Acquisitions, Mergers and REITs: The Way Things Are Done These Days By Ken Adams, CDC Gaming Reports November 15, 2018 at 4:07 pm The sales of three properties, Greektown in Detroit, Atlantic Club Casino in Atlantic City and Kentucky Downs in Kentucky, were announced in the same week. Terms were not disclosed on the Atlantic Club or Kentucky Downs, but Greektown was reportedly sold for $1 billion to Penn National and VICI Properties. Penn is paying $300 million for the casino operations and VICI $700 million for the real estate and buildings. Penn will lease the casino and hotel from VICI for $55.6 million a year. VICI is a very new company, a real estate investment trust (REIT). It was formed as part of the Caesars bankruptcy and went public in February 2018. It owns twenty Caesars properties and in June did its first deal with Penn, buying the real estate of Margaritaville in Bossier City, Louisiana. REITs look like a pretty good business model. They own the real estate and get a guaranteed annual rent that is calculated to be a good return on the invested capital. On the other hand, the casino company gets the casino operations but without the huge debt had the company purchased a casino on its own; there is a set annual lease payment and no debt covenants. Besides VICI, there are two other major REITs in gaming. MGM Growth Properties (MGP) owns the real estate for twelve MGM properties and a Hard Rock casino in Ohio. Gaming and Leisure Properties (GLP) owns the real estate of forty-four gaming properties with the casinos managed by Penn, Eldorado Resorts and Boyd Gaming. REITs have become a big part of the casino industry. Currently there are approximately seventy-five casinos and racetracks are owned by a REIT and leased to a casino company. REITs are not new, but the current REIT-owned casinos trend is very recent. GLP was incorporated in 2013, MGP in 2015 and VICI in 2018. As the REITs have been growing and acquiring more properties, their casino partners have been able to expand dramatically. Until very recently, Eldorado Resorts was a small Reno company with a presence in Reno and one casino in Louisiana. Since 2014, Eldorado has added twenty properties to its portfolio. The price for its last acquisition, Tropicana Entertainment owned by Carl Icahn was $1.85 billion. Eldorado paid $640 million, GLP put up the rest. Eldorado will pay $88 million a year to GLP. Boyd Gaming has been around a long time, it started with the California Hotel and Casino in Las Vegas in 1975. Today Boyd has twenty-nine properties in ten different states. This year, Boyd added five casinos to its portfolio with some help from its REIT partner. GLP has been an important element in Boyd’s recent acquisitions. Penn National did not start out as a casino company; it began by operating race tracks in Pennsylvania in the early 1970s. It went public in 1994. In 1996, Penn acquired racinos in Pennsylvania and West Virginia. In 2003, it bought Hollywood Casino Corp and became a full-fledged casino company. In 2013, Penn spun-off the real estate of twenty-nine casinos and racetracks to the newly formed GLP. Given the fact that Caesars and MGM both have REIT partners, one could almost argue that real estate investment trusts have become as important as their gaming partners; and neither could move forward in any significant way without the other. The success of REITs is also an indicator that the gaming industry has fully matured where consolidation is the dominant narrative. Small start-up companies and new jurisdictions without any competition are things of the past. The industry is in the final stages of expansion into Maryland, Massachusetts and New York. After those three, there are not many more possibilities left, a few but not many. The real movement in the industry over the last couple of years and into the foreseeable future is consolidation. Caesars, MGM, Boyd, Eldorado, Penn and maybe Wynn are going to be looking to acquire more existing properties. Each of these companies already own casinos in most jurisdictions and because of monopoly and anti-trust laws most acquisitions of multiple properties are going to require selling some of those properties. Those five or six companies are going to keep shuffling and reshuffling the deck until they own every casino resort of any value in the country. And most, if not all, of those transactions are going to have a REIT partner. That is the way things are done these days, isn’t it?