Why Penn National Gaming shares jumped on news of spin-off
On November 15, 2012, Penn National Gaming, Inc. (PENN) announced plans to separate its operating assets and real property assets into two publicly traded companies. Its approach? A tax-free spin-off of real estate assets into a real estate investment trust ( or REIT) called Gaming and Leisure Properties Inc. (GLPI).
On November 1, 2013, PENN used a shares exchange transaction to complete the spin-off. The exchange ratio for shareholders holding PENN common stock was one to one. Holders of preferred stock received 1000 GLPI shares for every PENN share.
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The above chart shows that PENN’s share price surged 28% on the day after the announcement. From then until the spin-off was completed on November 1, 2013, PENN stock returned 57%. However, PENN and GLPI have since lost value. The companies’ stocks are down 6% and 33%, respectively.
Following the spin-off, PENN ensured that each member of company Chairman Peter Carlino’s family beneficially owned 9.9% or less of the outstanding common stock shares. This way, GLPI qualifies to be taxed as a REIT under U.S. federal income tax law.
Investing in ETFs
Investors may consider investing in and ETF such as the Consumer Discretionary Select Sector SPDR Fund (XLY) to get broad exposure to the leisure industry. Major casino companies that form part of this ETF include Las Vegas Sands Corp. (LVS), MGM Resorts International (or MGM) and Wynn Resorts, Limited (WYNN).
In the next part of this series, you’ll learn why PENN uses earnings before interest, taxes, depreciation, amortization, and rental lease expense (or EBITDAR) as a performance metric.