Fitch: GLPI Meadows Acquisition May Set Bar for Gaming Multiples

NEW YORK--()--The Meadows acquisition by Gaming, Leisure & Property, Inc. (GLPI), which is 9x EBITDA, may set a new bar for regional gaming multiples, according to Fitch Ratings. Meadows is the name of the casino asset owned by Cannery Casino Resorts, LLC.

We believe the 9x EBITDA multiple GLPI is paying for a Pittsburgh area casino could be the beginning of a trend, and it would be a positive for the industry as it would create an incremental equity cushion for regional gaming operators (such as Pinnacle, Boyd and Caesars) whose regional assets normally trade closer to 7x-8x. Pinnacle recently sold a St. Louis asset for an EBITDA multiple of roughly 7.5x while acquiring Ameristar.

However, we note that the higher trading multiples may encourage increased M&A activity at higher multiples, which could then spur borrowing and lead to higher leverage ratios in the industry. Fitch's 2014 sector outlook called for deleveraging among most gaming operators given the healthy FCF profiles, lack of investment opportunities and debt covenants that restrict shareholder-friendly activity.

Although the two acquisitions announced so far by GLPI (Casino Queen is the other) are encouraging, some questions remain on whether GLPI's proposition would be enticing enough for gaming operators seeking to operate casinos without owning the underlying assets. For instance, in the case of Casino Queen, the seller was partly motivated by the risk of a debt covenant default, which GLPI addressed by providing a new loan to Casino Queen. GLPI is buying Meadows outright and still needs to find a buyer for the operating license. Per GLPI, there are 257 commercial gaming assets in U.S., of which 118 are owned by privately held companies.

For additional information on Gaming, Lodging and Leisure (GLL), please see our electronic newsletter for brief sector comments, recent and upcoming events, as well as links and summaries to rating actions and detailed reports. You'll also find links to GLL-related reports/comments from other Fitch Ratings groups including Leveraged Finance, Credit Market Research, REITs, Sovereign/Public Finance and Structured Finance.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Michael Paladino, CFA
Senior Director
Corporates
+1 212 908-9113
or
Stephen Boyd, CFA
Director
U.S. REITs
+1 212 908-9153
or
Alex Bumazhny
Director
Corporates
+1 212 908-9179
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com