Company Overview:  Canterbury Park Holding Corporation (“Canterbury Park”, “CPHC” or the “Company”) owns and operates the Canterbury Park Racetrack and Card Casino in Shakopee, Minnesota.  The racetrack features pari-mutuel wagering on live thoroughbred and quarter horse races as well as year-round wagering on out-of-state horse races through simulcasting.  The casino operates 70 tables including a poker room and table games.  The Company also generates revenue through concessions, parking, and various events hosted at the racetrack.  Canterbury Park is also in the process of developing 130 acres of underutilized land adjacent to the Company’s racetrack and casino.  Canterbury Park is located approximately 25 miles southwest of Minneapolis.  It was incorporated in 1994 and has 237 full-time employees. 

Investment Thesis:

• Canterbury Park’s gaming operations are consistently profitable and at 6.4x trailing EBITDA are attractively priced on both an absolute and relative basis.

• The potential expansion of sports betting to Minnesota could provide an incremental revenue stream to Canterbury Park. 

• Canterbury Park is developing 140 acres of excess land known as Canterbury Commons that could result in significant cash flows to the Company and increase visitation and profits at the Company’s racetrack and casino. 

• The Company has a pristine balance sheet including $13.2 million in cash and no debt.  Canterbury Park also owns 320 acres of land including the horse racing track, grandstands, casino, parking lots, and also has a combined $19 million in receivables related employee retention credits and tax increment financing. 

Racetrack and Casino Description:  Canterbury Park operates a horse racetrack and card casino on 320 acres of owned land in Shakopee, Minnesota.  The racetrack consists of a one-mile dirt track and a 7/8-mile turf course.  The multi-level grandstand is enclosed and air-conditioned and has capacity for 10,000 people.  The racetrack has a restaurant, multiple concession areas, 7,500 parking spaces, and facilities for stabling 1,600 horses.  The horse racing season consists of 65 racing days between May and September with simulcast wagering available on non-race days.  The Company’s gaming facility features 70 tables located on the first floor of the grandstand at Canterbury Park.  Card games include Blackjack, EZ Baccarat, and a poker room.  The Company’s food and beverage operations include concession stands, restaurants, and other food venues.  In addition to the Company’s horse racing, Canterbury Park also hosts concerts, winter sports events, and fireworks shows during the summer.  Canterbury Park also owns a 30,000 square foot event center that hosts special events and trade shows.  Combined, Canterbury Park has the fourth largest event space in the Twin Cities area with more than 100,000 square feet of available space. 

After a challenging 2020 where the Company’s casinos were closed for four months due to COVID-19 precautions, Canterbury Park is currently generating record revenues and profitability.  The Company’s card casino has generated LTM revenues of over $41 million and LTM EBITDA of nearly $15 million.  Revenues from horse racing and concessions are also approaching pre-pandemic levels, with both segments expected to be slightly EBITDA positive.  Horse racing Operating expenses have declined as cost-cutting measures taken in response to COVID-19 have been extended.  In 2022, we forecast Canterbury Park to generate $68 million in revenues, $16 million in EBITDA, and $10 million in net income. 

In Minnesota, gaming operations are limited to Native American casinos and horse racing facilities.  Canterbury Park is one of two horse racing tracks in Minnesota.  Canterbury Park offers thoroughbred and quarter horse racing while competitor Running Aces offers standardbred horse racing.  Running Aces is owned by Black Diamond (the private equity firm) and is located north of the Twin Cities, about 50 miles from Canterbury Park.  Of note, Black Diamond also owns 12.3% of Canterbury Park.  The horse racing tracks are limited to table games while the Native American casinos can offer a full array of casino games including slot machines (but not sports betting).  The largest Native American casino in the state is called Mystic Lake and is located just four miles from Canterbury Park.  Canterbury Park competes effectively with Mystic Lake despite its smaller size due to the popularity of horse racing, the popular poker rooms at Canterbury Park, and the non-smoking requirements at Canterbury Park. 

 In 2012, Canterbury Park and Mystic Lake signed a cooperation agreement where Mystic Lake agreed to supplement the “purses” or prize money and advertising budget at Canterbury Park.  In exchange, Canterbury Park agreed to not lobby the Minnesota legislature for the expansion of gaming activities at the horse racing tracks.  While the agreement helped Canterbury Park increase the quality of its horse racing operations and indirectly benefited the Company’s casino operations, it provided little direct financial support to Canterbury Park.  The 10-year agreement is set to expire at the end of 2022.  If it is not extended, Canterbury will lose its purse subsidies but will have the opportunity to lobby for an expansion of gaming – including potentially sports betting and eventually slot machines. 

Sports betting is currently illegal in Minnesota.  In 2022, the Minnesota House of Representatives and Senate passed competing bills that would legalize sports betting in Minnesota.  The bill passed by the Democrat-controlled House allowed sports betting only in Native American casinos while the bill passed by the Republican-controlled Senate allowed sports betting at both Native American casinos and racetracks.  Ultimately, the two sides were unable to come to an agreement and the issue was put aside until 2023.  While the legislative process is uncertain, in the event the current cooperation agreement with Mystic Lake is not extended, we would expect both Canterbury Park and Running Aces (owned by Black Diamond) to lobby to have sports betting included at both horse racing tracks and Native American casinos.  While biased, we think this would be a logical result as both Canterbury Park and Mystic Lake are already equipped with many sports gaming necessities, including televisions and betting booths.  While low-margin, we would expect the expansion of sports betting to provide additional cash flows with limited additional investment. 

While less likely, we would also note that prior to the 2012 agreement, both Canterbury Park and Running Aces consistently lobbied for the expansion of slot machines for the horse racing casinos.  If Canterbury Park was able to offer slot machines, the value of the facility would be multiples of the current valuation.  Alternatives to slot machines including Historical Racing Machines that have been utilized successfully by other racetrack owners including Churchill Downs and could also generate additional revenues and profits to Canterbury Park. 

• Canterbury Commons: In addition to the ~200 acres of land that Canterbury Park utilizes for its track, grandstand, casino, and parking, the Company also had 140 acres of underutilized land that were targeted for a real estate development known as Canterbury Commons.  To date, Canterbury Park has contributed or sold 36 acres of Canterbury Commons for development  with approximately 100 acres remaining for pending sales or future development.  An overview of current development activities are provided below:

• Triple Crown Apartments: Canterbury Park contributed a total of 23 acres of land to a joint venture with Doran Companies (a Minnesota developer) for a 27.4% equity interest in the partnership.  The partnership has developed a 300-unit luxury apartment building (now over 90% occupied) and is currently constructing a second 300-unit apartment building on an adjacent site. 

• Greystone Construction: Canterbury Park contributed 13 acres of land for a 61.87% equity interest in a partnership with Greystone Construction, another Minnesota developer.  Greystone built its 28,000sf corporate headquarters on the site.  A 147 unit senior apartment project broke ground in April 2022 with occupancy expected in the fall of 2022.  The partnership is currently marketing other sites within the development with strong interest for a restaurant, daycare, and an additional 30,000sf office.

• Pulte and Lifestyle: In 2020, Canterbury entered into two agreements to sell 14 acres of land to Pulte Homes and Lifestyle for total consideration of $3.5 million.  The closing of the first phase of 9.8 acres occurred in April 2021 and the closing of the second phase is expected later this year.  Pulte is building 109 new row homes and townhouses with 20 townhomes currently sold or under contract.  Lifestyle is developing a 4-story, 56-unit senior cooperative community. 

• Amphitheater: In September 2021, Canterbury Park reached an agreement with Swervo Developtment to sell 40 acres of land for the development of an amphitheater.  Closing of the sale is expected to occur in 2022 upon regulatory approval with plans to open the amphitheater in 2023.

• Potential Additional Developments: In addition to the projects highlighted above, Canterbury Commons has approximately 50 additional acres for future development.  Importantly, the remaining land includes prime real estate adjacent to the casino/grandstands and a corner lot near the park’s entrance.  We expect future development plans include a destination hotel, a Dave and Buster’s type establishment, and additional retail and restaurant locations.  The Company has recently sold land within Canterbury Commons for $200,000-$300,000/acre, and the remaining land should transact at premium prices.  We expect these future developments to provide additional value-add opportunities for the Company’s shareholders while also attracting additional guests to Canterbury Park. 

Balance Sheet: Unlike many companies in the gaming sector, Canterbury Park has a pristine balance sheet.  The Company has $13.2 million in cash and no debt.  Canterbury Park also owns 320 acres of land, the horse racing track, parking facilities, and a modern complex of buildings.  Canterbury Park also has a $6.3 million receivable for an employee retention credit associated with the pandemic that is expected to be collected within the next year.  Additionally, Canterbury Park has a $12.7 million Tax Increment Financing (“TIF”) receivable related to improvements the Company made to several roads servicing Canterbury Commons.  The TIF receivable will be reimbursed by the City of Shakopee by future tax increment revenue generated from the developed property.  Although the bulk of the TIF financing is payable over 25 years, we believe the Company will be able to sell the receivable to a municipal debt investor at some point in the future. 

Valuation: We value Canterbury Park with a discounted cash flow analysis to obtain an enterprise value of the current operations of $118 million.  We add $13 million of net cash, $30 million in value for the Company’s current investments and excess land in Canterbury Commons, and $6 million in employee retention credits to obtain a target equity value of $167 million or $35/share, representing 50% upside to the recent share price. 

Comparable Table:

Risks: There are several notable risks to the Company’s business that should be highlighted:

• Canterbury Park owns one asset which makes the Company susceptible to a number of risks including inclement weather, regional economic weakness and horse racing specific events such as injuries or equine disease.

• The Company’s attempt to develop the underutilized land at Canterbury Commons could prove unsuccessful. 

• A downturn in the economy could negatively impact gaming operations and development activities. 

• The Company’s racing and gaming segments are heavily regulated and subject to change on short notice.

• The Company’s card casino faces stiff competition from Mystic Lake.

• The potential conclusion of the cooperation agreement with Mystic Lake could reduce the purse sizes and the popularity of horse racing at Canterbury Park.  

This research report expresses our research opinions. Any information contained in this report may include forward looking statements, expectations, pro forma analyses, estimates, and projections. These types of statements, expectations, pro forma analyses, estimates, and projections may turn out to be incorrect for reasons beyond GCCM's control. Be sure to first consult with a qualified financial adviser and/or tax professional before making any investment decision with respect to securities covered herein. Following publication of any presentation, report or letter, we intend to continue transacting in the securities covered therein, including any purchases or sales, for any time hereafter regardless of our initial recommendation. All expressions of opinion are subject to change without notice, and we do not undertake to update this report or any information contained herein. Past performance is not indicative of future results.