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Howard Stutz

Pinnacle Entertainment planning a deal with GLPI

24 June 2015

At some point — if we’re reading the signs correctly — regional casino operator Pinnacle Entertainment will marry itself to real estate investment trust Gaming and Leisure Properties Inc.

Wall Street hopes this isn’t a shotgun wedding.

In March, Gaming and Leisure Properties offered to pay Las Vegas-based Pinnacle $4.1 billion for the company’s 15 regional casinos. In turn, the REIT would lease the casinos back to Pinnacle to operate for $358 million a year.

Pinnacle never outright rejected the deal, and the companies have been in discussions ever since.

“Management is pleased with the progress so far and expects to have something more conclusive to report in a few weeks, as opposed to a few months,” J.P. Morgan gaming analyst Joe Greff wrote in a research report after hosting an investors dinner with GLPI executives.

“The team did reiterate, however, that the process is a long and complex one and that there are still some significant, material financial and non-financial issues that need to be resolved,” Greff said.

A day earlier, Deutsche Bank gaming analyst Carlo Santarelli told investors he believed a deal was forthcoming.

“We remain confident in the parties agreeing to a transaction,” Santarelli wrote. “That said, we believe certain items remain open for negotiation, while pricing dynamics and deal structure are largely in place.”

GLPI was spun off from Penn National Gaming in 2013 when the regional casino operator placed 21 of its 29 casinos and racetracks — including M Resort — into the REIT. Penn has continued to manage the casinos under a lease.

GLPI bought an Illinois riverboat casino in late 2013, but a 2014 deal to acquire a Pennsylvania racetrack casino fell apart and the matter is now a lawsuit.

Acquiring Pinnacle would cement GLPI’s place as the gaming industry’s foremost REIT. Pinnacle operates casinos in eight states — including two small properties in the Northern Nevada community of Jackpot.

GLPI offered Pinnacle stockholders $36 per share in March, which was a 30 percent premium to the company’s March 6 closing price. On Tuesday, Pinnacle closed Tuesday at $38.03 on the New York Stock Exchange, so it’s safe to say investors want to see the offer bumped up.

“Our objective is much the same as it was when we first became public with the notion,” GLPI CEO Peter Carlino said on May 4 during the company’s quarterly conference call when asked about the Pinnacle deal. “We are focused on creating a balanced, and I emphasized that word, transaction that would be good for Pinnacle shareholders and good of course for our shareholders.”

Shares of GLPI Tuesday closed at $37.44 on the Nasdaq. Most analysts have speculated the company would sweeten the pot to make the Pinnacle deal work.

REITs piqued the interest of gaming industry watchers after Penn spun off GLPI. Boyd Gaming Corp. and MGM Resorts International are exploring REITs. Caesars Entertainment is asking a bankruptcy court to split its largest operating division into a REIT as part of a restructuring process.

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

Pinnacle said last year it was moving toward a REIT concept, which included splitting to company into two divisions; a real estate business and a management company.

GLPI offered to save Pinnacle several steps — as well as $700 million — by acquiring the casinos. Pinnacle doubled in size in 2013 when it bought rival Ameristar Casinos for $2.8 billion.

Carlino told investors in May he thought Pinnacle had some “exceedingly attractive” regional properties.

Pinnacle President Carlos Ruisanchez wouldn’t say much about the company’s REIT process during an April 23 conference call other than the 2016 timing for the split “remains unchanged.” Certain milestones were “needed to complete the transaction,” he said.

If the deal happens — which most analysts expect will take place sooner rather than later — GLPI will find itself getting larger. Greff said GLPI executives hinted at several opportunities with other gaming companies. Conversations have taken place, but that was the extent of the talks.

“As a deal with Pinnacle would require minimal physical integration between the two companies, the event would not, in management’s view, delay GLPI from doing its next deal,” Greff said. “Nor would it hesitate from doing multiple transactions concurrently if the opportunity arose.”

Penn National has already announced plans to acquire the Tropicana Las Vegas for $360 million and is opening Plainridge Park Casino, Massachusetts’ first casino, Wednesday at the Plainridge Park Race Track.

With regional gaming markets showing positive numbers during April and May in several jurisdictions, expect to read more about REITs in the coming months.
Pinnacle Entertainment planning a deal with GLPI is republished from