The bad news: The Tax Court of New Jersey thinks that Borgata is worth 61% less than previously. The good news: who cares because that means Borgata is getting a property tax refund of an estimated $40-50 million for 2009/2010 and likely a similar amount for 2011/2012. Importantly, that could mean net EBITDA gains of $20-25 million annually beginning in 2013.
In our 9/13/13 note, “CATALYSTIC BYD”, we highlighted this ruling as a potential catalyst. However, we had estimated the refund at $40-50 million for 4 years, not 2. Assuming BYD wins on appeal, this catalyst is much bigger than even we had imagined.
So what is this worth to BYD? Assuming the $40-50 million is correct and doubling it to reflect 2011 and 2012, that alone increases the value of BYD’s stock by $0.23-0.29 or 2% (BYD owns half of Borgata). Going forward, the $20-25 million annual tax reduction at Borgata is worth another $0.83-1.03 in value to BYD’s stock price or 6-8%. If it holds up on appeal, the New Jersey tax situation could be an 8-10% catalyst to the value of Boyd Gaming stock.
Maybe the only certainty in life are death and taxes, but lower taxes means more life for this catalystic stock.