Monarch Casino & Resort (MCRI) – An Ongoing Reno-ssance
Through its subsidiaries, Monarch Casino owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada and the Riviera Black Hawk Casino in Black Hawk, Colorado.
Here is a more detailed description of each location:
Atlantis Casino – Features approximately 61,000 square feet of casino space, a 30,000 square foot health spa and salon, an 8,000 square-foot family entertainment center, and approximately 52,000 square feet of banquet, convention and meeting room space. The casino features approximately 1,450 slot and video poker machines, approximately 38 table games, including blackjack, craps, roulette, and others, a race and sports book, a 24-hour live keno lounge, and a poker room.
Monarch Casino – Features approximately 30,000 square feet of casino space that includes approximately 740 slot machines, 14 table games, a 250-seat buffet-style restaurant, a snack bar and a new nine-story parking structure with approximately 1,350 spaces, plus additional existing valet parking bringing total parking capacity to 1,500 spaces.
After hosting Monarch’s COO, David Farahi, Stifel said in a research note from May 8th that they do not sense there is an operator across the regional gaming landscape with a near-to-intermediate term growth outlook superior to Monarch’s.
While many individuals pay close attention to the Macau Gross Gaming Revenue numbers that are released each month, we also need to be aware that the Nevada Gaming Control Board releases similar numbers on a monthly basis. Understandably, companies like Wynn Resorts (WYNN), Las Vegas Sands (LVS), and MGM Resorts (MGM) get the most attention, but here at Jaguar Analytics, we have been bullish on the regional operators such as Boyd Gaming (BYD), Penn National Gaming (PENN), and Eldorado Resorts (ERI) for several months.
Taking a look at the recent Las Vegas GGR numbers released last week, we find that Strip GGR increased 3%, Las Vegas Locals (LVL) increased 2% while Reno also posted an increase of 2%. These monthly comps benefited from a 14% increase in baccarat, 4% improvement in slot volumes, and a 253 basis point advance in blackjack.
Focusing more on the Reno market, local macroeconomic indicators throughout this market continue to improve. For example, home values are trending higher, the unemployment rate is falling, and the economy continues to diversify.
In addition, Reno remains a target for new business development, particularly within the shipping/logistics, manufacturing, and data center/IT industries. Reno continues to attract interest from large multi-national corporations, as just last week Google (GOOG) announced it was purchasing 100 acres of land in the office park that houses the Tesla (TSLA) facility. As a result of the improving macro indicators and steady stream of outside investment, management believes the Reno gaming market should be able to grow in the mid-single digits for the foreseeable future.
According to Stifel, the unmatched quality of the Atlantis’ gaming and non-gaming offerings and the asset’s unique positioning (55% of business locally sourced) should allow MCRI to continue to outgrow the broader market (market share is up over the past six months). Although the recent trends are encouraging, investors should be reminded market-wide GGR remains ~25% below 2007 peak levels, suggesting ample upside remains as new capital and residents funnel into the Reno market.
One of the biggest potential catalysts for Monarch relates to its progress toward completing its destination-style resort expansion by the second quarter of 2019. As management stated, once completed, the Monarch Casino Black Hawk expansion will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites, an upscale spa and pool facility, three restaurants (bringing the total to four restaurants), additional bars, and associated support facilities. Per their May earnings presentation, here is a breakdown of their progress thus far:
Management has been pleased with the market’s response to the new structure, noting the additional parking capacity appears to have more than offset the disruption created by the need to shuttle guests from the garage to the existing gaming facility. Whereas parking spaces were previously viewed as a growth inhibitor, management now believes it is undersupplied from a slot unit perspective. As a result, Monarch has recently increased its slot count, with the response to date in line with expectations. Management’s research continues to support its view that Black Hawk is an underserved market today, particularly from a hotel room/non-gaming amenity perspective, thus the addition of new resort quality amenities should help to grow the overall market. According to third party studies conducted on behalf of Monarch, Black Hawk boasts the second highest GGR per hotel room in the gaming industry today ($617), trailing only Macau ($747). Management believes the Black Hawk market should be able to grow GGR in the mid-single digits in the near term, while Monarch should maintain or slightly grow its market share as construction on the hotel tower commences in earnest.
Please keep in mind that this is an illiquid name as, on average, it trades around 35K shares per day. However, one of the main reasons I decided to do a bit more research on this company is because of the option activity Fahad recently spotted and shared in the chatroom. To be specific:
-1,000 August 30 Puts were sold to open for $0.90 credit on 6/23
-850 August 30 Puts were sold to open for $1.00 credit on 6/30
Lastly, while not confirmed on their Investor Relations page, the company historically reports Q2 earnings in early-August.