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Penn National real estate move could become industry standard

Penn National Gaming’s plan to split the regional casino giant into two publicly traded companies was granted preliminary approval by Nevada gaming regulators Wednesday.

The concept would separate 19 of the company’s 29 casinos and racetracks, including the M Resort, into a real estate investment trust, often referred to as a REIT.

Penn National would continue to operate the casinos. The REIT will be known as Gaming and Leisure Properties, Inc.

Penn National Chief Financial Officer Bill Clifford told the Gaming Control Board customers won’t notice any difference in the operation of the M Resort once the split takes place, possibly by the end of the year.

“Bottom line, there is no changes at the M Resort,” Clifford said. “Anthony Marnell (III) remains as (general manager). He’ll be there as long as he wants.”

The split, which was announced last November, would result in Penn investors receiving a dividend of roughly $5.35 per share plus stock in the REIT. The casino operation side will pay the REIT a estimated $450 million a year in rent for the casinos.

REITs, by law, don’t pay federal income taxes. With real estate the primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders.

Clifford told the control board the REIT would offer Penn National increased expansion opportunities. He said the process still requires approval from the Securities and Exchange Commission and other gaming regulatory bodies.

Penn National previously disclosed and it received a private letter ruling from the Internal Revenue Service related to the tax treatment and qualification of Gaming and Leisure Properties as a REIT.

Gaming Control Board Chairman A.G. Burnett said Penn’s REIT was the first for the gaming industry and it might be a concept for other casino companies to explore.

The Nevada Gaming Commission will have the final say on the plan on July 25.

Clifford told the control board there are some 150 REITs publicly traded on the New York Stock Exchange that own more than $150 billion in real estate assets.

The real estate associated with the 19 casinos in Penn’s REIT would total more than 2,900 acres and 6.6 million square feet of building space. The REIT would lease back to Penn National 17 of the casinos while it will own and operate casinos in Baton Rouge, La., and Perryville, Md.

Shares of Penn National closed at $52.93 on the Nasdaq Global Select Wednesday, up 26 cents or 0.49 percent.

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

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