Twin River attracting investment community interest as casino acquisition market heats up Howard Stutz, CDC Gaming Reports · July 16, 2019 at 12:05 am Rhode Island-based Twin River Holdings has five casinos in its pipeline – as many properties as the company currently operates – and additional properties may be on the way. That potential tantalizes the investment community. “Twin River management has an M&A growth strategy to diversify beyond its Rhode Island origins,” SunTrust Bank gaming analyst Barry Jonas said in a research note last week, shortly after the announcement that Twin River had agreed to pay Eldorado Resorts $230 million for two regional casinos in Missouri and Mississippi. In January, Twin River said it was buying three small Colorado casinos from Affinity Gaming for an undisclosed total. Both the Eldorado and Affinity deals are expected to close in 2020. “Twin River is an underappreciated, catalyst-rich, regional small-to-midcap-gaming company with a solid balance sheet, strong free cash flow generation, and a proven track record of accretive M&A,” Union Gaming Group analyst John DeCree told investors in June when he initiated coverage of the company. “What makes Twin River unique is that it is still small enough where tuck-in M&A moves the needle but large enough to execute a headline transaction,” DeCree said. Twin River has been making gaming headlines for much of the past 15 months. The company operates two casinos in Rhode Island – Twin River and Tiverton – the Hard Rock Biloxi in Mississippi, and the Arapahoe Park horse racing track in Colorado. It went public on the New York Stock Exchange in March 2018 after acquiring Dover Downs Hotel, Casino and Raceway in Delaware and opened the Tiverton property last September. In the first quarter, the company grew revenues 15.1% and net income was up 39.3%. Shares of Twin River closed at $28.95 on Monday, down 2 cents or 0.07%. In Rhode Island, where the company’s casinos are governed under the state’s lottery regulators, Twin River is challenging a contract, pushed by the governor, that would require the state’s gaming floors to obtain 85 percent of their slot machines from International Game Technology. Through a spokeswoman, the company declined comment on its current growth activities. Twn River CEO George Papiner However, CEO George Papanier said in conjunction with May’s first quarter earnings that Twin River would “continue to grow our business and look for other opportunities to create long-term shareholder value.” Papanier said last week the company will continue to “develop or acquire assets which we believe will prove accretive to our earnings.” Union Gaming, SunTrust and Stifel have initiated coverage of Twin River in the past few months based on the company’s opportunity and potential for expansion. The announced $17.3 billion acquisition of Caesars Entertainment by Eldorado will require the sales of several regional casinos to avoid antitrust issues. The combined companies currently have 60 properties in 16 states. Last week’s deal may have just been the starting point. In April, Stifel’s Brad Boyer said Twin River’s management team and board have a “considerable deal-making pedigree,” which positions the company to “successfully source and execute accretive M&A transactions that complement its existing portfolio.” Papanier is a former executive with Peninsula Gaming, Resorts Atlantic City and Sun International. CFO Stephen Capp held the same position with Pinnacle Entertainment. In January, longtime Station Casinos executive Terrance Downey joined Twin Rivers’ board. “These guys are smart operators and they know how to put deals together,” Jonas said in an interview last week. However, he pointed out in a research note the company is somewhat hesitant to include a real estate investment trust in any transaction, saying the company would much rather own the buildings and land outright. “We believe Twin River would likely need to partner with a REIT for larger M&A,” Jonas said. Twin River officials cut the ribbon at the Tiverton opening New markets Twin River currently draws roughly 70 percent of its cash flow from its two Rhode Island casinos. Jonas said the acquisition of Isle of Capri Kansas City from Eldorado will diversify the company’s balance sheet and provide growth opportunity. The property is in a downtown area targeted by local officials for development. “We feel there is opportunity for capital investment in the property,” CEO Papanier said in a statement, “which we believe will have a transformative impact and integrate well with local development efforts in the area.” Boyer told investors Isle Kansas City currently lacks amenities offer by the competition, including Boyd Gaming’s Ameristar Kansas City and Harrah’s North Kansas City, which is currently run by Caesars. “We believe a refurbishment and modest modification of the facility could lead to meaningful market share shifts,” Boyer said. By comparison, the Colorado acquisition is small – estimated by analysts at between $20 million and $50 million. The three casinos – Golden Gates, Golden Gulch and Mardi Gras in Black Hawk – have a combined 36,000 square feet of gaming space, 20 table games, 700 slot machines, a poker parlor, three restaurants and a 700-space parking garage. Analysts estimate the casinos will contribute roughly $5 million to $6 million in annual cash flow. However, DeCree said Twin River would like to convince Colorado voters to expand electronic gambling to racetracks, which could boost results at the company’s Arapahoe Park racetrack outside Denver. Jonas said legal sports wagering in Colorado, which is on the November ballot, could also provide a visitation boost to the racetrack and the Black Hawk casinos. Twin River has sports books, overseen by William Hill US, at both its Rhode Island casinos, Dover Downs and Hard Rock Biloxi. Encore Boston Harbor headwinds The June 23rd opening of the $2.6 billion Encore Boston Harbor is the largest challenge facing the company. Encore is roughly a 90-minute drive from both Twin River and Tiverton. The two casinos also face competition in the saturated northeast from Plainridge Park in Massachusetts – a 30-minute drive from Twin River – and MGM Springfield and the two Indian casinos in Connecticut, Mohegan Sun and Foxwood, all of which are within a 90-minute-to-two-hour commute. Jonas said a “good rule of thumb for regional gaming” is that casinos will lose between 25 percent to 50 percent of customers with a shorter drive time to the new property. “Beyond some modest tables players from the Boston (area), Tiverton shouldn’t lose much business to Encore, as its core slot player base is from Rhode Island and Southeast Massachusetts,” Jonas said. “However Twin River has more player crossover with Encore and will likely see more material impact.” Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at email@example.com. Follow @howardstutz on Twitter.