\nBy Howard Stutz, Las Vegas Review-Journal<\/p>\n
\tIt\u2019s unclear if Boyd Gaming Corp. will ultimately spin off all or a portion of the company\u2019s casinos into a real estate investment trust.<\/p>\n
\tBut the idea certainly piqued the interest of the investment community.<\/p>\n
\tShares of Boyd jumped almost 5 percent in value on the New York Stock Exchange last Friday, the day after the company said it spent $3 million on advisers to evaluate the idea of a REIT.<\/p>\n
\tAnalysts, however, were skeptical.<\/p>\n
\tSeveral factors work against Boyd. The company\u2019s ownership structure includes a more than 30 percent stake controlled by founder Bill Boyd and family members. Boyd also carries almost $3.5 billion in long-term debt.<\/p>\n
\tCompany officials brought up other impediments to a transaction, such as tax matters.<\/p>\n
\t\u201cThis will not be a quick process,\u201d Boyd Gaming CEO Keith Smith warned investors.<\/p>\n
\tWorking in the company\u2019s favor are its 22 casinos in eight states, including nine in Southern Nevada. The real estate holdings have value.<\/p>\n
\t\u201c(The) initial research indicates it could be feasible,\u201d Buckingham Research gaming analyst Brian McGill said. \u201cHowever, the transaction would be very complex given the capital structure.\u201d<\/p>\n
\tBy law, REITs don\u2019t pay federal income taxes. With real estate as their primary source of income, REITs must distribute at least 90 percent of their taxable earnings to shareholders.<\/p>\n
\tLast year, Penn National Gaming split off 21 of its 29 casinos and racetracks into Gaming and Leisure Properties, a publicly traded REIT. The properties are leased back to Penn through a management contract.<\/p>\n
\tA similar REIT concept for Boyd surfaced in March when Elliot Associates, an activist New York-based hedge fund, acquired 5 percent of the company.<\/p>\n
\tAnalysts speculated Boyd might be pushed into the REIT.<\/p>\n
\t\u201cKeeping the REIT in play has been a supportive platform for regional stocks this year, despite the limited traction to date for Gaming and Leisure Partners in deals and equity performance,\u201d Deutsche Bank Gaming analyst Carlo Santarelli said last week.<\/p>\n
\tDuring Boyd Gaming\u2019s third-quarter earnings conference call, Smith read from prepared remarks about the REIT process. He told analysts he wouldn\u2019t answer questions about the topic.<\/p>\n
\tThat didn\u2019t stop five of the first seven queries on the conference call to cover the REIT.<\/p>\n
\t\u201cI\u2019m going to have to provide you my standard answer, which is that we\u2019re not in a position to provide you any additional information other than what we gave in our prepared comments,\u201d Smith said in response to one question on the process. \u201cBut thanks for the asking.\u201d<\/p>\n
\tSmith said in a later interview that Boyd didn\u2019t change its stance on the REIT concept from the company\u2019s original comments in the first and second quarters.<\/p>\n
\t\u201cWe just added a few words,\u201d Smith said.<\/p>\n
\tBut the language was enough to stir the pot.<\/p>\n
\tRegional gaming rival Pinnacle Entertainment has been a subject of REIT speculation. Like Boyd, an activist hedge fund bought a stake in Pinnacle this year and proposed the idea.<\/p>\n
\tAt an investment forum in September, Pinnacle CEO Anthony Sanfilippo said the company hired advisers to help decide if a REIT made sense for shareholders.<\/p>\n
\t\u201cWe are well into the process and a significant amount of work has been done and I would expect in the next couple of months that we will have a defined point of view,\u201d Sanfilippo said.<\/p>\n
\tSmith said Boyd Gaming would take its time to evaluate the REIT idea.<\/p>\n
\t\u201cWhile we still have extensive analysis to conduct, initial indications would suggest that forming a REIT is achievable and attractive under certain circumstances,\u201d Smith said.<\/p>\n
\tThe investment community is willing to wait.<\/p>\n
\tMacquarie Securities gaming analyst Chad Beynon said shares of Boyd and Pinnacle have jumped because the companies talk about the concept as being conceivable.<\/p>\n
\tBut he has doubts.<\/p>\n
\t\u201cWe believe investors will flock to this idea in the near term as they have off and on since the Gaming and Leisure announcement,\u201d Beynon said. \u201cManagement alluded to several obstacles that we have been highlighting over the past several months. We expect this to linger.\u201d<\/p>\n
\tMcGill doesn\u2019t see the REIT as realistic in the near term, given Boyd\u2019s \u201cleverage and ownership structure.\u201d<\/p>\n
\tDuring the conference call, Smith seemed to enjoy finding different ways to say \u201cno comment.\u201d<\/p>\n
\tHe told analysts that if Boyd begins moving away from a REIT process, investors will have their answer.<\/p>\n
\t\u201cI don\u2019t think specifically we would say yes or no at any point in time, unless it became so obvious that we weren\u2019t going to do it,\u201d Smith said. \u201cBut I don\u2019t think we can provide much more color at that point than at this point.\u201d<\/p>\n
No replies were posted for this topic.<\/p>\n","protected":false},"excerpt":{"rendered":"
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