![Should You Consider Gaming REITs for Your Portfolio? (1) Should You Consider Gaming REITs for Your Portfolio? (1)](data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==)
There are many reasons why investing in REITs are highly recommended. For one, they’re an excellent way to diversify your portfolio. Also, REITs have been proven to withstand the highs and lows of the market. Gaming REITs are a fairly new niche. As defined in this article, “gaming REITs own and manage property leased to gaming operators.” They own casinos and various other hotel and retail assets, lease them to operators, and making profit in turn.
What are gaming REITs?
There’s something fresh about the idea of gaming REITs. The niche itself is an exciting market, but there’s a jovial sense of thrill with this kind of investing simply because of how new the opportunity is. Not even a decade old, one of the first gaming REITs formed only in 2013. With such a new venture comes the real opportunity for profit, especially since not a lot of people know what to do with gaming REITs. In some ways, there are still no standards on how they are to be valued, and many believe that they’re valuated lower than what they should be.
This doesn’t mean that you should dive into investing off the bat. Even though you wouldn’t really have to travel to Vegas to curate a proper gaming REIT investment for yourself, you should still take the time to study the market to understand the casino niche—which is obviously complicated and involved in the most complicated sense of the word. The first thing you need to understand is this: when you invest in REITs, you’re not going to profit off of the casinos. In a way, gaming REITs work like net lease REITs in that you set out to profit from long-term leases, high quality hotel tenancy, and proximate retail spaces. To learn more about this investment opportunity, let’s look at the 3 main gaming REITs that exist today.
Gaming and Leisure Properties (GLPI)
GLPI was the first gaming-focused REIT ever formed. Because it was created as a real estate asset spinoff for Penn Gaming, one of the gaming industry’s biggest operators, GLPI stands to profit from all of Penn Gaming’s former real estate property assets. GLPI has a massive portfolio, which makes it an extremely attractive venture for those that are just getting their feet wet in gaming REITs. With 46 gaming and related facilities scattered throughout 16 states, GLPI will give its investors a chance to profit from tenants like Penn National Gaming, Boyd Gaming, and El Dorado Resorts. Because of the geographical diversity offered by GLPI assets, the cash flow has proven to be dramatically stable and predictable. Supported by its financial performance since its formation, GLPI is only forecast to grow in the years to come.
MGM Growth Properties (MGP)
MGM is a well-known and established organization in the gaming industry, and the company jumped into the REIT game by creating its MGP spinoff in 2016. This move netted the company a sum of $1 billion by spinning off a total of 11 properties to their new REIT. The portfolio profits from the 11 properties, which are all entertainment and retail spaces. They include resorts, a park, dining establishments, and an entertainment complex. It may not sound like much, but the MGP owned 27,541 hotel rooms, hundreds of retail stores, food outlets, over 2.7 million square feet of convention space, and over 20 entertainment venues. That’s what you’d stand to profit from if you invest in the MGP REIT.
MGM Resorts alone leads the Las Vegas industry when it comes to diversification, which only strengthens investments. As it stands, the MGP has an impressive dividend growth record, which is 25.2% of dividend growth. Contractual rent units largely drive the growth, which makes up about 5.8% of MGP’s AFFO.
VICI Properties (VICI)
Competing against two giants is the third main gaming REIT: VICI Properties. Some might regard VICI as the underdog in the fight, but VICI uses that image to their advantage. The company has gaming and relative properties at the moment—22 gaming facilities, 15,000 hotel rooms, and over 150 dining and bar establishments. While that number may seem low in comparison to the other 2 giants mentioned before, VICI has other plans for its REIT. VICI plans to diversify its assets to include sports venues, movie theaters, amusem*nt parks, and various other places where people go for entertainment. While that notion might’ve seemed ideal even just a year ago, things have radically changed today. Still, VICI’s unique industry-leading governance structure might be its saving grace. Gaming REITs traditional self-governance model is scary to many investors, but VICI vows to change that model. It’s safer for investors and easier to trust overall. It’s important to note here that VICI was born much like the way the other 2 gaming REITs were: as a spinoff of a gaming organization. VICI, in this case, was a spinoff of Ceasars Entertainment back in 2017. It’s also important to know that Caesars was undergoing a bankruptcy when the REIT was created.
Final thoughts
Should you consider gaming REITs for your portfolio? There’s no doubt that you absolutely should. The question now is where you should invest. Each of the three main gaming REITs has its own strengths and weaknesses, but that remains for you to balance out to see which one works for you best. Gaming REITs are currently undergoing a re-rating process, so you can imagine that their low valuations might change soon enough. More and more investors are looking at various REITs to diversify, and gaming will always be a solid prospect. Gaming REITs are a steadily growing niche that is bound to speed away soon. Make sure you don’t miss the train.
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FAQs
Barry Jonas: We generally see gaming REITs as among the safest earnings streams, while also holding significant growth pipelines. Fundamentals for tenants remain strong, with operators comfortably maintaining solid coverage ratios.
Should I include REIT in my portfolio? ›
Are REITs Good Investments? Investing in REITs is a great way to diversify your portfolio outside of traditional stocks and bonds and can be attractive for their strong dividends and long-term capital appreciation.
What I wish I knew before investing in REITs? ›
REITs must prioritize short-term income for investors
“They pay out stable dividends, provided the properties are doing well,“ says Stivers, the financial advisor from Florida. In exchange for more ongoing income, REITs have less to invest for future returns than a growth mutual fund or stock.
What are the biggest gaming REITs? ›
The three primary gaming REIT tenants are: Penn National Gaming, a tenant of Gaming and Leisure Properties, Inc. (Nasdaq: GLPI); Caesars Entertainment, the operator for VICI Properties Inc. (NYSE: VICI); and MGM Resorts, a key tenant of MGM Growth Properties LLC (NYSE: MGP).
What are the cons of owning REITs? ›
Cons of REITs
- Dividend Taxes. REIT dividends can be a great source of passive income, but the money you receive is subject to your ordinary income tax rate, which will depend on your tax bracket. ...
- Interest Rate Risk. ...
- Market Volatility. ...
- You Have Little Control. ...
- Some Charge High Fees.
How long should you hold a REIT? ›
Is Five Years the Standard "Hold" Time for a Real Estate Investment? Real estate investment trusts (REITS) and other commercial property investment companies frequently target properties with a five-year outlook potential.
What is considered bad income for a REIT? ›
For purposes of the REIT income tests, a non-qualified hedge will produce income that is included in the denominator, but not the numerator. This is generally referred to as “bad” REIT income because it reduces the fraction and makes it more difficult to meet the tests.
What is the 90% rule for REITs? ›
How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
How many REITs should I own? ›
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
What is a good amount to invest on a REIT? ›
According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
Buffet and REITs
However, Berkshire sold its holdings of STORE Capital in 2022 after the company announced it was being acquired by two outside investment funds. Since then, filings have shown that Berkshire Hathaway has not owned shares of any other REIT.
What are gaming REITs? ›
Gaming REITs concentrate on owning experiential real estate assets in the form of casino and entertainment properties, and leasing them through long-term, triple net lease structures.
What gaming company should I invest in? ›
Capcom (CCOEF 5.01%), Take-Two Interactive (TTWO 0.34%), Microsoft (MSFT 0.87%), Electronic Arts (EA 0.43%), and Nintendo (NTDOY 0.49%) stand out as top gaming stocks to buy as long-term investments.
Are REITs safe during a recession? ›
By law, a REIT must pay at least 90% of its income to its shareholders, providing investors with a passive income option that can be helpful during recessions. Typically, the upfront costs of investing in a REIT are low, while their risk-adjusted returns tend to be high.
What happens to REITs when interest rates go down? ›
REITs. When interest rates are falling, dependable, regular income investments become harder to find. This benefits high-quality real estate investment trusts, or REITs. Strictly speaking, REITs are not fixed-income securities; their dividends are not predetermined but are based on income generated from real estate.
What are the dangers of REITs? ›
Some of the main risk factors associated with REITs include leverage risk, liquidity risk, and market risk.
Is it bad to hold REITs in a taxable account? ›
REITs and REIT Funds
Real estate investment trusts are a poor fit for taxable accounts for the reason that I just mentioned. Their income tends to be high and often composes a big share of the returns that investors earn from them, as REITs must pay out a minimum of 90% of their taxable income in dividends each year.
Should REITs be included in a mixed asset portfolio? ›
In the past two decades, market research and academic literature have suggested that adding REITs to a mixed-asset portfolio offers diversification benefits over long time horizons, primarily because of a low correlation with the U.S. stock market since the late 1990s.
Is it better to invest in REITs or stocks? ›
If you are interested in a real estate investment that is reliable, hands-off and offers dividends, REITs could be the answer. If you're looking for a higher-risk – but high-potential – investment or want to be able to invest in specific companies you admire, buying individual stocks could be the answer.
What account should I hold REITs in? ›
Your current tax bracket and projected retirement tax bracket can impact these advantages — you'll get the most benefit if you expect to be in a higher tax bracket in retirement than you are now. Generally, the favorable tax treatment you receive through your shares in a REIT should be amplified by using a Roth IRA.