Posted on: June 29, 2022, 02:17h.
Last updated on: June 29, 2022, 02:43h.
Analysts are constructive on Gaming and Leisure Properties (NASDAQ:GLPI) buying two Rhode Island casinos and leasing those venues back to operator Bally’s (NYSE:BALY) — a transaction that was announced late Tuesday.
Shares of the gaming real estate investment trust (REIT) are lower by 1% in late trading. That’s after the company priced a share sale of approximately $308.8 million. That was done in part to fund the $1 billion purchase of the property assets of Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino & Hotel.
Still, analysts are bullish on the deal, saying it will add to GLP’s acquired funds from operations (AFFO), though the cap rate of 7.6% is higher than the 6.9% the REIT has on a recent transaction with Cordish Companies.
We attribute almost all the delta in cap rate to the increased cost of capital, as the yield on the 10-year Treasury has doubled since December,” writes CBRE analyst John DeCree in a note to clients.
He adds the Rhode Island casino sale leaseback with add seven cents to GLP’s AFFO. The analyst rates the stock a “buy” with a $55 price target. That implies upside of 19.5% from current levels.
Win-Win for GLP
Last week, holders of $1.9 billion worth of Bally’s debt hired lawyers, indicating they may not be open to altering a credit agreement with the gaming company that would set the stage for the sale of the Rhode Island casinos to GLP. The good news for the REIT is that risk on that front is limited, because there’s already a backup plan in place.
“If all third-party consents and approvals for the acquisition of Lincoln are not timely received, then GLP will instead acquire the real property assets of the Hard Rock Hotel & Casino Biloxi in Mississippi, along with Tiverton for total consideration of $635 million and a combined annual rent for Tiverton and Biloxi of $48.5 million,” according to a statement.
CBRE’s DeCree said that transaction could actually work in GLP’s favor, because it would be more accretive to AFFO and has a lower capital requirement. That means the REIT can more easily fund the debt portion of the deal without issuing high-yield bonds.
Under the terms of that agreement, GLP could acquire Bally’s Twin River Lincoln prior to Dec. 31, 2024 for $771 million.
‘Major Positive’ for GLP
Morgan Stanley analyst Ronald Kamdem called the sale-leaseback transaction “a major positive” for the casino landlord.
Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino are Rhode Island’s only casinos, and are two of the better-performing assets in the Bally’s portfolio.
With the move into Rhode Island, GLP would have a footprint in 18 states. As Kamdem notes, the deal structure is conservative, with downside protection for the REIT. He has an “overweight” rating on the shares.