Gaming and Leisure, MGP, Vici Earn Negative Outlooks From Moody’s Amid Coronavirus, Weak Economy

Posted on: April 9, 2020, 11:12h. 

Last updated on: April 9, 2020, 12:40h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Gaming and Leisure Properties (NASDAQ:GLPI), MGM Growth Properties (NYSE:MGP), and Vici Properties (NYSE:VICI) each had outlooks on their credit ratings lowered to “negative” from “stable” by Moody’s Investor’s Service. The research firm cited the coronavirus pandemic and vulnerabilities created by the deteriorating US economy.

Moody's Lowers Ratings On Three Gaming Companies
Gaming REITs are vulnerable in the zero-revenue environment, says Moody’s, because, well, rent still has to be paid. (Image: Reuters)

As real estate investment trusts (REITs), GLP, MGP, and Vici act as landlords for operators, including Caesars Entertainment (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), and Penn National Gaming (NASDAQ:PENN), just to name a few. Usually, that’s an effective business model, but at a time when all domestic casinos are closed, speculation is intensifying about the ability of gaming companies to handle near-term lease obligations.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets,” said Moody’s in a report obtained by Casino.org. “The combined credit effects of these developments are unprecedented. The gaming sector has been one of the sectors most significantly affected by the shock, given its sensitivity to consumer demand and sentiment.”

The credit rater has Ba3 marks on MGP and Vici and a Ba1 grade on GLP, all of which are non-investment grade ratings.

Someone’s Gotta Pay the Rent

On April 1, rent came due and, by some estimates as of April 7, roughly a third of US residential renters hadn’t fulfilled their obligations. Commercial real estate firms, including the gaming REITs, aren’t commenting on how their respective tenants are handling this month’s obligations. But for those struggling to make payments, it’s likely landlords will work with clients to ease rent for a few months while baking the owed amount into the back end of rental agreements.

For many analysts and investors, the question that needs to be answered isn’t as much about near-term rent collection as it is about how the gaming industry will look once the coronavirus is in the rearview mirror.

Negative outlooks on the gaming landlords reflect “the uncertain prospects for recovery, as job losses and declining asset values will impact consumer discretionary spending once the public health crisis subsides,” said Moody’s.

Regional Issues

As the COVID-19 pandemic wracks the gaming industry, some analysts are speculating that regional operators will recover faster than those with significant Las Vegas exposure, because many gamblers need to fly to Sin City and air travel may be out of style in the aftermath of the virus.

Should that theory prove accurate, GLP and Vici could benefit because of the regional diversity in their portfolios. MGP owns the real estate assets of several MGM casinos outside of Las Vegas, but it also owns the property of all of the operators’ Strip venues except the Bellagio.

“More specifically, the weaknesses in MGP’s credit profile, including its exposure to travel disruptions and discretionary consumer spending, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and MGP remains vulnerable to the outbreak continuing to spread,” according to Moody’s.