CLEVELAND -- Caesars Entertainment is "in the middle of a big expansion" and may sell more casinos in crowded markets to finance new properties in less competitive areas, company Chairman and CEO Gary Loveman said Thursday.
The company's new strategy was illustrated by Monday's announced sale of its Harrah's St. Louis property to Penn National Gaming for $610 million. The transaction came a week before the company opens Ohio's first casino, the $350 million Horseshoe Casino Cleveland.
In addition to Cleveland, the company is building the $550 million Project Linq on the Strip, a $400 million casino in Cincinnati, and is the leading bidder for casino developments in Baltimore and Boston.
"We need to go out and keep our balance sheet healthy despite all this growth," said Loveman, who spent part of the day visiting with the Horseshoe's 1,600 employees and handling media interviews ahead of Monday's opening.
He called Cleveland a "great underserved" casino market. The nearest casinos to the Horseshoe Cleveland are in Pittsburgh and Detroit. By next year, Ohio will have three casinos, including the Hollywood Casino Toledo, 100 miles west of Cleveland. Owned by Penn National, it opens May 29.
As for St. Louis, there are four casinos in the metro region, one owned by Ameristar Casinos, two owned by Pinnacle Entertainment and the Harrah's property.
"That market is very heavily developed. There is tremendous capacity," Loveman said. "So rather than be in a very heavily supplied and mature business like that, we can take that $610 million and redeploy to these high-growth emerging markets. I think that's a pretty good trade and that's what justified the deal."
Fitch Ratings Service gaming analyst Michael Paladino told investors earlier this week that the sale of Harrah's St. Louis improved Caesars liquidity. The company has almost $20 billion in long-term debt, but reinvestment would outweigh the loss of cash flow from the property, he said.
"It will allow Caesars to more aggressively reinvest capital into its existing properties or pursue higher-return investments," Paladino said. "Fitch believes reinvestment of proceeds in Caesars' business is the more likely scenario."
Loveman said the St. Louis deal fit two standards: the casino was in an over-saturated market and Penn was willing "to pay us a handsome price" for the property.
"There were other markets we might have considered, but the demand for those assets were not sufficient," Loveman said.
The Horseshoe Cleveland opening also marks another change in the Caesars business model. The company will manage the casino and owns 20 percent of the joint venture with Rock Gaming of Detroit holding the majority ownership stake. The partnership will have the same arrangement when the Horseshoe Cincinnati opens in 2013.
Caesars and Rock Gaming are also partners in the Baltimore casino bidding process. Meanwhile, Caesars has a partnership with the Suffolk Downs Racetrack in Boston on the gaming license bid in Massachusetts.
Caesars Entertainment had partners in previous deals in Joliet, Ill., and Philadelphia from when the company was known as Harrah's Entertainment.
Loveman said the format is similar to the manner in which hotel operating companies strike deals.
"Putting aside our status as a levered company, I think it's a very appealing model for companies assuming there is enough expansion to make it work," Loveman said. "If we were in a period where there weren't many new places to build, then it would be tough."
Opening the Horseshoe Casino Cleveland Monday gives Caesars a new gaming market and its 13th state in which the company runs a casino. Through the company's Total Rewards loyalty program, Caesars already has identified 80,000 potential customers for the Horseshoe who live within a 70-mile radius of the casino.
"We have a dominant American operation," Loveman said, "We are so much bigger than anyone in the United States. This gives us a big leg up Monday night and Tuesday night, when a tremendous amount of customers we know will be in the building."
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