REITs juggle to stay afloat during crisis

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Real estate investment trusts (REITs) have become a prominent operating structure in the gaming industry in recent years, as more than five dozen regional casinos are now owned by REITs.

But the coronavirus outbreak has forced them to withdraw their 2020 earnings guidance.

The first REIT was formed by Penn National Gaming, which spun off 21 of its 29 casinos and racinos and leased them back to the original company through triple-net lease agreements.

Since its creation in 2013, Gaming and Leisure Properties (GLPI), the Penn REIT spin off, has grown to 44 gaming and related properties across 16 states, valued at $4.8 billion. Its tenants include Penn, Eldorado Resorts and Boyd Gaming.

The COVID-19 pandemic has had a major impact on GLPI and the industry’s other REITs as some 953 commercial and tribal casinos have closed nationwide and more than 208,000 employees have been laid off, according to the American Gaming Association.

In a statement, GLPI said it collected 98.6 percent of April rent payments, including payments from Penn. The company did not discuss its expectations for rent payment due for May and June.

“GLPI believes its collaborative and mutually beneficial outcome with Penn National provides us and our investor base greater visibility and predictability from rent receipts over the remainder of 2020,” said Peter Carlino, GLPI’s chairman and CEO.

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The company is scheduled to announce its first quarter earnings on April 30. Penn is expected to post earnings of $0.53 per share on revenue of $288.58 million, according to analysts surveyed by Yahoo Finance.

In addition, GLPI said it has reached a deal with Penn to help the with the financial impact of the coronavirus pandemic. The transaction includes acquiring the real estate associated with the Tropicana Las Vegas for $307.5 million, which will be applied to rent due under the existing leases from May to November this year.

The deal includes $30 million in rent credits for the Hollywood Casino Morgantown, which is currently under construction in Pennsylvania. GLPI expected the Morgantown land will generate $3 million of initial annual cash rent. The projects is scheduled to be completed later this year, but work has stopped during the outbreak.

“As the global (coronavirus) health crisis continues to evolve, we are navigating through this unprecedented time for our company, our industry, and our nation,” Jay Snowden, Penn’s president and CEO, said in a statement.

Snowden said with the company’s 41 properties temporarily shuttered, Penn is making difficult decisions to help preserve our liquidity. He added that he was grateful for GLPI’s help.

REITs have existed for more than 50 years in the U.S. after Congress granted legal authority to form the trusts in 1960 as an amendment to the Cigar Excise Tax Extension. REITS do not pay federal income taxes but are required to distribute 90 percent of their taxable earnings to shareholders.

In addition to GLPI, MGM Resorts International in 2015 created MGM Growth Properties, Caesars Entertainment created VICI Properties in 2017 as it was emerging from bankruptcy.

VICI Properties said it has been in talks with tenants that operate its 28 gaming properties over possible lease modifications due to the impact of the coronavirus pandemic but has yet to reach any agreements.

In a filing with the U.S. Securities and Exchange Commission, VICI said its tenants have paid rent through April, but the impact of the coronavirus will affect how the company calculates future credit losses.

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The REIT owns the land and buildings managed by Caesars, Century Casinos, Seminole Hard Rock International, Jack Entertainment, and Penn National Gaming.

“While we have not yet agreed to any lease modifications or other concessions with any of our tenants, if the current environment persists we may ultimately support tenants during the short term in ways that we believe will benefit the company over the long term,” the company said.

VICI said it has $310 million in unrestricted cash on its balance sheet and $1 billion available under its credit facility that has not been drawn down yet.

The company also has access to $1.3 billion in proceeds from the settlement of 65 million shares of the company’s stock that are subject to the pending $17.3 billion merger between Eldorado Resorts and Caesars.

VICI does not have any debt coming due until December 2024.

“Since our emergence in October 2017, we have been working to strengthen our balanced sheet, ladder out our maturities, maintain a low payout ratio and, overall sustain a strong liquidity position,” said David Kieske, executive vice president and CFO of VICI.

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