Moody's: Greektown Casino-Hotel purchase a good move
Pennsylvania-based Penn National Gaming Inc.’s purchase of the Greektown Casino-Hotel operations will be good for the company, Moody’s Investors Service said in a report released Wednesday. The move will also increase competition for MotorCity Casino, according to the rating agency.
Moody's says Greektown’s operating assets will expand Penn National’s vast regional geographic casino footprint in Detroit, a well-performing gaming market in terms of revenue that’s expected to continue to show a high degree of stability.
“The Detroit gaming market retains significant population density as measured by adults per gaming position, and casino participation rates are high,” Moody’s wrote in its six-page report. “The state law also allows only three casinos in the city, providing a barrier to entry for new competitors.”
Moody’s also notes that Detroit is a geographically isolated from other gaming markets in the United States and is in a convenient location. Most customers come from within a 100-mile radius.
The rating agency’s analysis was delivered two weeks after an announcement that Quicken Loans founder Dan Gilbert will sell the casino to Penn National Gaming Inc. and a New York real estate investment trust in a deal worth $1 billion that is subject to state approval.
Penn National is the largest regional casino operator in the United States with an annual net revenue of almost $6 billion. It owns owns 40 casinos across 18 jurisdictions.
The two-part deal includes Penn National’s purchase of the Greektown Casino-Hotel operations for $300 million, while VICI Properties is purchasing the casino property for $700 million. Both companies will benefit from the deal expected to close in mid 2019, Moody’s said in the report.
Penn National will lease the property from VICI for an initial $55.6 million a year for 15 years, according to the report.
Greektown Casino-Hotel generates an annual net revenue of about $320 million.
The deal will bring increased competition to the Ilitch family's CCM Merger, owner of the MotorCity Casino, Moody's says. MotorCity Casino generates about $470 million in annual revenue.
"We see ample opportunity for Penn to improve Greektown’s growth potential, which will put CCM under much greater competition," the report said. "In terms of market share based on gross gaming revenue, Greektown is the third of the three casinos in the city. We expect that Penn, a company with significant and diversified operating and financial resources, will aggressively pursue a strategy of improving Greektown’s market share position and profitability."
In response to the report, Bruce Dall, president of the MotorCity Casino Hotel, said Wednesday that “MotorCity Casino Hotel has successfully competed in a highly competitive Detroit market and will continue to do so."
MGM Grand Casino Detroit is also vulnerable. However, Moody's says its parent company MGM Resorts International has "significant and diversified operating and financial resources."