An activist investor, whose Connecticut hedge fund has made previous overtures in the casino business, said last week the two largest gaming industry real estate investment trusts should merge.
The Wall Street Journal reported on Dec. 18 that Land & Buildings Investment wants Gaming and Leisure Properties to acquire VICI Properties.
GLPI was created by Penn National Gaming in 2013 and has 46 gaming properties in 16 states that are leased to Penn, Eldorado Resorts and Boyd Gaming Corp. VICI, spun off from the Caesars Entertainment bankruptcy resolution in October 2017, has 27 properties in 10 states that are leased to Caesars, Penn, Hard Rock Enterprises, and Century Casinos.
In a series of tweets on Dec. 19, Land & Buildings founder Jonathan Litt said his firm built a “significant investment” in GLPI, calling the REIT “the most attractive/undervalued in the sector.”
A combination of GLPI and VICI could have a “20-25% upside and materially reduce tenant concentration for both companies based on our analysis. We have been engaging with GLPI and think there is a win-win here for both companies,” Litt said on his Twitter account.
Litt added the gaming REIT sector “is mispriced given highly predictable cash flows and growth potential.”
Neither Litt nor a company spokesman could be reached for comment. A spokesman for GLPI said the company has not commented on the overture and a VICI representative could not be reached.
Shares of GLPI, traded on the Nasdaq, closed Monday at 42.72, down 31 cents or 0.73%. VICI shares, also traded on the Nasdaq, closed at 25.33, down 3 cents or 0.10%.
The news piqued the interest of a few Wall Street analysts during a slow period due to the holidays.
“Aside from the argument for both companies at the right price, we believe there are strategic considerations worth noting,” Jefferies gaming analyst David Katz told investors Monday. “VICI and GLPI each have significant tenant concentration. The concentration risk would be split but not necessarily in a value enhancing manner. Second, the prospects for corporate cost consolidation are material, but not in a manner where one is over-spending.”
In recent years, Land & Buildings took stock positions in several casino companies, pushing the theory that their land was undervalued.
In 2015, Land & Buildings sought representation on MGM Resorts International’s board in an effort “to fix what we view as the broken boardroom culture at MGM and explore value-unlocking alternatives.”
The company failed to get any board members, but the push led to MGM forming real estate investment trust MGM Growth Partners.
MGM Growth made a pitch to acquire VICI soon after the Caesars spin-off went public in January 2018, but the offer was rejected.
“Looking back on recommendations from the activist fund, they offered valid points that were later explored by management team,” Macquarie Securities gaming analyst Jordan Bender.
The gaming REIT sector has been involved in several gaming industry transactions, including the pending $17.3 billion merger between Eldorado and Caesars (VICI) and 2018’s $2.8 billion buyout of Pinnacle Entertainment by Penn (GLPI).
October’s $4.25 billion sale/leaseback of Bellagio on the Strip by MGM to a REIT controlled by Blackstone Group had a multiple of 17.3-times cashflow.
“We believe a deal of this size would put focus on an undervalued sector and bring in more traditional REIT investors, much like Blackstone’s entrance into the space,” Bender said a research note last week.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
