Penn National "encouraged" by ongoing talks to sell Tropicana Las Vegas

Penn National Gaming said Thursday it is evaluating unsolicited offers to buy the Tropicana Las Vegas casino hotel or its real estate, though it added a sale isn’t imminent. The firm has considered deals with the aim of reducing debt faster, as it focuses on "moving customers around its network."

The company executives reported their third-quarter earnings in a conference call, and they said they have received offers for the Tropicana and for Prairie State Gaming, the company’s slot route company in Illinois.

“We have a couple of wholly owned, very valuable assets in our portfolio that we believe are not appropriately valued in our share price today, and there have been recent transactions, both in Las Vegas on the Strip as well as in the route operation business in Illinois, at very attractive multiples in both cases,” Chief Financial Officer B.J. Fair said in response to a question from an investor, as reported by Las Vegas Review-Journal.

“We continue to receive some unsolicited interest in Prairie State Gaming, as well as some of the land holdings we have in Las Vegas at Tropicana, so we’re continuing to engage in those conversations,” he said. “We’ll see where they take us. We’re encouraged by some of those conversations, but nothing’s done until it’s done, but we would certainly consider, if anything were to materialize in either of those cases, to continue to delever faster than what we’ve laid out.”

Fair added that Penn’s willingness to sell the Tropicana doesn’t mean the company doesn’t recognize the value of having a Las Vegas Strip property. “I would call it an evolution of our thought process,” he said. “It doesn’t mean that the hub-and-spoke model of the Las Vegas Strip with regional assets across the country is flawed. We don’t think it’s flawed. We think that it does still make sense.”

But Penn’s CFO added that the expansion of gaming nationwide has allowed the company to re-evaluate the need for a Strip property. “Given this conversion of interactive between sports betting and (internet) casinos, which is quickly proliferating across the country, we think that it’s going to be even more important for us to have a very localized on-channel approach where you’re engaging with guests both digitally as well as in brick-and-mortar casinos,” he said. “It doesn’t mean that the Las Vegas hub-and-spoke won’t work or isn’t working. It just means that we believe that we’re going to be very focused on moving customers around our network, and that’s going to happen at a more local level across our 40 properties in 19 different states and across the interactive activities that we’re offering our customers in markets where it’s legal.”

Two Las Vegas companies recently announced sales of properties while keeping their management of casinos as a means of improving cash flow. Caesars Entertainment announced the sale of the Rio to Imperial Companies for $516.3 million, while MGM Resorts International is selling Bellagio to the Blackstone Group for $4.2 billion. MGM said this week at earnings report that a similar real estate deal is in the works for the MGM Grand, with the sales of Aria and Vdara future possibilities.

J.P. Morgan gaming analyst Joe Greff said in a note to investors that a strategy to sell the Tropicana or the slot route company could ultimately increase Penn’s value.

Third quarter financial results

Penn CEO Tim Wilmott, who plans to retire by the end of the year, said in an earnings release that the company has capitalized on the opening of sportsbooks in Iowa, Indiana and Pennsylvania and the launch of a mobile sports-betting app in West Virginia by one of its partners.

Future CEO and current Chief Operating Officer Jay Snowden said Penn National continues to have conversations with a number of potential sports media partners. “We do envision having partners, potentially, that we will be thinking about how we can engage with their customers who are sports enthusiasts at this point. And then of course, once they become part of our sports betting database, [we’ll] introduce them to our casino product as well.” He characterized the direction of those talks as encouraging.

Boosted by the expansion of sports wagering nationwide with new properties, Penn said Thursday that its third-quarter revenue grew 71.6 percent to $1.355 billion, and net income grew 21.1 percent to $43.7 million, or 38 cents a share. The company, which also operates the M Resort in Henderson, saw revenue and earnings grow as a result of the completion of its $300 million acquisition of the Greektown hotel-casino in Detroit in May. Adjusted EBITDAR amounted to $407.9 million, an increase of $178.2 million year over year, with an Adjusted EBITDAR margin of 30.1%, up 100 basis points year over year.

But the company still failed to meet analysts’ expectations of $1.37 billion in revenue and earnings of 42 cents a share. Penn also said revenue fell more than expected at its Plainridge Park Casino in Massachusetts as a result of the opening of Wynn Resorts Ltd.’s Encore Boston Harbor. That venue is less than 40 miles from the Wynn property that opened in June and both companies draw customers from the Boston area.

“Our development projects in Pennsylvania, the $120 million Hollywood Casino York and the $111 million Hollywood Casino Morgantown (both inclusive of the gaming license fees), remain on track,” said Wilmott. “Construction of the Morgantown project is well underway, and we expect to commence construction activities at the York site soon. We anticipate approval from the Pennsylvania Gaming Control Board for our York project in November. Both facilities are scheduled to open in the fourth quarter of 2020.”