Lodging stocks had a better week last week along with the market, but our lodging coverage is still down an average of 20% since the June 8th mini-peak versus the S&P 500 down 3%, as the “reopening trade” has stalled following rising COVID-19 cases. Timeshare stocks have been performing with broad lodging, and in this week’s piece we discuss several thoughts with charts highlighting why we think there should be more differentiation between timeshare and hotel stocks.
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Election day is now less than five months away, and we expect this topic to increasingly become a focus in the coming months. Former Vice President Joe Biden has proposed raising the U.S. corporate tax rate from 21% to 28%, while also increasing minimum tax rates on foreign based income. Last week our Accounting & Tax Policy team published a report discussing the potential impact. In this week’s piece we discuss the impact of the election to our coverage, and we specifically examine what higher taxes could mean to our group.
U. S. casino stocks are several multiples above the March lows, we think due to a much better-than-expected reopening process, a strong overall tape, and growing optimism on sports betting and iGaming. The last point will be the focus of this note. Sports betting and iGaming are starting to gain increasing investor attention, as shares of DKNG have been parabolic despite the suspension of sports, and it seems investors are beginning to account for benefits to the U.S. brick-and-mortar operators. But how much?
Earnings season is now largely over, and we come away with 15 developing themes. We discuss with charts for each theme. Please click here to view the full report.
Monday morning (5/11/20) PENN announced plans for a $250M common stock offering and a public offering of $250M convertible senior notes due 2026. PENN also granted the underwriters a 30-day option to purchase up to $37.5M of additional shares of common stock and to purchase up to $37.5M of additional convertible notes.
PENN reported 1Q results this morning. Adjusted EBITDAR was $252M versus the Consensus Metrix average of $315M, and our $291M. PENN missed us on margins, but the 1Q result is less important right now. The stock closed up 15% today we think because 1) the tape and the space were strong, 2) PENN’s comments on breakeven EBITDAR, and their comments on getting back to prior peak EBITDAR with less revenue seemed positive, and 3) when PENN speaks on Barstool the market seems to like it.
State governments have begun releasing plans to reopen many parts of the economy, though casinos are likely later on the reopening schedule. We think some U.S. casino properties within our coverage may begin to open late this month, with most opening in June and even July depending on initial progress, in our opinion, but there are still many unknowns. As casinos reopen, we expect they will operate significantly below prior capacity/volume for several months given social distancing measures as well as time for consumers to regain confidence. In this week’s piece we calculate how much revenue we think is needed to break even on cash flow for each operator – it varies depending on lease structures and leverage, but we think some operators can break even with around 60% of prior peak revenue while others may need around 80% of prior peak revenue.
Our view has been that timeshare businesses are better positioned in this crisis relative to other travel and consumer cyclical industries due to recurring revenue, significant liquidity, leisure over business travel, more drive travel, variable costs, and a generally healthier consumer demographic that we believe is also helped by the CARES Act. However, a concern we’ve heard from skeptical investors pertains to the loan portfolios and the potential for elevated default activity. In this week’s piece we examine those portfolios as well as historical write-offs, and our conclusion is timeshare is still better positioned, in our opinion.
In this week’s piece we discuss some considerations for medium to longer-term effects to our coverage from coronavirus once the infection rate peaks. We also discuss who we think wins and loses from these changes.
On Friday night PENN announced the sale of Tropicana Las Vegas and the land at the new Morgantown development to its REIT partner GLPI for $337.5M in rent credits. PENN also announced several cost cuts.
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