Howard Stutz, CDC Gaming Reports · July 15, 2018 at 7:51 pm

At least one gaming analyst believes the buying spree by Eldorado Resorts is far from over.

Reno-based Eldorado has been an active participant in the current regional gaming consolidation, which will see two operators disappear by the end of the year, swallowed up by larger companies.

Union Gaming Group analyst John DeCree, after hosting a non-deal roadshow with Eldorado Chief Financial Officer Thomas Reeg in Denver, said that there are still “several significant opportunities for incremental (mergers and acquisitions) in the casino sector.”

John DeCree, Union Gaming Group

DeCree said he expects Eldorado to “remain active and disciplined on this front, with a willingness to use a (REIT) partner or off-balance sheet financing.”

Since completing its game-changing $1.7 billion acquisition of Isle of Capri Casinos in April 2017, which more than doubled the size of the company, Eldorado has remained in growth mode.

In April of this year, the company announced it was partnering with real estate investment trust Gaming and Leisure Partners to acquire seven casinos operated by Tropicana Entertainment at a total cost of $1.85 billion. The transaction includes the Tropicana Resort in Atlantic City and two Nevada casinos, MontBleu in Lake Tahoe and Tropicana Laughlin.

On the same day, Eldorado agreed to purchase Grand Victoria Casino in Illinois for $327.5 million.

Last week, Eldorado CEO Gary Carano called both transactions “highly accretive… (which) further increase the scale of our regional gaming platform and significantly accelerate the company’s free cash flow growth.”

The transactions will give Eldorado nearly 30 casinos in 12 states, making the company the second largest regional casino operator in the U.S. behind Penn National Gaming.

Meanwhile, Eldorado is parting with the Presque Isle Downs & Casino in Erie, Pa., and the management contract for the Lady Luck Nemacolin. Both deals are with Churchill Downs.

DeCree hinted that Eldorado, the dominant casino operator in Reno with three of the Northern Nevada market’s largest resorts, could be eyeballing a location on the Las Vegas Strip. Once the Tropicana purchase closes, the company will operate a casino in every major market in Nevada except the Strip. The Tropicana Las Vegas is owned by Penn National Gaming.

Eldorado’s other major deal, with Maryland-based Cordish Companies, involves the redevelopment of 223 acres surrounding Isle Casino Racing in Pompano Park, Fla., with a mixed-use non-gaming development. That project is not expected to open until 2020.

DeCree said investors don’t understand the worth of the Pompano Park project and that its value is not reflected in the company’s current stock price. On Friday, Eldorado shares closed at $46.25, just shy of its 52-week high of $46.85. DeCree gave Eldorado a price target of $50 a share.

“We believe there is some meaningful present value embedded in the real estate opportunity, though (it will be) difficult to quantify until we have more detail,” DeCree said. “Once Eldorado and (Cordish) announce more definitive plans and designs, we suspect the market will be more willing to begin assigning value to the project.”

More than half the questions at the investor meeting dealt with Eldorado’s plans for the Tropicana Atlantic City. Interest in the market is strong, given last month’s openings of Hard Rock Atlantic City and Oceans Resort and the roll-out of legal sports wagering.

Grand Victoria Riverboat Casino in Illinois

DeCree, however, thought there was too much emphasis on Atlantic City. He noted the investment multiples are stronger across some of the other Tropicana properties Eldorado is acquiring. Gaming revenue at Tropicana Evansville in Indiana has grown 20 percent this year, while St. Louis’ Lumiere Casino operates in a strong market.

The hidden gem, DeCree said, could be Grand Victoria. The purchase is expected to close by the end of summer, and DeCree said a riverboat casino would contribute more cash flow to Eldorado than Tropicana Atlantic City.

Over the last 12 months, Grand Victoria has produced $36 million in cash flow, DeCree said.

He added Grand Victoria “could potentially benefit from a hotel,” like the successful partnership the company’s Scioto Downs Racetrack Casino in Ohio has entered into with a nearby Hampton Inn.

The Tropicana Entertainment deal involves GLPI, the gaming industry’s largest REIT, acquiring the land associated with six of the seven properties. DeCree believes Eldorado would rather make additional deals on their own.

“Given the upward trajectory of casino valuations, we expect Eldorado would prefer to own as much casino real estate as possible,” he said.