Chips, Cash and Dice VITALII BORKOVSKYI
Canterbury Park Holding Corporation (NASDAQ:CPHC) has begun monetizing the valuable real estate surrounding their race track & casino with significant land sales and equity investments in related partnerships. The stock price is at $21.52 per share which reveals a current market cap of $105 million. Investors can purchase this business for approximately $1 per share considering the sum of cash, real estate equity investments & receivable notes and land imbedded within the stock price.
Cash position is $25.7 million while the real estate development segment holds a $13.8 million property tax increment financing receivable from an agreement with the city of Shakopee. The company is debt free. One can see that we already have $39.5 million total cash from these two line items versus a market value of $105 million.
Canterbury Park Holding company (CPHC) consists of 4 business segments including Casino, food and beverage, real estate development and parimutuel operations.
The company produced $11.2 million in cash from operations in the latest full year filing for 2022. The Casino segment is currently the most significant contributor with $40.2 million in annual revenue, which is up 26% over the past five years.
Casino revenues
- $31.9 million (2017)
- $33.9 million (2018)
- $34.4 million (2019)
- $38.0 million (2021)
- $40.2 million (2022)
Las Vegas style table games are attracting the most customer interest and wagers per table have grown to over $2,000 per day. Canterbury management has become resourceful in growing their most profitable business segment.
Canterbury Casino Overview (Canterbury Park presentation)
I covered this stock extensively a few years back emphasizing the hidden real estate play. The company has now created five joint venture partnerships that are poised to display positive results as SEC filings emerge over the next several quarters. 2023 third quarter filing shows the real estate development segment earned income of $7.6 million during the first 9 months versus a loss of $846,000 in 2022. Since the company is utilizing the equity method of accounting for this segment, it must first overcome the invested equity ($9 million approximate) and be reimbursed for related member loans, before we will see potential gains flow to the operating & cash flow statements.
Canterbury Real Estate Venture (Canterbury Park presentation)
Phase I Triple Crown luxury apartment complex is complete and currently leased at approximately 90%. The adjoining phase 2 complex was recently completed and has begun to lease to new tenants. There are many moving parts in these complex real estate joint ventures, which makes forecasting revenue impossible. It is noteworthy that book losses are comprised of their pro-rata share of amortization & depreciation.
The company provided insight in a 2023 investor presentation where it noted that “meaningful near term JV (joint venture) earnings” were imminent. Earnings will be recorded using equity method according to pro-rata equity ownership which is 27.4% on the Doran residential apartments. Canterbury will record earnings as dividends, given this is deemed as return of capital. These earnings will only occur upon the joint venture achieving positive cash flow.
Canterbury tax increment financing payable
Canterbury holds a hefty $13.8 million Tax Increment Financing (TIF) payable asset that is growing at a current interest rate of 6%. This vehicle of improving infrastructure in Shakopee district was created to develop commercial business and create new tax revenue-which will in turn be reimbursed to the company for construction of related city infrastructure including road improvements. Once sufficient tax revenue is received by Shakopee, then reimbursement to Canterbury will occur.
Canterbury cash
The company is flush with $25.7 million in cash as of Sept 30, 2023. Considering there are 4.9 million shares outstanding, there is $5.24 cash per share. The company has engaged in several direct land sales to supplement their investment in joint venture partnerships. The most recent sale was an $8.8 million sale of 37.5 acres to Swervo, for construction of a spectacular looking Amphitheater. This outdoor theater will accommodate 19,000 fans for musical performances starting in 2025.
Canterbury Real Estate JV overview
The company holds a $9 million equity position in current joint venture partnerships. These include a $5.6 million stake in the Triple Crown Residences JV and a $3.4 million stake in the Southwest Development JV which consists of office space, a restaurant & brewery and a senior housing complex. The basis was determined by land contributions of 23 acres toward the former and 13 acres toward the latter. Earnings from these real estate ventures will come into focus over the coming quarters.
The company has provided “member loans” to Doran currently at $2.94 million for the residential complex construction. These member loans will be paid off as soon as the partnership becomes cash flow positive.
The $9 million equity investments have created a series of ownership stakes that will create new revenue streams if they are successful. If one looks at the real estate JV chart above, you can see the pro-rate ownership stakes. We know that the Doran phase I luxury apartment complex is now at 90% occupancy which is an important signal that this investment was well executed.
Canterbury excess land
The company holds 42 acres of excess land that can be used for additional equity partnerships or sold outright. The most recent land sale indicates a per acre value at $250,000 approximate. This land may be worth $10 million based on this recent activity.
Valuation
A list of the cash, land, real estate equity & related payables provides investors with a tool to evaluate whether the $21.52 stock price reflects the underlying value & earning power of the business. I believe the market is either not seeing or ignoring the future earning power of the racino and real estate operations.
Land, Buildings & Equipment-$7.96/share ($39 million)
Cash -$5.24/share ($25.9 million)
TIF-Tax Increment Finance payable-$2.82/share ($13.9 million-growing at 6% interest)
Excess land –$2.04/share (42 acres-valued at ~$10 million)
Real Estate Equity partnerships-$1.83/ share ($9 million equity)
Real Estate member loans -$.60/share ($2.94 million payable)
Total above- $20.49 per share (Land, cash, buildings, real estate and equity)
With the stock trading at $21.52 per share, an investor can buy the business for just $1.00 per share at this time. You would receive the burgeoning casino business which produced $40 million in annual revenue, a growing food & beverage segment that produced $8.2 million. Investors gain a promising real estate development segment. A 15% internal rate of return on commercial real estate would be considered viable on average.
While Canterbury parimutuel operations are a very small contributor to company profitability, a promising Minnesota sports gambling bill has been proposed this week. If this legislation is approved, Canterbury would receive a sports betting license which would add cash to operations that would be used to bolster horse racing purses and create larger racing fields in future seasons. This would translate into larger betting pools, as track bettors prefer to bet on races with expansive horse fields.
Investors must be patient when buying in to this stock due to a very small float, otherwise you may bid up the price against your own interests. We do not know for sure that the real estate will flourish, but the early signs indicate that management has prudently allocated capital into conservative real estate assets. Real estate operations can be risky and there is no certainty in such operations. It appears that Canterbury management has chosen more conservative investments which could mitigate such risk.
One last point, particularly to investors that have followed this company and read my previous articles. This real estate development process has taken many years and some may be asking when will the market recognize this hidden value. Randy Sampson the company CEO is a smart manager and holds in excess of 1 million shares-greater than 20% of the company. He and the Board of Directors know they could follow a path of spinning out the development segment which could be structured as a tax free REIT or similar spin-off. This may be the only way to meet the fiduciary responsibility to maximize the stock price for shareholders. Furthermore, the company has separated the real estate joint ventures to allow for this possibility.
