Backpackers Tokyo

The famous Las Vegas Strip with the Bellagio Fountain. The Strip is home to the largest hotels and casinos in the world.

RandyAndy101/iStock Editorial via Getty Images

REIT Rankings: Casino Gaming

casino REITs

Hoya Capital

Casino REITs have been among the best-performing property sectors this year as the positive tailwinds from the leisure demand recovery - particularly in the critical Las Vegas market - have offset inflation headwinds and economic growth concerns. Within the Hoya Capital Casino REIT Index, we track the two casino REITs: VICI Properties ( VICI ) - which now owns a dominant share of the Las Vegas market following its acquisition of MGM Growth Properties - and G aming and Leisure Properties ( GLPI ) - which owns a portfolio of 43 regional casinos across the United States.

casino REITs

Hoya Capital

Together, these two casino REITs account for nearly $40B in market value and own nearly 100 casino and entertainment facilities across the United States. Emerging in the mid-2010s, casino REITs had seemingly been flying under the radar over the past several years despite delivering steady and consistent outperformance and high-single-digit FFO growth fueled by a continued wave of accretive acquisitions and industry consolidation. Much like their retail-focused net lease REIT peers, external growth through acquisitions is the modus operandi of the casino REIT sector and should continue to provide a steady source of FFO growth for the foreseeable future given these REITs' favorable cost of capital and unique competitive positioning.

casino REIT statistics

Hoya Capital

This month, VICI officially closed on its strategic acquisition of MGM Growth Properties, capping off a meteoric rise from a relatively unknown entity into one of the ten largest REITs by enterprise value. Prior to the VICI-MGP merger, these three Casino REITs had acquired roughly $30 billion in assets since the start of 2016, including VICI's acquisition of the real estate assets of The Venetian from Las Vegas Sands (LVS) for $4 billion in cash - which at the time was the largest REIT-involved deal since GLPI purchased the Pinnacle real estate portfolio in 2016. As we bid farewell to one REIT, another player emerged onto the casino scene this year with Realty Income (O) - the largest net lease REIT - acquiring Encore Boston Harbor from Wynn Resorts (WYNN) for $1.70 billion and indicating that will be an active player in the casino business, commenting that it is "very hopeful that we can continue to grow this area."

casino REIT acquisitions 2022

Hoya Capital

VICI was spun out from Caesars Entertainment (CZR) in 2018 and has seen its market capitalization swell by 5x since its IPO. The new "King of Vegas," VICI now owns 55 properties across 15 states and 56k hotel rooms, including 3 of the 5 largest hotels in the country. The combination further diversifies VICI's tenant concentration and geographical scope, lowering its largest tenant exposure - Caesars - from nearly 80% at the end of 2020 to just 42% following the closing of the MGP deal and the $4B acquisition of The Venetian from Las Vegas Sands earlier this year. The MGM Growth Properties portfolio - which was initially spun out in 2016 by MGM Resorts (MGM) - is comprised of 15 destination casinos, including Mandalay Bay and the MGM Grand Las Vegas.

VICI properties tenants

Hoya Capital

GLPI - which was spun out from Penn National Gaming (PENN) in 2013 - has also been an active and successful consolidator of regional casino assets, growing its market capitalization by nearly 4x since 2016. GLPI was also a bidder for MGP, but commented that the valuation "did not pencil for us" conceding that "it's a better deal for [VICI] than it would have been for us." GLPI did score a win in late 2021 with a major $1.8B acquisition of the Live! casinos in Maryland, Philadelphia, and Pittsburgh from Cordish Companies. Acquired at a 6.9% cap rate, the acquisition is GLPI's largest since 2016 and helps to further diversify its tenant base. GLPI now owns 55 properties across 17 U.S. states - primarily focused on regional casinos, which rely more heavily on gaming revenues compared to their Las Vegas peers, which see a higher share of revenues from non-gaming hospitality and convention activity.

casino REIT acquisitions 2021

Hoya Capital

Despite their ultra-long-term triple net lease structures, casino REITs are better protected from inflation than many would presume, making heavy use of CPI-linked escalators and tenant revenue share agreements. VICI has 97% of its leases tied to CPI, but following the deal with MGP, the majority of its leases are now subject to CPI caps. While VICI's master lease with Caesars is not subject to a CPI cap, its master lease with MGM Resorts is fixed at 2.0% for ten years and then subject to a 3.0% cap. While GLPI has not generally included an explicit inflation linkage in its leases, its master lease with PENN does have a percentage-rent component - 4% of net revenues of facilities under the master lease - which does have indirect inflation protection.

casino REITs

Hoya Capital

Casino REIT Fundamentals

While not a publicly-traded REIT, Blackstone (BX) has been nearly as active in the casino space as VICI and GLPI over the past five years. Blackstone acquired and then later reallocated a majority stake in The Cosmopolitan of Las Vegas to its non-traded REIT platform Blackstone Real Estate Income Trust ("BREIT"). BREIT also owns JV interests alongside VICI in the MGM Grand and Mandalay Bay, which it partnered with MGP to acquire in 2020. BREIT also owns a 95% state in the Bellagio, which it acquired from MGM Resorts in 2019. In addition to the aforementioned operators, other major casino operators include Las Vegas Sands, Wynn Resorts, Churchill Downs (CHDN), Boyd Gaming (BYD), Bally's (BALY), Monarch Casino Resort (MCRI), and Century Casinos (CNTY).

casino operators

Hoya Capital

One pandemic-fueled trend with uncertain effects is the surge in online gambling, facilitated by the 2018 Supreme Court ruling that legalized sports betting. Nearly two dozen states now offer - or have recently approved - some form of online gambling. We view online gaming as a long-term uncertainty for physical casino demand but should be a medium-term benefit as several of these REITs' critical tenants have developed a solid foothold into the online gaming ecosystem, which should help to support the profitability and rent-paying capacity of these tenants, underscored by Caesars' acquisition of William Hill and Penn Gaming's success with Barstool Sports. Other key players in the online gambling industry include DraftKings (DKNG), FanDuel/Flutter Entertainment (OTCPK:PDYPY), all of which are holdings in the Roundhill Sports Betting iGaming ETF (BETZ).

BETZ etf

Hoya Capital

As discussed in our REIT Earnings Recap, these REITs reported another strong quarter, underscored by VICI, boosting its full-year outlook by 470 basis points to incorporate the expected accretive impact of the transaction. Remarkably, despite the substantial COVID-related issues across the hospitality industry, casino REITs reported spotless rent collection throughout the pandemic and were two of less than a dozen REITs to report positive FFO growth in 2020. While VICI has recorded impressive double-digit FFO growth in each of the past two years, GLPI had stumbled a bit more than its peers during the pandemic due to the variable rent component in its leases - which account for about 15% of its revenues - and should see a strong rebound from the ongoing leisure recovery.

casino REITs

Hoya Capital

Speaking of the leisure travel recovery, Las Vegas has been a relative outperformer among domestic travel destinations throughout the pandemic and is on the cusp of a full return to pre-pandemic levels. The Las Vegas Visitors Authority reported that visitor volume was up nearly 50 percent in April from last year and back within about 10% of pre-COVID levels. Hotel occupancy reached 80.6% in April - down only 10.9 points from March 2019 - while weekend occupancy exceeded 92% - within 5 points of March 2019. The leisure industry is entirely out-of-the-woods, however, as recent TSA Checkpoint data suggests that the domestic travel recovery has stalled over the last several months amid the surge in fuel prices. Domestic travel has averaged 89.7% of 2019 levels so far in May, which is actually below the 90.6% rate in April.

TSA checkpoint data

Hoya Capital

Casino REIT Performance Dividends

Casino REITs were slammed during the early onset of the outbreak amid the stifling economic lockdown that forced the majority of properties across the country to temporarily close. Casino REITs plunged roughly 60% between late February and early March 2020 on fears that their tenant base was destined for significant financial hardship, but mounted a furious comeback in the back half of 2020 and ended the year as one of the best-performing REIT sectors and continued that strong performance into 2021. Casino REITs are again among the best-performing property sectors this year, lower by just 2.8% compared to the 15.9% declines from the broad-based Vanguard Real Estate ETF (VNQ) and the 16.3% decline from the SP 500 (SPY).

casino REITs

Hoya Capital

As we've projected for the past several years, casino REITs have indeed benefited from an upward "re-rating" from investors as the sector has matured and as the business model - and economic "moat" around these REITs - has become better understood. Casino REITs are now trading at multiples that are in line with their similarly-sized net lease REIT peers with a Price/FFO multiple of roughly 15x. Critically, unlike their hotel REIT peers which have been among the worst-performing REIT sectors since the start of the pandemic, casino REITs' ultra-long-term (15-50 year) triple-net master lease structure leaves most of the financial and operational risk - both on the upside and the downside - to their tenants. As a result, casino REITs have delivered some of the strongest 5-year returns in the REIT sector.

casino REIT performance

Hoya Capital

Casino REITs pay an average yield of 5.1%, well above the REIT market-cap-weighted average of 3.2%. Unlike other higher-yielding property sectors, the secular outlook for casino gaming appears relatively stronger, underscored by the above-average 5-year dividend growth rate of roughly 5% achieved by these casino REITs. In contrast to their hotel REIT peers, perfect rent collection allowed casino REITs to maintain dividends at-or-near previous levels last year, and all three REITs boosted their dividends in 2021. At the company level, GLPI pays the highest dividend yield at 6.18% after raising its payouts twice so far in 2022. After having reduced its dividend in 2020, the most recent increase to $0.7050/share brought its dividend rate back above its pre-pandemic peak of $0.70/share. VICI boosted its dividend in late 2021 - as it has in every year since its IPO - and now pays a dividend yield of 4.85%.

casino REITs dividend yield

Hoya Capital

Deeper Dive Into Casino REIT Sector

Blending some of the better attributes from each of the net lease, hotel, and healthcare REIT sectors, casino REITs emerged in a fashion similar to many lodging REITs as "spinoffs" designed to separate the capital-intensive real estate business from the operationally-intensive property management business. Casino REITs now own 95 of the roughly 250-300 "investment grade" commercial casinos in the United States, one of the highest concentrations of REIT ownership within any property sector. With an average dividend yield above 5%, we view casino REITs as a more compelling - and perhaps "under the radar" - alternative to other seemingly "cheap" sectors facing stiffer secular headwinds. Like their net lease peers, casino REITs are some of the most operationally efficient property sectors, operating with Adjusted NOI margins of nearly 90%, leaving most of the financial risk and capital expenditure responsibilities to their tenants.

casino REITs 2020 capex

Hoya Capital

"Headquartered" in Las Vegas, gambling is one of the most highly regulated industries in the United States. Until the 1980s, commercial casinos were prohibited outside of "The Strip," leaving the lucrative gaming business to Native American tribes, who were largely exempt from state prohibitions. The last forty years have seen a wave of legalization of commercial casinos as states increasingly realized the "tax goldmine" they were sitting on. Tax revenue from gaming, for instance, represents nearly a quarter of state tax revenues collected by Pennsylvania. Twenty-five states now permit commercial casinos and these three REITs own properties in nineteen of these states.

casino gaming in united states

Hoya Capital

Takeaways: Ready To Roll The Dice

Casino REITs have been among the best-performing property sectors this year as the positive tailwinds from the leisure demand recovery have offset inflation headwinds and economic growth concerns. Despite their ultra-long-term triple net lease structures, casino REITs are better protected from inflation than many other net lease REITs, making higher use of CPI-linked escalators and revenue share agreements. Casino REITs have benefited from an upward "re-rating" from investors as the sector has matured, and as the business model has become better understood and while no longer under the radar, we remain bullish on casino REITs with MA as a potential upside catalyst.

REIT MA

Hoya Capital

For an in-depth analysis of all real estate sectors, be sure to check out all of our quarterly reports: Apartments, Homebuilders, Manufactured Housing, Student Housing, Single-Family Rentals, Cell Towers, Casinos, Industrial, Data Center, Malls, Healthcare , Net Lease, Shopping Centers, Hotels, Billboards , Office, Farmland, Storage, Timber, Mortgage , and Cannabis.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

high dividend yield index

Hoya Capital

Read The Full Report on Hoya Capital Income Builder

Amid the historic market volatility - and persistent inflation - our focus at Income Builder is on real income-producing asset classes that offer the opportunity for reliable income, diversification, and inflation hedging. Get started today with a  Free Two-Week Trial and you can take a look at our top ideas - including our new Landowner Portfolio - and see what we're investing in to help build sustainable portfolio income.

Members gain complete access to our investment research and our suite of trackers and exclusive income-focused portfolios targeting premium dividend yields up to 10% across real income-producing asset classes.