Gaming and Leisure Properties Wins In Rhode Deal, Say Analysts

Posted: June 29, 2022, 2:17 a.m.

Last update on: June 29, 2022, 03:26h.

Analysts are constructive on the purchase of two Rhode Island casinos and leasing those sites to operator Bally’s (NYSE:BALY) – a deal that was announced Tuesday evening.

Bally executives celebrate renaming of company’s Rhode Island casinos in 2021. Gaming and Leisure Properties wins praise for acquiring these sites. (Image: WJAR)

Shares of the gambling real estate investment trust (REIT) are 1% lower in late trading. This is after the company priced a stock sale at around $308.8 million. This was done in part to fund the $1 billion purchase of the real estate assets of Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino & Hotel.

Still, analysts are optimistic about the deal, saying it will add to operating funds acquired from GLP (AFFO), although the 7.6% cap rate is higher than the 6.9% the REIT a on a recent transaction with Cordish Companies.

We attribute nearly all of the cap rate delta to the rising cost of capital, as the 10-year Treasury yield has doubled since December,” writes CBRE analyst John DeCree in a note to clients.

He adds the sale-leaseback of the Rhode Island casino with an additional seven cents to GLP’s AFFO. The analyst rates the stock as a “buy” with a price target of $55. This implies a 19.5% increase from current levels.

Win-win for GLP

Last week, holders of $1.9bn of Bally’s debt hired lawyers, saying they may not be willing to change a credit agreement with the gaming company that would set the stage for the sale. from Rhode Island casinos to GLP. The good news for the REIT is that the risk on this front is limited as a backup plan is already in place.

“If all third party consents and approvals for the Lincoln acquisition are not received in a timely manner, then GLP will instead acquire the real estate assets of the Hard Rock Hotel & Casino Biloxi in Mississippi, together with Tiverton for full 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 the transaction could actually work in GLP’s favor because it would be more accretive to AFFO and has a lower capital requirement. This means the REIT can more easily fund the debt portion of the deal without issuing high yield bonds.

Under the terms of this agreement, GLP could acquire Bally’s Twin River Lincoln before December 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 owner.

Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino are Rhode Island’s only casinos and are two of the best performing assets in Bally’s portfolio.

With the move to Rhode Island, GLP would have a footprint in 18 states. As Kamdem notes, the deal structure is conservative, with downside protection for the REIT. It has an “overweight” rating on equities.

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