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Penn National Completes Acquiring Margaritaville for $115M

Zacks Equity Research

Penn National Gaming, Inc. PENN announced that it completed acquiring the operations of Margaritaville Resort Casino in Bossier City, LA. In conjunction with this, the company also announced that it signed a triple net lease agreement with VICI Properties Inc. VICI to manage the Margaritaville facility.

The acquisition is part of Penn National’s continual efforts to enhance shareholder value as these are expected to boost free cash flow. Further, the company expects to see a diversified revenue stream, resulting from these buyouts.

Details of Deals

The purchase price of Margaritaville amounted to $115 million and represented a multiple of roughly 5x of expected trailing 12-month adjusted earnings before interest, taxes, depreciation, amortization (EBITDA), and management fee for the period ended on Dec 31, 2018. Penn National expects the multiple to be below 4.5x, stemming from operating synergies and cost savings.

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The lease agreement with VICI has a preliminary annual rent of $23 million and an initial term of 15 years, with four 5-year renewal options. The rent coverage ratio in the first year after closing is expected to be greater than 2. Meanwhile, the Tenant’s obligations under the lease are guaranteed by Penn National.

Buyout Synergies

The acquisition will further aid Penn National’s revenue yields. The company is known for its acquisition strategies that help it expand presence. In 2017, the company entered an agreement to acquire Pinnacle Entertainment, Inc., a leading regional gaming operator. This transaction closed on October 15. Post the transaction, the company is welcoming 12 new properties. It expects to realize synergies worth $100 million from its Pinnacle acquisition. Meanwhile, in Pennsylvania, the company acquired two category 4 licenses in the bidding process in the first quarter. Each license can have up to 750 slot machines and 40 table games.

The addition of Margaritaville will further lend Penn National a scale advantage and operating synergies. Since Margaritaville is a leading casino resort in Bossier City, operating margins and free cash flow can be expected to get stronger with the acquisition.

Stock Performance

In a year’s time, shares of Penn National have lost 35.8% compared with the industry’s 29.5% decline. This showcases the company’s weak earnings trend. Although its bottom line surpassed the Zacks Consensus Estimate in two of the trailing four quarters, it recorded average miss of 23.3%.


Stocks such as Boyd Gaming Corporation BYD, Las Vegas Sands Corp. LVS and MGM Resorts International MGM, which belong to the same industry, witnessed a decline of 39.4%, 20.5% and 25.1%, respectively, in a year’s time.

Penn National currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
 
MGM Resorts International (MGM) : Free Stock Analysis Report
 
Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
 
Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
 
VICI Properties Inc. (VICI) : Free Stock Analysis Report
 
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