It's always humbling to realize you don't know it all.
Amazingly, I don't, and I often find this out when I dive into a complicated business deal that I try to explain in its simplest terms to readers.
That's what happened to me for the last two weeks when I took on the intricate Penn National Gaming Inc. deal that spun off a real estate investment trust company, Gaming and Leisure Properties Inc.
The process had been playing out in public since November 2012, but it's not something I was keeping an eye on until I came here in July. Even then, it was only a casual eye.
But when I found a $1.25 billion mortgage filed in the Lebanon County Courthouse — the largest I had seen previously in the last nine months was about $87 million, and even that was far out of the ordinary — it was time to start looking at this more in-depth.
It took a lot of research, and a lot of looking up terms I had only vaguely heard of previously. So if you're interested in going through the hundreds of public documents related to the Gaming and Leisure Properties Inc. spin-off deal and you go in without an expert knowledge of the finance world, here are some definitions of terms you're going to come across very frequently that could help you understand the deal better:
Real estate investment trust: Often called REIT, it was started in the 1960s as a way for average Joes to invest in real estate without having to spend millions through publicly traded REITs. They're government regulated and companies need to meet a number of qualifications before they can be considered an REIT, like investing 75 percent of its total assets in real estate and be taxable as a corporation. But the REIT talk isn't done.
UPREIT: Umbrella partnership REIT, specifically, is what Gaming and Leisure Properties Inc. is. This is key for the Penn National deal, because according to Broadstone Real Estate LLC in Rochester, N.Y., it allows for a "tax deferral or avoidance exit strategy to property owners facing significant capital gain tax liabilities on the sale of appreciated property with a low tax basis." That's what Penn National stockholders would have been facing, though it isn't sure how much.
PF LTM: I kind of had an idea that LTM stood for "last twelve months," but the PF thing was stumping me. It's pro forma, as in pro forma earnings for the last 12 months. In the case of Penn National's investor presentation, it's earnings that don't include nonrecurring items, which often drag down the entire earnings picture. I like the nickname I saw for it: EEBS (earnings excluding bad stuff).
Zero-coupon preferred equity: A little confusing, because the companies use this term in tandem with another term, "redeemable preferred equity." Basically, the zero-coupon thing is a stripped bond without a set interest rate. As long as we're at it ...
Redeemable preferred equity: A stock that allows the issuer to buy back the stock at a certain price and retire it, thereby converting the stock to treasury stock. There may also be a provision that the issuer can only buy back this type of stock on or after a certain date. In this case, the date was July 2015.
So what am I missing, oh experts of the financial world? If I come across a deal like this again, what terms should I make sure I know about before I dig into it? Hit me up in the comments or on Twitter @MikeCPBJ.
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