Casino stocks could offer flight-to-safety inflation hedges, as odd as it sounds. The property real estate investment trust (REIT) industry is no shining star, ranked in the bottom fourth of industry groups. Only two of its stocks have Composite Ratings above 90.
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But in the middle of this wreck: Two casino stocks trading near buy points have emerged as group leaders. Both are benefiting from a rebound in Las Vegas visits and beneficial inflation clauses in their lease agreements.
Vici Properties (VICI) has been trying to break out of a cup-with-handle base and has faded from a 34.58 buy point. The relative strength line is at new highs on the weekly MarketSmith chart, a bullish sign despite the uncertain breakout.
Gaming & Leisure Properties (GLPI) remains near the 52.09 buy point of another cup-with-handle base.
Investment advisor Hoya Capital Real Estate notes that casino REITs are the only property segment up this year, adding roughly 11%.
Vici counts on inflation-linked escalators on 96% of its lease agreements. And GLPI stock benefits from indirect inflation hedges linked to tenant performance clauses.
Casino Stocks As Inflation Hedges
“Casino REITs remain a favorite for investors seeking inflation-hedged assets,” the firm — which runs the Hoya Capital High Dividend Yield ETF (RIET) — said in a report this week. Most property REITs do not have inflation-adjusted lease provisions, it added.
VICI stock is trying to climb to new highs but has been rangebound for a year and a half. It pays a quarterly dividend of 39 cents per share, yielding 4.6% on an annualized basis.
Earnings per share transitioned from declines in Q4 2021 and Q1 2022 to single-digit gains in Q2 and Q3 2022, according to IBD MarketSmith. Sales growth has been encouraging, accelerating from 3% to 11% to 76% to 100% in the past four quarters.
Vici is Las Vegas’ largest property owner, adding to its portfolio through acquisitions.
On Dec. 1, it announced the purchase of the remaining 49.9% interest in a joint venture with Blackstone Real Estate Income Trust, owner of MGM Grand Las Vegas and the Mandalay Bay Resort & Casino. The deal was priced at $1.27 billion and includes about $3 billion in debt.
Vici’s other properties include Caesars Palace Las Vegas and the Venetian Resort.
Las Vegas Rebound Boosts Local REITs
Hoya Capital cited a report from the Las Vegas Convention and Visitor Authority last month that traffic returned to pre-pandemic record highs in October. The surge came despite moderation in occupancy levels in many major markets since the late summer.
Casino stock Gaming & Leisure Properties broke out above its base on Nov. 30 and remains in buy range, despite the stock market downturn. Its RS line also is at new highs.
The company owns 57 casino properties in Louisiana, Iowa, Missouri, Colorado and other states. Tropicana is the only Las Vegas property.
EPS rose 1%-5% in the past three quarters as sales climbed 3%-12%. The quarterly dividend of 70.5 cents per share yields an annual 5.4% payout.
Hoya Capital noted that strong balance sheets and access to longer-term capital have become competitive advantages for public REITs.
“VICI and GLPI appear particularly well-positioned to play offense while more highly levered private peers seek an exit,” the firm said.
With the economy slowing, there is a risk for casino REITs. But Hoya believes the capital deployment from both REITs justifies moderately elevated multiples.
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Source: https://www.investors.com/research/ibd-industry-themes/casino-stocks-stand-out-as-inflation-hedges-las-vegas-plays/?src=A00220&yptr=yahoo