Posted on: March 23, 2023, 01:51h.
Last updated on: March 23, 2023, 01:59h.
Amid an increasingly challenging macroeconomic environment, Tilman Fertitta is taking a pragmatic approach toward the development of the more than six acres of land he owns on the Las Vegas Strip.
Last year, Fertitta purchased 6.2 acres of land at Las Vegas Boulevard and Harmon Avenue for $270 million, stoking speculation he’d eventually have a long-coveted Strip casino hotel. Today, however, the billionaire is taking things slowly on the Strip. That’s the takeaway of Truist Securities analyst Barry Jonas, who was recently in Houston meeting with Fertitta and Feritta Entertainment CFO Rick Liem.
No firm start date has been set, and management is willing to wait for clarity on economic conditions,” wrote Jonas regarding the fate of the Strip land.
That jibes with recent comments from Feritta Entertainment, indicating the company is taking a wait-and-see approach to goings on in the broader economy and how that could affect the company’s Strip plans.
Last October, the Clark County Commission approved Fertitta’s plans to develop a new gaming venue across from MGM Resorts’ CityCenter. Some businesses that occupied buildings on the land have since been ushered out, while a few remain.
Inflation, Interest Rates Could Hamper Fertitta’s Strip Plans
Jonas pointed out that Fertitta Entertainment is in the planning stages for the potential Strip venue “with a detailed design and construction schedule.”
After that, the company would enter talks with builders and contractors in an effort to set a maximum price for the project. That’s where the issues of inflation and high interest rates could come into play. High inflation that’s lasted far longer than the Federal Reserve anticipated, coupled with bungled supply chain management during the COVID-19 crisis, stoked higher materials prices and created labor shortages that are factors driving elevated construction costs.
Speaking of the Fed, it raised interest rates Wednesday by 25 basis points, sending the funds rate to 5%. Noninvestment-grade borrowers, of which Fertitta Entertainment is likely one, would be subject to interest obligations well in excess of 5%.
That might be one reason that Jonas noted a Strip casino wasn’t mentioned in his meeting with Fertitta and Liem.
Fertitta Entertainment’s restaurant empire and its Golden Nugget casinos are garnering some benefits from inflation by way of older patrons getting a significant cost of living adjustment to their Social Security checks. The operator might not be vulnerable to that perk fading because waning inflation implies lower commodities costs.
“In a scenario where sales decline (not currently the case), management expects that lower operating cost inflation would significantly offset the impact on EBITDA (roughly speaking a $100M decline in sales would drive ~$25-30M lower EBITDA),” Jonas observed.
Tilman Doesn’t Talk Texas Casinos
The Truist analyst also noted Fertitta was surprisingly quiet on the issue of casinos in Texas. Several related bills are currently before the legislature there.
Jonas did point out that Fertitta doesn’t believe the potential emergence of tribal casinos in Texas would be problematic for the Golden Nugget in Lake Charles, La. That casino hotel enjoys the geographic benefit of being drivable from Houston.
That’s Texas’ most populous city, and closer to the Golden Nugget in Louisiana than where any tribal casinos in Texas would be, assuming those venues open.