After a subdued year for gaming real estate investment trusts (REITs), Deutsche Bank analysts are predicting a rebound in transactional activity for 2025. The potential uptick hinges largely on shifts in the economic and interest-rate landscape, with recessionary pressures and a cooling interest-rate environment potentially fuelling new deals.
Interest Rates Could Spark Transaction Activity
Deutsche Bank’s Carlo Santarelli suggests that a recessionary backdrop in 2025 could push gaming operators to sell assets, making acquisition opportunities more attractive for REITs. “We see the deal environment in 2025 primarily serving as a function of the interest-rate environment,” Santarelli wrote in a note to investors. Lower rates, coupled with operators’ willingness to divest, could make transactions more financially appealing.
The analysis highlights Gaming and Leisure Properties, Inc. (GLPI) as potentially having the edge in deal flow over VICI Properties. GLPI’s pipeline includes several key transactions, such as Penn Entertainment deals, funding for Bally’s Chicago, and potential agreements with tribal management groups. These projects could significantly shape the REIT’s trajectory.
A Quiet 2024 Sets the Stage for Growth
The gaming REIT sector experienced what Santarelli described as an “uneventful” 2024. Both GLPI and VICI stocks remained relatively stable, reflecting minimal volatility. Transaction volumes were low, largely attributed to the high-interest-rate environment. GLPI’s activity centred on sale-leaseback agreements with Strategic Management Group and Bally’s, while most of the sector’s transactions were confined to financing and loan deals.
One notable development was GLPI’s tentative agreement with a tribal management entity. If successful, this deal could pave the way for transactions previously seen as unattainable. Analysts see this as a crucial, yet underappreciated, advancement that could significantly widen the REIT’s deal-making potential.
The Interest-Rate Conundrum
Interest rates will likely remain a decisive factor for gaming REIT performance in 2025. While current adjusted funds from operations (AFFO) yields for both GLPI and VICI are near historical lows relative to the 10-year Treasury yield, the potential for rate reductions offers hope for a more dynamic acquisition landscape.
“A cooling of rates in 2025 could shift the dynamics considerably,” Santarelli noted. Lower rates would likely increase the attractiveness of gaming REIT stocks, driving share prices higher. However, this remains a speculative outcome dependent on broader economic trends.
- Interest-Rate Trends: The trajectory of rates will heavily influence transaction volumes and stock performance.
- GLPI’s Tribal Agreement: The potential success of this agreement could unlock significant new opportunities.
- Acquisition Strategies: Sale-leaseback deals and loan-financing transactions will continue to play a central role in REITs’ growth strategies.
Diverging Paths for GLPI and VICI
For the first time since both companies went public, Deutsche Bank has issued differing ratings for GLPI (Buy) and VICI (Hold). This divergence reflects varying growth prospects and strategic positions.
GLPI’s potential advantage stems from its robust pipeline, whereas VICI’s focus may be tempered by its financing commitments. Historically, the two stocks have shown limited variation in performance, but 2025 may mark a shift in this trend. Analysts cite the likelihood of GLPI outperforming VICI as its strategic deals come to fruition.
Comparative Performance Metrics
| Metric | GLPI | VICI |
|---|---|---|
| 2024 Performance | Stable | Stable |
| Pipeline Strength | High | Moderate |
| 2025 Outlook Rating | Buy | Hold |
Outlook for 2025
As gaming REITs head into 2025, the landscape appears poised for a shift. GLPI’s focus on sale-leaseback deals and its burgeoning tribal pipeline offer a promising outlook. Meanwhile, VICI’s financial commitments may act as a brake on its near-term growth.
Analysts remain cautiously optimistic, underscoring that any resurgence in activity will depend on macroeconomic conditions. If rates cool as anticipated, gaming REITs could see a more favourable environment for acquisitions, driving growth and reinvigorating investor interest.
