Caesars studying placing largest operating division into REIT

20 November 2014

LAS VEGAS -- Caesars Entertainment Corporation is considering placing its largest operating division into a real estate investment trust as a way of dealing with its gaming industry-high debt, according to a filing Wednesday with the Securities and Exchange Commission.

Caesars, which has been in talks with banks and lenders in an attempt to restructure its $22.8 billion debt, said the real estate investment trust — commonly referred to as a REIT — was one option being discussed.

The company made the filing after one of the lenders broke off talks with Caesars on Oct. 29, the second lender to walk away from the table. Earlier last month, a New York hedge fund quit the discussions.

Caesars did not name either lender.

Bloomberg News reported the most recent lender that walked away was Silver Point Capital, a Connecticut hedge fund that also owns the second largest stake in casino operator Affinity Gaming.

According to the SEC filing, Caesars would place Caesars Entertainment Operation Co. into the REIT.

The division owns the largest portion of the company’s nearly 40 resorts nationwide, including Caesars Palace, Caesars Atlantic City, Harrah’s Reno and many of its regional properties.

The properties also owe about 80 percent of the company’s overall debt.

The REIT would own the hotel-casinos and Caesars would operate the properties.

According to the SEC filing, first-lien bondholders would receive 93.8 percent recovery on their investment through the REIT. Second-lien and unsecured bondholders would receive a minimum amount of equity, but they would have to “vote as a class in favor of the restructuring.”

Several second-lien bondholders have filed notices of default against Caesars.

The company said the REIT proposal “has been superseded by the numerous proposals that have been, and continue to be, transmitted” between Caesars and its lenders.

A Caesars spokesman declined comment.

Caesars has said in SEC filings that Caesars Entertainment Operation would run out of cash by next year and needs to be restructured to manage its debt payments.

Earlier this month, it was reported Caesars would place the division into a prearranged bankruptcy reorganization as soon as January.

By law, REITs don’t pay federal income taxes.

With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders.

The gaming industry has embraced REITs.

Last year, Penn National Gaming, Inc. split off 21 of its 29 casinos and racetracks into Gaming and Leisure Properties, a publicly traded REIT. The properties are leased back to Penn through a management contract.

Two weeks ago, Pinnacle Entertainment, Inc. announced plans to split off the company’s 15 casinos in eight states into a REIT.

Pinnacle would serve as the operating company and manage the casinos through lease agreements.

The yet-to-be-named REIT would own the properties.

Also, Boyd Gaming Corporation said this month it spent $3 million so far to investigate a potential REIT split.

Reports of the REIT discussions caused Caesars shares to spike to 15 percent to 20 percent in after hours trading on Nasdaq. Caesars closed at $14.37 in regular trading, down 95 cents or 6.2 percent.

Caesars’ other major operating division is Caesars Growth Partners, which is publicly traded on Nasdaq as Caesars Acquisition Co.

The business, 58 percent owned by Caesars Entertainment, includes The Cromwell, The Linq, Bally’s Las Vegas, Planet Hollywood Resort, Harrah’s New Orleans, a 41 percent interest in Horseshoe Baltimore and Caesars Interactive Entertainment.

Related Links
Boyd Gaming Gaming Vendor Information
Penn Entertainment


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