IGA: New agreements with REITs could reshape tribal casino financing
On Tuesday (1 April) a panel at the Indian Gaming Tradeshow and Convention, moderated by CBRE’s head of credit research Colin Mansfield, featured three figures involved in the deal:
- Sarah Dutschke, chair, Ione Band
- Brandon Moore, president and COO, GLPI
- William Newby, president, TFA Capital Partners
Panelists explained the financing agreement, which is the first between a tribe and a real estate investment trust (REIT). GLPI and the Ione Band last September entered into a $110 million (£85.1 million/€101.9 million) delayed draw term loan to fund the construction of the tribe’s Acorn Ridge Casino project near Sacramento.
Unlike commercial REIT financing deals, however, certain aspects had to be changed to maintain tribal sovereignty. According to a GLPI release, “Ione has an option at the end of the Ione loan term to satisfy the loan obligation by converting the outstanding principal into a long-term lease with an initial term of twenty-five (25) years and a maximum term of forty-five (45) years.”
The loan, ultimately approved by the National Indian Gaming Commission (NIGC), has a five-year term at a rate of 11%. TFA Capital Partners served as an adviser. When summarising the nuances of the agreement, Mansfield called it a “monumental” development for the tribal sector.
Moore: GLPI ready for more deals
Over the course of discussion Moore explained that GLPI had been working on such a deal for nearly a decade. The only thing missing was the right partner with the right project, which eventually became the Ione Band. When asked about the potential for more tribal financing deals moving forward, Moore told iGB that the REIT is open for business.
He confirmed GLPI has “discussed this concept with a few different tribes” and is “willing to move forward with the concept” again soon.
“Would we do several hundred million [more]? Sure, absolutely,” he said. “If the underwriting is there and the project is good and we believe in the team, we would absolutely pursue a transaction before we see in five years whether [the Ione Band] elects to enter into a long-term lease or not. We are actively pursuing this if it’s a good fit.”
Traditionally, REITs are viewed as extremely conservative, stable business models. But as legacy casino assets become increasingly scarce, gaming REITs have had to look for new ways to drive growth. The tribal market could be one such avenue.
“We have the capital, we have the balance sheet,” Moore said. “Tell us what you need it for and how you plan to use it. For us, if you’re putting that money in a way that is accretive to your business, and we can underwrite it long term, the capital will be available.”
NIGC approval key
The success of the arrangement is likely to generate interest from more tribes looking at similar options. As panelists explained on Tuesday, the fact that the GLPI agreement obtained NIGC approval is crucial.
The reason why REIT deals had never happened before is because under the Indian Gaming Regulatory Act (IGRA), tribes must maintain sole proprietary interest in any gaming operation. Any management agreements with third parties must meet this criteria and receive approval from the commission.
As such, tribes are constantly submitting all sorts of agreements for review to ensure that proprietary interest is maintained. The terms of traditional REIT financing deals had never met that threshold. But the Ione Band agreement gives the tribe freedoms and opt-outs that satisfied the NIGC’s review under IGRA.
The complexity of the agreement, the Ione Band’s Dutschke said, made for a much longer process – about a year compared to three to six months. She noted that the commission was especially concerned with “the potential length of the deal and relationship with GLPI”, but a “united front” from the two stakeholders went a long way in alleviating concerns.
“GLPI was great about letting the tribe take the lead there,” she said. “That was really important to demonstrate to NIGC that these were the tribe’s decisions supported and backed by GLPI.”
Smaller tribes to benefit from new financing options
Since the enactment of IGRA in 1988, tribal gaming has become a multibillion-dollar industry. Some tribes have become incredibly wealthy and powerful, but smaller tribes that don’t have such resources stand to benefit most from a new REIT capital source. In a way, the lease component of the arrangements is a new kind of monetisation vehicle.
TFA’s Newby explained that tribes can’t issue stock to drum up capital like commercial operators can. Instead, the approved lease conditions that maintain sovereignty can act as a substitute.
“The long-term lease element we talked about here serves as a surrogate for tribal nations to issue equity,” he said. “And that equity provides a mechanism for growth and diversification. So we view this as a really interesting option for tribes.”
That sentiment holds true for tribes like the Ione Band which, as Dutschke noted, struggles to provide resources to citizens. As such, access to capital is slim, but this new breed of financing allows them to invest in revenue-generating projects while maintaining control of their lands.
“We found a way to monetise our trust land in a way that hasn’t been done before,” she said. “And we found a way to do that without actually having someone come and utilise that land.”