Gaming and Leisure Properties made an unsolicited offer to purchase Pinnacle Gaming’s real estate assets. Pinnacle shareholders would receive $36 per share, which is a large premium to the previous day’s closing price. I think this is a smart move by GLPI since it gives them the first mover advantage and puts more pressure on their competitors to convert to REITs ASAP. Domestic casino owner/operators were up on the news including Boyd Gaming and Isle of Capri, but the Vegas/Macau casino companies were down on the today’s trading. Caesars Entertainment, who is being forced into a REIT conversion as part of the restructuring process of their bankruptcy, was only up sightly on the news. Orange Capital, who has been advocating for casino REIT conversions, and who owns just under 5% of Pinnacle is encouraging a dialogue between GLPI and Pinnacle.
GLPI shares were up strongly after their offer was made public and its easy to see why both GLPI and Pinnacle will benefit from a combination. GLPI will gain much more diversification including deeper geographic coverage and diversification by operator. The combination would also make GLPI larger, which could provide it with better access to capital markets and greater capital markets flexibility, which could ultimately provide them with a lower cost of capital compared to competing REITs and casino companies who have not yet converted.
Under the GLPI proposal, Pinnacle’s operating business would become a separate publicly traded company and be run by its current board. The real estate assets would be merged into Gaming and Leisure. Pinnacle shareholders would receive one share of the operating company and 0.5517 of a share of Gaming and Leisure for each Pinnacle share they own, according to the statement. Gaming and Leisure said the transaction could be completed before the end of the year.
