Casino Real Estate Analysis: Evaluating Gaming Holdings and Bally’s Stock Performance
Casino Real Estate Performance Trends: Analyst Insights Amid Ballys Stock Decline
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- REIT is Bally’s primary landlord
- Concerns about Bally’s credit rating are impacting GLPI shares
Issues surrounding Bally’s latest casino project in Chicago, along with its credit rating concerns, are reported to be affecting the stock performance of Gaming and Leisure Properties Inc. (NASDAQ: GLPI). This real estate investment trust, which primarily owns properties leased to Bally’s, is facing challenges due to delays and a less than stellar credit profile.
According to Barry Jonas, an analyst from Truist Securities, discussions with Gaming and Leisure executives revealed that construction delays at Bally’s Chicago venue, combined with investor apprehension regarding Bally’s weak credit rating, are significant factors contributing to GLPI’s poor stock performance this year.
Last year, GLPI made a significant investment of $2 billion, acquiring property assets from Bally’s Chicago site, alongside its Kansas City and Shreveport locations. This acquisition was crucial for providing the finances necessary for Bally’s Chicago project, which stands as the company’s most ambitious undertaking to date.
Jonas further states, “We believe that concerns related to Bally’s credit stability are also playing a role in GLPI’s stock underperformance. However, all current leases are secure, and we believe there would still be alternative operator demand for Chicago should Bally’s need to step back.”
Currently, the stock has seen a decrease of 4.3% this year, in contrast to its competitor, VICI Properties (NYSE: VICI), which has soared by 7.67% within the same timeframe.
Bally’s Chicago Project Faces Setbacks
Recently, the construction efforts for the Bally’s Chicago site were put on hold for two weeks after it came to light that a waste management contractor associated with the site had connections to organised crime. This revelation has only worsened ongoing controversies regarding Bally’s operations in Chicago. Some local political figures argue that awarding Bally’s the sole casino license in the city was ill-advised, and there are worries that the performance from its temporary gaming location doesn’t bode well for the financial returns of the permanent structure.
Jonas also clarified that while there are concerns regarding Bally’s commitments at the former Tropicana site in Las Vegas, there isn’t any alarming pressure. Should the need arise, Bally’s could negotiate its development rights to another operator, which is crucial for GLPI as it owns the real estate there.
The location, which hosted the former Tropicana Las Vegas, is set to undergo a transformation into a new stadium for the Major League Baseball (MLB) franchise, previously known as the Oakland Athletics.
GLPI Keeping an Eye on Penn Entertainment
Overall, Bally’s continues to be a point of contention for GLPI due to the ongoing situation in Chicago, but the REIT’s most significant tenant, Penn Entertainment (NASDAQ: PENN), is also drawing scrutiny due to recent controversies.
The executives from GLPI have indicated that they are closely monitoring developments between Penn and the activist investor HG Vora, who has initiated a proxy fight against the regional casino operator. GLPI was established as a spin-off of Penn in 2013, and it continues to hold substantial real estate interests in the casinos that Penn operates. They have also clarified their stance on possible scenarios surrounding a potential acquisition of Penn by another gaming entity, stating they wouldn’t agree to any disaggregation of their master leased properties.
Jonas concluded with, “GLPI has affirmed that in the event of a potential acquisition of PENN, there will be no splitting of its master leases. Given the current health of both operators in the land-based business, maintaining a singular master lease structure is in the optimal interest of GLPI shareholders.”
In summary, as Bally’s navigates through its credit challenges and construction delays in Chicago, the ramifications are evidently resonating through Gaming and Leisure Properties, impacting its stock performance. Both companies are pivotal in the ever-evolving landscape of the gaming real estate market, and the developments in their relationship will be crucial for investors to monitor.
