On Tuesday, March 29, Pinnacle Entertainment, Inc. (PNK or ‘Pinnacle’) announced that it has entered into a definitive agreement with a subsidiary of Gaming and Leisure Properties, Inc. (GLPI) to acquire the operations of the Meadows Racetrack and Casino (Meadows) for total consideration of $138 million.
Following the close of the transaction, Pinnacle will operate the Meadows’ gaming entertainment business and lease its underlying real property from GLPI in a triple net lease with initial annual rent of $25.5 million (implying 1.9x rent coverage). On a trailing 12-month basis at February 29, 2016, the Meadows generated net revenues of $289 million, EBITDAR of approximately $47.2 million, EBITDAR margin of 16.4%, and EBITDA of $21.7 million after giving effect to rent expense.
The Meadows is located in Washington, PA, approximately 25 miles outside of Pittsburgh, PA. The property features a casino and pari-mutuel gaming experience that includes approximately 3,170 gaming devices, 74 table games, 11 poker tables, and a five-eighths-mile harness horse racetrack with a 500-seat grandstand. Additionally, the Meadows features a full complement of non-gaming amenities, including 11 casual and fine dining restaurants, bars and lounge outlets, 7,500 sq. ft. of banquet space, a 24-lane bowling centre, and hotel accommodations provided by an attached, but separately owned and managed, Hyatt Place hotel with 155 guest rooms.
“We are excited to announce this compelling acquisition and look forward to welcoming the team members and guests of the Meadows into the Pinnacle Entertainment family,” said Anthony Sanfilippo, the chief executive officer of Pinnacle Entertainment. “The Meadows is an attractive gaming entertainment business, with a broad base of operations and high quality gaming and non-gaming amenities. The Meadows will complement our existing collection of terrific properties and provide additional operational scale, geographic diversification, and another wonderful location, the greater Pittsburgh area, for the guests of Pinnacle Entertainment to visit. Following the close of the transaction, our portfolio of gaming entertainment businesses will span 16 locations in 10 states and 14 distinct gaming markets.
“We believe through the many established resources of Pinnacle Entertainment, we will add significant value by leveraging Pinnacle’s broader scale and central service centre capabilities. Through the integration of the Meadows, we anticipate generating meaningful synergies over the next few years. These synergies are primarily driven by enhancing the Meadows’ profitable revenue streams with the mychoice player loyalty program, heightened marketing effectiveness, improved database management and targeted operating efficiencies,” concluded Mr. Sanfilippo.
Meadows Lease Details
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Term: 10 year initial term, with renewal terms up to 29 years at Pinnacle’s option (initial term plus three 5-year extensions and one 4-year extension)
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Rent: Initial annual rent totaling $25.5 million, comprised of:
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Base rent of $14 million, subject to annual escalation
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Percentage rent of $11.5 million
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Resets every two years beginning in the third lease year by an amount equal to 4% of the change in average net revenues for the trailing two-year cumulative period
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Triple Net Lease: Pinnacle is responsible for maintenance capital expenditures, property taxes, insurance and other expenses
“We are excited to announce the acquisition of the Meadows business, which we believe demonstrates the power of Pinnacle’s go-forward operating structure, financial flexibility and growth strategy,” said Carlos Ruisanchez, the president and chief financial officer of Pinnacle Entertainment.
“We anticipate financing the acquisition with our $400 million revolving credit facility and cash on hand. We expect the transaction to have a marginal impact on our leverage at closing, and expect it to be immediately accretive to our already substantial free cash flow base.”
The transaction is subject to the approvals of the Pennsylvania Gaming Control Board and Pennsylvania Harness Racing Commission, the expiration or termination of the applicable Hart-Scott-Rodino waiting period, and other customary closing conditions. The transaction is expected to close by the end of the third quarter 2016.
(With files from Pinnacle Entertainment and GLPI)