MGM buys half of Borgata from Boyds

It was announced yesterday that MGM Resorts International will buy the remaining 50 percent stake in Borgata that it didn’t already own from Boyd Gaming.  This announcement had been anticipated ever since MGM regained a license to operate in Atlantic City. I think this is good news for Boyd because it will give them more financial flexibility to reduce debt and plow resources into updating their current properties and systems, especially after recently announced Las Vegas acquisitions. The real estate of Borgata will also be sold to MGM Growth Properties.  Shares of MGM were flat on the open today, but shares of BYD were up more than 3% and MGP were up 2%.

Boyd Gaming sells its 50 percent stake in Borgata to MGM Resorts

ATLANTIC CITY – Boyd Gaming said Tuesday it is selling its 50 percent stake in Atlantic City’s top casino to MGM Resorts International, the company that owns the other half. It will get $900 million, plus half of any future tax settlement MGM reaches with Atlantic City.

Palms Las Vegas sold to Stations/RRR

Palms Las Vegas has been sold to Station Casinos.  This marks the latest move by Las Vegas locals casinos to consolidate their competitive positions. There are fewer unlimited gaming licenses held by independent operators in Las Vegas compared to a few weeks ago since Boyd Gaming purchased the Cannery/Eastside Cannery as well as Aliante.  Now that Stations has purchased the Palms, the two local powerhouses are going head to head in all local neighborhoods. There are a couple of locals properties still operating independently such as Rampart which is next door to Suncoast (Boyds), South Point which is out on its own on the south part of Las Vegas Blvd, and the two Arizona Charlie’s properties (one on Decatur & one on Boulder) which are owned by Ichan’s American Casinos.

The Palms purchase is particularly interesting because of its proximity to the strip and strategic location. The Palms has historically marketed to a mix of locals and tourists. Its also right across the street from Gold Coast (Boyds). Stations still owns a large lot that is zoned for a casino resort on Tropicana where a Days Inn now operates and a casino is run by Stations. Investors should wonder if the development of this site is now less likely?  With room rates and visitation to Las Vegas at all time highs, the additional rooms at the Palms (over 700) should provide some firepower against in a fight against the Orleans (Boyds) and Gold Coast (Boyds) nearby.  The Palms, which sits on Flamingo west of the strip might also be complementary to Palace Station (Stations) which is on Sahara to the north. Boyds doesn’t have a property on Sahara either. Maybe Stations has a competitive advantage from a room availability standpoint (leaving Boyds vulnerable to discounting) and also from a marketing perspective (by consolidating marketing planning between the three properties immediately west of the strip (Wild Wild West, Palms, Palace Station).

The Palms purchase is another example of a bullish bet on Las Vegas room rates and visitation. Las Vegas watchers should also be wondering whether Stations will re-position the Palms down-market by targeting value guests like those that are otherwise staying at the Gold Coast. I think the sale of the Palms is also a missed opportunity by Caesars, which is distracted by bankruptcy negotiations.  It certainly would have made sense of the Rio to be sold to an operator who could re-position it towards the locals market.

With a market cap of just over $2 billion, Red Rock Resorts (Stations) is about the same size as Boyd Gaming, but the more than $300 million price tag for the Palms is going to be a large meal for them to swallow. Hopefully rates stay low and valuations stay high for their sake.

Station Casinos parent company buys Palms for $312.5 million

Station Casinos parent company Red Rocks Resort Inc. has escalated the battle for Las Vegas locals casino dominance by acquiring the Palms for $312.5 million. Company officials didn’t take questions after the announcement, but will discuss the deal in detail during its earnings conference call Wednesday.

After IPO, Red Rock Resorts to buy Palms Casino Resort

Red Rock Resorts Inc., the newly public company formerly known as Station Casinos, is enhancing its prominent Las Vegas presence with a $312.5 million deal to buy the Palms Casino Resort.

Station Casinos picks up Palms, near Strip, for $312.5 million

Station Casinos said Tuesday that it is buying the off-Strip Palms resort for $312.5 million, yet another recent example of locals-oriented casino operator expanding in the valley.

Boyd Gaming Consolidating Presence in Las Vegas

Boyd Gaming has announced it is purchasing the Aliante Hotel in North Las Vegas for $380 million.  Rumours are also circulating online that Boyd is close to announcing the purchase of Cannary Resorts for about $240 million. These two acquisitions would give Boyd more market share in the Las Vegas locals market and allow the company to add the newly acquired properties to its existing systems.

With the prospective purchase of Cannary Resorts, Boyd would gain a foothold in the north part of the city, while also adding a property next door to its Sam’s Town property.  The situation with Sam’s Town and Eastside Cannery would be similar to Texas Station and Fiesta Rancho, which are also next door to each other while both being owned by Station Casinos.

Boyd Gaming strikes $380M deal to purchase Aliante Hotel

Las Vegas-based Boyd Gaming Corp. on Thursday announced it has a deal to acquire the holding company for Aliante Hotel in North Las Vegas. The acquisition of the holding company, ALST Casino Holdco LLC, is for $380 million cash, according to a statement. The hotel had been rumored to be on the market for several weeks.

Boyd Gaming to Boost ‘Locals’ Business With Aliante Deal

Boyd Gaming Corp. will get its first North Las Vegas casino and enhance its “locals” business with the purchase of Aliante Casino Hotel and Spa. Boyd agreed to buy Aliante’s holding company, ALST Casino Holdco LLC, for $380 million. Aliante, which cost more than $660 million and opened in 2008, is located in the Aliante planned community….

Boyd Gaming nears deal to buy Cannery Casino Resorts: sources

Casino operator Boyd Gaming Corp is close to an agreement to buy Cannery Casino Resorts LLC, in a deal that will value the privately held U.S. company at between $225 million and $240 million, according to people familiar with the matter.

Pinnacle to form REIT

Big news for Casino watchers was announced by Pinnacle Entertainment, as they plan to create a Real Estate Investment Trust (REIT) to separate their real estate from the operating company. Shareholders will receive REIT units in a tax-free spin-off sometime in 2016.  The street seems a little disappointed by the earnings release, and it may also be a case of buy on the rumour sell on the news, as PNK shares are down almost 8% today.

A question that has been raised regarding casino REIT conversions is whether separation can cause more pressure on a casino operator in a recessionary period.  I think that would depend on how the leases are structured.  If leases are triple net with no accounting for revenue in the underlying property, rent would be fixed to the operator and cause stress in a low revenue environment. But if leases are structured so that the REIT shares some of the revenue gains/losses in the way rent is paid, some of the revenue risk can be shifted to the REIT.  Obviously there’s lots of scope for financial engineering with these transactions, and I’m sure management and its advisers are considering many options.  It will be fun to see how this transaction turns out.

Boyd Gaming REIT potential

How low have expectations for Boyd Gaming sunk when the CEO can claim on the latest earnings conference call that “This was a solid quarter for our operations” and “Growth resumed in our Nevada business, as our Las Vegas Locals and Downtown Las Vegas operations both achieved positive (cash flow) comparisons.”.  Really???  Revenue increased by 1% in both segments and the company posted a loss again.  Shareholders need to demand something more aggressive from Boyd Gaming.  The core problem is the Boyd family controls about 30 percent of the company’s stock, and the family doesn’t seem willing to do anything radical to shake this company out of its slump.

What about conversion into a Real Estate Investment Trust (REIT)?  Boyd’s CEO has told investors last week that the company will study the possibility of spinning off real estate into a REIT, but that the process seems long and complicated, and the company won’t provide shareholders with updates until the internal study is completed.  Management cites the capital structure (i.e. high debt levels) as one reason why REIT conversion might not be possible.  Well, why doesn’t Boyd clean up its balance sheet and then grow from a position of strength?  Borgata is a large part of Boyd’s revenues, and is doing better than the Atlantic City market as a whole.  Now that MGM has re-obtained a gaming license, now is a good time to sell Boyd’s 50% share of Borgata to MGM.  Boyd can use the cash to shore up its balance sheet.

What about the mid-western/Peninsula properties, can they be traded to GLPI, and Boyd can take back shares in return?  This would shore up Boyd’s balance sheet as well.  The nice thing about writing a blog about gambling is I can throw out wild and crazy ideas.

Vegas Update Oct 16

Yesterday I attended the PGA Tour Shriner’s Hospital Open at TPC Summerlin.  The only time I have ever been close to playing TPC Summerlin was as a kid playing it on Links LS.  Its a pretty nice course and challenging, but not overwhelmingly beautiful.  Just a pretty straight forward tournament players course.  It was fun to see some great golfers.  I haven’t been to a PGA Tour event in 15 years, so it was awesome to see these guys tee it up.  They rip their drives at a totally different level then I’m used to.

I also visited a few of the Boyd Gaming properties in Henderson including Eldorado and Jokers Wild.  Shareholders should be asking more about why Boyd still holds these properties.  I understand these properties (especially the Eldorado) has some historical signifigance to the Boyd Family and was part of the beginning of where the business is today.  But I can’t imagine owning and operating these properties make any positive difference to shareholders.  I played $1 craps at Jokers Wild just to have the experience, and I calculated my theo was probably 30 cents?!?  Is this profitable for Boyd?  How much does the total revenue from Jokers Wild compares to one day at Borgata or Gold Coast or Suncoast???  Owning Jokers Wild is another example of how Boyd Gaming is stuck in the past without a reasonable strategy to grow in the future.  There are NO synergies with owning Jokers Wild.  The players club is even separate.  Boyd needs to re-organize the business like PENN did with a REIT and then prune its domestic properties. Boyd needs to either do something dramatic with its downtown Las Vegas properties or watch revenues in that segment continue to stagnate.  Boyd is not doing anything innovative, and sooner or later its luck will run out.  If readers need proof, check out Boyd’s share price.

vegas jokers wild sign 2

Executive Departures at Boyd Gaming

Boyd Gaming today announced that Chief Operating OfficerPaul Chakmak will leave the Company, effective September 19. Keith Smith, President and Chief Executive Officer, will assume Chakmak’s responsibilities.

Smith said: “Paul helped strengthen our financial organization as Chief Financial Officer, and as Chief Operating Officer he helped guide our operations through a period of significant expansion.  However, given today’s operating environment, we believe that more direct oversight and a streamlined decision-making process will position us to improve our operating performance going forward, and allow us to execute our growth strategy more quickly and effectively.  I want to thank Paul for his contributions to the Company, and wish him the best in the future.”

What is this Growth Plan that Keith Smith talks about?  Is it more of the same?  If Boyd doesn’t re-invent itself, it will experience continued stagnation.

Additionally, the Company reaffirmed its previous guidance for the full-year 2014, projecting total Adjusted EBITDA in the range of $580 million to $600 million.

Boyd Gaming – Online Revenue

The article below highlights the potential growth of online gaming for Boyd Gaming, especially since the Borgata leads NJ online revenue. But boosters of online gaming revenue fail to notice that online revenues represent a tiny fraction of Boyd’s overall revenue, and unless Boyd divorces itself from other assets and revenue (such as real estate and food & beverage), online revenue won’t make a dent in Boyd’s overall results unless there is a dramatic regulatory change.  Even a federal law allowing online poker would not be a win for Boyd since global leaders in online poker would move into the market more aggressively such as Pokerstars, PartyPoker, and 888. If the national online poker market opened up by federal legislation, I expect current alliances to break down as the leading online poker sites would have little to gain from the US land based operators.  Currently, PartyPoker needs the physical Borgata location in order to operate online, but if a physical presence isn’t required, then the online gaming companies will shed their partnerships.

Boyd Gaming would be better positioned if it splits the company into a hotel/gaming operator, and a real estate investment trust similar to Penn National and GLPI. This would make Boyd’s balance sheet more flexible, enable Boyd to diversify risk, and enable shareholders to better value each constituent part of the company. If this separation were completed, Boyd might be in a better position to form an alliance or merge/takeover an online gaming company, or expand into the online market more strategically.  It would also allow shareholders of the gaming operator to feel the growth of online gaming without being weighed down by the real estate.