Amazon (NASDAQ:AMZN) is rumored to be in talks to acquire MGM — the movie studio,…
Posted on: June 29, 2021, 10:22h.
Final up to date on: June 29, 2021, 11:58h.
Todd Shriber Learn Extra
Gaming actual property funding trusts (REITs) MGM Development Properties (NYSE:MGP) and VICI Properties (NYSE:VICI) are most popular concepts amongst actual property equities with the web lease designation, based on a analysis agency.
The outside of the Mirage Las Vegas, seen above. Baird is bullish on proprietor MGM Development and VICI Properties. (Picture: KTNV)
In its current “Discovering Alternatives in REITs” webcast, Baird explored concepts throughout a number of actual property sub-sectors, together with manufactured housing, web lease, and purchasing facilities. It got here away with “outperform” rated concepts for the remainder of the 12 months. The pair of gaming REITs made the lower.
The time period web lease refers to a contractual settlement the place a lessee pays a portion or the entire taxes, insurance coverage charges, and upkeep prices for a property, along with hire,” based on Investopedia.
This construction is frequent in business actual property, and the tenant, say MGM Resorts Worldwide (NYSE:MGM), pays for all of the property upkeep as if it owned it outright.
Good Instances for Gaming REITs
There are three publicly traded gaming REITs within the US – Gaming and Leisure Properties, Inc. (NASDAQ:GLPI), MGM Development, and VICI.
On the top of the coronavirus pandemic when home gaming venues had been shuttered, these shares got here below vital duress amid issues that operator tenants would battle to satisfy lease obligations in a zero-revenue setting. These fears proved inaccurate, as gaming firms had been ready increase money, and the actual property firms collected almost all hire, even through the darkest days of the well being disaster.
Right this moment, the likes of MGP and VICI are thriving. Over the previous 12 months, shares of the 2 gaming REITs are up a median of 46 p.c. That’s nicely forward of the 34.76 p.c returned by the MSCI US Investable Market Actual Property 25/50 Index, a broadly adopted basket of actual property equities.
Within the case of MGP, that actual property firm is levered to restoration on the Las Vegas Strip, as a result of it owns the majority of MGM’s actual property there. Following the current acquisition of MGM Springfield, MGP owns basically the entire property on which MGM’s home casinos function.
Different Causes to Like MGP, VICI
Baird favors gaming REITs amongst web lease names as a result of there’s much less competitors and the product isn’t commoditized. The analysis agency additionally likes the duo as performs on rising inflation.
For instance, Caesars Palace proprietor VICI has hire escalators in its tenant contracts that are tied to the Client Worth Index (CPI). That gauge is on a torrid tempo of late, hovering in April and Might. These escalators suggest VICI and different REITs have pricing energy, explaining why buyers traditionally favor actual property as an inflation play.
Caesars Leisure (NASDAQ:CZR) is VICI’s greatest consumer, however not like MGP, it has different tenants.
Whereas MGP at the moment lacks tenant variety, Baird mentioned the title gives upside prospects by the use of potential fairness index inclusion and acquisitions. Moreover, MGM is predicted to proceed paring its stake in MGP. That transfer is broadly applauded by analysts, as it would assist the actual property agency acquire higher autonomy.
Associated Information Articles