Golden Entertainment (GDEN) (~$780MM market cap) is a regional casino operator primarily focused on the drive-to regional market, their flagship asset is the STRAT Hotel (fka the Stratosphere) focused on value oriented customers that opened in 1979 on the very north end of the strip. The rest of their assets cater to the locals markets in Las Vegas, Laughlin and Pahrump (town 60 miles west of Las Vegas where prostitution is legal), plus 72 taverns in the Las Vegas area functioning as mini-casinos with slot machine gaming being the primary draw. GDEN is one of the few remaining regional casino operators that still owns the majority of its real estate, most of the others have sold theirs to the gaming REITs.
On 11/6/25, after a long strategic alternatives process, Golden Entertainment announced a deal to sell their real estate in a sale-leaseback transaction to gaming REIT giant VICI Properties (VICI) (VICI was originally a 2017 spin of CZR, but has since diversified into other entertainment asset classes) while their OpCo is going private via an MBO transaction with CEO Blake Sartini (who founded GDEN ~30 years ago). VICI is buying the real estate of 7 of the 8 casinos (the 8th is already leased to a third party) at a 7.5% cap rate, with the initial annualized rent set at $87MM. GDEN shareholders are to receive 0.902 VICI shares for each share of GDEN (at today's VICI share price, that's $26.39/share) plus $2.75 in cash for the OpCo ($29.15 total versus $29.65 GDEN's share price today). On a trailing basis, GDEN has done $145.7MM in EBITDA over the last twelve months (this is now EBITDAR in Casino OpCo talk), subtracting out the new annualized rent equals ~$59MM in EBITDA, the $2.75/share represents $75MM, GDEN has some net cash after VICI assumes the debt, so Sartini is paying around ~1x EBITDA for the OpCo.
This low-ball offer has attracted the ire of two activists, friend of the blog Andrew Walker at Rangeley Capital wrote up a public letter and EverBay Capital has also express dismay at the offer for the OpCo being too low (additionally, Dalius @ Special Situation Investments has a great write-up, paywalled, but worth the sub). I'll try not to rehash their arguments, but a couple additional thoughts and historical context I'd add:
- The transaction as currently structured reminds me of when Tropicana Entertainment (TPCA) simultaneously sold their real estate and OpCo to Gaming & Leisure Properties (GLPI) and Eldorado Resorts (ERI, now part of CZR) respectively in 2018. TPCA was similarly a lower quality regional casino operator, had some tired properties, including some overlap with GDEN in Laughlin, NV. Eldorado paid a pre-synergies 6.6x EBITDA (5.0x post synergies) for the OpCo, it could be argued TPCA's assets were slightly higher quality than GDEN, however GLPI paid a 9.1% cap rate for the real estate, the cost of capital for the gaming REITs has tightened since 2018, but still points to the GDEN OpCo being worth more than ~1x EBITDA.
- The activists are pushing to separate the selling of the two pieces, if GDEN did this, it would remind me a bit of when Pinnacle Entertainment (PNK) sold their real estate to GLPI in 2016 and spun the OpCo out as new Pinnacle. After the spin it initially traded around 6x EBITDA (higher quality assets), and went on to double in the next year before eventually being acquired by PENN. Tax rules have changed regarding REIT conversions and real estate spins, not sure if its still a possible structure, but again, points to the GDEN OpCo being worth more than ~1x EBITDA.
- The tavern business GDEN is not a throw away asset, GDEN previously ran a distributed gaming business in Nevada and Montana that were sold in 2023 to Illinois based J&J Gaming (a peer of publicly traded Accel Entertainment (ACEL)) for 9x EBITDA. Distributed gaming is the better half of the business (GDEN has the capex, lease obligations, staffing etc), but J&J shares the slot-machine revenue with GDEN. The taverns do $25MM in EBITDA, its probably worth at least 3-4x EBITDA (finger in the air, small business type multiple), or the entire check Sartini is writing.
- Others have mentioned the undeveloped land as a potential value nugget, but with the current oversupply on the strip (where 9 acres are located near the STRAT) and a majority of the rest being located in Pahrump, I don't see a lot of value in the excess land.
Longtime reader, first time (I think?) commenter. Thanks for all the great posts over the years. I am not terribly familiar with GDEN, but have 'kicked the tires' on the major names in the domestic casino space a few times recently.
ReplyDeleteLook at where WYNN is valued versus MGM and CZR -- it's reasonably clear that the market, rightly in my view, has figued out that casino OpCos are not terribly valuable and deserve low multiples. Domestic casino assets almost as a rule are showing little to no organic growth, but their maintenance capex needs (management teams in the space always lowball maintenance capex), lease burdens, and operating costs keep growing. Obviously this is a problem.
I wouldn't want exposure to VICI either, as at some point it's going to have to cut deals with some of the OpCos to reduce their lease burdens. This is more of a long term problem, but my experience in investing has been that long term problems tend to turn into short term problems pretty f***** quickly.
Is the CEO self-dealing and giving himself a good price? Yep
Is the price anywhere close to as good as it looks at first glance? Probably not
Also, The Strat is a low quality asset that is very much inferior to MGM and CZR's LV Strip properties, which have massive advantages in location, economies of scale, customer databases, etc.
Thanks for the comment and appreciate you reading. I'd agree that casinos face some serious headwinds, especially on the strip, but I actually like the local/hyper local market, similar to the distributed gaming space, these types of assets tend to be more resistant as they don't rely on travel or conferences, etc. It's sad, but many of these people are gambling addicts and spend time weekly at these locations. The STRAT is certainly lower quality, but its alternative to those that are frustrated with the increasing cost of staying on the strip.
DeleteThe REIT model is interesting, they were able to hold their position through Covid with some creative transactions, thinking the GLPI/PENN deal off the top of my head, to get their rent payments. I don't mind having short term exposure to VICI, its pretty high quality in my mind, with rates coming down, their yield likely continues to look attractive to dividend investors.