Gaming and Leisure Properties cites improving environment for M&A among gaming REITs

January 10, 2024 9:04 PM
Photo: Shutterstock
  • Buck Wargo, CDC Gaming Reports
January 10, 2024 9:04 PM
  • Buck Wargo, CDC Gaming Reports

Executives with GLPI, citing an improving environment for mergers and acquisitions, are optimistic that deal activity could be more significant this year for gaming real estate investment trusts.

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Barry Jonas, an analyst with Truist Securities, sent a note to investors based on a call hosted Tuesday with GLPI’s Chairman and CEO Peter Carlino and Senior Vice President and CEO Matthew Demchyk.

“We are positive on GLPI’s increasingly visible deal pipeline and think balance sheet flexibility will prove highly advantageous on top of the potential for an improving rate environment,” Jonas wrote. “We continue to preach the relative safety of GLPI and gaming REITs and reiterate buy.”

According to Jonas, management was “very positive on its outlook for 2024,” noting that conversations with operators over the past six to 12 months were “developing into a strong potential pipeline of deals.” GLPI’s improving rate environment was positive, though still focused on being disciplined and selecting deals at attractive spreads.

“GLPI’s leverage target remains at 5-5.5x and the balance sheet is uniquely positioned to allow opportunistic sourcing of debt capital over equity when beneficial, while preserving healthy debt/EBITDA coverage ratios,” Jonas wrote.

Management noted that the spread between traditional bank and REIT financing was likely still favorable for gaming REITs, though constraints on banks in recent years were more risk- and regulatory-driven rather than strictly a cost of capital. Additionally, private credit has been growing as a potential counter-party for operators looking to raise liquidity, though GLPI noted the returns required render the spreads more prohibitive for these vehicles relative to gaming REIT financing, Jonas said.

“Management highlighted that ultimately, GLPI’s strong relationships and experience are the main differentiator that drives its access and ability to close deals.”

According to the GLPI executives, there wasn’t much low-hanging fruit left in the domestic gaming market. Still, “substantial deal opportunities” remained for the immediate future. Management highlighted tax-motivated transactions as a key driver of deals — and an area of expertise for GLPI.

They cited the Hard Rock Rockford deal as an example of a successful transaction with substantial tax benefits for the tenant, which GLPI facilitated.

As for Las Vegas, GLPI discussed the wider Tropicana casino redevelopment, where a planned $1.5 billion A’s baseball stadium project continues to progress, with further announcements coming. Without going into detail, the investor note said management would not be opposed to a sale of the property, assuming the new owners were qualified and committed to maximizing the value of the location.

“We sensed management was open to potentially participating in Bally’s permanent Chicago property, though GLPI hasn’t made any commitments and would require favorable safety and economics to potentially engage in any deal,” Jonas said. “GLPI said it remains interested in acquiring Bally’s Lincoln asset (which it maintains a call option on), though would still be subject to Bally’s lender consents.”

Management told Jonas that Penn Entertainment’s four growth projects — Aurora and Joliet in Illinois, M Resort in Las Vegas, and Hollywood Columbus in Ohio — were pushing ahead, though likely would use Penn’s cash holdings first before drawing down on GLPI’s $575 million in capital commitments. It will probably be used more akin to a takeout closer to completion.

“When asked, management noted that it would be open to restructuring the legacy Penn lease to remove any rent volatility, though nothing seemed imminent,” Jonas wrote.

GLPI continues to explore international opportunities, though still sees tax-leakage challenges with Canadian assets relative to domestic, Jonas said. On non-gaming, few industries could replicate the safety and stability of gaming revenues, but GLPI would evaluate any deal on its own merits and fundamentals.

“Management noted tribal properties were a significant untapped market, though it would require a framework to make investments safely and securely,” Jonas said. “Management noted that its interest in pursuing a Las Vegas Strip asset would be dependent on the quality of potential tenant and lease fundamentals, in addition to the real estate attributes.”

Management was positive on the Casino Queen (formerly Hollywood Casino) move to land in Baton Rouge, with its $77 million investment generating an 8.25% yield. The Belle of Baton Rouge recently transferred from the Caesars lease to Casino Queen’s parent (CQ Holdings) and GLPI may be supportive of a potential move from the current riverboat to a landside casino, Jonas said.

Management said that the Rockford 815 Entertainment property was ahead of budget and would likely begin drawing down on the remaining $110 million of GLPI’s $150 million (at a 10% yield) of committed capital after the $100 million of land proceeds is invested in improvements. The estimated delivery date for the property is September, though management didn’t share an estimated timeline for a potential sale-leaseback, Jonas said.