Bolstering their financial standing, Golden Entertainment (NASDAQ: GDEN) announced its debut quarterly dividend after making dramatic strides in debt reduction. Preferring share buybacks to further expansion in Nevada, the casino operator has effectively laid out its strategy for returning capital to shareholders.
In the past month, the corporation which operates the unmistakable Strat in Las Vegas slashed its outstanding liabilities by investing $287 million in the redemption of senior notes. Left with a comfortable liquidity position of around $100 million in cash and access to a $240 million revolving credit facility, Golden Entertainment is not likely to chase acquisitions in their home state of Nevada.
Charles Protell, Golden CFO and President, elaborated on the company’s strategy during the first-quarter earnings conference call with analysts. “It’s tough to find opportunities to acquire owned real estate casinos in Nevada, which could actually be more value accretive than buying back our own stock,” Protell said. “That’s the route that we’re planning to take for the remainder of the year with our current repurchase authorization.”
Having been the subject of acquisition rumors following last year’s $260 million sale of the Rocky Gap Casino Resort in Flintstone, MD, Golden Entertainment has now positioned itself as a Nevada-only gaming company.
However, the company’s path is not without challenges. With inflations at historical highs and interest rates reaching levels not seen in 20 years, the gaming industry faces a pressured consolidation. Golden Entertainment acknowledges this reality, with Protell asserting that the macroeconomic climate certainly conditions their approach to M&A.
It is pertinent to note that should Golden need to finance an acquisition by taking on more debt, they would likely have higher interest rates. Furthermore, Golden’s inclination toward properties with owned real estate means they can avoid flagging up additional long-term liabilities.
This situation is not helped by the fact that most Las Vegas local casinos with owned real estate are run by Golden’s rivals, Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR), both of whom have shown no intentions of selling their Sin City properties.
Golden finds itself firmly rooted not only in Las Vegas but also in Pahrump, where it prevails as the primary operator. In Laughlin, it competes with Caesars Entertainment (NASDAQ: CZR) for dominance. While it may seem convenient to flex their reach into these markets, acquisitions here are not implied to be in the agenda. Moreover, Golden has not yet decided the fate of the Colorado Belle, its venue in Laughlin currently not in operation.
Although Golden does not operate any casinos in the Reno/Lake Tahoe market, analysis has suggested it would be a fitting market for Golden’s consideration. But for now, it’s not an area they have indicated interest in.
Given their observable trends, Golden’s strategy of shareholder yield is likely to be sustained by dividends, debt reduction, and stock buybacks, rather than ambitious acquisitions. This could also suggest that the attraction of their stock, even in the absence of any deal-making, remains robust.