Potential for a sale-leaseback of an unnamed casino by Golden Entertainment, says a Deutsche Bank analyst – CDC Gaming

Deutsche Bank lowered its forecast for Golden Entertainment ahead of its results release on November 7, but maintains a buy rating due to the “increasing likelihood” that it will sell a casino resort property as part of a leaseback opportunity. No potential property was named, but the Strat on the Las Vegas Strip falls into that category among Golden Entertainment’s properties.

Carlo Santatelli, an analyst at Deutsche Bank, said they lowered their forecast due to headwinds in gaming revenue in Las Vegas, the ongoing impact of a collective bargaining agreement increase, the hotter-than-average summer and sales and margin issues with the tavern segment .

“We believe our updated forecasts reflect what we believe to be relatively stable trends in key segments, adjusted for seasonality, including an easing of same-store sales declines early in the fourth quarter,” Santarelli said. “That said, we recognize that the Golden story has been a predominantly negative estimate revision recently, which we believe has likely led to more speculation about strategic moves.”

The revisions have also weighed on valuation “as the forward multiple has declined by approximately two rounds in 2024, although in our view the likelihood of the sub-scale operator pursuing a strategic transaction that has value under most conditions increases.” should release for the shareholders.” .”

Deutsche Bank’s price target is $36. Golden shares closed at $31.24 on Thursday, down $8.86 in 2024.

Acknowledging that taxes, coverage ratios and numerous other complexities of a sale-leaseback transaction are difficult to fully assess and model, Santarelli said they outlined what a hypothetical sale-leaseback transaction would mean for Golden shares. If only the casino resort properties are sold, it assumes rent of approximately $87 million based on Deutsche Bank’s property-level EBITDAR forecasts of $174 million in 2025.

“We expect that Golden would have net cash of $130 million at year-end 2025, including proceeds and capitalization of assumed rent of $87 million,” Santarelli said. “We expect our 2025 EBITDAR to trade in a range of multiples consistent with OpCo valuations, ranging from six to seven times.”

Deutsche Bank said the analysis values ​​Golden at $38 to $44 per share at the pro forma trading multiples it calculates.

“At current levels, Golden trades at 7.4x, 7x and 6.6x our 2024, 2025 and 2026 adjusted EBITDA estimates, respectively,” Santarelli said. “From a free cash flow perspective, Golden trades at a yield of 9.7%, 9.6% and 9.6% according to our 2024, 2025 and 206 FCF per share estimates, respectively.”

Downside risks include an uneven revenue environment in the post-COVID, post-stimulus era, which could result in volatility in both revenue and, more importantly, adjusted EBITDA results. Others include geographic concentration, increased competition and general macroeconomic risks, Santarelli said.

Golden Entertainment acquired the Strat and three other southern Nevada casinos in 2017 for $850 million.