After announcing restructuring in December, Caesars Entertainment (NASDAQ:CZR) has followed through on its plans to sell portions of its property empire to raise cash and pay debt obligations. The company's largest operating segment, Caesars Entertainment Operating Co., or CEOC, is also filing for bankruptcy, while the parent company is merging with subsidiary Caesars Acquisition Co. (NASDAQ:CACQ).
While the company has struggled to pay its crushing debt obligations, Caesars owns a significant number of physical assets that could be sold to raise funds. So with the restructuring under way, and with the sell-off and bankruptcy helping to correct the company's past debt errors, does Caesars look like a good investment bet?
Horseshoes for sale: The sell-off begins
On Feb. 26, Caesars announced it had sold its 20% interest in three properties in Ohio: the Horseshoe Cleveland, the Horseshoe Cincinnati, and the ThistleDown Racino. The buyer was Rock Gaming, owner of other casino properties in Ohio, and whose chairman, Dan Gilbert, is majority owner of the NBA's Cleveland Cavaliers.
The sale also includes partial ownership in the Ritz-Carlton and Higbee's department store building in Ohio, and a controlling interest in Turfway Park racing track in Kentucky. The properties were sold for an undisclosed amount, and Caesars for the time being will continue to manage the casino properties now owned by Rock Gaming.
This is Caesars' first major sale since the company announced its restructuring plan. While this sale is not part of the "pre-packaged plan" for CEOC's bankruptcy (which investors can learn more about at this Caesars' informational website), the deal is in line with with the company's goal of getting lean and raising more cash to lower debt and improve operations. This is a good move that should please investors by showing the company is making headway in turnaround effort. Best of all, Caesars has many more such selling opportunities.
Caesars' empire is a selling opportunity
While its market cap pales in comparison to those MGM Resorts International and Las Vegas Sands, Caesars remains one of the largest gaming employers in the world, with more than 50 properties across the planet.
The company has a few properties in the United Kingdom and Egypt, but its properties are mainly in the United States, with a giant presence in Las Vegas. Caesars has the second-most number of rooms offered in Sin City -- its 22,000 rooms fall behind MGM Resorts' but surpass Wynn Resorts' by about five times.
While the company built these empire properties, it also accumulated a massive debt load of over $20 billion before this round of restructuring -- by far the highest in the industry. Those properties could be key to lowering Caesars' debt obligation.
Is a new, leaner Caesars a potential bet?
Over the last few years, Caesars' domestic income, crushing debt expenses, and failed attempts at international expansion led to its current need for restructuring and bankruptcy. As of December, the company was within a month or two of failing to meet its debt obligations.
But as Caesars continues selling noncore properties like those in Ohio, especially properties not listed in the bankruptcy package already accounted for in the restructuring effort, the company looks like a better bet as a leaner operation with more cash, less debt, and more direction going forward.
If restructuring goes as planned, the company's debt should be halved, dropping its annual debt expense from about $1.7 billion to just $450 million. Some noncore properties would be gone, and there will be a new CEO, with former Hertz CEO Mark Frissora set to replace Gary Loveman on July 1. In this context, Caesars' stock, down nearly 60% from one year ago, could be an interesting bet as a comeback story in the years to come.
However, it's still a very risky gamble. For Caesars to turn around and post profits again, having less debt and a leaner property portfolio will not be enough. To become a good long-term investment, the company must also start competing much better in the U.S., which will be challenging against entrenched companies such as MGM Resorts. Also helpful would be achieving more international diversification, especially in Asia.
While this recent sell-off at least inspires confidence that the restructuring is on the right track, this stock still looks like one for the watchlist until there is proof that the next profit-generating steps are under way.