REITs within gaming sector maintain optimistic outlook, speculating future business agreements
Unleashing the Casino Empire: A Glimpse into the Future of VICI Properties and GLPI
In the complex world of commercial casinos, the management teams of VICI Properties and Gaming & Leisure Properties (GLPI) continue to forge ahead, despite navigating through challenging conditions. According to a gaming analyst, more deals could be on the horizon for these REIT powerhouses.
Recently, Barry Jonas of Truist Securities had a chance to chat with both REITs at a real estate investment conference in New York. Intriguingly, VICI expressed an interest in forging more deals with Red Rock Resorts, while GLPI has diligently managed risk on its Tropicana Las Vegas site by partnering with Bally's Corp. On a related note, Bally's can sell casino rights adjacent to the planned Las Vegas A's $1.75 billion baseball stadium, where construction is set to commence soon.
Both REITs, VICI and GLPI, recognize several avenues for growth, including commercial and tribal gaming, as well as non-gaming transactions. Discussing potential transactions, Jonas commented, "We could see more transactions announced over the next two months, varying from bolt-on to greenfield. While gaming REIT stocks have been mixed year-to-date, we still favor both REITs, given their stability of cash flows, dividends, and pipelines."
Since January, VICI, currently up 7%, maintains a Buy rating. Similarly, GLPI, down 4% for the year, retains the same rating. As for GLPI, Jonas believes the higher end of guidance is reachable. His reasoning is that GLPI may meet most rent escalators and face a less volatile interest-rate curve than initially feared.
During the conversation, GLPI indicated that its first-quarter guide had been reduced somewhat, causing a minor dip in its stock price. However, GLPI's CFO now expresses comfort levels with the high end of guidance. This confidence is rooted in the assumption of hitting most rent escalators and a less volatile interest-rate curve than expected.
GLPI had previously lowered its adjusted funds from operations guide for the first quarter to $3.84-$3.87, down from $3.83-$3.88. This modification primarily resulted from the assumption that GLPI would not hit Pinnacle Entertainment's master-lease escalator. Unfortunately, GLPI did not provide updates on Bally Corp.'s Chicago project. However, Jonas suspects that the development remains behind schedule.
"We also believe some of GLPI's stock underperformance relates to Bally's credit concerns," Jonas stated. "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 confirmed that it has seen "minimal change" in the deal environment, despite the ongoing volatility in interest rates. Management remains optimistic about its current deal pipeline, highlighting the recent announcement of funding for Penn Entertainment's Joliet project. Penn intends to draw on $130 million with a total $185 million from GLPI by the third quarter and plans to open the project to the public on Aug. 11, six months ahead of schedule.
Amidst an ongoing proxy battle between Penn and HG Vora, GLPI is keeping a close eye on the evolving situation. Regardless, management emphasized that Penn's core regional business is performing well, with the exception of any digital-segment losses. Furthermore, GLPI affirmed that it would decline any offers to split up 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 deemed to best serve GLPI shareholders.
GLPI remains enthusiastic about its Ione tribal deal and hopes that it may convert to a long-term lease at the end of the five-year period. Management views this agreement as a stepping stone for future tribal transactions and aims to announce a deal of greater scale over the next few months. However, securing tribal deals can be challenging, as tribes with the best credit quality often have minimal need for capital.
On the other hand, VICI is impressing investors with a solid first-quarter earnings performance. Management highlighted that VICI was one of just two triple net lease companies to raise guidance in the first quarter. In addition, VICI's focus on its diverse portfolio of gaming, hospitality, and entertainment assets, as well as its continuous acquisitions and partnerships, indicates continued growth for the company.
VICI's partnership with Red Rock Resorts represents its second investment in tribal land. 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 adds.
Despite headline weakness, management remains confident in the Fontainebleau Las Vegas, in which VICI has invested $350 million in a mezzanine loan. Conference bookings are traditionally softer during a property's first two years, as customers explore the site before reserving. Management anticipates the property to pick up momentum over time, as the database expands and attendees appreciate the impressive food and beverage offerings. Management is also content with the loan structure and its partnership with Koch Industries.
In summary, both VICI and GLPI are steadfast in their commitment to strategic asset management and potential acquisitions, with VICI focusing on its experiential properties and GLPI capitalizing on partnerships within the gaming sector. While specific upcoming deals have not been announced, both companies remain open to new opportunities.
- The weather aside, both VICI and GLPI are optimistic about their current deal pipelines, with VICI focusing on its diverse portfolio of gaming, hospitality, and entertainment assets, and GLPI capitalizing on partnerships within the gaming sector.
- In the future, potential transactions could be announced by VICI, with Barry Jonas hinting at the possibility of more deals with Red Rock Resorts, or even more permanent opportunities between VICI and Red Rock.
