Churchill Downs (NASDAQ: CHDN) has revealed plans to divest nine regional casinos, with company representatives suggesting that the sales will likely take place individually or in smaller groups rather than all at once.
During its second-quarter earnings announcement on Wednesday, July 29, the Kentucky-based gaming firm confirmed its intention to unload nine gaming establishments: Calder Casino in Florida, Terre Haute Casino in Indiana, Hard Rock Casino in Iowa, Oxford Casino in Maine, Ocean Downs in Maryland, Harlow’s and Riverwalk Casinos in Mississippi, del Lago in New York, and Presque Isle in Pennsylvania. On a Thursday, July 30 conference call, CEO Bill Carstanjen informed analysts that these divestments are expected to happen gradually.
“Based on feedback from the market, we now believe that these properties will most likely be sold individually or in small groups to maximize shareholder value,” stated Carstanjen in his opening remarks during the call.
No timeline for the asset sales was provided, nor were any potential sale prices or interested buyers mentioned.
Investor Reactions to Churchill Downs’ Strategy
While the stock has recuperated some losses today, it experienced a downturn yesterday after investors expressed dissatisfaction with the decision to sell properties one at a time.
Stifel analyst Jeffrey Stantial indicated that the company’s announcement was “received negatively in terms of buyer interest and timelines,” but he also highlighted a more optimistic perspective that was overlooked in the initial reaction.
“We view it differently and believe management is being strategic with separate buyers to establish the best structure for maximizing overall profits after conducting initial price evaluations,” commented the analyst.
Carstanjen mentioned that the funds generated from these sales will be utilized to lower debt, “reinvest selectively in the Churchill Downs Racetrack and other high-yield projects,” and repurchase shares. Investments at the operator’s iconic Kentucky racetrack include enhancing amenities and adding new seating to attract more attendees for the Kentucky Derby, one of the premier events in North American sports.
Churchill Downs Avoids Complicated Deal Structures
It is evident that Churchill Downs intends to sell either one or a few regional casinos completely, without engaging in complex sale-leaseback arrangements or OpCo/PropCo structures that are common in the gaming industry.
In response to a query from Wells Fargo analyst Raymond Bowers, Carstanjen stated that while prospective buyers may pursue OpCo/PropCo structures if they wish, Churchill Downs will not entertain this route.
“There may be other buyers interested in various approaches, including OpCo/PropCo structures for some of the casinos,” noted Carstanjen during the call. “We support whatever makes sense for potential buyers. However, we are committed to selling these assets as announced, without any complexities like just selling the real estate. We are not interested in that model.”