Analysts said Penn National Gaming gave itself some financial breathing room by selling the Tropicana Las Vegas to a real estate investment trust, helping the regional casino operator weather the shutdown of its property portfolio nationwide.
Penn announced the sale of the Las Vegas Strip resort late Friday to Gaming and Leisure Properties for rental credits of $337.5 million, eliminating five months of rent payments to the REIT, roughly $68 million per month under the two master lease agreements between the companies.
Prior to the deal, Penn was expected to pay roughly $900 million in total rent this year for more than 30 gaming properties.
“The deal provides relief to the rent burden and should mitigate market concerns,” Jefferies gaming analyst David Katz said Sunday.
Penn is also selling an under-construction casino in Morgantown, Pennsylvania to GLPI and has an option to acquire the operations of GLPI’s Hollywood Casino Perryville in Maryland.
Deutsche Bank gaming analyst Carlo Santarelli said Sunday that investors would view the deal as alleviating “some near-term challenges” for Penn.
“In a sense, this is ‘found money,’ or, in this case, savings,” he said.
SunTrust Bank gaming analyst Barry Jonas said the deal showed the value of operators still owning their own real estate. The transaction allowed Penn to save some capital.
“We don’t believe this is a deal that happens in a normal operating environment, but ultimately it buys Penn more time to survive and pay its rental obligations to GLPI, in this anything-but-normal environment,” Jonas said.
Last week, Macquarie Securities said Penn was spending $6.4 million a day on its 41 properties in 19 states, all shut down by the COVID-19 coronavirus pandemic.
As part of Friday’s announcement, Penn said it would furlough roughly 26,000 employees nationwide on Wednesday. The company has been paying wages and benefits since the shutdowns began two weeks ago and will do so through Tuesday. CEO Jay Snowden said Penn will maintain medical benefits for its workers through June 30.
Management level employees will receive pay cuts.
Santarelli estimated Penn will keep what is currently the nation’s largest regional casino company operational, with less than 850 employees.
The sale of the Tropicana, the company’s only Strip resort, was not a surprise. Penn has discussed selling the Rat Pack-era casino during quarterly earnings conference calls. In February, Snowden said the Tropicana’s 34-acre parcel on the Strip’s southern end that houses the 1,500-room resort is attracting active “unsolicited” interest.
Penn will operate the resort under a cancelable lease with “nominal rent.” GLPI said it “plans to explore all options with respect to the Tropicana Las Vegas” and Penn would receive a share of any sale if the Strip resort is sold within 24 months.
Penn and GLPI also agreed to renew the two master leases for an additional five years.
“The transaction came as little surprise given (that) management has indicated plans to sell Tropicana over the past year and casino closures across the nation stress the company’s financial metrics,” Katz said in a note to investors. “It should alleviate near term financial pressure.”
Shares of Penn, traded on the Nasdaq, closed at $11.77 Friday, down $1.49 or 11.24%. Penn’s stock price is down as much 90% since the middle of February when the markets began to bottom out.
Santarelli said the investment community still views Penn as a “dislocated stock” given the turmoil.
He also expects Penn to eventually acquire the Maryland casino, given that the state was showing momentum toward legalizing sports betting before the pandemic shut down the legislature in early March.
Santarelli said Penn’s $163 million sports betting deal with sports media platform Barstool Sports will be a key focus when operations eventually return. Penn and Barstool plan to launch a mobile wagering platform and a rebranding of the operator’s retail sportsbooks inside casinos.
“We believe Penn’s sports betting story, when normalcy returns, will be the focus of the narrative of the equity story,” Santarelli said.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
