In a deal that could be a precursor to something larger, Reno-based Eldorado Resorts said Monday it was selling three of its regional casinos in two states for $385 million to VICI Properties and Century Casinos.
Analysts speculated the transaction – which includes two casinos in Missouri – could foreshadow a merger between Eldorado and Caesars Entertainment, a deal that has seemingly been in the works for several months. Ten days ago, two media outlets reported that a deal was close but needs additional negotiations.
“Although we have no direct insight into the matter, we suspect investors will speculate as to whether or not this could be Eldorado’s first step toward making another transformational acquisition in the space,” Stifel gaming analyst Steven Wieczynski said in a note to investors.
In Monday’s deal, Las Vegas-based real estate investment trust VICI will acquire the land and buildings for Mountaineer Casino Racetrack and Resort in New Cumberland, West Virginia; Isle Casino Cape Girardeau in Cape Girardeau, Missouri; and Lady Luck Casino Caruthersville in Caruthersville, Missouri for $278 million.
Colorado-based Century Casino will pay $107 million for the operations of the three properties and sign a 15-year lease agreement with VICI for annual rent of $25 per year.
Deutsche Bank gaming analyst Carlo Santarelli said in the research note the deal could alleviate a potential anti-trust issue facing Eldorado in Missouri related to the company’s prospective acquisition of Caesars Entertainment, which operates close to 40 casinos in 13 states, including nine resorts on or near the Las Vegas Strip.
Santarelli said Missouri was “deemed a potential competitive issue” in any deal with Caesars.
“We believe the deal is prudent from a balance sheet perspective, as it is deleveraging, while also eliminating a potential pressured sale, and a potentially weaker multiple, in the event of a required disposition related to a transaction,” Santarelli said.
SunTrust gaming analyst Barry Jonas said the deal “helps strategically refine Eldorado’s portfolio while a potential Caesars merger could have required divestitures in Missouri.”
In a statement, Eldorado said it expects the deal to close in early 2020.
Eldorado CEO Tom Reeg said the sale “provides additional capital that we expect to deploy for shareholder value enhancing initiatives.” Eldorado currently operates 26 casinos in 12 states.
Eldorado originally announced an early morning conference call to discuss the deal, but cancelled the scheduled event.
Now the third largest regional casino operator, Eldorado has been one of the most active gaming companies in the acquisition market over the last two years. In 2017, Eldorado acquired Isle of Capri Resorts for $1.7 billion, and last year, the company bought seven casinos from Tropicana Entertainment for $1.85 billion in a joint venture with real estate investment trust Gaming and Leisure Properties, and added the Grand Victoria Casino in Elgin, Illinois for $327.5 million.
Jefferies gaming analyst David Katz said the benefits of deal “are more immediately beneficial for VICI the buyer than for ERI the seller, given the transaction multiple that is below where both stocks are currently trading.”
Katz said Eldorado is reducing its Missouri base while VICI is “achieving critical tenant diversification.”
Macquarie Securities gaming analyst Chad Beynon cautioned that gaming expansion efforts and Pennsylvania and Illinois could add new competition in the states – West Virginia and Missouri – where the casinos being acquired by Century are located.
Century operates casinos and racetracks in Colorado and Canada and owns a 66.6 percent interest in a company that operates seven casinos throughout Poland. Co-CEO Peter Hoetzinger said in a statement the transaction “will transform Century Casinos into a premier regional casino operator in North America. “We believe these assets are a great fit for our portfolio and will complement Century Casinos’ expertise in operating small to mid-sized casinos.”
The transaction will increase VICI’s gaming ownership to 26 properties and add a third operations partner, joining Caesars Entertainment and Penn National Gaming.
VICI President John Payne said in a statement that the deal diversifies the REIT’s tenant base and offers a new market – West Virginia.
“The nature of this transaction allows both Century and Eldorado to realize strategic value for their respective shareholders, while also furthering our strategic goals to diversify and grow our portfolio in an accretive manner,” Payne said.
News of the transaction caused trading to spike more than six times the company’s average daily volume Monday. Century closed at $10.08 on the Nasdaq, up $1.07 or 11.88 percent. Eldorado shares closed at $53.18 on the Nasdaq, up $1.48 or 2.86 percent, while VICI shares were up 7 cents or 0.31 percent to close at $22.80 on the New York Stock Exchange. Shares of Caesars closed Monday at $9.85 on the Nasdaq, up 3 cents or 0.31 percent.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
