PENN: NOTHING PLAIN ABOUT THE ROI AT PLAINRIDGE IN PLAINVILLE

Takeaway: Our visit to PENN’s new Plainridge casino has only enhanced our already high enthusiasm for its contribution to PENN’s equity value

CALL TO ACTION

Following Friday’s site visit to PENN’s new slot facility in Plainville, we’re raising our win per day per slot assumption to $500 from $400.  Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.

PLAINRIDGE CASINO

After raising the win per slot per day assumption from $400 to $500 going forward ($525 for Q3), our Plainridge EBITDA run rate forecast rises to $69 million.  PENN owns the real estate in Plainville so EBITDA=EBITDAR.

 

On Friday, we attended PENN’s analyst day at the Plainridge Casino in Massachusetts.  We struggled to find any negative takeaways.  The property opened very strong in late June, and the strength continued in July.  Here are some takeaways:

  • Parking is ample and the garage gives them an advantage over their nearest competitor, Twin River in Rhode Island.  Despite the porte cochere, 85% of visitors enter through the garage.  Day time patrons usually prefer garage parking in the summer but the bigger advantage could be in the winter months in a heated garage.
  • Highway access is terrific – right of I495 and very close to I93 and I95. This is a big advantage over Twin River.
  • Twin River’s advantages are table games (not allowed at Plainridge) and smoking
  • The biggest surprise to PENN management is the volume of day time visitation and the strength of high-end slots.  At casinos that are this busy, it’s difficult to grow the weekend segment which is already running at full capacity.  The day part activity is very encouraging.  Players are more experienced than anticipated which is driving the high end.
  • Video poker machines are generating huge win per day so PENN is increasing the number of these games.  The trend here is probably indicative of a lot of repeat customers.
  • Another surprise is the amount of visitors arriving from the Providence area – the breakdown is 35% from the Boston area, 35% from southeast MA, and 20% from Providence and 10% Other.  This could be evidence of a superior product over Twin River and the aforementioned advantages.
  • Food and beverage revenues have also been a nice surprise to the upside
  • 62k Plainridge customers were added to PENN’s database of 3m
  • Southeast MA gaming license - Brockton.  Only 1 applicant.  It appears that the state is waiting to see out federal action regarding tribal casinos.  The current Attorney General seems to be against awarding the Southeast license.  PENN management feels they have at least 3 years before there is any new competition from southeast or WYNN in Everett.

CONCLUSION

PENN has a done a nice job with the new casino (clean bathrooms and ample parking) and it’s showing in the early results.  We believe Street estimates for PENN will need to move higher as early as Q3 and certainly for 2016, due in part to the strength of Plainridge.  We’re now projecting $340 and $383 million in company EBITDA for 2015 and 2016.  Our EPS estimates are $0.66 and $1.10 for 2015 and 2016, respectively - 12% and 16% above the Street, respectively. 


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