The acquisition of regional casinos continues with the announcement by Golden Entertainment that it is buying Edgewater and Colorado Belle in Laughlin, Nevada, for around $190 million.
With its already owned Aquarius, the purchase gives Golden three adjacent casinos along the Colorado Riverwalk near the 12,000-seat Laughlin Event Center, and more than doubles its capacity there to 2,600 slot machines, 70 table games and 4,150 hotel rooms. To give some idea of Golden’s place in the market, the company will have 35 percent of Laughlin’s slot machines.
When the acquisition closes early next year, Golden will have a debt-to-EBITDA ratio around five times, or in the ballpark of what has become acceptable today, especially as it can bring that ratio down over time.
Chad Beynon of Macquarie estimates that the new properties can add $25 million to $29 million a year in EBITDA after cost savings are included. That would be a hefty increase for a company on track to generate over $190 million of EBITDA this year.
Beynon, who has a $40 target on Golden, also thinks the properties can be worth $2 to $3 a share. Looked at another way, at the time of the announcement, Golden’s stock was selling at 8.4 times EBITDA. Peers Monarch Casino, Eldorado Resorts and Boyd sell at 11 times, Beynon noted. A little math suggests that Golden could come close to his target simply by matching the valuation of its peers.
Golden’s purchase appears different from the recent spate of REIT-fueled deals throughout the industry. There is no REIT involved, and the price of eight times EBITDA at the start and 6.5 times after cost savings means the properties will add value to Golden without the recurring rent expense that comes with any REIT-facilitated transaction.
Immediate value addition aside, the Laughlin deal looks strategic.
Laughlin is about 90 miles south of Las Vegas along the Colorado River. Its low-key atmosphere and river frontage give it a far different feel than the LV Strip. For years, the town has lived off nearby California and Arizona retirees, and on special events to draw players to a town that has very little population.
However, Laughlin would appear to have a huge untapped market just a short drive away: Las Vegas.
There are 2.2 million residents of Las Vegas Valley. And, just like LV visitors, they like to party, attend concerts and enjoy overnight or several-day getaways. But they don’t want to deal with the Strip and its tourist hordes.
Properly marketed, Laughlin can be the outlet for those 2.2 million people.
The potential is more than theoretical. Laughlin did more business before the Great Recession. Just returning to pre-recession levels, gaming revenues can rise $130 million from the current run rate of $500 million. Give Golden 35 percent of that and a 25 percent EBITDA margin and the impact is substantial.
The three adjacent properties position Golden to exploit that opportunity and benefit from major concerts from the likes of those scheduled in coming months: Hank Williams Jr, Keith Urban, Rod Steward, and Kid Rock.
Laughlin does something else. It continues Golden’s transformation from a slot route-tavern company to a business that will get more than 80 percent of its EBITDA from casinos, and more than 90 percent from fast-growing southern Nevada.
Final note: The purchase is also interesting in that it formalizes ties between two established Las Vegas families: the Sartinis and the Marnells.
Golden is buying the properties from Marnell Gaming, whose chief, Anthony Marnell III, will sit on Golden’s board. Marnell, to date, has been a growth company, not a seller, and just two years ago bought the Nugget, one of the largest properties in Reno-Sparks.
Experience will tell how the relationship works out, but from this perspective, it promises to be a productive one.
