The management teams of casino property owners VICI Properties and Gaming & Leisure Properties (GLPI) remain positive, despite dealing with a difficult environment. They suggest more deals could happen in the next year, a gaming analyst said.
Barry Jonas of Truist Securities said his team caught up with the REITs at a meeting this week at a real estate investment conference in New York. He noted that VICI is interested in doing more deals with Red Rock Resorts, while GLPI has lessened risk on its Tropicana Las Vegas site with Bally’s Corp.; Bally’s can sell casino rights adjacent to the planned Las Vegas A’s $1.75 billion baseball stadium where construction is about to commence.
Both GLPI and VICI noted that several levers of growth include commercial and tribal gaming and non-gaming transactions.
“We could see more transactions announced over the next two months, varying from bolt-on to greenfield,” Jonas said. “While gaming REIT stocks have been mixed year-to-date, we still favor both REITS, given their stability of cash flows, dividends, and pipelines.”
VICI, which is up 7% year to date, has a Buy rating. So does GLPI, down 4% for the year.
As for GLPI, Jonas said the higher end of guidance is in sight.
“While we think Gaming and Leisure Properties’s first quarter guide down somewhat impacted the stock, GLPI’s CFO now notes comfort with the high end of guidance,” Jonas said. “We think this is a function of likely hitting most rent escalators, as well as an interest-rate forward curve less volatile than feared.”
GLPI had their adjusted funds from operations guide in the first quarter to $3.84-$3.87, down from $3.83-$3.88, primarily driven by their assumption of not hitting Pinnacle Entertainment’s master-lease escalator, Jonas said.
GLPI didn’t have any further updates on Bally Corp.’s Chicago project, though Jonas said they think the development remains behind schedule.
“We also believe some of GLPI’s stock underperformance relates to Bally’s credit concerns,” Jonas said. “However, all the leases are well covered and we continue to believe alternative-operator demand would exist for Chicago in a bearish scenario where Bally’s would have to exit. We see limited risks for GLPI at the Tropicana site (in Las Vegas), noting the potential for Bally’s to sell its development rights to another party.”
GLPI noted that it has seen “minimal change” in the deal environment, despite higher and volatile interest rates, Jonas said. Management remains excited about its current deal pipeline, highlighting the recent announcement of funding for Penn Entertainment’s Joliet project.
Penn plans to draw on $130 million with a total $185 million from GLPI by the third quarter and expects the project to be open to the public on Aug. 11, six months ahead of schedule, Jonas said.
Amidst an ongoing proxy battle between Penn and HG Vora, GLPI is closely monitoring the evolving situation, Jonas said.
“Regardless, management noted that Penn’s core regional business is performing well, outside of any digital-segment losses,” Jonas said. “GLPI was also clear that it would not look to split up any of its master leases in the event of a potential acquisition of Penn. Given the health of the land-based business, the current master lease is thought to be in the best interests of GLPI shareholders.”
GLPI remains pleased with its Ione tribal deal thus far and is hopeful that the deal can convert to a long-term lease at the end of the five-year period, Jonas said. Management views the deal as a stepping stone for future tribal transactions and hopes to announce a deal of greater scale over the next months.
“That said, tribal deals remain tricky, as we note tribes with the best credit quality often have the least need for capital, though perhaps view sale leaseback’s positives are its long-term equity-like nature,” Jonas said.
As the gaming market becomes more and more penetrated, Jonas sees investor concern focusing on room for growth, specifically for the gaming-only GLPI. Its management reiterated that plenty of opportunity for growth remains within gaming, including landside conversion, renovations, and tribal deals. In addition, management isn’t opposed to venturing outside of gaming if there are real risk-adjusted returns to be made.
“However, in the past GLPI has looked at non-gaming deals, but noted the less favorable economics compared to gaming in order to get a foot in the door,” Jonas said. “For now, GLPI prefers to work within the gaming sector, given its decade’s worth of experience, stability of cash flows, and high barriers to entry. Overall, GLPI remains pleased with its growth trajectory, noting that over the past 13 years, the company has completed about $13 billion worth of acquisitions.”
Following solid first-quarter earnings for VICI, management highlighted that they were one of just two triple net lease companies to raise guidance in the first quarter.
Management noted that when evaluating adding on to its growing non-gaming portfolio, VICI looks for similar customer characteristics, where about 20% are core dedicated customers that drive the majority of revenue. Executives believe this investment philosophy positions VICI to withstand times of volatility.
Management is pleased with its partnership with Red Rock Resorts, representing VICI’s second investment on tribal land. VICI noted that the property will look and feel similar to Red Rock’s Durango Casino & Resort in Las Vegas.
VICI has committed up to $510 million of a $710 million delayed-draw term-loan facility to the North Fork Rancheria of Mono Indians of California. Proceeds from the loan will be used for the development of the North Fork Mono Casino & Resort, which will be developed and managed by Red Rock.
“The hope would be future more permanent opportunities between VICI and Red Rock,” Jonas said.
Despite headline weakness, management reiterated its confidence in the Fontainebleau Las Vegas, in which it has invested $350 million in a mezzanine loan, Jonas said.
Conference bookings are naturally softer in a property’s first two years, since opening in December 2023, as customers check out the site before booking. Management expects the property to ramp over time, as the database grows and customers appreciate “the best in-class” food and beverage offerings.
VICI is still comfortable with the loan structure and with Koch industries as a partner, Jonas said.
