The zero cash flowing Admiral President (AP) casino is worth not much more than a bag of rocks as far as Wall Street is concerned. A Chain of Rocks President Casino, however, is a whole different matter. PNK management is contemplating moving the AP 8 miles north, but still within city limits, near the Chain of Rocks Bridge spanning the Mississippi River. I can hear it now, "Why is this guy talking about the smallest property in PNK's portfolio?" I've got 25 million reasons why. That's $25m in potential incremental EBITDA which equates to over $2 in equity value after assuming a $50m investment. Not bad for an option that falls way below Wall Street's radar screen.
Since opening Lumiere Place (LP), PNK has operated the AP at a loss in downtown St. Louis. The company maintains 3 options on this:
Close it down - $6-14m accretive to EBITDA
Convert to the Chain of Rocks - $6-25m accretive to EBITDA
The biggest delta here is the impact on Lumiere Place. AP run rates around $35m in annual gaming revenues and is a stone's throw from LP. Will LP get 1/3, 1/2, 2/3 of that business? Your guess is as good as mine but each scenario moves the needle. There is little question in our minds that with a $50m investment for renovations and a pavilion, Chain of Rocks should pull in at least $4m in monthly revenues, up from the current $3m at the downtown location.
What's the hold up? Come on folks, this is the gaming industry. Doing anything in the world of gaming is like issuing a sell side (non-Research Edge) research report. One needs multiple levels of regulatory approvals. In this case, PNK is seeking evaluation and approval from the Missouri Gaming Commission and the City of St. Louis. We don't anticipate material issues with obtaining these approvals although timing is never certain.