Icahn sells Southern Nevada casinos

Bargain-hunting corporate raider Carl Icahn, who snapped up several Southern Nevada casinos at discount prices, is selling them and booking a handsome profit.

American Entertainment Properties Corp., a wholly owned subsidiary of Icahn's American Real Estate Partners, announced Monday that it has agreed to sell the parent company of the Stratosphere, both Arizona Charlie's casinos and a Laughlin casino for $1.3 billion to Whitehall Street Real Estate Funds, an affiliate of Goldman, Sachs & Co.

Icahn said in a statement that American Entertainment Properties expects to realize a gain of $1 billion from the sale of American Casino & Entertainment Properties.

"Our gaming investments are a successful example of our strategy of acquiring undervalued and out of favor assets, and improving operations and enhancing value," Icahn said in a statement.

A fifth property, the Sands in Atlantic City and some adjacent property, was sold in November for $274.8 million to Pinnacle Entertainment.

Icahn, 71, started investing in the Stratosphere in 1997 when he purchased $82 million of the property's $203 million in mortgage debt.

Grand Casinos had bought out Vegas World founder Bob Stupak for $51 million in 1994. Icahn moved in three years later when payments on a $205 million mortgage bond used to finish the $550 million resort became past due.

The New York-based executive took control of Arizona Charlie's Decatur in 1998 when Becker Enterprises lost the property in Bankruptcy Court after failing to make interest payments on bonds.

Icahn bought the property's outstanding bonds for 75 cents on the dollar, according to Review-Journal reports.

Icahn followed with the purchase for $43.3 million of Arizona Charlie's Boulder, then called Sunrise Suites, in 2000, also out of bankruptcy.

"Carl (Icahn) is an astute purchaser of assets, " American Casino & Entertainment Properties President and Chief Operating Officer Richard Brown said. "He tends to go in and purchase undervalued assets. When you take a look now at what the multiples are now in gaming, Carl (Icahn) felt now was the time to sell."

Forbes estimates Icahn's personal worth at $13 billion.

The deal is expected to close late this year subject to approval from the state Gaming Commission and Gaming Control Board.

The buyout is Whitehall's second foray into local gaming with the investment branch holding a 40 percent share in the Las Vegas Hilton through WH/LVH Managers Vetco.

"For Whitehall it makes a lot of sense for them to expand their presence in gaming," said John Knott, executive vice president of the Global Gaming Group for CB Richard Ellis. "They obviously see some upside for performance with this portfolio. They're looking at getting a broader presence in the gaming market, and this was a portfolio of property that was available."

The cornerstone of the deal involving middle-market casinos seems to be the Stratosphere and accompanying 17 acres of undeveloped land, analysts said.

The 2,444-room property includes one of the area's most recognizable landmarks, the 1,149-foot tower -- the country's tallest structure west of the Mississippi River -- topped with a restaurant, observation deck and roller coaster.

Arizona Charlie's Boulder and Arizona Charlie's Decatur are off-Strip properties that compete with local gaming giant Station Casinos for customers.

The sale also involves the largest hotel in Laughlin, the Aquarius. The property, formerly the Flamingo, was acquired in May from Harrah's Entertainment.

"It looks like the valuation of the gaming business is ahead of where other transactions may be lining up in the real estate sector," said Brian Gordon, a principal at Applied Analysis. "The valuation appears to be in excess of 11 times cash flow, which appears to be a premium compared to other transactions in the market."

The four gaming properties generated revenue of $385.7 million in 2006, but posted only a $123,000 revenue increase year-to-year for the Stratosphere and the two Arizona Charlie's, according to regulatory filings.

The three properties saw casino revenue drop $3.3 million in 2006, and operating income fell by $8 million. Casino revenues accounted for 51.2 percent of the four properties' gross revenues.

The sale follows two other recent purchases on the north end of the Strip.

The 17.45-acre Sahara was sold in early March to Los Angeles-based SBE Entertainment Group for between $300 million and $400 million by the family of the late casino pioneer William Bennett.

That was followed by the family's sale of 26 acres across from the Sahara on Las Vegas Boulevard to MGM Mirage for $444 million last week. Both deals are expected to close this year.

Whitehall had shown some interest in the Sahara before it was sold, someone familiar with the negotiations said.

Three Whitehall executives were licensed last year to share a seat on the Las Vegas Hilton board, but the New York-based company will need another license to take over the Stratosphere and the other casinos.

Nevada Gaming Control Board member Mark Clayton said Monday that as a current license holder, it might quickly gain approval.

Bond analysts were mixed on the news.

Moody's Investors Service changed the ratings outlook on $215 million in debt issued by American Casino Entertainment to developing from stable, reflecting "uncertainty" about the credit profile of the company after being taken over.

Wachovia analyst Dennis Farrell said the bonds would continue to outperform and expected Whitehall to develop the Stratosphere further.

"Due to the elevated purchase price we believe Whitehall has identified further opportunities to create equity value, which we expect will most likely occur at the Stratosphere where 17 acres are undeveloped," Farrell said in a research note.

Icahn controls 87 percent of the publicly traded Mount Kisco, N.Y.-based American Real Estate Partners, which owns subdivisions, condominiums, hotels and golf courses around the United States.

American Real Estate Partners closed at $107.95 on the New York Stock Exchange on Monday, an increase of 20 cents.

The Associated Press contributed to this report.

WHAT THE SALE INVOLVES

Arizona Charlie's Boulder

• Hotel rooms: 302.

• Casino: 35,000-square feet.

• Fast fact: Corporate raider Carl Icahn paid $43.3 million buying the bankrupt property, then called Sunrise Suites, in January 2000 before investing nearly $12 million on improvements.

Arizona Charlie's Decatur

• Hotel rooms: 258.

• Casino: 56,706-square feet.

• Fast fact: The original $18 million property was opened in 1987 by Becker Enterprises. The owners spent $40 million on an expansion in 1994. Encountered financial trouble when a Missouri riverboat enterprise failed, and Icahn took control buying bankrupt bonds 75 cents on the dollar.

Stratosphere

• Hotel rooms: 2,444.

• Casino: 100,000-square feet.

• Fast fact: Originally opened as 100-room Vegas World by Bob Stupak in 1979. Stupak gambling pal Lyle Berman paid $51 million cash through Grand Casinos midway through Stratosphere construction in 1994. A $205 million bond helped finished the new $550 million resort, which opened April 30, 1996, but Grand Casinos missed bond payments and lost control to Icahn by 1998.

Aquarius Casino Resort:

• Hotel rooms: 2,000.

• Casino: 60,000-square feet.

• Fast fact: Icahn paid $170 million in May to Harrah's Entertainment for Laughlin's largest hotel, formerly called the Flamingo.