Tropicana Las Vegas sale is now complete

The sale of Tropicana Las Vegas is complete, with its previous owner receiving $307.5 million in credit for rent. Gaming and Leisure Properties, Inc. (GLPI) announced Monday that its purchase of the Las Vegas Strip property had closed with Penn National Gaming.

Penn will continue to operate Tropicana for at least two years under the lease agreement, barring a sale of the property, GLPI said in a press release. Under the deal, Penn receives rent credit applied to five-plus months later this year, beginning in May.

GLPI said it will conduct a sale process of the property, and Penn can receive a portion of the net proceeds if the Tropicana is sold within two years. If a sale is made in the first year, Penn is set to receive 75 percent of the net proceeds above $307.5 million. If completed in the second year, the casino operator will receive half the proceeds over the same basis.

GLPI's Chairman and Chief Executive Officer, Peter Carlino, commented: “GLPI believes its collaborative and mutually beneficial outcome with Penn National provides us and our investor base greater visibility and predictability for rent receipts over the remainder of 2020.  We are also grateful to our credit facility lenders for their support in facilitating the transaction with Penn National in a manner that acknowledges the unforeseen circumstances and that represents a unified spirit of cooperation to overcome the challenges presented by COVID-19.”

The Tropicana has remained closed since Nevada Gov. Steve Sisolak signed an order last month forcing all gaming venues to cease operations, part of a statewide effort to stem the spread of the coronavirus.

The deal helps preserve Penn’s liquidity while its 41 properties are closed during the nationwide shutdowns, bringing revenue streams to a halt. As of March 31, the company had about $730 million of cash and cash equivalents, according to the federal documents.

Since then, Penn National CEO Jay Snowden said the company has taken “swift measures” to reduce its daily operating expenses, Las Vegas Review-Journal reports. The company is selling the real estate assets of a new ground lease for a planned casino in Morgantown, Pennsylvania to GLPI, decreased compensation to its executives and board of directors and furloughed its 26,000 employees nationwide. “We believe that these collective steps will allow us to successfully weather the state-mandated closures related to the COVID-19 crisis,” Snowden said.

A note from SunTrust Robinson Humphrey published March 17 — before Penn took these measures — said the company had about four months left before it ran out of cash in a zero-income scenario. After these changes, the company should have enough cash now to last through the rest of the year, according to a Monday note from Macquarie Research. Its average monthly cash burn has dropped to $83 million during the shutdowns.

“While we believe this decline could be slightly worse (than the last downturn), we are assuming that the sector remains relatively resilient,” Macquarie analyst Chad Beynon said in the report.

Penn also said it plans to launch a Barstool-branded mobile sports betting product in the third quarter of this year, which will combine its 20 million loyalty members with Barstool’s 66 million monthly unique visitors on various social media networks, Beynon said. “(We) believe the pause in sports may help Barstool market share once sports reopen,” he said in the note.

Snowden said he believes the company’s geographically diverse portfolio makes it “well-positioned to benefit from a state-by-state phased-in approach” outlined in President Donald Trump’s “Opening Up America Again” guidelines, which were issued last week. Penn has properties in 19 states, including the Tropicana and the M Resort in Southern Nevada, and has no more than 15 percent of revenue derived from a single state.