Casino owner and operator Penn National Gaming Inc. (NASDAQ: PENN) announced this morning that it will spin off its real estate assets into a separate, publicly traded REIT in a transaction that is tax-free to current investors. Shareholders will receive approximately $5.35 in cash for every share of Penn they own and shares valued at about $10.05 each in the new REIT.

Shares of other casino owner-operators are also up on the news, with Las Vegas Sands Corp. (NYSE: LVS) up 4.3%, Melco Crown Entertainment Ltd. (NASDAQ: MPEL) up 2.1%, Wynn Resorts Ltd. (NASDAQ: WYNN) up about 1%, and Ameristar Casinos Inc. (NASDAQ: ASCA) up 13.3%.

Penn intends to put 17 casinos of its 29 total casinos and racetracks into the REIT and expects the new company to receive about $450 million annually in rent from the casino operations company.

Penn’s CEO said:

This proposed transaction would be transformational for Penn National and its shareholders and presents a direct path toward unlocking the tremendous value of our real estate asset portfolio. Our plan is to create two well capitalized companies with strong free cash flow that are positioned for growth in the gaming and REIT sectors.

Investors expect other casino owners to follow suit because the REIT structure does not require the company to pay federal taxes, thereby unlocking the value of the underlying real estate and boosting investor returns through the requirement that a REIT distribute at least 90% of taxable earnings as dividends.

Penn has also announced plans to bid for the right to build a casino in Philadelphia. The proposed property is estimated to cost the company $480 million if Penn is the winning bidder.

Penn’s shares are up nearly 30% at $48.77 after posting a new 52-week high of $50.50 earlier today. The previous range was $33.62 to $46.55.

Paul Ausick

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