Penn National changes direction

Company Chief Financial Officer Bill Clifford discussed the strategy shift during a recent investment conference. The regional casino and racetrack operator has been linked to every potential casino sale along the Strip, most notably resorts operated by MGM Mirage and Harrah’s Entertainment.

Clifford told the conference Penn National has spent time trying to work out deals, but the transactions have been tough to finalize. The casino companies want to sell properties at multiples well above what Penn is willing to pay.

Stifel Nicolaus gaming analyst Steve Wieczynski related Clifford’s comments to investors. He said a multiple of 10 times to 12 times cash flow is what it would take to buy a Strip resort.

That fact has led Penn to at look at new gambling markets. The company has bid on casino projects in Kansas and Maryland and is monitoring potential gaming expansion opportunities in Texas, Massachusetts, Florida, Ohio and New Hampshire.

The markets are more regional in nature and would not compete with Las Vegas and Atlantic City.

“This is in Penn’s philosophy of operating functional, low capital gaming properties, not monuments,” Wieczynski said, adding that the economic crisis has taken away some of Penn’s potential competition when competing for a regional casino.

“This should give Penn a better shot at winning in new jurisdictions, whereas in the past the company would have had trouble competing against less prudent monument builders,” Wieczynski said. “Instead, with other operators deleveraging and in a tight capital environment, we believe they will be able to build more basic, less expensive properties that could still generate solid returns.”