Orange Capital, a New York investment fund which recently acquired 4.5 percent interest in Pinnacle Entertainment, wants it to divide its interests and put its casinos into a real estate investment trust (REIT).
Orange Capital filed the proposal last week with the U.S. Securities and Exchange Commission. In the filing it stated that Pinnacle, despite a recent $2.8 billion buyout of its rival Ameristar Casinos, “is valued at a significant discount to (its) closest peer, the combined Penn National Gaming, Inc., and its real estate owner, Gaming & Leisure Properties, Inc.” Penn National created a REIT in 2013. Pinnacle’s valuation has increased 65 percent since the buyout was announced in 2012.
Pinnacle owns and operates 14 casinos in nine states.
The company issued a statement acknowledging the filing without taking a position on it. “Pinnacle values the views of its shareholders and regularly engages in a dialogue with its shareholders to solicit feedback on its strategy and performance with the goal of enhancing value. The board of directors and management team of the company regularly review its strategic priorities and opportunities, and assess a variety of value creating options,” said the statement.
REITs do not pay federal income taxes, get most of their income from real estate, and must distribute the lion’s share of their taxable earnings to shareholders.
Some analysts believe that a REIT conversion is unlikely to occur because Pinnacle has some properties that operate at a loss, giving it protection from federal taxes.
Shares of Pinnacle rose 7.9 percent to $23.83, the most increase in five months after Orange Capital’s filing.
