Golden Entertainment is making strides towards privatization in light of issues concerning stock valuation and a lack of engagement from institutional investors. This initiative received approval from the Nevada Gaming Control Board on Wednesday, and will be reviewed by the Nevada Gaming Commission on April 23.

Chairman and CEO Blake Sartini emphasized that the company’s size and absence of substantial growth factors have diminished its visibility among institutional investors in the public domain.

“From the perspective of institutional investors, our company has become too small to draw interest from the public market,” Sartini explained. “Moreover, a lack of meaningful organic growth catalysts has further constrained investor engagement.”

Shareholders granted approval for the transition last week. The agreement is projected to be finalized in Q2 at $30 per share, increasing from $20 per share prior to the announcement.

Transaction built on real estate valuation

The deal encompasses the transfer of operating assets to Sartini and associated entities. The real estate related to seven casino properties in Nevada will be sold to VICI Properties via a sale-leaseback agreement, making VICI the landlord and real estate partner.

The properties involved include The STRAT Hotel, Casino & Tower on the Las Vegas Strip; Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas; Aquarius Hotel & Casino and Edgewater Casino Resorts in Laughlin; and the Nugget Hotel & Casino and Lakeside Hotel & Casino in Pahrump.

Golden Entertainment will maintain ownership of the Gold Town Casino land in Pahrump. The company operates 72 gaming taverns across Nevada.

CFO Charles Protell mentioned that the lease is set to last for 30 years with four five-year renewal options. Rent will be determined based on revenue and profitability from the properties.

Sartini stated that the management and board assessed options for acquisitions, mergers, and potential asset sales, but couldn’t find opportunities aligning with their financial criteria.

He pointed out that the company identified “an appealing embedded value” within its real estate assets. Leadership concluded that coupling a sale-leaseback arrangement with privatization offered a clearer path forward.

Reducing debt and ensuring operational continuity

Golden plans to lower its debt through this transaction. Protell noted that reduced interest expenses are expected to enhance cash flow.

The company employs around 5,000 individuals. Adjustments in personnel will be minimal and primarily linked to public company obligations, such as maintaining a board of directors.

The tavern operations are excluded from the VICI agreement. Golden aims to open one to two new taverns each year. Funding from VICI will aid the maintenance of casino properties.

Golden Entertainment went public in 2015 through a reverse merger. The company has grown through acquisitions, including those of American Casino assets, which brought The Stratosphere, two Arizona Charlie’s properties, and Aquarius Hotel & Casino into its portfolio.

Over time, share prices surged from the mid-single digits to a peak of $59. The company later sold its Maryland casino along with two slot routes to focus on casino and tavern operations in Southern Nevada.

Straying from quarterly projections

During the hearing, board member George Assad expressed concerns about dependency on a single large real estate owner in the Las Vegas market, hinting at potential monopoly issues.

“Once these contracts conclude, if they opt to raise the rent by 5%, 10%, or even 20%, it could put you in a precarious situation,” Assad noted. “I would prefer to see real estate transactions involving different companies to diversify these leases.”

Meanwhile, Board Chair Mike Dreitzer inquired about the reasoning behind exiting the public market.

Sartini responded that private ownership could facilitate a longer-term planning approach compared to the pressures of quarterly reporting cycles.

“In the public market, there’s often a quarterly report card, creating expectations with each passing quarter,” Sartini stated. “Meeting or failing to meet these expectations can significantly affect us. I’ve always prioritized a long-term view in our business strategy, making carefully measured financial and operational decisions to safeguard our workforce and shareholder interests.”

“Operating as a private entity will enable us to be more selective and patient. We believe that we have compelling prospects with VICI as our partner,” he concluded.