New York hedge fund Elliot Associates have set the hares running after acquiring a 5% ownership in Boyd Gaming Corp., intensifying speculation over the future of the gaming giant.
Is Boyd Gaming Corp. getting ready to join the ranks of gambling entities that are turning into Real Estate Investment Trusts (REITs)?
That’s the question being asked around the gambling world as the management affiliate of the Elliot Management Corporation, Elliot Associates L.P, acquired a 5% stake in Boyd Gaming Corp. last week.
The move bounced Boyd Gaming shares to 16.53% on the New York Stock Exchange, finishing at $13.82 by the end of the week.
Paul Singer, who turned a $1.3m investment into more than $21 billion in assets, founded the Elliot Management Corporation back in 1977. Singer has a net worth of $1.5bn and does not seem to be the type to take a passive investment role, which is the reason the hares are running on this particular deal.
Singer believes that Boyd’s stock is undervalued despite $47.3m in losses being the rather dour headline on their Q4 numbers. The jewel in the Boyd Gaming Corp. crown is the Borgata Hotel and Casino in Atlantic City, which remains the market leader in both land based and online gambling business.
Sterne Agee gaming analyst David Bain told the Las Vegas Review Journal that he thought Elliot would try to push Boyd management into adopting a REIT structure to increase the companies value, but to do so would mean the owner, and founder, Bill Boyd would have to decrease his 30% stakes in the company to below 10%.
According to American tax law, REIT’s don’t pay federal income tax, but they are required to distribute at least 90% of their taxable earnings to shareholders. In 2013 Penn National Gaming did something similar when they moved 21 of their 29 properties into Gaming and Leisure properties. The REIT owns the casinos and Penn National is the management company running the show.
During Boyd Gaming Corps. Q4 earnings call, Boyd Gaming CFO Josh Hirsberg was specifically asked if a REIT was on the cards, but he neatly sidestepped the action by saying, “We’re always interested in growing the company and looking for initiatives to create shareholder value.”