"I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things." - Benjamin Franklin
The recent news that El Dorado Resorts (NASDAQ:ERI) is going to merge with Caesars Entertainment Corp. (CZR) resulted from Carl Icahn hopping on to the train engine and running it to his station of choice. As a tangential effect of the deal, we note that under the merger, CZR's created REIT, VICI Properties (NASDDAQ:VICI), will get first dibs on what we expect to be a significant unloading of CZR properties to VICI in order to raise cash to complete the deal. This sheds light on the three casino REITs we have followed. Of the three, warts and all, we still like MGM Growth Properties (MGP) best.
Stipulation: We have never been fans of casino REITs from day one based on our industry-centric viewpoint. They are single-purpose buildings. If a casino market weakens and can't meet rent obligations, the building is unlikely to prevail as either a straight hotel or office facility. Furthermore, a shut down casino owned by a REIT also poses a very tough proposition to find a new, viable operator. Yet we agree that from a financial engineering perspective, casino REITs are nice for operators and their insiders.
You basically unload your realty in exchange for cash you can use to liquidate excessive debt. In the process you unlock shareholder value by providing what appears to be a solid, stable, tax-friendly flow of dividends. And, of course, you shelter yourself from the ravages of what could be a slowed regional gaming market in certain parts of the country by passing on the heavy capital eating risk to the REIT shareholders.
We don't question the REIT construct as a viable
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