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US – Penn National announces sale of Tropicana Las Vegas and unpaid furloughs

By - 29 March 2020

Penn National Gaming has said it will sell Tropicana Las Vegas as one of several measures to help mitigate the financial impact of the ongoing COVID-19 pandemic.

Gaming and Leisure Properties will acquire the real estate assets of the Tropicana Las Vegas hotel and casino and the land for Penn National’s Morgantown, Pennsylvania development in exchange for an aggregate non-cash rent payment of $337.5m. The parties will enter into a lease for the Morgantown land which will generate $3m of initial annual cash rent for GLPI.

Penn National has also agreed to engage in an early renewal for both its master leases with GLPI, which extends their current terms by five years, giving GLPI shareholders enhanced visibility of future cash flows. Furthermore, Penn National is granting GLPI downside protection for any future competitive impact that Penn National’s new Category 4 developments in Pennsylvania may have on the GLPI facilities subject to the Penn National master lease. Penn National will otherwise make cash rent payments for its obligations to GLPI including cash rent in April, September, November, and December. Pursuant to the agreement, GLPI has granted Penn National an option to acquire the operations of Hollywood Casino Perryville, one of its taxable REIT subsidiary (TRS) properties, subject to the execution of a lease agreement with Penn National.

“As the global COVID-19 health crisis continues to evolve, we are navigating through this unprecedented time for our company, our industry and our nation,” said Jay Snowden, President and Chief Executive Officer of Penn National. “With all of our 41 properties in 19 states temporarily shuttered, like many others in the gaming and hospitality sector, we are making difficult decisions to help preserve our liquidity and ensure a brighter future for our company’s team members, customers, shareholders and other key stakeholders.

“Today we announced an agreement with our principal landlord, Gaming & Leisure Properties, involving the sale of the Tropicana Las Vegas real estate assets (we will continue to operate the facility) and a new ground lease for our planned Category 4 casino in Morgantown, Pennsylvania, in exchange for $337.5m in rent credits,” said Mr. Snowden. “In addition, the deal includes an option for us to acquire the operations of GLPI’s Hollywood Casino – Perryville, Maryland at a future date. We greatly appreciate the cooperation, creativity and partnership shown by GLPI during this challenging time. While this transaction will help to relieve liquidity pressure in terms of rent obligations, we are committed to taking further steps to reduce our ongoing operating expenses in order to ensure we have a healthy business to return to when we are able to re-open our doors,” said Mr. Snowden.

As previously announced, Penn National will continue to pay its team members their full wages and benefits through March 31. However, several states have announced extensions of their temporary closure orders and other states may soon follow suit. Given the uncertainty about the duration of the pandemic, and with no meaningful revenue for the foreseeable future, Penn National will be implementing unpaid furloughs impacting approximately 26,000 team members companywide beginning April 1.

“This decision was extremely difficult to make for all of us at Penn,” Mr. Snowden wrote in a letter to Company team members. “Penn National is a family, and we deeply regret the hardship this will place on you and your loved ones. We are extremely motivated and focused on re-opening our properties as soon as it is safe and legal to do so. To try to help ease some of the burden, we’re maintaining your medical benefits through June 30, for those team members who are currently enrolled in our health plans,” wrote Mr. Snowden.

In addition, Penn National has established a special COVID-19 Emergency Relief Fund under the Penn National Gaming Foundation to provide assistance to team members and local relief organisations in our communities. The Company has already raised over $1.2 million in team member relief funds, including more than $425,000 in personal contributions from Mr. Snowden and his senior management team, the Company’s Board of Directors, and property general managers.

“We are committed to doing all we can to help our affected team members get through this,” said Mr. Snowden. “I am proud of the fact that when the call came down from our governors across the country to temporarily close our facilities, we managed the process in a safe and orderly fashion, ensuring the health and well-being of our team members and guests. I’m equally proud of the fact that since closing our doors over a week ago, our properties have donated more than 45 tons of food to local food banks and homeless shelters in our communities, ensuring our perishable food items can help those in need. In addition, our properties have donated thousands of unused masks and surgical gloves to first responders and health care providers,” said Mr. Snowden.

GLPI’s Chairman and Chief Executive Officer, Peter Carlino, commented, “This is a win-win agreement that significantly enhances GLPI’s certainty from the master leases with Penn National as it assists Penn National in meeting its GLPI rent obligations while helping to create a stronger liquidity roadmap for Penn National. Given the rapid onset of closures related to COVID-19, these agreements are structured in a manner that allows both companies to achieve their longer term objectives once the virus and its associated impacts abate. For GLPI, we are receiving attractive real estate value which represents a prudent and thoughtful approach toward ensuring that our shareholders are made economically whole while positioning Penn National with a healthier runway to navigate the impacts of COVID-19 over the long term. These strategic transactions strengthen the credit support behind GLPI’s rent payments, allows GLPI to control a unique and iconic site on the Las Vegas Strip without carrying costs, offers unique protection to the Penn National master lease from potential competitive pressure, and enhances long term cash flow visibility though the lease renewals. We believe the transactions announced today reflect the strong working relationship and continued alignment of interests between GLPI and Penn National as well as our commitment to enhance long-term shareholder value.”

Penn National is taking a series of additional short-term actions to reduce its cost structure during the property closures.

These include meaningful pay cuts for the CEO and remaining property and corporate leadership teams effective April 1 until such time as the company determines that its properties have substantially returned to normal operations

The Board of Directors have elected to forgo any of their cash compensation effective April 1 until such time as the Company determines that its properties have substantially returned to normal operations

The majority of Corporate team members will also be furloughed, and the Company will be operating with a minimum, mission critical staffing of less than 850 team members companywide during the closures.

“Since the time we suspended operations, we have taken swift measures to confront this unprecedented challenge head on and have managed to significantly reduce our daily operating expenses,” said Mr. Snowden. “While the steps we’ve taken are deeply painful on a personal and professional level, I am confident these moves will help to preserve our Company’s and our team members’ long-term future,” concluded Mr. Snowden.

In light of the COVID-19 outbreak and ongoing uncertainty regarding its magnitude and duration, Penn National is withdrawing its 2020 financial guidance provided on February 6, 2020.

The company will provide a financial and operational update in connection with its first quarter 2020 earnings announcement planned for May 7.

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