Bally’s Drags on Gaming and Leisure Properties Stock, Says Analyst

• REIT is Bally’s primary landlord
• Analyst says Chicago, Bally’s credit issues have weighed on GLPI shares

Construction of Bally’s Chicago casino hotel potentially running behind schedule and the operator’s junk-rated credit profile appear to be drags on shares of Gaming and Leisure Properties (NASDAQ: GLPI) — the real estate investment (REIT) that’s Bally’s primary landlord.

Truist Securities analyst Barry Jonas, who met with Gaming and Leisure executives in New York at the Nareit REITweek conference, noted construction delays at Bally’s Chicago and investors’ concerns about that gaming company’s shaky credit profile could be among the reasons Gaming and Leisure Properties stock has been a dud this year.

Last year, the REIT announced a $2 billion transaction in which it acquired the property assets of Bally’s Chicago venue as well as the real estate of Bally’s Kansas City and Bally’s Shreveport. The transaction was vital in terms of providing the gaming company with financing needed to complete the Chicago project, which is its most expensive to date.

We also believe some of GLPI’s stock underperformance relates to BALY credit concerns,” wrote Jonas. “However, all the leases are well covered, and we continue to believe alternative operator demand would exist for Chicago in a bearish scenario where BALY would have to exit.”

He’s right that something has been weighing on shares of Gaming and Leisure, which he rates a “buy.” The stock is down 4.30% year-to-date while VICI Properties (NYSE: VICI), its nearest rival, is higher by 7.67%.

Bally’s Chicago Hit With Delays, Trop Las Vegas Not Concerning

Last month, construction of the Bally’s Chicago venue was halted for two weeks after it was discovered that a waste-hauling vendor working at the site had ties to organized crime.

As for Bally’s commitments at the site of the former Tropicana Las Vegas, Jonas points out that’s not a significant cause for concern because could simply sell its development rights to another party if need be. That’s pertinent to Gaming and Leisure and its investors because the REIT owns that real estate.

The Strip integrated resort was imploded last October. Nine of the 35 acres there are expected to become home to a new stadium for the Major League Baseball (MLB) team formerly known as the Oakland Athletics.

GLPI Monitoring Penn, Too

Bally’s is the GLPI client that garners the most negative attention with most of that attributable to situation in Chicago, but the REIT’s biggest tenant is Penn Entertainment (NASDAQ: PENN), which has recently been a source of controversy, too.

Executives from the REIT told Jonas they’re staying abreast of the goings on between Penn and activist investor HG Vora, which is waging a proxy war against the regional casino operator. GLPI was spun out of Penn in 2013 and the former now owns the bulk of the real estate on which the latter’s casinos reside. The REIT commented on its likely reaction should Penn be sold to another gaming company, though Wall Street views the operator as an unlikely, unwilling seller.

“GLPI was also clear that it would not look to split up any of its master leases in the event of a potential acquisition of PENN. Given the health of the land based business, the current master lease is thought to be in the best interests of GLPI shareholders,” according to Jonas.