Penn National to begin spinoff of real estate holdings

LAS VEGAS -- Penn National Gaming, Inc. will begin to spin off its real estate holdings into a separate public company this month, the casino operator and owner of M Resort told investors this past week.

Under a plan approved by the company’s board of directors, Penn National shareholders will receive one share of common stock in the real estate investment trust equal to each share of common stock held in the casino operator as of Oct. 16, the record date for the spinoff.

The distribution will be made Nov. 1. Penn National will continue to be listed on Nasdaq under the symbol PENN. The real estate company, Gaming and Leisure Properties Inc., will be traded on the Nasdaq under the symbol GLPI.

Penn National announced plans for the real estate investment trust last year. The company has been gaining approvals from state regulatory agencies for the concept much of this year. Penn National said the only remaining approval it was waiting on was from the Indiana Gaming Commission.

Nevada gaming authorities signed off on the idea in July.

Under the plan, Penn National will separate 21 of the company’s 29 casinos and racetracks into the real estate investment trust, often referred to as a REIT. M Resort will be part of the spinoff. The REIT also will take ownership of two under-construction racetrack casinos in Ohio.

REITs, by law, don’t pay federal income taxes. With real estate the primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders.

Gaming and Leisure Properties will lease back to Penn National 19 of the casinos, including M Resort. The REIT will own and operate, through taxable REIT subsidiaries, casinos in Baton Rouge, La., and Perryville, Md.

Wells Fargo Securities gaming analyst Cameron McKnight said the cash flows for Penn National will change because the company’s success will be tied to overall market fundamentals.

“Nonetheless, (Penn) should be a sizable operator with material free-cash-flow generation and the potential for growth through smaller acquisitions and management agreements,” McKnight told investors.

Penn National told investors it expects the first GLPI dividend to be declared in January and total about $1.05 billion, or $11.92 per share of GLPI common stock.

The company expects to pay the dividend as a combination of cash and GLPI common stock.

McKnight estimated the GLPI recurring annual dividend will be $2 per share.

“We believe trading in GLPI could be somewhat volatile in the near term but expect it to normalize around January,” McKnight said.

On Monday, Moody’s Investors Service gave Penn National’s proposed $1.25 billion credit agreement and $300 million in new debt a stable rating, saying outlook reflected an expectation that the casino operator will use cash flow to repay debt “above and beyond” the loan’s scheduled terms.

“The stable rating outlook also considers the long-term nature of the master lease agreement between Penn National and GLPI,” Moody’s said of the 15-year contract that includes four extension options.