Caesars Entertainment announced Tuesday it won’t be selling one of its eight Strip properties after all and gave a few more insights into its bid for a casino license in New York City.
The Flamingo Las Vegas and Planet Hollywood have been speculated to be on the sales block for most of the year as a way for the former Eldorado Resorts to pay down the debt on its $17.3 billion acquisition of Caesars in July 2020. The general idea of the sale of a Las Vegas Strip property arose before the acquisition and Caesars executives earlier this year said they were working on a sale without naming any potential properties.
“We intend to keep all of our Strip assets as we move forward,” Caesars CEO Tom Reeg told Wall Street analysts in the Tuesday call. “We ran into a market where the cash flow of the asset continued to increase and the ability of buyers to raise financing made it a very easy decision for us to keep.”
Reeg called it a discretionary process that created “an unnecessary overhang in the stock” and apologized to shareholders for that “self-inflicted error and that was me.”
The decision on the Strip sale is no surprise. Reeg raised that prospect at the company’s second-quarter earnings call and Wall Street analysts had warned that rising interest rates and tighter access to capital would limit the pool of buyers and prompt potential buyers to seek a lower price than the $2.5 billion estimated for a sale. In addition, 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.
The announcement came as the company touted its record third quarter in adjusted earnings and strong start to the fourth quarter. CFO Bret Yunker also touched on a potential project in New York.
Previously, it was reported that the company is teaming with SL Green Realty to renovate space at a skyscraper at 1515 Broadway to be named Caesars Palace Times Square, a proposal that’s already drawing opposition from Broadway theaters and others over congestion a Times Square casino would have, according to the New York Daily News.
“We announced we will be pursuing a downstate casino license in New York with our partner SL Green,” Yunker said. “It will obviously be a very competitive process and we look forward to putting our best foot forward when the request for proposals begins.”
Yunker said that given the sensitivities around the bidding process, they’re unable to detail project costs at this stage.
“We can tell you that the project starts with an existing building and will be financed with a new joint venture that is not on our balance sheet,” Yunker said. “Caesars will brand and manage the asset under a long-term management agreement and any equity investment into the joint venture will be very manageable relative to a free cash flow.”
President and COO Anthony Carano discussed Las Vegas delivering strong results for the third quarter, with $491 million in adjusted earnings and a 46% adjusted-earnings margin. Occupancy was 94%; hotel and gaming revenue set third-quarter records. October continued the healthy trend to start the fourth quarter.
“October was the strongest month in the history of Las Vegas for Caesars,” Reeg said. “We did over $200 million in (adjusted earnings) in October, which is up double digits versus last year on a consolidated basis. October (adjusted earnings) for bricks and mortar is pacing double-digit percentage above last year’s October, despite having one fewer weekend day in 2022.”
Group rooms represented 12% of the total of room nights occupied during the third quarter.
Forward group revenue through the end of the year and into 2023 is up double digits compared to 2019. Results for the 55-plus segment rose again to pre-COVID levels. International travel also continues to recover and remains a tailwind, Carano said.
“Las Vegas has further runway for growth with many new existing entertainment and sporting events coming into the market over the next 18 months,” Carano said. “We remain optimistic about our business as consumer trends remain healthy, especially versus 2019. We remain encouraged by improving group and convention trends in Las Vegas and the return of international consumers, as well as the return of our older demographic who have been the most impacted by COVID-19.”
Caesars reported its strongest third quarter in history for regional casinos, Reeg said.
“We have a number of tailwinds that you allowed us to invest as shareholders that you’ll see the fruits of going into the rest of 2022 and into 2023,” Reeg said.
Renovations in Atlantic City will finish in the first half of 2023 with the opening of the Nobu hotel tower. Horseshoe Lake Charles is set to open on Dec. 12. An expanded casino offering in Pompano, Florida, will open in December as well. Reeg and company expect to open temporary casinos in Danville, Virginia, and Columbus, Nebraska, by mid-year 2023. Expansion as Harrah’s Hoosier Park is underway and should open by mid-2023. Construction on a new hotel tower and additional amenities in New Orleans is progressing.
