PENN - Penn National Gaming

[cr6196]

PENN announced the spin-off of some real estate assets in late November. Stock has been grinding down for a while now so I have started to take a look. Details are here: http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001575965&owner=exclude&count=40

 

Any thoughts would be great.

 

[tytthus]

i took management's most recent pro-forma EBITDA and AFFO guidance and applying market comps from their presentations to the property REIT (GLPI) and operating company (PNG, i think?) and got a range of:

 

GLPI: $40.87-$47.50

PNG: $17.44

 

which give upside of 11% to 23.6% based on today's $52.50 PENN quote.  the comp numbers management provided were multi-year average comps, one could adjust as they wish.

 

i've bought below $50 and would want to see that again before making further purchases.  i'm also doing this in non-taxable accounts to avoid having to pay taxes on share dividends from GLPI.

 

i see the REIT as the more attractive entity.  management has a number of acquisition targets, and will be a first mover in casino property REITs.  unfortunately, they'll likely have to issue equity over the years to help with their plans.  the PENN founder is sticking with the REIT.

 

they think the casino operator will have many attractive acquisition targets in the regional gaming space.  but that area is really cut throat, i'll give them time, but also a short leash.

 

PENN has been a great performer over the years, and this is a good unlock of value for shareholders, IMO.

[cr6196]

i took management's most recent pro-forma EBITDA and AFFO guidance and applying market comps from their presentations to the property REIT (GLPI) and operating company (PNG, i think?) and got a range of:

 

GLPI: $40.87-$47.50

PNG: $17.44

 

which give upside of 11% to 23.6% based on today's $52.50 PENN quote.  the comp numbers management provided were multi-year average comps, one could adjust as they wish.

 

i've bought below $50 and would want to see that again before making further purchases.  i'm also doing this in non-taxable accounts to avoid having to pay taxes on share dividends from GLPI.

 

i see the REIT as the more attractive entity.  management has a number of acquisition targets, and will be a first mover in casino property REITs.  unfortunately, they'll likely have to issue equity over the years to help with their plans.  the PENN founder is sticking with the REIT.

 

they think the casino operator will have many attractive acquisition targets in the regional gaming space.  but that area is really cut throat, i'll give them time, but also a short leash.

 

PENN has been a great performer over the years, and this is a good unlock of value for shareholders, IMO.

 

Thanks, I have just been trying to run through the numbers but am familiar with neither of the areas. How did you reach $17.44 for PNG? Another issue I couldn't work out was the cash/stock dividend (e&p), is that factored into your valuation? I remember reading about it but can't work out if it is priced into management's numbers, or if it is GLPI that gets distributed?

[tytthus]

i got $17.44 for PNG through:

 

7.8 EV/fwd EBITDA average trading multiple for regional gaming over the previous 8 years

$351.4 m pro forma EBITDA given by mangagement

giving a $2741 m EV for PNG

take out $1220 debt (i might be working will old debt value -they think they'll run at ~3X leverage) gives a mcap of $1521 m

87.2 m shares after jumping through hoops with FIG

gives $17.44/sh

 

probably lots of false precision and these are definitely numbers that you can slop around with.  pro forma EBITDA has been steadily falling with each passing quarter and/or presentation.

 

i haven't completely wrapped my head around share distribution...over all ownership won't be dilluted, cash flow & AFFO will just be distributed over more shares...i think management numbers were all pre-distribution.  for now i'm thinking of it as a 1:1.29 split (or whatever the ratio is now).

[BG2008]

Anyone on this thread that really understands the regional gaming business?  I think there are other targets that would be very interesting to own pending Penn's early Nov spin off.  They have stated that they will start calling other casinos within 30 seconds of the spin off completion.

 

 

 

 

[tytthus]

GLPI announced its first acquisition earleir this week, starting its diversification from having PENN as sole tenant. it sounds like they are picking up a property from a private, employee owned casino owner/operator that has been under some stress. purchase price was $140 million with 15 yr lease at $14 million per year. 10% cap rate is pretty solid. they also issued a $47 million loan at 7% interest rate. the deal is expected to contribute $0.13/sh in AFFO, prior to purge of historical earnings to qualify as a REIT. the purge will include share and cash components, probably in early Q1-14.

 

http://finance.yahoo.com/news/gaming-leisure-properties-announces-acquisition-123000758.html

 

looks like the Casino Queen was purchased in an employee led buyout for $170 million in late 2012.  it operates in the highly competitive St Louis area.  their main casino was built in 2007, replacing a riverboat, for $92 million.  GLPI will assume ownership of the casino along with land, a hotel and RV park.  the article below claims they had ~$121 million in gaming revenue for the first 11 months of 2012.

 

http://www.stltoday.com/business/local/employee-owners-hope-to-reverse-casino-queen-s-fortunes/article_3211ad62-53a6-5a1a-a7cf-c51d1325df5e.html

 

shares of GLPI jumped about $2/sh the day of the announcement and continues to run today. this looks like it is progressing well....i've got to think there are more somewhat desperate owner/operators out there needing to unload RE.