Pinnacle Entertainment pulled its application to build a $650 million casino resort in Wyandotte County, Kansas. The company beat the deadline to retrieve its $25 million deposit back from the state, a wise move in our opinion. While its pipeline of potential new projects is deep, PNK is actually committed to two: South St. Louis County (fully financed) and Sugarcane Bay (almost financed).
The risk factors of committing to Kansas were numerous: a dismal consumer outlook, potential smoking ban, high construction costs, and the likely removal of the $500 loss limit in nearby Missouri, to name a few. Most importantly, cost and access to capital make this (and most) projects untenable from an IRR perspective. This is consistent with one of our major themes: cost of capital is going much higher. I shutter to think what type of interest rate PNK would have to pay lenders to compensate for a 3rd definitive development in the pipeline.
The risk factors of committing to Kansas were numerous: a dismal consumer outlook, potential smoking ban, high construction costs, and the likely removal of the $500 loss limit in nearby Missouri, to name a few. Most importantly, cost and access to capital make this (and most) projects untenable from an IRR perspective. This is consistent with one of our major themes: cost of capital is going much higher. I shutter to think what type of interest rate PNK would have to pay lenders to compensate for a 3rd definitive development in the pipeline.
