Penn National Gaming to split into two separate companies

, Bloomberg

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Penn National Gaming Inc., the operator of 29 casinos and racetracks, plans to split into two public companies by placing 17 of its properties into a real estate investment trust.

The company will continue to run most of the casinos and tracks, while the properties will be spun off to shareholders as the first casino-focused REIT, according the Wyomissing, Pennsylvania-based company.

Penn National owns the Sanford-Orlando Kennel Club.

Penn National investors will receive a dividend of about $5.35 a share plus stock in the REIT. The casino operation will pay the REIT about $450 million a year in rent, the company said. Other casino companies will probably consider similar restructurings to unlock value, according to Jonathan Litt, founder and chief executive officer of LandandBuildings, a Greenwich Connecticut-based hedge fund focused on real estate.

"The best way to realize value is to break up," Litt said in an interview. "Management teams will look at the potential of deals like this and seriously consider converting into REITs."

Chairman and chief executive officer Peter Carlino will hold those same positions at the REIT and remain chairman of Penn National. Tim Wilmott, Penn's chief operating officer, will become CEO of the casino company. The split, subject to regulatory approval, is expected in the second half of 2013, with the REIT effective in January 2014.

"This proposed transaction would be transformational for Penn National and its shareholders, and presents a direct path toward unlocking the tremendous value of our real estate asset portfolio," Carlino said in the statement. "Our plan is to create two well-capitalized companies with strong free cash flow that are positioned for growth in the gaming and REIT sectors."

Carlino, 66, built Penn National via acquisitions and construction from a single horse-racing track near Harrisburg, Pennsylvania. REITs, with their primary income from real estate, don't pay federal income taxes. They're required by law to distribute at least 90 percent of their taxable earnings to shareholders as dividends.

The company said it received a private-letter ruling from the Internal Revenue Service related to the split's tax treatment.

Litt, the real estate investor, released a report in September suggesting Las Vegas Sands Corp. might be worth double its $44 a share stock price by splitting into separate casino, retail and hotel companies, taking advantage of REIT structure. The casino company can grow faster without being attached to real estate, he said.

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