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Takeaway: ASCA is ripe for a value-adding real estate spin-off or at least a re-value through a real estate/free cash flow lens.

Withdrawing from the MA bidding process probably has a deeper meaning. 

Following PENN's announcement that they were splitting the company into a REIT and operating company, we noted in our 12/03/12 post "RE-VALUING ASCA", that ASCA was the most likely candidate to follow suit.  ASCA's announcement that they had terminated its effort to obtain a MA casino license sends a signal that the company may indeed be following along the real estate path.  While there is now doubt that the regulatory environment and bidding process would likely eat into returns, we think there is a longer-term play at work here.  In an environment of declining ROIC for domestic casinos, bad demographics, and generational shifts away from slot gambling, there is significantly more value to be created under a real estate type structure.  We applaud ASCA's decision, one of many smart moves this underrated management team has made.  We believe a REIT spin-off will be yet another.

On Friday afternoon, ASCA announced it was ending its bid for a casino in western Massachusetts.  The company cited "the local selection process, various project requirements and associated costs"  for the decision.  These are all legitimate issues and ones from which not enough casino companies have walked away.  The truth is, with all the value ASCA can create with a REIT spin-off, the hurdle rate to pursue these types of development projects have gone up.  We continue to believe ASCA could be a double from here even without a near-term REIT transaction as investors re-value the company through the real estate lens and focus on free cash flow.