Hooters Looks to be Bust
Hooters’ is turning out to be anything but a hoot for its investors. The casino, which opened just nine months ago on the site of the former San Remo, has had profits skimpier than its staff’s uniforms and has lost millions since its opening.
The company which owns the hotel, 155 East Tropicana, LLC, has signed a letter of intent to be acquired by an investment group led by NTH Advisory Group, LLC. Under the terms of the letter, the Investors have offered to purchase all of the outstanding membership interests for a purchase price of $95 million in cash and the payment of certain accrued royalties. The Investors will also be responsible for any repurchases, and related costs, of the Company's $130 million in principal amount of 8 3/4% Senior Secured Notes due 2012 as a result of the proposed change of control of the Company.
Neil Kiefer, CEO 155 East Tropicana, said in announcing the deal: "With interest in Las Vegas casino properties at an all time high due to the long-term growth characteristics of this market, we were approached with an unsolicited, unique opportunity by this investor group to monetize the Members' interests in 155 East Tropicana, LLC, yet maintain the Hooter's brand presence in the Las Vegas market. This proposal will provide an attractive return to the Company's owners, yet allow the owners who are not interested in the transaction to maintain their ownership interests, subject to certain limitations."
The Hooters Casino Hotel features 696 hotel rooms and an approximately 29,000 square-foot casino and opened just last February. It also has a Hooters restaurant and makes the claim they have more than 200 Hooters girls, the world’s most. As currently proposed, the transaction is expected to close by June 30, 2007. To move the transaction forward, NTH will deposit $1.1 million in an escrow account by Feb. 12. An inspection will follow and take up to two months to be finished.
"We are concerned about the viability of this offer," wrote Barbara Cappaert, analyst at KDP Investment Advisors in a research note.
During the last reported financial quarter -- the third quarter which ended September 30 – reported net revenues of $17.3 million, a jump of $9 million from the same period last year when it was the San Remo. However, it was still not enough and the hotel lost $3,736,804 in just those three months. Overall the casino has lost more than $16 million since opening. Interestingly, the equivalent third quarter San Remo quarter last year saw a similar loss of $3,622,123.
To launch the hotel earlier this year, investors poured $130 million into the purchase and upgrade of the property. However, when the shorts went up, visitors never materialized.
Investors point to two fundamental reasons for the lack of interest in the property. Las Vegas already a titillating flesh bonanza and those that are interested in more than the relatively tame thrills of the Hooters Girls have plenty of options. Also, there is a near saturation of Hooters restaurants throughout the world, 400 in all.
Occupancy and Average Daily rate for the Hooters Hotel is seriously lagging behind market averages, which top 95 percent occupancy. Hooters is only filling about 80 percent of its rooms, according to the Las Vegas Review Journal, even as it dropped its rates nearly $20 to $76.
Hooters had another notable failed venture. It ran Hooters airlines, which recently folded after three years in operation.
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