As its name implies, Gaming and Leisure Properties (NASDAQ: GLPI) is a real estate investment trust, or REIT, that focuses on the gaming industry. The company was spun off from well-known gaming operator Penn National Gaming (NASDAQ: PENN) in 2013 and was the first gaming-specific REIT in the U.S. markets.
In this article, we'll take a closer look at Gaming and Leisure Properties' business, recent developments, how it's performed for investors, and more.
Gaming and Leisure Properties company overview
Today, Gaming and Leisure properties owns a total of 52 real estate assets in 17 states, with more than 25 million square feet of space and over 15,200 hotel rooms. Tenants include Penn National Gaming, which as you might expect is the largest one, but you'll also find properties operated by Caesars Entertainment (NYSE: CZR), Boyd Gaming (NYSE: BYD), and others. In 2019 (2020 wasn't a great reference year for obvious reasons), Gaming and Leisure Properties' portfolio collectively generated more than $6.2 billion in gross gaming revenue. And the portfolio is well-diversified geographically and isn't too top-heavy, as no single property accounts for more than 6% of the company's revenue.
Unlike most hotel REITs, gaming REITs use a net lease model. In short, the property operators sign long-term lease agreements, typically with annual rent increases built in, and tenants are responsible for taxes, insurance, and the maintenance of the buildings themselves. This is a great model for predictable and growing income. Of the 52 properties in the portfolio, Gaming and Leisure Properties operates 50 of them, while the other two are actually owned and operated by the REIT.
Gaming and Leisure Properties operates most of its portfolio under master lease agreements with its operators, which has allowed the company to maintain a 100% occupancy rate since its 2013 inception. Among other things, master leases require tenants to sell all of their operating assets and transfer gaming licenses to a new tenant.
There are two main ways REITs can grow: develop properties from the ground up or acquire existing properties. Gaming and Leisure Properties clearly prefers the latter. As you'll see in the next section, the company has made several acquisitions in the past year alone, and with $1.2 billion of unused capacity on its revolving credit line and strong credit ratings, it has the financial flexibility to pursue attractive opportunities as they arise.
The company has done a great job when it comes to acquisitions so far. Since its inception, the average cap rate (initial cash yield as a percentage of purchase price) has been over 8.4%, which is very high for a net lease REIT.
Gaming and Leisure Properties news
The biggest news item affecting most REITs recently has been the COVID-19 pandemic, which caused virtually every casino in the United States to cease operations for at least a few months in 2020. Fortunately, Gaming and Leisure Properties' net lease model and the relatively high tenant quality helped mitigate the effects on the company. For example, in April 2020, Gaming and Leisure Properties reported collecting 98.6% of its billed rent, with the rest agreed to be deferred.
As the pandemic went on, the story was similar. In its second-quarter earnings release, the company reported collecting 99% of its rent through July, at which point all but two of the properties had reopened at limited capacity. And as of the latest available information (April 2021), all of the company's properties were operational.
Beyond the effects of the COVID-19 pandemic, there are a few significant news items that investors should be aware of.
In June 2020, the company modified its lease agreements with Eldorado Resorts (now a part of Caesars Entertainment) in a way that adds predictability to the rental income. Specifically, the rent increases, or escalators, have previously been variable and dependent on how the underlying properties performed. Now there are fixed escalators starting in 2022, which makes Gaming and Leisure Properties' future income growth far more predictable.
In April 2021, Gaming and Leisure Properties expanded its relationship with Bally's (NYSE: BALY) to acquire two gaming properties for $150 million. As part of the deal, the REIT also receives the right of first refusal to any future Bally's developments in Michigan, Maryland, New York, and Virginia.
In June 2021, Gaming and Leisure Properties acquired two regional casinos for $484 million, Tropicana Evansville from Caesars Entertainment and the Dover Downs Hotel and Casino from Bally's. This acquisition brought the company's property count to 52.
Gaming and Leisure Properties' stock price
Since its 2013 spin-off from Penn National Gaming, Gaming and Leisure Properties' stock price is up by just 13%. But that doesn't even come close to telling the full story.
As we'll discuss more in a bit, Gaming and Leisure Properties is a relatively high-dividend stock, so its performance is best judged by total returns, which include both dividends and stock price gains. And when we look at it this way, Gaming and Leisure Properties has produced a much more impressive 155% total return in about seven-and-a-half years as a stand-alone REIT.
Now let's see how this REIT's performance stacks up against the overall stock market and some of its peers. MGM Growth Properties (NYSE: MGP) and VICI Properties (NASDAQ: VICI) are newer gaming REITs that specialize in properties operated by MGM Resorts and Caesars Entertainment, respectively. Both are more Vegas-focused and own generally higher-end gaming properties, so here's how their performance stacks up.