The newly-rebranded Pinnacle Entertainment secured its entrance into the nation’s second-largest gaming market Wednesday when its proposal to assume operations at the Meadows Racetrack and Casino, just outside of Pittsburgh, was approved by Pennsylvania regulators.
Once the $138 million transaction clears, Pinnacle will assume full control of the Meadows’ gaming and entertainment operations while leasing the actual property itself from Gaming and Leisure Properties, Inc., which acquired the plot for $440 million in 2014 from Cannery Casino Resorts.
The deal brings Pinnacles’s property count to 16, diversified across 10 states. However, this marks the company’s first foray into Pennsylvania, the nation’s second-largest gaming market – which checks in at more than $3 billion in annual gross revenues.
“We are excited to expand our company into the state of Pennsylvania and the greater Pittsburgh metropolitan area, and look forward to welcoming the guests and 1,300 team members of the Meadows into the Pinnacle Entertainment family,” said Pinnacle Chief Executive Officer Anthony Sanfilippo in a statement.
The deal is Pinnacle’s first major transaction since the blockbuster sell-off of its real estate holdings to GLPI in last April for $4.75 billion. Having fully divested from the real estate business, the newly recast Pinnacle has turned itself into a strictly gaming operations company that leases its properties from GLPI, to the tune of $377 million annually.
By undergoing such a transformation, the company asserted that it would be able to unlock monetary value that had been tied up in property holdings while decreasing its leverage and increasing operating efficiencies.
Pinnacle will pay an initial annual rent of $25.4 million to GLPI in what’s known as a triple-net lease, whereby the lessor tenant is required to pay rent along with all costs associated to the property in question, including taxes, insurance and maintenance costs.
Management and analysts are bullish that the acquisition is an attractive one. The Meadows, one of five casinos in western Pennsylvania, generated $290 million in net revenues and $48 million in EBITDAR for the twelve months prior to July 2016, and, in a presentation to investors, Pinnacle argued that the property has “demonstrated positive operating momentum over the past several quarter” and that an additional $10 million a year in cash flow can be achieved through greater operating efficiencies.
“We believe the pending Meadows acquisition introduces an attractively valued growth opportunity into the story, which should complement the continued cash flow improvement across the same-store fleet,” concurred Steven Wieczynski, an analyst with Stifel Nicolaus Capital Markets in a client note last month.
Beyond just getting a foot in the regional door, the acquisition also gives Pinnacle control of a historic western Pennsylvania attraction, as the Meadows was inaugurated in the early 1960s as the region’s first pari-mutuel horse racetrack.
Construction of the casino began in 2006 after the property was purchased by Cannery and it was awarded a gaming license, and the facility officially opened in early 2009.
The casino area is fitted with nearly 3,200 slot machines, 74 table games and 11 poker tables, while the rest of the property features a 5/8 mile horse racetrack, a 500 seat grandstand, a 24-lane bowling alley, 11 restaurants, 7,500 square feet of banquet space and an 11,000 square foot event center.
“The Meadows is a beautiful and dynamic gaming entertainment destination situated in a stunning location. The Meadows has a broad base of operations, that encompasses high quality gaming and other guest entertainment amenities, as well as talented team members that deliver memorable service experiences to its guests,” Sanfilippo concluded.
