Caesars Entertainment executives traveled to New York City for an in-person meeting with Deutsche Bank analysts. One of the key takeaways from the encounter involved Caesars’ long-anticipated sale of at least one Las Vegas Strip asset. CEO Tom Reeg has maintained that he wants to wait until 2022 or such time as Strip casinos return to 2019 cash-flow levels, in order to maximize their sale value. Deutsche Bank analyst Carlo Santarelli thinks that the company need not wait until next year.
“Given the interest in Strip assets, the equity market and interest rate environment, and the swift acceleration of Strip trends and margins, we believe this timeline could move up,” Santarelli wrote, “with the potential for discussions with interested buyers and a potential announcement of a transaction by year end.”
He did not speculate on which casino would be sold.
In other on-the-horizon transactions, Caesars executives expect an autumn sale of the William Hill International assets, which include more than 1,000 betting shops in the United Kingdom, which Santarelli believes can generate $1 billion for Caesars above and beyond $1.5 billion in William Hill debt to be retired. With the just-closed sale of Tropicana Evansville ($480 million) and the pending disposal of Harrah’s Southern Indiana ($250 million) and low-grossing Louisiana Downs ($16 million), “the portfolio reconfiguration is expected to be largely complete.”
The only downside described by Caesars management was “lingering softness” in Pennsylvania and Atlantic City, where its properties continue to lag Borgata, Hard Rock Atlantic City, and Ocean Resort Casino. Substantial improvement was noted in New Orleans, with Reno characterized as “strong” and Scioto Downs racino in Ohio “robust.” Santarelli added, “Management noted that the over-55-year-old cohort remained soft in the [first quarter], but began returning swiftly in April, with traffic, relative to March, up sharply.”
Penning a subsequent Monday investor note, Santarelli noted that industry-wide, he expected May growth in gross gaming revenue “on the Las Vegas Strip and in the Las Vegas locals market, Louisiana, Ohio, and Missouri, with Indiana growth dependent on a sequential increase in spend per customer, to perhaps also be positive,” albeit with none of those markets matching April’s torrid pace. On the Strip, in particular, he predicted double-digit growth over May 2019, probably 12 percent, “a nice acceleration from the modest inflection to growth the market experienced in April.”
With regard to Las Vegas, Caesars has cut back on labor costs, low-profit-margin entertainment (many smaller shows in Las Vegas have been shuttered), marketing, and promotions, while trying to reposition food and beverage as a revenue driver. Santarelli believes that the company can do better, in part by raising room rates at Harrah’s Las Vegas and The Linq, as well as by capitalizing on The Forum to draw more conventioneers, and by relying less on online travel agencies. Even so, he thinks it “likely” Caesars could outpace its competitors in drawing all-important group business.
In the igaming sphere, Santarelli anticipates Caesars to break out of a holding pattern and said, “Management expects to be live and aggressive in 21 markets by year end.” To that end, pluses include the Caesars Rewards player network, strong brand equity, Caesars’ wide geographical presence, and “a deep bench of strong partners,” including CBS. “While we don’t see sports betting as a material needle mover over the long run, and we view iCasino as really a play on further legalization more so than anything else at this stage, we do expect the likely market share gains for [Caesars] during the NFL season to serve as a positive catalyst for shares.”
In other Caesars-related news, JP Morgan analyst Joseph Greff reported that the company’s room rates for the June 27-July 3 period were down 36 percent on weekdays, but 23 percent higher on the weekend. Among the major Las Vegas hotel-casino companies, only Wynn Las Vegas and Encore bucked the midweek trend, up eight percent.
