After a slow 2024 for deals involving gaming real estate investment trusts (REIT), Deutsche Bank believes 2025 may be more ripe for transactions.
“We see the deal environment in 2025 primarily serving as a function of the interest-rate environment,” said analyst Carlo Santarelli in a note to investors. “We believe a recessionary environment in 2025, should one take shape, could serve as a spark to deal activity with operators more apt to sell and rates likely making accretion more palatable for the gaming REITs.”
Santarelli said the GLPI pipeline looks to be the stronger or at least more identifiable between them and VICI, given the likely Penn Entertainment transactions, the funding of Bally’s Chicago, the potential Bally’s Lincoln transaction, and the ongoing discussions with tribal-management teams as they explore that environment.
“In the absence of larger sale-leaseback deals, we expect further loan-financing transactions, as REITs look for AFFO (adjusted funds from operators) growth against a challenging acquisition backdrop.”
Santarelli described 2024 as “uneventful” from a gaming REIT perspective, with shares of both GLPI and VICI mostly flat and experiencing limited volatility over the course of the year from a gaming-investor perspective. Given the interest-rate environment, transaction volume was limited, with GLPI announcing a series of sale-leaseback deals with Strategic Management Group and Bally’s and the balance of activity in the sector primarily related to financing and loan transactions, Santarelli said.
“One of the bigger breakthroughs in the sector in some time, however, may have occurred in 2024 if GLPI is successful with its tribal agreement. This would open up a slew of transaction opportunities previously viewed to be off limits. We expect to learn more on the nature of these deals and the potential of this pipeline as we move through 2025, but in the very least, we believe this was a positive development for GLPI that is currently underappreciated.”
Although the data says otherwise, Santarelli believes gaming REITs will largely “ebb and flow” in 2025 based on interest rates. At present, the spread between AFFO yields for VICI and GLPI, relative to the 10-year treasury yield, is near historical lows, given AFFO multiples have expanded relative to the longer-term forward-year average trading multiples as interest rates have risen, Santarelli said.
“Nevertheless, if 2025 were to bring about a cooling of rates, we would expect the gaming REITs to act well, given what would likely be a considerably better than the current acquisition environment.”
Heading into 2025, for the first time since both went public, Deutsche Bank has differing ratings on GLPI (Buy) and VICI (Hold), Santarelli said. One of the reasons is that the two stocks have rarely “disaggregated meaningfully,” even over brief durations. On an annual basis, the widest variance between their respective stock performances was in 2018, when VICI outperformed GLPI by about 430 basis points, while the average annual variance between the two from 2018 through 2023 has been about 270 basis points, Santarelli said.
“Given VICI’s financing commitments and what we believe is a stronger pipeline for GLPI, we believe some differentiation can take place in 2025.”
