Tuesday, July 7, 2020

GCI Liberty: Stock-for-Stock Deal with Liberty Broadband

How can you be an event-driven investor and not own a couple positions in the Malone universe?  There are people with smarter takes than me on the Liberty complex and cable (Andrew Walker for one), but with the news coming out last week that GCI Liberty (GLIBA) and Liberty Broadband (LBRDA/K) are in talks to merge, it seems timely to take a look at the transaction and what Liberty Broadband might look like after the deal closes.  The talks are only preliminary and not final, but it's safe to say that a transaction is a near certainty to take place as it's long been thought a GLIBA/LBRDA combination which pools together Liberty's investment in Charter Communications (CHTR) would make an eventual consolidation with CHTR simpler.

Quick and incomplete origin stories:
  • GCI Liberty is the result of a 2018 deal between Liberty Interactive's Liberty Ventures (old LVNTA) tracking stock merging with General Communications ("GCI", old GNCMA), the largest provider of cable/telecom to Alaska, eliminating the tracking stock structure and creating an asset backed stock with GCI as an operating subsidiary.  As a result, GCI Liberty holds about 70% of its assets in LVNTA's historical investments in CHTR, one as the result of TimeWarner Cable's (TWC) merger with CHTR and then through an investment in Liberty Broadband which in turn funded the cash portion of the acquisition of TWC by CHTR.  GCI Liberty also contains a legacy home-run investment in Lending Tree (TREE), the financial services online marketplace.
  • Liberty Broadband also traces its roots similarly, it was a 2014 spinoff of Liberty Media (old LMCA) which held LMCA's stakes in CHTR and TWC, the TWC stake was then folded into CHTR as a result of the above mentioned CHTR/TWC deal, leaving Liberty Broadband as substantially just a pass-thru to CHTR (they have a tiny active trade business to keep the spin tax free).
Creating an NAV for both companies is a fairly straight-forward exercise (saying that, I probably made some mistakes - feel free to point them out - so do your own home work).
The main variable input for GLIBA is how you want to value GCI, the operating subsidiary, I've chosen to use a 9x multiple (essentially the multiple LVNTA paid for it) on TTM EBITDA.  It traded well below that prior to the acquisition, but with the eventual path being a CHTR acquisition, there's some synergies that could be added and thus it seems as fair of a multiple as any to me.  Then there's the exchangeable debt, much of GLIBA's direct Charter investment is pledged to exchangeable bonds that either directly reside on GLIBA's balance sheet or some legacy exchangeables that are at GLIBA's former sister tracker, Qurate Retail Group (QTREA), and GLIBA is responsible for the in-the-money exposure since all the CHTR shares moved over to GLIBA in the hard split.  An exchangeable bond is sort of like a convertible bond, but instead of having the option to convert into the issuers stock (would be GLIBA here as an example), the bondholder has the option to receive shares in another reference security (CHTR in this case, which is in the money at a $370 strike price, thus the liability increases as CHTR's stock continues to perform).  As a result, almost all of GLIBA's CHTR exposure is in LBRDK and featured a "double discount", as shown below, LBRDK trades at a discount to its investment in CHTR and GLIBA traded at a discount to its primary investment in LBRDK.
Liberty Broadband is simpler, as mentioned, it is essentially a pass-thru for CHTR that trades at a mid-teens discount to CHTR.

What might the proforma company look like?
The proposed exchange ratio is 0.58 shares of LBRDK (the non-voting LBRD shares) for every share of GLIBA (so GLIBA share holders go from Class A to Class C, not that it really matters), by combining the two, Liberty Broadband is effectively able to buyback the LBRDK shares GLIBA owns and share the benefit of closing that second layer of discount between the two shareholder groups in a stock-for-stock merger.  GCI Liberty shareholders naturally receive most of that benefit, GLIBA goes from having a ~$83 NAV per share to a ~$90 NAV per share (on the GLIBA sharecount), Liberty Broadband shareholders get a smaller benefit moving from ~$155 to ~$157.

Other thoughts:
  • Obviously I'm missing any analysis on CHTR, others have covered it in great detail, they're the second largest cable provider in the U.S., financially they utilize Malone's levered equity strategy: levered 4.5x and use FCF to buy back stock in order to maintain that leverage.
  • No thoughts on the ultimate timing of a CHTR takeout, but I sleep pretty well knowing that's the eventual path, Malone has a history of consolidating these investment HoldCo's back into the operating company (Direct TV and Expedia are good examples).  As a result of LBRDK's ~25% ownership stake, Liberty gets 3 seats on the board, appointed the current management team, seems likely that their influence will result in the closing of the discount in a tax efficient manner.
  • GLIBP is a big beneficiary to the combination, the preferred shareholders gain a whole lot more equity cushion below them and keep the elevated 7% dividend rate.
Disclosure: I own shares of GLIBA

Tuesday, June 30, 2020

Mid Year 2020 Portfolio Review

What an all around emotionally exhausting six months.  From an investing perspective, at one point my blog portfolio was down well over 50% for the year, erasing all gains from 2019 before rebounding with the market through most of the second quarter.  I try to be transparent because it's somewhat fun and keeps me accountable, I'm down -24.01% compared to the S&P being down -4.04% for the first half of the year.  My IRR since inception is 18.5%, a bit below my long-term stretch goal of compounding at 20%.  Big dollar value losers have been mostly long held positions in Liberty Latin America (LILA), Par Pacific (PARR), MMA Capital (MMAC), and Howard Hughes (HHC).
I continue to be optimistic about markets and that long term humanity will beat the virus (honestly not sure how you can operate, especially with kids, any other way while remaining sane) and that life will return to a somewhat changed, but recognizable normal. As you get older, time seems to pass quicker, look back on the events that happened only 3 years ago (i.e., for sports fans the Patriots comeback against the Falcons in Super Bowl 51 happened 3.5 years ago) and they feel like they happened recently, coronavirus is here with us now and the world "normalizing" in 2022 seems far away, but it really isn't if you take a step back.

In my day job, I help support a business that is a large service provider to leveraged credit asset managers -- March and April were pretty historic in terms of the quick downfall and then subsequent recovery in anything with significant credit risk. A couple brief observations: 1) during the financial crisis of 2008-2009, the root cause of the problem was in the financial system, in data points I'm seeing, I don't believe that to be the case today and once the medical side of the equation works itself out, we should see a more robust and accelerated recovery.  There are a lot of long form reporting pieces about risks to the banking system, but I just don't see it, could be wrong, but it feels like click bait and creating parallels to the GFC that just aren't there; 2) There's plenty of new activity/fund formation in credit markets, in 2008 (well really in the summer of 2007) all securitization activity ground to a complete halt and was essentially zero until late 2010.  Today, there is less activity but still plenty going on in credit markets.  Capital is available to borrowers in a position to survive, defaults will pick up from here but most of the bankruptcies to date are either in credits that were already in distress or the riskiest of hospitality, like Cirque du Soleil. Same as everyone else I'm fascinated with the speculative trading activity around bankrupt or near-bankrupt equities, but the process still seems to be working to me, although with strange speculative bouts, but companies that generally shouldn't being saved, aren't being saved.  Either way, I get it, it's fun to be snarky.  But if credit is flowing to the high yield and leverage loan markets (yes, I know, Fed intervention), my sense is we make it to the other side of this mess.

  • I blew out of most of my merger arb and other similar ideas early on during the downturn, contributing in my small tiny way to spreads widening across many deals; a particularly painful one was Asta Funding (ASFI), I sold at $9.76 when they had a go-private offer for $10.75, that offer has since been increased twice and now stands at $13.10.
  • Everyone is dealing with disruptions, I'm stuck working from home in my basement on a folding table, my research process is a mess and it's also hard to research stocks with so much volatility, once I feel like I know the basics, the situation might have changed.  I try not to let the blog influence my investment activity (i.e., buy things because they'd make for an interesting post) but its still in the background a bit, so while I want to post more, apologies if I'm a little more sporadic through this crisis.
  • I sold options for the first time in a long time recently, none currently outstanding, but with a few positions in my mind (could be totally wrong) the value of the underlying assets/business is much else volatile than the stock price, good examples would be GLPI which is essentially mezz debt of PENN (PENN can raise capital whenever it wants as long as Dave Portnoy is pumping the stock to his loyal followers) or something with scarce trophy assets like MSGS.
  • Speaking of GLPI, I initially didn't own a position when I wrote it up in April, but it is now one of my higher conviction ideas.  Unlike the other gaming REITs which have a significant portion of their assets in Las Vegas, GLPI is focused on the regional casinos, has adequate diversification among geographies as Covid heats up in less expected locations, PENN has already raised equity on top of transferring ownership of the Tropicana to GLPI.  The NFL seems pretty committed to having a full season one way or another this year and the Barstool sports betting app is still set to launch in August ("DDTG" is likely one giant marketing campaign for their app launch), I have a hard time seeing how PENN doesn't restart making full cash rent payments in September.
  • I get asked about Howard Hughes a lot as I've been a long time bull, I did add considerably after the equity raise -- at first I was a little disappointed, the story has always been that the company is able to self finance itself, all development projects are fully funded with committed financing, etc., Ackman likely took advantage of his hedge windfall and quickly deployed it in HHC the only way he reasonably could, through a secondary.  While the business remains challenged given their markets are particularly hard hit by Covid, I also think they continue to have long term appeal and the crisis might be a catalyst for restarting the home-building sector.  For the next year or two, HHC is likely more of a land play than a commercial real estate developer, but with the Ackman equity raise, the worst case scenarios are likely off the table for now.
  • Most of my other positions are fairly well covered in previous posts, feel free to ask any questions in the comments and I'll try to answer them as best I can.  However, generally in a sit on my hands mode for the moment.
Current Portfolio:

For those doing the math, I did add some cash to the portfolio in March, I'm doing a money-weighted return for my performance metric which should be reasonable as I've never withdrawn from the account, only added, IRR and CAGR should be pretty close.  Another caveat, average cost is today's average cost, I had some losses earlier in the year, typically if you sell a portion of a position you want to sell the higher cost basis shares but thus far I've been selling the lower to soak up taxable losses.

As always, on the lookout for new ideas, feel free to reach out and try to enjoy your holiday weekend as best you can and stay safe.

Disclosure: Table above is my blog/hobby portfolio, I don't management outside money, its a taxable account, and only a portion of my overall assets.  The use of margin debt, options, concentration doesn't fully represent my risk tolerance.

Wednesday, April 22, 2020

Ladder Capital: Internally Managed mREIT, No CRE CLO Debt

In the previous post I sung the praises of the use of non-recourse secured debt for Colony Capital (CLNY), here I'm going to do the same but for the use of unsecured/non-CLO debt at Ladder Capital (LADR), a commercial credit/mortgage REIT with an $830MM market cap.  Ladder has been punished alongside their commercial mREIT peers and currently trades at approximately 50% of 12/31 book value (which will almost certainly will come down), the recovery won't be overnight, but Ladder is well positioned to survive the corona crisis and provides a safer (not safe) way to play the rebound in the mortgage REITs for the following reasons:
  1. Ladder is an internally managed REIT with significant insider ownership and management seems to run the company as owners versus as a fee revenue stream.
  2. Senior secured portfolio -- in particular their CMBS portfolio is predominantly AAA (which the Fed recently announced is eligible for TALF financing) versus many of their peers who play in the BBB to B space and have had trouble with margin calls.
  3. Unsecured and term repurchase financing gives Ladder the opportunity to work with their borrowers on modifications without getting cash flows shut off like they would in a CRE CLO or face margin calls as they would in short term repo.
Quick overview of Ladder Capital, they were founded shortly following the last market crisis in 2009 (and listed in 2014) by the former UBS real estate team, that team is still largely together today and as a group own 11% of the company.  Ladder primarily plays in four areas of CRE finance: 1) transitional whole loans held for investment; 2) stabilized whole loans to be sold into CMBS (hopefully recognizing a gain on sale); 3) CMBS held for investment; 4) single tenant net lease properties; and then they do have a small sleeve of other operational properties partially the result of any foreclosures on the whole loan portfolio.  They portray themselves as having a strong credit culture and that seems to have played out in the last several years, prior to the coronavirus crisis, they've only had one realized loss on a loan, and unlike other mortgage REITs they don't have any legacy issues or at least don't play the trick of segmenting a core and legacy portfolio when things don't go as planned.

Roughly half of their assets fall into the first and second category, commercial real estate loans that Ladder originates themselves either on transitional properties (meaning a developer is re-positioning the property in some way) for their own balance sheet or on stabilized properties which Ladder will originate to distribute via the CMBS market.  Many if not most of the transitional variety will require some kind of forbearance or modification, construction crews may or might not be working, and certainly any up leasing activity or the time to rent stabilization where the property could be refinanced with longer term financing is pushed out.  The CMBS conduit market is already showing early signs of thawing, and on their Q4 call, Ladder mentioned having a fairly small amount of loans "trapped" in their warehouse awaiting to be sold into the CMBS market.  Here's their slide on their loan portfolio as of January:
As you can see, about 25% of the portfolio is exposed to the highest risk retail and hospitality sectors.  Given their middle market lean, the hospitality portfolio tends to be more weighted towards self service than convention hotels or resort destinations that may take longer to recover.  I tend to think most of these mortgage REITs have similar assets, capital is a bit of a commodity, but possibly Ladder is more conservative than some others.

The right side of the balance sheet is where I think Ladder is more interesting than others -- many commercial mREITs finance their transitional loan portfolios through CRE collateralized loan obligations ("CRE CLOs") where the loans are pledged to an off balance sheet SPV which then issues notes to fund the SPV's purchase of the loans.  The notes will be issued in various tranches depending on investor risk tolerance with the sponsor (the mREIT) of the CLO retaining the junior bonds and equity.  If the underlying collateral doesn't perform, there are asset coverage tests in place to divert cash flows from the junior note holders to pay the senior note holders and protect their position in the transaction.  In the years following the financial crisis, the asset coverage test thresholds are paper thin to the point where one or two modified loans in the portfolio will trip the diversion of cash flows away from the mREIT to pay down the senior note holders.  In practice, what often happens is if one of the underlying loans is in default or requires modification, the mREIT will purchase the loan from the CLO at face value and work it out off to the side as to not jeopardize their cash flow lower down the payment waterfall.  However, in the current environment where there will be many defaulted or modified loans, it might be difficult or just not possible due to margin calls elsewhere in an mREIT's balance sheet to purchase the non-performing loans from the CLO and thus shutting off cash flows.

Ladder had previously issued two CRE CLOs but wound those vehicles up in October and is currently out of that market.  Instead, Ladders funds its loans through a combination of unsecured bonds where they are a BB credit and through term repurchase facilities.  In their term repurchase facilities, they've always stressed in their filings that they've always kept a cushion available to allow them to meet margin calls in a cashless manner.  Neither have the feature of a CLO where cash flow of the underlying assets is completely shut off and may allow Ladder some breathing room in working through modifications with borrowers.  Here's from p74 of the 10-K, they've received margin calls and met them thus far (at least what's been disclosed), many mREITs tout their total available credit capacity but I think that's less meaningful than the borrowing capacity on their currently pledged assets.
Committed Loan Facilities
We are parties to multiple committed loan repurchase agreement facilities, totaling $1.8 billion of credit capacity. As of December 31, 2019, the Company had $702.3 million of borrowings outstanding, with an additional $1.0 billion of committed financing available. Assets pledged as collateral under these facilities are generally limited to first mortgage whole mortgage loans, mezzanine loans and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios.
We have the option to extend some of our existing facilities subject to a number of customary conditions. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, and, if the estimated market value of the included collateral declines, the lenders have the right to require additional collateral or a full and/or partial repayment of the facilities (margin call), sufficient to rebalance the facilities. Typically, the lender establishes a maximum percentage of the collateral asset’s market value that can be borrowed. We often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.
Committed Securities Repurchase Facility
We are a party to a term master repurchase agreement with a major U.S. banking institution for CMBS, totaling $400.0 million of credit capacity. As we do in the case of borrowings under committed loan facilities, we often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis. As of December 31, 2019, the Company had $42.8 million borrowings outstanding, with an additional $357.2 million of committed financing available.
Uncommitted Securities Repurchase Facilities
We are party to multiple master repurchase agreements with several counterparties to finance our investments in CMBS and U.S. Agency Securities. The securities that served as collateral for these borrowings are highly liquid and marketable assets that are typically of relatively short duration. As we do in the case of other secured borrowings, we often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.
The other issue many mREITs are having is with their CMBS portfolios, mREITs like XAN or CLNC tend to buy CMBS in the BBB-B rating range or simply unrated, Ladder is predominately in the AAA and AA rated tranches of CMBS and as a result have significant credit enhancement via subordination.  While the pricing of AAA CMBS did drop, the Fed recently announced an expansion of the TALF program in which they'll provide financing on AAA CMBS issued prior to 3/23/2020.  In a bit of a departure from the other assets classes they're willing to finance, CMBS will only be legacy versus only new issuance.  I take this two different ways, 1) the Fed wants to stabilize CMBS prices today; 2) they're not concerned with needing to provide support for new issuance to resume like they are in other ABS markets.  Both are good for Ladder as a CMBS investor and as a loan originator to the CMBS market and it seems to be having its intended result, take the iShares CMBS ETF for example (tracks investment grade CMBS), it has recovered its losses and is up on the year.

Since I started drafting this post, Ladder put out an additional "business update" press release that is becoming all to regular for public companies these days.  In it they outline how they have $600MM of cash after some maturities on their loan portfolio plus they sold assets at 96 cents on the dollar and they have $2.3B of unencumbered assets.  Should be sufficient to get them through the crisis?  The dividend is roughly 20% at $1.34/year, that'll almost certainly get cut/suspended and could provide an attractive opportunity if any remaining yield pigs remain holders.  I like the management here and think we will see most if not all CRE CLOs fail their coverage tests (might be more opportunities once that happens), my sense is Ladder should trade for somewhere in the 75-80% of 12/31 book value range, no science behind it, but I see little risk that they'll be forced to liquidate at fire sale prices or have their cash flows shut off due to asset coverage test failures.

Disclosure: I own shares of LADR

Friday, April 10, 2020

Colony Capital: Preferred Stock, Non-Recourse Debt, Complex Mix of Assets

Colony Capital (CLNY) is a real estate private equity manager and real estate investment company that today fashions itself as a leader in the digital infrastructure sector.  However, it's mostly a complex mess of assets that have been left behind as the company has pivoted strategic directions several times, only to reclassify the old businesses as "legacy" hoping investors forget about them.  But the complexity and random assortment of assets might be beneficial to company today as its not reliant on one asset type (i.e., agency mortgages) or one funding source (i.e., repo agreements) that could subject the company to repeated margin calls and put them out of business completely.  The common stock might be worthwhile as a call option, but due to that complexity, I have a hard time valuing it in any credible way I'm willing to share, instead, the preferred stock seems cheap based on the unencumbered assets and is unlikely to be impaired through this crisis.

CLNY is the creation of Tom Barrack, he's a long time real estate investor and close friend of Donald Trump who is known for speaking at the 2016 Republican National Convention and more recently writing a blog post asking for a bailout of the commercial mortgage market.  Commercial mortgage REITs have recovered quite a bit in the last week or so, but prior to that they were hit with margin calls as the value of their CMBS assets fell and started a chain reaction of forced selling creating more forced selling as prices dropped.  CLNY is not a mortgage REIT, but is the external manager for one in Colony Credit Real Estate (CLNC) and CLNY owns 36% of CLNC's equity, but CLNY and its preferred stock declined alongside the commercial mREITs anyway.

CLNY's current strategy is to "focus on building the leading digital real estate provider and funding source for the occupancy, infrastructure, equity and credit needs of the world's mobile communications and data-driven companies."  They started down this path last July by purchasing Digital Bridge Holdings, a private equity firm that managed six separately capitalized digit real estate companies and a $4B fund it co-raised with CLNY, Digital Colony Partners Fund (which recently acquired ZAYO).  Along with Digital Bridge came a new management team that is slated to take over CLNY on 7/1 and move Tom Barrack to Executive Chairman.  This might be the right strategy, the tower and data storage REITs all trade at rich valuations, if CLNY can fully pivot maybe they'll get some of the benefit of that premium, but most of the value here is in the legacy assets.

Let's start with CLNY's capital structure as of 12/31/19:
CLNY's Q4 Supplemental
CLNY has a fair amount of liquidity following the sale of their light industrial warehouse assets to Blackstone in December and the sale of their equity interest in RXR Realty in February, leaving them with $520MM in cash as of the end of February, plus their undrawn credit facility.  All but $931MM of debt is non-recourse, and then a portion of the non-recourse debt is third party that CLNY consolidates on their balance sheet.

Their main assets are majority interests in two large portfolios (essentially REITs in their own right), one in an assortment of healthcare assets (but mostly senior housing and skilled nursing) and the other in select-service and extended stay hotels with brands associated with either Hilton or Marriott.  Both asset sleeves refinanced their debt in 2019 and pushed out maturities to 2024 and 2026, I haven't spent much time on the covenants, but the debt is non-recourse and under a worst case scenario, CLNY could mail back the keys to the lenders.  In hospitality, I do tend to think extended stay is performing better than other segments (still long some STAY) as its more of a residential replacement than true travel and then select service might recover sooner than destination resorts or convention heavy locations.  But again, non-recourse, a blow up in either or both would be a scary headline but wouldn't take down the entire enterprise, for the below, just going to assume both portfolios are zeroes.

The remaining assets are an interesting grab bag, cynically, it seems like CLNY was used as a way for Tom Barrack to invest with friends or in vanity projects whether it made sense for a public REIT or not:

1) Investment Management Business
When CLNY (originally CLNS) was formed in the three way merger with NSAM and NRF, I figured CLNY wanted to be the next Brookfield Asset Management (BAM), they would mostly be an asset management company and then would have "YieldCos" they would manage and partially own.  They've sort of done that, just not executed as well.  But with the acquisition of the digital business, they have a considerable management company arm that is essentially unencumbered and generates approximately $160MM a year in base fee revenue.
They have started down the path of internalizing the management at CLNC which they'll likely receive additional shares as consideration once the commercial mortgage market settles down a bit.  If you put a 35% margin on $160MM and give it a 10x multiple (just a swag), that's a $560MM business plus the non-wholly owned management companies listed above.  One of which is an interesting venture with Sam Zell (partnering with friends, not sure it fits in a public REIT vehicle), Alpine Energy, that is investing in distressed oil and gas like California Resources (CRC).  As mentioned earlier, they also monetized their investment in RXR Realty for $179MM, which implies a similar valuation I'm placing on the four wholly owned segments.

2) Colony Credit Real Estate (CLNC)
CLNC is mostly a commercial mortgage REIT but does own some net lease properties and other assets, it's suffered like the rest of the sector, but has generally limited CMBS exposure at under 7% of assets, recently closed a CRE CLO which termed out much of its debt, and has been current thus far on any margin calls.  Interestingly, I've only seen margin calls on RMBS or CMBS and not whole loans, whole loans are likely harder to price or more negotiable, might be worth focusing on mREITs with more whole loan exposure than to securitized products.
At Thursday's ~$5 close, CLNC has a market cap of approximately $665MM, trading at about 30% of the last reported book value (likely coming down).  But a 36% ownership at today's depressed prices is still worth $240MM to CLNY, plus the management fee contract but we're including that in the investment management business above.  They do account for their stake in CLNC via the equity method, so its grossly overstated at the moment compared to CLNC's market value, meaning an accounting impairment is likely on the way.  CLNY's long term plan with CLNC is to sell their position down over time once it is trading more inline with book value.  CLNC is interesting in its own right and might deserve a separate post, but for the purposes of CLNY let's say it survives and leave it here.

2) Other equity and debt portfolio
Here's the grab bag of other assets that includes some directly held real estate (sometimes the result of a foreclosure), their $186MM investment in DataBank which is one of the six companies that Digital Bridge manages, a stake in Albertson's which might be one of the few large companies to conduct an IPO this year (can't think of a better year for a grocery store to come public again), and all their co-investments in institutional funds they manage.

This sleeve is valued at $1.8B on the balance sheet and CLNY pre-corona intended to monetize $300-$500MM of assets this year.  That'll likely change, but even putting a significant haircut on the assets, let's say they're worth 30% less in this environment, making the net equity worth ~$900MM, that's probably overly punitive as a lot of this is at cost in their financials, but the exercise is to see how much value is left for the preferred assuming an extended crisis.

This modified SOTP is too severe, but just illustrating that I think the preferred stock is still money-good versus a trading price in the $16-17 range.
At Thursday's close, you also have about $1.2B in CLNY market cap beneath the preferred shares.  There are plenty of investment opportunities with more juice but here you don't have to worry about how much of the portfolio has been liquidated due to repo margin calls.  The preferred stock (there are 4 series, generally the same, some more liquid than others) has about 50% upside to $25 plus any dividends collected along the way as we wait for things to normalize.

Disclosure: I own shares of CLNY Preferred Series G

Wednesday, April 1, 2020

Watchlist: GLPI and Penn National Gaming

There are a number of interesting situations and potential bargains out in the markets today, I typically don't write on companies where I don't own the shares, but for the next few months (however long we're all stuck at home) I might try to push out a few more posts on ideas where I've done some work on but don't own for one reason or another (limited cash), but want to be ready to take advantage of further declines.

One such situation is Gaming and Leisure Properties Inc (GLPI) which is the 2013 REIT spin of Penn National Gaming (PENN), PENN is now the largest operator of regional casinos in the United States and rents most of their properties from GLPI, they're still attached at the hip 7 years later.  GLPI was the first of the triple-net lease gaming REITs that now also includes VICI Properties (VICI) and MGM Growth Properties (MGP); GLPI owns the real estate of 40+ casinos and leases them back to casino operators who pay all the maintenance, taxes, insurance and other property level costs of the property.  The leases are typically structured as master leases and are functionally senior to the traditional debt as their physical casinos are critical to the operation of the business (although mobile will increase in share going forward).  In addition to the triple-net lease business, GLPI owns and operates two casinos due to tax rules at the time of the spin requiring an active business, one in Louisiana and the other in Maryland, both under PENN's Hollywood brand.  Their leases are primarily with PENN, around 80%, they did previously diversify by doing a PropCo/OpCo transaction with Pinnacle Entertainment (PNK) in 2016, but PENN ended up buying PNK in 2018 causing GLPI's tenant concentration to revert back.  GLPI also has Elderado (ERI) as a tenant from when GLPI paired with ERI in the acquisition of Tropicana Entertainment (TPCA), Boyd Gaming (BYD) due to forced divestitures from the PNK tie-up, and Casino Queen (smaller distressed player) on the rent roll.

Obviously, Penn National is in a considerable amount of distress with coronavirus and social distancing, they have closed all of their casinos and furloughed much of their employee base for an indefinite amount of time.  PENN is highly levered, their annual rent is significant at ~$900MM/ year (plus another $105MM in interest on regular debt), with $820MM of that going to GLPI, PENN is current on rent through the April payment, but would be unable to manage through this crisis without some forbearance or risk being restructured which would be disastrous for both GLPI and PENN.  This past Friday, GLPI and PENN entered into a unique transaction:
  • PENN will be free delivering the Tropicana Las Vegas property and operations to GLPI, plus the land under their Hollywood Morgantown development that is scheduled to open around year end for $337MM in credits to be applied to the May, June, July, August, October, and a partial payment towards their November rent.
  • PENN will then lease back the Tropicana Las Vegas from GLPI for $1/year and continue to run the operations and maintain the property.
  • GLPI will engage in a sale process over the next 2 years to sell both the real estate and operations of the Tropicana Las Vegas in order to recoup the rent credits.  $307MM of the $337MM in rent credit is to be assigned to the Tropicana. If the property sells for more than $307MM then the excess would be split with PENN, 25% of the excess would go to GLPI if it sold in the first 12 months, and there would be a 50/50 split in year two, beyond year 2 GLPI would get 100%.  PENN had been rumored to have gotten inbound bids in the $700MM range as recently as this past January for the property, but those buyers are likely long gone.  PENN did purchase the Tropicana for $360MM in 2015 providing some assurance that the property is worth more than the rent credit GLPI is receiving (assuming Vegas isn't permanently impaired by the coronavirus).
  • PENN additionally agreed to exercise their 5 year extensions on their master leases and entered into an option to purchase the operations in 2021 of one of GLPI's owned and operated casino, Hollywood Perryville (MD), for $31MM and enter into a $7.8MM annual lease for the property.
No one will confuse the Tropicana with a high end casino like the Wynn or Bellagio, but it is 35 acres and over 1400 rooms on one of the busiest corners on the strip.  Another tired casino in much worse location, Circus Circus, was just purchased for $825MM by Phil Ruffin in January.  Again, the world has changed, but if things return to any reasonable normalcy, GLPI should eventually get their deferred rent paid via the sale of the Tropicana.  And then PENN gains itself some breathing room with the rent credits at least into the fall, if they can open up the majority of their casinos sometime in the summer, they're likely to survive, if social distancing lasts deep into the third quarter or early fourth quarter it is likely game over.  PENN might be able to raise additional cash by selling their distributed gaming business or other non-casino related assets, but following moving the Tropicana over to GLPI, essentially all their properties are leased.

But how does GLPI itself navigate the remainder of 2020?  GLPI has $5.7B of debt and pays out approximately $600MM in annual dividends to shareholders.  Below is a quick analysis on GLPI's liquidity and ability to pay their dividend.  Both Boyd and Elderado (at least pre-CZR deal) have a stronger liquidity position than PENN, but let's assume both receive similar rent forbearance arrangements and then GLPI's operating casinos are a net cash drag on the year.
As always, I'm sure I've made a few mistakes in the above, so feel free to pick it apart, but it appears that GLPI could be in a position to continue its $2.80/share dividend, which is an 11% yield at today's $25/share price. 

A lot depends on when PENN can reopen their casinos and how receptive people are to returning to gambling following both a health crisis and for many people an economic one.  Regional casinos like PENN's might hold up better than destination ones as they rely on regular customers and focus on slot machines (~93% of their gambling revenue) versus convention business travelers or high rollers.  PENN is also making an aggressive move into sports gambling with their $163MM investment for a 36% stake in sports and pop culture media company Barstool Sports in February.  Barstool has an army of loyal followers, they're truly marketing experts, and Barstool personalities pumped up the stock in the weeks following the acquisition and before coronavirus realities set in for the company.  The plan is to rebrand PENN's sports betting operation to Barstool and launch an online sports betting app, where legal, in August ahead of the NFL season.  With sports essentially cancelled for the near term, that's another blow to PENN's plans, any delay to the NFL season would be particularly painful given their investment in Barstool.

Back to GLPI, original 2020 guidance was for $1.05B in EBITDA on about an $11B enterprise value, or 10.5x, in simpler times these gaming REITs trade at 13-15x EBITDA, 14x a normalized 2021 EBITDA would make GLPI a ~$42 stock versus $25 today.  In a dream scenario, there might be an extra $1/share in the Tropicana if sold for $700MM in year two, but that feels unlikely today.  There are certainly stocks with higher upside in this market, but once the smoke clears on PENN's casinos reopening, GLPI should re-rate pretty quickly once the disaster scenario of getting the keys in the mail is off the table.  Whereas PENN clearly has more upside, but may take longer and is more exposed to how quickly the economy recovers.  Why don't I own GLPI or PENN?  Not 100% confident the dividend remains at GLPI, if its cut, might actually be the buying opportunity as other investors sell if you believe in the long term durability of their leases.  Others thoughts welcome.

Disclosure: No current position as of posting

Thursday, March 26, 2020

What I've Been Buying, Coronavirus Edition

I hope everyone is staying safe and healthy, but if you're interested, here are some thoughts on a few current positions where I've added in recent weeks, some I've bought above where we're trading today, some below.  I probably started averaging down in some of these too soon, eaten some humble pie and have slowed my activity down significantly.  I assume we'll have more opportunities as it'll take awhile for the new economic reality to work its way through our system, credit agreements will need to be amended, etc.  There will be pot holes and bankruptcies, one change from recent years is we're likely to start to see bankruptcy reorgs that are the "good business, bad balance sheet" type that have been rare lately.  Things will likely get worse, so treat this more as a watchlist than a buylist.

Howard Hughes Corporation (HHC)
I'm a long time HHC bull, my pride is hurting here at the moment, 4 of 5 of HHC's primary markets have significant near term challenges: 1) NYC is front and center of the pandemic in the U.S., likely further pushing back (I've lost count how many times now) the stabilization date of the Seaport development; 2) Houston is dealing with yet another crash in oil prices just weeks after HHC made what they describe as the "largest acquisition in the company's history" by buying Occidental Petroleum's office buildings; 3) Nevada casinos are closed indefinitely, that will have its ripple effects through the Las Vegas service based economy and slowing the development of Summerlin; 4) Similarly but maybe less impacted, Honolulu will see significantly less tourism in 2020 than it did 2019, but more importantly a fall in financial markets doesn't lead to more wealthy people purchasing vacation beach condos.  Only Columbia, MD is mostly spared due to its connection to government services jobs.

The stock has bounced back slightly, but for a while there was trading below $40 which is where it was following the spin-off from GGP almost a decade ago, I was able to add a bit there, but still find the shares incredible cheap around $50.  In early 2019, I pegged the value of the land at ~$2.35B after subtracting out land level debt using a straight line NPV approach with a 10% discount rate, sure the near term sales might be low, but the nature of raw land is long term and Nevada and Texas remain attractive states for corporate relocations due to low/no taxes and friendly regulations.  HHC has $1B in corporate level debt, so just the land portfolio is worth ~$1.35B or about $35/share, obviously this is a somewhat silly back of the envelope valuation exercise that doesn't include overhead, etc.  But sort of thinking about what has happened since the spin-off a decade ago, HHC lays out the development activity in aggregate since then in their 10-K:
We have completed the development of over 5.2 million square feet of office and retail operating properties, 2,516 multi-family units and 909 hospitality keys since 2011. Excluding land which we own, we have invested approximately $2.0 billion in these developments, which is projected to generate a 9.5% yield on cost, or $192.7 million per year of NOI upon stabilization. At today’s market cap rates, this implies value creation to our shareholders in excess of $1.0 billion. Our investment of approximately $444.9 million of cash equity in our development projects since inception, which is computed as total costs excluding land less the related construction debt, is projected to generate a 25.5% return on cash equity assuming a 5.0% cost of debt, which approximates our weighted-average cost. These investments and returns exclude condominium development as well as projects under construction such as the Seaport District. We exclude condominium developments since they do not result in recurring NOI, and we exclude projects under development due to the wider range of NOI they are expected to generate upon stabilization. In Ward Village, we have either opened or have under construction 2,697 condominium units, which have approximately 89.8% units sold as of December 31, 2019 at a targeted profit margin, excluding land costs, of 23.6% or $747.3 million.
If we go back to 2015 and early 2016 when oil collapsed from around $100, there was a lot of anxiety about Houston office space and HHC dropped from ~$150 to ~$80 in a few months, but in the aftermath of the drop, HHC's Woodlands sub-market performed fairly well, their last speculatively built office property (Three Hughes Landing) still hasn't reached stabilization 4 years later, but the bottom didn't fall out either.  Not to directly compare the two time periods, this oil route seems worse for U.S. producers as it coincides with a demand shock due to coronavirus, but Houston is a major metropolitan market (it's not say, Midland TX or OKC) and the economy will evolve over time.  The Occidental office property buy certainly looks like unfortunate timing, but the bulk of the purchase is centered in the Woodlands giving them additional control over the sub-market, the Houston Energy Corridor former OXY campus was only ~10% of the purchase price and not a significant drag if they can't sell it in a year or three.  OXY's equity is certainly in question, the company signed a 13 year sale leaseback with HHC when the transaction happened, but even a reorged OXY will need office space, and HHC recently leased some empty space in the second office tower in the Woodlands to OXY's midstream company, WES.  HHC is taking a portion of the remaining space for themselves as they move their corporate headquarters to Houston, so in reality, there isn't a lot of current vacancy in HHC's Houston offie portfolio.

I'm less worried about Ward Village in Honolulu or Summerlin in Las Vegas, Summerlin is likely to have a terrible year, coronavirus feels temporary to me when you take a longer view, whereas domestic oil production might not be viable for many years.  The Seaport has always been a bit of a clown show, it was former management's pet project, there might be more willingness now to part with it for a reasonable offer that eliminates much of the risk/earnings volatility from HHC results.

Par Pacific Holdings (PARR)
Similarly, owning a refining business is tough here, if we just had the supply shock due to the OPEC+ breakup then refiners might be sitting pretty with cheap crude and strong gasoline demand, but with everyone staying in their homes and not commuting to work or traveling, gasoline and jet fuel demand have dropped almost as much as hotel occupancy.

Quick recap, Par Pacific is part of Sam Zell's empire, he doesn't technically control the company or sit on the board, but he owns a significant stake and the PARR management team is made up of former members of his family office - Equity Investments.  Over the last several years they've bulked up their operation to include three refineries, related logistics and a growing retail presence, focusing on niche/isolated markets.  Following a small tuck-in acquisition, they're the only refining presence in Hawaii and thus exposed to their tourism market via jet fuel sales.  They've got a turnaround scheduled for later this year in Hawaii which could be a blessing in disguise as it takes supply offline in that market just when there is a lack of demand.  But in a normalized year, Par Pacific should have a current run rate of approximately $225-250MM (after the next 12 months, PARR won't have a scheduled turnaround for several years), below is the breakdown of EBITDA between their business lines and sort of a reasonable, more rational market multiple for each.  It could take us a while to get there, but management on their last call (guessing there will be a lot of cringing across many management teams when they play back their comments on Q4 earnings calls) said that PARR is "today" a $3/share free cash flow business.  Obviously it won't be this year, but that's how the owners/managers of the business think of the earnings power.
It currently trades for $7-8/share, so that looks like a silly price and maybe it is because things are really different this time.  PARR also has ~$1.5B in NOLs that should shield it from ever paying cash taxes in the foreseeable future (not that it'll be an issue this year) and a stake in a natural gas E&P, Laramie Energy, but I mentally wrote off that investment a long time ago.  Given the natural gas price environment, Laramie has no active rigs, is reportedly cash flow positive and won't require additional investment from PARR to keep it a going concern, so we can sort of sidecar it.

PARR is a small cap and thus only has a relatively short term option chain with the latest expiration being in September.  Moving up market cap, Marathon Petroleum (MPC) is a similarly constructed downstream business with refining, midstream and retail operations that has January 2022 LEAPs available.  Marathon has been under pressure from activist investor Elliott Management to abandon their conglomerate structure and separate into three businesses: 1) retail (which operates the Speedway brand of gas stations/convenience stores); 2) midstream (which is publicly traded as MPLX, MPC owns 63% of MPLX and owns the general partner); 3) and the remaining refining operations.  The company recently rejected the idea of converting MPLX into a C-Corp and spinning MPC's MPLX units out to investors, but they are still committed to separating the Speedway retail business off by year end.  Convenience store 7-Eleven's owners, Seven & i Holdings, recently scrapped a deal to buy Speedway for $22B citing coronavirus and valuation concerns.  If you assume a $15B valuation for Speedway and back out the MPLX shares and consolidated debt, the remaining refining business is something like a $9B EV (with no value given to the MPLX GP) for a ~$5B EBITDA business in normal times.  There's also reason to believe (well maybe) that MPLX is undervalued as well as they're exploring selling their gathering and processing business segment for $15B which represents 1/3 of EBITDA.  The EV of MPLX is ~$34B, and the remaining logistics and storage business should fetch a considerably higher multiple.  I threw some speculative money at out of the money calls, maybe by early 2022 the world is a little more sane, until then I don't really plan on following the day-to-day swings in MPC's share price.

Five Star Senior Living (FVE)
Five Star is debt free (besides a small mortgage on the owned facilities), has a significant net cash position for its size and receives what should be a reliable management fee off of revenue.  Even if we do see small changes in occupancy (for morbid corona related reasons), FVE isn't as exposed to the high fixed cost structure of owning the senior living properties or leasing them.  FVE shares are trading below where they sold off when it was dumped following the distribution to DHC shareholders.  While there is certainly some operational or reputation risk associated with operating senior living facilities during such a high-risk time for the elderly, if Five Star can avoid a Kirkland WA style outbreak, their business should be positioned well and is extremely cheap.  We're still dealing with swag proforma estimates from management as the new structure is only a few months old, but at the EBITDA midpoint of $25MM, that should generate somewhere in the neighborhood of $14MM in FCF for about a 6.4x multiple at the current price of $3, plus you get the owned real estate and $30+ million of cash on a $90MM market cap company.

Wyndham Hotels & Resorts (WH)
Wyndham Hotels generates sales primarily on franchise fees based on hotel revenues (93% of their business) compared to their upscale hotel brand peers like Marriott (MAR) or Hilton (HLT) which have significant hotel management businesses where they get paid a percentage of hotel level profits and employ the workforce.  During good times, the management company model is better but during bad/terrible, I'd rather have the franchise model, hotel revenues will certainly be a fraction of what they were last year, but they won't be negative like profits.  Wyndham's typical hotel is an economy or midscale hotel with limited business or convention business and less reliance on food & beverage -- convention/conference business might take a while to recover as people stay cautious on large events, and if business travel does pick back up, maybe business travelers move down in hotel segment for a period of time.  Additionally, the typical Wyndham branded hotel owner is a mom or pop who owns just the one hotel, they likely got their financing from a local bank or the SBA who might be more willing to work with them on amendments/forbearance versus a large syndicate of lenders like the larger lodging REITs.  They do have a financial covenant of 5x EBITDA that is at risk, maybe other credit folks could chime in here, but I imagine by the time the TTM month EBITDA trips that covenant we might be back on the other side and WH could work with their creditors.  I did buy a little bit of shares, but also calls as to limit my downside if things do go south with their balance sheet.

My watchlist - quick blurbs, maybe turn into full posts if I buy:
  • Exantas Capital (XAN): This is the former Resource Capital (RSO) that I owned for a couple years after C-III took over the management, cut the dividend, and reorganized the assets to a cleaner mortgage REIT.  XAN funds its assets in two ways, one is through repurchase agreements and the other is through CRE CLOs.  CRE CLOs are term financing and not mark-to-market, however the repurchase facilities are mark-to-market and Exantas failed to meet margin calls on their CMBS portfolio this week, sending the preferred and common cratering.  I'm maybe too optimistic on the commercial real estate market (HHC bull) but I think a lot of these loans get amended and Exantas might find its way out of this mess, however it won't be without some pain.  The CRE CLOs might end up tripping their OC tests and shutting off cash flows to the junior notes and equity which is owned by Exantas, so I'm on the side lines for now.  Additionally, like most CRE CLOs, these are "transitional loans" meant to fund a development project, say renovate an apartment building and move it up market, something like that.  So if the market shuts down, the borrower might not be in a financial position to complete said project or refinance into longer term financing, sticking XAN with the exposure longer than expected.
  • iStar (STAR): I want to revisit another former holding in iStar, their SAFE ground lease business has grown far larger than I imagined (although likely very overvalued), taking SAFE at market value you could make a case that the legacy business that I originally liked is very cheap.  But they do have a CRE finance arm similar to XAN, but more concentrated on construction lending in major markets (NYC and Miami IIRC) that could be a problem.  Worth looking into given the SAFE stake and the management contract associated with SAFE.
  • NexPoint Residential Trust (NXRT):  Another former REIT holding of mine, this is one that sort of got away, I'll get the exact numbers wrong but it spun off from a closed end fund at ~$11 and I sold somewhere around $22, not too far from where it is trading today at $25, a few months ago it was $52.  I love the strategy, they acquire garden style Class B apartments in the sun belt, put a little money into them to move up market a touch, maybe "B+", this investment is very high return on invested capital and then they'll sell, recycle the funds and do it all over again.  Sure their tenant base might have some credit issues in the next year, but demographic trends are still in the sun belt's favor, working class people will need reasonably affordable housing in the future, supply is relatively constrained, and this management team (it is external) has proven they can execute on their strategy.
Disclosure: I own shares of HHC, PARR, FVE, WH (and calls) and MPC 2022 LEAPs

SciPlay: Fake Slots in a Casinoless World

I've averaged down on a few current positions (possibly too early and unwise), many of which carry debt, are exposed to customers leaving their houses and are thus down significantly.  But I also wanted to look for a company that might be thriving during this crisis, debt free and can take advantage of people having too much free time.  One such company is SciPlay (SCPL), which a reader asked me to look at in the comments section on my post on Accel Entertainment (I still own despite all bars and restaurants being take out only in Illinois).  I feel like a click bait author associating this idea (which is admittedly a little scummy and not without hair) with the "stay at home trade" but SciPlay should accelerate their already healthy growth rate in this environment with casinos closed for at least the next several weeks, potentially much longer.

SciPlay is a social casino gaming company that was IPO'd off of Scientific Games (SGMS), a major slot machine manufacturer and casino supplier, in May 2019 to reduce SGMS's heavy debt load.  Scientific Games still controls SciPlay with an 82% ownership stake in the operating entity (this is one of those ugly Up-C structures).  Social casino games are free-to-play simulations of slot machines where there isn't explicit gambling occurring but players can purchase virtual tokens to move the game along faster similar to other freemium style mobile games.  I downloaded one of their games and didn't understand it, but SciPlay has 8 million monthly users, however only 6% of those actually pay up for virtual tokens but those users are quite valuable, paying on average ~$88/month (!!) for these in-app purchases.  SciPlay pays a 30% revenue share to Apple, Google, Facebook and the like to be on their platforms, a dispute with any would be an issue, but otherwise this is a decent enough decent business that spits off a fair amount of cash.

The proceeds from the IPO (priced at $16) were used to pay a one-time upfront $255MM licensing fee to Scientific Games for their intellectual property library which allows SciPlay to develop new games in the future based on popular slot machine themes like James Bond or the Godfather that Scientific Games has a license for the rights.  Scientific Games and other slot machine manufactures have years of experience creating and cultivating addictive gameplay -- the "Scientific" part of the name seems almost nefarious to me -- that gameplay design can be fairly easily translated to a mobile device.  SciPlay currently has 7 games, the most popular and the one that makes up 40-50% of their revenue is Jackpot Party Casino, its a few years old now but does receive regular updates, there is some fatigue risk to their revenue but so far they've shown the ability to extend the game's life.  The one risk that remains a bit untested is how online/mobile gambling being rolled out impacts the social casino games, SciPlay claims in states like New Jersey where mobile gaming is legal they see no significant change in their customers behavior.  The explanation given -- social casino is more of a mindless time wasting exercise or a way to learn about slot machines versus a true gaming experience, not sure I totally buy it, but I do see people on my commuter train (when I wasn't holed up in my basement) playing social casino games on the train in the morning.  Doubt that would be the same activity if its actual slot machine mobile gaming with an 8% rake, but then again, maybe the time wasting crowd aren't the 6% of users that are paying.

The share count and market capitalization of the company often appear wrong on free sites due to the Up-C structure where the public company only owns 18% of the operating partnership with Scientific Games owning the other 82% economic stake directly in the operating partnership. SciPlay finished 2019 up with $110MM in cash and no debt, the company did $122MM of adjusted EBITDA in 2019 or $94 million in net income before the non-controlling interest allocation.  This represented EBITDA growth of 30% over 2018, let's dial back the growth rate a touch (although I wouldn't be surprised if they matched or exceed that) and say they do $150MM in EBITDA in 2020.  Keeping the same revenue base and converting an extra 1% of users from 6% to 7% paying users through this casinoless time would do it.
Even in a no growth environment, SCPL is trading at 7.8x TTM adjusted EBITDA (sorry if the price is stale by the time you read this), prior to the coronavirus market volatility, peers (ZNGA and GLUU) were trading at 14x 2021 EBITDA estimates, there's a big gap there between where 2021 EBITDA could be for SCPL and where the stock is trading today.

I bought a small amount, feeling a little guilty about the business model, but I'm not an ESG investor.

Other thoughts:
  • Scientific Games controls SciPlay, and Scientific Games is essentially controlled by Ron Perelman, I don't have any real thoughts about him but he's a semi-controversial investor to some.
  • Scientific Games might be forced to sell additional shares in SciPlay to keep it afloat through the crisis as SGMS is highly levered and I'm assuming if the casinos are closed, they're not buying new VGTs.
  • David Einhorn had a quick blurb in his Q2 2019 letter about owning SGMS partially because of its stake in SPCL, backing out the SPCL position and you can create the core SGMS very cheaply.  I like the idea in concept, but would rather just own the no debt growth company in this environment versus something that will rely on the kindness of creditors.  There is an argument that SGMS's stake in SPCL is unencumbered and could provide a floor to SGMS stock, I don't know if its possible for SGMS to go bankrupt and spin their SPCL shares to pre-bankruptcy shareholders, but if they could SGMS's stake in SPCL is worth about $9.25 of each SGMS share.
  • SciPlay wants to branch out into non-casino games like puzzles, also they're 90+% U.S. based revenue, fair amount of runway internationally if they can navigate regulatory environments.
  • Repeating the risks here: 1) impact of legalized mobile gaming; 2) SGMS overhang; 3) no-to-low barriers of entry for mobile games; 4) reliant on Apple, Google and Facebook to remain in their good graces and on their platforms; 5) revenue concentration with Jackpot Party Casino.
Disclosure: I own shares of SCPL