After meeting with management of two of the three major gaming industry real estate investment trusts, Deutsche Bank gaming analyst Carlo Santarelli hinted Tuesday a fourth company could join the picture.
In a research note recapping his discussions with VICI Properties CEO Ed Pitoniak and Vice President of Finance Danny Valoy, Santarelli said EPR Properties named former Pinnacle Entertainment executive Virginia Shanks to the company’s board last week. The Kansas City, Missouri-based REIT has ownership interests that cover the entertainment and recreation sectors, include amusement parks, theaters and ski resorts.
Carlo Santarelli, Deutsche Bank
Shanks was executive vice president and chief marketing officer of Pinnacle, whose operations of 16 casinos were sold last year to Penn National Gaming and Boyd Gaming Corp. Shanks, according to the EPR press release, is serving as a strategic advisor to Penn National.
“VICI management believes the move to bring in a talent from the gaming industry shows further interest and validation in the gaming real estate asset class,” Santarelli wrote in the research note. “Further, management believes it is more likely that EPR chooses to enter into the gaming real estate channel through regional markets, as opposed to an initial big-ticket foray into Las Vegas.”
VICI was spun-off from the 2017 bankruptcy reorganization of Caesars Entertainment and owns nearly 20 properties, the majority of which as leased back to Caesars. VICI has since participated in two deals with Penn National, its first transactions away from Caesars.
VICI and Penn acquired the real estate and operations of Margaritaville in Bossier City, Louisiana in December for a combined $376 million. In May, the companies closed the $1 billion purchase of Greektown in Detroit with VICI paying $700 million for the land and buildings.
In April, VICI said it would buy Jack Cincinnati for $558 million and will lease the operations to the Seminole Indian Tribe’s Hard Rock International. The deal is pending approval Ohio gaming regulators.
With VICI, Gaming and Leisure Properties Inc. – which was spun off from Penn National in 2013 – and MGM Resorts International’s 70 percent-owned MGM Growth Properties, Santarelli said there is potential for another REIT to jump into the gaming picture.
He called the EPR appointment of Shanks a “validation” of the gaming REIT sector.
In a statement announcing Shanks’ appointment, EPR Chairman Robert Druten said she “has been at the forefront of experiential businesses as a leader of marketing and strategy in the gaming and entertainment industry. We look forward to her insights as we continue to build the leading experiential real estate portfolio.”
In addition to the meeting with VICI, Santarelli held investor meetings with management of GLPI. He called the tone of both meetings “upbeat,” adding the recent consolidation discussions surrounding several casino companies, notably Caesars Entertainment, has heightened the interest.
“As we’ve noted, we believe the tone around transaction activity remains constructive and the environment remains active,” Santarelli said. “While the impact of equity market volatility has certainly been topical, it doesn’t appear as though the tenor of mergers and acquisitions discussions has changed in any material way.”
Much of the discussion for investors with both companies centered on the recent gaming expansion news coming from Illinois, where six new casinos were approved by state lawmakers, that would give Illinois 15 total properties if all are built. A large casino-resort is being for Chicago.
Caesars and Penn National operate casinos in both Illinois and neighboring Indiana, which could face new competition. VICI and GLPI are landlords for those properties.
“We expect the competitive impact to Penn’s lease coverage to be relatively modest and we don’t see any tangible impact for four-plus years,” Santarelli said.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
