The Meadows Racetrack and Casino in Washington to be sold in $465M deal
The owners of The Meadows Racetrack and Casino accepted a $465 million offer on Wednesday to sell the Washington County gaming business off Interstate 79 at a time when revenue is falling as competition for gambling dollars is growing across the region.
Las Vegas-based Cannery Casino Resorts, which opened The Meadows in 2007 when few casinos operated locally, agreed to the cash and equity deal with Gaming and Leisure Properties Inc., a Berks County-based real estate investment trust that owns property associated with 22 casinos.
The deal is subject to approval from the state Gaming Control Board and Racing Commission and is expected to close next year.
Gaming and Leisure Properties, the nation's first casino-focused real estate investment trust, formed last year to hold the real estate of Penn National Gaming Inc. and acquire more properties.
The price it is paying for The Meadows is nine times higher than the casino's 2013 earnings before interest, taxes, depreciation and amortization, a measure favored by the casino industry in valuing companies.
“The nine times is a little on the high end for regional assets,” said Alex Bumazhny, a Fitch Ratings analyst. “Typically, regional casinos trade around seven to eight times.”
William Paulos, Cannery's co-CEO, called the deal “very positive for our company.”
“We were made a good offer and we accepted,” he said.
Cannery bought The Meadows racetrack, which had been open since the 1960s, for $200 million in 2006. The company spent $175 million to build its casino.
While saying that he thought the future for The Meadows was “very bright,” Paulos acknowledged that growing competition from casinos popping up around the region has cut into revenue.
“We had some of the most aggressive competition,” he said, noting that the opening of the Lady Luck Casino Nemacolin in Fayette County last year was an “unfortunate scenario that didn't help the commonwealth.”
Rivers Casino, which opened on the North Shore in 2009, has been cutting into The Meadows' money.
Gross revenue at The Meadows fell more than 2 percent, from $287.1 million to $280.7 million in the fiscal year ended June 30, 2013. This fiscal year, revenue was down more than 9 percent through February, compared with last year.
At Rivers, gross revenue increased slightly in 2013, to $352 million from $351.8 million. This year, its revenue is down about 1 percent.
In addition to Lady Luck and Rivers, casinos in the region include Presque Isle Downs & Casino in Erie; Wheeling Island Hotel-Casino-Racetrack and Mountaineer Casino Racetrack & Resort, both in West Virginia, and the Horseshoe Casino Cleveland in Ohio. A casino has been proposed in Lawrence County near New Castle.
The state legalized casino gambling in 2004 in response to declining harness racing business at the state's racetracks and on the promise of an influx of tax dollars.
The Meadows deal is Gaming and Leisure Properties' second acquisition since its spin-off from Penn National, which runs the Hollywood Casino outside Harrisburg. It previously purchased the Casino Queen, a riverboat casino in East St. Louis for $140 million and is “scouring the universe” for gaming properties as it seeks to expand, said Robert Shore, an analyst with Union Gaming Research in Las Vegas.
Shore called $465 million for The Meadows “a bit expensive,” but said Gaming and Leisure Properties' high stock value gives it greater spending power.
While the long-term outlook for casino revenue generally looks good, Shore warned that many regional markets are “nearing a saturation point” as more gambling halls open and consumer confidence and disposable income remain low.
Gaming and Leisure Properties will limit its exposure to fickle gamblers by leasing casino operations to a third party. The company said it plans to sell The Meadows' gaming licenses and operating assets to a third-party operator, while retaining ownership of the land and buildings.
The company, which is developing casinos in Dayton and Youngstown in Ohio, said it was attracted to The Meadows because of “the expected stability of market competition and the robust local economy resulting from Marcellus shale-related industry.”
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.