Silicon Investor - Penn National Gaming, Inc. (PENN)

[mdanese114] Liquidity as of Sept. 30 was approximately $3.403 billion, comprising availabili...

mdanese114 — 11/23/2021 4:13:42 PM

Liquidity as of Sept. 30 was approximately $3.403 billion, comprising availability under the company’s revolver and unrestricted cash and equivalents.As of Sept. 30, the credit agreement includes a 2.50x interest coverage ratio covenant, a 5.50x net leverage ratio covenant (which decreases in future periods) and a 3.75x secured net leverage ratio covenant (which decreases in future periods). Full analysis here: reorg.com

[Glenn Petersen] A casino company is buying Barstool Sports in a $450 million deal Penn National...

Glenn Petersen — 1/29/2020 11:29:16 AM

A casino company is buying Barstool Sports in a $450 million deal

Penn National Gaming is buying the online publisher — which can thank sports betting, and the Supreme Court for the deal.

By Peter Kafka
Recode
Jan 29, 2020, 1:37am EST

Barstool Sports founder Dave Portnoy in 2018. Adam Glanzman/Getty Images
______________________

A media company has become a sports betting company: The owner of Barstool Sports has agreed to sell the popular and controversial digital sports publisher to Penn National Gaming, a regional gambling operator.

The deal values Barstool, which has its roots as a rowdy Boston sports blog founded in 2003, at an eye-popping $450 million.

Earlier this month, I reported for Recode that the Chernin Group, which bought a majority stake in Barstool in 2016, was close to selling the company to Penn National.

The Wall Street Journal has been briefed on the details, which are scheduled to be formally released Wednesday morning: Penn National will first buy a 36 percent stake in Barstool for $163 million in cash and stock — valuing the company at $450 million. Three years later, the casino company will pay another $62 million to bring its stake to 50 percent, with the ability to buy controlling ownership for an amount to be determined at the time.

Here’s the official announcement, along with a very Barstool-like announcement, where Barstool founder Dave Portnoy tells his fans that they should buy Penn National’s stock, followed by a long legal disclaimer explaining that Portnoy doesn’t represent the views of Penn National and that his advice to buy Penn National stock shouldn’t be interpreted as financial advice:

A person briefed on Barstool’s business estimates the company generated between $90 million and $100 million in revenue last year, with the majority coming from podcasts, merchandise sales, and gambling deals.

It’s a stunning deal for the digital media industry, coming as many publishers are retrenching after a round of ultimately disappointing Facebook-fueled optimism and investment. And it’s a big payoff for the Chernin Group, which had reportedly invested some $25 million to buy controlling stakes in Barstool in 2016 and 2018; people familiar with Barstool estimate that Chernin owned around 60 percent of the company prior to today’s deal.

That deal exists entirely because of a Supreme Court decision: In 2018, a court ruling legalized sports gambling in the US, but left it up to individual states to decide if they wanted to approve of sports betting, and under what terms.

Since then, there’s been a rush by both media companies and the gambling industry to capitalize on what they both assume will be a boom in online betting. Right now, the primary winners seem to be DraftKings and FanDuel — two companies that had spent huge sums of marketing money a few years ago, when they were operating as “daily fantasy” sports games.

The daily fantasy bubble deflated, but the investment those companies made exposing themselves to a young audience seems to have paid off. Industry executives say those two companies are out-performing older, more established gambling brands in states where online sports betting is legal.

Penn National, which runs or owns dozens of low-profile casinos and hotels around the US (its best-known property may be the Tropicana in Las Vegas), seems to think it can use Barstool’s brand to bring traffic to its casinos and an online betting app it wants to launch. And Barstool has found an owner that is unlikely to be worried about its brand and content, which is both popular and oftentimes intentionally abrasive.

Barstool founder Dave Portnoy will stay on at the company, along with CEO Erika Nardini and other employees.

Earlier this month, Barstool agreed to a settlement with the National Labor Relations Board, which looked into charges that Portnoy had broken labor laws by tweeting threats to fire employees that tried to organize a union. The agreement “calls for the deletion of the tweets and removal of other anti-union material created by the company,” Bloomberg reported.

vox.com

[Glenn Petersen] Barstool Sports is close to selling to a casino company you’ve never heard of S...

Glenn Petersen — 1/11/2020 9:37:28 AM

Barstool Sports is close to selling to a casino company you’ve never heard of

Sports betting is booming, so Penn National is looking at the sports publisher.

By Peter Kafka
Recode
Jan 10, 2020, 4:45pm EST

Barstool Sports founder Dave Portnoy at a Harrah’s casino event in Atlantic City, New Jersey, in 2019. Tom Briglia/ Getty Images
_______________________________

Barstool Sports, the high-profile, controversial, and fast-growing sports media company, may soon have a new owner: A low-profile casino operator.

Sources say The Chernin Group, which currently owns Barstool, is in advanced talks to sell a majority stake in the company to Penn National Gaming, a publicly traded, regional gambling company that operates 41 properties in 19 states.

Barstool was last valued at more than $100 million, but a potential purchase price could be much higher, and might create the biggest media-gambling tie-up in the US since the Supreme Court legalized sports betting in 2018.

Recode has asked Penn National for comment. The Chernin Group has declined to comment. A representative for Barstool Sports replied with the following, attributed to Barstool founder Dave Portnoy: “We continue to speak or have spoken with everybody from DraftKings to FanDuel to Stars to PointsBet to Penn to Willam Hill to MGM to Rush Street, etc. I think that if we aligned ourselves with one company with a shared vision, that company would have an extraordinary advantage in the race to becoming the leading gambling company in the United States.”

The Big Lead had previously reported that Barstool was looking at a deal to sell itself to a gambling company.

The deal would tie Barstool, a well-known company with a passionate audience, to a casino company you may have never heard of, which is part of the logic of the tie-up: Industry observers expect Penn National, which operates properties like the Hollywood Casino in Bangor, Maine, and the Greektown Casino-Hotel in Detroit, to adopt the Barstool brand for at least some of its operations.

The most logical use of Barstool’s brand would be to help Penn National move into online sports betting, which the Supreme Court blessed on a state-by-state basis in May 2018.

Since then, a host of media companies have tried to capitalize on what they think will be a sports betting boom by creating their own betting-centric properties, as well as by making deals with traditional casinos like Caesars and online betting companies like DraftKings and FanDuel. (Vox Media, which owns this site, has a deal between DraftKings and Vox’s SB Nation sports property.)

Barstool already has a Barstool Bets site, which publishes sports-betting stories and videos, and runs free sports-betting games; the company also has deals to direct its users to betting operations like MGM Resorts.

Until now, the biggest media and sports betting deal we’ve seen in the US has been Fox Corp’s purchase of a little less than 5 percent of The Stars Group, an online gambling company, for $236 million last year; the two companies launched a Fox-branded sports betting unit a few months later.

Other media transactions in recent years have been driven by a desire to gain scale to fight against tech companies (like AT&T’s purchase of Time Warner, and Disney’s purchase of much of Fox) or because of fire sales of startups that had planned to grow alongside Facebook and ended up running out of money (like Mashable and Mic). But Barstool is different: It is growing quickly, has a passionate audience that likes its off-color approach to covering sports and pop culture, and doesn’t appear to have cash flow problems.

Barstool founder Dave Portnoy, who is still the company’s best-known talent, sold a majority stake in his company to The Chernin Group for a reported $10 million in 2016; in 2018, Chernin put another $15 million into the company at a reported valuation of more than $100 million.

The deal could be a windfall for both Portnoy and Chernin. And it could also solve a problem for Chernin, a media investment and holding group run by former Rupert Murdoch lieutenant Peter Chernin. Barstool is beloved by its audience, but it is reviled by lots of media commentators, who grimace at the publishers’ frat-boy persona. Barstool pits itself against everyone from the NFL to ESPN to people who have a problem with stories like “ Josh Duhamel Compared His New Smokeshow Girlfriend Audra Mari to Patrick Mahomes,” which is currently featured on the site’s homepage.

Portnoy himself is a controversial face for the company. Last summer, via Twitter, he threatened to fire any employee who talked to union organizers. That prompted an investigation by the National Labor Relations Board, which is still open.

That brand has created problems for Chernin’s executives who have grown weary of defending their investment in Barstool. (For the record, their usual defense is that people who criticize Barstool probably don’t read or watch what Barstool makes, and what the company does is similar to Howard Stern’s show.)

It may also have limited possible acquirers for the company; conventional wisdom is that media companies that want to do business with pro sports leagues like the NFL wouldn’t be able to buy the Barstool for fear of offending their current or future partners. Or even offending their own employees: In 2017, ESPN launched a Barstool-branded chat show, then canceled it after a single episode after blowback from the sports programmer’s on-air talent. “I erred in assuming we could distance our efforts from the Barstool site and its content,” former ESPN President John Skipper wrote at the time.

vox.com

[JakeStraw] Penn National Gaming was upgraded by analysts at Morgan Stanley from an "equal w...

JakeStraw — 5/9/2019 12:15:47 PM

Penn National Gaming was upgraded by analysts at Morgan Stanley from an "equal weight" rating to an "overweight" rating. They now have a $27.00 price target on the stock, up previously from $25.00.

Penn National Gaming was upgraded by analysts at Bank of America Corp from a "neutral" rating to a "buy" rating.

[JakeStraw] Penn National Gaming Board of Directors Authorizes New $200 Million Share Repurc...

JakeStraw — 1/10/2019 10:22:44 AM

Penn National Gaming Board of Directors Authorizes New $200 Million Share Repurchase Program
finance.yahoo.com

[JakeStraw] Rutter’s Selects Penn National Gaming as Its Operator for Video Gaming Terminals...

JakeStraw — 1/10/2019 10:21:39 AM

Rutter’s Selects Penn National Gaming as Its Operator for Video Gaming Terminals in Pennsylvania
finance.yahoo.com
Under the gaming expansion law signed by Governor Wolf in 2017, establishments that meet certain criteria are eligible to host up to five VGTs inside their stores. VGTs are similar to slot machines, and the law sets maximum bets at $5 with a maximum payout of $1,000. Winnings will be paid out at redemption machines located on site.

[JakeStraw] Edited Transcript of PENN earnings conference call or presentation finance.yahoo...

JakeStraw — 11/13/2018 3:56:36 PM

Edited Transcript of PENN earnings conference call or presentation
finance.yahoo.com

[JakeStraw] Penn National Gaming Reports Third Quarter Income from Operations of $155.8 Mill...

JakeStraw — 11/1/2018 9:55:28 AM

Penn National Gaming Reports Third Quarter Income from Operations of $155.8 Million and Adjusted EBITDA after Master Lease Payments of $114.5 Million
finance.yahoo.com
Timothy J. Wilmott, Chief Executive Officer, commented: “Penn National generated record third quarter income from operations, led by our Las Vegas properties and the West region overall, despite facing increased competitive pressures in Illinois and Mississippi. Our operating teams continued to execute against our margin improvement initiatives as the company drove further adjusted EBITDA margin improvements across all three operating segments by an average of 115 basis points, to 29%, with 17 of 23 gaming properties delivering improved margins,” said Mr. Wilmott.

Mr. Wilmott continued, “On October 15, we completed our acquisition of Pinnacle Entertainment. This transformational merger further enhances Penn National’s position as North America’s leading regional gaming operator, and expands our diverse portfolio to 40 gaming, entertainment and racing properties in 18 jurisdictions, with more than five million active customers in our player rewards database. The acquisition is expected to be substantially accretive to Penn National’s free cash flow per share in the first year after closing, and we are expecting to achieve a run rate of more than $30 million of our two-year, $100 million cost synergy target by the end of the fourth quarter. We remain highly confident in our ability to realize all of our identified cost synergies, and we expect to generate new revenue synergies through leveraging one of the industry’s largest active player databases to take advantage of the continued expansion of sports wagering, iGaming, and our social gaming platform,” said Mr. Wilmott.

“With the expected significant free cash flow to be generated from our expanded base of operations, we are well-positioned to embark on an active leverage reduction program while pursuing accretive strategic growth investments, as well as evaluating opportunistic returns of capital to shareholders through our current share repurchase authorization, which has approximately $75 million remaining through next February.”

[JakeStraw] Penn National Gaming is now covered by analysts at SunTrust Banks, Inc.. They se...

JakeStraw — 10/2/2018 11:28:02 AM

Penn National Gaming is now covered by analysts at SunTrust Banks, Inc.. They set a "buy" rating and a $39.00 price target on the stock.

[JakeStraw] U.S. FTC approves Penn National's purchase of Pinnacle with divestitures finance...

JakeStraw — 10/2/2018 11:13:06 AM

U.S. FTC approves Penn National's purchase of Pinnacle with divestitures
finance.yahoo.com
The FTC said the companies should sell casino-related assets in Cincinnati, St. Louis and Kansas City, Missouri, to Boyd Gaming Corp.

[JakeStraw] Penn National Gaming Files Application for Hollywood Casino York finance.yahoo.c...

JakeStraw — 9/12/2018 10:57:48 AM

Penn National Gaming Files Application for Hollywood Casino York
finance.yahoo.com

[JakeStraw] Penn National Gaming Set to Launch Sports Betting at Its Five Mississippi Casino...

JakeStraw — 9/5/2018 1:36:08 PM

Penn National Gaming Set to Launch Sports Betting at Its Five Mississippi Casinos
pennnationalgaming.gcs-web.com

[Glenn Petersen] Penn Nat’l pays up to $170M for Rocket Games, a social casino studio from Zynga ...

Glenn Petersen — 8/4/2016 1:45:42 PM

Penn Nat’l pays up to $170M for Rocket Games, a social casino studio from Zynga alums

by Ingrid Lunden ( @ingridlunden)
TechCrunch
August 3, 2016

While social games company Zynga’s push into real-money gambling may have had some hiccups, a group of alums who built a startup dedicated specifically to the genre have sold their company for up to $170 million. Rocket Games, a social gambling company based out of San Francisco, has been acquired by Penn National Gaming, the slot machine, video gaming machine, and casino company. Penn National says that it will pay $60 million in cash, as well as earn-outs of up to $110 million on top of that based on company performance.

Rocket Games said that in 2015 it grew 500 percent and is in the top 15 of all social casino gaming companies. It made $5.6 million of operating EBITDA during the six month period ended June 30, 2016, the company says.

For Penn, this is a way for the company to continue to expand the kinds of games that it offers in physical locations, as well as to extend its brand and customer relationships further into the online world, for those times when people are not visiting those physical venues.

“Penn National’s accretive acquisition of Rocket highlights our ongoing strategic initiative to acquire emerging growth platforms that complement, and allow us to leverage, our core regional gaming operations and database of over three million active customers,” said Penn National Gaming President and CEO, Timothy J. Wilmott, in a statement. “Since the separation of our gaming assets from our real estate assets in 2013 we have been highly focused on a broad range of growth and diversification initiatives.”

The company had also launched its own online presence, Hollywoodcasino.com and Hollywoodslots.com, which it says are already profitable. “Based on our internal analysis, a significant segment of Penn National’s database customers actively participate in social and online gaming, and we believe there are meaningful operating and revenue synergies between Penn National’s operations, our Hollywoodcasino.com and Hollywoodslots.com social casino offerings and Rocket’s operations that will drive near- and long-term growth for our shareholders,” he noted.

What he didn’t add is also that moving further into new waves of business like this could be the boost the company needs right now. Penn National in its most recent financial reports posted net revenues of $769.4 million fro the three months that ended June 30, but that this fell short of their own guidance of $786.8 million.

Rocket Games makes apps for Android, iOS, Amazon and Facebook, and today has some 50 games in its portfolio, with the most popular including Viva Slots Vegas, Downtown Deluxe Slots, Triple Double Slots and Vegas Jackpot Casino. Like Zynga, it also licenses brands to develop gaming titles, including Popeye Classic Slots.

It is not clear how much Rocket Games, which was founded in 2013, had raised in private funding.

Its founders, executives and 30 other employees included some of Zynga’s most senior former staff, who left the latter company in the numerous waves of departures that hit around 2012-2014. Of the three co-founders, Bill Gelpi (Rocket Games’ CEO) had been Zynga’s director of product; Steven Jian (Rocket’s CTO) had been Zynga’s principal software engineer; and Niko Vuori (Rocket’s COO) was Zynga’s Studio GM among other roles. Other execs include Justin Cooper (Chief Content Officer, Rocket), who had been Zynga’s user experience VP. This team is coming to Penn with the acquisition.

“The entire Rocket team is delighted to join the Penn National family and leverage their expertise and nationwide reach to take our game development capabilities and company growth to the next level,” Gelpi said in a statement. “Social and online gaming is an extremely attractive segment of mobile and online gaming, and tying our innovative gaming expertise to a traditional casino operator with a qualified database of customers will create unmatched opportunities for both Rocket Games and Penn National.”

The exodus of talent from Zynga has fed into a number of other ventures, including a company acquired by Survey Monkey called Renzu, VR gaming company Playful, and mobile email company WeMail.

DLA Piper said that it provided legal counsel to Penn National Gaming around the deal.

techcrunch.com

[Glenn Petersen] Penn National Sees REIT Acquiring Rivals’ Casino Properties By Beth Jinks Bloo...

Glenn Petersen — 12/20/2012 9:15:47 AM

Penn National Sees REIT Acquiring Rivals’ Casino Properties

By Beth Jinks
Bloomberg
Dec 18, 2012 11:01 PM CT

Penn National Gaming Inc. (PENN), the casino operator spinning off properties into a real estate investment trust, will call competitors “10 seconds” after its deal closes to see who’s willing to sell their resorts.

“This idea will absolutely revolutionize and open up capital for gaming companies that’s not available today,” Chief Financial Officer Bill Clifford said in a Dec. 13 interview in New York. “Gaming companies could become asset-light, where the only capital they need to raise in order to operate casinos will be the cost of the furniture, fixtures and equipment, and gaming license.”

If successful, Penn National would lead the casino industry down a path pursued by hotels, offices, malls and timber plantations. The pitch: the other casinos could free up capital, allowing them to fund expansions, reduce debt or return cash to shareholders, Clifford said. Companies would then lease-back from Penn National’s REIT and continue operating the casinos as before.

Penn said on Nov. 15 it planned to split into two public companies in the second half of 2013 by placing most of its properties into a REIT to be owned by existing shareholders. REITs pay investors pretax earnings as dividends.

“If the price is right, I think people will definitely consider selling to the Penn REIT,” said Joel Simkins, an analyst at Credit Suisse Group AG in New York, who rates the stock outperform. “Some publicly traded companies may have a handful of assets that they look to monetize,” along with some of the more than 100 closely held gaming properties in the U.S., Simkins said.

Caesars, MGM

Casino companies with the most U.S. properties include Caesars Entertainment Corp. (CZR), MGM Resorts International (MGM), Boyd Gaming Corp. (BYD), Ameristar Casinos Inc. (ASCA), Pinnacle Entertainment Inc. (PNK), Station Casinos LLC and Isle of Capri Casinos Inc. (ISLE)

While Penn can’t approach other owners until the spinoff is completed under Internal Revenue Service rules, it will “be picking up the phone 10 seconds after the spin is effective and begin having conversations, setting up meetings, and try to engage their interest in doing a transaction with us,” Clifford said.

To be sure, other casino companies are likely evaluating whether they can replicate a REIT spinoff themselves, rather than sell assets to a rival, said Joseph Greff, a JPMorgan Chase& Co. analyst in New York.

Smart Spinoff

Still, most U.S.-focused casino companies today don’t have Penn’s combination of low debt, high cash taxes and strong free cash flow yields that make its spinoff strategically smart, Greff said. More highly levered rivals would struggle to generate sufficient cash to pay both rent and service debt. Many have accumulated losses resulting in lower tax burdens that make the REIT tax benefits less compelling, he said.

Similar moves have already succeeded in the hospitality industry, where REITs such as Host Hotels & Resorts Inc. own and lease hotels while operators including Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. have sold real estate to focus on managing properties. Gaylord Entertainment Co. earlier this year sold its hotel brands and management business to Marriott and converted to a REIT now called Ryman Hospitality Properties Inc.

Penn needs approval from casino regulators in the 19 jurisdictions that it operates before splitting the company, a process executives say they’re confident of achieving by the fourth quarter of 2013. The company received a private-letter ruling from the IRS related to the spinoff’s tax treatment that took more than 18 months, clearing a key hurdle to proceed.

29 Locations

Wyomissing, Pennsylvania-based Penn’s shares have surged 32 percent since the Nov. 15 announcement. Chief Executive Officer Peter Carlino built Penn National via acquisitions and development from a single horse-racing track near Harrisburg, Pennsylvania, into the operator of 29 casinos and racetracks across North America.

Clifford, 55, has been Penn’s CFO since 2001. He was previously CFO at Sun International Resorts Inc., developer of the Atlantis resort in the Bahamas, and earlier served as controller at Las Vegas casinos including Treasure Island.

Both the REIT and the operating company will continue to pursue acquisitions and developments, Clifford said, and the two entities may partner on some projects. The REIT will have a lower cost of capital, allowing it to potentially pay more while still getting a better return than the casino operating company, he said.

‘Certain Price’

“Penn has scoured the U.S. and scoured the globe for acquisition deals and development deals,” said JPMorgan’s Greff. “I would imagine potential sellers who wanted a certain price that Penn wasn’t willing to pay before” will be back in touch.

Penn is initially placing 17 of its properties into the REIT and will pay investors a one-time dividend of about $5.35 a share plus stock in the property trust, and forecast an annual dividend of about $2.36 per share based on 2013 earnings.

“It shows casino companies are looking for ways to unlock value,” said Keith Foley, an analyst at Moody’s Investors Service. “I wouldn’t be surprised if two or three other avenues are being considered by different companies.”

REITs, which don’t pay federal income taxes, are required to distribute at least 90 percent of income to investors, and must pay out earnings already accumulated. The reliability of regular payments appeals to a larger pool of investors than casino companies enjoy.

REIT Offerings

REITs raised $67 billion from debt and equity offerings this year through Nov. 30, the highest in records going back to 1996, according to data from the National Association of Real Estate Investment Trusts, a Washington-based industry trade group.

The dividend yield on the Bloomberg REIT Index was 3.5 percent yesterday, attracting investors pursuing yields higher than U.S. Treasury securities. The yield on the benchmark 10-year Treasury note was 1.82 percent yesterday and 3 percent for 30-year bonds.

Penn’s plan seeks to protect investors by ensuring the casino company must renew all leases together, preventing it from dropping individual properties, and requires the operating company to sell the license and equipment to the REIT at the end of the lease.

“They can’t just take their gaming license and go down the street and build another casino and compete,” Clifford said.“They have to leave the gaming license and the gaming equipment at the facility.”

Lease Structure

The casino operating company is also responsible for paying all building costs including maintenance, property taxes, utilities and insurance, minimizing expenses for the REIT. The so-called triple net lease structure is similar to Lexington Realty Trust, Omega Healthcare Investors Inc. and National Retail Properties Inc.

Penn’s REIT will charge rent of about half the cash flows of the casinos, and take 4 percent of the net revenue from most of them for five years, before renegotiating that rate.

“That’s what allows the REIT to participate in the revenue growth of the properties,” Clifford said. “It’s very much modeled after a mall REIT.”

Unlike retailers in malls, casinos are “somewhat less risky” tenants, said Credit Suisse’s Simkins. Because licenses are scarce and tightly regulated, “the odds of somebody opening up a shop next door to yours tomorrow are fairly limited.”

The property company should begin trading as a REIT in January 2014, and Penn expects the bulk of casino acquisitions to occur in the following three years, before expanding into other types of real estate, Clifford said.

“REITs that don’t grow don’t trade at as high a multiple as REITs that are successful at growing,” he said. “We’re going to be approaching anybody who has an interest in potentially monetizing their real estate holdings” to grow.

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net

http://www.bloomberg.com/news/2012-12-19/penn-national-sees-reit-acquiring-rivals-casino-properties.html?cmpid=yhoo

[Glenn Petersen] Gambling Firm Penn to Split Itself in Two By ALEXANDRA BERZON Wall Street Jour...

Glenn Petersen — 11/17/2012 10:14:59 PM

Gambling Firm Penn to Split Itself in Two

By ALEXANDRA BERZON
Wall Street Journal
November 16, 2012, 5:36 p.m. ET

Regional casino company Penn National Gaming Inc. PENN +28.24%said it is splitting its gambling operations from its real-estate holdings. The plan to divide its operations and its property into two separate companies will allow Penn—which operates 29 casinos, many under the Hollywood brand, and horse racetracks across the country—to save substantially on federal taxes. It's a common strategy for other industries, but it remains to be seen how the move will translate to casinos and racetracks.

"I think this process will unlock tremendous value," Penn Chief Executive Peter Carlino said in a conference call with analysts Friday.

Under the terms of the Penn arrangement, one company, known for now as PropCo, will own the physical buildings that house casinos operated by the other, known as Penn National Gaming. Penn is to pay a substantial share of its pretax earnings in rent to PropCo, which will own 17 casino properties. As a real-estate investment trust, or REIT, PropCo won't have to pay taxes on that rent, as long as it distributes nearly all of its income to shareholders.

The company has been working for 18 months on the plan—which would create the first REIT focused on gambling properties—and expects to finish implementing the arrangement in early 2014.

The plan could allow Penn to save on its U.S. tax bill of around $160 million, according to Barclays analyst Felicia Hendrix.

Executives said the arrangement will also lower costs to borrow money for acquisitions and development, and could make it easier to secure licenses in some jurisdictions, such as Pennsylvania and Maryland, that restrict the number of casinos a single company can own. Because the operating company will be much smaller than the current, combined company, it could make pursuing small deals more accretive, executives said.

Investors cheered the news, pushing the company's shares up about 28%, or $10.62, to close at $48.23 Friday. Many other gambling stocks also traded up Friday as investors anticipated a possible new industry trend. Rival regional casino company Ameristar Casinos Inc. saw its stock rise nearly 16%.

Moves to return cash to investors in the form of dividends is a sign of maturity in the casino industry, which has settled down from the high-growth days before the economic downturn.

"If this is seen immediately as a big value unlocker for Penn there's going to be pressure on other companies to look at doing the same thing," said Robert LaFleur, a gambling analyst for Cantor Fitzgerald.

Still, analysts said it isn't clear other companies will follow suit, since several of the biggest casino companies lose money and therefore don't pay U.S. income taxes, or pay most of their taxes to overseas governments. Many companies also have much higher levels of debt than Penn, which could make the REIT structure difficult.

Penn chief operating officer Tim Wilmott said he anticipated other regional U.S. casino companies with a similar profile as his could follow. "I can't tell you whether this is going to represent a trend or not," he said.

"We don't expect widespread acceptance of this kind of transaction," UBS analyst Robin Farley wrote in a research note.

Skeptics also say that in general, the REIT model could be more complicated and risky for the casino industry than some REIT businesses since the value of the casino's real estate is tied so closely to the gambling license itself. REITs also typically prefer to have a more diverse set of tenants, analysts say.

Mr. Wilmott said Penn's REIT, "will have the same opportunities as other REITs to evolve over time and diversify its tenant base."

Hotels moved aggressively in the 1990s to divide property and management into separate companies, creating more value for shareholders. Casino companies considered the idea but resisted the trend in order to hold on to earnings at a time of rapid expansion.

Under Penn's plan, shareholders will receive shares in the property company, which will receive around $450 million in rent from the operating company—around half of the operating company's projected cash flow, or earnings before interest, taxes, depreciation and amortization. It expects to pay out a special dividend of around $15.40 per share in cash and shares, as well as a regular dividend that it projects will be around $2.36 a share.

The property company will be run by Mr. Carlino, the current CEO, while Penn's current COO, Mr. Wilmott, will become the CEO of the operating company.

The company says it has gotten indication from the IRS that its proposed structure qualifies as a REIT. It still needs approval from gambling regulators.

Write to Alexandra Berzon at alexandra.berzon@wsj.com

online.wsj.com

[nickholder1123] Moody’s raises Penn National Gaming outlook Moody's Investors Service raised ...

nickholder1123 — 11/8/2012 8:44:24 PM

Moody’s raises Penn National Gaming outlook

Moody's Investors Service raised Penn National Gaming Inc.'s outlook as well as its secured bank loan rating on June, saying the casino operator has done well compared to its rivals and improved its credit profile.

However, the performance of Penn since June didn’t see any opportunity to invest. I think here is the reason: MGT Gaming, Inc. has filed a lawsuit claiming patent infringement against multiple companies believed to be violating MGT Gaming's United States Patent No. 7,892,088 ("the ‘088 Patent") entitled "Gaming Device Having a Second Separate Bonusing Event." Penn National Gaming, Inc. is among the multiple companies that may either manufacture, sell or lease gaming systems in violation of MGT Gaming's patent rights, or operate casinos that offer gaming systems in violation of MGT Gaming's patent rights.

We really don’t know when and what is the outcome of the lawsuit, but if MGT win the lawsuit, Penn will have to pay royalties. It may raise the stock price of MGT and drop down that of Penn for sure.