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Analysts press Loveman on exit from Boston-area casino project

30 October 2013

A $761.4 million quarterly loss by Caesars Entertainment Corp. wasn’t on Wall Street’s mind Tuesday.

Analysts wanted insight from Chairman Gary Loveman on Caesars’ highly public exit 10 days ago from a proposed $1 billion Boston-area casino development. A Massachusetts investigative report cited several concerns about the company, including Caesars’ industry-high $23.8 billion of long-term debt and the company’s relationship with the Gansevoort Hotel Group, in which an investor was suspected of having ties to the Russian mafia.

At the outset of the Caesars’ third- quarter conference call, Loveman said he was “disappointed and angry” about the departure from the project with the Suffolk Downs racetrack, because the casino operator never had a chance to address the concerns.

“We were prepared to show our suitability to the commission, but the commission took no action,” said Loveman, who suggested Massachusetts gaming regulators had fixated “unreasonable interest on speculative issues.”

Caesars had invested $100 million into the Massachusetts venture.

Loveman said the company would discuss the report’s findings with gaming regulators in other states where Caesars operates more than 50 casinos and resorts.

“We have turned our focus back to our ongoing development and repositioning efforts, which are greater catalysts for enhancing the company’s performance,” he said.

Meanwhile, Loveman said, the company is cooperating with the U.S. Treasury Department and the Internal Revenue Service in investigations of potential money laundering allegations at Caesars Palace.

Caesars said the company’s net loss grew more than 50 percent over the previous third quarter as interest expenses and “softness” in its U.S. gaming business hurt the casino operator’s results. Caesars said its net loss per share for the quarter that ended Sept. 30 was $6.03. A year ago, the company lost $505.5 million, or $4.03 per share.

Overall revenues for Caesars fell less than 1 percent to $2.18 billion.

“We made considerable progress on the execution of our strategy and achieved key milestones on many projects during the quarter despite continued softness in the domestic gaming business,” Loveman said.

Goldman Sachs gaming analyst Kevin Coyne said Caesars beat his cash flow projections, partly because of increased baccarat play in Las Vegas.

During the quarter, Caesars launched in Nevada, a real money online poker venture, and moved forward with construction of the $400 million Horseshoe Casino Baltimore. The company also refinanced some of its debt and closed on the spinoff of Caesars Growth Partners.

Also, Caesars announced that its private equity owners, TPG Global and Apollo Global Management, increased their investment in Caesars Growth Partners to $600 million from $500 million.

Coyne said the increased stake “makes us believe more so” that the private equity groups don’t want to risk a restructuring that could put their investment at risk.

“This bullish indication affirms the sponsors’ belief in the growth opportunities at Caesars Growth Partners, which could make the call right held by Caesars even more valuable,” he said.

During the quarter, Caesars sold its Macau golf course and expects to receive $420 million when the transaction closes before the end of the year.

“As a result of these transactions, we have greater liquidity and no significant maturities until 2018, providing a runway for new growth opportunities to generate returns for the recovery of the core business,” Loveman said.

In Las Vegas, Caesars grew net revenues 5.2 percent to $773.5 million, driven primarily by increases in casino, rooms, and food and beverage revenues. The company said revenues on the Strip could have been higher but were hurt by construction of the $550 million Linq project and renovations to The Quad and Bill’s Gamblin’ Hall.

On the Atlantic Coast, Caesars’ revenues fell 11.7 percent to $421.5 million. Results included the company’s four Atlantic City resorts and the Harrah’s Philadelphia racetrack casino.

Caesars also announced a deal to sell the 500-room Claridge in Atlantic City to a Florida hotel operator. A sales price was not disclosed. The Claridge had been a stand-alone hotel-casino before it was bought by Caesars and operated as a room tower by Bally’s Atlantic City.

Shares of Caesars Entertainment closed at $18.40 on the Nasdaq on Tuesday, down 16 cents, or 0.86 percent. In after-hours trading Tuesday, shares of the company were down more than 2 percent.
Analysts press Loveman on exit from Boston-area casino project is republished from