Eldorado Makes Cash Call, Raises About $1.2 Billion in Share Sale, VICI Deals

Posted on: June 15, 2020, 04:47h. 

Last updated on: October 9, 2020, 09:32h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Eldorado Resorts (NASDAQ:ERI) is pulling some levers to raise cash, saying Monday that it plans to sell 18 million shares of stock and that it struck two deals with VICI Properties (NYSE:VICI) worth a combined $503.5 million.

The outside of the Caesars Forum Convention Center, a venue Eldorado Resorts is using to raise cash. (Image: Las Vegas Review-Journal)

The announcements were made after the close of US markets. Eldorado stock dipped almost one percent in after-hours trading, likely because of the share sale news. Secondary offerings dilute current investors by bringing new supply to market. Based on Monday’s closing price of $38.44, ERI would raise nearly $692 million by selling 18 million shares. The deal’s underwriters have a 30-day window in which they can purchase another 2.7 million shares in the gaming company.

Separately, ERI and VICI reached terms on a five-year mortgage deal worth $400 million on the new Caesars Forum Convention Center at Caesars Palace on the Las Vegas Strip.

Additionally, VICI has agreed to acquire approximately 23 acres of undeveloped land parcels adjacent to the center of the Las Vegas Strip for $4.5 million per acre, for total proceeds of approximately $103.5 million,” said the companies in a statement. “The total expected proceeds from both transactions is approximately $503.5 million.”

VICI owns the property assets of Caesars Palace, one the crown jewels in the Caesars Entertainment (NASDAQ:CZR) portfolio that Eldorado is attempting to acquire for $17.3 billion.

Deal Implications

ERI’s agreements with VICI implies the former is confident it will bring its quest for Caesars to the finish line. The deal, which will create the largest domestic gaming operator by number of properties, is encountering regulatory delays.

But as Casino.org reported last week, some investors with knowledge of the matter see the Federal Trade Commission (FTC) approving the takeover, perhaps by the end of this month.

FTC approval would clear the way for several states, including Nevada and New Jersey, to follow suit, giving Eldorado everything it needs to end what’s been a year-long quest for Caesars.

Monetizing the Caesars Forum Convention Center makes sense for ERI because the move delivers an influx of cash while allowing the company to retain operational control of the venue. Earlier this year, there was scuttlebutt that other gaming companies, including Las Vegas Sands (NYSE:LVS), were kicking the tires on the 550,000-square foot venue.

From a financial standpoint, it behooves ERI to keep the meeting area in its portfolio. Before the coronavirus pandemic hit, Caesars expected to open the business space in March, with the company saying it already notched $300 million worth of bookings.

Rent Control

ERI’s Monday financial dealings with gaming real estate investment trusts (REITs) didn’t end with VICI. Separately, the operator said it reached an accord to alter its master lease agreement with Gaming and Leisure Properties (NASDAQ:GLPI).

Because of the COVID-19 pandemic, the companies agreed there will be no rent increases this year or in 2021 on the ERI venues at which GLPI owns the real estate assets. On Oct. 1, 2022, rents on those properties can increase 1.25 percent, followed by a bump of the same percentage on the same date the following year.

In the following two years, the rent escalation will be 1.75 percent, and after that it will be two percent on an annual basis. Over the course of COVID-19, gaming REITs are showing flexibility in working with tenants that were crimped by the two-and-a-half-month shutdown that stifled the industry.

Under the terms of the deal with GLPI, Eldorado can remove either the Tropicana Evansville in Indiana or the venue of the same name in Greenville, Miss., replacing it “with one or more properties from a pre-determined list of existing Eldorado properties, provided that the aggregate replacement value is at least equal to the value” of those two gaming venues.

As part of that agreement, ERI can sell operational rights to Belle of Baton Rouge Casino & Hotel in Louisiana, with GLPI having the flexibility to either retain or divest the property. The operator is selling another Pelican State casino to raise cash for the Caesars deal. It said earlier this year it will spend $500 million in the state, including much needed enhancements to the Belle.