We wouldn’t say that about American Casino & Entertainment PropertiesM, the holding company that owns the Stratosphere, both Arizona Charlies, and the Aquarius casino in Laughlin. It’s had a rather expensive education in the gaming business since Carl Icahn sold it to Goldman Sachs affiliate Whitehall Street Real Estate Funds in early 2008, at the height of the casino bubble. It took several years – and several rounds of job cuts – before ACEP was able to post consistently profitable returns from its mostly locals-oriented portfolio. Not only has it not sought to grow, the company’s name never comes up as a takeover candidate, perhaps because Whitehall overpaid Icahn so lavishly, to the tune of $1.3 billion, to make it an attractive risk.
If you want stability, look to Boyd Gaming, which performs so steadily that Wall Street tends to take it for granted. So obtuse were some Street analysts that they kept speculating that Boyd would sell its Atlantic City showplace, Borgata (which has been eating the competition alive), despite its obvious value to the Boyd bottom line. They also take for granted Boyd’s hammerlock on Hawaiian business to Las Vegas, Hawaiian tourists evidently lacking the sex appeal of Chinese baccarat players. However, with Allegiant Airlines ceasing flights to the 50th state, look for Boyd’s charter flights to be even more packed than ever.
Lately, some stock analysts have been coming around and we’re starting to see "Buy" ratings placed on BYD. Its acquisition of Peninsula Gaming’s assets in Iowa, Kansas and Louisiana played to favorable reviews among investment critics, and the company is considered sufficiently well positioned to make another strategic acquisition, if it sees fit. But CEO Keith Smith, like Bill Boyd before him, plays his cards with caution. He even managed to turn a negative – the shutdown of Echelon – into a positive by doing it while it was still a choice, not a necessity born of desperation.
At the risk of boring you, it has to be said that the gaming industry as a whole is doing quite well these days, aside from the rubble that is Caesars Entertainment. This monument to hubris was brought about by a $28 billion leveraged buyout in 2006 that was predicated on the assumption that the economy would continue to improve for several years to come. By the time the LBO closed, in 2008, the gaming sector was already on the downturn and, thanks to monumental interest payments, Caesars soon began bleeding red ink. Creative accounting kept the company out of Chapter 11 for several years but there are only so many ways you can restructure debt and Caesars filed bankruptcy slightly over a year ago.
The buyout was one of many bad decisions made by then-CEO Gary Loveman, whose seeming ineptitude was matched only by his spending sprees. Even when the company was in the poorhouse, he kept announcing multimillion-dollar projects, like his personal pet, the Vegas High Roller observation wheel. At the same time, the company pulled out of still-lucrative regional markets like St. Louis and Lake Charles, Louisiana, while passing on Macao, which Loveman himself chalked up as a mistake (but which actually, depending on how things play out in that unpredictable market, may turn out to have been a good play.) Loveman eventually left Caesars to take a job with Aetna and cost-cutting Mark Frissora from the rental-car industry was brought in to replace him.
Caesars is lying low these days, as its Chapter 11 filing wends its way through bankruptcy court. Its goal is to reorganize the bulk of the company as a real estate investment trust (REIT), in which senior creditors would hold a sizeable equity position. Since REITs have to pass 90 percent of their taxable income on to shareholders, a REIT-ized Caesars would be able to pay off its creditors much faster. One potential fly in the ointment is a dissident faction of creditors which is suing Caesars for alleged fraudulent transfers of assets, as when a bankrupt division of Caesars "sold" the Total Rewards marketing system, Caesars’ most valuable asset, to a solvent division, for the princely sum of zero dollars.
A former white elephant, The Cosmopolitan of Las Vegas changed hands from Deutsche Bank to Blackstone Group at a steep markdown. With new management in place (and a greater emphasis on gaming, formerly the weak link), the property quickly began turning a profit. CEO William McBeath has really only just begun to revamp the property, which includes rethinking the casino floor and de-emphasizing the Cosmopolitan’s concert series, but at an acquisition price of $1.7 billion for a $4 billion resort, Blackstone will make a return on its investment that’s bigger and faster than what Deutsche Bank could manage.
Malaysia's Genting Group swooped in on the Strip and snapped up the old Echelon site (former location of the Stardust), getting it from Boyd Gaming for a bargain-basement $4 million an acre, as Strip land values bottomed out. It then announced a grandiose project, Resorts World Las Vegas, designed in elaborate Chinese motifs and promising, among other (multiple) attractions, a panda habitat. (We don’t think China will part with the pandas, but Genting can dream.)
Since much of the structural steel from Echelon was already in place, Genting was able to design around that framework. There’s a great deal of hope attached to Resorts World, which many think will finally revitalize the north end of the Strip, but the project is taking a long time to get off the ground. Also, there is the small matter of its price tag: $4 billion for the basic resort, $7 billion if additional hotels are added. No Strip property has spent that much and succeeded, so Genting is definitely bucking the odds.
Tomorrow, Golden Gaming goes public and Hard Rock International beats Caesars at its own game.
