise, he probably would not have moved to Reno about two years ago from Southern California to be closer to the resort.
“They are cautious operators that took the time to understand the business they bought,” said Ken Adams, a Reno-based gaming analyst for CDC Gaming Reports.
A few distressed assets have slipped through his hands.
Trump Plaza bid
Meruelo failed to scoop up the troubled Trump Plaza in Atlantic City in 2013 when his $20 million offer was rejected by Carl Icahn. That casino, which underwent several stages of renovation and expansion, initially cost about $220 million to build in the early 1980s.
Meruelo also lost his bid to buy a majority stake in the Atlanta Hawks in 2011 for $300 million. The NBA team was sold in 2015 for $730 million.
Meruelo lately has been making forays into the broadcast industry, which has been hammered in recent years from declining revenue as advertisers move their dollars to online platforms.
Last month, Meruelo bought Los Angeles-based KPWR-FM radio station for $82.75 million from Emmis Communications, which was struggling to repay debt.
Meruelo has also been buying shares in Spanish Broadcasting Systems, which owns 17 radio stations in the top U.S. Hispanic markets, including New York, Los Angeles and Miami. Spanish Broadcasting’s shares have fallen more than 75 percent over the past year.
Meruelo first entered the media industry in 2011, buying KWHY-TV, Channel 22, a Spanish-language television station in Los Angeles, for less than $40 million. Spanish-language broadcaster Telemundo paid $239 million for the station in 2001. Meruelo then bought KDAY-FM, a radio station in Southern California with a majority Latino audience, in 2014.
Adams said Meruelo could use his media assets to market the SLS Las Vegas to the large Latino community in Southern California.
“It is a natural market for them,” Adams said.
If Meruelo succeeds in turning around the SLS Las Vegas, he probably will seek to expand his gaming footprint further.
“I would certainly think more acquisitions would be in the cards,” Abraham said.
Contact Todd Prince at email@example.com or 702-383-0386. Follow @toddprincetv on Twitter.
Four recent sales
Located on the Strip
Bought for $360 million in 2015
Features 1,500 rooms, 700 slot machines and 100,000 square feet of meeting space
Located off the Strip
Bought for $313 million in 2016
Features 1,200 rooms, more than 1,300 slot machines and 60,000 square feet of meeting space
Located in North Las Vegas
Bought for $380 million
Features 200 hotel rooms, 1,800 slot machines and 100,000 square feet of meeting space
— SLS Las Vegas
Located at far end of Strip
Bought in 2017 for undisclosed price
Features 1,600 rooms, 600 slots and 75,000 square feet of meeting space