GLPI - Gaming And Leisure Properties: A Wide Investment Spread Available At A Discount

2024-03-14 15:19:49 ET

Summary

• The spread between REIT cap rates and the 10-year Treasury is 142 basis points narrower than usual. Despite this, GLPI is able to maintain a healthy investment spread.
• Looking at their recent acquisitions, GLPI is able to command an 8.18% cap rate while it only costs them 6.89% to fund acquisitions.
• The 1.29% difference between 8.18% and 6.89% is available to investors at a discount.

Introduction

On April 19th, 2023 I had published an article recommending a "Hold" on Gaming and Leisure Properties, Inc. ( GLPI ). At the time of the publication, the stock was at $51.38 and, in my summary, I stated, " For an investor looking to initiate a position and some margin of safety, a price under $50 would be worth considering ".

In general, there are three reasons that have prompted the change in my recommendation to a "Buy". Firstly, the macro picture has changed. The federal funds rate has remained at about the same level since last summer following a steady climb upwards that began in early 2022. Secondly, the three recent transactions of GLPI were closed at an 8.18% cap rate as compared to a cap rate of 7.52% for 2022 into 2023 transactions. Finally, the stock is ~12% below when we last appraised the stock. The dividend yield is almost a full percentage point above the yield in the previous analysis. Taken together, we have GLPI achieving a higher cap rate in a more stable macro environment available at a lower price....

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