VICI Scores Coup in Eldorado/Caesars Deal; Wins 3 Harrah’s Properties For $3.2 Billion

Posted on: June 24, 2019, 11:23h. 

Last updated on: June 3, 2021, 03:19h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

VICI Properties Inc. (NYSE:VICI) is acquiring three Harrah’s properties for $3.2 billion from Eldorado Resorts, Inc. (NASDAQ:ERI) as part of the regional gaming company’s $17.3 billion deal to merge with Caesars Entertainment Corp. (NASDAQ:CZR).

Harrah’s New Orleans, one of three properties VICI is buying for $3.2 billion. (Image: Booking.com)

New York-based VICI, the real estate investment trust (REIT) spun off from Caesars in 2017 related to the casino operator’s effort to emerge from bankruptcy, is buying the real estate assets of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City from Reno-based Eldorado.

These transactions will result in aggregate incremental annual rent of $252.5 million, for an implied capitalization rate of 7.9%,” according to a statement. “Eldorado will use the proceeds to partially finance its combination with Caesars.”

This is the second time in a week VICI and Eldorado have revealed deals together. In a move that was widely believed to be a precursor to today’s announcement of the deal for Caesars, Eldorado said on June 17 it was selling three gaming properties to VICI and Century Casinos for $385 million.

In a separate statement issued today, VICI said it is selling 90 million shares of stock in part to finance “its pending acquisitions of the JACK Cincinnati Casino, the Mountaineer Casino, Racetrack & Resort, the Lady Luck Casino Caruthersville and the Isle Casino Cape Girardeau.”

Shares of VICI were lower by 2.13 percent in midday trading because the new offering dilutes current shareholders (more on this at the end of the piece).

Paying Bills

Eldorado is expected to use the $3.2 billion VICI is paying for the three Harrah’s properties to finance part of its mega-deal for Caesars. The operator of Caesars Palace and Bally’s, among other Las Vegas Strip venues, has $8.8 billion in debt and it is widely believed Eldorado is pushing to cut costs at Caesars by $500 million.

In addition to buying the land and real estate assets of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City, VICI gets some other potential sweeteners in the pact with Eldorado.

Non-Caesars Palace Las Vegas annual rent paid to VICI will increase by $154 million following the acquisitions. Additionally, lease agreements for Caesars Palace Las Vegas and Harrah’s Las Vegas will be amended to reflect increases of $83.5 million and $15 million, respectively, according to the statement.

When Eldorado closes the deal with Caesars Entertainment, which is expected to happen in the first half of 2020, “all existing Caesars leases will be extended such that, upon the closing of the merger, a full 15-year initial lease term will remain prior to expiration of the initial lease term.”

More Deals?

As Casino.org previously reported, some analysts expect the combined Eldorado/Caesars to sell more gaming properties in states where the two companies currently overlap. That could lead to more acquisitions for VICI.

Eldorado and VICI are entering into an agreement whereby the REIT can purchase the land and real estate assets related to Harrah’s Hoosier Park and Indiana Grand or Eldorado can require VICI to make that acquisition. Either party can put that pact into effect between Jan. 1, 2022 and Dec. 31, 2024.

As part of the deal to acquire the three Harrah’s properties, VICI also wins rights of first refusal for sales or sale-leaseback deals on two Las Vegas Strip properties and “for a sale-leaseback transaction on Horseshoe Casino Baltimore,” according to the statement.

The first Sin City deal would be for one of the following gaming venues: Flamingo Las Vegas, Bally’s Las Vegas, Paris Las Vegas and Planet Hollywood Resort & Casino. The second would include the remainders from that group and the LINQ Hotel & Casino.

What’s Shareholder Dilution?

As noted above, VICI stock declined today primarily due to the news that it’s issuing news shares to fund a previously announced deal with Eldorado.

By issuing new stock, a company’s shares outstanding count increases, thereby lowering the ownership percentage of current investors and making previously held stock less valuable. More shares out can also weigh on a company’s earnings per share (EPS) because that metric is calculated by dividing net income by shares outstanding.

For example, if ABC Inc. has net income of $10 million and 10 million shares outstanding, its EPS is $1. If the net income remains the same, but the shares freely floating decline to 5 million, ABC’s EPS jumps to $2.