Caesars Entertainment Corp. (NASDAQ:CZR) reported a third-quarter loss of 53 cents per share Wednesday after the close of US markets, far wider than the loss of five cents analysts were expecting. But the casino giant’s results were propped by strong revenue growth in Las Vegas.
For the July through September period, Caesars posted turnover of $2.22 billion, topping the consensus forecast by $10 million. A 6.9 percent revenue jump in Sin City, where the company is one of the largest operators, drove an overall increase of 2.3 percent and offset weakness at some of Caesars’ regional properties.
Revenue performance was driven by our Las Vegas region due to increased consumer demand, with particular strength in the hotel business, which continues to outpace prior years across properties,” said CEO Tony Rodio in a statement.
Due in part to surging resort fees, room rates in the largest US gaming hub reached record highs in the first nine months of 2019. That’s not good news for corporations and tourists. But there’s a payoff for operators and their investors. Despite the pesky fees, Strip occupancy rates are shaping up nicely in the current quarter, say some analysts.
“We believe that strong group bookings for Las Vegas Strip operators in 4Q are offsetting any transient pressures the surveys were picking up several weeks ago,” said Nomura gaming analyst Harry Curtis in a note out earlier today.
Curtis points out that for the fourth quarter, Caesars room rates are already up 10.3 percent on a sequential basis. The company’s July through September occupancy rate in Las Vegas was 95.6 percent, up from 92.6 percent in the year-earlier period.
Thank Goodness For Vegas
While its third-quarter numbers in Las Vegas were strong, the same can’t be said of some of the other markets Caesars operates in. Revenue outside of Sin City was flat or lower due to increased competition.
“Other U.S. net revenues declined $6 million year over year due to competition in Atlantic City and Southern Indiana,” according to the company.
On the Boardwalk, the company operates three of the nine casinos – Bally’s, Caesars Palace, and Harrah’s. Bally’s in particular is viewed as having fallen well behind Caesars’ other properties, as well as Atlantic City rivals such as Borgata and Tropicana. In the Hoosier State, Caesars runs four venues – including two Harrah’s properties.
Bally’s Atlantic City has been mentioned as a possible divestment when Eldorado Resorts (NASDAQ:ERI) finalizes its $17.3 billion takeover of Caesars, which is expected to happen in the first half of next year. Shareholders of both companies meet next week in Nevada to vote on the deal.
Caesars said its operating expenses rose to $351 million in the recently completed quarter “due to recognition of $380 million in impairment charges related to land and buildings at Rio, and $19 million additional expenses in 2019 associated with an extra half month of operations associated with the acquisition of Centaur Holdings, LLC.”
The company announced a sale/leaseback deal for the off-Strip Rio in September to Imperial Companies, a real estate investment firm, for $516.3 million. That transaction is expected to be finalized by the end of this year.
Caesars’ uptick in expenses will no doubt catch the eye of Eldorado, which has long pledged to pare spending at the acquired company by at least $500 million.