Penn National Gaming, Inc. (PENN) defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt-extinguishment charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, gain or loss on disposal of assets, and other income or expenses.
Adjusted EBITDAR is adjusted EBITDA excluding rent expenses such as those associated with PENN’s master lease agreement with Gaming and Leisure Properties (GLPI). Adjusted EBITDA and adjusted EBITDAR are used by management as the primary measures of the company’s operating performance.
In the above chart, you can see that both EBITDA and EBITDAR remained the same for 2011 and 2012 since there was no lease expense. In Part 4, we learned how the company spun off its real property assets into GLPI. This spinoff negatively impacted PENN’s EBITDA.
It should be noted that adjusted EBITDA is defined differently by companies. As a result, the adjusted EBITDA reported by casino companies such as Boyd Gaming Corporation (BYD) and Pinnacle Entertainment Inc. (PNK) may not be directly comparable.
The Consumer Discretionary Select Sector SPDR Fund (XLY) is an ETF that invests in the casino industry, among other sectors.
The master lease is commonly known as a triple-net lease in which the tenant—PENN, in this case—is responsible for the following:
- facility maintenance
- insurance required in connection with the leased properties and the business conducted on the leased properties
- taxes levied on or with respect to the leased properties—other than taxes on the income of the lessor
- utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties
As a result of the spinoff, GLPI substantially owns all of PENN’s real property assets and leases back most of those assets to PENN under the master lease agreement.
In the next part of this series, we’ll look at PENN’s recent acquisitions and expansions.