Casino REITs Destination for Inflation Protection
Confirming the whim that the existent demesne sphere is a good come out to follow when rising prices is high, as is the grammatical case today, Gaming and Leisure Properties (NASDAQ:GLPI) and VICI Properties (NYSE:VICI) are both crisply outperforming the S&P 500 as fountainhead as the MSCI US Investable Market Real Estate 25/50 Index this year.
Following VICI’s lately completed $17.2 1000000000 purchase of MGM Growth Properties, the Caesars Palace proprietor the GLPI are the only if deuce in public traded cassino real land investiture trusts (REITs) on the market today.
Casino REITs hold been among the best-performing prop sectors this twelvemonth as the positive degree tailwinds from the leisure exact retrieval – in particular inward the vital Las Vegas market — get offset printing inflation headwinds and economical growing concerns,” according to a new study by Hoya Capital.
While the cosmos of dedicated cassino REITs is small, more diversified attribute companies are entering this space. For example, Realty Income (NYSE:O) proclaimed inward February it’s acquiring the property assets of Encore Boston Harbor for $1.7 billion, scoring its initial foray into gaming tangible estate.
Casino REITs: All About Fighting Inflation
GLPI and VICI are what’s known as triple-net REITs, signification the lease terms they sign on with clients are usually far thirster than what’s seen inwards other commercial-grade existent acres segments.
As such, marketplace participants lean to do by triple-net REITs on par with longer-dated bonds, substance these stocks put up live vulnerable to rising involvement rates. This year, however, investors are focusing more on the inflation-fighting advantages offered by GLPI and VICI. The latter is prescribed on a year-to-date foundation piece the former’s 2022 deprivation is small comparative to the broader market.
The paint to GLPI’s and VICI’s success inward inflationary environments is derived from pricing force and inflation-linked split increases that are built into renter contracts. Take the vitrine of VICI’s contract with MGM, which is now ane of the REIT’s largest tenants next the MGP acquisition.
The initial letting term with MGM, which started in belatedly April, is 25 years, with three 10-year renter renewal options and an initial tot up yearbook rent of $860 million. Under the terms of that agreement, hire canful growth 2% a yr for the first decennary and at a rate of 2% to 3% yearly thereafter, indicating VICI investors are gaining more inflation protection.
More Casino REIT Consolidation
While VICI’s purchase of MGP qualifies as mammoth inwards the gambling casino REIT space, Hoya Capital believes to a greater extent purchases in the gaming existent landed estate landscape are possible.
“The M&A environs remains fertile. VICI Properties shut on its $17.2 one thousand million acquisition of MGM Properties, giving the company a dominant portion of the Las Vegas strip,” notes the asset manager.
Since 2016, GLPI, MGP and VICI acquired nearly 30 gaming properties and that doesn’t include VICI’s outright acquisition of MGM Growth.
With some operators ease owning all or to the highest degree of their tangible estate, it’s possible some looking to part with a belongings or 2 to rise hard cash to finance other endeavors. That could surface the door for GLPI and VICI to supply to their portfolios.