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Casinos and resorts remain closed in the fight against Covid-19, and their landlords—including real-estate investment trusts forced to cut or suspend some rent payments—are suffering too. But one analyst is bullish on the outlook for the so-called gaming REITs, including VICI Properties, MGM Growth Properties, and Gaming & Leisure Properties.
Investors might be hesitant about getting into the casino stocks right now, given that some could be at risk of bankruptcy, if they run out of cash before gambling can resume, restoring their revenue streams. But that doesn’t mean gaming REITs face the same risk, wrote Nomura Instinet analyst Daniel Adam in a Monday note.
Debt owed to landlords ranks at the very top at their tenants’ capital structures, noted Adam, which means the gaming REITs have the highest priority for getting repaid if a casino goes under. And if the casino operators survive the pandemic and start to recover later this year, their landlords will enjoy the same bounce back.
Investors don’t seem to fully appreciate the safety net—and opportunity—offered by gaming REITs, says Adam. “With the COVID-19 pandemic having resulted in casino closures throughout the world, rather than choose winners and losers among the operators, we consider the Gaming REITs to be a much safer way for equity investors to gain exposure to an eventual recovery in Gaming,” he wrote.
Since March 18, when the stocks reached their recent lows, shares of VICI Properties (ticker: VICI) have rallied nearly 50%, while MGM Growth Properties (MGP) and Gaming & Leisure Properties (GLPI) have both gained 81%. In comparison, the broader real-estate sector within the S&P 500 has only risen 18% during that time.
Adam believes there is more room for gains. Although Adam cut his target prices for VICI Properties and MGM Growth Properties to $23 and $29, respectively, from $35 and $43, to reflect near-term challenges, he maintains a positive outlook for the group. He rated all three stocks at Buy. Gaming and Leisure Properties’ target price was unchanged at $29.
The three stocks were trading at $17, $24, and $27, respectively, as of Tuesday‘s close.
VICI Properties and Gaming & Leisure Properties will report their first-quarter financial results on Friday. MGM Growth Properties is due to disclose its earnings on May 5.
Write to Evie Liu at This e-mail address is being protected from spambots. You need JavaScript enabled to view it
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