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Penn National Gaming Announces Intent To Pursue The Separation Of Its Real Estate Assets From Its Operating Assets

Stocks in this article: PENN

Penn National Gaming, Inc.:

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Friday, November 16, 2012 at 8:30 a.m. ET

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Penn National Gaming, Inc. (PENN: Nasdaq) (“PENN”) announced today that it intends to pursue a plan to separate its gaming operating assets and real property assets into two publicly traded companies including an operating entity, Penn National Gaming (“PNG”), and, through a tax-free spin-off of its real estate assets to holders of PENN common stock, a newly formed, publicly traded real estate investment trust (“REIT”) (“PropCo”), subject to required gaming regulatory body approvals.


  • Creation of the first gaming focused REIT
    • Initially, rent will equal approximately $450 million, which represents approximately half of PNG’s projected 2013 adjusted EBITDA
  • Through a tax-free dividend, PENN shareholders will receive PropCo common stock. PropCo will subsequently declare a taxable dividend of approximately $1.4 billion of accumulated earnings and profits equivalent to approximately $15.40 per PENN share comprised of approximately $487 million of cash, or an approximately $5.35 cash dividend per PENN share, with the remainder comprised of PropCo shares
  • PropCo shareholders to be entitled to ordinary dividend which, based on pro forma 2013 guidance, would be $2.36 per PENN share
  • Non-binding agreement reached to exchange $975 million of Series B Redeemable Preferred Stock (“Preferred Stock”) at $67 per share into approximately 14.6 million non-voting PENN common shares or equivalents
    • Exchange will reduce PENN diluted common shares outstanding by approximately 7.1 million shares
    • Following the exchange, PENN has the right to purchase up to an estimated $417.5 million of the non-voting PENN common stock or equivalents (approximately 6.2 million of the 14.6 million non-voting PENN common shares or equivalents at $67 per share) which may reduce PENN diluted common shares outstanding by up to approximately 6.2 million additional shares
  • PENN has received a Private Letter Ruling from the IRS with respect to certain tax matters regarding the transaction and the qualification of PropCo as a REIT
  • Spin-off of PropCo shares to PENN shareholders expected to occur in the second half of 2013 with REIT election effective by January of 2014


Under the plan, PropCo will initially own substantially all of PENN’s real property assets and will lease back most of those assets to PNG for use by its subsidiaries, under a “triple net” 35 year Master Lease agreement (including extensions). It is expected that PNG would pay approximately $450 million to PropCo in rent, which would result in a rent coverage ratio of approximately 2.0 times earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”). After the proposed separation, PNG would operate the leased gaming facilities and own and operate other assets, which include a casino management contract, a 50% joint venture interest in Hollywood Casino at Kansas Speedway, gaming licenses, seven non-casino racetracks and gaming equipment.

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