Under pressure from activist investor Orange Capital LLC's Daniel Lewis, casino operator Pinnacle Entertainment Inc. (PNK) on Thursday announced it plans to separate its real estate assets from its operating assets.
In a statement, Las Vegas-based Pinnacle said it plans to create a Real Estate Investment Trust, or REIT, for its real estate that will be distributed to the company's existing shareholders in a tax-free spinoff. In addition, "substantially" all of the real estate will be leased back to Pinnacle, which currently owns and operates 15 gaming properties in eight states, and the new REIT will have a mandate to make real estate acquisitions in the "gaming, leisure and entertainment industries."
The move comes after Lewis in April said in a 13D regulatory filing announcing his activist stance, reporting that he has had "ongoing discussions" with Pinnacle's management over his recommendation that it consider spinning off its real estate into a REIT.
"This is a great result for shareholders, and for management," Lewis told The Deal Thursday. "They were highly responsive to shareholders and we think it's a great outcome."
Orange Capital has a 4.2% Pinnacle stake as well as economic exposure to the company through a 3.4% derivatives stake, as of the activist fund's most recent filing with the Securities and Exchange Commission in July.
Nevertheless, he declined to comment on whether he had to threaten a proxy fight to convince Pinnacle to make the move. Lewis has threatened or launched proxy contests at a few other companies, including at InnVest REIT (IVRVF) and Strategic Hotels & Resorts Inc. (BEE) . "We believe we were a constructive party in this process, and we give management a lot of credit for executing on this transaction in a timely manner," he said.