REITs Struggle to Maintain Stability Amidst Crisis

Navigating the Storm: REITs in the Gaming Industry Amidst the COVID-19 Crisis

Gaming REITs demonstrated strong resilience during the COVID-19 pandemic, with nearly 100% rent collection rates despite widespread casino closures, and have since benefited from a robust recovery in gaming revenues, including a 30% increase on the Las Vegas Strip compared to pre-pandemic levels in 2019.

The gaming industry, known for its dynamic growth and the allure of high stakes, has increasingly embraced Real Estate Investment Trusts (REITs) as a pivotal part of its business model. Over recent years, this shift has seen numerous regional casinos coming under the ownership of REITs, highlighting a significant transformation in the sector’s operational structure. However, the unexpected advent of the COVID-19 pandemic has thrown these investment vehicles into uncharted waters, testing their resilience against an unparalleled global economic downturn.

At the heart of this industry’s evolution is the story of the first gaming REIT, spawned by Penn National Gaming. This groundbreaking move saw the company spinning off a substantial portion of its portfolio into what is now known as Gaming and Leisure Properties (GLPI). Since its establishment in 2013, GLPI has burgeoned into a behemoth owning 44 gaming and related properties across 16 states, with an impressive valuation of $4.8 billion. Its expansive tenant list includes names like Penn, Eldorado Resorts, and Boyd Gaming, underscoring the significant role GLPI plays in the gaming sector’s ecosystem.

The Pandemic’s Impact on Gaming REITs

The onslaught of the COVID-19 pandemic has left an indelible mark on the gaming industry, with GLPI and its peers facing unprecedented challenges. The closure of an estimated 953 commercial and tribal casinos nationwide has not only disrupted operations but has also led to the furlough of over 208,000 employees, according to figures from the American Gaming Association. This tumultuous scenario has forced gaming REITs to retract their 2020 earnings guidance, navigating through the crisis with cautious optimism.

In a testament to its resilience, GLPI reported a remarkable 98.6 percent collection of April rent payments, including those from Penn. This achievement speaks volumes about the trust’s ability to maintain stable income streams, even as the industry grapples with the ramifications of the pandemic. However, the road ahead remains uncertain, with the company withholding expectations for rent payments in the upcoming months.

Strategic Moves and Future Outlook

Amidst the turmoil, GLPI has proactively engaged in strategic maneuvers to mitigate the financial impact of the pandemic. A notable development includes sealing a deal with Penn National Gaming involving the acquisition of the Tropicana Las Vegas’ real estate assets for $307.5 million. This arrangement not only provides immediate relief to Penn but also secures a steady rental income for GLPI through the end of the year. Additionally, the deal encompasses $30 million in rent credits for the under-construction Hollywood Casino Morgantown, further exemplifying GLPI’s commitment to supporting its tenants during these trying times.

While the future remains uncertain, the gaming industry’s REITs are bracing for a prolonged recovery period, with companies like VICI Properties engaging in discussions over possible lease modifications with their tenants. The focus is on navigating the crisis in a manner that ensures long-term sustainability and profitability. With a solid cash reserve and no immediate debt obligations, these trusts are positioned to weather the storm, albeit not without challenges.

The story of gaming REITs amidst the COVID-19 crisis is one of resilience, strategic adaptation, and an unwavering commitment to navigating through uncertain times. As the industry looks towards recovery, the role of REITs will undoubtedly be pivotal in reshaping the gaming landscape, promising a future that, while currently clouded by uncertainty, holds the potential for renewed growth and opportunities.