Analyst: Boyd Gaming Corp.'s High Debt Makes REIT Unattractive

Boyd Gaming Corp.

possible plan to split off part of its operations as a real estate investment trust lacks credibility in light of the company's $3.5 billion debt load, an analyst said Friday. Boyd's Chief Executive Keith E. Smith told investors the company is studying the idea although it "won't be a quick process." Smith added that the company's capital structure makes the idea "challenging." But Deutsche Bank's Carlo Santarelli is skeptical. "What looks good on paper often doesn't translate in reality," Santarelli said, maintaining a Hold rating and $9 target. Boyd, which also posted a narrower-than expected net loss Thursday gained more than 8 percent Friday in what Santarelli said is in part a short squeeze. About 7.8 million of Boyd's 108 million shares outstanding were held as short interest as of Oct. 15. Among casino companies, the idea of forming a REIT for tax advantages isn't unique to Boyd. Penn National Gaming Inc

formed a REIT last year to include 21 or its 29 casinos and racetracks in the separately traded Gaming and Leisure Properties Inc.

. In the year to date, Gaming and Leisure shares are down nearly 40 percent. Talk of such a move for Boyd first surfaced in March, when activist investor Elliott Associates acquired a 5 percent stake in the company, stirring speculation that Elliott would push for a REIT formation. Santarelli said Boyd's higher debt level relative to Penn -- it's about $3.5 billion-- may make forming a REIT an unattractive option. Sterne Agee's David Bain on Friday called the REIT plan "unlikely." Earlier this year, Bain said REIT's typically ban ownership stakes of greater than 9.9 percent, while William Boyd owns about 18 percent of Boyd Gaming. In total, the Boyd family controls nearly 30 percent of the company. Bain said, however, that certain REIT structures could permit flexibility on ownership stakes.