Deutsche Bank analyst Carlo Santarelli hiked his price target for Gaming & Leisure Properties Inc. from $49 per share to $54 and raised his rating on the stock to Buy. His reevalution was detailed in a November 19 investor note.
Among the catalyst for Santarelli’s optimism was GLPI’s inception of the first-ever development deal between a Native American tribe and a real estate investment trust (REIT). He explained, “In our view, the Ione tribe development loan, which management has noted, could turn into a lease at the end of the term, and the concept of deals with tribal partners could open up a considerable pipeline, within gaming, should it prove successful.”
The Ione Band of Miwok pact entails a five-year $110 million loan, one that will go toward casino development. GLPI believes, according to the analyst, “It has created a structure that will allow it to work with other tribes on real estate related transactions.”
He also felt that five other in-progress GLPI deals could prove accretive to the REIT. These include redevelopment of Bally’s Lincoln, the new Hollywood Aurora in Illinois, Hollywood Joliet redevelopment, and new hotel towers at M Resort near Las Vegas and Hollywood Columbus in Ohio.
Santarelli wrote, “We believe the choppy domestic gaming environment lends to investors seeking exposure through more risk averse avenues, within which we believe GLPI firmly falls.” Intangible GLPI assets were said to include a healthy pipeline of projects (“despite an uncooperative rate environment”), a strong balance sheet, ready access to capital, and healthy tenant-coverage positions.
Over its 11-year lifetime, GLPI has recorded $10.9 billion in transactions and realized $888 million in annual rent. It was also, Santarelli noted, buying assets at 12.2 times cash flow, well below an industry average of 15.1 times.
At the third-quarter’s close, GLPI had leverage of 4.6 times cash flow and $2.3 billion in untapped credit. Santarelli expected leverage to remain stable or go no higher than five times cash flow through 2026. “Relative to peers, we believe the refinancing risk present in GLPI is minimal, with considerable cash on hand and one maturity in 2025, which is callable in March.”
Santarelli added that GLPI has been on “a good run” of rent collections, “with the strong post-pandemic rebound in regional gaming pushing the tenant base nicely above escalator coverage thresholds.” He foresaw GLPI collecting higher rents not only from this month’s renewal of Penn Entertainment’s master lease, but from other sources. These include its master leases for certain Boyd Gaming-managed operations in the Midwest and Ohio racino Belterra Park.
He also questioned the higher valuation ascribed to Vici Properties, which specializes in Las Vegas casinos. “While not shared by all, our view is and has been that a dollar of cash flow, or in this case, rent, is the same regardless of the aesthetics of the assets. We believe this view has been the primary driver of the premium valuation for VICI, and we believe the durability of the cash flows of GLPI, over the last several years, should have eroded this perception,” Santarelli scolded.
He concluded by observing that Consumer Price Index rent escalators for Vici’s tenants “have largely played out, and as such, the growth trajectory dynamics have flipped.” He said he struggled to understand Vici’s loftier valuation, especially as that REIT is hampered by its need to refinance debt.
