Voyage to Vegas, Part Two

Today we conclude our review of Deutsche Bank analyst Carlo Santarelli‘s recent field trip to Las Vegas. We resume with Station Casinos, which seems to be accelerating its development timetable. Once it gets Durango Station up and running, it will proceed with both Inspirada and Skye Canyon, both of which are currently in the design phase. They enjoy favorable demographics, with Skye Canyon having been named one of the top 10 master-planned residential communities in the country. No word on what Station plans for the 100-acre Wild Wild West site, although Santarelli said the land gives the company “valuable optionality as the Strip continues to expand.” (Is that code for ‘flip’? It would be out of character for Station.)

Durango seems to be moving toward an early 2024 opening, although the timeline is kind of hazy, but it’s on budget and will be in an area that has 50 adults per gaming position, double the number surrounding Red Rock Resort—a Strip-caliber property stranded out in the ‘burbs. Household income in the Durango Station area is also only 8% below that in Summerlin, yet another positive harbinger. Santarelli doesn’t expect staffing of the new casino to be “problematic,” for several reasons, including Station’s status as a preferred employer in town. The company told him it is fully staffed at present and “Management noted that it has adapted a more disciplined approach to cost control via hourly wage management, given wage inflation.”

Despite talk of a recession, Las Vegas is sitting much prettier than when it got upended in 2008. At that time, 72% of homes in the area had negative equity. Today it is 1%. Adjustable-rate mortgages, that bane of homeowners, have also dropped to 1% of market. Also, “perhaps most important, speculation has not been a hallmark of the housing price improvement, as real demand from population growth has fueled the uplift.” Lastly, wages and employment are now higher than they were before Covid-19 hit. Concluded Santarelli, “while investors remain skittish around the prospects for Las Vegas in a potential macro downturn, we see [Station] as one of, if not the, best positioned longer term stories in our coverage universe.”

Turning to Station rival Golden Entertainment, Santarelli wrote that it “continues to represent compelling relative value,” not least because it owns all its real estate and recently sold one of its outlying casinos for a higher cash-flow multiple (11X) than the company currently trades at. Ergo, “we believe trends in the Nevada casino markets and the distributed gaming segment are solid and in line with forecasts.” Golden is about 500 positions short of being fully staffed, unlike Station, but management says circumstances are better now. Although Golden will take a $30 million tax bite on its Rocky Gap Resort sale, it still pockets $230 million and “management noted that the buyer pool for the property was deep, with several bidders in the mix at the end.”

Golden is certainly not contracting. “Tuck-in” casino purchases are mooted and Golden plans to add three to four taverns a year to its extensive network. “At present, the Nevada tavern business is seeing a healthy increase in California resident signups, as the locals market continues to benefit from the population migration to Las Vegas.” Even Laughlin looks goods, older players having returned, promotional spend being flat and the entertainment program deemed a box office success. A golf project next to The Strat is expected to open late next year and add $4 million-$5 million in cash flow, while The Strat itself saw September occupancies that were “nicely up” from 2021, with the trend continuing into next month. And lastly, The Strat is nicely positioned should the Oakland Athletics throw in with Phil Ruffin and plunk their new stadium on the old Rock in Rio fairgrounds site.

In a one-off visit to the manufacturing sector, Santarelli stopped in at Light & Wonder to meet with top brass, including interim CEO Matt Wilson. Santarelli was sufficiently impressed with Wilson to opine that he won’t be ‘interim’ much longer. “Despite the macro uncertainty, management remains encouraged by current trends in replacement activity, the gaming ops segment, and the growth in both social gaming and iGaming.” Its top priority is to penetrate further into the operations-management segment, followed by North American slot sales and replacements.

Despite all the troubles roiling Australia, it remains a key focus, with Light & Wonder having the four best-performing titles in Queensland. As for Internet gambling in the United States, Wilson & Co. “believes that incremental favorable legislative outcomes will spur a domino of additional bordering state legalizations.” That being said, they’re taking a conservative approach to the issue, probably because i-gaming has spread much slower than expected and just had a disappointing rollout in Ontario, although LNW is optimistic that there is “a healthy growth trajectory” up there. Finally, the supply chain remains “problematic” but it hasn’t gotten any worse, to look at the glass half-filled.

Jottings: While the stock market may have been queasy yesterday, it was a good time to own shares of Wynn Resorts or MGM Resorts International or Las Vegas Sands or Melco Resorts & Entertainment. All four stocks hopped upward on news that access to Macao would be loosened in November … The Tropicana Las Vegas is living on borrowed time, now that Bally’s Corp. has been cleared to take it over. Nevada Gaming Commission member Brian Kieckhefer had some pertinent concerns about Bally’s finances. He was met with bland reassurances but the money for redevelopment doesn’t seem to be there … Tired of waiting to check in at Caesars Palace? You can down a few and play one of 22 new slot machines in the brand-new lobby bar. Other features of the revamp include a bigger, better chandelier that weighs 3,200 pounds … Maverick Gaming just made out like a bandit. It has sold its Macau Casino in Washington State to Oak Street Real Estate Capital for $22 million. It had purchased the place for $6 million in 2019. One of the reasons Maverick initially got the place for cheap was that the previous owners had lost their license for loansharking and money laundering … Now you can train like Tom Brady if you’re staying at Wynncore. The latter inked a pact with TB12 “a holistic health and wellness company.” The TB12 studio will be located in Encore‘s fitness center … Sports betting courtesy of BetMGM will become an integral part of NBC‘s plodding Sunday Night Football telecasts. Chris Simms and Matthew Berry will anchor a BetMGM-branded segment and a wagering ticker will run at the bottom of the screen during after-game programming (which usually takes place in the wee hours of Monday morning).