Alan Woinski's Monthly Syndicated Column
THE GAME CHANGER
12/14/2012
Syndicated Column by Alan Woinski
President Gaming USA Corp.
It has been a long time since I penned an
article for Casino Player and so much has changed in the casino
gaming world since then.
For gaming consumers, the increase in casinos means more
choices, less of a distance to travel, and more promotional
offers in the mail. For
investors in this industry, it has been the opposite as more
casinos mean more competition, lower returns on investment for
the owners and sluggish stock prices.
Regulators and politicians seem to think that they must
go to war, legalizing casinos and putting them on their borders
to protect the money from going to a casino in another state.
The result has been investors and analysts all putting
their bets on the large companies involved in casinos in Asia,
leaving the publicly traded companies in the US to just twiddle
their thumbs, hoping for a miracle.
That miracle may have occurred in
mid-November when Penn National Gaming (PENN) made the stunning
announcement they would divide the company up into what in
essence is a Gaming Real Estate Investment Trust and a
management company. The
technical term being used by the investment community is PropCo/OpCo
but to simplify it, we describe it as a REIT and a management
company. There are
REITs in all sorts of industries with the hotel space being the
most well known but while there has been a lot of discussions
about the possibilities of having gaming REITs, mostly when
discussing Las Vegas companies, no one had ever pulled the
trigger. For those who don�t know, a REIT is a vehicle which
owns assets and makes investments, sort of like a landlord and
private equity firm, and pays out 90% of its earnings to its
shareholders as dividends.
It is not uncommon for REITs to pay a 5% dividend yield,
quite attractive compared to money market funds but of course
they carry higher risk.
In the case of PENN, the reaction by Wall
Street was dramatic, sending the shares up 15 points or 40% the
day after the announcement.
The actual transaction, in which shareholders of PENN
will receive both companies plus a nice fat cash dividend, will
not take place until the middle of 2013 but the reaction in PENN
and the chatter about how other companies will benefit is the
real game changer for gaming stocks.
This transaction highlights all the
positive things about gaming stocks that investors have been
ignoring. Despite the industry being what I consider
�mature�, or to be kind, slow growth, the reality is most
well managed gaming companies generate a tremendous amount of
cash flow, have assets including real estate which are never
considered by investors and just need to show all this to Wall
Street.
During this holiday season we see investors
with visions of capital gains for some gaming companies they
have held way too long.
For every PENN success story, we know of people who have
been holding long time losing positions, hoping their companies
will have similar gains.
In our annual Gaming Sector�Yesterday, Today and
Tomorrow report we have on sale now (see ad), we highlight how
we expect 2013 to be a year where investors are more focused on
these recapitalizations and financial maneuvering activities
than actual growth and results, a good thing since the
competition and returns are going to get worse before they get
better. Despite
that, we do not think all companies will benefit and while it is
a lot of fun to speculate and dream, reality can be bad for your
wallet.
There is a very good chance that the PENN
transaction will result in a much higher �sum of the parts�
than what PENN�s average share price was in 2012.
There is also a good chance that a divided PENN is a good
thing for potential valuations of other regional casino
companies and even those on the Las Vegas Strip and Atlantic
City Boardwalk. You
see,
a divided PENN could buy or fund casinos, even refinance other
casinos� debt and improve operations for others with their
management team. This
could help PENN shareholders as well as the companies they get
involved with.
The problem with Wall Street is they always dream it will
happen to everyone and that is not the case.
Not every company can do something like PENN has, as they
don�t have the operations, the assets or the balance sheet.
Companies on the Las Vegas Strip could divide up into
separate hotel, convention and retail companies as well as
casino operators given analysts already judge them on things
like room rates and occupancy, not casino activity.
The companies involved in Macau, Singapore and the
Philippines are busy listing their individual Asian subsidiaries
on local exchanges. All
these things could make analyzing gaming stocks easier.
We started this off by saying how things
have changed since our last column here.
By now you may be dizzy from reading about these changes
but the reality is things may actually get easier for investors
if these things occur.
Unfortunately, it seems to us that in order for U.S.
based casino companies to improve their operations, it may
impact the bonanza the consumers have had in the past few years.
Is it a coincidence that this column has returned to
Casino Player in 2013, the year our report is calling for 2013
to be �a painful, transition year for the US casino market�?
We also believe the �volatile characteristic of gaming
stocks, combined with the ability to constantly reinvent itself,
are the most attractive reasons to invest in the group�.
The PENN deal was not just a Game Changer, it was a
wake-up call for investors that abandoned this sector to come
back for the new chapter.
To order your copy of The Gaming Sector�Yesterday, Today and Tomorrow
call 201-599-8484, or sign up from our subscription form online here.
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