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REIT offers to buy real estate of Pinnacle Entertainment

A real estate investment trust spun off from Penn National Gaming on Monday offered to buy the real estate owned by rival regional operator Pinnacle Entertainment of Las Vegas for $4.1 billion.

Gaming and Leisure Properties Inc. said in a statement the proposed transaction would create the third largest triple-net REIT by enterprise value.

Peter Carlino, chief executive officer of GLPI, said the company approached Pinnacle’s board of directors in January about a proposed transaction, but the regional casino operator didn’t responded. GLPI, which is based in Wyomissing, Pa., sent a letter to Pinnacle’s board Monday outlining the concept.

Pinnacle, which operates 15 regional casinos in eight states, announced plans last year to split the company into a REIT, in which one company would own the real estate and another company would operate the casinos.

GLPI has now offered to acquire Pinnacle’s casino sites and lease the properties back to them. Pinnacle shareholders would receive shares with an aggregate value of $36 a share, or a 30 percent premium over Pinnacle’s closing price on Friday.

Shareholders in Pinnacle would continue to own the operating company and would also receive 0.5517 shares of GLPI for each share of Pinnacle.

Pinnacle would pay $358 million a year in rent to GLPI to manage the casinos.

Carlino said Pinnacle, four months after announcing the REIT plans, has still not provided any specifics.

“GLPI’s straightforward proposal has a much faster path to completion and much less risk going forward,” Carlino said. “Our proposed transaction would create both immediate and longer-term value for the shareholders of both companies.”

GLPI said the plan would allow Pinnacle to complete its REIT structure without having to sell $700 million in stock.

In a statement, Pinnacle said it would “carefully review and evaluate GLPI’s proposal to determine the course of action that it believes is in the best interest of the company and its shareholders.”

The company said it dismissed GLPI’s original proposal in January as not having a greater value than the company’s own plan.

“The company indicated its willingness to engage in discussions with GLPI under appropriate terms, which GLPI refused,” Pinnacle said.

REITs, by law, 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.

In 2013, Penn National split off 21 of its 29 casinos and racetracks — including M Resort — into GLPI. The properties are leased back to Penn through a management contract.

Carlino said the offer by GLPI would help Pinnacle complete the REIT deal without have to set up a whole new company with an operating team and management.

“Our proposal starts with Pinnacle’s fundamental decision to separate into two companies and enhances that approach with a better transaction offering certain and superior value to Pinnacle shareholders and doing so much sooner,” Carlino said.

Analysts expressed initial support for the GLPI offer.

“Given that Pinnacle has a fairly diverse investor base and no dominant insider shareholders, we believe the board and management will have to seriously consider this offer,” said Credit Suisse gaming analyst Joel Simkins.

Macquarie Securities gaming analyst Chad Beynon said the proposal was in line with the value that Pinnacle had placed on standalone conversion.

“With GLPI’s corporate structure already set up, it would rid Pinnacle the need to find a separate management team and do a lot of heavy lifting and paper work,” Beynon said.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said the transaction was one way for GLPI to ensure that another competitive gaming REIT is formed.

“We believe GLPI’s proposed acquisition of Pinnacle real estate assets makes sense for both parties and should be supported by its shareholders,” Wieczynski said.

Pinnacle doubled in size in 2013 when the company acquired rival Ameristar Casinos in a $2.8 billion transaction. In Nevada, Pinnacle operates two casinos in Jackpot near the border with Idaho. In addition to its casino holdings, the company holds a majority ownership and management contract for a racetrack near San Antonio.

Shares of Pinnacle surged on the New York Stock Exchange, closing at $31.61, up $4.19 or 15.28 percent. Shares of GLPI closed at $36.43 on the Nasdaq, up $4.06 or 12.54 percent.

The news also boosted other regional casino operators. Boyd Gaming Corp. closed at $14.50, up 58 cents or 4.17 percent on the New York Stock Exchange. Penn National was up 30 cents or 1.88 percent to close at $16.23 on the Nasdaq. Shares of Isle of Capri Casinos closed at $13.10 on the Nasdaq, up 23 cents or 1.79 percent.

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

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