Gaming and Leisure Properties Ensures Continuity of its IG Credit Rating

Posted on: July 24, 2023, 05:45h. 

Last updated on: July 24, 2023, 05:46h.

Gaming and Leisure Properties (NASDAQ:GLPI) received a credit rating of “BBB-” with a “stable” outlook from Fitch Ratings. This rating is considered the lowest investment grade.

Tropicana A's
Tropicana Las Vegas. Tropicana on the Las Vegas Strip. Owner Gaming and Leisure Properties has a decent credit rating and profiles, says Fitch. (Image: Bally’s)

Fitch Ratings mentioned that the credit rating of the casino landlord is hindered by weaker contingent liquidity profiles compared to other commercial real estate investment trusts (REITs). However, Gaming and Leisure Properties’ leverage ratio falls within the range of comparable real estate firms that have a similar credit rating of “BBB-“.

Fitch expects Gaming and Leisure Properties to maintain a leverage ratio of 5.5x or lower, which is appropriate for a ‘BBB-‘ rated U.S. REIT with the company’s asset profile. The company’s credit rating allows for a temporary increase in leverage to exceed 5.5x for larger acquisitions, but Fitch expects the company to return to a ratio below 5.5x within 12-18 months by repaying debt from equity sales and retained cash flows.

Penn Entertainment is the largest tenant of Gaming and Leisure Properties, with other major clients including Bally’s, Boyd Gaming, Caesars Entertainment, and Cordish Cos.

Gaming and Leisure Client Stability

Gaming and Leisure Properties has lower exposure to Las Vegas, including the Strip, compared to rival VICI Properties (NYSE: VICI).

However, the REIT indirectly faces the dynamics of the U.S. casino center due to significant footprints of clients such as Bally’s, Boyd Gaming, and Caesars Entertainment. These clients accounted for 29% of Gaming and Leisure Properties’ first-quarter rental income, while Penn and Cordish combined accounted for 70%.

“The master leases have long initial terms and cross-default provisions, providing stability and visibility to Gaming and Leisure Properties’ cash flows, and help protect the company from underperformance at the individual asset and/or market level. Each major publicly traded tenant accessed the capital markets during the pandemic and has healthy liquidity,” Fitch added.

Fitch Ratings noted that Gaming and Leisure Properties’ tenants, including Penn, have weaker credit profiles than the REIT itself. However, the concern is mitigated by long-term leases and default provisions included in the contracts.

Gaming and Leisure Has Perks for Investors

Since its spin-off from Penn in 2013, Gaming and Leisure Properties has consistently increased dividends and even paid a special dividend in late 2021. The shares currently offer a payout yield of 5.82%.

In addition, the REIT is known for its successful deal-making, often acquiring property assets of regional casinos at favorable prices. Gaming and Leisure Properties has also been rumored as a potential acquisition target, although this is currently just speculation. Overall, the company’s balance sheet is stable, and it has options to raise cash if necessary.

“Gaming and Leisure Properties’ portfolio is entirely unencumbered, giving the company the ability to secure debt in a stress scenario using its senior unsecured bond and bank covenants. The company has no secured debt, and the ratio of unsecured assets to net unsecured debt (UA/UD) is above 2.0x, providing ample contingent liquidity. The company’s assets are primarily regional, which are considered less cyclical than Las Vegas strip assets,” Fitch concluded.

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