The Las Vegas-based casino entertainment company Pinnacle Entertainment confirmed the speculations that it is to separate its casino facilities from the real estate investment portfolio.
The process of splitting its properties is estimated to take around one year and when finalized, Pinnacle will be divided into two publicly traded companies. Pinnacle will manage the so called real estate investment trust REIT through signed agreements.
The current Chief Executive Officer Anthony Sanfilippo explained during a conference last Thursday that the new real estate entities would open space for Pinnacle to diversify its operations with other entertainment services apart from gaming.
Currently, REIT is not required to pay state taxes. Such establishments, however, are obliged to pay more than 90% of their earnings to their shareholders.
Pinnacle Entertainment has over 15,000 employees and manages fifteen casinos. Last year, Pinnacle expanded its business substantially when it acquired one of its competitors – Ameristar Casinos.
Analysts from Buckingham Research speculate that after Pinnacle starts working on its REIT plans, it will also start searching for new acquisitions of local gaming companies.
Another agency, Macquarie Securities, stated that Pinnacle’s announcement is simply representing their desire to “pursue this avenue.”
The buzz around the REIT plans have stirred the conversation away from the financial condition of the company for the last quarter. Last year, when Pinnacle was in process of acquiring Ameristar Casinos, it reported decent revenues.
Stifel Nicolaus mentioned that the REIT announcement had been mentioned by Pinnacle on a few occasions in the past. The issue was first brought up by Orange Capital, which bought a 4% stake of the company in March.
It is believed that the reason the company management announced the REIT plans was to mitigate a rapid sell-out of shares due to a financially mediocre Q3. Moreover, Pinnacle would sell over one billion worth of shares to its shareholders in tax-free transactions for REIT. The board of the company has accepted a limit of no more than 10% stock ownership throughout the separation process.
CEO Sanfilippo explained that Pinnacle’s board has accepted the plans for separation and after some paperwork obstacles were dealt with, the process could be started. Furthermore, he said that REIT would lead Pinnacle towards a more flexible platform which gives future investors better incentives to join the establishment.
To those who are worried about the operations of the casinos, Sanfilippo said the work of the casinos would be barely affected by the transition. He further assured stakeholders that there was a “substantial analysis” being made and the REIT plan was still being worked on.
Pinnacle has hired advisers to find out whether the plan would benefit shareholders in a long run.
The CEO of Boyd Gaming stated that Pinnacle has so far spent more than $3 million on researching the potential outcomes of the REIT separation.
