Penn National Gaming UnPenns Gaming And Leisure Properties

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In the course of our busy lives, we sometimes never get around to writing about certain spins, even those which we are aware of and find interesting. Penn National Gaming’s (PENN) spin of Gaming & Leisure Properties (GLPI) is one such case. A search of our site revealed one scant mention when talking about IRS treatment of REITs, and several incomplete drafts. With the distribution taking place today, it seemed like it was finally time to either write something, or to pretend forever that it never happened. If you’re reading this, we chose the former.

Penn operates over two dozen gaming and racing facilities in 18 jurisdictions.

GLPI is expected to own and lease immediately after the separation the real estate associated with 21 casino facilities, which have a total of approximately 3,220 acres of land and 6.6 million square feet of building space, including two facilities currently under development in Dayton and Youngstown, Ohio. GLPI would lease back to Penn National Gaming 19 of these casino facilities and own and operate, through taxable REIT subsidiaries, two gaming facilities located in Baton Rouge, Louisiana and Perryville, Maryland.

Shares of the new company will be distributed today and shareholders will receive one share of GLPI for each share of PENN held.

Holders of Penn National Gaming common stock on October 16, 2013, the record date for the distribution, will receive a book-entry account statement reflecting their ownership of GLPI common stock or their brokerage account will be credited with the GLPI shares, unless they trade their entitlement to receive these GLPI shares as described below.

Beginning on or about October 14, 2013 and continuing through the distribution date, it is expected that there will be two markets in Penn National Gaming common stock: a “regular-way” market under the symbol “PENN,” and an “ex-distribution” market under the symbol “PENNV.” Shares of Penn National Gaming common stock that trade on the “regular way” market will trade with an entitlement to shares of the common stock of GLPI distributed pursuant to the spin-off. Thus, Penn National Gaming common stock purchased in the “regular way” market up to the November 1, 2013 distribution date will trade with an entitlement to shares of the common stock of GLPI distributed pursuant to the spin-off and Penn National Gaming shareholders who sell shares of Penn National Gaming common stock in the “regular-way” market up to and including the distribution date will be selling their right to receive shares of the common stock of GLPI in the spin-off. Shares that trade on the ex-distribution market will trade without an entitlement to shares of the common stock of GLPI distributed pursuant to the spin-off. A purchaser of Penn National Gaming common stock after the close of business on the record date who purchases those shares on the “ex-distribution” market up to and including the distribution date will not receive the shares of the common stock of GLPI distributed with respect to the shares of Penn National Gaming common stock so sold.

Furthermore, on or about October 14, 2013 and continuing through the distribution date, it is expected that there will be a “when-issued” market in the common stock of GLPI under the symbol “GLPIV.” “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of GLPI common stock that will be distributed to Penn National Gaming shareholders on the distribution date. Shareholders of Penn National Gaming common stock at the close of business on the record date will be entitled to receive shares of GLPI’s common stock distributed in the spin-off as will shareholders who purchase Penn National Gaming common stock in the “regular way” market up to November 1, 2013. Penn National Gaming shareholders may trade this entitlement to receive shares of common stock of GLPI, without the owned shares of Penn National Gaming common stock, on the “when-issued” market. On the first trading day following the distribution date, expected to be November 4, 2013, “when-issued” trading with respect to GLPI common stock will end and “regular-way” trading will begin under the symbol “GLPI.”

The bulk of the company’s value is going into GLPI, which is trading on a when-issued basis, on low volume, at $44.85. PENN is trading on a when-issued basis at $13.81, while the combined company still trades at $58.77. The transaction creates two interesting securities aimed at different types of investors. The asset rich, dividend paying REIT GLPI, and the asset light operating company which should be able to generate a higher ROIC. Since the company’s focus is on non-destination (i.e non-Vegas) gaming, it will be interesting to see how the continued expansion of gaming into more states (NY and MA, for example, are both likely to expand gaming) will impact Penn’s business.  That said, the geographic diversification should be helpful in that regard, and Penn is likely to participate in new jurisdictions as they allow gaming.

Disclosure: The author holds no position in any stock mentioned

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