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Gimme Shelter

Where can gaming investors safely protect their investments?

Gimme Shelter

So where in this uncertain world does a gaming equity investor put his or her money for safety?

The answer is the two gaming REITs. And it’s not even close.

Both are providing investors with stock appreciation and significant dividends. Looked at in the most negative way, as of this writing VICI Properties is just 6.7 percent below its 52-week high and has just raised its dividend to provide a 4.7 percent annual yield. Gaming & Leisure Properties is off 6.9 percent, and its dividend yields a healthy 5.85 percent. In other words, on a total return basis, GLPI is down just 1 percent from its high.

Looked at from the other side, they are well up off their 52-week lows: VICI 27 percent and GLPI 17.8 percent. Year-to-date, VICI is up over 11.1 percent and GLPI is up 1.5 percent.

Compare that to the major stock market measures.

Or compare them to gaming stocks. Here are select stocks as groups from their highs:

Or how about other REITs?

Now, growth-intoxicated investors might be bored by VICI and GLPI. After all, they don’t sell at multiples of promised profits several years out as online sports-iGaming stocks continue to do, despite their crashes. And collecting rent is not as exciting as designing and building new resorts or touting the next technology innovation or offering free play on exotic new sports bets.

But that doesn’t mean growth isn’t there. Both VICI and GLPI have prudent acquisition strategies to use their strong capital positions to finance growth. Both continue to have safety as their tenants remain rock-solid rent payers.

Just based on consensus of analyst forecasts, both stocks have prospects of healthy returns not just on a relative basis to other stocks or to inflation, but in absolute terms. Consensus is for VICI stock to rise 13.7 percent over the next 12 months and GLPI 13.5 percent. Add current dividends and total returns would be 18 percent for VICI and 19.4 percent for GLPI.

And those projections do not include further acquisitions that VICI and GLPI will continue to make and that add to those returns.

Of course, the casino world is of limited size, but VICI and GLPI can and are extending into adjacencies. VICI is investing in non-gaming experiential properties, as it calls them, such as development of a Great Wolf water park resort in Southwest Florida. GLPI has an agreement that can help Cordish Companies expand its highly successful brand of non-gaming entertainment properties.

The world of entertainment properties outside of gaming is, as a practical matter to any investor, unlimited. And VICI and GLPI are positioning themselves to capitalize on the opportunities.

Meanwhile, there are still a lot of properties existing and under development in gaming to provide steady acquisition growth for years to come.

Bottom line: in an era of inflation and recession fears, the gaming REITs provide returns, growth and safety. It’s hard to ask for more.

They Ain’t Making Any More of the Stuff

One obvious reason that the gaming REITs are proving solid in an era of inflation is that they own Will Rogers’ favorite asset—real estate.

As is almost axiomatic, the best things to own in an inflationary period are tangible assets, and perhaps no tangible asset has the appreciation potential of real estate.

The trend in recent years has been for casino companies to sell their land and invest the proceeds in growth in what’s called an asset-light model. Initially, such transactions feel good as the proceeds pour in. The longer-term story is still to play out as the race begins between the returns generated by the invested proceeds and the higher costs of having created a new expense line in rent and in no longer owning an appreciating asset in the properties their operations occupy.

The REITs, as mentioned above in the examples of Great Wolf Resorts and Cordish Companies, are helping alleviate growth concerns by being able to provide investment capital to operators.

But there are other casino companies that, while not ruling out future REIT deals, retain land as an integral component of both their value and their strategies.

We’re about to watch one of those companies put that philosophy intro practice. Red Rock Resorts is selling the real estate of three under-performing casinos in the Las Vegas Valley, not to become a tenant at those properties, but to demolish them and generate cash that can go into the development of bigger and more profitable casinos that will sit on company-owned land.

Warren Buffett likes to say there is more than one way to get to heaven. We suspect both the gaming REITs and Red Rock have found their routes to get there.

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