This is a good deal!Let's be intelligent about this.
The Deerfoot is a premium asset and the price paid was fair and a fair price in a great asset is a good deal.
It is located in Calgary which is the biggest city in Alberta and has a population of 1.4 million people. This compares to GP's 67,000 and McMurray's 66,000. So Calgary's population, and addressable market, is 10.5X larger.
The Deerfoot is located in Ward 12 of Calgary. This is located in the south-east of Calgary and it is the most populated and fastest growing Ward in the city with a population of over 110,000 and grew by 4.6% in 2019. Ward 12 alone has almost the same population as GP and McMurray combined (110K vs 133K). The Deerfoot is far from the other Calgary casinos.
Here is a quote from Darcy Will on the Deerfoot:
"We built the Deerfoot in south east Calgary because that was the only place we could find to build a casino in Calgary at the time. As it turns out, it’s been a great area. We were in at a low capital cost because the market area where we serve has doubled in size since we opened the door and has continued to grow.
South east, Calgary has significant growth in residential. It has the south health campus. There are the industrial parks that are filled. Amazon has 4M square feet of warehousing being built to the east. It’s a super vibrant part of the city. Cory Park, which is the largest urban office park of the city is 5 blocks away. So we have everything we want in a location.
We are at a major intersection of the freeway at Deerfoot Trail and Barlow. So we’ve got tons of office, tons of industrial services in the form of retail and medical, so we are like our own little city down there and as it grows it helps us to maintain and grow our business."
Again, the Deerfoot is a premium asset. It commands a fair price. You cannot, I repeat cannot get a great asset at a cheap price. Not in business!
The value of an asset is not how much it cost to build or how much you can sell it for. No. It is how much cash you can take out of the business over its remaining life discounted to the present. Period. All other methods used to value a business are incorrect and are for people who don't understand business and valuation.
We have all heard of the expression "location, location, location" when talking about real estate. It's the same thing for casinos and we have one heck of a location. The Deerfoot's location will attract a lot of people. The population of Calgary is seeing a big influx of people from Ontario and BC because of the cheaper real estate. Calgary's future looks great.
Now, GH's financial statements don't break down the revenues and costs by location so we can't be very precise with the data and will have to find another way. This will be ballpark only but good enough for a first glance. This is pre-renovation and in square feet.
GP has a gaming area of 19,124 and McMurray has a gaming area of 17,725 and the Deerfoot has 65,000. Put another way the Deerfoot has 64% of all gaming space.
Let us not forget that the Deerfoot is not only a casino but an Inn as well and contains:
- 188 rooms (including 28 suites)
- Restaurant
- Lounge
- 14 conference / banquet rooms
- Health and fitness center
- Full waterpark
This attracts a lot of business from corporations. It is after all, in the big city, the fourth largest city in all of Canada. So it is not just a casino we are getting!
Again, it is the quality of the asset that will dictate how our future unfolds and this is a top quality asset. It commands a fair price.
From 2011- 2019, GH has earned an average of $21,337M in free cash flow (ex-working capital items). If we take the Deerfoots portion of this (I would argue it is more than this but let's be conservative and take the 64% mentioned above), then the Deerfoot has earned an average of $13.656M in free cash flow. Nine percent of this is $1.229M.
So, if GH has pain $13.6M for an asset that has generated an average of $1.229M in normalized earninings, it is getting a normalized return of 9.03% on its investment, AND:
The above if all trailing data. What I mean is that what went into the $1.229M was the population of 2011 - 2019. It is higher today and will grow meanigfully. Ward 12 has a much higher population that it did if you take the average of 2011 - 2019 and so the Deerfoot will earn more. The Deerfoot's location is even better today than it was back then becaus of all the development and improvements in Ward 12 that is attracting world class companies and high paying jobs.
So I would say it is a good deal.
Let us not forget that there are very few good casinos in Alberta and there is a scarcity factor. Considering all of this, it is a good deal.
The Wills have a very good reputation and have always treated the shareholders well and are very honorable people. Jimmycash, you should not insuate otherwise.!!!
If you were the CEO of a company and you did a bad deal to take advantage of your shareholders, would you do it 5 days before the annual shareholders meeting and have to confront all those shareholders???
Furthermore, I do not enjoy being called a pumper by you!!!
My posts here are to share more information with long-term holders of the stock.
As I see that it is not appreciated, it will be my last post!