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Falling interest rates have made real estate one of the most attractive investments today.
Investors are looking for steady cash flow from real estate and the potential upside that comes from rising property prices. One of the best ways for you to get both benefits without actually buying property is to own real estate investment trusts (REITs).
REITs exist in many different industries. Some focus on corporate offices in major markets like New York and San Francisco that generate monthly rents. Some operate in mall outlets. Some REITs generate big returns from commercial and residential properties by investing in mortgages or mortgage securities.
But one of the most exciting spaces is the gaming and casino industry.
The Best REIT to Buy for 2020: Our top REIT pick could climb to five times its current price – and these shares yield a solid 7.9%, too. Get the pick now…
This is a relatively young area of the industry. And I absolutely love this space because the market doesn't know how to properly value them yet. That's where our opportunity today lies…
Gaming REITs own casinos and their proximate retail and hotel assets and lease them to gaming operators like Penn National Gaming, Boyd Gaming, and even MGM Properties.
It can take some time for the market to establish a proper trading multiple for new businesses and their assets. This situation is playing out right in front of our eyes thanks to increasing deal-making across the gaming and casino industry.
In fact, gaming REITs are experiencing a "re-rating" process, according to a recent report from Nomura Instinet. That will make prices in the top three gaming REITs push higher in the months ahead.
Let's talk about this trend and name the three companies…
The Bellagio Changes the Gaming REIT Industry
You might not travel to Las Vegas as much as I do. But you don't need to travel to cash in on a mega-deal.
Each year, I attend the SALT Conference in Las Vegas. It's a major event featuring hedge fund managers, policy wonks, and some of the brightest minds in finance. The event is held at the Bellagio Hotel, a five-star casino resort owned by MGM Resorts International (NYSE: MGM).
With private equity giants sitting on $2.1 trillion, these companies are in a gold rush to buy up real estate assets that generate cash. Last month, Blackstone Group Inc. (NYSE: BX) beat out five other suitors to purchase the Bellagio in a $4.25 billion sale-leaseback transaction.
MGM will retain control of the property and pay an annual rent of $245 million to the Blackstone Real Estate Income Trust.
This deal means that Blackstone paid roughly 17.3 times the annual rent. Analysts call this figure unprecedented.
And this bidding war is likely to have a prolonged impact on the valuations of casino properties….
MGM is already generating interest for other properties like Mandalay Bay. It is also selling its Circus Circus property to Phil Ruffin for $825 million.
The deal is pushing valuations for properties higher and driving gaming REITs to new highs.
Given that three primary gaming REITs exist, each of them is poised for higher stock valuations to complement their strong dividends.
Let's take a look at the companies poised to break out as valuations press higher…
Gaming REITs to Buy No. 3
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.