Golden Entertainment weighs sale-leasebacks, corporate merger to address low stock valuation

Executives at Las Vegas-based Golden Entertainment expressed dissatisfaction with the company’s low stock valuation during an earnings call on Thursday, noting they are actively seeking “strategic alternatives” to address the issue.

Options include a sale-leaseback arrangement for the company's properties or even a corporate merger, a move intended to unlock more value from Golden’s real estate portfolio, which includes the Strat Hotel and Casino located north of the Strip.

Responding to a query from Truist Securities analyst Barry Jonas, who asked about the company’s interest in mergers and acquisitions, executives discussed the possibility of selling Golden’s real estate while maintaining operational control of the properties. This approach is similar to recent real estate transactions on the Las Vegas Strip.

Golden Entertainment CEO Blake Sartini indicated that the company is fully engaged in evaluating various paths to improve its valuation, particularly regarding its real estate holdings.

“I don’t think it’s overstating that we are in ‘active’ mode now, looking at all of our potential strategic alternatives,” Sartini said. He acknowledged that a preference for a transaction involving a real estate investment trust (REIT) remains, although available options are limited.

“In regards to (real estate investment trusts) particularly… we’re looking for (holding company) assets. I don’t think there are many of those out there. There’s limited inventory. That would be our preference in terms of moving the needle for valuation," he said, as per Las Vegas Review-Journal.

Sale-leasebacks have become a common strategy on the Strip, providing sellers with substantial capital while committing them to lease payments for long-term property operations.

In a prominent example, VICI Properties purchased the real estate assets of The Venetian from Las Vegas Sands Corp. in February 2022 for $4 billion, while Apollo Global Management acquired the operations for $2.25 billion. Under the deal, VICI Properties secured an initial annual rent of $250 million.

Among the significant REIT players in Las Vegas are Vici Properties, Blackstone Group, and Gaming and Leisure Properties Inc. Golden’s Chief Financial Officer Charles Protell noted that any capital generated from such a transaction would not be allocated toward new development.

Instead, Sartini emphasized that improving Golden’s valuation remains the primary goal. “It’s frustrating to see we get no credit for the real estate whatsoever,” he said.

Sartini added: “So within that context, we’re frustrated with the valuation, and we are sitting in a good position with a strong balance sheet, wholly owned real estate and a well-run company to look at all alternatives. So yes, corporate merger, we’re active in looking at all things that may potentially drive significant value to our current portfolio.”

Executives also pointed to Golden’s undeveloped properties as opportunities to boost foot traffic to the Strat. They highlighted five and a half acres of developable land currently used as a parking lot, situated across from the casino at the end of Bob Stupak Avenue and Las Vegas Boulevard. Additionally, the Strat features 150,000 square feet of unused space on the mezzanine level, which could support future projects aimed at attracting more visitors.

Golden Entertainment, listed on the Nasdaq, reported $5.2 million in net income on $161.2 million in revenue for the quarter ending September 30. This is down from the $241.2 million in net income on $257.7 million in revenue recorded in the same period last year.

The company attributed the drop primarily to the divestment of Rocky Gap Casino in Maryland in 2023, which had contributed to revenue in the prior year.

Revenue from continuing operations fell by 5% in the third quarter. Protell attributed the decline to several factors, including a challenging economic environment and extreme summer heat in Vegas. “Las Vegas experienced record heat this summer, which contributed to lower visitation at our casino properties and local taverns,” he said.

Protell noted that lower-tier customers have continued to scale back on discretionary spending due to the economic climate. However, he expressed confidence that third-quarter performance represents the lowest point for the year, given recent trends in October and expectations for the months ahead.