PENN - Casino REITs: Rolling The Dice

• One of the top-performing property sectors last year, Casino REITs delivered surprisingly steady performance in 2020 despite the temporary closure and dramatically reduced usage of casino facilities throughout the pandemic.
• Unlike hotel REITs, casino REITs typically own properties under a long-term, triple-net master lease structure, leaving most of the financial and operational risk to their tenants - the casino operators.
• Owing to this lease structure, rent collection and occupancy rates have remained essentially spotless throughout the pandemic and one REIT - VICI - actually increased its dividend payouts last year.
• With an average dividend yield above 5%, we view the casino REIT sector as a compelling alternative to other more troubled property sectors. Selectivity is critical, and we prefer the "destination" casinos and tenant operators with a solid foothold into the online gaming ecosystem.
• The "bond-like" characteristics of cash flows, heavy tenant concentration, and potential disintermediation from online gambling present risks. Interest rates will have to rise for the "right reasons" for these REITs to outperform.

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