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Penn National Gaming starts work on $360 million California project


Penn National Gaming has started construction on a $360 million casino development in partnership with a Southern California Indian tribe, 20 miles east of San Diego.

The casino company announced initial development activities on the Hollywood Casino Jamul this past week. Penn National, which owns M Resort, still needs to be approved by the National Indian Gaming Commission as the resort’s manager.

The Jamul Indian Village has held a signed gaming compact with California for the casino since 1999.

The Hollywood Casino Jamul, off San Diego’s state Route 94, is expected to be a three-story development totaling 200,000 square feet.

Penn National Chief Operating Officer Jay Snowden said the project, which is expected to open in late 2015, will let the Jamul tribe “bring to fruition their vision to revitalize their reservation and become self-sufficient, while simultaneously sharing gaming revenue with local governments and charities.”

Jamul Village Tribal Chairman Raymond Hunter said the tribe plans to divert construction traffic away from Jamul businesses and neighborhoods to minimize potential impact on the community. State Route 94 will also be redeveloped to accommodate increased traffic brought about by the casino.

According to Casino City’s annual Indian Gaming Industry report, California’s tribal casinos produced $6.9 billion in gaming revenues in 2011. The figure was more than 25 percent of the $27.4 billion produced by the entire Indian gaming industry that year.

Wells Fargo Securities gaming analyst Cameron McKnight told investors that cash flow returns from the project could be in the high 20 percent range because of the low tax rate under California’s 1999 tribal compact.

“We estimate the management and development agreement could contribute $10 million to $15 million in annual free cash flow for Penn,” McKnight wrote in a research report.

As of 2011, California had 68 Indian casinos. In 2013, Station Casinos opened the $800 million Graton Resort with the Federated Indians of Graton Rancheria in the Sonoma County city of Rohnert Park, roughly 48 miles north of San Francisco.

Meanwhile, Gaming and Leisure Properties Inc., Penn’s real estate investment trust that was spun off in 2013, will pay out $1.05 billion in a dividend next month. Each shareholder will receive $11.85 per share Feb. 18.

The company plans to distribute 20 percent of the dividend through $210 million in cash payouts; the rest will be distributed through additional shares of Gaming and Leisure’s common stock.

“With the special dividend payment now behind us, we believe investor interest will accelerate as real estate investment trust and tax-sensitive investors now take a closer look at the company,” McKnight told investors.

By law, real estate investment trusts, often referred to as REITs, don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders.

Penn National spun off 21 of the company’s 29 casinos and racetracks, including M Resort, in November into Gaming and Leisure Properties. The REIT also took ownership of two under-construction racetrack casinos in Ohio.

Gaming and Leisure Properties leased 19 of the casinos back to Penn National while it owns and own and operates, through taxable REIT subsidiaries, casinos in Baton Rouge, La., and Perryville, Md. In December, the REIT agreed to acquire real estate associated with the Casino Queen in East St. Louis, Ill.

“The deal clearly demonstrates GLPI’s accretive acquisition strategy,” McKnight said. “It demonstrates how sale-leasebacks are a form of alternative financing for operators.”

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.

 

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