Century Casinos (NASDAQ: CNTY) is likely to update Nugget Sparks when it takes over operations at the Reno-area casino hotel, but a massive, costly renovation may not be in the cards.
That could be a relief to analysts and investors who are keeping watchful eyes on gaming companies’ capital spending plans in a sluggish economic environment marred by high interest rates and tightening lending standards.
With the Nugget, we are purchasing an existing operation with a long operating history,” said Century co-CEO Peter Hoetzinger on the company’s third-quarter earnings conference call last week. “We do not expect any extraordinary replacement (capital expenditures) for the first year.”
The Colorado-based gaming company announced the $195 million acquisition of Sparks Nugget in February – a deal including a 50% stake in the real estate entity that owns the venue. That part of the transaction was completed in April and Century is expected to finalize the purchase of the venue’s operating rights in 2023.
Century Keeping Costs Low in Reno is Good News
With the purchase of Nugget Sparks, Century enters Nevada for the first time, and the operator is likely to make that venue the flagship in its portfolio.
The buyer says the purchase of Nugget Sparks will be immediately accretive to earnings and will bolster free cash flow. Located just three miles from Reno-Tahoe International Airport, Nugget Sparks has two hotel towers and 110,000 square feet of convention space. Additionally, the Reno-Lake Tahoe area is benefiting from favorable demographics, including an influx of Californians and some large companies opening offices and plants in the region.
On the cost side, avoiding significant capital outlays at Nugget Sparks is advantageous for Century because the operator is in the midst of buying the Rocky Gap Casino Resort in Flinstone, Md., and is facing cost pressures elsewhere.
On the cost side, management did cite cost pressures (utilities, maintenance, other COGs), though largely manageable outside of Canada where it has proven relatively more difficult to pass inflation through to the consumer,” wrote Stifel analyst Jeffrey Stantial in a note to clients. “All-told we believe current pressures, both top line & margins, could persist, though we note our prior model already erred conservative for potential pullback in consumer spending.”
Stantial added budgets for enhancements at Century’s two Missouri gaming venues are ticking higher, indicating cost savings at Nugget Sparks are valuable.
Century Could Wring More Synergies from Nugget Sparks
Century has an established track record of acquiring smaller casinos that larger operators no longer wanted and wringing new efficiencies from those venues. It’s expected management will put that playbook to use at Nugget Sparks, leveraging operational prowess to bolster margins.
The property has 50,200 square feet of casino space, 859 slot machines, 29 table games, 1,382 hotel rooms, and seven dining venues.
It’s estimated Nugget Sparks generated $32.8 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) last year.
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