Great close up showing numbers 6 and 5Getty
I travel to Las Vegas at least once a year to attend the annual ReCon conference. Although gambling is never my primary reason for visiting “sin city”, I always spend some time on the blackjack tables.
Of course, now that I’m a research analyst, I suppose I can tell my wife that gambling is an essential part of my job, since I cover the gaming REITs. Plus, being a mystery shopper can be fun, so long as I’m winning.
So in preparation for my upcoming travels (in May), I thought I would provide a brief overview of the gaming REITs and their overall performance. Let’s recap the gaming REITs.
Gaming and Leisure Properties (GLPI) is the first gaming-focused REIT that was formed from the 2013 tax-free spin-off of the real estate assets of Penn Gaming. As a result of the spin-off, GLPI owns substantially all of Penn’s former real property assets and leases back these assets to Penn for use by its subsidiaries pursuant to a master lease.
GLPI’s portfolio currently consists of 46 gaming and related facilities, which are geographically diversified across 16 states. Its tenants include Penn National Gaming, Boyd Gaming and Eldorado Resorts. The portfolio is geographically diversified such that the revenues provide stable and predictable cash flow from long-term triple-net master leases.
GLPI has maintained strong financial performance since the spin-off from Penn Gaming in 2013. The long-term master leases include a fixed rent component that represent 83% of revenues that protects from fluctuations in regional gaming. GLPI is forecasted to grow AFFO per share by 8% in 2019 and shares are currently valued at 11.1 P/FFO with a dividend yield of 7.6%.
In April 2016, MGM Resorts International (MGM) netted around $1 billion by creating a new REIT and spinning off 11 of its properties into the entity known as MGM Growth Properties (MGP). Currently MGP owns a portfolio of 11 premier entertainment and retail properties, consisting of 11 premier resorts and the Park, a dining and entertainment complex that opened in April 2016. At the end of 2018 MGP owned 27,541 hotel rooms, over 2.7 million square feet of convention space, over 100 retail outlets, over 200 food and beverage outlets ad 20 entertainment venues.
The Las Vegas market continues to diversify its offerings, solidifying its position as a major U.S. entertainment destination, with MGM Resorts leading this diversification. Geographical distribution of EBITDA from MGP’s portfolio is approximately 45% Las Vegas vs 55% Regional. In addition, Las Vegas experienced a significant supply increase in the last recession – a dynamic that currently is not present.
MGP has an exceptional dividend growth record: 25.2% dividend growth since the IPO and the company has increased the dividend 6 out of the 11 dividends paid to date. Driving the growth is MGP’s +5.8% of AFFO/unit from contractual rent growth over 3 years. Shares now trade at 13.2x P/AFFO with a dividend yield of 6.0%. We maintain a HOLD on MGP.
Just over a year ago, VICI Properties (VICI) raised about $1.4 billion, making it one of the largest IPOs in 2018 and one of the largest REIT IPOs ever, after its spin-off from Caesars Entertainment Operating Co., a subsidiary of gaming giant Caesars Entertainment Corp. (CZR) (that emerged from Chapter 11 bankruptcy protection in October 2017).
VICI is one of the country’s largest owners of gaming, hospitality and entertainment destinations with a geographically diverse portfolio that includes 21gaming properties, including the world-renowned Caesars Palace, and four championship golf courses. The properties are leased to Caesars Entertainment Corporation and operate under leading brands such as Caesars, Horseshoe, Harrah’s and Bally’s. Collectively, the properties feature approximately +39 million square feet of space, 15,000 hotel rooms and more than 150 restaurants, bars and nightclubs.
VICI has executed over $8 billion worth of acquisitions and capital markets activity since It formed, while simultaneously reducing leverage from 8.4x debt-to-EBITDA to 4.2x net debt-to-EBITDA (at year-end 2018) by refinancing nearly $2 billion of debt at lower interest rates and eliminating over $1.3 billion of debt. The company’s weighted average maturity of debt is approximately 5 years and there are no maturities until 2022.
Also, VICI increased its annualized dividend (in June 2018) by 9.5% to $1.15 per share after only two quarters of being a dividend paying REIT. The company ended the year with approximately $1.1 billion of cash in short-term investments providing excellent liquidity for future growth. VICI trades at 15.1x P/AFFO with a dividend yield of 5.4%. The company is forecasted to grow AFFO per share by over 10% in 2019, and we have recently upgraded VICI to a Strong Buy.
In closing, one of my favorite casino games in Las Vegas is roulette, and as I have learned over the years, the best way to beat the house odds is to adequately diversify your bets, and that’s the same for investing. Just remember what the old-timer told me a few years ago, “scared money never wins”, and that’s another way of saying, “always protect your hard-earned principal at all costs.”