Coronavirus fears drive down shares of gaming REITs over potential tenant bankruptcy Howard Stutz, CDC Gaming Reports · March 23, 2020 at 6:40 am Analysts expressed surprise that gaming-centric real estate investment trusts suffered steep declines when the markets crashed in the last two weeks over the growing COVID-19 coronavirus pandemic. Pennsylvania-based Gaming and Leisure Properties took one of the hardest hits. GLPI’s stock price declined 74% in less than a month, even as directors bought back shares in an effort to boost confidence in the company. Chairman and CEO Peter Carlino spent more than $1 million to buy 47,000 GLPI shares at between $20.10 and $21.35. GLPI closed Friday at $19.13. Meanwhile, company leaders told the Macquarie Securities Consumer Conference that it had taken out $615 million in debt to offset any lost rent payments from casino closures. GLPI, the industry’s first gaming REIT, owns 44 properties in 16 states that are managed by Penn National Gaming, Eldorado Resorts, and Boyd Gaming. “The fear of possible tenant bankruptcy is driving GLPI’s multiple to all-time lows,” Macquarie gaming analyst Jordan Bender told investors. Barry Jonas, SunTrust Bank SunTrust Bank gaming analyst Barry Jonas told investors last week that gaming REITs could sustain a loss of rental payments for more than 40 months, an event he deemed “highly unlikely.” He added that gaming REITS have “relative liquidity and ability to sustain negative to zero cash flow losses,” again calling that an improbable scenario. “We continue to view gaming REITs as a source of relative safety even as casinos are closing and operators, and consequentially manufacturers, look to sustain meaningful losses at (a) minimum in the near-term,” Jonas told investors in a research note. The American Gaming Association said Sunday that 93% of the nation’s gaming industry – 465 commercial casinos and 475 tribal casinos – have closed in the past week, either voluntarily or through mandates by governors and state regulatory agencies in efforts to halt the coronavirus spread, which has now touched every state. With revenues and cash flows on hold for at least 30 days in many markets, investors viewed gaming REIT shares in the same vein as casino operators and gaming equipment providers. Other gaming REITs MGM Growth Properties, which has 15 properties in eight states, all of which are managed by MGM Resorts International, saw its stock price tumble 66.7% over the last month, closing Friday at $16.05. Several company executives and directors bought back stock more than a week ago but made much smaller purchases that its competitors. CEO James Stewart paid $40,485 to acquire 1,500 shares for $26.99 per share. MGM Resort CEO Jim Murren, who is a director in MGM Growth, spent a little more than $10,000 on 500 shares at $20.14. VICI Properties, whose 28 resorts and casinos in nine states are managed by Caesars Entertainment, Century Casinos, Hard Rock International, JACK Entertainment and Penn National, has experienced a 65.7% stock price decline since February 21. The company closed Friday at $12.31. VICI directors and executives bought back shares in the first week of March when the stock began declining. CEO Edward Pitoniak paid $583,266 for 23,710 shares at $24.60. Company President John Payne bought 17,835 shares at $25.23, paying almost $450,000. The other gaming REIT is the privately held Blackstone Real Estate Income Trust, which owns 95% of Bellagio in a joint venture with operator MGM Resorts and MGM Grand Las Vegas and Mandalay in a joint venture with MGM Growth. Rental income and deals Jordan Bender, Macquarie As for GLPI, Bender said the company’s master lease doesn’t contain language surrounding a government-mandated shutdown of casinos, meaning tenants are still obligated to pay rent. “Under the unlikely event of a tenant bankruptcy, creditors will keep the operating company operating,” Bender told investors. “As long as the operating company is in a GLPI building, rent will be paid.” In 2019, GLPI reported $996.2 million in rental income, a 33% increase over 2018. VICI’s leasing revenues were $865.9 million last year, a 9.7% increase. MGM Growth said its 2019 rental revenue grew 15% to $856.4 million. Jonas said he expects casino operators to “prioritize” rent payments to the REIT landlords, primarily due to contract language in which operators can be replaced if they default on the monthly payments. “Concerns regarding rent deferrals/one-time concessions are more likely driving near-term share declines,” Jonas told investors. “We think this risk is likely overemphasized at current levels and continue to prefer the gaming REITs amidst the ongoing volatility.” By law, REITs don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders. Investors are taxed at their individual tax rates for the ordinary income portion of the dividend. Bender said GLPI acknowledged “it is looking at options with the dividend.” Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.