Falling interest rates have made real estate one of the most attractive investments today.
Investors are looking for steady cash flow from real estate and the potential upside that comes from rising property prices. One of the best ways for you to get both benefits without actually buying property is to own real estate investment trusts (REITs).
REITs exist in many different industries. Some focus on corporate offices in major markets like New York and San Francisco that generate monthly rents. Some operate in mall outlets. Some REITs generate big returns from commercial and residential properties by investing in mortgages or mortgage securities.
This is a relatively young area of the industry.
And I absolutely love this space because the market doesn’t know how to properly value them yet.
That’s where our opportunity today lies…
Gaming REITs own casinos and their proximate retail and hotel assets and lease them to gaming operators like Penn National Gaming, Boyd Gaming, and even MGM Properties.
It can take some time for the market to establish a proper trading multiple for new businesses and their assets.
This situation is playing out right in front of our eyes thanks to increasing deal-making across the gaming and casino industry.
In fact, gaming REITs are experiencing a “re-rating” process, according to a recent report from Nomura Instinet. That will make prices in the top three gaming REITs push higher in the months ahead.
Let’s talk about this trend and name the three companies…
The Bellagio Changes the Gaming REIT Industry
You might not travel to Las Vegas as much as I do. But you don’t need to travel to cash in on a mega-deal.
Each year, I attend the SALT Conference in Las Vegas. It’s a major event featuring hedge fund managers, policy wonks, and some of the brightest minds in finance. The event is held at the Bellagio Hotel, a five-star casino resort owned by MGM Resorts International (NYSE: MGM).
With private equity giants sitting on $2.1 trillion, these companies are in a gold rush to buy up real estate assets that generate cash. Last month, Blackstone Group Inc. (NYSE: BX) beat out five other suitors to purchase the Bellagio in a $4.25 billion sale-leaseback transaction.
MGM will retain control of the property and pay an annual rent of $245 million to the Blackstone Real Estate Income Trust.
This deal means that Blackstone paid roughly 17.3 times the annual rent. Analysts call this figure unprecedented.
And this bidding war is likely to have a prolonged impact on the valuations of casino properties….
MGM is already generating interest for other properties like Mandalay Bay. It is also selling its Circus Circus property to Phil Ruffin for $825 million.
The deal is pushing valuations for properties higher and driving gaming REITs to new highs.
Given that three primary gaming REITs exist, each of them is poised for higher stock valuations to complement their strong dividends.
Let’s take a look at the companies poised to break out as valuations press higher…
Gaming REITs to Buy No. 3
Gaming and Leisure Properties (NASDAQ: GLPI) formed in 2013.
It is considered the first gaming REIT after it spun off from Penn National Gaming Inc. (NASDAQ: PENN).
The REIT currently owns 44 casino properties and operates two locations.
The firm leases these properties to Boyd Gaming, Eldorado Resorts, Penn National Gaming, and the operator behind Casino Queen, in East St. Louis, Illinois.
The company has engaged in a series of recent deals that make its properties extremely attractive, particularly in Las Vegas.
In 2018, GLPI purchased five casinos from Tropicana Entertainment for nearly $1 billion. It has also gained business from Penn National’s purchase of Pinnacle at the end of last year.
The REIT currently pays a dividend of 6.23% and trades at $42.50 per share.
Based on current market conditions, we see this price moving as high as $54 per unit this year.
That price represents potential upside of 27% from today’s current level.
Gaming REITs to Buy No. 2
MGM Growth Properties (NYSE: MGP) is a REIT formed in 2016 after it spun off from MGM Resorts International.
The REIT owns the land and buildings of 15 MGM properties in Las Vegas and other markets.
MGP trades at $31.70 per unit. But rising valuations could press the price much higher in the year ahead.
Shares could push to $45 per share, representing potential upside of 42%.
Gaming REITs to Buy No. 1
VICI Properties Inc. (NYSE: VICI) had one of the largest IPOs last year after it spun off from Caesars Entertainment.
The REIT owns 22 gaming facilities. Its portfolio has about 15,000 hotel rooms and nearly 150 restaurants, clubs, and bars.
The firm primarily operates in Las Vegas but operates properties in several small markets across the United States.
In a low interest rate world, the 4.84% dividend it offers is more than double that of the average S&P 500 company.
Right now, VICI trades at $24.50 per unit.
I have a one-year price target of $39, which would mean a 59% increase for the stock.
— Garrett Baldwin