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Dec. 16, 2008
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TREASURE ISLAND SALE: Ruffin itching to get back on Strip

Former New Frontier owner loves location, theme, shows

By HOWARD STUTZ
LAS VEGAS REVIEW-JOURNAL
ELAD SEEKS TO POSTPONE LOAN REPAYMENT

Elad Group wants to change the conditions of a $625 million loan it took out to purchase the New Frontier site from Phil Ruffin in 2007 and wants to postpone its loan repayment, a member of the firm told Reuters New Service in Israel on Sunday.

The Strip site was expected to house a $5 billion version of New York’s Plaza Hotel, which is also owned by Elad, a private group belonging to Israeli billionaire Yitzhak Tshuva.

Elad intends to continue with the planning work for the project and to begin building after it receives financing for the construction, the company said in a statement to the Tel Aviv Stock Exchange.

LAS VEGAS REVIEW-JOURNAL


<1--0-->Phil Ruffin
Investing in stocks, bonds wasn’t cutting it for 215th-richest American



<1--1-->Treasure Island, owned by MGM Mirage since 2000, is set to change hands after Phil Ruffin agreed to buy it for $775 million.
Photo by Duane Prokop.

Phil Ruffin said he was bored.

The Wichita, Kan., businessman, who sold the now demolished New Frontier 19 months ago for $1.2 billion, had an itch to get back into the casino business.

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    • It took him just three weeks to negotiate a $775 million purchase of Treasure Island from MGM Mirage. The deal was announced Monday.

    Ruffin, 73, will pay MGM Mirage $500 million in cash and $275 million in secured notes. The transaction, which requires approval of Nevada gaming regulators, is expected to close by the end of June.

    Ruffin, who is ranked 215th on Forbes Magazine's list of the 400 richest Americans, said Monday he had been investing in municipal bonds, stocks and other public markets, which headed south in the current economic crisis.

    "I didn't like that business. I wanted to get back on the Strip with a major property," Ruffin said.

    Treasure Island, which was built by Steve Wynn for $450 million in 1993 as a sister resort to The Mirage, caught his eye.

    MGM Mirage acquired the 2,885-room hotel-casino in 2000 when the company bought Mirage Resorts for $6.4 billion. The gaming conglomerate updated the resort in 2003 and changed the theme from families toward a more adult-oriented audience. The hotel-casino was marketed as TI. The mock pirate battle that took place out front of the property in Buccaneer Bay was replaced by "The Sirens of TI."

    Ruffin said he doesn't plan any changes.

    "I love the theme, I love the pirate show and I love having 'Mystère,' " Ruffin said of the property's long-running Cirque du Soleil show. "We have a great management team and I don't plan on changing anything."

    Ruffin also loves Treasure Island's location on the southwest corner of Spring Mountain Road and the Strip. He will acquire Treasure Island's 20 acres, but the property will share a parking garage with the neighboring Mirage and the resorts will remain connected by an elevated tram.

    Treasure Island's 3,100 employees will work for Ruffin's company. The management team, led by President Tom Mikulich, will remain with the resort.

    Wall Street reacted positively to the deal. Treasure Island isn't considered a core asset for MGM Mirage, which has 10 Strip resorts. Deutsche Bank gaming analyst Bill Lerner said the property's cash flow has averaged about $102 million annually since 2000.

    "The TI makes more sense for a sale in our view relative to other MGM Mirage operating assets in Las Vegas," Lerner said in a note to investors. "This is a function of its location at the north end of its largely contiguous assets on the west side of the Strip. MGM would retain other mid-tier Las Vegas assets to target mid-market demographics following this deal."

    Gaming analysts speculated MGM Mirage would use cash from the sale for some of the costs associated with the $9.1 billion CityCenter development. The funds will also help the company's liquidity issues.

    "In this environment, selling assets is a positive as it should give MGM Mirage more financial flexibility," Stifel Nicolaus gaming analyst Steven Wieczynski said.

    Several researchers thought MGM Mirage might part with other properties.

    Macquarie Capital gaming analyst Joel Simkins told investors that Monte Carlo, MGM Grand Detroit, Beau Rivage in Biloxi, Miss., and a 50 percent stake in the Borgata in Atlantic City could be on the table.

    "Although the recent deal is a step in the right direction, we do not believe that MGM Mirage is out of the woods," Simkins said. "We still remained very concerned about the potential need to raise equity."

    The deal is the first major move by new MGM Mirage Chairman and Chief Executive Officer Jim Murren, who took over on Dec. 1. Murren expects MGM Mirage to record a substantial gain on the sale, which he said signals the company's willingness to react in the current economic crisis.

    "This is a time when companies are defined and measured," Murren said. "I think (the deal) is a signal that we are being progressive in taking an active role in creating liquidity and financial flexibility."

    Shares of MGM Mirage jumped 19 percent on the New York Stock Exchange following the announcement. The stock price closed Monday at $11.50, up 81 cents, or 7.58 percent.

    The deal is vastly different from when Ruffin first bought into the gaming industry 10 years ago. He acquired the New Frontier from the Elardi family for $167 million and was considered the property's savior. His purchase ended a 2,325-day strike by the Culinary union. The New Frontier, however, was in disrepair. Ruffin cleaned up the property and had sought an equity partner to help redevelop the 36-acre site before selling to Elad Group.

    Treasure Island has benefited from more than $180 million in upgrades since MGM Mirage acquired the resort, including $84 million in the past three years, which included remodeling rooms.

    "I think (the Frontier) had about 169 different roof leaks when we bought it," Ruffin said. "We don't have to make any changes to Treasure Island."

    Ruffin owns a racetrack in Kansas and eight nongaming hotels around the country. He bought a house in Las Vegas last year. Ruffin owns the seven acres behind the New Frontier site that houses the $1.2 billion Trump International Hotel & Tower. He is a 50-50 partner in the 1,282-unit condominium-hotel with New York billionaire Donald Trump.

    "I have a lot of faith in Las Vegas," Ruffin said. "We're going through a couple of bad years, but we'll be strong again. I'm not all doom and gloom."

    Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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    Bdaddy wrote on December 20, 2008 05:46 PM: anytime you can get 3 to 1 debt to equity somebody got a good deal, and I
    think that someone is Mr. Ruffin..Looks like MGM need to really raise capital..look for more sales from
    corporate casino land.


    johnfromdowntown wrote on December 17, 2008 11:05 AM: This is a good sign that things are changing for the better. Deconsolidation of hotels/casinos will restore competition and help our town in the long run. DOWN WITH MONOPLOIES!!


    diceboy wrote on December 16, 2008 11:45 PM: Mr. Ruffin should put a nightclub on the roof of the Treasure Island. Customers in the nightclub would get a great view of the Strip in both directions. I think a nightclub shaped like a pair of dice would be a great idea.


    Kevin wrote on December 16, 2008 09:43 PM: Everyone is bringing up some great points. One thing I have learned in business is that it is in the corporations best interest to cut the bleeding by acquiring the money they need NOW and a little bit more for the future.

    MGM obviously has no problem selling properties they have recently remodeled. This makes The Mirage an excellent candidate also for selling.

    It would probably make more sense to sell vacant parcels or find Buyers who they can make contingent sales then re-acquire those properties at a later date. They've already been remodeled... MGM Mirage just needs the immediate cash now to finish their project and to find a Buyer who will maintain the newly remodeled property without making any changes. When they have completed CityCenter and have pulled in some capital, they will try to re-acquire these properties and probably even give Ruffin (or other Buyer) a small increase in buyback price as a reward. Ruffin already has a history of buying low and selling high. What makes this any different?

    But one could also say (and many have) that Monte Carlo and NYNY as well. I don't think that it is in MGM Mirage's best interest to break up the contiguous land parcels that they currently have. By chance, the market can worsen... or the Buyer of these properties may not want to sell back, leaving their empire broken up in fractures.

    I still stand by my thoughts of MGMs next move of selling at least one more... The Mirage, Circus Circus, the vacant land parcel across from Luxor in the Vegas market or selling Beau Rivage and other properties not in Vegas.

    This is certainly getting very interesting. I wonder how Station and Harrah's are coping in this market.


    Free Nevada wrote on December 16, 2008 08:58 PM: If Ruffin believed in City Center, he could have invested the $500MM for a piece of the action there and walked away with stock rather than buying Treasure Island and trying to make a return by operating it in his 70s. Either way, MGM has $500MM more to finish City Center and the last I heard, they were only short about $750MM. There is another $225M in notes that are reportedly part of Ruffin's deal, but I'm wondering if they wont just sell the Mirage too.


    The Truth wrote on December 16, 2008 08:48 PM: Let the MGM selling spree begin! CityCenter ruined them. Wanna buy a resort/casino? - Trust me, MGM will sell them all if they can... and so will Stations, as they're facing issues very similar to MGM.

    Mark my words, you'll be reading this same story regarding the Green Valley Ranch and Red Rock in a few months, along with the news of the bankruptcy of Fountainbleu...


    Old Timer wrote on December 16, 2008 06:39 PM: He sells the New (Old) Frontier, an old piece of crap for 1.24 Billion and buys a complete, working, nice large clean casino/hotel for 775 Million. Gee, MGM must really need the money to pay those bonus's they had to give up (right). Hope the stockholders wake up to smell this rat.


    Robert wrote on December 16, 2008 02:51 PM: I agree, ex gambler. My mouth fell wide open when I saw it only sold for $775M.

    City Center will be a flop, too.

    Boyd has the same problem with Echelon, another disaster in the making.


    bob wrote on December 16, 2008 01:39 PM: he was bored........... within a year it will be closed, bankrupt.!


    ex gambler wrote on December 16, 2008 11:55 AM: Steve Wynn built the TI in 1993 for 450 million. It sells 15 years later for only 775 million. Given the vast appreciation of real estate for Strip properties, I find it hard to believe that MGM believes it got a good deal. Jim Murren states MGM will record a substantial gain. You mean MGM could not sell any properties not considered top tier and so MGM had to accept Ruffins offer for need of cash because of their City Center aligator.

    Why wouldn't MGM sell Circus Circus or the Gold Strike in Jean Nevada? Because noone wants those toilets.

    Why would MGM sell a property that is so interconnected with the Mirage? Read between the lines and you see that Phil Ruffin did to MGM as Kirk Kerkorian did to Steve Wynn. Hit them when they were most vulnerable.


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