The newest type of REIT...Casinos
OK, we have prisons, data centers, gas stations...and now casinos. One company after another seems to be converting either completely or partially into "tax-efficient" vehicles like MLPs and REITs lately. Today a company in yet another sector announced that it's taking the leap...gaming. Penn National Gaming (PENN) announced today that it is planning to convert into two companies, one of which will be a REIT that owns all of the organization's real estate and leasts it to a Penn National operating company. Not surprisingly, shares of PENN soared nearly 30% on the news of this move.
According to what I've read, current PENN shareholders will receive one share of the new REIT and $15.40/share in a taxable dividend...$5.35 in cash and the rest in more REIT shares. Initially each REIT share will be paid in dividends annually $2.36 per share.
One Barclays analyst was quoted saying that they value the new company at a whopping $67 to $76 per share, significantly higher than today's $48.23/share and that's after the huge pop. The stocks of a number of other regional casino operators soared on this news as well today as investors speculated that they might make smiliar moves.
If you ask me, all of these conversions to REITs and MLPs are great for investors, but probably not so much for the government. One has to wonder if Uncle Sam will eventually say enough is enough and pull the plug on the whole thing like the Canadian government did in the infamous (at least to income investors) Halloween Massacre several years ago when all sorts of non-real estate companies began converting into CANROYs. Perhaps the U.S. government will recognize the need for yield-generating investments in the zero interest rate world that it has created and look the other way. Time will tell. One way or another taxes are going to likely increase in the future and eliminating or restricting REIT / MLP conversions has to be something that politicians are considering. As someone who loves special situations and is a yield hound, I hope not, but you never know.
Penn National splitting casino, real estate businesses