VICI Properties secures three Harrah's properties for $3.2 billion in a coup during the Eldorado/Caesars deal.
VICI Properties Inc. (NYSE: VICI) is acquiring three Harrah’s properties for $3.2 billion from Eldorado Resorts, Inc. (NASDAQ: ERI) as part of Eldorado’s $17.3 billion merger deal with Caesars Entertainment Corp. (NASDAQ: CZR).
New York-based VICI Properties Inc., the real estate investment trust (REIT) spun off from Caesars in 2017 as part of the casino operator’s bankruptcy restructuring, is acquiring the real estate assets of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City from Eldorado Resorts, based in Reno.
These transactions will provide VICI with an additional annual rent of $252.5 million, implying a capitalization rate of 7.9%, according to a statement. Eldorado plans to use the proceeds to help finance its merger with Caesars Entertainment.
This marks the second recent deal between VICI and Eldorado. On June 17, Eldorado announced the sale of three gaming properties to VICI and Century Casinos for $385 million, seen as a precursor to today’s larger announcement regarding Caesars.
In a related development, VICI also announced the sale of 90 million shares of stock to finance its pending acquisitions of JACK Cincinnati Casino, Mountaineer Casino, Racetrack & Resort, Lady Luck Casino Caruthersville, and Isle Casino Cape Girardeau. As a result, VICI’s stock price was down 2.13% in midday trading due to dilution concerns among current shareholders.
Paying Bills
Eldorado Resorts is set to utilize the $3.2 billion payment from VICI Properties for the acquisition of three Harrah’s properties to help finance its larger merger with Caesars Entertainment. The merger aims to reduce costs at Caesars by $500 million, given its current $8.8 billion debt load.
In addition to acquiring the land and real estate assets of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City, VICI Properties gains additional benefits from the deal with Eldorado. Annual rent from non-Caesars Palace Las Vegas properties will increase by $154 million following these acquisitions. Furthermore, lease agreements for Caesars Palace Las Vegas and Harrah’s Las Vegas will be adjusted to include rent increases of $83.5 million and $15 million, respectively.
Upon the completion of the merger, all existing Caesars leases will be extended, ensuring a full 15-year initial lease term remains in effect prior to any lease expiration. The merger between Eldorado and Caesars Entertainment is expected to close in the first half of 2020.
More Deals?
As previously reported by Casino.org, analysts anticipate that the combined Eldorado/Caesars entity may sell more gaming properties in overlapping states, potentially leading to further acquisitions by VICI Properties.
Under their agreement, Eldorado and VICI have structured a deal allowing VICI to acquire the land and real estate assets associated with Harrah’s Hoosier Park and Indiana Grand, or Eldorado can compel VICI to complete the acquisition. This option can be exercised between January 1, 2022, and December 31, 2024.
In addition to acquiring the three Harrah’s properties, VICI also gains rights of first refusal for sales or sale-leaseback transactions involving two Las Vegas Strip properties and for a potential sale-leaseback deal on Horseshoe Casino Baltimore, as detailed in the statement.
The first Las Vegas deal involves one of the following gaming venues: Flamingo Las Vegas, Bally’s Las Vegas, Paris Las Vegas, and Planet Hollywood Resort & Casino. The second deal encompasses the remaining properties from this group and the LINQ Hotel & Casino.
What’s Shareholder Dilution?
The decline in VICI Properties’ stock today is primarily attributed to its announcement of issuing new shares to finance the previously disclosed deal with Eldorado Resorts. When a company issues new shares, it increases the total number of shares outstanding, diluting the ownership percentage of existing investors and potentially reducing the value of previously held stock. Additionally, an increased number of shares outstanding can impact the company’s earnings per share (EPS) calculation.
For example, if a company like ABC Inc. has net income of $10 million and initially has 10 million shares outstanding, its EPS would be $1 ($10 million / 10 million shares). If ABC issues more shares and the total outstanding shares increase to 15 million, the EPS would decrease to $0.67 ($10 million / 15 million shares), assuming net income remains constant. Conversely, if the number of shares outstanding decreases to 5 million, the EPS would rise to $2 ($10 million / 5 million shares), all else being equal.
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