Fitch: Gaming companies ‘not well-suited’ for real estate investment trusts

Fitch Ratings Service tossed some cold water on plans by several casino companies to separate their properties in real estate investment trusts.

The New York-based bond rating service, in a report to investors Thursday, warned the financial returns might not be as lucrative as once expected. Inherent conflict can surface between the separate business interests of the divided companies — one that operates the resorts and the other owns the real estate and buildings associated with the properties.

“Fitch does not believe gaming companies are well-suited for operating company/property company structures,” the ratings service’s chief gaming analyst, Alex Bumazhny, wrote in the report, “What Investors Want to Know – The State of REITization.”

Bumazhny said the long-term lease agreements signed between the operating and property companies can become a cause of concern, “given the industry’s cyclicality and substantial (capital expenditure) needs.”

Three companies — MGM Resorts International, Pinnacle Entertainment and Caesars Entertainment Corp. — are in the process of separating all or a portion of their casinos into REIT structures. The model was first accomplished by Penn National Gaming in 2013, when the company spun off Gaming and Leisure Partners as a separate public company, which took ownership of 21 of Penn’s 29 racetracks and casinos.

REITs don’t pay federal income taxes but are required to distribute at least 90 percent of their taxable earnings to shareholders.

Bumazhny warned that fewer companies, including several outside the casino industry, are exploring REIT transactions because GLPI has seen its stock value decline 30 percent from its 52-week high in mid-2015. Also, recent Internal Revenue Service guidance and the passage of the Protecting Americans from Tax Hikes Act of 2015, changed the Penn-GLPI model.

In an interview, Bumazhny said Macy’s Inc. was planning a REIT spinoff similar to Penn-GLPI but halted the process because of the IRS changes.

“GLPI’s shares traded really well in the first year,” Bumazhny said.

The three gaming companies now involved in the REIT process are taking different paths that don’t require IRS approval.

MGM Resorts is creating MGM Growth Properties that will initially own the real estate and buildings for 10 MGM developments, including seven properties on the Strip. The company plans to retain a 70 percent ownership in the REIT.

Pinnacle is selling 14 of its casinos to GLPI for $4.75 billion and will lease back the resorts through a 10-year lease agreement.

Caesars is seeking bankruptcy court approval to place some two dozen casinos operated by its Caesars Entertainment Operating Co., into a REIT with the division still managing the resorts. Caesars Palace is the only Strip property that is part of CEOC.

Bumazhny said the MGM concept was a better move because the company will still have control of the REIT.

“Fitch also maintained MGM’s outlook as positive following its REIT transaction,” Bumazhny said. “MGM’s main credit group will retain the majority of the new REIT, reduce debt and retain two premium assets, the Bellagio and MGM Grand Las Vegas.”

He said other companies, such as Macy’s, are taking a long look at the MGM model.

The Caesars REIT structure follows the MGM model in the sense that the company will still have an ownership stake in the CEOC property company, although the percentage hasn’t been determined. CEOC hopes to eliminate $10 billion of its $19.6 billion debt through the REIT, which is the key element of the Chapter 11 reorganization.

Bumazhny said Pinnacle’s deal with GLPI was simply “a sale of assets. It’s more of a merger and acquisition.”

Pinnacle will continue operating its casinos but GLPI has ran into trouble in the past year trying to find management companies willing to operate any additional properties the REIT acquires. GLPI still hasn’t named an operator for the Meadows Racetrack casino near Pittsburgh, which the company is acquiring from Las Vegas-based Cannery Casinos.

“Gaming companies have heavy maintenance capital expenditures, and that can run into trouble with the property side,” he said.

In its report, Fitch expressed similar concerns about REITs covering retail businesses, but said the structure was “less problematic” for restaurant companies.

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

ad-high_impact_4
Business
Opendoor isn't the typical house flipping company
Unlike most house flippers, the company aims to make money from transaction costs rather than from selling homes for more than their purchase price.
The Venetian gondoliers sing Italian songs
Gondolier Marciano sings a the classic Italian song "Volare" as he leads guests through the canals of The Venetian in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal)
Building In Logandale
Texas homebuilder D.R. Horton bought 43 lots in rural Logandale. (Eli Segall/Las Vegas Review-Journal)
Indoor farming in Southern Nevada
Experts discuss Nevada's indoor farming industry. (Bailey Schulz/Las Vegas Review-Journal)
Former Fontainebleau could have become a Waldorf Astoria
Months after developer Steve Witkoff bought the Fontainebleau last summer, he unveiled plans to turn the mothballed hotel into a Marriott-managed resort called The Drew. But if Richard “Boz” Bosworth’s plans didn’t fall through, the north Las Vegas Strip tower could have become a Waldorf Astoria with several floors of timeshare units. (Eli Segall/Las Vegas Review-Journal)
LVCVA CEO Rossi Ralenkotter announces plans to retire
Rossi Ralenkotter, CEO of the LVCVA, on Tuesday confirmed a Las Vegas Review-Journal report that he is preparing to retire. Richard N. Velotta/ Las Vegas Review-Journal
Cousins Maine Lobster to open inside 2 Las Vegas Smith’s stores
Cousins Maine Lobster food truck company will open inside Las Vegas’ two newest Smith’s at Skye Canyon Park Drive and U.S. Highway 95, and at Warm Springs Road and Durango Drive. Cousins currently sells outside some Las Vegas Smith’s stores and at Fremont Street and Las Vegas Boulevard. (K.M. Cannon/Las Vegas Review-Journal)
Las Vegas home prices to continue to rise, expert says
Lawrence Yun, chief economist at the National Association of Realtors, gives homebuyers a pulse on the Las Vegas housing market. (Eli Segall/Las Vegas Review-Journal)
NV Energy announces clean energy investment
The company is planning to add six solar projects in Nevada, along with the state's first major battery energy storage capacity. Bailey Schulz/Las Vegas Review-Journal
3 Mario Batali restaurants on Las Vegas Strip to close
Days after new sexual misconduct allegations were made against celebrity chef Mario Batali, his company announced Friday that it will close its three Las Vegas restaurants July 27. Employees of Carnevino Italian Steakhouse, B&B Ristorante and Otto Enoteca e Pizzeria, all located in The Venetian and Palazzo resorts, were informed of the decision Friday morning. Bastianich is scheduled to visit the restaurants Friday to speak to employees about the next two months of operation as well as how the company plans to help them transition to new positions.
Nevada has its first cybersecurity apprenticeship program
The Learning Center education company in Las Vegas has launched the first apprenticeship program for cybersecurity in Nevada. It was approved by the State Apprenticeship Council on May 15. (K.M. Cannon/Las Vegas Review-Journal)
Las Vegas union members voting to authorize the right to strike
Thousands of Las Vegas union members voting Tuesday morning to authorize the right to strike. A “yes” vote would give the union negotiating committee the power to call a strike anytime after June 1 at the resorts that fail to reach an agreement. (Todd Prince/Las Vegas Review-Journal)
Small businesses struggle to find qualified candidates
A 2018 survey found that over two-thirds of small businesses in Nevada find it somewhat to very difficult to recruit qualified candidates. Bailey Schulz/Las Vegas Review-Journal
Nevada secretary of state website offers little protection against fraudulent business filings
Property developer Andy Pham tells how control of his business was easily seized by another person using the secretary of state website.
Caesars may be going solo in its marijuana policy
Several Southern Nevada casino companies aren’t following Caesars Entertainment’s lead on marijuana testing.
How much is the Lucky Dragon worth?
Less than a year-and-a-half after it opened, the Lucky Dragon was in bankruptcy.
Gyms and discount stores take over empty retail spaces
Grocery stores used to draw people to shopping centers. But many large retail spaces have been vacant since 2008. Discount stores like goodwill and gyms like EOS Fitness are filling those empty spaces, and helping to draw shoppers back in. K.M. Cannon/Las Vegas Review-Journal
Funding source of Las Vegas stadium for the Raiders is sound, expert says
The stadium is funded in part by $750 million of room taxes, the biggest such tax subsidy ever for a professional sports stadium. Robert Lang, executive director of Brookings Mountain West and The Lincy Institute at UNLV, says that is a good use of public funds. (Richard Velotta/Las Vegas Review-Journal)
Las Vegas needs light rail, expert says
Robert Lang, executive director of Brookings Mountain West and the Lincy Institute said he is afraid of a "congestion mobility crisis." Las Vegas needs a light rail system, he said, to accommodate the city's growing number of attractions. (Richard Velotta/Las Vegas Review-Journal)
Three takeaways from Wynn Resorts' Earnings Call
Matt Maddox came out swinging in his first earnings conference call as Wynn Resorts chief executive officer, boasting of record Las Vegas quarterly revenues and applicants lining up for work.
Star Wars VR Comes to Las Vegas
Sneak peak at the new "Star Wars: Secrets of the Empire" VR experience at the Grand Canal Shoppes.
Elaine Wynn continues her fight to change Wynn Resorts board
Elaine Wynn, the largest shareholder of Wynn Resorts Ltd., is seeking to kick a friend of her ex-husband Steve Wynn off the company’s board of directors. (Todd Prince/Las Vegas Review-Journal)
Zillow is getting into house flipping in Las Vegas
Las Vegas Review-Journal real estate reporter Eli Segall says flipping houses has waned in popularity after the housing bubble burst.
Ellis Island Buys Mt. Charleston Lodge
Ellis Island, which operates a casino, brewery and hotel just off the Strip, purchased the Mt. Charleston Lodge in early April.
Casinos to be penalized for allowing drug-impaired customers to gamble
Nevada Gaming Commission Chairman Tony Alamo talks about an amendment making casinos subject to the same disciplinary standards of preventing people to gamble if impaired by drugs as they are for letting them play while intoxicated by alcohol.
Terrible Herbst to open large travel center in Southern Nevada
The 50,000-square-foot commercial travel center will include 96 fuel pumps and the third White Castle restaurant in Southern Nevada. Wade Tyler Millward reports.
Art Bell’s Top 10 Shows
A selection of radio host Art Bell’s most popular shows.
Hooters owner talks about room upgrades at his hotel-casino
George Ruff, founder and senior principal of Trinity Hotel Investors L.L.C., owner of Hooters Hotel and Casino in Las Vegas, talks about recent room upgrades at the hotel. K.M. Cannon/Las Vegas Review-Journal
Passengers Discuss Allegiant Air
Allegiant Air passengers voice their views on the airline at McCarran International Airport on April 16, 2018. (Bailey Schulz/Las Vegas Review-Journal)
Longtime Las Vegas attorney John Momot dies at age 74
Criminal defense attorney John Momot, who represented mob figures and even played himself in the movie “Casino,” has died.
TOP NEWS
News Headlines
Home Front Page Footer Listing
Circular
You May Like

You May Like