Soon Every Casino Will Be Doing This

Shares of Penn National Gaming (Nasdaq: PENN  ) jumped up 22% after announcing that it will split off its real estate assets into a real estate investment trust, or REIT. In this video, Motley Fool analysts Blake Bos and Austin Smith discuss how this is going to save the company an estimated $160 million in real estate taxes each year, and why some analysts think shares of similar companies, such as Las Vegas Sands (NYSE: LVS  ) , could potentially double if they adopted the same strategy.

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  • Report this Comment On November 20, 2012, at 6:39 PM, spokanimal wrote:

    A REIT tax strategy pertains to ways of dealing with US tax law. Las Vegas Sands derives 88% of it's EBITDA from the far east.

    Further, LVS's non-core asset strategy is to monetize those assets to fuel growth, whereas a Penn-style REIT strategy distributes income to shareholders and locks up the assets in a separate entity.

    Your article is one of the most ignorant things I've ever read. Do your homework before you hit return on cr@p like this.

    S

  • Report this Comment On November 20, 2012, at 9:29 PM, TMFBos wrote:

    That's an interesting point you make; although unless I believe the United States is one of the only countries where corporations are taxed twice. Once at the tax rate in the country of operations, and then extra on the difference if that countries rate is less than the current US tax rate. One can only hope this tax policy is "simplified" in the future.

    Source: http://taxfoundation.org/article/us-multinationals-paid-100-...

    Also given Penn's 2.8B of revenue and it's tax savings of ~160M; one could estimate LVS would save 100M on the bottom line from US operations alone; not including savings on foreign income that is taxed twice. This is especially exciting considering tax savings flow right into bottom line profitability and is actual cash saved for shareholders.

    As far as monetizing the assets I do agree they need to be able to monetize those to fuel growth in new ventures, but as a REIT that business could still leverage it's assets to buy more properties. There are many REIT's that purchase commercial real estate out there today. Please let me know if there's any error in my logic, as I'm always trying to learn and grow in the wonderful world of investing.

    Fool On!

  • Report this Comment On November 20, 2012, at 10:07 PM, BenKeel wrote:

    "spokanimal", you seem to be missing the point. (your short LVS, just say so dude).

    Your name is befitting of your IQ.

    Anyway, it's not just the huge tax savings LVS will enjoy (and they will, despite having operations offshore) but a "separate entity" as the the very successful Jonathan Litt explains, give LVS the leverage as a gaming company that it doesn't have now. By splitting up, they can focus on core gaming operations which are expected to grow at 20% per year for the next five years. that's 100% earnings growth, conservatively estimated. Jon Litt was a genius at CitiGroup and he got out AT THE TOP, which few analysts can claim. I expect he's pretty correct here.

    Buying daily on dips AND rallies here.

  • Report this Comment On November 21, 2012, at 1:14 PM, spokanimal wrote:

    @ BenKeel: The point that is being missed is an understanding of LVS's primary business model. Since you don't understand the company very well, let me help you with that.

    LVS is a growth company. To grow, the construct 4 and 5-star resorts that are characteristically MICE-centric. Once the resort, and/or the resort community around it, has matured and it's assets approach their prime earning potential, LVS will sell it's highly-appreciated, non-core assets like condos and malls, and use the proceeds to fuel further growth.

    What Jonathan Litt (yes, I read his piece... I read everything thing there IS to read about LVS each and every day) and you are missing is that a REIT strategy is a way to realize value directly for shareholders by emphasizing the value of it's assets in a high-dividend paying REIT while the core company outside of the REIT emphasizes it's operational capabilities. The problem for LVS would be that by spinning off the assets into a REIT, the assets are effectively "distributed" to the shareholders without a corresponding cash infusion into the parent company that can be used to further GROW the parent company. It's a great strategy for a company like Penn, which operates in a mature gaming geography and prefers to appeal to investors on the basis of income, but not a growth entity like LVS and the growth model they eschew.

    There is one REIT model that could work with LVS's growth model, however: I could see them doing an IPO on a separate REIT entity whereby the prospectus would indicate that the objective of the REIT was to PURCHASE LVS's non-core assets. That way, LVS would essentially receive the proceeds of the IPO via the subsequent sale of the assets and thus preserve their ability to monetize them in accordance with their business plan.

    BTW, it appears that you also don't understand the significance of my posting moniker... almost as though I would interpret yours to signify something along the lines of... "keeling over", which I wouldn't.

    GLTY, Spok

  • Report this Comment On November 21, 2012, at 1:25 PM, spokanimal wrote:

    @ TMFBos: I get your point about double taxation of earnings. After all, it was me and only 5% of the American public that was throwing things at the television during Obama's state-of-the-union address when he introduced Warren Buffett's secretary as someone who paid 6% more federal income tax on only 1/100 of Mitt Romney's salary...

    ... of course, Mr. Obama was banking on the other 95% of Americans having no understanding of the concept of the "double taxation of dividends", and could thus play on their ignorance in the name of fomenting lots of "class warfare".

    But, I digress. Yes, when LVS re-patriates earnings from the far east back to the U.S., Mr. Obama taxes it again for the difference up to the world's highest corporate tax rate... our 35% bracket in the U.S.

    What's wrong with your double-corporate-tax argument is that nobody IS re-patriating foreign earnings... for 2 reasons actually... because Obama's 35% rate eliminates the incentive for companies to bring it home and use it to build american jobs and hire american employees...

    ... and because who would want to re-patriate their earnings ANYWAY, given that there has been so little growth in the U.S. economy over the past 4 years... as Cisco's John Chambers said the other day... all the growth is elsewhere.

    Same with Las Vegas Sands... they're looking at Korea, Japan, Vietnam, and even Spain for new resorts once they finish the Parisian on the cotai strip. Like every other U.S. multinational corporation, they have no plans for anything in the U.S...

    ... especially given that our country's most anti-capitalist President in American history has another 4 years to punish anybody and everybody with investment capital to deploy.

    Spok

  • Report this Comment On November 21, 2012, at 11:44 PM, TMFBos wrote:

    Great points Spok and Ben; really liked some of your takeaways, especially the part about the focused REIT for LVS. I'm no expert in the arena of REIT's, but was curious as how it would be set up if it's objective was to invest in new properties for a specific business entity. It seems PENN definitely has a few more advantages to operating in the structure, but I'll be curious to see if a global casino operator tries to make it work as well.

    As for taxes, I try to stay politically neutral for the most part, as politics can be quite the heated issue these days. Although when it comes to our tax code and multi-national corporations; America is unarguably at a disadvantage to other countries.

    Thought this was a great discussion by the way. I always like it when content can have good discussion that helps our investment community better understand the companies they're interested in. We just ask all of our fellow Fools to remain respectful of other Fool's opinions and have fun constructive debates when they inevitably disagree. We love to have both sides of the story so our community can make the most informed decisions possible.

    Cheers!

    Blake

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