Caesars Readying Strip Asset Sale Post-888 Deal, Says CBRE Analyst

Posted on: April 11, 2022, 07:26h. 

Last updated on: April 11, 2022, 09:53h.

After lowering the price of William Hill’s international business, Caesars Entertainment (NASDAQ:CZR) can now shift its focus to unloading one of its Las Vegas Strip assets, according to CBRE analyst John DeCree.

Last week, it was revealed that 888 Holdings will pay about $325 million less for William Hill’s non-US assets. That means less proceeds flowing to Caesars. But DeCree says it’s for the best, because it keeps the deal on track to close. The casino operator will now receive $785 million in proceeds, or $415 million less than expected if deferred compensation doesn’t kick in.

We believe CZR made the right call in working with 888 to get this deal over the finish line,” he said in a Monday note to clients. “While more proceeds are always better, the probability of closing and timeliness is paramount, particularly given the turbulent market conditions, complexity of UK takeover laws, and the importance of deleveraging.”

Morgan Stanley analyst Thomas Allen called the news a “small negative,” noting it represents a $2 a share headwind to Caesars stock. The transaction is scheduled to close in the current quarter.

Focus on Shedding Strip Asset

Caesars selling one of its Las Vegas venues is one of the gaming industry’s most talked-about deals and has been for months.

CBRE’s DeCree notes that while some concerns are popping regarding a sale of a Sin City venue, that transaction should be easier to execute than the 888/William Hill deal. That’s owing to more favorable conditions. The analyst adds potential buyers, including real estate investment trusts (REITs), have strong access to capital and a thirst to add Las Vegas gaming properties.

VICI Properties (NYSE:VICI), the largest casino landlord and the owner of Caesars Palace, has rights of first refusal on the aforementioned Caesars venues. DeCree estimates the seller can command north of $2 billion in a sale of one of its Las Vegas properties.

Compelling Las Vegas Outlook

With the negative impact of the coronavirus pandemic on its business fading, Caesars’ land-based business is on pace to generate earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) of at least $4 billion on margins of 40%.

“We believe this remains a core foundation to the CZR story that has unwavering financials, and should help provide free cash flow (FCF) for upcoming online losses and property capex. Moreover, management’s Las Vegas optimism, buoyed by forward booking trends, may actually be greater than before,” said Macquarie analyst Chad Beynon in a recent note.

Beynon estimates Caesars can deliver $8 to $10 a share in FCF, as capital spending results in returns of 15% or more.