In its bid for Philadelphia's second casino license, Penn
National Gaming Inc. has proposed an ownership structure that would steer
two-thirds of the profits to schools and the city's woefully underfunded
pension fund.
In Maryland's Prince George's County, Penn National has gone
further, promising 100 percent of profits to an educators' retirement plan and
a neighborhood health network.
Playing a key part in both of those proposals is a new
company that Penn National spun off to shareholders on a tax-free basis
effective Nov. 1. Penn National is not in the Philly 50 but is based nearby, in
Wyomissing, Pa.
The spin-off is Gaming & Leisure Properties Inc., a real
estate investment trust that has assumed ownership of the real estate
associated with most of Penn National's casinos. Penn National will continue as
the operator in all but two cases, paying rent to the new firm.
Gaming & Leisure is now the operator of casinos in
Perryville, Md., and Baton Rouge, La., a tactic designed to get around rules
prohibiting a company from owning more than one casino in those states.
A real estate investment trust can avoid corporate income
taxes if it gets at least 75 percent of its income from real estate and it
distributes 95 percent of earnings to shareholders.
Penn National executives have described the split as a way
to reduce borrowing costs and expand into new markets.
An investigative report for authorities in Massachusetts,
where Penn National is one of three companies vying for a slots-parlor license,
was more blunt on Penn National's motivation for launching Gaming &
Leisure:
"Penn National believes that the weak economy and the
saturation in the casino marketplace, as more and more states legalize gaming
in search of new sources of tax revenues to solve their budget difficulties,
continue to negatively impact the domestic gaming industry."
The August report also said that Penn National is skeptical
of "high-end expansion and Internet gaming" as growth drivers for
U.S. casino operators.
Gaming & Leisure will first focus on buying more of the
250 U.S. commercial casinos, but it might expand into areas such as leisure and
recreation.
The real estate investment trust is central to the proposals
in South Philadelphia and Maryland because it would collect rent and interest,
with money for profits separate from those going to the designated
beneficiaries.
What's more, Penn National itself will collect management
and licensing fees of $278 million over the first 15 years, towering over the
$115 million for the nonprofit benefiting the schools and city pension,
according to projections from the Philadelphia controller's office.
Details on the Maryland deal were not available.
During a Maryland hearing Oct. 21, a Penn National executive
was asked why the company would give away all of its profits, according to an
account in the Washington Post.
The response was that management fees and interest payments
would provide "adequate return to our shareholders."
Source: Philly.com
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