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Caesars Entertainment (CZR): 3Q12 Earnings Recap: Solid job on margin front; Maintain Hold rating, P
November 01 2012
Caesars 3Q12 results were largely in-line with estimates both on the top-line and EBITDA. The results were generally reflective of the soft top-line environment we have observed throughout the regional gaming landscape. There were some market specific issues such as the Louisiana/Mississippi region being impacted from Hurricane Isaac. In Las Vegas, construction disruption from Project Linq was estimated to have negatively impacted results by $10mm - $15mm in the quarter. A bright spot in the results was the Managed, International, and Other line item as total net revenue was up over 40% to $205.2mm. For reference, the line item includes the company’s JV projects and Caesars Interactive, which includes the World Series of Poker. Largely throughout the portfolio the company did a great of jobs of managing costs and margins in a challenging top-line environment.
Next quarter (4Q12) will be impacted by Hurricane Sandy temporarily closing the company’s four properties in Atlantic City. We are constructive regarding the company’s Vegas exposure given leverage to the favorable visitation/supply driven imbalance. The rest of the portfolio throughout the domestic regional markets we are largely neutral on as we don’t expect to see much growth in those markets. In particular, Atlantic City continues to be one of the more challenging markets and more neighboring supply could be on the horizon (2nd Philly Casino and possibly expanded gaming in MD). In addition, Caesars remains highly levered without an event to immediately de-lever, in our view. We didn’t see anything in the quarter to materially change our view on the shares and we are maintaining our Hold rating.
October 16 2012
We recently had the opportunity to meet and tour with several properties in the greater St. Louis gaming market. In addition, we also met with management of Isle of Capri (ISLE), which is headquartered in the city. Overall, a key takeaway is we think Ameristar St. Charles and to a slightly lesser extent the Pinnacle Entertainment (PNK) properties stand to benefit over the course of the next several months as Harrah’s St. Louis unplugs from the Caesars network. There is also a perception in the market that PNK’s downtown property Lumiere Place is an unsafe area, which is consistent with our historical observations. We thought the surrounding downtown area was quite nice, though we are also not the typical Midwestern slot player.
Lay of the land - There are six properties in the St. Louis gaming market. There are four properties on the Missouri side and two riverboats in Illinois that effectively comprise the market. The Missouri casinos have a competitive advantage because they allow smoking. In recent years, Pinnacle Entertainment (PNK) has opened two new casinos in the St. Louis market. Lumiere Place opened in late 2007 and River City opened in March 2010. The President Casino, a smaller first-generation riverboat located in the St. Louis market, closed in late 2010. PNK was the licensee of this property but its license was revoked due to insufficient capital investment in the property. PNK’s Lumiere Place is located in downtown St. Louis, while the remaining properties are outside the greater downtown area. We heard several comments from people in the market that the downtown area where Lumiere is located is perceived as unsafe. There has been some recent crime in the area. However, we felt comfortable and spent some time in Laclade’s Landing an entertainment and dining district just outside the property. That said, the typical Missouri gaming customer tend to be older suburban patrons.
May 01 2012
1Q12 Earnings recap - In 1Q12, CZR reported a 4.3% increase in net revenues to $2.27bn (vs. Street consensus of $2.26bn). Adjusted EBITDA for the quarter grew 11.0% to $520.7mm (vs. Street of $519.4mm). Results were driven by strength in Las Vegas and Louisiana/Mississippi regions as well as solid performance in International and Online segments. In Louisiana/Mississippi region, which reported the largest increase in EBITDA during the quarter (+27.6% to $77.1mm), results benefitted from reduced expenses as well as due to the receipt of business interruption insurance, related to the flooding of the Ohio river in 1H11. In the Atlantic City region, which includes four properties in AC and Harrah’s Chester property EBITDA increased 5.1% to $69.9mm despite a 3.7% decrease in top-line revenue to $432.5mm. EBITDA benefitted from a favorable property tax settlement as well as reduced operating costs. On the call, management thought it was still too early to predict the potential impact of Revel. The Illinois/Indiana region reported a 2.9% drop in property EBITDA to $57.7mm, the numbers were negatively impacted by a bridge closure in the quarter (now re-opened) as well as increased competitive environment. The Iowa/Missouri region reported EBITDA of $58.7mm, which increased 4.3% from the prior year.
January 10 2012
The New Jersey Casino Control Commission reported a 4.2% increase in December gaming revenues to $246.5mm, the first y/y increase since August 2008. It is important to note that Atlantic City’s gaming revenues benefitted from a very weak y/y comp of -13.1%, due to inclement weather, which resulted in an unusually high snowfall in late December last year. Slot win increased 8.3% to $174.1mm, while table game revenues fell 4.3% to $72.5mm. On a property basis, Resorts (+23.1% to $11.0mm) and Borgata (+19.1% to $55.9mm) both posted significant increases, while Showboat (+3.2% to $16.5mm), Harrah’s Marina (+3.2% to $33.2mm) and Caesars (+1.2% to $28.9mm) also recorded growth in December. Trump Plaza was the only property to report a significant decline of 14.9% to $8.5mm. For 2011, Atlantic City revenues decreased 6.9% to $3.32bn.
In our view, the AC market will continue to remain challenged in the near-term by competition from Pennsylvania, new casinos in Maryland (Baltimore and Rocky Gap), as well as the ramp up of gaming revenues at Aqueduct in Queens, NY. However, potential legalization of sports betting (awaiting Governor Christie’s signature) and continued capital investment into existing properties (Golden Nugget, Resorts AC and The Pier Shops in Atlantic City) could all contribute to the increase in visitation and gaming revenues for Atlantic City. Furthermore, the opening of Revel Atlantic City, a new $2.4bn resort in 1H12, will grow the overall Atlantic City market as well as help shift some of the foot traffic back to the boardwalk.
July 20 2011
Given a definitively favorable supply scenario in the Las Vegas Strip corridor over the next several years, we set out to forecast citywide occupancy, and to better understand the direction and magnitude of room rates - critical earnings levers for casino operators. With a lower limit of negative 2.3% cumulative supply (a contraction) through 2015 and an upper limit of +7.3%, coupled with historically normal visitation growth, we believe that Las Vegas will experience unprecedented occupancy levels and notably higher room rates. We don't believe this likelihood is discounted in the valuations of Boyd Gaming (BYD), Caesars Entertainment, Las Vegas Sands (LVS), MGM Resorts (MGM), nor Wynn Resorts (WYNN).
March 11 2011
The New Year started off strong with visitation to Las Vegas up 8.6% in January. This represents more than a full-year (trailing 17 months) of increased (or flat) visitation. The comp was a relatively strong +4.0%. Despite the strong visitation numbers, Las Vegas Strip gaming revenues fell 2.5% in January, primarily due to lower volumes on relatively normal Hold. We believe this is a function of customer mix during the month. As noted below convention attendance grew materially during January driving occupancy and room rates higher. While this is good news on the non-gaming front, conventioneers don’t generally gamble notably.
March 10 2011
The Nevada Gaming Control Board released Jan. 2011 gaming revenues this morning down 2.5% to $482.7mm (versus $495.0mm in Jan ‘10). Slot win grew 9.3% in January despite a 240bps drop in volume due to a 90bps increase in hold to 8.7%. The decline is despite the benefit to January from December 2010 ending on a Friday--pushing collections to January. (We note that average slot hold for last five years is 7.0% and due to the timing of slot collections in the new year, avg. slot hold for Jan. has averaged 7.8% over time). Table (ex-baccarat) win was up 5.6% as the segment hold was 12.9% (+140bps y/y), but offset by a 610bps drop in volume. Finally, baccarat win was down 39.7% to $64.8mm on a 190 bps y/y decline in hold to 11.0% (below the three-year average of 11.5%) and 29.3% drop in volume. Adjusting for normalized hold (11.5%), baccarat win would have declined 36.8% to $68.0mm. Overall, hold was relatively flat +50bps on a combined basis for all segments (slots +90bps, baccarat -190bps and tables ex-baccarat +140bps).
December 09 2010
The Nevada Gaming Control Board released October 2010 gaming revenues this morning. Baccarat over-held (+940bps YoY and +750bps relative to its three-year average) and along with revenues from blackjack (+44.0%), craps (+10.9%) and roulette (+17.6%) resulted in total LV Strip gaming revenues up 16.1% during the period. Year-to-date, LV Strip gaming revenues were up 9.6%. We note that since October 2010 ended on a weekend slot collections for the last days of the month will be booked in November, however this is a clean YoY comparison since the same was true in October 2009.
December 08 2010
Iterations of a draft Internet poker bill introduced by Harry Reid have been circulating. In our estimation, never before has the passage of Internet poker, at the federal level, been as probable as it at this moment. The Internet Poker Regulation Act proposes to amend the Unlawful Internet Gambling Enforcement Act to allow for traditional payment processing for internet poker and to legalize internet poker at the federal level. There are a number of critical variables which are subject to change from here.
November 10 2010
Visitation to Las Vegas increased 2.0% in September, representing more than a full-year (trailing-thirteen months) of increased (or flat) visitation. The comp was notable at 4.3%. On a YTD basis, visitation is up 2.4%.
During September hotel occupancy was 84.8% (-220 bps y/y), while weekend occupancy was 89.6% (-190 bps y/y) and midweek was 78.9% (-70 bps y/y). Most importantly, average daily rate (ADR) was $97.25 ( 6.7% y/y), despite a 5.1% increase in room inventory and represented the seventh consecutive increase in rate after more than two years of declines.
November 10 2010
The Nevada Gaming Control Board released September gaming revenues this morning. Baccarat held a bit lucky and was the only segment to post an increase during the month resulting in total LV Strip gaming revenues up 2.8%. Through the end of 3Q10, LV Strip gaming revenues were up 7.7% (despite baccarat under holding over the three-month period).
During September, gaming volume (amount wagered) was flat on a combined basis for all segments (slots -4.1%, baccarat 17.2% and tables ex-baccarat -1.1%).
October 08 2010
Visitation to Las Vegas increased 3.5% in August, representing a full-year (trailing-twelve months) of increased (or flat) visitation. The comp was very easy at -3.7%. On a YTD basis, visitation is up 2.5%.
During August hotel occupancy was 84.9% (-110 bps y/y), while weekend occupancy was 89.2% ( 60 bps y/y) and midweek was 79.6% ( 110 bps y/y). Importantly, average daily rate (ADR) was $87.40 ( 4.0% y/y), despite a 5% increase in room inventory and represented the sixth consecutive increase in rate after more than two years of declines. We estimate RevPAR was $71.67 ( 4.8% y/y). Finally, convention attendance was up a strong 46.3% y/y ( 2.2% YTD). See our report “Large convention bookings a positive proxy for 2H10” from September 9, 2010.
October 08 2010
The Nevada Gaming Control Board released August gaming revenues this morning. Although baccarat continues to under-hold (four out of past five months), total LV Strip gaming revenues were still up 21.1%. On a QTD basis, LV Strip gaming revenues are up 10.4%.
During August, gaming volume (amount wagered) was up 17.8% combined for all segments (slots -1.0%, baccarat 87.2% and tables ex-baccarat 6.7%). Slot win was actually up 13.2% as it benefitted from the timing of July’s month end, which would have pushed some slot collections into August. Table games (ex-baccarat) revenue was up 11.9% on fairly normal hold percentage. Finally, baccarat revenue increased 47.2% on hold percent of just 8.3% (hold % down 230 bps y/y, and well below last 24-month average of 10.5%). We estimate that on normalized baccarat hold, LV Strip revenues would have been $40mm higher in August, or up 30.4%.
September 10 2010
Visitation to Las Vegas increased 4.7% in July, the 11th consecutive month of increased (or flat) visitation. The comp was relatively easy at -1.3%. On a YTD basis, visitation is up 2.3%.
During July hotel occupancy was 86.9% (-120 bps y/y), while weekend occupancy was 90.2% (-110 bps y/y) and midweek was 80.6% (-20 bps y/y). Importantly, average daily rate (ADR) was $90.38 ( 4.8% y/y) and represented the fifth consecutive increase in rate after more than two years of declines. We estimate RevPAR was $75.92 ( 4.6% y/y). Finally, convention attendance was up 28.4% y/y (-1.4% YTD). See our report “Large convention bookings a positive proxy for 2H10” from September 9, 2010.
September 10 2010
The Nevada Gaming Control Board released July gaming revenues this morning. After three consecutive months of declines on the Strip (largely on poor baccarat hold), gaming revenues were flat, at $461mm. On a YTD basis, Strip gaming revenues are now up 2.2%.
During July, gaming volume (amount wagered) was up 4.9% combined for all segments (slots -3.2%, baccarat 39.6% and tables ex-bacc 11.8%). Slot win was down 7.7% on slightly lower hold percentage but also likely impacted by the timing of month end (Saturday slot collections pushed into August numbers). Table games (ex-bacc) revenue was up 7.7% on fairly normal hold percentage. Finally, baccarat revenue increased 9.0% on hold percent of 10.0% (hold % down 280 bps y/y, but inline with last 24-month average of 10.5%).
September 09 2010
We’ve been examining forward Las Vegas convention bookings and are encouraged by the results for “Large”-conventions (10k delegates). Large convention bookings in 2H10 suggest modest positive inflection, which in turn we believe will help week-day room rates. Further, this should aid visibility for the Las Vegas Strip and may be a precursor to a longer-term recovery.
With some help from extremely weak comparables in 2009, 2H10 large convention bookings growth looks encouraging. For the most recent data available, May and June 2010 large conventions generated 62,000 and 107,000 delegates, which compares favorably to 57,000 and 102,524 delegates in 2009, respectively. This 5.9% two-month growth rate compares to the -4.1% average decline YTD (through June 2010) and -23.9% decline for full-year 2009. According to the Las Vegas Visitors and Convention Authority, large conventions represented 33.4% of overall convention visitors in 2009 and 30.1% on average for the past five years.
July 07 2010
The Nevada Gaming Control Board released May gaming revenues this morning. Gaming revenues on the Las Vegas Strip were down 6.4% but are still up 4.3% on a YTD basis. Through the first two months of 2Q10, Las Vegas Strip gaming revenues are down 3.8%.
During May, gaming volume (amount wagered) was down 2.1% across all segments (slots -3.5%, baccarat 1.6% and tables ex-bacc -0.3%). Slot win was up 3.6% on slightly higher hold percentage but still within a normal range. Table games (ex-bacc) revenue was down 1.8%, but also on normal hold percentage. Finally, baccarat revenue was down 37.1% as the Strip under held by about 400 bps.
June 08 2010
We recently met with Harrah’s Entertainment management. Herein we discuss current business trends and segment outlooks, potential asset transactions and our thoughts on why Harrah’s might return to the public equity markets in a shorter timeframe than investors may currently anticipate.
We believe the recently announced transaction between the company and Apollo Management, TPG Capital and Paulson & Co whereby the parties exchanged $1.12bn in debt (face value) for 15.6% of the company’s common equity perhaps signals a shorter timeframe to return to the public equity markets. This transaction is tantamount to an equity offering suggesting to us that when the gaming equity markets are ripe and a number of company-specific goals are met (below) management would feel comfortable seeking liquidity publicly again.
May 20 2010
The Nevada Gaming Control Board (NGCB) recently published detailed financials for the South Shore Lake Tahoe market for the fiscal year ending June 2009. We have compiled this information and other historical data into an aggregated snapshot of the combined income statements and balance sheets for five properties in the South Shore Lake Tahoe market, breaking out key takeaways such as: gaming and non-gaming revenue growth, gaming vs. non-gaming revenue mix shift, EBITDA margin and EBITDA ROIC.
There hasn’t been a dramatic revenue mix shift over time in South Shore Lake Tahoe (just 500 bps) as compared to the Las Vegas Strip. Gaming revenues now represent 60% of total revenues, down from 64% in FY90 (the peak was 65% in the early 90s). Conversely, non-gaming revenues now represent 40% of total revenues today, up from 36% in FY90. Over the past 19 years, the gaming revenue CAGR is -1.5 %, while the non-gaming revenue CAGR is -0.7%. Total revenues have declined at an average annual rate of 1.2%. Total revenues peaked at $557m in FY04 and the $428m generated in FY09 represents a 23% decline from peak. This compares to a decline of 13% from the peak on the Las Vegas Strip (FY07-FY09).
May 13 2010
Given a confluence of factors we are publishing this deep-dive into the Atlantic City market. This report is intended to be used as both a primer on Atlantic City, as well as an outlook on the market over the medium-term.
There have been several notable events that have occured within the past 12 months or which are ongoing and are relevant to the market,including:
- Pinnacle Entertainment (PNK) abandons its Boardwalk project (former Sands site)
- Tropicana Entertainment emerges from bankruptcy Lenders take control of Resorts International from Colony Capital
- Trump Entertainment Resorts emerging from bankruptcy MGM announces it will divest its 50% JV interest in Borgata
- Revel continues to seek financing to finish construction (and receive potential tax abatement)
- Table games coming online in Delaware and Pennsylvania
- Philadelphia and Maryland slot parlors are looming on the horizon
- Boutique casino proposal that would lower the barriers to entry for new Atlantic City casino development
- Prospect for a total smoking ban on casino floors
- Potential legislation for VLTs at Meadowlands
- Potential for gaming at Bader Field in Atlantic City.