Golden Entertainment Could Mull Sale-Leaseback on Unidentified Casino

Posted on: October 18, 2024, 04:21h. 

Last updated on: October 18, 2024, 04:21h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Golden Entertainment (NASDAQ: GDEN) could consider selling and leasing back one of its casinos as an avenue for raising cash.

Deutsche Bank analyst Carlo Santarelli put forth that theory in a new report to clients, noting there’s “rising probability” that Golden engages in a sale-leaseback on one of its casinos. The analyst did not speculate as to which gaming venue Golden could consider selling. Currently, the Las Vegas-based gaming company owns all of the real estate on which its eight casino hotels reside. Three of those venues are located in Las Vegas with another trio in Pahrump, Nevada and two more in Laughlin.

Santarelli didn’t speculate on a timeline for such a deal materializing nor did he hypothesize as to what company could be Golden’s real estate partner on a sale-leaseback. The operator reports third-quarter earnings on Nov. 7 and it’s possible the rumor is addressed at that time.

Selling Casino Could Boost Golden Shares

Amid investor concern that persistent inflation and high interest rates are weighing on the lower end of Golden’s casino customer base and its tavern business, the stock has struggled mightily this year, shedding nearly 23% while the Russell 2000 Index is higher by 12.43%.

Of late, analysts’ earnings and revenue revisions on Golden have been largely bearish, adding pressure on the stock and potentially fanning the flames of speculation regarding a transaction that could renew the bull case.

We believe our updated forecasts account for what we expect to be relatively stable trends in the key segments, adjusted for seasonality, which include a moderation of same-store top-line declines as we move into the fourth quarter,” Santarelli observed. “That said, we acknowledge that the Golden story of late has been one of predominantly negative estimate revisions, which in our view has likely led to more speculation around strategic action.”

The analyst lowered his earnings forecast on Golden, but reiterated a “buy” rating on the stock. He added that the depressed valuation on the shares could increase the probability of the operator seeking a transaction that creates value for investors.

How Casino Sale Could Affect Golden

Without knowing the property Golden would sell, cap rates and tax implications, modeling for the financial impact to the operator is difficult, but Santarelli gave it a go. He said in a sale-leaseback, Golden would absorb $87 million in annual rent costs and have $130 million in cash, including proceeds from the deal, by the end of next year.

It can be argued that $87 million in rent assumes either The Strat is the venue Golden will sell or that the operator could engage in sale-leasebacks on multiple properties.

Golden could also consider finally making a decision on the Colorado Belle in Laughlin, which has been closed since 2020. Rumors abound regarding the fate of that property, but the operator hasn’t made any public announcements about its plans for it.