US Casino Landlords Sitting Pretty as Segment Dominates 2022 US Property Sector

  • Research firm: “Casino REITs are better protected from inflation than many initially presumed”
  • The value of VICI and Gaming and Leisure Properties has grown by 11% and 0.06%, respectively
  • REITs own 100 of the US’ around 250-300 ‘investment grade’ commercial casinos
  • In one of the most high-profile recent deals, VICI purchased LVS’ Vegas properties for $6.25bn
VICI Properties logo on phone
Investors believe Casino REITs such as VICI can hedge against inflation, with the segment the only part of the US property sector to post positive results in 2022. [Image: Shutterstock.com]

Keeping it positive

Casino real estate investment trusts (REITs) have surprised many industry experts with their inflation-hedging abilities. They have now become the only segment of the US property sector to post positive financials in 2022.

casino REITs are better protected from inflation”

On Friday, Hoya Capital research revealed that “casino REITs are better protected from inflation than many initially presumed.” The real estate research firm shared news of the strong performance of casino REITs via Twitter:

The value of VICI Properties and Gaming and Leisure Properties (GLPI) has grown by 11% and 0.06% respectively this year. Meanwhile, the FTSE Nareit Equity REITs Index has dropped by around 20% for the year-to-date, meaning landlords have seen a general decline.

Hoya said the casino REITs’ strong showing benefited from “upward valuation ‘re-rating’ and hard-earned mainstream institutional acceptance after many years of strong operational execution.”

REITs on time

Hoya’s research led the firm to announce casino REITs have become flavor-of-the-day for investors on the lookout for inflation-hedged assets. “VICI boasts inflation-linked escalators on 96% of its leases, while GLPI benefits from indirect inflation hedges linked to tenant performance,” Hoya stated.

According to Seeking Alpha, the casino REIT segment’s strong performance is underpinned by VICI’s inclusion in the S&P 500 after its summer merger with MGM Properties, making it the “fastest REIT to be included in the benchmark.”

one of the highest levels of REIT ownership in any sector

Hoya added that casino REITs now own 100 of the US’ approximately 250-300 ‘investment grade’ commercial casinos. It represents one of the highest levels of REIT ownership in any sector within the property segment.

Its not all rainbows and butterflies, however. While demand for leisure in Vegas has led hotel occupancy to a near-full comeback, Seeking Alpha highlights that “tenant operators aren’t immune from the risks of a potentially prolonged recession.”

Drawn to asset-light

The fact that REITs are standing up so well in the face of inflation reflects how they’ve benefited from the new asset-light strategy adopted by casino giants. This has prompted the likes of MGM Resorts International and Las Vegas Sands to sell their Vegas properties to cut costs or divert investment focus.

Since 2016, GLPI and VICI have splashed out on around $50bn worth of assets combined. In a high-profile deal completed this February, VICI purchased all of LVS remaining Vegas properties for $6.25bn, with the casino firm deciding to shift its focus to Asia. VICI is the biggest landlord on the Las Vegas Strip, while GLPI boasts 55 mostly regional casino properties.

Seeking Alpha acknowledged the casino REITs “compelling” inflation protection should spur robust same-store growth in 2023. It added, however, that with the REITs trading at 20-25% premiums to their historical Price to Funds From Operation, it was “looking for a pull-back to re-enter the sector.”