Penn National Gaming held true to its word.
The regional gaming giant wasn’t done buying casinos even after completing a $2.8 billion acquisition a month ago.
Purchasing the operations of Detroit’s Greektown Casino-Hotel gives the Wyomissing, Pennsylvania-based company properties in 19 jurisdictions and solidifies its dominance in the Midwest.
“Greektown Casino-Hotel further strategically diversifies our revenue, operating and customer base,” Penn National CEO Tim Wilmott said in a statement Wednesday.
Penn will acquire the operations for $300 million and real estate investment trust VICI Properties is buying the land and buildings for $700 million. Penn will sign a 15-year lease with VICI with initial annual rent of $55.6 million.
Detroit is home to three commercial casinos and Greektown is the smallest behind MGM Grand Detroit and MotorCity Casino. The property has 400 hotel rooms and a 100,000 square foot casino with 2,700 gaming machines, 60 table games, a poker room and three restaurants. Greektown employs 1,700 workers.
“Given only three gaming licenses can be issued in any city in Michigan, competitive dynamics are fairly stable with citywide gross gaming revenue remaining between $1.3 billion and $1.4 billion 2006,” said SunTrust gaming analyst Barry Jonas.
After buying 12 of regional rival Pinnacle Entertainment’s 12 casinos. Wilmott said Penn National was still open to “tuck in” acquisitions to expand the company’s presence in untapped markets.
Wall Street analysts said Greektown opens Penn to a new customer base.
“The Detroit market is a positive addition to the portfolio and with regard to the expected accretion to cash flow,” said Jefferies analyst David Katz.
Stifel gaming analyst Steven Wieczynski said Detroit was one of the most stable gaming markets in the U.S.
“We really like this deal for Penn both from the perspective of entering a new market coupled with the accretion to their free cash flow profile,” Wieczynski said.
The transaction is the second deal with between Penn and VICI, the REIT that was spun off from the bankruptcy reorganization of Caesars Entertainment. In June, the companies agreed to a joint purchase of the Margaritaville Resort Casino in Bossier City, Louisiana, for a total value of $376 million. The deal is expected to close by the end of the year.
Wilmott said Greektown was located “in the heart” of downtown Detroit and close to many nearby attractions, such as Comerica Park, Ford Field, Little Caesars Arena, the city’s theater district, GM’s Renaissance Center and the Cobo Center.
Penn owns the Hollywood Casino Toledo, in Ohio, roughly 60 miles south of Detroit.
“Detroit is undergoing an exciting renaissance as a result of billions of dollars of new investments in the city’s residential, commercial, entertainment and cultural center, all of which are driving new residents, businesses, tourists and employment to the downtown area,” Wilmott said.
Penn and VICI are buying Greektown from Jack Entertainment, which is controlled by businessman Dan Gilbert, who owns the NBA’s Cleveland Cavaliers. Gilbert has said he wants to sell his casino holdings, which include three properties in Ohio and a stake in the Horseshoe Casino Baltimore.
VICI President John Payne said in a statement Greektown expands the company’s casino roster, which includes more than 20 properties in partnership with Caesars Entertainment. VICI executives have said on recent earnings conference calls they want to grow the company to include additional casino operators.
Deutsche Bank gaming analyst Carlo Santarelli said he wasn’t surprised Penn and VICI get together on another deal.
“Given the reasonable purchase price, the addition of a new/untapped market for Penn, and healthy commercial casino gross gaming revenue in Michigan, we believe the deal is likely to be well received,” Santarelli said.
Shares of Penn National, traded on the Nasdaq, closed at $21.32 Wednesday, up $1.56 or 7.89 percent. VICI, traded on the New York Stock Exchange, closed at $21.44, down 3 cents or 0.14 percent.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
