Gaming
Overview:
Gambling is an established industry and is legal in roughly half of U.S. states. U.S. casinos generate ~$75B in revenue, split 50 / 50 between commercial and tribal casinos.
Three REITs own ~100 of the 500 commercial casinos, or ~35% of revenue.
Tenant concentration stems from history as the Gaming REITs were spun out / IPO’d from operators
Three REITs own ~100 of the 500 commercial casinos, or ~35% of revenue.
Tenant concentration stems from history as the Gaming REITs were spun out / IPO’d from operators
Casino Classification
Commercial CasinosCan rely solely on gaming revenue, or include hotel, restaurants, conference rooms, etc.
Require a license to operate – which is state controlled
Taxed at the state level; collectively generate ~$10B in taxes annually (excluding further tax revenue from corporations / payrolls)
Tribal CasinosCertain states allow casinos on land owned by the federal government
Exempt from federal taxation and, in most cases, pay little-to-no state tax
Cannot be bought and sold in the free market; REITsnot active in this segment
Destination Casinos
Las Vegas casinos are deemed ‘destination-based assets’
Heavily reliant on tourism, corporate, and convention activity
Gaming typically accounts for less than half of all revenues
Nevada = unlimited license state; but it has some barriers to entry due to limited space on Strip and a huge cost to build
Resort-esque: All assets located on Las Vegas Strip have additional revenue sources beyond the gaming/casino floor. Diversified revenue streams from gaming, hotels, retail, conventions. Often a ‘trophy’ asset.
Regional CasinosPrimarily serve local residents; often “only game in town”due to strict licensing requirements
Lower annual cap-ex requirements than Vegas Strip assets
Often located in low-cost markets, although licensing regulations can restrict new supply
Stand-alone: Generally higher quality than other regional casino types. Comprises ~50% of regional REIT properties. Best assets have “resortesque” features.
Dock-side: Connected to a waterway (riverboat casinos). Prevalent in the
Midwest and South. Legislation changes have moved some to other areas.
Racinos: Combined racetrack and casino. In many cases gambling is limited to slot machines, but table games have begun to be introduced.
Lease Structure
Gaming Master Lease: Multiple assets are pooled under one lease, such that if one property is unable to contribute its proportionate amount of rent, the rental payment is covered by the other assets. Moreover, the tenant is prohibited from ‘cherry-picking’ assets for closure. This fortifies an already predictable and steady cash flow stream.
Term & Renewal: Initial 15-year term, with several five-year renewal options.
Rent Escalators: Annual fixed rent bumps, with occasional variable.
Rent Coverage Ratios: Originally set to provide a reasonable balance between rent and operator.
Cap-ex: A minimum cap-ex spend by operator is set to ensure preservation of competitive position.
Technical Default Clause: Stipulates that operator oversees prudent & timely transition of tenant if necessary.
Gaming License: If tenant does not renew, the license stays with the property.
Term & Renewal: Initial 15-year term, with several five-year renewal options.
Rent Escalators: Annual fixed rent bumps, with occasional variable.
Rent Coverage Ratios: Originally set to provide a reasonable balance between rent and operator.
Cap-ex: A minimum cap-ex spend by operator is set to ensure preservation of competitive position.
Technical Default Clause: Stipulates that operator oversees prudent & timely transition of tenant if necessary.
Gaming License: If tenant does not renew, the license stays with the property.