They’ve been busy little beavers at Penn National Gaming, which is — would you believe it? — now the third-largest operator in the U.S. Never mind that Penn bought a horse track in Ohio, on top of building two casinos there, and it just rolled out table games in West Virginia and Pennsylvania. Fresh off opening Maryland‘s first slot parlor (after threatening not to, in a momentary fit of corporate pique), Penn is making a play for Louisiana‘s one open gaming license, has bought half-interests in three Texas parimutuels and — to cap it off — made its much-touted Big Vegas Acquisition.
Actually, that calls for a few qualifiers. After dickering with MGM Resorts International for The Mirage (and, to hear Steve Wynn tell it, Bellagio too), Penn settled on that surefire winner, Fontainebleau, which it aimed to buy out of bankruptcy. That plan lasted for about all of, oh, five minutes. Then Penn did some belated due diligence, gasped at the $1.6 billion completion cost of F-blew and decided to let Carl Icahn have it after all.
Also, while Penn management is talking as though yesterday’s purchase of M Resort‘s debt puts it in charge of the property, there are still a few hoops through which it must jump. The note on Anthony Marnell III‘s casino must be called in, and the approval — however cursory — of the Nevada Gaming Control Board and Nevada Gaming Commission must be obtained. Even so, CEO Peter Carlino was sounding every bit the man who’d already taken the keys to the property: “M Resort is a unique, differentiated property that we expect will continue to improve its operating results even without the benefit of a rebound in the local Las Vegas economy. Longer-term, the core attributes which contributed to the growth of Las Vegas into one of the world’s pre-eminent entertainment destinations including its favorable climate and low taxes, combined with Penn National’s growing database of 12 million regional gaming customers, many of whom already visit Las Vegas, will further benefit M Resort and the local economy.” (Translation: Yeah, the locals market is sucking wind but we’re going to bring in so many new customers that it won’t matter.)
No question, Carlino has Marnell where the hair grows the shortest and whatever “negotiation” follows will probably be of a very one-sided nature. MGM’s $160 million investment in M is repaid in full. The Bank of Scotland takes a bath, selling a $7oo million mortgage at 10 cents on the dollar. This pickup also qualifies Penn for a nifty tax deferral, thanks to a provision that Sen. Harry Reid (D-NV) juiced through the present Congress, incentivizing companies to buy distressed debt.
J.P. Morgan analysts put M’s cash flow anywhere between $12 million-$15 million, would place even Penn’s bargain-price transaction in the 13X-19X EBITDA range (i.e., a very steep multiple). Wells Fargo‘s Carlo Santarelli must know something we don’t, because he estimates the purchase price at or near 14X EBITDA, implying a $16.5 million annual cash flow for M. Both investment houses believe Penn can amortize that upfront cost to 7X or 8X cash flow over time, through cost savings — hopefully not of a draconian sort. M is already outsourcing more of its F&B operation.
Financing the deal is not a worry for Penn, which has nearly $400 million in cash still in the drawer, plus another $640 million in borrowing capacity. However, now that it has a “trophy asset” in Vegas which it can use to reward especially loyal players — and given the number of irons in has in the fire in other states, which Santarelli characterizes as “an underappreciated development pipeline” — Penn will surely rest on its new laurels rather than continuing to window-shop around here. Green Valley Ranch was on Penn’s wish list for a while but that’s now redundant (and you’d probably have to take some underwhelming Greenspun Cos./Station Casinos joint ventures into the bargain) and Penn’s run through all its opportunities on the Strip. Besides, Carlino’s criteria for a Vegas presence were a high-end property and a low purchase price. With M, he’d go 2-for-2.
Second act for Juliano? Having been tossed aside by new Trump Entertainment Resorts boss Marc Lasry, ex-Trump CEO Mark Juliano might make a speedy comeback. He’s being tipped as the potential boss for Gov. Chris Christie‘s planned Atlantic City tourist district. He’d have myriad qualifications and nobody’s been a more vocal cheerleader for the resort corridor in recent years.
I had not idea their EBITA was that low! I guess thats why we call it eMpty 🙂 Regardless, Penn’s acquisition of M’s debt was well done. I think M is one of the nicest resorts in the valley. Penn gets a good deal here. I am very surprised Boyd did not go after it in the end.
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“MGM’s $160 million investment in M is repaid in full.”
This is a better link to the Wall Street Journal article:
http://online.wsj.com/article/BT-CO-20101008-704956.html
From the article about Hash House opening at M:
“He said the company received 2,000 applications for 100 jobs.”
I wonder what Angle’s angle on that would be?
(Maybe “It’s Harry Reid’s fault that 2,000 people want to move from other resorts to that new place. This shows how much of a hash he has made of Nevada’s economy.”
From what I have read and the pictures I have seen the M Resort looks like a very nice property. Unfortunately it is closer to Sloan, Nevada than the Strip. Penn has finally found the deal they are looking for but as they say in real estate: location, location, location. Good luck Penn.
M Resort should have been built closer to the Strip but unfortunately the Marnell family did not have deep enough pockets to buy land at a better location. It would have looked great just east of the Palms where there is nothing except tumbleweeds. One of the many, many failed condominium projects (Vegas 888) was going to be built there and…..
we all know how that ended. What investment bank originally bought the land back in 2004 for Vegas 888: Lehman Brothers. And we all know how that ended.
Afterthought: Considering that M Resort’s ROI is between 1%-2%, Penn’s 10 cents on the dollar must have sounded awfully good to the Bank of Scotland.
Hey David you should really keep track of Penn now that they also purchased a greyhound racetrack in texas in anticipation of the legislature, which kicks off this month, approving slots/video slots or some other form of gambling at race tracks across the state. They should be spending loads of money on lobbyists. Also 2 years ago Sheldon Adelson and one of the Fertittas showed up on the legislature floor trying to drum up support for casino resorts in key cities across the state. So should be interesting this year.
Which Fertitta, I wonder? Tilman is a major business figure down there, so he’d enjoy “favorite son” status. Frank and Lorenzo would have to expect great difficulty getting licensed, given that they fled Missouri with everything but the bloodhounds snappin’ at their rears:
http://miksa.ils.unc.edu/sgbrowser/btrec/doc_show.cgi?id=32801&id2=NYT20000831.0019
To avoid confiscation, Station sold its two Missouri casinos to Ameristar and skedaddled back to Nevada not a moment too soon.