Global gaming advisory firm Union Gaming has remained bullish on the casino REIT sector as a wave of consolidation is under way on the regional level and is creating potential for more high-value real estate deals in Las Vegas.
Union Gaming analyst John DeCree said in a recent note that on the Las Vegas Strip alone, there is EBITDAR of more than $3.5 billion (around $1.8 billion worth of rent) that is not owned by REITs and that can represent between $20 billion and $25 billion worth of potential real estate value at a 7%-8% cap rate.
The analyst went on that this can represent a growth pipeline for the next five-plus years based on the current casino REITs mergers and acquisitions pace. Mr. DeCree also pointed to the Las Vegas Local market which has practically remained untapped by REITs. That market has estimated EBITDAR of more than $1 billion, according to the Union Gaming expert.
Gaming and Leisure Properties, MGM Growth Properties, and VICI Properties are the three casino REITs Mr. DeCree named as ones that should be watched out for their growth opportunities.
Gaming and Leisure Properties was actually the first REIT structure to be created within the land-based casino gaming industry. It was established in 2013 when major operator Penn National Gaming split its realty into the Gaming and Leisure Properties REIT. MGM Growth Properties was the second REIT to emerge. It was created in 2015 by Las Vegas gaming and hospitality giant MGM Resorts International with the aim to invest in large destination resorts.
Following its emergence of its main operating unit from bankruptcy in the fall of 2017, Caesars Entertainment Corp. transferred some of its assets to the VICI Properties REIT to better tap on future growth opportunities.
REITs’ Potential
Union Gaming has long been bullish on the growth potential casinos create for the REIT sector. In previous publications on the topic, the company has pointed to the fact that in the United States, brick-and-mortar casinos are currently not threatened by online distribution channels as it is the case in different other industries.
Online gambling is currently legal in four states – Nevada, Delaware, New Jersey, and Pennsylvania. It is important to note that online gambling operations are yet to be launched in Pennsylvania as these were legalized only last fall. It is believed that even when Pennsylvania officially joins the nation’s online gambling industry, this will not hamper the growth and further expansion of its land-based casinos. The US commercial casino industry was worth more than $40 billion last year, according to the latest industry statistics report issued by the American Gaming Association.
In addition, casinos have proved to be “attractive growth vehicles”, according to the gaming research and advisory house. In a report from last year, Union Gaming analysts noted that both MGM Growth Properties and Gaming and Leisure Properties recorded a growth in their annualized dividends of over 10% year-on-year, while other net lease REITs saw a mid-single-digit growth in their dividends.
