Tropicana Las Vegas (Sell)
Headlines Tropicana Hotel Sold
LAS VEGAS - Penn National Gaming announced Wednesday it has agreed to purchase the Tropicana Las Vegas for $360 million. In a statement, Penn National Gaming CEO Timothy Wilmott said, "The planned acquisition of Tropicana Las Vegas establishes a strong presence on the Las Vegas Strip for Penn National Gaming, fulfilling an important long-term strategic objective for the Company. With a $360 million acquisition cost, we believe we have structured a prudent transaction to own and operate a premier Strip asset at an attractive price of entry. “Over the past four years, the Tropicana has spent $200 million to renovate its 1,500 hotel rooms. The Tropicana also has a comedy club, a theater and more than 100,000 square feet of meeting space. The deal will give Penn National its first property on the Las Vegas Strip. The company, based in Wyomissing, Pennsylvania, operates 26 casinos and hotels around the country. Its other Nevada property, The M Resort, is about 12 miles from the Las Vegas Strip. The deal is expected to close later this year. (Guy Demarco Content Editor)
That is the headline on today’s news, The Tropicana hotel has been losing money since it was bought, and it has infused 200 Million on renovations. Grant you the property does look nice since the renovations were put in place. The property is being sold for less money than it has invested in the property. Penn National plans on investing another 20 Million in to the property. Since they also have the M hotel in Henderson, they will probably unite their data base to lure guest to the strip location as well. The revenue game here in Las Vegas is different from any other location, so it seems. Hotels here sell rooms from 29.99 to the sky is the limit. The super event the Maryweather boxing night May 2Nd, rooms going for as much as 30,000 per night, and the good news is that they are sold out. I can’t justify that, because the same room will cost you 169.00 dollars on any given day. The hotels will make a great deal of money on that night, not counting all of the other miscellaneous income from ad sales, and sports items.
Now at the issue at hand why is it that the Tropicana Hotel has been losing money? Like any business there is a formula for what amount of income is needed in order to make a profit. The economy has been pretty good here as of lately, housing starts are busy, and in general business is good. What formula did the Tropicana use to evaluate what was needed to meet their financial obligations. I don’t know what was used, but whatever formula was used it was evident that it was not working. I do know that selling your rooms at a price below of your room cost does not work, even if you run 100% occupancy. This seems to be the trend of some hotels, in order to boost occupancy, however it does not boost your bottom line, and it reduces it. (Got it)
There is no way that I would sell rooms at a price that would make it impossible for a property to meet its debt load. Some people don’t aspire to that philosophy, yet they complain when the bottom line is in the red. Many years ago when I was learning the trade I was a FO Manager at the time. One day I walked in to the GM’S office and found her mumbling over the financial budget sheets. I inquired as to what was the problem, and it seemed that the current forecast was not going to meet the needs of the property. Numbers have always been my game, and numbers don’t lie. I had asked what amount of revenue was needed to be profitable. After several discussions on how to generate this amount from a145 room property. We did not have the luxury of a casino, or any other profit center. In order to meet the owner’s expectation we figured out what room rate was needed in order to meet that expectation, this was based on a 75% occupancy property. We needed to charge a rate that would be competitive, and at the same time turn a profit. (Revenue Management 101)
By the end of the 2nd quarter we had achieved our goal, and the owners were happy. (Moral you can’t, sell rooms for less than what it cost you to operate the property)
I don’t’ know what the Tropicana has done, but it seems that this was the idea, and maybe make up the difference with the casino. All hotel profit centers should be able to meet their financial forecast. Selling a thousand rooms at 49.00 dollars each is great if your room cost is 29.00 dollars, however that is only in fantasy land. Assuming you generated a 20.00 dollar profit on each room sold, say 1500 it gives you a 30,000 dollar profit, now at today’s pay scale for housekeepers to clean 1500 rooms you are probably looking at close to 40,000 in payroll for that day and that does not include benefits. Do the math… Now you know why some properties never turn a respectable profit. It has been proven over and over that lowering rates to improve occupancy does not work, and in the end it lowers your profits.
I have nothing against the strip properties, I just do not buy in to their revenue style. Yes, people there are a whole lot of properties that make money, but they do not sell their rooms below their cost to maintain them, that is the difference between a profit and a For Sale Sign at your front door. I am not casting blame, but someone should have been shouting this way will not work, and instead the phrase “We have always done it this way surfaced” I only highlighted the rooms division because it is the largest payroll burden of the hotel, since all of the adds show rooms as the main source of income it does not mean that all of the other income centers lost as well.
Enough said I am sadden that they property will be sold, but better to be sold than to be closed. Just look at Atlantic City, and you will understand.
The Hotel Guy
Headlines Tropicana Hotel Sold
LAS VEGAS - Penn National Gaming announced Wednesday it has agreed to purchase the Tropicana Las Vegas for $360 million. In a statement, Penn National Gaming CEO Timothy Wilmott said, "The planned acquisition of Tropicana Las Vegas establishes a strong presence on the Las Vegas Strip for Penn National Gaming, fulfilling an important long-term strategic objective for the Company. With a $360 million acquisition cost, we believe we have structured a prudent transaction to own and operate a premier Strip asset at an attractive price of entry. “Over the past four years, the Tropicana has spent $200 million to renovate its 1,500 hotel rooms. The Tropicana also has a comedy club, a theater and more than 100,000 square feet of meeting space. The deal will give Penn National its first property on the Las Vegas Strip. The company, based in Wyomissing, Pennsylvania, operates 26 casinos and hotels around the country. Its other Nevada property, The M Resort, is about 12 miles from the Las Vegas Strip. The deal is expected to close later this year. (Guy Demarco Content Editor)
That is the headline on today’s news, The Tropicana hotel has been losing money since it was bought, and it has infused 200 Million on renovations. Grant you the property does look nice since the renovations were put in place. The property is being sold for less money than it has invested in the property. Penn National plans on investing another 20 Million in to the property. Since they also have the M hotel in Henderson, they will probably unite their data base to lure guest to the strip location as well. The revenue game here in Las Vegas is different from any other location, so it seems. Hotels here sell rooms from 29.99 to the sky is the limit. The super event the Maryweather boxing night May 2Nd, rooms going for as much as 30,000 per night, and the good news is that they are sold out. I can’t justify that, because the same room will cost you 169.00 dollars on any given day. The hotels will make a great deal of money on that night, not counting all of the other miscellaneous income from ad sales, and sports items.
Now at the issue at hand why is it that the Tropicana Hotel has been losing money? Like any business there is a formula for what amount of income is needed in order to make a profit. The economy has been pretty good here as of lately, housing starts are busy, and in general business is good. What formula did the Tropicana use to evaluate what was needed to meet their financial obligations. I don’t know what was used, but whatever formula was used it was evident that it was not working. I do know that selling your rooms at a price below of your room cost does not work, even if you run 100% occupancy. This seems to be the trend of some hotels, in order to boost occupancy, however it does not boost your bottom line, and it reduces it. (Got it)
There is no way that I would sell rooms at a price that would make it impossible for a property to meet its debt load. Some people don’t aspire to that philosophy, yet they complain when the bottom line is in the red. Many years ago when I was learning the trade I was a FO Manager at the time. One day I walked in to the GM’S office and found her mumbling over the financial budget sheets. I inquired as to what was the problem, and it seemed that the current forecast was not going to meet the needs of the property. Numbers have always been my game, and numbers don’t lie. I had asked what amount of revenue was needed to be profitable. After several discussions on how to generate this amount from a145 room property. We did not have the luxury of a casino, or any other profit center. In order to meet the owner’s expectation we figured out what room rate was needed in order to meet that expectation, this was based on a 75% occupancy property. We needed to charge a rate that would be competitive, and at the same time turn a profit. (Revenue Management 101)
By the end of the 2nd quarter we had achieved our goal, and the owners were happy. (Moral you can’t, sell rooms for less than what it cost you to operate the property)
I don’t’ know what the Tropicana has done, but it seems that this was the idea, and maybe make up the difference with the casino. All hotel profit centers should be able to meet their financial forecast. Selling a thousand rooms at 49.00 dollars each is great if your room cost is 29.00 dollars, however that is only in fantasy land. Assuming you generated a 20.00 dollar profit on each room sold, say 1500 it gives you a 30,000 dollar profit, now at today’s pay scale for housekeepers to clean 1500 rooms you are probably looking at close to 40,000 in payroll for that day and that does not include benefits. Do the math… Now you know why some properties never turn a respectable profit. It has been proven over and over that lowering rates to improve occupancy does not work, and in the end it lowers your profits.
I have nothing against the strip properties, I just do not buy in to their revenue style. Yes, people there are a whole lot of properties that make money, but they do not sell their rooms below their cost to maintain them, that is the difference between a profit and a For Sale Sign at your front door. I am not casting blame, but someone should have been shouting this way will not work, and instead the phrase “We have always done it this way surfaced” I only highlighted the rooms division because it is the largest payroll burden of the hotel, since all of the adds show rooms as the main source of income it does not mean that all of the other income centers lost as well.
Enough said I am sadden that they property will be sold, but better to be sold than to be closed. Just look at Atlantic City, and you will understand.
The Hotel Guy