GLPI executives, citing an improving environment for mergers and acquisitions, are optimistic that deal activity may be more significant this year for REITs.
Barry Jonas, an analyst with Truist Securities, sent a note to investors based on a call he hosted Tuesday with GLPI Chairman and CEO Peter Carlino and Senior Vice President and CEO Matthew Demczyk.
“We are optimistic about GLPI’s increasingly clear deal pipeline and believe balance sheet flexibility will be very beneficial as well as the potential for improved pricing environment,” Jonas wrote. “We continue to evangelize the relative safety of GLPI and gaming REITs and are repeat buyers.”
According to Jonas, management has been “very positive about its outlook for 2024,” noting that conversations with operators over the past six to 12 months are “evolving into a potentially strong pipeline of deals.” The improving interest rate environment at GLPI was positive, although it remains focused on discipline and selecting trades with attractive spreads.
“GLPI’s leverage target remains at 5-5.5x and the balance sheet is uniquely positioned to opportunistically source debt capital rather than equity when advantageous, while maintaining good debt/EBITDA coverage ratios,” Jonas wrote. .
Management noted that the spread between traditional bank financing and REIT financing was likely still favorable for gaming REITs, although restrictions on banks in recent years have been driven more by risk and regulation than strictly by cost of capital. Additionally, Jonas said private credit is growing as a potential counter-party for operators looking to increase liquidity, although GLPI noted that required returns make spreads more difficult for these vehicles than financing gaming REITs.
“Management highlighted that GLPI’s strong relationships and experience are ultimately the key differentiator that drives its reach and ability to close deals.”
According to GLPI executives, there is not much low-hanging fruit left in the domestic gaming market. However, there are still “significant deal opportunities” in the near future. Management highlighted tax-motivated transactions as a key deal driver – and an area of expertise for GLPI.
They cited the Hard Rock Rockford deal as an example of a successful deal with significant tax benefits for the lessee, which GLPI facilitated.
As for Las Vegas, GLPI has discussed the broader redevelopment of the Tropicana Casino, as the planned $1.5 billion A’s baseball stadium project continues to advance, with more announcements to come. Without going into detail, the investor note stated that management would not oppose the sale of the property, assuming the new owners are qualified and committed to maximizing the value of the site.
“We felt that management was open to potential participation in Bally’s permanent properties in Chicago, even though GLPI had not made any commitments and would require appropriate soundness and economics to potentially participate in any transaction,” Jonas said. “GLPI said it remains interested in acquiring Bally’s Lincoln assets (on which it retains a call option), although it will remain subject to Bally’s lender approvals.”
Management told Jonas that Penn Entertainment’s four growth projects — Aurora and Joliet in Illinois, M Resort in Las Vegas, and Hollywood Columbus in Ohio — were moving forward, though it would likely use Penn’s cash holdings first before drawing down GLPI’s $100,000 capital commitments. $575 million. . It will likely be used closer to takeout near completion.
“When asked, management indicated that it would be open to restructuring the old Pennsylvania lease to eliminate any rent fluctuations, although nothing was imminent,” Jonas wrote.
GLPI continues to explore international opportunities, although it still sees tax leakage challenges with Canadian assets compared to domestic assets, Jonas said. In terms of non-gaming, there are few industries that can replicate the safety and stability of gaming revenues, but GLPI will evaluate any deal on its merits and fundamentals.
“The administration has indicated that tribal real estate represents a large untapped market, although it requires a framework to make investments safely and securely,” Jonas said. “Management has indicated that its interest in pursuing Las Vegas Strip assets will depend on the quality of the potential tenant and leasing fundamentals, as well as the attributes of the properties.”
Management was positive about Casino Queen (formerly Casino Hollywood) moving to land in Baton Rouge, where its $77 million investment generated an 8.25% return. Belle of Baton Rouge was recently transferred from Caesars’ lease to parent company Casino Queen (CQ Holdings) and GLPI may be supportive of a potential move from its current riverboat to a land-based casino, Jonas said.
Management said the Rockford 815 Entertainment property was ahead of budget and would likely begin drawing down the remaining $110 million of GLPI’s $150 million (at a 10% return) of committed capital after investing $100 million of land proceeds in improvements. . The estimated delivery date for the property is September, though management did not share an estimated timeline for a possible leaseback sale, Jonas said.