Gaming REITs live up to Wall Street forecasts

February 27, 2023 8:44 PM
Photo: Shutterstock
  • David McKee, CDC Gaming Reports
February 27, 2023 8:44 PM
  • David McKee, CDC Gaming Reports

Deutsche Bank analyst Carlo Santarelli was sufficiently impressed with the fourth-quarter numbers from two casino-oriented real estate investment trusts (REITs) that he reiterated “Buy” ratings on each. Although Santarelli kept his price target for Gaming & Leisure Properties Inc. at $60 per share, he bumped his share target for VICI Properties from $38 to $39.

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Describing himself as “favorably inclined” toward the duo, Santarelli wrote, “We believe the stability of the cash flows, predominantly fixed-rate debt stacks, and opportunistic acquisition opportunities will allow both names to continue to serve as relative safe havens in a cloudy macro-economic environment.” He applauded VICI and GLPI for delivering 4Q22 numbers that were above Deutsche Bank’s forecast.

The analyst noted that, despite (or perhaps because of) its comparative youth, VICI has been the most impetuous of the two REITs, not only agglomerating more properties faster, but paying 15.6 times rent for the properties it has snapped up. GLPI pays 12.2 times rent on average.

In Santarelli’s view, VICI most significant activities were fivefold, including re-leasing the Mirage on the Las Vegas Strip from MGM Resorts International to Hard Rock International. Other actions of note were a $288 million construction loan to Great Wolf Properties and a $350 million contribution toward completion of Fontainebleau Las Vegas. VICI also put $200 million toward a Canyon Ranch spa in Austin and obtained two casinos from Foundation Gaming for $293.4 million.

In addition, VICI made its international debut last month with the acquisition of four Great Canadian Gaming casinos for $200.8 million.

Furthermore, the REIT isn’t resting on such laurels. Santarelli wrote, “We expect VICI to remain aggressive on the international front.” The REIT has $3.8 billion of untapped liquidity with which to stretch its wings, including a $2.4 billion revolving line of credit. VICI also carries $17 billion in debt.

GLPI wasn’t inactive either, with income increases driven by $31 million higher rent from Cordish Gaming, $4 million in Penn Entertainment rent escalators, and $3 million greater rent from Bally’s Black Hawk in Colorado and Bally’s Quad Cities in Rock Island, Illinois. The REIT also redrew the master lease for seven Penn casinos, including M Resort and Hollywood Perryville in Maryland, as well as the soon-to-be-defunct Hollywood Aurora and Hollywood Joliet in Illinois, both of which will be replaced with new, differently located, land-based casinos.

During the present quarter, GLPI closed its purchase of two more Bally’s casinos, in Biloxi, Mississippi, and Tiverton, Rhode Island, for a tab of $635 million. Bally’s is unloading real estate to finance its $1.7 billion Chicago megaresort. A “Baton Rouge development continues to face scheduling and timing delays due to supply chain and labor shortages. Management’s current best estimate of GLPI’s share of hard cost spend is ~$70 mm and the timing for opening is likely in 4Q23, but could happen sooner if challenges abate.”

Setting forth a goal of doing $500 million in acquisitions over the next 12 months, GLPI executives said they were “seeing robust deal flow, in both the gaming and non-gaming arenas, and management believes those that do get across the finish line will be at slightly higher cap rates than those observed in the past couple of years,” as Santarelli put it.

With regard to the hot-button issue of smoking in casinos, execs opined that smoking bans would make a 15 percent dent in revenues that would never be recaptured. However, GLPI believes itself insulated from such blowback. Meanwhile, the REIT is exploring deals with gaming-enabled tribes, transactions that are so far unprecedented in the history of tribal casinos.