Citizens: Bally’s Woes Creating Opportunity with Gaming and Leisure Properties

Amid concerns regarding Bally’s (NYSE: BALY) financial health and its ability to procure capital for crucial projects, shares of Gaming and Leisure (NASDAQ: GLPI) pulled back in recent days, but one analyst believes that retrenchment may create a buying opportunity. An analyst says Bally’s issues are creating opportunities with Gaming and Leisure Properties stock. (Image: Gaming and Leisure Properties, Inc.) Shares of the real estate investment trust (REIT) have been hindered by a spate of negative news flow around Bally’s, its second-largest tenant. Earlier this month, the regional casino operator halted construction at the site of its $1.7 billion Chicago casino hotel — a project for which Gaming and Leisure is the primary financier — amid a flap with the city over video gaming terminals (VGTs). That was followed by a Bally’s regulatory filing in which the gaming company raised “substantial doubt” about its ability to continue as a going concern if it doesn’t secure more financing. Citizens Equity Research analyst Mitch Germain says all that noise may be creating opportunity with the real estate stock. “We believe these doubts do not capture the full picture of Bally’s story, and we deem it temporary, as recent conversations with Bally’s management suggested financing discussions are advancing for incremental capital related to the construction of a downstate New York casino, including construction financing or a REIT partner, while we see potential asset sales (or real estate) as a viable option if needed,” observes Germain. The analyst rates Gaming and Leisure “market perform” with a price target of $55, implying potential upside of nearly 31% from the Aug. 18 close. With GLPI, Bally’s Details Matter As of the end of the second quarter, Bally’s accounted for 19% of Gaming and Leisure’s annualized rent collection, so it’s understandable that the latter’s investors are concerned about the state of affairs at the former. Germain highlights some important details that may indicate the REIT is a baby being thrown out with the Bally’s bathwater. Those include the point that the Chicago construction pause is outside the scope of the going concern matter and that the halt isn’t seen as affecting the landlord’s financing schedule. Rather, Bally’s need for additional capital appears centered on its planned $4 billion casino hotel in the Bronx, NY — a project that Gaming and Leisure previously said it’s unlikely to fully finance. Germain adds that Gaming and Leisure stock could benefit from a deep pipeline of funding commitments, durable rent collection as no tenants are experiencing credit defaults and its status as a value play. “That said, the stock trades at a highly discounted ~10x 2027E acquired funds from operations per share (AFFOPS), more than two turns below the net-lease sector average,” adds the analyst. Bally’s Presents Some Risk Germain acknowledges there are some risks tied to Bally’s, including the operator’s Chicago, Las Vegas and New York investments as well as the need to digest the recently unveiled Evoke acquisition. However, the analyst said the going concern language may be the result of accounting mandates and that the gaming company has levers to pull to raise capital, possibly including the sale of the Tropicana Las Vegas operating rights. “We suspect much of this uncertainty is a function of ‘accounting procedure’, as Bally’s management is confident that current discussions regarding financing partners will bear fruit, with a focus on New York, while we suspect the company could look to the Tropicana as a potential disposition candidate,” notes Germain. There’s been rampant speculation about the fate of Bally’s in Las Vegas with the sell-side noting that divestment would be an easy lift for the cash-needy company, but the operator hasn’t said it’s mulling a sale of those operating rights. The post Citizens: Bally’s Woes Creating Opportunity with Gaming and Leisure Properties appeared first on Casino.org.