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Photographer: Jacob Kepler/Bloomberg Photographer: Jacob Kepler/Bloomberg

Frank Sinatra hung out there. “The Godfather” was filmed there. And the iconic Las Vegas resort even invented the swim-up blackjack table.

But on Friday night, Penn National Gaming Inc. announced it’s selling the Tropicana for $307.5 million -- about $52.5 million less than it paid for the Strip property five years ago.

The troubled sale could be a sign of things to come for the casino industry. In recent years, some big operators -- including Penn National -- spun off their properties to real estate investment trusts. That gave them a liability they never had before: rent. Now, with their properties shuttered by the coronavirus, relationships with the new landlords are getting tested.

With the doors closed, casino operators have been racing to tap credit lines and slash costs, but the next steps could be more asset sales and debt restructuring, said Jason Ader, chief executive officer of SpringOwl Asset Management and a former casino analyst.

The Tropicana deal, he said, “is the perfect example of what else could happen.”

Pioneered Strategy

Penn National, headquartered in Wyomissing, Pennsylvania, pioneered the idea of creating a real estate investment trust to own casinos and lease them back to operators. In 2013, the company spun off most of its real estate -- and much of its debt -- to Gaming & Leisure Properties Inc., the buyer of the Tropicana. It pays that company rent for the casinos it runs.

Caesars Entertainment Corp. and MGM Resorts International followed suit with REITs of their own, and the structure helped fueled a surge in casino dealmaking.

But the sales, spinoffs and subsequent mergers have also led to new liabilities.

After a series of purchases, Penn National owns or manages 41 casinos and horse tracks, such as the Ameristar in East Chicago, Indiana, and the Margaritaville in Bossier City, Louisiana. All are now closed to help prevent the spread of the virus.

The company’s long-term debt and lease obligations have surged to $11 billion, the most ever for Penn National. Last year, the company doled out about $870 million for rent.

Larger Sale

Before the crisis, CEO Jay Snowden had been looking to sell just the vacant land behind the Tropicana to a developer who could exploit the value of the property.

Instead, the company hatched the deal with Gaming & Leisure, which gives Penn National credit toward about five months in rent payments beginning in May. Gaming & Leisure will put the resort on the market over the next two years, and Penn National could get as much as 75% of any sale over $308 million, depending on when it occurs.

Along with the sale announcement, Snowden withdrew Penn National’s 2020 financial estimates and said the company would put 26,000 employees on unpaid furlough beginning Wednesday.

“Penn National is a family, and we deeply regret the hardship this will place on you and your loved ones,” he said in a statement. “We are extremely motivated and focused on reopening our properties as soon as it is safe and legal to do so.”

In the meantime, the sale has bought the company breathing room.

Steven Wieczynski, a casino analyst with Stifel Nicholas & Co., figures the company can last for about seven months with its casinos closed.

“What is more important right now is firming up additional liquidity and showing the market how long their business is sustainable without operations,” he said in a note Monday.