On the eve of the National Association of Real Estate Investment Trusts (NAREIT) conclave, being held this week in New York City, Truist Securities analyst Barry Jonas met with executives of both Gaming & Leisure Properties Inc. (GLPI) and Vici Properties. His findings were published in a May 31 investor note.
To Jonas, both Vici and GLPI “sounded positive on current trends/pipelines.” However, the conversations were overshadowed by Fertitta Entertainment’s takeover of Caesars Entertainment. For GLPI, the move was nothing major, as it has limited exposure to Caesars. Vici, on the other hand, perceived a win-win scenario and new opportunities on the horizon.
Added Jonas, “While the full ramifications of the deal may take some time to play out, we could see increasing M&A overall in the space — either regulatory- or strategic-driven.” He continued to like gaming real estate investment trusts (REITs) for their stable cash flows and dividends and their “robust” property pipelines.
As Caesars currently represents 38 percent of Vici’s portfolio, the REIT saw an opportunity to diversify through the Fertitta deal. Jonas explained that Fertitta Entertainment “could try to reduce its exposure to leased properties (we have the same view based on our prior discussions with Fertitta) and might have a preference for some markets over others.” He added that the takeover would probably take a long time to close, but “we could see scenarios that help both parties achieve their respective goals, while also improving rent coverage.”
The analyst didn’t think it likely that Vici would have to take rent concessions at its Caesars properties, as some had mooted. “Nothing in the CZR/Fertitta merger agreement would appear to be structuring in that direction.” Jonas emphasized that Vici has nine years remaining on its Caesars leases and would not accept any discounts in that scenario.
Vici executives felt that Fertitta’s regional casinos could be leveraged to further grow Las Vegas business and that they were “sitting pretty” with 10 Las Vegas Strip properties under their belt.
“Another potential consequence of the CZR deal, in our view, is potential pickup in M&A interest from proven (mid-tier) operators that could already be in the process of arranging financing for some properties believed to be under operated,” Jonas continued. Vici execs told him there was also an “intriguing opportunity” for the mix of brands that would be combined under the Caesars umbrella.
Vici brass was upbeat on their locals-oriented casinos. Jonas noted that Vici has historically delivered at the high end of its revenue guidance.
With fewer Caesars properties in hand and “healthy event coverages,” GLPI execs were less excited by the takeover. Jonas pointed out that a merged Caesars/Fertitta entity would probably be forced to reduce its concentration of casinos in some markets, particularly Atlantic City, Lake Tahoe, and Lake Charles, Louisiana.
Top execs of GLPI also felt they were plenty busy without the Caesars activity. Wrote Jonas, “GLPI reiterated that it’s been currently working on several opportunities in its pipeline, but doesn’t think the CZR transaction is having a meaningful influence one way or the other.”
While GLPI had already invested twice in tribal gaming, Jonas thought similar ventures are unlikely for now. Instead, the REIT might be looking at up-and-running tribal casinos. “That said, it may be tricky to find the right tribal partner, given the rare middle ground of a high-quality partner with capital needs.”
GLPI management also felt that worries about Bally’s Corp. were “overdone.” It stressed that it was backstopped by its ownership of Bally’s existing casinos. They were confident that Bally’s could finish its $2 billion Chicago casino and “there is option value in Las Vegas, where we expect an update” in the near future.
Regarding $4 billion Bally’s Bronx, management warmed toward getting involved. GLPI said there was “a clear path for financing … if terms make sense.”
