If Tropicana Entertainment’s deal to sell six of its eight casino properties to Eldorado Resorts goes through, real estate investment trust Gaming and Leisure Properties Inc. would own every casino property in the St. Louis market, which generated more than $1 billion in revenue last year. One of those properties is Lumière Place in downtown St. Louis. GLPI, which would fund more than 65 percent of the $1.85 billion deal, would buy the real estate and buildings in the portfolio and lease the operations of the casinos to Eldorado Resorts, which would fund the balance of the transaction.
GLPI, based in Wyomissing, Pennsylvania, already owns the buildings of five of six St. Louis casinos: Ameristar St. Charles, Hollywood Casino, River City Casino, Casino Queen and Casino Argosy Alton. It owns the real estate for each of those facilities except River City Casino, where GLPI has a 99-year lease for that land with the St. Louis County Port Authority.
GLPI does not make operational decisions for any of its casinos. Its income comes from leasing those activities to companies like Eldorado. The arrangement previously has not been considered anti-competitive by the Federal Trading Commission or the Missouri Gaming Commission. However, state and federal regulators have not dealt with one landlord controlling all of the real estate in a given market with at least three casinos. Baton Rouge, Louisiana, with three gaming properties, would face the same situation under the GLPI-Tropicana deal.
RubinBrown Gaming Services Practice Partner and Leader Daniel Holmes said, “This is the first time something like this has happened so it creates interesting questions of what the impact might be. But now you have this very real problem where all six physical pieces of land are held by the same entity. It’s an interesting case study on the future of the REIT concept within the gaming industry and how this could be addressed in other markets. I think if GLPI can do this, it could be full throttle for these REITs and nothing changes. If they are required to sell a portion of the land, it might stall some of the activity in the sector.”
Holmes added GLPI’s deal with Tropicana also could give GLPI significant bargaining leverage when its operator leases expire in 30-40 years. “What happens when those leases come up for renewal and GLPI has all six operators negotiating with the same landholder?” he said.
Missouri regulators previously have approved GLPI deals but could scrutinize GLPI’s ownership structure more intensively if it ends up in control of the St. Louis market.
Currently GLPI’s portfolio consists of 38 properties that generated rental income of $671 million last year. GLPI’s aggressive acquisition strategy has allowed it to increase dividend payouts from $62 million in the first quarter of 2015 to $134 million in the fourth quarter last year.
If and when all the deals are completed, the six St. Louis area casino properties will have a single owner, GLPI, but four operators: Penn National (Argosy, Hollywood, River City), Eldorado (Lumière), CQ Holding Company (Casino Queen) and Boyd Gaming (Ameristar).
Among those opposing the deal is Unite HERE, a union representing about 600 area casino employees. Unite HERE’s local chapter organizing director Dave Morton said if GLPI owns all the real estate, that could drive down employee wages and limit future capital improvements. “Who is going to be investing in the properties themselves? And if it’s just an operator who doesn’t own the building or land, are they going to be investing in wages or salary? That’s what we have concerns about,” Morton said.
However, in 2016 testimony to the Missouri Gaming Commission, GLPI Chief Financial Officer Bill Clifford explained the more an operator spends on capital improvements, the more competitive their casinos will be in a given market. “The more revenue they generate, the more my rent goes up. So the very concept that says I’m going to start turning down capital projects assumes I’m not going to operate in my economic bests interests.”
