Fertitta in no hurry to develop on Las Vegas Strip

March 23, 2023 4:14 PM
Photo: Shutterstock
  • David McKee, CDC Gaming Reports
March 23, 2023 4:14 PM
  • David McKee, CDC Gaming Reports

A meeting with Golden Nugget owner Tilman Fertitta led one analyst to come away “incrementally positive on gaming operators (particularly destination) … with macro issues still not meaningfully impacting the consumer.”

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Barry Jonas of Truist Securities went to Houston to huddle with Fertitta and his Chief Financial Officer Rick Liem. In addition to five Golden Nugget-branded casinos, Jonas noted that Fertitta owns 520 restaurants (spread over 15 countries), as well as the Houston Rockets of the NBA.

Thanks in part to omicron-dampened results in January and February of 2022, Fertitta Entertainment has been enjoying easy comparisons early this year, Jonas observed, and “strong growth across the gaming portfolio. … Mr. Fertitta noted that the Social Security increase at the start of the year likely helped drive growth, while younger demographics drove increased overall wallet spend on F&B and hotel.”

These tailwinds are not expected to persist, particularly the ones related to government-funded stimulus. But recent volatility in the banking sector hasn’t impacted consumer behavior negatively. Also, restaurant activity was described as solid, “as consumers continue to seek experiences and affordable luxury coming out of the pandemic.”

Management was expansive regarding its aspirations for the Las Vegas Strip, where it owns seven acres, acquired last year for $270 million. Planning was said to be in progress, “with a detailed design and construction schedule,” to be followed by negotiation of a guaranteed maximum price for the anticipated resort.

According to plans filed with Clark County, Fertitta and Liem will be building a 2,420-room hotel and a retail mall. No casino was mentioned at the Truist Securities meeting. Jonas reported that Fertitta is in no hurry. “No firm start date has been set, and management is willing to wait for clarity on economic conditions.”

Fertitta’s California and Texas eateries have been negatively impacted by recent weather. The Lone Star State has been adversely affected since February, while spring break was stormy in the Golden State. Although high-end diners’ behavior is described as softening, Fertitta’s casual-dining restaurants are anticipated to suffer most should the economy go south.

“In a scenario where sales decline (not currently the case), management expects that lower operating cost inflation would significantly offset the impact on EBITDA (roughly speaking a $100M decline in sales would drive ~$25-30M lower EBITDA),” Jonas wrote. While Fertitta and Liem opined that such a scenario would possibly drive down wages, they expect it to manifest more in lower costs of commodities.

Fertitta was uncharacteristically reticent on the subject of casinos in Texas, saying nothing on the matter. He and Liem did allow that recent Supreme Court legitimization of Class II tribal gaming in Texas would not pose a threat to the Golden Nugget’s market-leading casino in Lake Charles, Louisiana, near the greater Houston area.