Scared Money Never Wins: Viva Las Vegas, Baby!

seekingalpha05-23

The ICSC conference in Las Vegas is described as the "Super Bowl of retail" and attracts industry experts and dealmakers.I'm here this week meeting with REIT management teams.Today, I'll provide ...

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And then I wasn’t thanks to the housing crash. That’s why I’m so risk-adverse when it comes to my stock selections. Or investments in general. It’s because I learned my lesson the hard way. Isn’t that how it works far too often, though?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BOWL":"Bowlero","FAST":"快扣","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC","GLPI":"Gaming and Leisure Properties I","BK4529":"IDC概念","BK4104":"贸易公司与经销商","BK4223":"办公室房地产信托","CZR":"凯撒娱乐","CFA.SI":"NikkoAM-STC Asia REIT","MGM":"美高梅","BK4160":"多样化房地产投资信托v","BK4194":"办公房地产投资信托","BK4585":"ETF&股票定投概念","O":"Realty Income Corp","BK4567":"ESG概念","PINE":"Alpine Income Property Trust, Inc.","BK4216":"消闲设施","PSTL":"Postal Realty Trust, Inc.","BK4566":"资本集团","BK4150":"赌场与赌博","BK4080":"零售业房地产投资信托","BK4222":"数据中心房地产信托","WYNN":"永利度假村","BK4588":"碎股","DLR":"数字房地产信托公司","BK4234":"特殊用途房地产信托","BK4084":"特种房地产投资信托","BK4503":"景林资产持仓","NTST":"NetSTREIT Corp.","GTY":"Getty Realty Corp","BK4231":"零售房地产信托","VICI":"Vici Properties","BK4561":"索罗斯持仓"},"translate_title":"害怕的钱永远不会赢：拉斯维加斯万岁，宝贝！","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WYNN":1,"VICI":1,"PSTL":1,"PINE":1,"O":1,"NTST":1,"MGM":1,"GTY":1,"GLPI":1,"DLR":1,"CZR":1,"BOWL":1,"FAST":0.9,"CFA.SI":0.9},"content_text":"The ICSC conference in Las Vegas is described as the \"Super Bowl of retail\" and attracts industry experts and dealmakers.I'm here this week meeting with REIT management teams.Today, I'll provide details on three REITs that are investing in casino properties.   okan akdeniz Viva Las Vegas, baby! I wrote today’s article in Sin City, where I attended this year’s annual International Council of Shopping Centers (ICSC) conference. That organization describes the gathering as its “premier event,” attracting “dealmakers and industry experts who are driving innovation and evolution in commercial real estate.” Including me. I’ve been going to ICSC Las Vegas for decades now. It’s a great place to see and be seen. And you’d better believe I have meetings with key players set up. CRE Daily describes it as “the Super Bowl of retail.” In which case, I’m in it to win it. Admittedly, there are a few roulette tables I’m trying to win at, too. My regular readers know how, whenever I make this annual trek, I let myself play with $500. That’s it. It’s been my rule ever since the first time I went to Vegas and let it play me for a fool. Some would say that gambling is always a fool’s errand, pointing out that the house always wins. And they’d have a lot of truth backing up that belief. But you could also say it’s a waste of money to go to an amusement park when the only thing you get out of it is fun. This is my once-a-year trip to ride the coasters, you could say. Or you can just call it a vice. Either way, though, I go into with a strategy, part of which is knowing that scared money never wins. My Life Lessons Learned on Rising Above the Risk Look, we’ve all lost money before. And it doesn’t feel nice. No matter if you lose $5 or $500 or $5 million, it leaves you with a bad feeling in your stomach. It’s only a matter of how sick you’re going to get. I know this from personal experience, since I’ve definitely lost my $500 before. While I may be “in it to win it,” that doesn’t mean there aren’t forces working against me. So there have been times I’ve walked away with each one of my allotted dollars handed over to the house. This time around (as of Monday morning, anyway), I had already lost $200 across two casinos: the Wynn and Venetian. Two amazing buildings, for the record. I mean downright stunning, both inside and out. Even so, I wouldn’t pay $500 just to enjoy the view. I pay $500 at the tables with the intent of walking out with a couple grand. And I do sigh a sigh of loss when the opposite happens. Still, better a one-and-done half-grand than parting ways with several million, which I’ve also done. You know the story by now… I was a commercial real estate developer, multi-property owner, and landlord. And then I wasn’t thanks to the housing crash. That’s why I’m so risk-adverse when it comes to my stock selections. Or investments in general. It’s because I learned my lesson the hard way. Isn’t that how it works far too often, though? You don’t know what you’ve got ‘til it’s gone, and all that. Of course, some people never learn that lesson. So I’m very happy I did. I’m also very happy I didn’t become risk-phobic. Because while you might never lose anything if you avoid risk altogether, you’re also never going to gain. If You Can’t Beat the House, Buy It Everyone has to make the decision for themselves, but personally, I like making gains. And now that I’m older, wiser, and have more experience under my belt… I’m much better at not only making money but keeping it as well. Even with my gambling. You see, even if I do lose that whole $500 at The Venetian once a year, I’m still actively making money from it four times a year. That’s because I own stock in its landlord. Hey, if you can’t beat the house, buy it, right? Admittedly, not every casino in the U.S. rents the property it operates out of. And even out of those properties that are rented, not everyone is owned by a publicly traded real estate investment trust (\"REIT\"). Wynn Las Vegas, for example (the other place I lost money at), is owned and operated by Wynn Resorts (WYNN). It’s a publicly traded company, definitely, and it does pay a dividend. But it boasts far fewer properties than the investment opportunities I’m interested in today. And I do like diversification. (Incidentally, diversification is another part of my gambling strategy. Never bet on just black or just red, since they don’t make for a 50-50 bet. Not when there’s also the 0 and 00 slots – the reason why the house always wins in the end.) As a general rule, the more properties a wise and financially sound landlord owns, the less risk he’s going to incur. If something happens to one building, the others can better balance out the resulting expenses. There’s still risk there, regardless. But they’re smart, calculated risks I’m willing to make based on multiple factors I’m more than willing to talk about down below. VICI Properties Inc. (VICI) VICI is an S&P 500 (SP500) company that specializes in experiential real estate that includes top gaming, hospitality, and entertainment destinations. In addition to its core gaming properties, the company owns 38 family bowling centers that it acquired from Bowlero (BOWL) last year. The company operates as a real estate investment trust with a 127 million SF portfolio made up of 54 gaming facilities and 39 non-gaming experiential properties located in the U.S. and Canada. VICI’s portfolio contains approximately 4.2 million SF of gaming space and includes more than 60,000 hotel rooms, roughly 6.7 million SF of convention space, over 50 entertainment venues, more than 500 bars & restaurants, and over 500 retail outlets. The gaming REIT has a particularly strong presence in Las Vegas and owns multiple trophy properties along the Las Vegas Strip. Some of its more notable properties include Mandalay Bay, Luxor, Excalibur, Park MGM, Caesars Palace, Harrah’s, and MGM Grand. In addition to its gaming properties, the company owns 26 acres of land located behind Planet Hollywood and 7 acres of strip frontage at Caesars Palace. Due to the iconic nature of many of VICI’s properties, I consider it to be one of the few REITs to have a true moat. Its properties cannot be easily replaced, and the company has a strong foothold in Las Vegas, which is a leading destination for conventions, sporting events, and premier entertainment.   VICI - IR While VICI is known for its gaming properties, the company operates as a triple-net lease REIT. All of its tenants are subject to long-term, triple-net leases which makes the tenant responsible for property level expenses such as insurance, tax, and maintenance. VICI’s portfolio has a weighted average lease term (“WALT”) of 41.5 years, inclusive of all renewal options. The company’s long-term leases provide good visibility into future cash flows and are hedged against inflation, with 50% of its rent subject to CPI-linked escalations in 2024. Over the longer term, ~96% of its rent will be subject to CPI-linked escalations. VICI has 13 tenants, but approximately 74% of its rent is derived from its top 2 tenants, Caesars (CZR) and MGM Resorts (MGM). Caesars is VICI’s top tenant, which accounts for almost 40% of its annualized cash rent and has a WALT of 31.4 years. MGM Resorts is the company’s 2nd largest tenant and makes up 35% of its rent and has a WALT of 51.0 years. While VICI has high tenant concentration, its properties are mission-critical to its tenants, which simply cannot operate without the real estate. Additionally, the gaming regulatory environment limits where a casino can be operated and the tenant's ability to move. Currently, VICI has a 100% occupancy rate and has collected 100% of its rent since the company’s formation in 2017.   VICI - IR VICI has an investment grade balance sheet with a BBB- credit rating from S&P Global. The company’s debt is in line with industry norms with a net leverage ratio of 5.4x, a long-term debt to capital ratio of 40.82%, and an EBITDA to interest expense ratio of 4.19x. Additionally, the company’s debt is 83% unsecured, 99% fixed rate, and well-laddered with a WALT of 6.8 years.   VICI - IR Since VICI’s formation in 2017, the company has been aggressively buying up properties and increasing the size of its portfolio and cash flows. VICI was added as an S&P 500 index member in 2022, just several years after its IPO, giving VICI the record for the shortest time from IPO to S&P 500 inclusion for a REIT. VICI’s operating strategies have flowed to the bottom line, with an average adjusted funds from operations (“AFFO”) growth rate of 6.80% since 2019. In addition to its impressive earnings growth, the company has achieved an average dividend growth rate of 10.11% over the last 5 years while maintaining a conservative AFFO payout ratio, which came in at 74.88% at the end of 2023.   FAST Graphs (compiled by iREIT®) VICI has delivered operational excellence since its formation, and I believe it will continue to do so. The gaming industry is the ultimate experiential real estate, and VICI’s trophy properties are well-positioned to maintain the company’s leading position within the industry. The company has unique and irreplaceable properties that are very resistant to e-commerce. People typically go to Las Vegas or a casino for the experience and to make memories, which is not possible to do online. VICI pays a secure 5.49% dividend yield and trades at a P/AFFO of 13.82x, compared to its average AFFO multiple of 15.93x. We rate VICI Properties a Buy.   FAST Graphs Realty Income Corporation (O) Realty Income has been around since 1969 collecting and distributing monthly rent checks. The company is a triple-net lease REIT that specializes in the acquisition and management of single-tenant, freestanding commercial properties. The company has a market cap of approximately $47.88 billion and a 334.2 million SF portfolio made up of 15,485 properties located in all 50 states, the United Kingdom, and 6 other countries in Europe, including France, Germany, and Spain. In addition to its geographic diversity, the company is diversified by tenant. O’s properties are leased to over 1,500 tenants operating in 89 industries that include well established businesses such as Dollar General, 7-Eleven, Wynn Resorts, FedEx, Tractor Supply, and Walgreens. When accessing retail properties, the company looks for tenants operating in industries that are resilient against recessions and resistant to e-commerce. Realty Income’s largest industry is grocery stores, which made up 10.1% of its contractual rent, followed by convenience and dollar stores, which made up 9.5% and 6.5%, respectively. By property type, 79.6% of its portfolio consists of retail properties, 14.7% consists of industrial properties, and 3.3% consists of gaming properties. At the end of the first quarter, the company had a portfolio occupancy of 98.6% with a WALT of 9.8 years.   O - IR Realty Income is not thought of as a gaming REIT, but it expanded into the net lease gaming space with its acquisition of Encore Boston Harbor Resort & Casino in 2022. This demonstrates the value and growth potential of the gaming industry, as well as a shift in Realty Income’s strategy to invest in alternative property types. In February 2022, Realty Income and Wynn Resorts entered into a $1.7 billion sale-leaseback agreement for the Encore Boston Harbor Resort at a 5.9% cap rate. The net lease agreement has an initial term of 30 years and contains contractual rent escalators. The first 10 years of the term contain a flat 1.75% contractual annual rent escalator, while the remaining 20 years have rent escalators at the greater of 1.75% or CPI capped at 2.5%. The 3.1 million SF property was built in 2019 and features approximately 670 luxury resort hotel rooms, a 210,000 SF casino, more than 2,700 slot machines, and roughly 10,000 SF of retail space. Additionally, the property has the only casino located in the metro area of Boston and is within 5 miles of Boston Logan International Airport, Fenway Park, and Harvard University.   O - IR The Encore transaction really highlights the advantages of Realty Income’s size and scale. The company was able to make a $1.7 billion acquisition without destroying its tenant diversification. To put it into perspective, the amount of the acquisition was more than the entire market capitalization of several of O’s peers, including Getty Realty (GTY), Alpine Income (PINE), Postal Realty Trust (PSTL), and NETSTREIT (NTST). As of the company’s latest update, the Encore property accounts for less than 3.0% of its annual revenue.   O - IR About a year-and-a-half after its entry into the gaming industry, Realty Income announced a $950.0 million investment in the Bellagio Las Vegas. In late 2023 the company announced it was investing $950 million to acquire both common and preferred equity interests from Blackstone Real Estate Income Trust (“BREIT”) in a new joint venture (“JV”) that owns the majority of The Bellagio Las Vegas real estate. O will invest around $300.0 million in common equity of the JV which will represent a 21.9% interest in the Bellagio, while BREIT will keep a 73.1% interest, and the operator, MGM Resorts will retain a 5.0% interest. Additionally, Realty Income will invest approximately $650.0 million for a yield-bearing preferred equity interest in the JV. The Bellagio is operated by MGM and sits at the center of the Las Vegas Strip. It is under an existing triple net lease with roughly 26 years remaining on the term. The property is located on a 77-acre campus and includes ~4,000 hotel rooms, 200,000 SF of convention facilities, and almost 160,000 SF of gaming space. This again exemplifies the advantages of size, scale, and access to capital. The almost $1.0 billion dollar investment only amounts to 1.2% of Realty Income’s contractual rent, allowing the company to opportunistically make large transactions while maintaining tenant diversity.   O - IR Realty Income has recently expanded its investment criteria to include gaming properties, which should align well with its current net lease properties and increase the company’s industry diversification. Some people have voiced concern over the company’s size and “drift” from its core domestic retail focus. Others suggest that the company is going up the risk curve to maintain reasonable spreads. The implication is that O is forced into new verticals, as well as international markets because it cannot achieve sufficient AFFO growth through its traditional investments. I agree that O has expanded its investment criteria by entering foreign markets (e.g., Sainsbury’s) and by investing in multiple property types. However, I believe this is an intentional shift in the company’s investment strategy and not an attempt to go outside its core-competencies to sustain growth. Under the current CEO, Sumit Roy, the company made its first international investment in 2019 by entering into a sale-leaseback with Sainsbury’s. At the time, Mr. Roy said the strategic transaction was a natural evolution of the company’s strategy. This got O into the U.K., and subsequent acquisitions have increased its international exposure to 7 countries across Europe. Several years after its first international investment, the company acquired Vereit, which nearly doubled its real estate assets. Subsequent acquisitions, including its acquisition of Spirit Realty, increased O’s industrial exposure and grew its portfolio to include over 15,500 properties. Add to that, the company’s recent entry into the gaming sector and its data center JV with Digital Realty (DLR). The moves made by Realty Income since Mr. Roy took the helm in 2018 appear to be well-thought-out and intentional. The changes have occurred steadily throughout the last several years and have massively improved O’s tenant diversification, geographic diversification, property type diversification, as well as its access to the international capital markets. Realty Income is becoming a “net lease consolidator” that can make small or large acquisitions in the U.S. or Europe for various property types, depending on where the opportunity lies. Not only is the company unbound by property type or region, but it is getting to an inflection point where its free-cash flow (after dividends) will be enough to fund acquisitions for external growth. In the company’s 1Q-24 earnings call, Sumit Roy stated that: “After the Spirit merger closed in January, our annualized free cash flow available for investments is approximately $825 million. This provides us significant organic investment capacity to finance our growth plans without being required to tap into the debt or equity markets to meet current investment guidance”. The company seems to know what it is doing, as it has achieved positive AFFO growth in 27 out of the last 28 years and has increased its monthly dividend each year for the last 30 years, all while maintaining a conservative AFFO payout ratio. Over the last several years, the company has had an average annual AFFO growth rate of 4.64% and an average dividend growth rate of 3.70%. Analysts expect AFFO to increase by 4% over the next 2 years, and then increase by 3% in 2026.   O - IR Realty Income has been delivering attractive returns to shareholders over the past 30 years and I expect they will continue to do so. The company’s increased size and new verticals are an advantage in my view. It should be a benefit to O’s cost of capital and provide multiple avenues for growth. If they are unable to find attractive deals in the U.S. they can look to the United Kingdom, Spain, Italy, France, Germany, etc. Realty Income currently pays a 5.73% dividend yield and trades at a P/AFFO of 13.52x, compared to its average AFFO multiple of 18.56x. We rate Realty Income a Buy.   FAST Graphs Gaming and Leisure Properties, Inc. (GLPI) GLPI was formed in 2013 from the spin-off of the real estate assets of PENN Entertainment. The company was the first REIT in the U.S. to primarily focus on properties leased to gaming operators. The company specializes in the acquisition, financing, and management of gaming properties that are leased to operators under triple-net lease arrangements. The gaming REIT has a market cap of approximately $12.6 billion and a 29.0 million SF portfolio made up of 62 gaming properties that feature nearly 15,000 hotel rooms, gaming space, convention halls, dining, entertainment, and retail outlets across 19 states. The company is the most geographically diversified gaming REIT and owns the largest number of regional gaming assets. Its tenants are well-established gaming operators that include PENN Entertainment, Boyd Gaming Corp, Caesars Entertainment, The Queen Casino, Bally’s Corp, and The Cordish Companies. At the end of 2023, the company’s portfolio was 100% occupied.   GLPI - IR GLPI obtained cross-over investment grade status in 2018. The company is investment grade rated by S&P Global with a credit rating of BBB-; however, they are junk rated by Moody’s which gives the company a Ba1 credit rating. The company has done an impressive job deleveraging its balance sheet, with its net debt to EBITDA ratio improving to 4.5x in 2023, compared to 6.3x in 2018. The company has a long-term debt to capital ratio of 58.86% and an EBITDA to interest expense ratio of 4.20x.   GLPI - IR Over the last several years, the company has had an average AFFO growth rate of 2.75% and an average dividend growth rate of 4.58%. GLPI collected 100% of rents during COVID, however its AFFO per share essentially remained flat from 2019 to 2021. The company cut its quarterly dividend from $0.70 to $0.60 in 2020, but has since clawed its way back, with its most recent quarterly dividend amounting to $0.76 per share. Analysts expect subdued to moderate growth over the next several years, with AFFO projected to increase by 1% in 2024 and then by 2% and 3% in the years 2025 and 2026, respectively. While AFFO growth has been moderate over the past several years, the company has delivered positive AFFO per share growth in 2022 & 2023 and is expected to grow AFFO per share through 2026. The dividend is covered with a 2023 AFFO payout ratio of 85.37%. With earnings projected to grow, analysts expect the AFFO payout ratio to improve to ~81% by 2026.   FAST Graphs (compiled by iREIT®) Currently, the stock pays a 6.54% dividend yield and trades at a P/AFFO of 12.53x, compared to its average AFFO multiple of 13.08x. We rate Gaming & Leisure Properties a Spec Buy.   FAST Graphs In Closing I'll never forget what a friend told me on my very first trip to Las Vegas, “Scared money never wins.\" That’s another way of saying, “Always protect your hard-earned principal at all costs.” That's our mantra at Wide Moat Research... And I'll stress the \"ALL.\"  One of the best ways to protect principal at ALL costs is to diversify. \"The only investors who shouldn’t diversify are those who are right 100% of the time.\"","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.0","shortVersion":"4.24.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2437734406"}