Penn National to split property and operations units

Penn National will create a new, publicly traded REIT through a tax-free spin-off of its real estate assets to its shareholders. Shareholders will receive one share of the REIT's stock for every Penn National share owned on the record date of the spinoff. The spinoff of the REIT's shares is expected to occur in the second-half of 2013 with REIT election effective by January 2014.

Through a tax-free dividend, shareholders will receive common stock of the new REIT. The new REIT will subsequently declare a taxable dividend of approximately us$ 1.4 billion of accumulated earnings, equivalent to about us$ 15.40 per Penn National share. The REIT shareholders will be entitled to an ordinary dividend, which based on pro forma 2013 guidance, would be us$ 2.36 a share.

Under the plan, the REIT will initially own all of Penn National's real property assets and lease back most of those assets to the operating entity under a 35 master lease agreement. It is expected that the operating entity, Penn National Gaming or PNG, will pay about us$ 450 million to the REIT in rent.

After the proposed separation, PNG will operate the leased gaming facilities and own and operate other assets, including a casino management contract, a 50% joint venture interest in Hollywood Casino at Kansas Speedway, gaming licenses, seven non-casino racetracks and gaming equipment.

The REIT and PNG would have independent management teams. Penn National's Chairman and Chief Executive Peter Carlino will assume those roles at the REIT and will serve as PNG's chairman. Tim Wilmott, who serves as President and COO of Penn National, would assume the responsibilities of CEO at PNG.

On a pro-forma basis, the REIT is expected to record per-share earnings of us$ 1.17 and revenue of us$ 608.3 million for 2013. Meanwhile, PNG is expected to record per-share earnings of us$ 1.29 and revenue of us$ 3.04 billion in 2013.

Penn National has mostly seen steadily climbing revenue growth as customers return. Still, persistent unemployment has continued to pressure its top line, while cannibalization from competing casinos has threatened to hurt its margins in some East Coast markets.

Last month, Penn National reported its third-quarter income fell 34% as expenses and slightly weaker gaming revenue weighed down on the casino and racetrack operator's results.