Posted: Dec 22, 2021, 12:06 p.m.

Last update on: December 22, 2021, 12:48 p.m.

Casino’s real estate investment trusts (REITs) are only part of the growing real estate industry. But some investors are bullish on game owners.

Caesars Palace REIT Casino
Caesars Palace Las Vegas, owned by VICI Properties. Investors are bullish on casino REITs like VICI. (Photo: Joe Buglewicz /Bloomberg)

Today, the world of gaming REITs consists of only three companies: Gaming and Leisure Properties (NASDAQ: GLPI), MGM Growth Properties (NYSE: MGP) and VICI Properties. However, that list will be reduced to two next year, when VICI completes its $ 17.2 billion acquisition of MGP shares.

While the landscape of REIT casinos is on the verge of shrinking, the group offers investors interesting potential, especially in a context of rising inflation.

Despite their very long term triple net rental structures, casino REITs offer excellent inflation hedging features. VICI Properties, in particular, has one of the most inflation-hedged rental structures of any REIT ”, said Hoya Capital Real Estate.

Companies such as GLPI, MGP and VICI differ from traditional hotel REITs. This is because casino owners own properties under long term triple net leases, where upkeep and maintenance are tenants’ obligations.

REIT Casino Cool Ideas for 2022

Gaming REITs offer a compelling business model and strong dividend yields at a time when interest rates are at historically low levels.

In a context of low interest rates and high inflation, casino owners are all the more attractive. This is because they show a propensity for constant increases in dividends and have pricing power. In many cases, rent indexes that match or exceed the Consumer Price Index (CPI) are built into rental contracts with casino operators. This provides a buffer against inflation. Additionally, the aforementioned trio are attractively priced against other REITs.

“We expect casino REITs – which are one of the newer sectors of REITs, emerging in the late 2010s – to end up trading at multiples online or above their peers. net rental rates, ”adds Hoya Capital.

Asset manager adds short-term catalysts for the group including improving balance sheets which could lead to credit revaluations, increased tenant diversification, more focus from selling analysts and VICI which will eventually reach the S&P 500.

VICI: New King of Las Vegas

Prior to announcing the MGP takeover, VICI owned Caesars Palace on the Las Vegas Strip. But by bringing MGP’s assets into the fold, it becomes the dominant owner in the most sought-after area of ​​gambling real estate in the United States.

“VICI was able to acquire MGP at a roughly implied capitalization rate of 5.7-6.0%, which is a 10-20% discount from its estimated net asset value. The combination will also further diversify VICI’s tenant concentration and geographic reach, lowering its largest tenant exposure – Caesars Entertainment – from nearly 80% at the end of 2020 to just 41%, ”Hoya notes.

By acquiring MGP, VICI becomes the owner of the real estate assets of the following Strip locations: Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, New York New York and Park MGM. In total, the purchaser adds to its portfolio the real estate of 15 gaming rooms. This transaction should be finalized in the first half of 2022.


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