Casinos are poorly situated to run real estate investment trusts (REIT), an investment analyst for Fitch reported.
“Fitch does not believe gaming companies are well-suited for operating company/property company structures,” Fitch Chief Gaming Analyst Alex Bumazhny said in Fitch’s “What Investors Want to Know-The State of REITization” report.
Bumazhny cited the cyclical nature of the gaming industry, paired with the often-substantial costs of necessary capital expenditures as posing significant concerns for potential investors in REITs that are backed by casino properties.
Caesars International, MGM Resorts International, and Pinnacle Entertainment are working on putting together REIT investment offerings backed by casino properties, which offer federal tax advantages but require 90 percent of all taxable earnings to be distributed among shareholders.
Recent changes in federal law also make them less attractive for investors, while the first gaming company to undertake a REIT, Penn National Gaming, has seen its profits drop greatly since offering a REIT in 2013.
Penn National in 2013 spun off ownership of 21 of its 29 racetracks and gaming facilities via Gaming and Leisure Partners, but Gaming and Leisure has seen its value drop by 30 percent over the past year, and such REIT offerings now require IRS approval, Fitch reported.
With the new IRS rules changes, volatility in the gaming industry, and the need for costly capital improvements, REITs related to the casino industry don’t look like good bets for investors, according to Fitch.
