Penn Entertainment, Inc. · NASDAQ:PENN
Penn Entertainment — Penn National Gaming — Merger or Acquisition (November 2012)
28 slides from Penn Entertainment's merger presentation, Nov 16, 2012
Slide 1: Penn National Gaming to Pursue the Separation of its Real Estate Assets from its Operating Assets
1 Penn National Gaming PENN: Nasdaq Penn National Gaming to Pursue the Separation of its Real Estate Assets from its Operating Assets November 15, 2012
Slide 2: Safe Harbor
2 In addition to historical facts or statements of current conditions, this presentation contains forward-looking statements that involve risk and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company’s current e
Slide 3: Introduction
3 Introduction Bill Clifford Chief Financial Officer Tim Wilmott Chief Operating Officer Peter Carlino Chairman and Chief Executive Officer
Slide 4: Throughout this presentation: definitions of PENN, PropCo, OpCo
4 Throughout this presentation: “PENN” refers to Penn National Gaming, Inc. (existing entity) “PropCo” refers to the proposed newly formed, publicly traded real estate investment trust (“REIT”) to be spun-off to PENN shareholders “PNG” or “OpCo” refers to the operating entity following the proposed
Slide 5: Creation of the first gaming focused REIT
5 Creation of the first gaming focused REIT Initially, rent will equal approximately $450 million, which represents approximately half of PNG’s projected 2013 adjusted EBITDA Through a tax-free dividend, PENN shareholders will receive PropCo common stock PropCo will subsequently declare a taxable di
Slide 6: Leading Diversified Regional Gaming Company with Regional Focus
6 Leading Diversified Regional Gaming Company with Regional Focus 29 properties in 19 jurisdictions, including recently opened properties in Toledo and Columbus and the recently completed acquisition of Harrah’s St. Louis PENN’s regional markets have outperformed destination gaming markets, especial
Slide 7: Current Company Overview (PENN)
7 Current Company Overview (PENN) A leading, diversified, multi-jurisdictional owner and manager of gaming and pari-mutuel properties 29 facilities in 19 jurisdictions Approximately 1.6 million square feet of casino gaming space with approximately 36,800 slot machines and approximately 850 table gam
Slide 8: Leading Regionally Diversified Gaming Company
8 Youngstown Leading Regionally Diversified Gaming Company Black Gold Casino at Zia Park Argosy Casino Sioux City Hollywood Casino Aurora Hollywood Casino Joliet Argosy Casino Alton Hollywood Casino Bay St. Louis Hollywood Casino Baton Rouge Boomtown Biloxi Sanford-Orlando Kennel Club Charles Town R
Slide 9: Development Pipeline
9 Development Pipeline $ in millions. (1) Adult population (25+) within 90 miles, adjusted for competition. (2) Represents GGR tax rate for all gaming revenues. Represents Penn National’s expected share; the total facility budget is approximately $391 million, inclusive of a $25 million license fee.
Slide 10: Penn National Gaming Transaction Overview
10 Penn National Gaming Transaction Overview
Slide 11: Transaction Overview
11 Transaction Overview Separate Real Estate and non-Real Estate holdings Creation of REIT (PropCo) to hold majority of PENN real estate, with the majority of non-real estate holdings held at PNG (OpCo) Tax-free spin-off of REIT (PropCo) to PENN shareholders REIT (PropCo) would enter into a Master L
Slide 12: Transaction Rationale
Following the separation, shareholder value is expected to increase due to enhanced: Competitor Opportunities Ability for REIT (PropCo) to enter into agreements with PNG competitors and utilize first-mover advantage to secure transaction flow Asset sale-leaseback transactions with existing gaming op
Slide 13: Historical Valuation of REITs Versus Regional Gaming Operators
8-Year EV/ NTM EBITDA (1)(2) 15 Historical Valuation of REITs Versus Regional Gaming Operators Source: FactSet as of 11/8/12. FactSet adjusts shares outstanding in the calculation of EV for the dilution of preferred equity, as applicable, and adjusts for changes in capital structure on a quarterly b
Slide 14: Pre-Spin, PENN Focused On
14 Pre-Spin, PENN Focused On: Creating two “strategically-focused” entities with healthy balance sheets Targeting an EBITDA to Rent Coverage of 2 to 1 as a foundation for sustainability at PNG (OpCo) while ensuring attractive dividend yields at REIT (PropCo) Optimizing cost of borrowing Incorporatin
Slide 15: Shareholder Impact
15 Shareholder Impact Existing PENN Shareholders PENN shareholders would retain shares of PNG (OpCo) and receive one share of REIT (PropCo) for each PENN share owned PropCo shareholders would receive accumulated E&P cash dividend of $5.35 per PENN share based on pro forma 2013 estimates PropCo share
Slide 16: Re-Alignment of Investments to Satisfy REIT Requirements
16 Re-Alignment of Investments to Satisfy REIT Requirements The Carlino Family The Carlino family group would receive a non-pro rata distribution whereby Carlino family members would exchange PNG (OpCo) shares for REIT (PropCo) shares such that the Carlino family in aggregate would own 9.9% of PNG (
Slide 17: Series B Exchange and Potential Repurchase Impact to PENN Share Count
17 Series B Exchange and Potential Repurchase Impact to PENN Share Count Impact of Exchange of Fortress Preferred Stock for PENN Common Shares Impact of PENN Share Repurchase Agreement with Fortress Reduction in PENN Diluted Common Share Count Assuming Fortress Exchange and Repurchase Agreement Fort
Slide 18: Transaction Mechanics
18 Transaction Mechanics (1) Taxable REIT Subsidiary conducts activity that generates non-qualifying REIT income. At the end of the lease term, Penn has the right to sell the applicable gaming license necessary to operate the facilities at fair market value. Includes recently opened/acquired Toledo,
Slide 19: Key Next Steps
19 Key Next Steps PENN has performed over two years of diligence and has had ongoing discussions with the IRS Next steps: Q2 2013 Begin Financing Transactions Q2 2013 Prepare spin-off agreements and SEC filings (including pro forma financial statements for each company) Q2 2013 File Form S-11 Q4 201
Slide 20: New Opportunities Created by Proposed Transaction
20 New Opportunities Created by Proposed Transaction New Standalone Entities Potential Strategic Actions PNG (OpCo) REIT (PropCo) Commentary Acquire properties of PENN competitors in a sale lease-back transaction - ü Allows competition to move to asset-light model and provides REIT (PropCo) access t
Slide 21: Opportunity in Commercial Gaming Assets
21 Opportunity in Commercial Gaming Assets There are over 250 commercial gaming facilities in the United States of which approximately 140 are owned by public companies Many of these facilities are located in jurisdictions where regulatory constraints limit operator expansion The following jurisdict
Slide 22: Pro Forma Financial Highlights
22 Pro Forma Financial Highlights Sources & Uses Refinance PENN Existing Debt: $2.7 billion Pre-spin redemption of Fortress Investment Group Conversion Shares: $417.5 million Cash portion of the Accumulated E&P Dividend: $487 million Transaction Expenses: ~$125 million Total Transaction Debt: $3.75
Slide 23: Summary of Master Lease Terms
23 Summary of Master Lease Terms Lease Structure: “Triple Net” Master Lease: PNG will be responsible for maintenance capital expenditures, property taxes, insurance and other expenses All properties subject to the lease will be cross-defaulted / guaranteed PNG will remain responsible for acquisition
Slide 24: Overview of Corporate Structure
24 Overview of Corporate Structure Executive Officers Peter Carlino, current Chairman and CEO of PENN, will serve as REIT (PropCo)'s Chairman and CEO Tim Wilmott, current President and COO of PENN, will serve as PNG (OpCo)'s CEO In addition, Peter Carlino will serve as Chairman of PNG (OpCo) Transit
Slide 25: Investment Highlights
25 Investment Highlights REIT (PropCo) PNG (OpCo) Top regional operating know-how, strong brand, robust database Deep management team Best-in-class financing and development know-how Positioned to capture gaming management contracts from REIT (PropCo) assets Initial master lease locks in operations
Slide 26: Stable Performance Through Economic Cycles
Stable Performance Through Economic Cycles 26 Assuming the worst cumulative EBITDA decline (uniformly across all properties) observed to date immediately post-transaction, the rent coverage would decline to 1.6x Note: Same-store financials exclude revenue and EBITDA from racing operations, joint ven
Slide 27: Impact on Preferred Stock – Detailed Calculation
27 Impact on Preferred Stock – Detailed Calculation (1) Remaining Series B Preferred Share Holders would only receive common stock of REIT (PropCo) per the calculation above; they would receive any preferred equity interest in PNG (OpCo). Calculation of REIT (PropCo) Common Shares Issued to Remainin
Slide 28: Definitions and Reconciliation of Non-GAAP Measures to GAAP
28 Definitions and Reconciliation of Non-GAAP Measures to GAAP Adjusted EBITDA, or earnings before interest, taxes, stock compensation, insurance recoveries and deductible charges, depreciation and amortization, gain or loss on disposal of assets, and other income or expenses, and inclusive of gain
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