It’s been seven months since Penn National Gaming said it would spend $2.8 billion to acquire several regional casinos operated by rival Pinnacle Entertainment.
The deal, already approved by shareholders of the two companies and a handful of states, is still awaiting regulatory sign-off in several jurisdictions, including Nevada.
Meanwhile, the Federal Trade Commission in March issued a second request for information under the Hart-Scott-Rodino Act over potential anti-trust matters.
But Penn National isn’t sitting back and quietly waiting for the Pinnacle transaction to close.
Last week’s joint agreement with VICI Properties to acquire Margaritaville Resort Casino in Bossier City, La., for $376 million shows that Penn still sees opportunity to grow its gaming portfolio.
Two Wall Street analysts said in recent research reports that Penn is taking full advantage of a healthy casino acquisition market. The gaming operator is also showing a willingness to partner in deals with real estate investment trusts outside of Gaming and Leisure Properties (GLPI), the REIT spun off from Penn in 2013 that owns the real estate associated with roughly 30 of the company’s casinos and racetracks.
The Margaritaville transaction is with the REIT established by Caesars Entertainment.
“Management noted the current mergers and acquisitions environment has been the busiest of the past decade, with REITs eager to consummate transactions,” Jefferies and Co. gaming analyst David Katz said following an investors meeting with the company.
VICI’s deal with Penn was its first outside of Caesars. GLPI recently agreed to buy six properties owned by Tropicana Entertainment and will lease the operations to Eldorado Resorts. Two years ago, GLPI acquired Pinnacle’s casinos and leased the operations back to their former owner.
MGM Growth Properties, a gaming REIT that is 70 percent owned by MGM Resorts International, has been mentioned in deals outside the Las Vegas gaming giant.
Macquarie Securities gaming analyst Chad Beynon, following an investors meeting with Penn executives, said the competition between gaming REITs has led to “better takeout prices” for the opposition side of the business.
Penn is paying $115 million to acquire the operations of Margaritaville, while VICI is paying $261 million for the land. Penn will lease the operations from VICI for an initial annual rent of approximately $23 million.
“(The) tuck-in acquisition affirms that Penn has the bandwidth to complete deals alongside the transformational Pinnacle transaction,” Beynon said.
The Penn-Pinnacle merger is expected to be completed by the end of the year. To alleviate anti-trust issues, Pinnacle has agreed to sell four of its 16 properties – two Ameristar casinos in Missouri and the Belterra gaming brands in Indiana and Ohio – to Boyd Gaming Corp. for $575 million
Boyd will sign a lease agreement with GLPI, which is the landlord for the Pinnacle-owned properties.
After adding Pinnacle’s 12 casinos, Penn National will become the largest U.S. regional gaming operator with 41 properties in 20 jurisdictions. Boyd Gaming would be the second-largest regional operator with 28 total properties.
“With minimal new competition, a more rational operating environment and a healthy consumer benefitting from economic strength and tax reform benefits, Penn remains a low-risk investment in regional gaming,” Beynon told investors.
Katz said Penn National stands to benefit from the expected roll-out of legalized sports betting because of the number of states where the company will operate. He said Penn executives told investors the revenue opportunities within sports betting, market-wide, could roughly reach between $2 billion and $5 billion.
Penn is also counting on ancillary revenues associated with expanded gaming, such as food and beverage, hotel spending and incremental gambling on casino games and slot machines. He said Penn’s Charlestown casino and racetrack in West Virginia could potentially recapture some of the business lost after the 2016 opening of MGM National Harbor in Maryland.
“West Virginia is further along in sports betting legislation than Maryland,” Katz said. “Ultimately, the regulatory and tax structures will determine the outcomes of this opportunity on a state-by-state basis.”
Katz said the Margaritaville transaction made sense for Penn because the company is also acquiring Boomtown Bossier City from Pinnacle and there will be “operating synergies” between the two properties.
He also expects Penn National to continue to pursue deals through REIT partnerships.
“The market is fairly active, so deals presented are coming in singles, bunches, and whole portfolios,” Katz said.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
