Banks Bet Big On Vegas
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Are big banks betting big on casinos? Actually, some big banks like Goldman Sachs (NYSE: GS) and Deutsche Bank (NYSE: DB) own casinos. Goldman Sachs owns the Stratosphere through its Whitehall Street Real Estate Funds affiliate. The Stratosphere is the tallest US observation tower and its adjacent hotel features an 80,000 sq. ft. casino. Goldman acquired the tower, along with three other properties for $1.3 billion in 2008, when it purchased American Casinos & Entertainment Properties from its previous owner, Carl Icahn.
Meanwhile, Deutsche Bank owns The Cosmopolitan of Las Vegas, after acquiring it in a foreclosure proceeding. Deutsche Bank still owns it and has hired their own management team to operate it for them, luring top casino and hospitality talent from competitors.
Untangling all these alliances and affiliates in Vegas is like trying to count cards in your head. If you understand mortgage-backed securities and other arcane derivatives you should do just fine. A few casinos are owned by private entities like Phil Ruffin (Treasure Island) and the Maloof family (The Palms), or by private investment groups like Colony Capital and Tamares Group. The overwhelming majority are owned by publicly traded companies, the biggest names being MGM and Las Vegas Sands (NYSE: LVS), followed by Wynn and Boyd. But big banks and mutual funds are getting a taste of the "action" with Vegas gaming stocks and they're betting big on a Vegas resurgence. Rather than owning property and dealing with gaming commissions, city and county zoning, security, hiring and all that goes into getting a casino up and running, most institutions like to keep a little"Sin City"stock in their back pocket.
Vegas Is Back, Baby!
At least that's the takeaway from Wynn Resorts' (NASDAQ: WYNN) beat on Q3 earnings that was just reported on Oct. 24. The big news was Wynn winning in Vegas, and not Macau. Expenditures on more attractions, restaurants, nightclubs and entertainment looks like it's paying off. Stripping out one-time debt-related and refinancing costs, Wynn earned $1.48 per share, beating expectations by 10%. Other good news for shareholders is they plan to double the size of the regular dividend and offer a $7.50 per share special dividend for shareholders of record on Nov. 7. This brings yield up considerably, but the shares rose 3.47% after hours so there's no accurate yield percentage--yet but it's at least over 3%.
Waddell & Reed Financial owns $1,705,723,214 worth of shares and mutual fund Ivy Asset Strategy Fund owns $1,510,378,518 worth of shares. CEO Stephen Wynn and wife own almost 20 million shares. The P/E was 22.00 before they reported.
Theoretically, this surprise Vegas comeback should bode well for Boyd Gaming (NYSE: BYD) when it reports on Nov. 1. However, their eight casinos in Vegas are not super high end names; their casinos are more local and mainstream oriented. I guess you could call it the vanilla Vegas experience. They also are wooing Hawaiians with their own travel bureau strictly for Hawaii-Las Vegas trips and quartering them at the California Hotel Casino, a Hawaiian themed property. But they also own seven other casinos, in New Orleans LA, Biloxi MS, Tunica, MS, Shreveport, LA, Atlantic City NJ and Michigan City, IN and a central Illinois location.
Boyd operates in four markets: Midwest and South, Las Vegas Locals, Downtown Las Vegas, and Atlantic City (their only really luxury property, the Borgata) and claim that no one division accounts for more than a third of the adjusted EBITDA--though adding the two Vegas divisions together makes up 36%. The company has a P/E ratio of 56.85. With their focus in Vegas being mostly to locals, and Vegas overall still smarting from the housing crisis, most analysts are expecting a loss.
Should you bet on the Goldman Sachs and the Deutsche Bank, or just take a stake in a Vegas stock? These banks' Vegas holdings aren't going to move the needle for them. I do like Goldman Sachs as a financial stock for a portfolio, however. All this just underscores that eventually the house always wins and everyone would rather own Vegas than owe Vegas. I think Wynn is looking pretty here and very shareholder-friendly, as is Las Vegas Sands. On the other hand, Boyd is a bet, not an investment. That said, you better ante up soon if you want the Wynn special dividend.
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