Gaming & Leisure Properties, Inc. (GLPI) signed a new master lease agreement with PENN Entertainment covering seven of the casino operator’s gaming properties and offering an opportunity for the real estate investment trust (REIT) to benefit from PENN’s long-term growth.
New Master Lease and Funding
GLPI and PENN also agreed to a funding mechanism that will allow the casino operator to go ahead with the planned projects for properties in Aurora and Joliet, Illinois, Columbus in Ohio and Henderson in Nevada.
“Our ongoing support of our roster of leading regional gaming operator tenants through innovative transaction structures has proven to be mutually beneficial,” said chief executive officer of GLPI Peter Carlino, filled with optimism that “this new master lease with PENN Entertainment will extend” GLPI’s “record of success on this front.”
According to the terms of this new master lease, PENN properties in Aurora and Joliet in Illinois, Columbus and Toledo in Ohio and Henderson in Nevada will be taken off from the current PENN master lease and will be added to the new master lease.
“GLPI is excited to structure a new master lease with our long-term tenant that includes a funding option to allow PENN to extend its legacy of growth through development by pursuing attractive opportunities in Illinois, Ohio and Nevada,” Carlino continued.
Terms of the New Master Lease
Both relocation projects will receive funding from GLPI: up to $225 million for PENN’s riverboat casino in Aurora at a 7.75% cap rate and up to $350 million for the relocation of the Hollywood Casino Joliet as well as the construction of hotels at Hollywood Casino Columbus and a second hotel tower at M Resort Spa Casino at the current market rates.
According to Carlino, GLPI believes the relocation of PENN’s riverboat casinos to land-based operation will provide “a superior guest experience, particularly as the proposed Aurora and Joliet properties are sited to benefit from existing and long-term traffic-driving developments.”
“… we believe the creation of a new hotel at Hollywood Casino Columbus will significantly improve the performance of that property and ultimately enable PENN to transform it into a regional destination,” he added.
Hollywood Casino at The Meadows in Pennsylvania and Hollywood Casino Perryville in Maryland will have their existing leases terminated and will be added to this new master lease, which, unlike the current master lease, will be cross-defaulted, cross-collateralized and co-terminus with the current master lease.
The new master lease will bear a base rent of $232.2 million as compared to $284.1 million for the original PENN master lease which comprises $208.2 million of Building Base Rent, $43 million of land base rent and $32.9 million of percentage rent.
The rent escalation rate in the new master lease will be fixed at 1.5% annually with the first escalation due for the year beginning on November 1, 2023, while the transaction is expected to become effective January 1, 2023, subject to customary regulatory approvals.
The master lease will expire at the end of October 2033 but, similar to the current PENN master lease, it has provisions for three five-year extensions at PENN’s options.