Gaming and Leisure Properties is ‘Stable,’ Says Fitch

Gaming and Leisure Properties (NASDAQ: GLPI) was affirmed at a credit rating of “BBB-,” the lowest investment grade, with a “stable” outlook by Fitch Ratings.

The ratings agency noted the casino landlord’s credit grade is hindered by gaming real estate investment trusts (REITs) having weaker contingent liquidity profiles than other commercial REITs. But GLPI’s leverage ratio is within the 4.5x to 5.5x range of comparably rated real estate firms.

Fitch expects GLPI to operate through the cycle with leverage at or below 5.5x, which is appropriate for a ‘BBB-‘ rated U.S. REIT with the company’s asset profile,” according to the research firm. “GLPI’s ratings have some tolerance for leverage to temporarily exceed 5.5x for larger acquisitions; however, Fitch would expect the company to return to under 5.5x within 12-18 months of an acquisition through debt repayment from equity sales and retained cash flows.”

Penn Entertainment is GLPI’s largest tenant, and other clients include Bally’s, Boyd Gaming, Caesars Entertainment, and the Cordish Companies.

Gaming and Leisure Client Stability

Compared to rival VICI Properties (NYSE: VICI), Gaming and Leisure’s Las Vegas exposure, including the Strip, is low.

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

The ratings agency noted GLPI’s tenants, including Penn, have weaker credit profiles than the REIT itself. But those concerns are mitigated by long-term leases and default provisions featured in those contracts.

Gaming and Leisure Has Perks for Investors

Since being spun off from Penn in 2013, GLPI has been a steady dividend grower, and even paid a special dividend in late 2021. The shares closed Monday with a payout yield of 5.82%.

“GLPI’s portfolio is entirely unencumbered, providing the company with ample capacity to borrow secured debt in a stress scenario under the tests in its senior unsecured bond and bank covenants,” concluded Fitch. “The company has no secured debt and unsecured assets/net unsecured debt (UA/UD) is above 2.0x, giving the company ample contingent liquidity. The company’s assets are predominantly regional, considered less cyclical than Las Vegas strip assets.”