With support from surging internet cassino operations, gaming tangible demesne investment trusts (REITs) Gaming and Leisure Properties (NASDAQ:GLPI) and VICI Properties (NYSE:VICI) are “safe” avenues for investors considering the industry.
That’s the judgment of Macquarie analyst Jordan Bender. In a note of hand to clients today, Bender downgrades MGM Growth Properties (NYSE:MGP) to “neutral” from “outperform” to accounting for the pending acquisition of that fellowship past contender VICI. In August, Caesars Palace proprietor VICI proclaimed a $17.2 1000000000 all-stock takeover of MGP — a deal creating the largest holding owner on the Las Vegas Strip.
Bender notes the growth of iGaming and sports wagering as potency cash in generators inwards the hereafter is efficacious for the REITs. That’s because those pursuits could be additive to operators’ finances, bolstering split coverage inwards the process.
While the REITs don’t hold direct exposure to online gaming markets, several of their tenants hold formed strategies to compete,” notes Bender. “Although this won’t benefit REIT financials, it testament improve underlying rip coverages and beef up the corporate ensure for the assets inward the leases.”
When the VICI/MGP transaction closes inwards the first-class honours degree half of next year, the combined keep company will bet MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR) as its 2 biggest tenants. BetMGM and Caesars Sportsbook combine for nearly a thirdly of the US online sports betting market, according to Macquarie estimates.
For GLPI, VICI, Rent Coverage Matters
Gaming REITs operate as toll route businesses. They possess the property assets of some of the most iconic domesticated gaming venues, such as Caesars Palace and Mandalay Bay, but aren’t involved in the day-to-day operations.
Nor are the landlords responsible for enhancements to the venues. Those obligations go to the operating companies. Coupled that with let responsibilities, the financial wholeness of tenants is integral to the gaming REIT investment thesis.
That says charter reporting is vital inwards assessing the economic value of a company such as GLPI or VICI. During the darkest years of the casino shutdown caused by the coronavirus pandemic in conclusion year, thither were concerns around the power of some gambling casino operators to fulfill term of a contract obligations inward a lengthy zero-revenue climate. Fortunately, that ne'er became a material issue, as operators were able to memory access cap markets and the REITs gathered nearly all owed rent during the shutdown.
In improver to Caesars, VICI’s other tenants include Century Casinos Inc., Hard John Rock International, JACK Entertainment, and Penn National Gaming. GLPI’s marquee tenants include Bally’s and Penn, among others.
More Rent Coverage Coming
While operators are proving adept at boosting margins at land-based casinos inwards the wake of the pandemic, to a greater extent security deposit support could be derived from iGaming.
We anticipate the security deposit profiles will follow inward the 25-35 percent array at maturity date (depending on tech stacks), and this could transform to an incremental $3.8 1000000000000 of online earnings before interest, taxes, depreciation and amortization (EBITDA) for PENN, CZR, MGM, Boyd Gaming and Bally’s combined under our market place percentage assumptions,” says Macquarie’s Bender.
He adds that the incremental EBITDA from online casinos and sports wagering could cover version operators’ rent responsibilities.