Wednesday, October 14, 2020 / by Ken Couture
Domestic gaming real estate investment trusts (REITs) have the liquidity and balance sheets to weather storms foisted upon tenants by the coronavirus pandemic, according to analysis of the group by Moody’s Investors Service.
The three publicly traded casino landlords are Gaming & Leisure Proprties (NASDAQ:GLPI), MGM Growth Properties (NYSE:MGP), and VICI Properties (NYSE:VICI). Those companies combine to own the real estate of about 20 percent of US commercial gaming venues.
Gaming & Leisure Properties’, VICI Properties’ and MGM Growth Properties’ combined gross assets grew more than 60%, to over $41 billion, in the second quarter of 2020, up from about $25 billion at their inception a few years ago,” said Moody’s analyst Thuy Nguyen. “We expect their solid financial positions to help them withstand pandemic-related business disruptions, though the gaming industry today remains in uncharted territory.”
COVID-19 is the first big test of gaming REITs’ ability to weather a downturn, because the group didn’t exist didn’t exist during the global financial crisis. GLPI was the first of the trio to go public following a spin off from Penn National Gaming (NASDAQ:PENN) in 2013. MGM Growth Properties was separated from its parent in 2016, followed by VICI the next year.
Collecting Rent, Access to Cash
As has been the case throughout the broader gaming industry this year, landlords are accessing capital, bolstering balance sheets in the process. GLPI, MGP, and VICI have $4.5 billion in combined cash and credit revolver access, according to Moody’s.
None of the REITs have any debt maturing prior to 2023. Moreover, the real estate companies aren’t having issues collecting rent. That’s an impressive feat, considering operator tenants faced multi-month shutdowns because of the pandemic. Throughout the second quarter, the worst stretch for casino closures, real estate companies collected nearly all owed lease obligations with minimal problems.
“Additionally, the gaming REITs’ business model includes revenue safeguards. The REITs operate under a long-term triple-net lease structure ranging from 30 to 50 years, with highly predictable income streams that push most financial and operational variables to their tenants,” said Moody’s. “Occupancy is 100%, and despite pandemic-related closures of gaming properties, rent collection remains nearly spotless.”
As the research firm points out, two risks that could pressure the gaming REITs going forward are tenant concentration and the slow pace of post-pandemic recovery in Las Vegas.
While VICI owns Caesars Palace on the Strip and counts Caesars Entertainment as its biggest client, that real estate firm has other tenants, and isn’t as dependent on Sin City for rental income as MGP. MGM Resorts International (NYSE:MGM), the largest operator in Las Vegas, is MGP’s only client, tethering that REIT’s fortunes to a Southern Nevada rebound. The real estate company owns the property of all MGM Las Vegas assets except the Bellagio.
Of the three, GLPI is least exposed to Sin City. The REIT owns four gaming properties in Southern Nevada, a number that could be trimmed to three if it proceeds with selling the Tropicana on the Strip.
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