Penn National to Spinoff Real Estate Assets to Create First Casino REIT

on Nov 16, 2012

**Penn Bets on First Casino REIT**

US-based casino operator Penn National Gaming Inc. (NASDAQ:PENN) announced plans to split its business into two distinct companies – a gaming operating entity and a casino-focused real estate investment trust (REIT), through a tax-free spin-off of its real estate assets to holders of common stock, Bloomberg reported on 16 November 2012.
According to a statement published by Penn National on Thursday, the company will continue to run its 29 casinos and racetracks, while 17 of the properties will be spun-off to shareholders as the first casino-focused REIT. Under the plan, Penn National investors will receive a dividend of about $5.35 a share plus stock in the REIT. The casino operation will pay the REIT about $450 million (£283.5 million) a year in rent, the company said. On a pro-forma basis, next year the REIT is expected to record per-share earnings of $1.17 and revenue of $608.3 million (£383.2 million). Meanwhile, Penn National’s gaming operations are expected to record per-share earnings of $1.29 and revenue of $3.04 billion (£1.9 billion) in 2013.

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Penn’s split, subject to regulatory approval, is expected in the second half of 2013, with the real estate investment trust effective by January 2014.
**“Transformational” Move Which May be Followed by Peers**
!m[](/uploads/story/838/thumbs/pic1_inline.png)Penn National’s chairman and chief executive Peter Carlino, who will hold these positions at the REIT and remain chairman of the gaming unit after the breakup, said the move would be “transformational” for the company and will enable it to unlock the value of its real estate asset portfolio. He also said splitting into separate companies will create two “well-capitalised” operations positioned to grow in both the gaming and real estate investment markets.

“The transaction and new ownership structure would permit both companies to best address market and growth opportunities in their respective industries through access to a lower blended cost of capital, fewer regulatory licence ownership restrictions, a new capital funding source for the gaming industry by creating an industry specific REIT and potential opportunities to diversify in the future beyond the gaming industry,” Carlino added.

According to Jonathan Litt, CEO of LandandBuildings, a Greenwich Connecticut-based hedge fund focused on real estate, other casino companies may also consider similar restructuring to unlock the value of their properties. He told Bloomberg: “The best way to realise value is to break up. Management teams will look at the potential of deals like this and seriously consider converting into REITs.”

**Penn’s Shares Up 34%**
Following the announcement of Penn National’s plans to create the first casino-focused REIT, shares of the gaming operator jumped 22 per cent to $46 in yesterday’s New York trading. Today the stock rose even further reaching a 34 per cent increase to $50.50 — the biggest intraday jump since at least 1994, according to data compiled by Bloomberg. Overall, however, the company’s stock is down 1.2 per cent this year.


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