March 21, 2018
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Bangor says casino’s valuation when changing hands doesn’t justify abatement request

Ashley L. Conti | BDN
Ashley L. Conti | BDN
Hollywood Casino in Bangor
By Evan Belanger, BDN Staff

BANGOR, Maine — Hollywood Casino is seeking to have the taxable value of its Bangor properties reduced to $61.38 million, a cut of $36.8 million.

While casino officials are providing few details about how they calculated that value, public records show it is not the first time they have asserted it on tax forms.

State and federal records show Penn National Gaming Inc., parent to Hollywood Casino, transferred ownership of the gaming venue three times in one day during the fall of 2013, each time listing the fair market value as the same $61.38 million.

Agents for the casino submitted the property transfer records with their Jan. 9 abatement request, apparently to support the argument that the city’s $98.18 million assessment of the gaming venue is too high.

But City Assessor Phil Drew rejected the transactions as grounds for an abatement, arguing in his May 6 denial letter that property transfers between related companies do not represent true market value.

The casino has until July 5 to appeal Drew’s decision to the Bangor Board of Assessment Review.

Asked about the correlation, casino spokesman Dan Cashman denied that the value on the property transfer records is the basis for the casino’s case that the city overvalued the gaming venue.

“The basis of the appeal was due to the increased property tax at a time when we’re experiencing softness in the market,” he wrote in an email to the Bangor Daily News.

Hollywood officials have stated multiple times a soft economy and increased competition for gambling revenues in the state justify the property tax reduction.

Public records show Bangor did increase its assessment of the casino from $94.75 million in the 2013 tax year to $98.18 million in 2014. That equaled a $71,217 tax increase for the casino.

Asked for specifics about the $61.38 million appraisal, Cashman only said the casino enlisted international auditing firm Ernst & Young to provide an appraisal of the property after the increased assessment.

“We are relying on their expertise through this process,” Cashman said. “At this point, we are simply continuing to weigh the possibility of an appeal.”

In his official denial letter, Drew rejected the casino’s abatement request on multiple grounds. He noted the “owner’s opinion of value” at $61.38 million “apparently serves as the basis for the amount of the abatements requested.”

Drew ultimately rejected that argument for abatement, writing the transactions were not conducted at “arm’s-length” because the companies taking part in the transfers were too closely related.

According to John O’Donnell III, president of John E. O’Donnell and Associates, a company that performs property tax assessments for a number of towns in southern Maine, Drew probably was right to reject an abatement request made on those grounds.

Tax law does not allow related entities to sell property to each other at reduced prices then claim that as evidence of reduced value, he said.

One day, three transfers

The real estate tax transfer forms filed with the state by casino officials appear to support to the city’s contention that the property transfers were not conducted at arm’s length.

On Oct. 25, 2013, HC Bangor LLC, a subsidiary of Penn National, transferred ownership of the casino to another subsidiary, CRC Holdings Inc., state records show.

The same day, CRC Holdings transferred the property to a real estate investment trust, Gaming and Leisure Properties Inc.

Also on Oct. 25, 2013, Gaming Leisure Properties transferred ownership to its subsidiary GLP Capital LP, which still holds the property.

The forms also show state property transfer taxes were paid on only one of the transactions.

When CRC Holdings transferred ownership to Gaming Leisure Properties, it listed a purchase price of $7.6 million and paid $33,442 in state transfer taxes.

The rest of the $61.38 million listed on the form as fair-market value was exempt from taxation because the transfer was from a “parent to a wholly owned subsidiary,” casino officials wrote on the form.

In the other two transfers, casino officials claimed the transactions were exempt from all state transfer taxes because one was from a subsidiary to a parent and the other was from a parent to a subsidiary.

Meanwhile, annual corporate income statements filed with the U.S. Securities and Exchange Commission by Penn National and Gaming Leisure Properties also appear to support the city’s case regarding the recent ownership transfers.

Gaming Leisure Properties formed Feb. 13, 2013, as a wholly owned subsidiary of Penn National, according to the filings.

The filings report that on Nov. 1, 2013, Penn National contributed the bulk of its real property assets to Gaming Leisure Properties, which planned to file its 2014 federal taxes as a real estate investment trust to avoid certain corporate income taxes.

Under the agreement, Penn leases the casino buildings — including the hotel, casino and parking garage in Bangor — from Gaming Leisure Properties.

Earlier tax abatement

Casino officials have not said whether they will appeal the city’s decision, but records obtained by the BDN through a Freedom of Access Act request provide new details about the casino’s last tax dispute with the city.

In 2010, Hollywood disputed the city’s 2009 assessment of the then newly built casino and related buildings based on the facility’s cost of construction compared to the city’s assessed value.

Records submitted to the city by casino officials Jan. 5, 2010, showed the construction cost for the main building, parking garage and hotel totaled $55 million, compared with the city’s assessed value at the time of $100.7 million.

According to internal city memorandums, casino officials requested an appraisal of $55.8 million at the time, which would have forced the city to repay $854,800 in property taxes.

A confidential city memorandum dated Jan. 7, 2010, details a meeting between casino and city officials.

In it, then City Assessor Benjamin Birch Jr., wrote that a 25-page application and certification for payment from Cianbro Co., which constructed the casino buildings, showed a grand total cost for the project of $78.29 million.

After that meeting, Birch wrote in a Jan. 15, 2010, memorandum that casino officials sought in follow-up conversations a valuation of $78 million.

The casino and the city settled for a valuation of $84.55 million, garnering a $307,101 tax abatement.

Birch wrote in a memorandum that Cianbro’s actual costs for the casino showed the assessment was high and that an abatement was in order.

The 2009 abatement was handled within the assessing department and did not trigger a City Council vote.

But a Jan. 7, 2010, memorandum states Birch advised casino officials “an abatement of this size would need to be discussed with the finance director, city manager and city councilors.”

Proving its case

If the casino appeals the decision and succeeds in reducing its assessed value by the $36.8 million it sought, it would force the city to refund $876,840 of the $2.6 million in property taxes already paid by the casino for the 2014 tax year.

As the city’s largest property taxpayer, the casino paid $2.6 million in real and personal property taxes for the 2014 tax year. It also paid $1.96 million from its gaming revenues in fiscal 2014.

To prove its abatement case, the casino would need to provide a credible alternative value that is significantly different from the city’s assessment.

Under state law, there are three methods for assessing property value.

Those include the market approach, which bases property value on the recent sale of comparable, nearby properties and the cost approach, which bases value on the replacement cost, including adjustments for depreciation and recent improvements.

The third option is the income approach in which the assessor calculates what the rental income of the property would be based on what similarly situated properties take in.

The assessor then subtracts expenses to get total income and attempts to determine what portion of the property is attributable to the property itself and not the business inside.

According to Drew, the city used the replacement cost method to calculate the casino’s value.

Without another casino in Bangor, it is impossible for the city or the casino to use the market approach. That likely means the casino would have to pursue the income approach to determine its value if it plans to appeal the case.

State law requires assessors to consider all three approaches — cost, market and income — but it leaves it to the individual assessor to decide what method is the best indicator of value.

Casino officials have argued publicly that softness in the economy and competition from Oxford Casino mean they’re due for a tax break.

SEC filings show Gaming Leisure Properties had a net income of $185.4 million in 2014, up from $19.8 million the year before. When its earnings are adjusted to exclude interest, taxation, depreciation and amortization, known as EBITDA, its income was $422.5 million.

Meanwhile, Penn National shows a net loss to shareholders of $233.2 million, down from a $794.3 million loss the year before. Its adjusted EBITDA showed $285.1 million in earnings, down from $776.1 million the year before.

EBITDA often is used to compare profitability between companies because it removes the effects of financing and accounting decisions.

The earnings reports come as Penn National plans to buy the Tropicana Las Vegas Casino Hotel and Resort for $360 million, giving the company its first venue on the Las Vegas Strip.


In addition to rejecting the transfers as evidence for abatement, Drew also noted in his letter that an appraisal firm hired by Penn National in late 2013 valued the casino at $108 million.

Cashman said the appraisal included the value of intangible assets that should not be included in the property value.

Intangibles are assets that are not physical in nature, such as intellectual property and brand recognition. In this case, Cashman said, the primary asset is the casino’s gambling license.

When Churchill Downs purchased Oxford Casino in July 2013, he said, it valued the casino at $64.7 million, attributing $58.5 million of that to the gaming license alone.

While intangibles should not be included in the calculation of property value, Drew would not respond when asked whether the city’s assessment of the casino included any intangibles, saying only that he used the replacement cost method.

Drew also noted in his denial letter that the casino is insured for $93.5 million.

Cashman said that number is for full replacement value of the casino and does not include depreciation of the buildings or personal property, such as gaming machines.

Follow Evan Belanger on Twitter at @evanbelanger.

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