Despite being the largest casino operator in the world by property, Caesars Entertainment has been largely ignored by investors who did not know what the company would look like and who would own it after the bankruptcy reorganization of its subsidiary, Caesars Entertainment Operating Company.
That picture is more clear now that bankruptcy court has approved the reorganization, though numerous moving parts still have to be fixed in place and various regulatory agencies must grant their approvals.
Basically, the reorganization is as long proposed: Parent Caesars Entertainment will become an operating company owning the Las Vegas Strip and certain regional properties now owned by two subsidiaries. CEOC will own its current regional properties as a publicly traded REIT with something over $6 billion in debt rather than $18 billion today. Caesars will manage the CEOC properties.
Both Caesars and the new REIT will be cash flow positive.
Most of the restructured Caesars will be owned by various creditors, with current shareholders keeping about 7 percent to 8 percent.
With such greater clarity, and with the reorganization expected to be complete this year, Caesars is once again a company to attract investor interest.
That was evidence on CZR’s fourth quarter conference call in two ways.
1) There were lots of investors on the call asking lots of questions.
2) CEO Mark Frissora got to describe a variety of investments being made to Caesars’ hotels, casino floors, employee training, food and beverage and entertainment, and to express excitement that the company can now focus on growth.
Much of what Frissora discussed are improvements he has implemented since taking over less than two years ago.
Here are some highlights from the call:
• Those investments are already paying off in improved financial performance. He is excited about the pending company reorganization that will remove constraints and allow for more capital investment and pursuit of growth opportunities, Frissora said.
CZR plans $540 million to $670 million in capital investments this year compared to $446 million last year.
Hotels are getting much of the investment. CZR has renovated about half of its Las Vegas hotels since 2014 and will continue renovations throughout the company.
Renovated rooms are allowing rate increases of $25 to $40 a night, which has a high flow-through to the EBITDA line. Given how many more rooms CZR has left to renovate, there is a runway to greater EBITDA ahead, Frissora said.
CZR will renovate 7,000 rooms in 2017 throughout the company.
• CZR is also continuing to add to its entertainment offerings with a large number of headliner performers, and it is investing in more food and beverage outlets.
• Entertainment produced its best year ever in 2016, and CZR is adding more shows and more headliners in Las Vegas this year. That includes 15 more shows by Jennifer Lopez, the Back Street Boys starting a residency at Planet Hollywood, and Pit Bull also returning to a residency.
In creating a culture of service, CZR is training its workforce in a certification program to improve customer experience. Employee satisfaction scores are at new highs, Frissora said.
Like hotel renovations, the non-gaming investments are producing a return on investment and CZR has a long runway of investments to complete, meaning it has a lot of financial performance improvement ahead, he said.
CZR is also interested in new forms of entertainment, such as eSports, and hosted a tournament last fall that was streamed three million times, Frissora said.
• Casino reinvestment. In addition, CZR has begun updating its slot machine inventory. The company spent money on new slots last year and will make a more significant investment this year, Frissora said.
• Efficiencies. CZR continues to focus on costs and now has 4 percent fewer full-time employees, which was achieved through attrition.
• Simplifying the capital structure after the CEOC reorganization not only will reduce borrowing expenses, it will reduce other costs as CZR will no longer have to publish multiple SEC filings and pay for dual stock exchange listings, CFO Eric Hessions noted.
• Growth plans. CZR is working on a number of development projects throughout the world. The casino project at Incheon near Seoul in South Korea continues on schedule. CZR is in the hunt in Japan and should have a good opportunity as Caesars is the only major American candidate that is not already in Macau, Frissora said.
CZR expects to be involved in more growth projects absent the constraints of the bankruptcy process, he said.
Some sense of the progress can be seen in the EBITDA, which grew 13 percent to $279 million in the quarter combining Caesars and still debt-burdened CEOC, a burden soon to be considerably lightened.
