Casino companies selling their gaming properties to real estate investment trusts (REITs) and then leasing them back was an event happening relatively often since the beginning of 2020, and especially during the period of casino closures, when operators were struggling for short-term cash to cover their burn rates.
It featured heavily into the Eldorado Resorts (ERI) merger with Caesars Entertainment (CZR), where the REIT spun off CZR, VICI Properties, acquired the land and real estate assets associated with Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City, but the whole concept of gaming REITs started back in 2013, when Penn National Gaming (PENN) created Gaming and Leisure Properties Inc (GLPI).
Gaming REITs Share Price Undervalued
GLPI, VICI Properties and the REIT spun off MGM Resorts International (MGM), MGM Growth Properties (MGP) are considered as trading well below their real value by Wolfe Research gaming REITs senior analyst Jared Shojaian, CFA, in his analyses of the three companies.
Arguing that price discovery for gaming REITs takes time due to their relatively recent appearance, the Director of Wolfe Research pointed out GLPI managed to outperform the REIT average since its inception, stressing out the fact that the REIT collected 99% rent from its properties during the second quarter of the year.
VICI Ever Present in the ERI/CZR Merger
Jared Stojaian is also bullish regarding the future price of VICI Properties that was created out of CZR in 2017. The REIT’s main advantage is the diversity in tenants, five gaming companies among them, as well as the upcoming ERI/CZR merger that is expected to create synergies of up to $500 million during the first year of full operation of the combined entity.
VICI attained the first refusal regarding any new sale that could allow it to acquire new properties at attractive price levels, something well within the financial abilities of the investment trust as it is well positioned to offer capital for real estates with the cost of its debt within the 4% range.
Regarding the third gaming properties trust, MGP, the analysis pointed out its sole tenant, MGM, bearing the implication MGP owns some of the highest quality assets in the gaming industry, as Vegas’ gaming assets are viewed as higher versus regional gaming assets by the research company. On top of that, even regional MGM properties are higher quality than typical regional ones.
Jared Stojaian forecasted 45%, 35% and 33% rise in the stock price of VICI, GLPI and MGP, respectively, compared to their close price Friday, June 26.
Analysis did not provide any clarity as to why casinos are willing to trade their long-term assets for short-term liquidity, though.