The Alon Project, SLS Las Vegas, and Pinnacle Entertainment were all purchased by competitors in 2017. What will 2018 bring?
Currently, the economy is strong, borrowing costs are low, plus there have been fewer new gaming licenses issued, and the use of real estate investment trusts drive consolidation, according to a 2018 Gaming Outlook report issued by Deutsche Bank.
The acquisition frenzy is driving up prices of regional properties, preventing some deals from closing. For example, Tropicana Entertainment doubled in value in 2017 to $1.3 billion.
Deutsche Bank analysts Ricardo Chinchilla and Andrew Zarnette said, “Despite the high valuations [of gaming companies], we believe that 2018 is primed to be another year of record activity, given the excess of smaller operators who could potentially benefit from scale.” Tropicana could be a target. Spokeswoman for Tropicana, Diane Spiers, declined to comment.
Reno-based Eldorado Resorts could choose to some its 20 properties, according to analysts. The resort value has almost doubled to $2.5 billion. Eldorado spokesman Joe Jaffoni was not available to comment.
Casino operators have been using real estate investment trusts to finance acquisitions for the past four years. They purchase the property, sell it to REIT, and lease it back. This reduces excessive debt, although, the rent increases annual costs.
For example, MGM Resorts International sold National Harbor to REIT MGM Growth properties. Caesars used REIT VICI to purchase two casinos in Indiana.
According to Deutcshe Bank, there were 15 lucrative deals within the gaming industry in 2017, totaling $9 billion. The gaming industry is expected to grow by 3.5 percent in 2018. This prediction comes from new casino openings, faster economic growth, rising interest rates, and tax reform leaving more money for consumers.
Thanks to convention trends and the limited supply of rooms, the growth in gaming revenue should see growth in the low to mid-single digits.
By Jeanette Smith
Las Vegas Review-Journal: Gaming industry mergers could hit a record next year
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