GLPI Acquires Tropicana, Leases Casino Operations to Penn

Gaming and Leisure Properties /GLPI/ has acquired ownership of Tropicana Las Vegas Casino Hotel Resort, after its owner, Penn Gaming National, decided to sell the property to its principal landlord. The Las Vegas Strip property was sold for $307.5 million, around $52 million less than what Penn paid for it 5 years ago, obviously a sign of a fire sale.

Pennsylvania-headquartered Penn National issued a letter to its stakeholders, to inform them that the company was forced into selling the property, among other painful measures undertaken to boost liquidity and secure business continuation.

Sell the Property, Then Pay Rent for Operations

Penn is also one of the pioneers behind the idea of creating a real estate investment trust that would own the casino properties and lease them back to operators, and since 2013 the company has most of its properties spun off to GLPI, subsequently paying it rent for the casinos. Such a strategy has its trade-offs as it creates new liabilities the current health crisis has exposed.

Operating more than 40 gaming properties across 19 different states may be a manageable task during normal times, but not when all of them are closed to help support states and federal government measures to mitigate health risks.

Fire Sale Necessary

Penn National’s long-term debt and lease obligations have surged to $11 billion, with 2019 rent bill reaching the amount of $870 million. Penn was also reported to burn $6.2 million per day while casinos were shut.

The company was not looking to sell the Strip property before the virus struck, but only the vacant land behind it. Put under pressure, however, Penn agreed to part with Tropicana for the price of 5 months of its rent starting May, just to buy itself some breeding room.

The fire sale may not be the last within the industry, as with their operations down, casino companies rushed towards new credit lines and started slashing costs, but the real debt restructuring may require trimming assets.

Other Deal Details

The buyer of Tropicana, GLPI, has agreed to the same scheme, with the price being paid in rent credits, and Penn National entitled to up to 75% of proceeds above the price agreed with GLPI, in case of a future sale within the next two years. The maximum percentage is valid only if GLPI manages to sell the property within 1 year, otherwise Penn will get only 50% above the $307.5 million price.

As part of the sale of the property to GLPI, Penn National entered into a lease agreement for Tropicana operations for nominal annual rent, for an initial period of 2 years, that can be extended maximum three times, by 1 year each, or until the real estate company finds a new buyer for the Strip property.