Casino REITs are the best performers in the real estate sector

Posted on: September 17, 2022, 05:59h.

Last update on: September 17, 2022, 07:47h.

Largely due to rising interest rates, the real estate sector is weakening. But casino real estate investment trusts (REITs) shine brightly in a tough macroeconomic environment.

casino REITs
The Las Vegas Strip, where VICI Properties is the largest owner. Research firm bullish on casino REITs. (Image: KTNV)

The widely followed FTSE Nareit Equity REITS index is down 20.31% year-to-date. But Gaming and Leisure Properties (NASDAQ:GLPI) and VICI Properties – the two publicly traded gaming REITs – are higher by 0.06% and 11%, respectively. As such, casino owners are the only segment of the broader real estate sector to generate positive returns this year.

Casino REITs are the only real estate sector in positive territory this year, benefiting from upward “repricing” and hard-earned mainstream institutional acceptance after many years of strong operational execution. » according to research by Hoya Capital.

VICI and GLPI approach the fashion of casino real estate in divergent ways. The former is the largest owner of the Las Vegas Strip, among other assets, while the latter prefers to own the real estate assets of regional casinos.

Casino REIT Superior Inflation Protection

Inflation, which the US economy abounds in, is often a catalyst for real estate stocks. This year, Gaming and Leisure and VICI live up to that billing.

“Casino REITs have become a favorite among investors looking for inflation-protected assets. VICI has indexation linked to inflation on 96% of its leases, while GLPI benefits from indirect hedges against inflation linked to the performance of tenants. » rated Hoya Capital.

GLPI and VICI are what are known as triple net REITs, which means that the lease terms they sign with clients are usually much longer than what you see in other segments of real estate commercial.

Market participants tend to treat triple-net REITs on an equal footing with longer-dated bonds, which means these stocks can be vulnerable to rising interest rates. This year, however, investors are focusing more on the inflation-fighting benefits offered by GLPI and VICI.

“Despite their very long-term triple net lease structures, casino REITs are better protected against inflation than many initially assumed,” Hoya added. “Inflation sensitivity is determined by several interacting factors, including the potential for external growth, the structure and duration of leases, the credit quality of tenants, and the cyclicality of the underlying property type.”

Casino REIT loves a bargain

The current iterations of GLPI and VICI are the result of an agreement. A lot. VICI has a knack for acquiring game assets with price tags large and small, and is agnostic when it comes to geography. For its part, GLPI largely avoids the volatility of real estate on the Las Vegas Strip, owning only the Tropicana there. But the REIT has a knack for smart buying.

Since 2016, GLPI, VICI and MGM Growth Properties, which was acquired by VICI, have purchased approximately $50 billion in assets. There is room for this number to increase over the years as casino operators seek to monetize real estate assets and generate cash for other uses.

“Casino REITs now own 100 of the approximately 250 to 300 premium commercial casinos in the United States, one of the highest concentrations of REIT ownership in any real estate industry,” Hoya concluded.