Posted on: May 17, 2023, 02:43h.
Last updated on: May 17, 2023, 03:45h.
Century Casinos (NASDAQ: CNTY) announced Wednesday it’s selling the real estate assets of a quartet of Canadian gaming venues to VICI Properties (NYSE: VICI) for $164.4 million based on May 16 exchange rates.
The Colorado-based regional casino operator will lease back those venues from the real estate investment trust. The gaming properties VICI is acquiring are the Century Casino & Hotel Edmonton, Century Casino St. Albert, Century Mile Racetrack and Casino in Edmonton, Alberta, and Century Downs Racetrack and Casino in Calgary, Alberta.
After fees, taxes, and other expenses, Century estimates it will net proceeds of $114.6 million via the transaction, which is slated to close in the back half of this year.
Simultaneous with the closing of the transaction, the Century Canadian Portfolio will be added to the existing triple-net master lease agreement between subsidiaries of VICI and subsidiaries and annual rent will increase by $12.8 million, representing an implied acquisition capitalization rate of 7.8%,” according to a statement issued by the casino operator.
The initial lease terms will be 15 years with four 5-year renewal options.
Century, VICI Extend Relationship
Century and VICI, the largest casino REIT, have long-running ties. Last August, the two companies partnered to acquire the Rocky Gap Casino Resort in Flinstone, Md., from Golden Entertainment (NASDAQ: GDEN) for $260 million in cash. Century bought the operating rights while VICI purchased the real estate.
Additionally, VICI also provided financing to Century so that the operator could refurbish a pair of gaming venues in Missouri. VICI also owns the real estate of the Century-operated Mountaineer Casino, Racetrack, and Resort in New Cumberland, W. Va.
Century has been somewhat active in efforts to wring value from its Canadian properties. The company sold the real estate of its namesake venue in Calgary in January 2022 for $6.5 million. Analysts see benefits for both parties in the transaction announced today.
“Overall, we view this deal and subsequent capital injection as incrementally positive for CNTY as we do not believe the company was getting proper whole-co value for its Canadian properties with the stock currently trading sub 5x our 2024E EBITDAR projection,” wrote Macquarie analyst Chad Beynon in a note to clients. “For VICI, the transaction highlights the company’s desire and ability to seek and execute on international deals, with this transaction representing its third international investment.”
Century’s Uses for Proceeds
While $114.6 million represents a significant percentage of Century’s market capitalization of $205.67 million, and the company has an acquisitive history, it appears to have other plans for the proceeds it’s gaining from the Canadian real estate sale.
Namely, the operator intends to use a portion of that capital to pare debt and possibly return cash to investors via stock buybacks and/or a special dividend. Some of the proceeds may be directed to enhancing the Nugget Sparks, Century’s only casino-hotel in Nevada.
Macquarie’s Beynon rates the stock “outperform” with a $12 price target, implying significant upside from the May 16 close at $6.64.