Caesars raises prospect that no Strip asset will be sold this summer

August 3, 2022 12:16 AM
  • Buck Wargo, CDC Gaming Reports
August 3, 2022 12:16 AM
  • Buck Wargo, CDC Gaming Reports

Caesars Entertainment CEO Tom Reeg raised the possibility Tuesday that the company won’t sell one of its Strip assets this summer, given market conditions. Reeg, however, remains hopeful it can get done, even if it’s down the road.

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The marketplace has long been expecting Caesars to sell one of its properties, with Flamingo Las Vegas and Planet Hollywood as the two most likely. VICI Properties, the real estate investment trust, has the right of first refusal when Caesars sells a Strip property, which adds another layer to the process.

Reeg responded to a question from a Wall Street analyst on whether there’s a delay and how the demand has changed over the last year.

“It’s very clear that the timeline is laid out in the VICI documents that govern this,” Reeg said. “We launched early this year and the deadline is by the end of summer. Every deadline I have ever seen in deal land, the work grows into that deadline.”

Reeg said, “There are plenty of interested parties,” adding, “the financing environment is what it is. If that’s going to impact what someone will pay, there’s a level I’m not going to chase, and I’m very happy to just clip the free cash flow and come back later.”

Caesars reported an all-time record in adjusted earnings for Las Vegas during the second quarter.

Reeg called any sale “a discretionary trade for us” and said he thinks they can get it done “within the parameters that we set at the outset, but we certainly recognize we live in a market that moves day to day and financing conditions change, so the outcome might change.”

Reeg said he’s amused by the reaction, because when he first broached the subject of a sale of a Strip asset, the response from both the buy and sell sides questioned why Caesars wanted to sell a Strip asset given how great gaming revenues were going.

“We said there are times in the market, and you don’t have to go back very far, that we didn’t want to own this many rooms,” Reeg said of Caesars’ 20,000 rooms on the Strip. “Now, the conversation has turned to, ‘Oh my God, can you get this done? This is critical.’ This is a change in you, but not us. This has been discretionary for us from day one and remains so, regardless of what level of fear is coursing through the investment community. We put our heads down and do the work. And if we have a trade that makes sense for us, we’ll do it. If we don’t, we’re fine waiting. That’s far more than I want to say about the Vegas Strip asset sale, so no more questions on that.”

Analysts were expecting a Strip sale after Eldorado Resorts closed on its acquisition of Caesars Entertainment for $17.3 billion in July 2020 as a way to pay down debt.

“For all the hand wringing about leverage and balance sheets all of a sudden, we really don’t stress about that at all,” Reeg said. “We feel really good about the position we’re in and we’re going forward.”

During the earnings call, President and Chief Operating Officer Anthony Carano said Las Vegas revenues are up 34% in the second quarter compared to the same period in 2021.

Strip occupancy reached 97% in the second quarter and, along with strong daily rates, led to the highest quarterly room revenues in the company’s history in Las Vegas, Carano said.

Group and convention business also posted an all-time record in adjusted earnings, with the strong performance of the Caesars Forum convention center. Group room nights represented about 13% of occupied room nights in Las Vegas, up from 11% in the second half of 2021.

Group business is strong for the rest of 2022 and into 2023, up double digits over 2019, Carano said.

In addition, Carano said the 55-and-older segment rose for the first time in Las Vegas since 2019 and Caesars is starting to see a “noticeable return to the market” of international travelers.

Reeg told analysts that adjusted earnings in Las Vegas were up 10% in the second quarter to beat the prior record in the third quarter of 2021.

“We’re on pace in 2022 to generate over $1 billion in cash room revenue in Vegas for the first time,” Reeg said.

“Everything is going great in Vegas. We checked with our booking channels and asked if we’re seeing any softness in Vegas and what came back was that we have actually seen a pickup over the last two to three weeks. It’s extremely strong in Vegas. There are not strong enough words to convey how well it’s going in Vegas for us.”

Occupancy should run in the mid-90s in August with the heat, but return to the high 90s in September and beyond, Reeg said. He also hinted about Adele coming to the Strip later this year.

“In the fourth quarter, you might have read we’re going to have some entertainment come online,” Reeg said in reference to postponed shows with Adele that are scheduled to start in November at Caesars Palace. “That’s a lot of revenue that’s going to impact the Vegas market. When that particular entertainer starts, a lot of revenue will run through that goes to the artist, a little bit of profit to us, and a better customer on the floor.”

Reeg dismissed any suggestion that last week’s Strip flooding impacted Caesars’ profits. He joked, however, that he just took off his life jacket.

“There’s no impact to the business at all,” Reeg said. “It’s some good social-media footage.”

While results from regional properties are down from 2021, they remain strong compared to 2019. Regional properties delivered same-store adjusted earnings that rose 24% versus the second quarter of 2019, executives said.

Reeg said there’s a drag in Atlantic City where Caesars’ property is under “heavy construction.” The bulk of the work should be done by the end of August. New Orleans is tracking back as well, but is laggard among regional properties, while Horseshoe Lake Charles will open by the end of the year.

Reeg said the reason for the merger was to diversify the company and in 2021, regionals carried Las Vegas when people struggled getting on planes and the city had to deal with COVID-related restrictions.

“What you’re seeing this year is regionals aren’t quite as strong as they were last year, but Vegas is picking up the slack,” Reeg said. “It’s working as designed when we put the company together.”

Caesars has accomplished a lot in two consecutive quarters of falling GDP and Reeg said he hopes the U.S. is at the end of this current environment.

“The consumer continues to hold up quite well for us,” Reeg said. “We’ve seen unrated play that has softened and offset by strength in rated play, particularly at the higher end of our database. We’ve seen internationals come back to Vegas in the last four weeks and we’re excited about that.”

The federal stimulus checks were a boon during the second quarter and early in the third quarter of 2021. July 2021 was Caesars’ best month ever and Reeg said “they’re neck-and-neck with that” in 2022.