For the casino industry’s three primary real estate investment trusts, the ongoing pandemic’s impact on gaming highlights the strength of the business model.
Truist Securities gaming analyst Barry Jonas said VICI Properties, Gaming and Leisure Properties, and MGM Growth Properties collectively “are the safest subsector in our universe.”
In a research note to investors after hosting conference calls with the companies’ management teams, Jonas said REIT leadership believes widespread casino closures “appear unlikely.” Meanwhile, company leaders said the hundreds of millions of dollars in rent payments would continue, even amidst select property closures.
Barry Jonas, Truist Securities
All three REITs highlight “the strength and resilience of the underlying gaming asset class with margin expansion and improving balance sheets,” Jonas added.
The REITs will continue, however, to closely watch renewed casino closures and operating rollbacks. Casinos in Illinois and the cities of Detroit and Philadelphia were ordered to close last week due to resurgent COVID-19 numbers.
Gaming REIT leaders said they have collected 100% of the monthly rent payments this year, despite the coronavirus disruptions that began in March when nearly 1,000 commercial and tribal casinos closed in 43 states. They say they expect that trend to continue.
Gaming REITs own the real estate and buildings of casino properties and lease the operations back to gaming companies.
Last month, VICI became the first of the gaming REITs to move beyond the sector, making an $80 million mortgage investment into New York City’s Chelsea Piers, a 780,000-square foot sports and recreation facility on the Hudson River in Manhattan’s Chelsea neighborhood.
VICI, which was created out of Caesars Entertainment’s 2017 bankruptcy reorganization, is the most diverse of the gaming REITs. The company owns the real estate of 31 gaming properties in nine states, which are leased back to five casino operators – Caesars, Hard Rock International, Jack Entertainment, Century Casinos, and Penn National Gaming.
“While they would expect to do more non-gaming deals, management still has a preference for gaming, with more conviction around the asset class than ever,” Jonas said.
With Caesars looking to sell casino properties as its new management – the former Eldorado Resorts team – aims to pare down holdings in several markets, VICI is seeking new tenants.
However, GLPI stepped into that position in October when it partnered with Bally’s Corp. through a $480 million purchase of Tropicana Evansville in Indiana. Bally’s will pay $28 million a year in rent to the REIT. In a separate deal, GLPI is acquiring the real estate of Bally’s Dover Downs facility in Delaware for $12 million a year in rent.
GLPI, the first gaming industry REIT when it was spun off from Penn National Gaming, also owns four Midwest properties operated by Boyd Gaming.
Jonas said GLPI is “weighing its options” concerning Tropicana Las Vegas, which it put up for sale in April after swinging a deal with Penn that allowed the casino company to exchange ownership of the Strip resort for $337.5 million in rent credits.
“The (mergers and acquisition) pipeline remains active with GLPI noting no change in tone amidst rising COVID cases,” Jonas said. “There is clearly third-party interest (in the Tropicana) and GLPI has been vocal in the past about the Strip not being in its sweet spot, but we don’t expect a rushed fire sale.”
Management at MGM Growth noted the acquisition opportunity within the casino industry. The company owns the land and real estate of eight Las Vegas Strip properties and 15 properties in total covering eight states, all of which are managed by MGM Resorts International. MGM Resorts owns 57% of the REIT.
MGM Growth CEO James Stewart hinted this month the REIT would consider adding another Strip resort as long as the company has a suitable partner. Speculation quickly centered on Las Vegas Sands, which is reportedly had in talks to sell the Venetian and Palazzo, seeking at least $6 billion for the hotel-casinos and the Sands Expo and Convention Center.
“We think a deal with a tenant other than MGM Resorts is more likely now than ever given (the casino operator) currently appears less focused on (mergers and acquisitions),” Jonas said.
The analyst maintained a Buy rating on all three gaming REITs. Shares of GLPI closed at $41.31 last Friday on the Nasdaq. MGM Growth shares closed at $30.86 and VICI closed at $25.87. Both of those companies are traded on the New York Stock Exchange.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
