Why Bullish Casino REIT Stocks Are Set to Climb
October 29, 2021
Casino REITs Poised for Big Gains
Casino real estate investment trusts (REITs) have been some of the best-performing companies since the COVID-19 pandemic started and the broader stock market crashed in March 2020.
Casino REIT stocks have been trending steadily higher since March 2020. That’s partly thanks to the rollout of COVID-19 vaccines, reopening of the U.S. economy, and reopening of the borders.
The early resiliency of casino REITs was a bit surprising because quarantine orders, border closures, and job losses kept gamblers at bay.
While you can find casinos virtually everywhere across the U.S., the biggest gambling center is Las Vegas. If Vegas does well, casino REITs should also do well.
There are a few reasons why casino REITs should continue to perform exceptionally well over the coming quarters.
Chart courtesy of StockCharts.com
Clark County COVID-19 Numbers Falling
First, the number of COVID-19 cases in Nevada has been falling. This is good news, and it could mean the end to mask mandates. Clark County, which includes Las Vegas, has seen its coronavirus test positivity rate improve to 6.1%. The positivity rate for all of Nevada is 6.9%. (Source: “New: COVID-19 Hospitalizations, Cases Drop; Test Positivity Rates on the Decline,” 8NewsNow, October 26, 2021.)
Nevada is following the Centers for Disease Control and Prevention (CDC) guidance on the mask rule, which will remain in place until both of the following conditions are met: 1) the COVID-19 test positivity is below eight percent and 2) the case rate per 100,000 people over seven days is below 50 for two full weeks.
As of this writing, the COVID-19 case rate for Clark County is 97.6 per 100,000 people. The point is, the numbers are getting better, and it’s only a matter of time until the mask mandate in the county ends.
Las Vegas Benefiting From Reopening of Borders
Las Vegas casinos have been doing much better than they were a year ago. In July, Nevada raked in $749.0 million in gambling revenue from casinos on the Las Vegas Strip. (Source: “Las Vegas Breaks Record In July With $794 Million In Gambling Revenue,” Forbes, August 26, 2021.)
That’s the state’s all-time record for gambling revenue from Las Vegas, and a whopping 46% increase from July 2019 (before the COVID-19 pandemic). Moreover, statewide gambling revenue hit $1.4 billion in July 2021, making it Nevada’s fifth consecutive billion-dollar month and a 33% increase over July 2019.
The momentum carried into August and September, with Nevada’s gambling revenue topping $1.0 billion again. That marked the state’s sixth and seventh straight billion-dollar month. This represents Nevada’s second-longest billion-dollar streak of all time. The previous record was set in the eight months between November 2006 and May 2007.
Of course, there will be month-to-month fluctuations, but the outlook for Las Vegas remains upbeat, with the city’s gambling revenue expected to return to its pre-pandemic level by mid-2022 and fully recover by 2023.
Some of those gains will come on the heels of the reopened U.S. borders, the return of international travel, and business from groups and conventions.
Investors have a choice: they can wait until 2023 to jump on the bandwagon or take advantage of the recovery now.
VICI Properties Inc: Bullish 4.8%-Yielder Raises Payout
VICI Properties Inc (NYSE:VICI) is a REIT that owns one of the largest portfolios of gambling, hospitality, and entertainment properties, including Caesars Palace. (Source: “Overview,” VICI Properties Inc, last accessed October 28, 2021.)
The company’s properties are leased to Caesars Entertainment Inc (NASDAQ:CZR), Century Casinos, Inc. (NASDAQ:CNTY), Hard Rock Cafe International Inc., JACK Entertainment LLC, and Penn National Gaming, Inc (NASDAQ:PENN).
The REIT’s national footprint consists of 28 gambling facilities comprising 47 million square feet, approximately 17,800 hotel rooms, and more than 200 restaurants, bars, nightclubs, and sportsbooks.
VICI Properties Inc also has an investment in the Chelsea Piers facility in New York City and owns four championship golf courses and 34 acres of undeveloped land adjacent to the Las Vegas Strip.
The COVID-19 pandemic was certainly not kind to landlords, but during the pandemic, 100% of VICI Properties’ tenants paid their rent 100% on time.
Like all good landlords, VICI Properties increases its rent annually—by about two percent.
Also like all good landlords, VICI Properties is always on the hunt for new properties to add to its empire. In August, the REIT announced plans to acquire MGM Growth Properties LLC (NYSE:MGP), another casino REIT, for $17.2 billion. (Source: “VICI Properties Inc. Announces $17.2 Billion Strategic Acquisition of MGM Growth Properties LLC,” VICI Properties Inc., August 4, 2021.)
MGM Growth Properties LLC ’s real estate portfolio includes properties in Las Vegas, such as New York-New York and Mandalay Bay, and properties in other cities, including Atlantic City, NJ.
The deal is expected to close in the first half of 2022. Once completed, the acquisition will add 15 Class A entertainment resort properties to VICI Properties’ portfolio. Those properties, which are spread across nine regions, comprise 33,000 hotel rooms, 3.6 million square feet of meeting and convention space, and hundreds of food, beverage, and entertainment venues.
VICI Stock’s High-Yield Dividend Rises
In August, VICI Properties Inc’s board of directors declared a regular quarterly cash dividend of $0.36 per share. This represents a 9.1% increase over the $0.33 per share paid out in the previous quarter.
Since going public in 2017, VICI Properties has raised its dividend every year since 2018. And thanks to the REIT’s proposed acquisition of MGM Growth Properties LLC, that upward trend should continue.
VICI Properties makes a ton of money, and its payout ratio is just 56%.
All this helps explain why VICI Properties stock has been soaring. Trading near record levels, VICI stock is up by:
- 21% year-to-date
- 38% year-over-year
- 230% since bottoming in March 2020
Chart courtesy of StockCharts.com
Gaming and Leisure Properties Inc: 5.4%-Yielding Stock
Gaming and Leisure Properties Inc (NASDAQ:GLPI) is another excellent casino REIT stock that continues to perform well. The company buys and finances properties that it leases to gambling operators in triple net lease arrangements. (Source: “About Us,” last accessed October 28, 2021.)
The REIT’s portfolio consists of 50 gambling assets diversified over 17 states. Its tenants include Penn National Gaming, Inc, Caesars Entertainment Inc, Boyd Gaming Corporation (NYSE:BYD), and Bally’s Corp (NYSE:BALY).
As of this writing, GLPI stock is up by:
- 21% year-to-date
- 42% year-over-year
- 321% since bottoming in March 2020
Chart courtesy of StockCharts.com
The pandemic may have caused some REITs to bury their head in the sand, but it was a growth opportunity for Gaming and Leisure Properties Inc. In June 2021, the company completed the acquisition of two regional gambling properties that it had announced back in October 2020. (Source: “Gaming and Leisure Properties Completes Acquisition of Two Regional Gaming Properties, Enters into Master Lease Agreement With Bally’s Corporation,” Gaming and Leisure Properties Inc, June 4, 2021.)
This included the land and real estate assets of Tropicana Evansville from Caesars Entertainment Inc and The Dover Downs Hotel and Casino from Bally’s Corp, for an aggregate purchase price of approximately $484.0 million.
Gaming and Leisure Properties funded the transaction with cash on hand, which was in part generated by its equity raise completed on October 29, 2020.
Simultaneous with the closing of the transaction, Gaming and Leisure Properties Inc announced that it had entered a triple-net master lease agreement with Bally’s Corp. The master lease has an initial total annual cash rent of $40.0 million and an initial term of 15 years.
Record Q2 Results
In the second quarter, Gaming and Leisure Properties’ revenue increased by 21.2% year-over-year to $317.8 million. (Source: “Gaming and Leisure Properties, Inc. Reports Record Second Quarter 2021 Results,” Gaming and Leisure Properties Inc, July 29, 2021.)
Its income from operations advanced 17.3% to $212.1 million. Its net income rallied by 23% to $138.2 million, or $0.59 per share.
The company’s funds from operations (FFO) were up by 16.8% at $195.1 million, or $0.83 per share. Its adjusted FFO (AFFO) climbed by 12.8% at $203.8 million, or $0.87 per share.
Peter Carlino, Gaming and Leisure Properties Inc’s chairman and CEO, commented, “As we look to the second half of 2021, GLPI remains well positioned to deliver record results as we further expand and diversify our portfolio and benefit from the continued strength in regional gaming markets, with many of the operations at GLPI’s properties recording both record bottom line results and margins, as well as growth in topline performance compared to 2019.” (Source: Ibid.)
The Lowdown on Casino REITs
Casino REITs did well in the opening months of the economic recovery, and they continue to be some of the best-performing companies. Even during the COVID-19 pandemic, casino REITs reported strong financial results, raised their high-yield dividends, and announced blockbuster acquisitions.
With COVID-19 numbers falling, restrictions being lifted, and borders reopening to international travelers, the good times are expected to get even better.
