Unfavorable Operating Environment in Atlantic City Could Affect Sale of Hotel-Casino
Caesars Entertainment Corp. will close Showboat Atlantic City effective August 31, 2014. The decision to close the property follows persistent declines in business levels in the area exacerbated by the high property-tax burden in Atlantic City.
Showboat is a 1.05 million-square-foot hotel casino built in 1999 at 801 Boardwalk. The property contains 108,900 square feet of casino space and 1,330 rooms.
The company has not yet determined what will become of the property and land. It intends to collaborate with city and state officials as it evaluates alternative uses.
"While we regret the impact that this decision will have on our Showboat associates, we believe this is a necessary step to help stabilize our business in Atlantic City and support the viability of our remaining operations in the vicinity," said Gary Loveman, chairman and CEO of Caesars Entertainment. "Since 2006, revenue in Atlantic City has declined by more than $3 billion and competition in the city has increased. The dynamic in Atlantic City has led us to the difficult but necessary decision to close Showboat in an effort to help stabilize our business there and support the viability of our remaining operations in the vicinity."
Caesars Entertainment is offering assistance to Showboat employees displaced by this decision, including providing preference for available positions at the three remaining Caesars-affiliated Atlantic City properties as well as sister properties in the region and across the enterprise and other transitional resources.
Caesars remains the largest operator in Atlantic City. Caesars is developing a new, state-of-the- art meetings facility adjacent to Harrah's Atlantic.
Showboat will remain fully operational until its closure and will honor all room reservations and events until that time. Customers with reservations after August 31, 2014 will receive assistance in finding alternate accommodations.
Caesars Entertainment acquired Showboat Atlantic City by purchasing Showboat Inc., in June 1998.
The decision potentially means more business for Caesars Entertainment Harrah's, Caesars' biggest resort in Atlantic City, according to Fitch Ratings. Harrah’s underwent a $500 million renovation and expansion in 2008. Caesars is now building a convention center near Harrah's, which is being funded by the parent company.
Caesars’ other casinos in Atlantic City - Bally's and Caesars AC also could benefit from the closure.
“The closure makes financial sense for Caesars and is a positive for the oversupplied Atlantic City market. Showboat has about $50 million in labor costs and pays about $15 million in property tax (although Caesars is appealing Showboat's $625 million assessed value),” Fitch analysts noted.
However, Fitch said it believes it would be difficult for Caesars to sell Showboat on an EBITDA multiple basis given the history of operating declines at Caesars' properties once they are sold, as well as the unfavorable operating environment in Atlantic City.