$30M Renovation of Golden Eyes Stratum: Analyst Suggests Possible Sale of Distributed Gaming Venture
Golden Entertainment, traded on NASDAQ under GDEN, has committed to investing at least $30 million this year for revamping the Strat Las Vegas, in preparation for the upcoming F1 race and the 2024 Super Bowl. According to one analyst, the company might eventually offload its distributed gaming business.
Last year, Golden's capital investments amounted to $50 million, with about 20% of that set aside for the Strat, its flagship property in Sin City. The company aims to upgrade the venue to meet increased demand from the F1 and Super Bowl, and to boost its competitiveness in securing more convention and meeting business.
We are now renovating an additional 537 rooms, hallway corridors in our pool areas, which is expected to be completed in the first half of the year at an approximate cost of $30 million in 2023, shared CFO Charles Protell during Golden's earnings conference call. With this, the total number of renovated rooms and suites at the property will reach 1,200 out of 2,400, with most of the remaining ones having been updated prior to Golden's acquisition of The Strat in 2017.
Golden also mentioned that the $260 million sale of the Rocky Gap Casino Resort in Flintstone, Md., announced last August, will likely be finalized in the second quarter.
Potential Sale of Distributed Gaming Unit
In a press release discussing its fourth-quarter earnings, Golden detailed its Nevada taverns business, which includes PT’s Pubs, as a separate segment. The distributed gaming arm, on the other hand, remains its own reporting segment.
B.Riley analyst David Bain indicated in a note to clients on Thursday that this move could signal Golden's consideration to sell the distributed gaming unit, which operates in Montana and Nevada, he noted.
“We believe GDEN’s new segmentation and earnings call responses suggest openness towards divesting the business segment. While a strong and resilient category for GDEN, we believe management has shifted focus towards growing its Nevada tavern business and positioning The Strat for future growth,” Bain wrote.
Furthermore, Bain highlighted that Accel Entertainment (NASDAQ: ACEL), a pure-play distributed gaming firm, showed willingness to partake in industry consolidation this year. He noted that due to scarcity, distributed gaming assets could be valuable to potential buyers, and Golden’s related unit could fetch $300 million or more if put up for sale.
“To be clear, we do not have any specific knowledge that GDEN is actively discussing a sale of its distributed segment – or even if it truly desires to. However, a third-party sale of the distributed segment could lead to a higher stock multiple for a straightforward, strong pure-play Nevada story with considerable financial flexibility,” Bain added.
Golden Entertainment's Capital Return Plans
In the fourth quarter, Golden repurchased close to 329K of its own shares, bringing the 2022 total to over 1.1 million. The company suggested that the proceeds from the Rocky Gap sale could be directed, in part, towards rewarding shareholders.
Following the sale of Rocky Gap, we expect GDEN to pay down an additional $150M or so of its term loan. With the remaining $70M of after-tax proceeds, we anticipate additional share repurchases and initiating a recurring or special dividend (which we would view as likely an ‘annual special dividend’), concluded Bain.
Golden is also anticipated to make a decision this year concerning the future of the currently inactive Colorado Belle in Laughlin, Nev. A potential sale of this property would provide more cash for the company's debt reduction initiatives, and possibly facilitate a more significant return of capital to investors.
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