SALT 2016: Canyon Capital's Friedman Bullish on Las Vegas, MGM, Caesars

Canyon Capital Advisors' Joshua Friedman told a conference of hedge fund titans Wednesday at the annual SALT conference that he is bullish on Las Vegas, MGM Resorts (MGM) and Caesars Entertainment (CZR) . 

"If you look at three balance sheets of consumers, corporations and governments, the one guy who has improved his balance sheet is the consumer, and the one place people are spending a lot of money is here in Las Vegas," said Friedman.

Friedman is co-founder of Canyon Capital, which manages $20 billion in assets with about 90% of its portfolio currently in debt securities. He said U.S. consumers are coming on vacation to Las Vegas in increasing numbers at the same time that there has been virtually no new hotel rooms being added since 2008. "The rates are up, the gaming industry is up and traffic is up, earnings are up every quarter and year over year," he said.

Specifically, on the common stock side, Friedman said he is enthusiastic about MGM Resorts, which he argued had "killer" earnings last week that didn't move the needle on the casino operator's stock price. MGM Resorts is the owner of the Bellagio hotel in Las Vegas, where the SALT conference is taking place.

"There has been a lot of capital structure change going on at MGM Resorts and some of the strength of the underlying business in fact a lot of strength of the underlying business and thoughtful approach to capital structure has been lost," Friedman said. "They announced killer earnings last week and the stock didn't move a lot and that is one we like a lot."

MGM Resorts last month completed an IPO for MGM Growth Properties (MGP) , which raised $1.05 billion in its real estate investment trust debut -- the largest IPO of 2016 so far and the third-largest REIT IPO in recent history. The real estate company holds 10 of MGM Resorts properties and is being viewed by the activist hedge fund community as the wave of the future for real estate monetization deals. Unlike a standard REIT, the casino company will have more than a 70% stake in the new real estate firm as well as voting control of it, with the remainder being publicly traded.

For the period ended March 31, MGM Resorts earned 12 cents a share, beating Wall Street's forecasts of 11 cents a share, but that was down from 33 cents a share it earned in the same quarter last year.

In addition, Friedman said he had a very large debt position in Caesars Entertainment. "In this case we have investments designed to hedge us against particular outcomes but the backdrop is one where the industry is doing well and the company, Caesars is doing well, and they having changed the management team produces additional positives. It is a very discounted way of participating in that strength," he said.

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