Casino REIT Stocks Could Increase as Curiosity Prices Stabilize
Posted on: July eight, 2024, 03:00h. 
Final up to date on: July 7, 2024, 10:20h.
Shares of VICI Properties (NYSE: VICI) and Gaming and Leisure Properties (NASDAQ: GLPI) — the two biggest casino landlords — are off an average of 11.27% 12 months-to-date even though the S&P 500 is greater by sixteen.69%. But some analysts think gaming genuine estate investment trusts (REITs) could quickly supply far better performances.
In a latest note to customers, Truist Securities analyst Barry Jonas cited the acquainted headwind of elevated interest costs as one of the primary drags on VICI’s and GLPI’s cost action by means of the very first half of 2024. Due to its capital-intensive nature, actual estate is one of the sectors most negatively correlated to interest rates and with the Federal Reserve nevertheless to reduced borrowing expenses, REITs of all stripes have been pinched.
12 months-to-date, 10-year Treasury yields are greater by eleven.17%, weighing on the genuine estate sector in the procedure, but individuals yields somewhat declined more than the past 90 days. That could be a indicator of the price stability Jonas pointed out as a possible catalyst for the casino REITs.
(VICI is) effectively positioned for the following wave of large scale, non-gaming, and/or international transactions,” wrote Jonas.
The analyst is also constructive on Gaming and Leisure, which is smaller than its rival and wants “less to move the needle,” he observed.
High Costs Not Slowing Casino REIT Action
Although the highest curiosity charges in two decades are weighing on shares of casino REITs, the organizations are not sitting idly by. Rather, each GLPI and VICI are executing transactions that could be accretive to prolonged-term traders.
In February, GLPI said it’s paying $175 million for the house assets of Tioga Downs Casino Resort in Nichols, N.Y. The acquisition jibes with GLPI’s track record of incorporating casino genuine estate in less volatile markets and areas exactly where the acquired venue faces tiny close by competitors.
Jonas explained that transaction and other bolt-on buys by GLPI are “indicative of smaller sized bargains that are even now obtaining done in spite of the lack of price cuts so far this year” even though that REIT and rival VICI are “demonstrating execution potential in spite of the lingering interest-rate uncertainty.”
For its portion, VICI has been lauded by Wall Street for its involvement in financing $one billion in upgrades at the Venetian and Palazzo on the Las Vegas Strip. As component of the financing accord, VICI will increase Apollo’s lease obligations at Venetian. Beneath the existing rental agreement, lease will rise “on the first day of the quarter instantly following every capital funding at a seven.25% yield.”
Eye on Prospective Penn Sale
Amid regular though unconfirmed scuttlebutt that Penn Entertainment (NASDAQ: PENN) is a takeover target, both casino REITs could be worth monitoring, but such a deal would be impactful for GLPI due to the fact the regional casino operator is the landlord’s greatest tenant.
Jonas, who is not convinced Boyd Gaming (NYSE: BYD) will make a play for Penn, observed GLPI will have a say in any such transaction should it materialize.
“For example, GLPI’s master lease with PENN has change-of-manage provisions that set a variety of problems for an acquirer and could need GLPI’s approval for any divestitures/lease modifications,” concluded the analyst.