UPDATE 1/4/2023: Bally’s Wednesday announced the completion of the previously announced sale of its Bally’s Tiverton and Bally’s Hard Rock Biloxi casinos to Gaming and Leisure Properties for a total consideration of $635 million. Bally’s will “continue to own, control, and manage all the gaming operations of the facilities on an uninterrupted basis” with the leasing arrangement.
While Bally’s Twin River Lincoln was originally part of the plan, the third-party consents and approvals for the acquisition of the casino were not timely received, thus the transaction went ahead with only the Tiverton and Biloxi casinos.
These two properties have been added to Bally’s Master Lease with GLPI, which now includes six properties. The rent for the Master Lease has been increased by $48.5 million on an annual basis to account for the addition of the properties.
Per the original agreement, GLPI has the option, subject to receipt of required consents, to acquire the real-property assets of Lincoln prior to December 31, 2024, for a purchase price of $771 million and additional rent of $58.8 million.
ORIGINAL ARTICLE 6/29/2022:
Rhode Island-based Bally’s Corporation, fresh off its selection as the preferred bidder for a $1.7 billion Chicago casino project, has agreed to sell two of its properties in Rhode Island to Gaming and Leisure Properties for $1 billion. Bally’s will lease back both from GLPI.
In a deal announced Tuesday, Bally’s Corp. is selling GLPI its Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino & Hotel. Bally’s will “continue to own, control, and manage all the gaming operations of the facilities on an uninterrupted basis” with the leasing arrangement, the company announced.
Both properties are expected to be added to the existing master lease between GLPI and Bally’s, with incremental rent of $76.3 million. The master lease has an initial term of 15 years (14 years remain), followed by four, five-year renewals at the tenant’s option, Bally’s executives said.
“Bally’s is excited to enter into this transaction with GLPI, further strengthening our growing relationship,” said Bally’s Chief Financial Officer Bobby Lavan. “The transaction will provide the company with significant, long-term liquidity, ensuring that Bally’s is best positioned to continue executing its capital and strategic plan, as well as to capitalize on future opportunities presented in the market.”
In May, Chicago accepted the Bally’s Chicago proposal to build a $1.7 billion casino, entertainment, and hotel. Bally’s plans to apply for its casino license this month and to open a temporary casino sometime next year.
Normalized rent coverage on the master lease, which includes Bally’s Dover Casino Resort, Bally’s Evansville Casino & Hotel, Bally’s Quad Cities Casino & Hotel, and Bally’s Black Hawk Casino, “is expected to be 2.0x in the first calendar year following the completion of the acquisition of the real property assets of Bally’s Rhode Island properties.”
In connection with GLPI’s commitment to consummate the Bally’s acquisitions, it also agreed to pre-fund, at Bally’s election, a deposit of up to $200 million, which will be credited or repaid to GLPI at the earlier of closing or December 31, 2023, executives said. In addition, Bally’s will pay a $9 million transaction fee at closing.
If all third-party consents and approvals for the acquisition of Lincoln “are not timely received,” GLPI will instead acquire the real-property assets of the Hard Rock Hotel & Casino Biloxi in Mississippi, along with Tiverton, for total consideration of $635 million and a combined annual rent of $48.5 million. In that event, GLPI will also have the option, subject to receipt of required consents, to acquire the real-property assets of Lincoln prior to December 31, 2024, for a purchase price of $771 million and additional rent of $58.8 million.
GLPI acquires, finances, and owns real estate to be leased to gaming operators in triple-net lease arrangements.
“Our relationship with Bally’s brings to the table a high-growth track record through their ownership of properties in attractive regional gaming markets,” said Peter Carlino, chairman and CEO of GLPI. “Bally’s Rhode Island assets have delivered exceptionally strong performance over their lifetime, thanks to their attractive location near Providence, while planned capital investments at Lincoln offer healthy upside potential. Bally’s properties are currently the only two gaming facilities in Rhode Island and the transaction again diversifies our portfolio as the state becomes our 18th U.S. jurisdiction.”
Carlino said the transaction comes with a conservative rent and master-lease structure that “offers GLPI material downside protection, while offering our company an opportunity for additional long-term growth.”
Bally’s currently owns and manages 14 casinos across 10 states and a horse racetrack in Colorado, and has access to OSB licenses in 18 states. On closing the previously announced Tropicana Las Vegas transaction, as well as completing the construction of a land-based casino near the Nittany Mall in State College, Pennsylvania, Bally’s will own and manage 16 casinos across 11 states.
David Katz, an analyst with Jefferies Equity Research, said the transaction shouldn’t be a surprise, given recent management commentary from both companies in a potential transaction.
“For Bally’s deleveraging, capital projects and shareholder returns are likely uses of proceeds,” Katz said. “For GLPI, the addition of regional assets at appropriate cap rates remains pivotal to their long-term growth strategy of acquiring value-accretive rent streams. We view the transaction as positive for both, incrementally more so for GLPI.”
Katz, who said the deal is expected to close in late 2022, said there have been reports that Bally’s lenders are looking to block a sale-leaseback of the Lincoln property, which may be attributed to the inclusion of the contingent clause in the agreement about Hard Rock Biloxi and the Tiverton property.
“If all third-party consents/approvals required to sell the Lincoln property are not received timely, Bally’s will instead sell and leaseback the Hard Rock Hotel & Casino Biloxi along with the Tiverton property for $635 million and amend the master lease for an incremental rent of $58.8M, which equates to a 9.26% cap rate,” Katz said. “At the same time, GLPI will have the option to acquire the real estate asset at the Lincoln property for $771 million and additional rent of $58.8M prior to 12/31/2024.”
While Bally’s didn’t specify use of proceeds, given the announcement of the $190 million tender offer announced on June 24 being downsized from the initially proposed $300 million to $500 million, Katz said he expects a portion of the proceeds to be earmarked for shareholder returns.
“Meanwhile, there remain a number of capital projects in the company’s pipeline, including a $1.7 billion flagship casino resort in downtown Chicago that will be funded with a mix of cash, construction loan, and ground sale-leaseback, which would also be logical use of proceeds,” Katz said.
In conjunction with the transaction, Katz said GLPI announced it has commenced a public offering of 6.9 million shares of common stock, with a greenshoe option for 1.035 million additional shares.
“If all exercised, dilution will be very modest at 3% given outstanding shares of 253.4 million at present,” Katz said. “At the same time, the incremental rent should expand revenue by 5%-6% based on our and consensus estimates for 2023. Note that the offering is not conditioned upon completion of the sale-leaseback transaction.”
Katz said the outcome of the deal is more straightforward for GLPI than for Bally’s, which he said continues to evolve as a company in terms of its execution and growth path forward in refining and investing in the current operations, building the Chicago temporary and permanent casino, rolling out digital gaming, and maintaining the balance sheet.
“Therefore, the deal comes in the context of myriad moving pieces,” Katz said. “Meanwhile, GLPI is building revenue growth at what we consider to be an attractive multiple of 13.1X rent and which is immediately accretive.”