Penn National Reinvents the Gaming Sector

Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Right after Penn National Gaming (NASDAQ: PENN) announced their plans to break up into two public companies, creating the first casino-focused Real Estate Investment Trust (REIT), shares of said company skyrocketed, surging more than 41%. As casino businesses continue their resurgence since 2010, this bold move by Penn National will surely ensure profit for investors in the sector.

40 years after its first horse racing venue was created in 1971, Penn National has created a buzz in the casino industry with the amount of gaming and racing facilities and luxury hotels it acquired and established in the United States. With over 29 facilities that feature an incredible selection of gaming experiences, luxury living, and gourmet dining in 19 states, Penn National boasts over 36,800 gaming machines, 2,900 hotel accommodations, and approximately 1.6 million in square feet of gaming floor space.

The announcement of Penn National to pursue the separation of its real property assets and operating assets could be seen as a pressure for other gaming-focused companies to follow suit, as the REIT deal could prove to be a an immediate value play for Penn National. Based on the company’s outstanding real estate portfolio, the REIT PropCo is initially expected to be in possession of 17 of Penn’s casino facilities. Analysts say that this trend could jump start a tax-efficient strategy to distribute profits in the gaming sector, proving Penn National’s move to be revolutionary for the sector.

Competitors have been acknowledging the benefits of following Penn National in monetizing their real estate holdings. Pinnacle Entertainment (NYSE: PNK) and Boyd Gaming (NYSE: BYD), amongst others, have already expressed their desire to jump on the bandwagon set by Penn National, earning them a good 7% increase in share price. This, however, is still inferior to the boost that was experienced by Penn National upon its REIT announcement. A company with a good financial base like Penn National Gaming, with a net worth of approximately $3.7 billion, engaging in REIT would open new possibilities for profits, expanding operations and tactical acquisitions. For other gaming companies like Caesars Entertainment Corporation (NASDAQ: CZR), which holds a market cap of only $727 million, it would not be as easy for their shares to skyrocket.

Just last year, Penn National acquired one of the top world-class resorts in Las Vegas. Forbes 4-Star Award Winner M Resort is a prestigious casino and resort that revolutionizes Las Vegas gaming into a whole new level of class and luxury. With a state-of-the-art Race and Sports book and VIP Players lounge for the gamers, a 23,000 square foot world-class spa to provide the most soothing and tranquil experience, and a dining experience voted Best Buffet in the whole of Las Vegas, M Resort is a huge asset for Penn National that will guarantee maximum return for stockholders.

In addition to its top-notch collection of casinos and racetracks, Penn National announced recently the completion of its purchase of Hollywood Casino St. Louis, another Hollywood brand by Penn National. Also, the company has already submitted three proposals for new gaming and entertainment destinations in Philadelphia and Iowa. With a 100,000 square-foot casino floor that would house 2,050 slot machines and 66 live table games and non-gaming amenities, which includes a fine-dining steakhouse, sports pub, and a 180-seat entertainment lounge for live acts, the proposed Hollywood Casino Philadelphia will be a gallant move to significantly improve the tourism and local employment in Pennsylvania. In Woodbury County, Penn National has submitted two facility proposals to the Iowa Racing & Gaming Commission. Both with projected costs at around $167 million, Hollywood Casino Siouxland and Hollywood Casino Sioux City would surely be the best options of the city and state of Iowa to boost economic activity and employment.

The successful acquisitions and expansions by Penn National, which has opened six new facilities in five years all over the country with target budget and time allotment, is proof of the capability of the company to sustain and fund The Penn National Gaming Foundation. The foundation is a private charity launched by Penn National in 2005, in time to provide aid and support to approximately 2,000 of their employees affected by Hurricane Katrina. The foundation continues to work as of today, supporting numerous non-profit organizations through out the whole of the United States.

Penn National Gaming has established itself as a reputable company that is able to efficiently acquire and develop leading game assets over the years. With 13 out of 16 analysts rating Penn National a buy, the company proves it's continuously expanding profit margins and firm performance in the stock exchange. 

JosefRayDagatan has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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