Revel is lining up $50 million in new financing at the same time Wall Street casino analysts are warning about the megaresort’s “underwhelming” performance and possible trouble ahead in making its debt payments.
A document released last week by the New Jersey Division of Gaming Enforcement said Revel secured $30 million in loans and credit in May from JPMorgan Chase & Co. and is seeking an additional $20 million from the Wall Street banking giant.
Revel spokeswoman Maureen Siman declined to comment on the financing package. Michael Garrity, the company’s chief investment officer, told the New Jersey Casino Control Commission in March, during Revel’s licensing hearing, that the $50 million would provide an extra financial cushion in the start-up months.
Revel, a $2.4 billion luxury complex, opened April 2. It posted just $13.4 million in gambling revenue during its first month of operation and $13.9 million in May. Those results placed it just eighth both months among Atlantic City’s 12 casinos.
Andrew Zarnett, a casino analyst for Deutsche Bank, characterized Revel’s results as “clearly underwhelming.” Moreover, he said, it appears Revel is simply cannibalizing business from the existing casinos instead of drawing new customers
to Atlantic City.
“We continue to believe the investment in Revel is not a game changer for this market,” Zarnett wrote in a research report earlier this month. “In our opinion, added competition from Revel has already eaten into existing operators’ revenues, and we expect more to come from a fully ramped-up Revel as we enter the busy summer months of June through September.”
Revel is the first new Atlantic City casino in nine years. It carries a huge $1.15 billion debt load consisting of an $850 million loan arranged by JPMorgan Chase and $304.4 million in notes. The $50 million in new financing sought from JPMorgan Chase will add to its debt.
Revel’s financing plan is aided by $261.3 million in state tax reimbursements over the next 20 years. Under the tax agreement, as much as $70 million can be pledged as coverage for payment of Revel’s notes. In turn, New Jersey could receive an amount equal to 20 percent of any cash dividend paid to Revel’s management stockholders, according to the Division of Gaming Enforcement.
John Kempf, a casino analyst for RBC Capital Markets, is questioning whether Revel will be able to make its debt payments. Kempf, in a note to investors on Friday, said that Revel apparently lost money in its first two months of operation and will need to stabilize its finances this summer to keep pace with its debt obligations later in the year.
“Revel will need to turn positive in July if it hopes to service debt in the weaker shoulder months of the Atlantic City market,” he wrote.
Kempf went on to say that Revel’s gambling revenues — particularly its winnings from slot machines — are well below expectations.
“Although there has been recent improvement of late, there is still much work needed to be done in this segment,” he wrote.
Revel struggled early on with technology problems that hurt its slot operations. Since then, the casino has been building up its customer database and offering promotional giveaways to attract more slot machine players.
In its publicity campaign, Revel has touted itself as a resort first and a casino second. It has been targeting conventions and overnight leisure customers to supplement its casino business.
Kempf said revenues generated by Revel’s nongambling operations — such as food and beverage sales and group bookings — have been a bright spot. He also said Revel has been getting “strong visitation” at its nongambling attractions.
Overall, Kempf wonders whether Revel is simply a victim of the Atlantic City market, now mired in a five-year revenue slump caused by the sluggish economy and competition from casinos in surrounding states.
“In some ways, Revel’s slow start on the gaming side should not be too surprising given the overall weak health of the Atlantic City market,” he wrote.
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