Churchill Downs Expects to Sell Regional Casinos Individually

Churchill Downs (NASDAQ: CHDN) announced that it will sell nine regional casinos with subsequent commentary from the company indicating transactions could occur one-by-one or in small clusters, not in one fell swoop.

When it delivered second-quarter results on Wednesday, July 29, the Kentucky-based gaming company confirmed it’s aiming to unload the following nine gaming venues: Calder Casino in Florida, Terre Haute Casino in Indiana, Hard Rock Casino in Iowa, Oxford Casino in Maine, Ocean Downs in Maryland, Harlow’s and Riverwalk Casinos in Mississippi, del Lago in New York and Presque Isle in Pennsylvania. On a Thursday, July 30 conference call, CEO Bill Carstanjen told analysts the divestments are likely to occur in piecemeal fashion.

He did not provide a timeline for the asset sales nor did he mention possible sale prices or potential suitors.

Churchill Downs Investors Somewhat Frustrated

The stock is recouping some of the losses today, but Churchill Downs sold-off yesterday due in part to investors expressing disappointment with the one-by-one sale process revealed by the company.

Stifel analyst Jeffrey Stantial notes the company’s announcement was “read negatively with regards to buyer interest and timeline,” but he also points out there’s a brighter side to the story that got lost in the initial knee-jerk reaction.

Carstanjen said proceeds from the sales will be used to reduce leverage, “reinvest selectively in Churchill Downs Racetrack and in other high-return projects” and repurchase stock. Investments at the operator’s namesake Kentucky racecourse include improving amenities and adding new seating to increase attendance at the Kentucky Derby – one of the plum assets in the North American sports universe.

Churchill Downs Not Looking for Complex Deals

One thing is clear: When it comes to selling a one or a few of its regional casinos, Churchill Downs is selling everything associated with those properties. It’s not interested in sale-leasebacks and the operating company/property company (OpCo/PropCo) structure that is prevalent in the gaming industry.

In response to a question from Wells Fargo analyst Raymond Bowers, Carstanjen said prospective buyers of Churchill’s regional casinos can go down the OpCo/PropCo road should they choose, but it’s not one Churchill will travel.

“There might be other buyers that will participate in a variety of different ways, including OpCo/PropCo structures for some of them,” said Carstanjen on the call. “We encourage whatever makes sense for potential buyers. But for us, we’ve announced the sale of these assets, and that’s what the team has been tasked with working on. And there aren’t any nuances around it like just selling the real estate. We’re not interested in doing that.”