Penn REIT to Buy Meadows

Gaming & Leisure Properties, the REIT spinoff created last year by Penn National Gaming, will acquire the Meadows racetrack casino south of Pittsburgh for $465 million.

Purchase adds to GLPI’s regional prominence

Gaming and Leisure Properties, Inc., the real-estate investment trust created last year as a wholly owned subsidiary of Penn National Gaming that now owns the majority of Penn-managed and branded properties, announced that it has entered into an agreement to acquire The Meadows Racetrack and Casino south of Pittsburgh from Cannery Casino Resorts, LLC, for $465 million.

The 180,000-square-foot casino, which Cannery opened in 2007 after purchasing the Meadows racetrack from Magna Entertainment, contains 3,317 slot machines, 61 table games and 14 poker tables. In addition to the casino, the property includes 11 casual and fine dining restaurants, bars and lounges, a 24-lane bowling alley and a 5/8-mile racetrack with a 500-seat grandstand.

The purchase price, which the company intends to fund with a combination of equity and debt, represents approximately 9 times the property’s 2013 EBITDA.

The purchase price reflects the expected stability of market competition and the robust local economy resulting from Marcellus Shale-related industry, according to a statement from GLPI. The operator will immediately begin a search for a third-party operator for the property, to whom the company expects to sell the entities holding the licenses and operating assets, while retaining ownership of the land and buildings.

That third-party operator will most likely be Penn National Gaming.

The transaction, which is expected to be accretive immediately upon closing, is subject to and requires approval from the Pennsylvania Gaming Control Board and the Pennsylvania Racing Commission. It is expected to close in 2015. The acquisition could not have been made while GLPI was part of Penn since Pennsylvania law restricts ownership of casinos in the state to one license and part of a second.

“The acquisition of the Meadows represents another step in the execution of our strategy to grow our company into the leading owner of high-quality assets in key regional gaming markets,” said Peter Carlino, chairman and CEO of GLPI. “This acquisition is a prime example of how we are uniquely able to tailor transactions to suit the specific needs of sellers. We look forward to partnering with one of the many quality operators in the gaming industry and believe that this acquisition creates meaningful additional value for our shareholders.”

For Cannery Resorts, the purchase is all about reducing debt, according to co-CEO William Paulos, “This is a terrific deal for CCR, and a great outcome for our employees, partners and customers at The Meadows,” Paulos said. “All net proceeds from this transaction will be used to reduce our debt.”

When asked in interviews with local Pittsburgh media, Paulos denied the sale of the Meadows had anything to do with the fact the property’s gaming revenues dipped 7 percent last year, or with increasing saturation in the Western Pennsylvania gaming market—although he did acknowledge that new competition from Lady Luck at Nemacolin Woodlands, about an hour’s drive from the Pittsburgh area, contributed to the flat results.

The Meadows will face more regional competition in a new racino about to be approved 75 miles to the north in New Castle, Pennsylvania, and new competition in Ohio.

In an interview with the Pittsburgh Tribune-Review, Paulos commented that while competition is tough, The Meadows is a stable property with a future that is “very bright.” He said the reason for the sale was simple: “We were made a good offer and we accepted.”

From the perspective of Penn and GLPI, the sale provides a strong property with a loyal local customer base, in a suburb of Pittsburgh that is still growing, thanks to a massive new residential neighborhood adjacent to the casino.

The property also will soon have a rarity among Pennsylvania casinos—a hotel. A new 154-room hotel to be owned by a third-party operator is currently under construction adjacent to the casino, and is expected to open in 2015. A new third-party retail center also is planned, and casino officials have contemplated building a new indoor event center on the property’s unused acreage.

Finally, the Meadows property provides GLPI and Penn a hedge to the increasing regional competition, and the opportunity to cross-market The Meadows with the flagship Hollywood Casino at Penn National Raceway in Harrisburg and its new Hollywood Gaming at Mahoning Valley Race Course near Youngstown, Ohio, about an hour west of Pittsburgh, slated to open in the fall.

GLPI owns 22 of Penn’s 29 casino properties across the U.S.