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The REIT Route

Gaming real estate investment trusts continue to soar, but are they good for the industry?

The REIT Route

When the global pandemic shut down multiple industries including casinos in 2020, real estate investment trusts that own nearly three quarters of the malls in the U.S. had to negotiate on rent payments: Tenants with zero sales found keeping up with the rent more than difficult.

Not so in the case of the gaming REITs. Even through months of industry shutdowns, casino properties owned by REITs continued to pay their rents, and the gaming REITs—dominated at that time by Gaming and Leisure Properties, Inc. (GLPI), VICI Properties and MGM Growth Properties (MGP)—continued to roll right along.

It’s an illustration of the stability of the REIT model as it applies to gaming properties, which is a relatively new phenomenon. Penn National Gaming created the gaming REIT when it spun GLPI off from Penn in 2013. Peter Carlino, who founded Penn National and served as its chairman for nearly 20 years, became chairman and CEO of the new REIT.

It was quite a new concept for an industry once dominated by owner/operators like Sam Boyd and Benny Binion. The REIT acquires and controls the real estate; the casino owner pays rent to the REIT while continuing to manage casino operations.

The operator gets an instant infusion of cash from the purchase to pay down debt, build new amenities and invest in growth opportunities, in exchange for a new line item on its operating budget for rent. And even in a pandemic, those rents mean the gaming REITs have a stable, reliable income source.

“It took several years of very complex work to get a structure that could fly, but it made all the sense in the world,” Carlino recalls today. “Though, I must confess, it has been infinitely more successful than I could have imagined. It was simply a matter of a commitment to continue to build shareholder value. And it was a surprise to me as a major shareholder of Penn National that all this value lay unopened just below the surface.”

While Penn National is known to dominate the regional casino market with 44 properties spread across the U.S., it didn’t take long for the REIT phenomenon to catch on with the major Las Vegas Strip operators. In 2016, MGP was spun off from MGM Resorts International. In 2018, as Caesars Entertainment emerged from Chapter 11 bankruptcy, it created VICI Properties as a separate public company and moved major assets to the new REIT.

This year, VICI will close on its acquisition of MGP, which will extend its ownership of gaming real estate to 43 properties, including the most iconic names in the industry, from Caesars Palace and Harrah’s to MGM Grand and Mandalay Bay. And the growth is far from over. REIT ownership only accounts for 40 percent of the gaming properties in the U.S. (compared to 70 percent for malls, as an example), and iconic names continue to sell their real estate to REITs.

So far, the gaming REIT phenomenon has been a smashing success, particularly for investors who have continued to receive dividends quarter after quarter, regardless of the vagaries of the overall gaming market.

But are REITs good for the industry?

“There’s definitely a divide in opinion,” comments Frank Fantini, principal of Fantini Advisors. “Obviously, the companies that have done it think it’s wonderful. MGM has reduced debt dramatically, and they put billions of dollars into their account by selling their properties, so they now can invest in growth opportunities.

“The other story is that they have sold a depreciating asset and created a new expense that will continue forever, because now they are a tenant. Now they have to pay a landlord.”

Fantini adds that the fact the gaming REITs deal in triple net leases—the landlord owns the real estate, the tenant pays rent, property taxes, insurance costs and maintenance—does pose some risk.

“What happens when it’s time to upgrade these properties?” he says. “Under this triple net lease, the tenant is responsible for the maintenance of its properties, not the landlord. So what happens if their casino gets a little down in the dumps and it needs a billion-dollar makeover? They’re going to have to pay for that. So they’re paying a billion to make over a property somebody else owns.”

Still, Fantini stresses that this risk doesn’t mean REITs are bad for the industry. In fact, he says the opposite is probably true.

“These are smart people,” he says of gaming REIT executives. “They’re not going to be like slum lords, trying to take every nickel and dime that their tenants have. They realize that it’s in their long-term interest to have vibrant, successful properties as tenants, so they’re going to do the things that are necessary to make sure that not only they make money, but that their tenants prosper as well.”

Many analysts agree on the long-term viability of the gaming REIT.

“I think the industry owes Peter Carlino a huge sign of gratitude for creating this vehicle,” says Barry Jonas, managing director and head of equity capital markets for Truist Securities. “The amount of shareholder value that’s been extracted here has been tremendous. (REITs) basically found a new investor base, willing to enter the space and willing to pay a higher multiple than traditionally seen.

“Yes, to a large degree, this is financial engineering, but I think it extracts a lot of value for both companies, as well as shareholders. And from a consumer perspective, there’s really no difference. The typical visitor or player at a casino that’s part of this model has no idea that there’s a different real estate owner.”

For the operator, the REIT puts income to use in a way that makes financial sense, Jonas adds. “Ultimately, the REIT model basically says, let’s take the bedrock of earnings—let’s take approximately 50 percent of your EBITDA and transfer that to a REIT, and the multiple that an income investor would place on that, given the relative safety of getting paid that rent, is clearly higher than what investors typically place on a wholly owned gaming asset.

“So effectively, this is financial arbitrage which just matches cash flows to investors looking for varying degrees of risk and willing to pay an appropriate multiple given their objectives. But I think a tremendous amount of value has been created, well beyond whatever tax advantages you get by being a REIT.”


GLPI focuses on regional casinos, like those managed by Penn National Gaming, including the Hollywood brand casinos like the flagship casino in Harrisburg, PA; adjacent to the Kansas Speedway; and Penn’s latest “mini-casino” in Morgantown, Pennsylvania.

Certainly, operators and the REITs themselves are continuing to realize tremendous value from the model. “For the operator, it’s a long-term capital source,” says Carlino. “Imagine having a loan, if you will, that you never have to pay off. It’s flexibility.”

“When you think about our business, we’re almost in a sense like a bank,” adds Matt Demchyk, senior vice president and chief investment officer for GLPI. “I come from the real estate world, and when this asset class came out, there were a lot of questions. Is this really an asset class? Is it financial engineering? Then, you look at the bottom line of what we’ve been able to deliver at GLPI over these many years, and it’s exceeded, in stability and in growth, the number of companies with similar business models.”

“Generally, REITs are good for the gaming industry,” comments Ed Pitoniak, CEO of VICI Properties, “because they’ve created another source of capital that helps the industry grow, that helps the industry with balance sheets, that generally serves as an underpinning for the industry that will be there for decades to come.

“Unlike a lender, we’re not going to come and go from gaming based on how we see the risk profile of lending to gaming. Unlike equity investors in gaming stocks, we’re not going to say we love you today, but we don’t like you tomorrow. Our weighted average lease term is 43.5 years. So at a minimum we’re around for the next 43.5 years, and likely for decades after that. We are huge believers in what our operators do, and we back up our belief with the will to commit to them through our capital for decades to come.”

More and more operators are utilizing REITs, although many choose to maintain part of their property portfolios as wholly owned properties. Others, like Golden Entertainment, eschew the REIT model and choose to sit on valuable real estate—and in markets like the Las Vegas Strip, that value continues to rise—for possible future organic growth.

VICI’s Pitoniak says there is no blanket answer as to whether the REIT model fits any specific operator. Many use the REIT as a specific vehicle to expand into other markets.

“In the case of Caesars, we own the real estate of Caesars Palace because it was all part of the workout of the Caesars bankruptcy,” Pitoniak says.

“But subsequently after our emergence on October 6, 2017, we announced a deal with Caesars whereby they sold us the real estate of Harrah’s Las Vegas, and one of the reasons they did that is because they wanted to create a funding source to go buy two magnificent assets in Indiana. So, the answer to why a gaming operator either owns or chooses to sell real estate is usually going to be situational or circumstantial, based upon their growth ambitions, their funding needs, and the degree to which their real estate represents an asset that can for them be a really compelling source of liquidity.”

In REITs, operators have a reliable source to create that liquidity. Their financial stability means they have access to capital that most operators cannot boast.

“We just did a debt deal for 10-year debt, unsecured by anything, at 3.32 percent,” comments John Payne, the veteran Caesars executive who is now president and COO of VICI Properties. “We can raise equity very efficiently. We can raise hundreds of millions, even billions of dollars efficiently overnight. And by packaging that with an audience that really wants these durable cash flows and values them in isolation, we can give the operators incredible prices for real estate.”

Perpetual Growth

There’s no slowdown in sight for the growth of gaming REITs. New arrangements pop up in the news every month. Among the major deals being accomplished this year are VICI’s purchase of the Strip real estate for the Las Vegas Sands properties, including the Venetian, Palazzo and Venetian Expo Center, with Apollo Global Management buying the operational assets. Along with VICI’s acquisition of the MGP properties, that means the REIT will add eight more Strip properties.

VICI Properties recently acquired MGM Growth Properties, giving it high-profile Las Vegas Strip casinos like Caesars Palace, MGM Grand, Bellagio and, The Mirage (soon to be Hard Rock). At the same time, VICI has acquired the real estate of the Venetian and Palazzo from Las Vegas Sands.

Other deals include GLPI’s planned purchase of the Tropicana Las Vegas real estate under a 50-year lease, which is linked to Bally’s Corp. buying the operating assets—a deal which could see Bally’s making substantial changes to the Trop property, including the possibility of a total razing/rebuild project.

And then there is a unique deal GLPI signed with Baltimore’s Cordish Companies, a 39-year ground lease under which GLPI will buy the real estate for all Cordish Live!-branded casinos in Maryland and Pennsylvania, with the added promise that GLPI will assist in financing on any future growth projects for Cordish—gaming and non-gaming.

Cordish, a 111-year-old real estate developer that only became a casino operator with the 2004 opening of its first Live! casino in Maryland, surprised many with the move to sell its gaming real estate. The reason, according to Cordish Chairman and CEO David Cordish, is simple: “The answer, in one word, is growth,” the company’s third-generation leader said in a recent exclusive interview with GGB. “We’ve built five major casinos from the ground up—we designed the two Hard Rock properties in Florida; we did the architecture, the engineering, the construction, we put up the equity. We financed them, then the property in Maryland, Philadelphia Live! and Pittsburgh Live!

“Casinos are highly capital-intensive investments, and we’re extremely liquid for a privately held company… All five of the casinos we’ve done from the ground up are on the East Coast. This (REIT arrangement) will enable us to go further afield, and definitely grow faster.”

Cordish also noted the tax and balance sheet benefits of partnering with a REIT.

“GLPI paid off 100 percent of the debt on all our casinos, so the three casinos we actively own and manage are debt-free,” Cordish told GGB. “In lieu of debt, we have a ground lease—and a ground lease is a business expense, fully deductible. If you have debt service, principal is not a deduction when you pay it; the interest is deductible, but the principal is not. So, it’s extremely tax-efficient.

“Ground rent represents a fairly minor percentage, and it’s covered several times over. All that income continues to go to us.”

“The Cordish Group is a family company that has been around for 111 years,” says Carlino. “In that time they’ve only sold properties. They never entered into an ongoing sale/lease-back with anyone—111 years, and they picked us, and it wasn’t because it was the best price. It was because it was the best choice, in their words.

“Remember, we are a long-term source of financing. The Cordish deal was only limited by (what the law requires). If they could have signed a 100-year deal, I think they would have done it. They don’t have to worry about the vagaries of the economy; they don’t matter. They’ve got a fixed arrangement. It’s predictable. It’s certain it doesn’t get pulled. Nothing bad can happen—not now, not 10 years from now, not 50 years from now.”

“One of the fundamental differentiators for our real estate as a real estate asset class, especially within the so-called triple net sector, is the sheer magnitude of our properties,” comments VICI’s Pitoniak. “They average around 2 million square feet, they tend to sit on at least dozens of acres of land, and they’re highly, highly utilized.

“So because of the magnitude of our properties and because of the opportunity to creatively expand them or improve them, we have an opportunity most other triple net REITs would not have, which is to invest incremental capital into our resorts in return for incremental rent.”

Greenfield Ahead

There is still plenty of greenfield space for the gaming REITs to grow. Opportunities exist not only among the 60 percent of existing gaming properties still wholly owned, but in the new properties that will appear as more jurisdictions approve casino gaming.

“Our job, of course, is to be mining for opportunities as we find them,” Carlino says. “I think the runway is still there.”

That runway also could lead to the tribal gaming properties. One of VICI’s front-burner deals is to acquire the real estate under The Mirage, with operations being acquired by Hard Rock International, owned by the Seminole Tribe of Florida. While that deal—which stands to totally transform the Mirage property—is for a commercial casino, VICI also controls the real estate for the Class II Harrah’s Cherokee properties in North Carolina, and Payne anticipates further deals in Indian Country.

“I spent a lot of time in my former career developing relationships with Native American nations,” he says, “and we continue to see opportunity to help them grow not only in commercial casinos, but there could there be a time where we can help them develop their casinos on their tribal land.”

Other growth opportunities lie in what’s known as “experiential” real estate, which can encompass pure hospitality and entertainment plays as well as gaming properties. But for now, there is a broad array of opportunities in the casino market—not only in existing properties, but in future properties.

“We had offered to participate in Massachusetts with several bidders,” Carlino says, “people who might have been able to secure a license who we told yes, we would like to fund it.

“You’ll see us pretty much everywhere as new licenses evolve. There’s no way you can screw up a greenfield opportunity in a limited-license state if you spend wisely and proportionate to the market.”

“We have been around for only four years,” comments VICI’s Payne. “We’ve had the opportunity to do almost $30 billion in transactions during that time. We are in the process of closing two transformative transactions—we’ll close the Venetian in the first quarter of 2022, and we hope to close our acquisition of MGP, which was the second largest gaming REIT, by the first half of this year.

“We will own 10 assets on the Las Vegas Strip. We’ll have 43 properties nationwide in 15 states. We’ll have world-class destination resorts, best-in-class regional facilities, drive-to and local casinos, racetracks, and riverboats as part of our portfolio. We will continue to work with casino operators to see if there are opportunities to acquire their real estate over the years.

“We think there is a lot of opportunity to continue to do that inside of Vegas, in the regional markets, the Downtown market of Las Vegas, and the locals markets of Las Vegas, as well as many other regional markets where we don’t have casinos.

“When Ed and I started the company, it was born a gaming REIT, but it was always positioned as what we would call an experiential REIT. We always knew that we’d continue to buy gaming real estate, but we also positioned the company with expertise to acquire things like golf courses, amusement parks, family entertainment centers, water parks, ski resorts and other entertainment forms.

“We’ve announced a couple smaller transactions with ClubCorp and their Big Shots brand. We’re working with Blackstone and their Great Wolf brand, we’ve been involved in a deal at Chelsea Pier in New York. So we’ve started on that journey, and you’ll see us do experiential real estate, as well as gaming real estate, as we continue to grow.”

For now, though, there is plenty of gaming business to be had. Carlino points to the fact that GLPI and VICI work with the best operators in the industry—as proven by the continuation of rent payments “through the worst of times,” when there was no revenue coming in their doors.

“Will we be someplace else someday? Probably,” Carlino says. “But so far, we’re in a space that is, dare I say, bulletproof.”

Frank Legato is editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the books, How To Win Millions Playing Slot Machines... Or Lose Trying, and Atlantic City: In Living Color.  

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