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Hollywood Park Shelves Plan to Become REIT


Blaming a depressed market for REIT shares, Hollywood Park Inc., which owns the Inglewood racetrack and a group of casinos, said Tuesday that it will not restructure as a real estate investment trust.

The New York Stock Exchange-traded corporation had considered becoming a REIT last spring to shelter more money from taxes. REITs are exempt from corporate income tax if they pay out 95% of their earnings in dividends to shareholders.

But with REIT share prices dropping in recent months, company officials feared they would not be able to raise enough equity capital for more acquisitions, and depressed share prices would have made it more costly to pay for new acquisitions with stock.

"It's very difficult or expensive to raise equity capital for REITs at the moment. And the outcome of that is you can't grow your company," said G. Michael Finnegan, the company's chief financial officer.

Hollywood Park officials plan to expand the company by purchasing smaller gambling operators such as Minnesota-based Casino Magic, which operates casinos in Mississippi, Louisiana and Argentina. Last year it bought Boomtown Inc., which owns casinos in New Orleans, Reno and Biloxi, Miss.

Company leaders acknowledged that Tuesday's announcement was an attempt to separate Hollywood Park from the troubled REIT pack in a bid to boost its stock price.

"We think there has been some lack of focus on our base business because of the REIT distraction," Finnegan said. He added that the decision does not preclude the company from pursuing REIT status at a later date.

REIT shares have fallen broadly this year, faced with legislation designed to reduce their tax breaks and analyst speculation that shareholder returns will diminish amid overbuilding.

Shares of Hollywood Park surged 47% last year on the expectation that it would exercise its option to convert to a paired-share REIT. That structure allowed Starwood Hotels & Resorts and Patriot American Hospitality to lead a record year of REIT acquisitions. But Congress is expected to pass tax legislation that would limit the profitability of paired-share REITs. In response, Hollywood Park's shares have fallen 44%.

The country's handful of paired-share REITs have possessed a key tax advantage over their competitors. Most REITs are restricted to owning commercial real estate investments. They must lease their properties to another corporation to operate. Paired-share REITs avoid this stipulation by leasing their properties to a corporation whose shares are paired with it. The two trade as a single unit, both owned by the same shareholders and operated by the same managers. The structure helps eliminate taxes by passing along most of the profit to the sister REITs in the form of rents or mortgage payments.

Hollywood Park planned to separate its racetrack and other operations from its real estate holdings, convert the real estate into a REIT and re-pair the two stocks to trade as one.

Hollywood Park shares fell 38 cents Tuesday, closing at $12 on the New York Stock Exchange.

* KEEPING AN EYE OUT: At venues such as Hollywood Park, security is as tight as it is invisible. A1

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