Few companies have grown within the gaming industry over the past decade more than Baltimore-based Cordish Companies. The 121-year-old privately held real estate development company had already transitioned to the entertainment industry with its first “Live!”-branded entertainment district, which opened in 1999. It entered the gaming industry with its development and construction of the two Seminole Hard Rock Florida properties, which opened in 2004.
The company’s growth in the casino industry has developed rapidly over the past decade, beginning with the 2012 opening of its first Live! casino property adjacent to the Arundel Mills Mall in the Baltimore suburb of Hanover. By the time a hotel was added to that property in 2018, work was well under way on the next phase of the company’s gaming growth, in Pennsylvania.
Despite last year’s unprecedented pandemic, Cordish succeeded in opening two new Pennsylvania Live! casino properties, including the state’s first Category 4 satellite casino, Live! Casino Pittsburgh, and its crown jewel in the state, Live Casino & Hotel Philadelphia, which is now thriving in that city’s Stadium District.
Last week, Cordish began its next growth phase, announcing a definitive agreement under which top gaming real estate investment trust Gaming and Leisure Properties will acquire the real estate assets of the three Live! casino properties, to be leased back immediately from GLPI for the continuation of operations under a 39-year ground lease, with the option for renewals extending to 60 years.
The casinos, hotels and all operations will continue to be owned by Cordish. For the real estate, GLPI will pay Cordish a total of $1.81 billion in a combination of cash, assumption of all debt, and GLPI stock, in the form or $323 million in newly issued operating partnership units, or OP units. Under the agreement, GLPI will be a minimum 20 percent equity partner in all future Cordish gaming projects, as well as contributing with partnerships in other areas of Cordish’s real estate, entertainment and other operating businesses.
Upon closing of the deal, GLPI will enter into a new triple-net master lease with Cordish for Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh, as well a single-asset lease for Live! Casino & Hotel Maryland. The initial annual cash rent for all three properties will be $125 million, with a 1.75 percent fixed yearly escalator on the entirety of the rent commencing upon the leases’ second anniversary.
Catalyst for Growth
In light of the success of the Cordish Companies in the gaming market, why partner with a REIT?
“The answer, in one word, is growth,” the company’s third-generation leader, Chairman and CEO David Cordish (l.), said in an exclusive interview with GGB News. “We’ve built five major casinos from the ground up—we designed the two Hard Rock properties in Florida; we did the architecture, the engineering, the construction, we put up the equity. We financed them, then the property in Maryland, Philadelphia Live! and Pittsburgh Live!
“Casinos are highly capital-intensive investments, and we’re extremely liquid for a privately held company. Our company was founded over 100 years ago, but it’s family-owned, and as liquid as we are, building five casinos from the ground up is a slow process that is very capital-intensive. Now, we have a $12 billion-market-cap partner that’s agreed to obligate itself, and put up a minimum of 20 percent of the equity in all future casinos we do. All five of the casinos we’ve done from the ground up are on the East Coast. This will enable us to go further afield, and definitely grow faster.”
In addition to the ability to grow into new jurisdictions, Cordish said the REIT arrangement has “tremendous” tax and balance-sheet advantages going forward.
“GLPI paid off 100 percent of the debt on all our casinos, so the three casinos we actively own and manage are debt-free,” Cordish explained. “In lieu of debt, we have a ground lease—and a ground lease is a business expense, fully deductible. If you have debt service, principal is not a deduction when you pay it; the interest is deductible, but the principal is not. So, it’s extremely tax-efficient.”
Corish added that Cordish still owns 100 percent of the gaming division, so after the ground rent is paid, 100 percent of all profits go to the company. “Ground rent represents a fairly minor percentage, and it’s covered several times over,” he said. “All that income continues to go to us.”
The REIT Route
The GLPI agreement is not Cordish’s first experience with a REIT. The company has long had a REIT agreement with Simon Property Group, which, among numerous other holdings, owns the real estate on which Arundel Mills Mall sits. “We were partners with Simon in a couple of models we developed together,” Cordish recalled. “They called me and said, ‘We’re forming a REIT.’ I said, ‘What’s a REIT?’ They were one of the first ones.
“After they explained it to me, I said, ‘Great, we’ll take OP units. And 35 years later, I still have Simon Property OP units. We haven’t sold a single one. And that’s the way it will be with our GLPI units. They offered me the choice of taking it all in cash. We elected to take a very nice part of the consideration in GLPI stock.”
GLPI was not Cordish’s only choice when it came to the possibility of a REIT deal. “We’ve been romanced by a lot of them,” Cordish said, “including several major REITs that are not what you would call entertainment REITS, but want to add to their portfolios. We had a lot of suitors, both gaming REITs and non-gaming REITs. We chose GLPI because they’re conservative, and we’re conservative. We studied their portfolio of leases, and it’s a very good lineup.
“The GLPI stock is like a bond. We looked at the human capital, but also at the financial capital. And they’ve got 45-50 leases, of which they get the first tranche of every single one. We felt very, very secure in their operation, their leases, and that they’ll be able to pay their dividend come hell or high water. And we’re just very comfortable with their philosophy and their human capital.”
Long-term Leadership
At the head of that human capital is Peter Carlino, the founder and former chairman of Penn National Gaming, who became chairman and CEO of GLPI after it spun off from Penn.
“I’ve known Peter a long, long time; he’s a personal friend,” said Cordish. “Philanthropically and business-wise, I have a lot of respect for him. He’s a long-term player. If you take his previous company, Penn National, and add it to GPLI, he’s been at it 50 years. I’ve been chairman of the Cordish Companies 55 years.”
In the announcement of the GLPI/Cordish agreement, Carlino said, “We are excited to establish a relationship with the Cordish Companies, one of the country’s preeminent developers of large-scale experiential real estate projects, casinos, hospitality and entertainment districts. We have long admired Cordish for their creation of the highly successful ‘Live!’ brand across these entertainment, gaming and hospitality districts.
“A crucial aspect of our transaction was Cordish’s continued commitment to operating with the same team, approach, and standard of excellence that has brought their casinos so much success. These new leases are expected to have strong rent coverage at an accretive cap rate while further expanding and diversifying our portfolio and marking a continuation of our strategy to build an industry-leading, high-quality tenant roster.
“In addition to the real estate transaction for the three properties, we are excited to partner with Cordish on a range of future strategic opportunities that can leverage the financial and real estate development strengths and resources of both companies.”
The Maryland transaction is expected to close by the end of 2021, and the Pennsylvania transactions are expected to close in early 2022, all subject to required regulatory approvals, financing and other customary closing conditions.
GLPI expects to fund the total cash consideration payable using cash on hand, borrowings under its revolving credit facility and/or with funds from additional financing arrangements, which are expected to include issuances of debt and equity securities.
“Our partnership with GLPI ranks as one of the most exciting milestones in over a century of history for our company,” Cordish said. “GLPI is the ideal partner for us because they support what we as a family-owned business have done for decades—develop, own and operate successful entertainment districts and casinos under our Live! brand.”
Cordish stressed that his company will always maintain complete ownership of its entertainment and casino operations. “We never sell anything,” he told GGB News. “These are great properties, and they’re like my sons, who all work in the business. I wouldn’t sell one of them, either!”
That would be Jon, Blake and Reed Cordish—the fourth generation of the company’s leadership. That tradition—which dates back to Cordish’s grandfather Louis Cordish, who founded the company in 1910—is bound to continue for a long time.
