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Colony Capital to Buy Casinos

The Century City firm agrees to acquire two properties from Caesars and two from Harrah's for $1.24 billion.

September 28, 2004|Jerry Hirsch | Times Staff Writer

Colony Capital reached a final agreement to buy four major casino properties and for the first time pinpointed the price: $1.24 billion.

The Century City-based private investment firm said it would buy the Atlantic City Hilton and Bally's Tunica in Mississippi from Caesars Entertainment Inc. and Harrah's East Chicago in Indiana and Harrah's Tunica from Harrah's Entertainment Inc.

The two Las Vegas-based gambling concerns are shedding the properties to ease possible antitrust concerns over Harrah's planned $5.2-billion acquisition of Caesars, a deal announced in July that would create the world's largest casino business.

The sale of the four properties, expected to close next year, would make Colony a small but significant national player in the gaming business. It was reported in August that Colony was negotiating for the casinos.

Colony acquired the Las Vegas Hilton in June for $280 million, and it also owns the Resorts International Casino in Atlantic City, N.J. This latest transaction would give the company six casinos, including two of the 12 casinos in Atlantic City and two in Tunica.

Combined, its six casinos would have $1.2 billion in revenue, 5,400 hotel rooms and more than 10,000 slot machines.

Yet how long Colony will hold on to these properties is a question mark. "Their practice has always been to buy up casinos, hold on to them for a few years and sell them at a profit," said Patricia Wright, an analyst with Fitch Ratings in New York.

For example, Colony purchased Harveys Casino Resorts in Lake Tahoe in 1999 for $405 million, including debt, and sold it two years later for $625 million.

Thomas J. Barrack Jr., Colony Capital's co-founder and chief executive, has previously called his business a "recycler" that makes financial rather than strategic investments. He declined to be interviewed Monday.

"The beauty of a private investment firm buying into a gaming company is that it frees the casino from the quarterly earnings pressures of Wall Street," Wright said. "They can take the time to improve the property with a longer-term strategy in mind."

Colony is one of the largest private real estate investment firms in the West, managing more than $1 billion of investors' cash. All told, Colony Capital has invested more than $10.5 billion in thousands of hotel, apartment and other real estate deals.

Colony is on the prowl for other casino deals, said spokesman Owen Blicksilver. It is one of a few private investment firms that hold gaming licenses in multiple states, making it an attractive partner for casino companies looking to sell assets, he said.

Shares of Harrah's were down 2 cents at $52.12. Caesars rose 2 cents to $16.54. Both are traded on the New York Stock Exchange.

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