Pinnacle Entertainment Bets Big on REIT

Wall Street Journal

Maureen Farrell

Nov 06, 2014

The move to lower corporate taxes has been name of the deal-making game in 2014.  From inversions to MLPs to REITs, U.S. companies have explored and pursued a number of ways to lower their tax bills.
On Thursday, Pinnacle Entertainment Inc. joined the parade. The regional casino operator announced that it will seek approval from the Internal Revenue Service to split into two public companies, one of which would be a REIT holding its real estate.
The move hardly comes as a surprise. Since Pinnacle’s rival, Penn National, split its casino operations from its real estate nearly two years ago, investors have been watching and waiting for Pinnacle to follow suit. Activist investing firm Orange Capital, which owns roughly 4% of the company’s stock, had pushed for such a move in April.
In recent years, a wide range of companies have pursued the REIT split. Earlier this year, the gym owner Life Time Fitness said it was considering spinning off its real estate into a REIT.
The telecom company Windstream Holdings Inc. surprised investors in July by saying that it planned to spin off its fiber and copper wires and its fixed real estate assets into a REITs. The IRS signed off on reclassification, and suddenly a new window onto what could form the backbone of a REIT was opened.
So far, no other telecom companies have followed suit. But other companies had tested out different assets and found success in reclassifying them. In recent years, the prison landlord Corrections Corporation of America used a REIT structure to spin off its for-profit prisons, and CBS Corp. did the same with its outdoor advertising business in North and South America. Cellphone-tower operator converted all of its business into a REIT in 2012.
Pinnacle is a more traditional REIT, yet the casino operator’s decision shows the continuing appetite of companies to use this structure. REITs typically own real estate– warehouses, office buildings, malls — and must pay out the majority of their profits to shareholders. But they pay no corporate taxes on that revenue, dramatically slashing the overall tax bill of a company that spins off its real estate (or any other hard asset).
Most expect the line of companies exploring the REIT structure to continue to grow. in a note Thursday, Gordon Haskett Research Advisors said Casino operator Boyd Gaming will be closely watched now. Gordon Haskett also cited the retailer Dillard’s Inc. as another candidate to spin off its real estate into a REIT.