Gaming and Leisure Properties, Vici Combination Endorsed by Nomura Instinet Analyst Daniel Adam

The idea of Vici Properties (NYSE:VICI) acquiring rival Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) gained some momentum today, as Nomura Instinet analyst Daniel Adam said the scheme is sensible for both companies.

A combination between the two gaming real estate investment trusts (REITs) was initially floated earlier this week in a series of tweets by Land & Buildings Investment Management, LLC, (L&B) founder and Chief Investment Officer (CIO) Jonathan Litt.

As Casino.org reported on Thursday, Litt acknowledged that L&B acquired shares of Gaming and Leisure Properties earlier this year. It has recently added to that stake in significant fashion, making that stock the firm’s largest individual holding.

VICI could (but likely would not) pay up to $52/share for GLPI before a deal would be dilutive,” said Adam in a note to clients.

Shares of GLP are up 4.44 percent this week, a rally likely stoked by Litt proposing a Vici takeover. The stock trades just under $43 at this writing, meaning if Vici offered $52 a share in a takeover proposal, the premium would be almost 21 percent to current prices. That jibes with the 20 percent to 25 percent upside Litt forecast for GLP investors should an offer materialize.

Reducing Concentration

L&B’s Litt sees lower tenant concentration as one benefit of the potential Vici/GLP marriage. GLP owns 46 gaming properties in 16 states, and counts Penn National Gaming (NASDAQ:PENN), its former parent company, and Eldorado Resorts (NASDAQ:ERI) as its primary tenants.

Vici, which was separated from Caesars Entertainment (NASDAQ:CZR) in 2017, has a growing tenant roster that includes Century Casinos, Hard Rock International, and JACK Entertainment. But the Caesars Palace operator is the REIT’s biggest lessee.

When Eldorado finalizes its $17.3 billion takeover of Caesars, which is expected to happen early next year, the regional gaming company will become Vici’s largest tenant. Related to that deal, the REIT is buying the real estate assets of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City, and has options to acquire other properties operated by Caesars, including up to two on the Las Vegas Strip.

Based on current property counts, a combined GLP/Vici would own the real estate assets of more than 70 US gaming venues. But Eldorado and Penn National would easily be the REIT’s most important tenants.

Making A Deal Work

While Instinet’s Adam doesn’t see Vici shelling out $52 a share for GLP, a deal between the two firms is still feasible.

VICI currently trades at ~14.9x 2020E adjusted funds from operation (AFFO), or more than 2x turns higher than GLPI’s 12.1x multiple. So a deal at current prices would be accretive,” said the analyst.

L&B’s Litt says the gaming REIT group is “mispriced” and that his firm has been “engaging” with GLP regarding the idea of a Vici marriage.

GLP “is the most attractive/undervalued (name) in the sector at 12x cash flow, 6.8% dividend yield and strong rent coverage,” said the activist investor on Twitter.